Understanding and Avoiding Health Care Fraud Enforcement

Despite this large decrease, companies should not interpret the difference between previous years' recoveries as a sign that health care enforcement is declining. Civil and criminal investigations frequently take years; civil suits, indictment, trial and subsequent appeals or settlements often occur long after the alleged conduct has taken place. For example, the 2014 report references an October 2013 settlement with a nursing rehabilitation group for alleged conduct between 1999 and 2011; a settlement in December 2013 and January 2014 with two former executives of a health care organization for alleged conduct between 1999 and 2004; and another settlement in April 2014 with a home health and hospice agency for alleged conduct between 2008 and 2010.

Even after the parties have reached an agreement in principle, there often is an additional lapse of time for negotiation of the language in the resolution documents, as well as negotiation and execution of Corporate Integrity Agreements that frequently accompany such resolutions. Demonstrating this time lag between agreement and final resolution, the settlement agreement for the multi-billion dollar pharmaceutical settlement referenced in the FY 2014 report includes payment of interest from June 2012 until the day of payment. Because the DOJ usually negotiates interest at the Medicare Trust Fund rate for the period between agreement in principle and actual payment, the above provision shows a June 2012 agreement in principle. The settlement, however, was not finalized and announced until November 2013, almost 1' years later.

Health-Care Enforcement Monetary Recoveries and ROI Fluctuate over Time

The last 10 years of HCFAC reports show a general upward trend in recoveries, with some fluctuation from year to year. This ebb and flow in HCFAC recoveries is the result of fluctuations in the types and dollar amounts for cases resolved each year. Thus, the large decrease in FY 2014 recoveries from FY 2013 should not be given undue weight, as it is likely the product of this natural cycle occurring throughout the life of the HCFAC program.

Moreover, according to the DOJ and HHS, the total amounts recovered do not paint a complete picture of the government's claimed fiscal success of the HCFAC program. In addition to reporting total monetary recoveries, since 2010 the HCFAC report also includes the DOJ and HHS' calculated return on investment (ROI), showing the amount recovered for every dollar spent on federal health care fraud enforcement. According to the FY 2014 report, for each enforcement dollar spent by DOJ and HHS approximately $7.70 was recovered and returned to the Medicare Trust Fund.

While the 2014 ROI is slightly lower than the two previous years ' like the total recoveries on which it is dependent ' this minor ROI decrease also is likely the result of natural variation in how many cases were resolved in a given fiscal year, rather than an indication that enforcement efforts are waning. Given the large total recoveries and reported return on investment, it is unlikely Congress will decrease funding for health care fraud enforcement anytime soon.

2014 Report Enforcement Actions

In addition to the overall dollar recoveries and ROI, the report highlights significant enforcement actions taken by DOJ and HHS in 2014.

Pharmaceutical and Medical Device Manufacturers

The government continues to bring enforcement actions against pharmaceutical manufacturers, in part due to the number of whistleblower suits filed each year and the large recoveries obtained. In comparison to previous years, however, the 2014 report includes only one “blockbuster” action against a pharmaceutical manufacturer, resolving criminal and civil allegations related to off-label promotion and kickback schemes by payment of criminal fines and civil settlements of $2.2 billion (which represents approximately two-thirds of the entire recovery for the year), and another $192 million resolution with a second pharmaceutical manufacturer.

By contrast, the 2013 HCFAC report highlights resolution of five large cases against pharmaceutical manufacturers, including resolutions of cases for $1.5 billion, $762 million, $500 million, $490 million and $109 million. This difference, which may account for the decrease in total recoveries between FY 2013 and 2014, does not mean, however, that the government's enforcement efforts against pharmaceutical manufacturers have slowed down, but rather likely reflects the fluctuations in timing of resolutions discussed above.

Because successful large resolutions of cases against pharmaceutical manufacturers lead to the filing of similar suits, the pharmaceutical industry is likely to remain at the forefront of enforcement efforts for years to come. Theories of potential liability against pharmaceutical manufacturers continue to evolve-in addition to allegations concerning off-label promotion, expect to see cases involving allegations of kickbacks in multiple guises to various types of recipients. For example, allegations of kickbacks to physicians range from speaker fees, grants and preceptorships, to value-added programs, such as reimbursement support services, disease education materials, educational advice and training. In addition to allegations of kickbacks to physicians, other kickback theories target payments to disease-guideline writers, disease foundations or members of clinical organizations to obtain favorable clinical practice guidelines or downplay risks; payments to payors or formulary committee members to obtain favorable placement; or payments to beneficiaries such as coupons or co-pay assistance.

In addition to actions against pharmaceutical manufacturers, the DOJ has been speaking publicly about increased enforcement of cases involving device manufacturers. As evidence of these increased efforts, while previous reports either did not include medical device cases, or grouped together pharmaceutical and medical device cases (the 2013 report, for example), for the first time the 2014 report includes a separate medical device section, highlighting the increasing number of medical device cases. Similar to allegations against pharmaceutical manufacturers, most of the device cases include allegations of off-label marketing and/or kickbacks. Other theories include allegations of defective devices and violations of government contractor requirements. Like pharmaceutical cases, public statements about successful resolution of whistleblower cases against device manufacturers likely will lead to additional future cases.

Enforcement Actions Against Hospitals and Health Care Organizations

The types of enforcement actions against hospitals have shifted. While previous reports referenced numerous enforcement actions against hospitals based on alleged billing issues, by contrast the 2014 report highlights cases involving alleged violations of either or both the Stark law (physician self-referrals) and the Anti-Kickback Statute. In 2014, five of the six reported hospital cases resolved allegations of Stark/Anti-Kickback Statute violations, compared to four out of 17 in 2013. Large resolutions of claimed Stark/AKS violations mean that more cases will follow.

As in previous reports, this year's report continues to emphasize government quality-of-care initiatives (such as the DOJ Nursing Home and Elder Justice Initiative), as well as settlements and criminal pleas or convictions relating to patient care and safety spanning various sections of the health care industry. In addition to reporting more traditional billing cases, such as alleged billing for higher amounts of cancer drugs than actually provided, the report illustrates the government's increased focus on whether health care services should have been provided at all-such as cases involving alleged provision of unnecessary cardiac surgery, unnecessary therapy to nursing home residents, and medically unnecessary nursing and therapy services to homebound patients. Additionally, the report includes cases in which either the treatment or the providers' credentials were claimed to be substandard-for example, substandard treatment of patients suffering alcohol or drug addiction, physical therapy by unqualified therapists and care to hospice patients by untrained nurses. Finally, the report includes resolutions of cases involving allegedly luring mentally disabled residents of adult foster care homes to attend purported psychotherapy sessions with the promise of prescription narcotics, and causing patients to receive saline infected with Hepatitis rather than the prescribed fentanyl.

The report also highlights the HHS Office of Inspector General's (OIG) audit and evaluation findings, including issues with adverse events in skilled nursing facilities, hospitalization of nursing home residents and inappropriate use of HIV drugs. Given the intense focus on quality of care issues within both DOJ and HHS, it is not surprising that the report highlights quality of care initiatives and perceived shortcomings in the industry. Stakeholders can expect to see more quality of care investigations and possible resolutions in the upcoming fiscal year, likely centered on allegations of medically unnecessary care.

Suggestions to Ensure That Your Entity Is Not Next

The FY 2014 report demonstrates that the HCFAC program continues to reap large recoveries for the Medicare and Medicaid Trust Funds and stretch allocated funding. The industry should take note that the departments accomplished this in 2014 in part by continuing to pursue cases against pharmaceutical companies, by increasing the number of cases against medical device companies, by closely scrutinizing potential Stark/Anti-Kickback Statute violations and by committing to reduce health care costs by improving quality of care.

What does this mean for you? Providers in this industry should carefully scrutinize their compliance programs to ensure compliance with billing, statutory and regulatory requirements. According to the DOJ, compliance programs should not be reactive, but instead proactive and focus on the company as a whole, rather than just those lines of business subject to regulation.

To avoid ending up as a statistic in next year's report, entities should consider this checklist of suggestions:

• Audit billing procedures.
• Monitor sales and promotional practices.
• Review transfers of value (in whatever form) to health care providers, payors and beneficiaries.
• Evaluate physician relationships and documentation of those relationships.
• Examine medical necessity of services.
• Check providers' credentials.
• Fully investigate employee complaints about business practices.
• If providing products or services directly to the government, comply with all government contractor requirements.
• Analyze OIG advisory opinions and compliance guidance.
• Keep apprised of settlements and pending actions to learn about evolving theories of liability.

Marilyn May is a counsel in Arnold & Porter's Washington, DC, office. Her litigation practice focuses on pharmaceutical, medical device and health care defense matters. Victoria M. Wallace is an associate in the firm's FDA and health care practice. This article also appeared in Corporate Counsel, an ALM sister publication of this newsletter.

In March 2015, the U.S. Departments of Justice (DOJ) and Health and Human Services (HHS) released their annual joint report to Congress on the Health Care Fraud and Abuse Control Program (HCFAC) detailing monetary recoveries, return on investment and enforcement actions for fiscal year (FY) 2014, which ended on Sept. 30, 2014.

This report sheds light on the enforcement efforts both departments have undertaken in the previous year, as well as providing a glimpse into potential enforcement focus in the coming years. By reviewing past enforcement efforts, counsel can glean information about whether their industries, companies or practices are likely to be the subject of upcoming investigations.

According to the report, since its inception in 1997, the HCFAC program has returned over $27.8 billion to the Medicare Trust Funds. This year's report shows FY 2014 recoveries totaled over $3.3 billion, almost a billion dollars less than recoveries the previous year. Although the report suggests that the difference resulted from sequestration of mandatory funding in 2014, the decrease in recoveries is more likely the product of natural fluctuations in timing of final resolution of enforcement actions.

Despite this large decrease, companies should not interpret the difference between previous years' recoveries as a sign that health care enforcement is declining. Civil and criminal investigations frequently take years; civil suits, indictment, trial and subsequent appeals or settlements often occur long after the alleged conduct has taken place. For example, the 2014 report references an October 2013 settlement with a nursing rehabilitation group for alleged conduct between 1999 and 2011; a settlement in December 2013 and January 2014 with two former executives of a health care organization for alleged conduct between 1999 and 2004; and another settlement in April 2014 with a home health and hospice agency for alleged conduct between 2008 and 2010.

Even after the parties have reached an agreement in principle, there often is an additional lapse of time for negotiation of the language in the resolution documents, as well as negotiation and execution of Corporate Integrity Agreements that frequently accompany such resolutions. Demonstrating this time lag between agreement and final resolution, the settlement agreement for the multi-billion dollar pharmaceutical settlement referenced in the FY 2014 report includes payment of interest from June 2012 until the day of payment. Because the DOJ usually negotiates interest at the Medicare Trust Fund rate for the period between agreement in principle and actual payment, the above provision shows a June 2012 agreement in principle. The settlement, however, was not finalized and announced until November 2013, almost 1' years later.

Health-Care Enforcement Monetary Recoveries and ROI Fluctuate over Time

The last 10 years of HCFAC reports show a general upward trend in recoveries, with some fluctuation from year to year. This ebb and flow in HCFAC recoveries is the result of fluctuations in the types and dollar amounts for cases resolved each year. Thus, the large decrease in FY 2014 recoveries from FY 2013 should not be given undue weight, as it is likely the product of this natural cycle occurring throughout the life of the HCFAC program.

Moreover, according to the DOJ and HHS, the total amounts recovered do not paint a complete picture of the government's claimed fiscal success of the HCFAC program. In addition to reporting total monetary recoveries, since 2010 the HCFAC report also includes the DOJ and HHS' calculated return on investment (ROI), showing the amount recovered for every dollar spent on federal health care fraud enforcement. According to the FY 2014 report, for each enforcement dollar spent by DOJ and HHS approximately $7.70 was recovered and returned to the Medicare Trust Fund.

While the 2014 ROI is slightly lower than the two previous years ' like the total recoveries on which it is dependent ' this minor ROI decrease also is likely the result of natural variation in how many cases were resolved in a given fiscal year, rather than an indication that enforcement efforts are waning. Given the large total recoveries and reported return on investment, it is unlikely Congress will decrease funding for health care fraud enforcement anytime soon.

2014 Report Enforcement Actions

In addition to the overall dollar recoveries and ROI, the report highlights significant enforcement actions taken by DOJ and HHS in 2014.

Pharmaceutical and Medical Device Manufacturers

The government continues to bring enforcement actions against pharmaceutical manufacturers, in part due to the number of whistleblower suits filed each year and the large recoveries obtained. In comparison to previous years, however, the 2014 report includes only one “blockbuster” action against a pharmaceutical manufacturer, resolving criminal and civil allegations related to off-label promotion and kickback schemes by payment of criminal fines and civil settlements of $2.2 billion (which represents approximately two-thirds of the entire recovery for the year), and another $192 million resolution with a second pharmaceutical manufacturer.

By contrast, the 2013 HCFAC report highlights resolution of five large cases against pharmaceutical manufacturers, including resolutions of cases for $1.5 billion, $762 million, $500 million, $490 million and $109 million. This difference, which may account for the decrease in total recoveries between FY 2013 and 2014, does not mean, however, that the government's enforcement efforts against pharmaceutical manufacturers have slowed down, but rather likely reflects the fluctuations in timing of resolutions discussed above.

Because successful large resolutions of cases against pharmaceutical manufacturers lead to the filing of similar suits, the pharmaceutical industry is likely to remain at the forefront of enforcement efforts for years to come. Theories of potential liability against pharmaceutical manufacturers continue to evolve-in addition to allegations concerning off-label promotion, expect to see cases involving allegations of kickbacks in multiple guises to various types of recipients. For example, allegations of kickbacks to physicians range from speaker fees, grants and preceptorships, to value-added programs, such as reimbursement support services, disease education materials, educational advice and training. In addition to allegations of kickbacks to physicians, other kickback theories target payments to disease-guideline writers, disease foundations or members of clinical organizations to obtain favorable clinical practice guidelines or downplay risks; payments to payors or formulary committee members to obtain favorable placement; or payments to beneficiaries such as coupons or co-pay assistance.

In addition to actions against pharmaceutical manufacturers, the DOJ has been speaking publicly about increased enforcement of cases involving device manufacturers. As evidence of these increased efforts, while previous reports either did not include medical device cases, or grouped together pharmaceutical and medical device cases (the 2013 report, for example), for the first time the 2014 report includes a separate medical device section, highlighting the increasing number of medical device cases. Similar to allegations against pharmaceutical manufacturers, most of the device cases include allegations of off-label marketing and/or kickbacks. Other theories include allegations of defective devices and violations of government contractor requirements. Like pharmaceutical cases, public statements about successful resolution of whistleblower cases against device manufacturers likely will lead to additional future cases.

Enforcement Actions Against Hospitals and Health Care Organizations

The types of enforcement actions against hospitals have shifted. While previous reports referenced numerous enforcement actions against hospitals based on alleged billing issues, by contrast the 2014 report highlights cases involving alleged violations of either or both the Stark law (physician self-referrals) and the Anti-Kickback Statute. In 2014, five of the six reported hospital cases resolved allegations of Stark/Anti-Kickback Statute violations, compared to four out of 17 in 2013. Large resolutions of claimed Stark/AKS violations mean that more cases will follow.

As in previous reports, this year's report continues to emphasize government quality-of-care initiatives (such as the DOJ Nursing Home and Elder Justice Initiative), as well as settlements and criminal pleas or convictions relating to patient care and safety spanning various sections of the health care industry. In addition to reporting more traditional billing cases, such as alleged billing for higher amounts of cancer drugs than actually provided, the report illustrates the government's increased focus on whether health care services should have been provided at all-such as cases involving alleged provision of unnecessary cardiac surgery, unnecessary therapy to nursing home residents, and medically unnecessary nursing and therapy services to homebound patients. Additionally, the report includes cases in which either the treatment or the providers' credentials were claimed to be substandard-for example, substandard treatment of patients suffering alcohol or drug addiction, physical therapy by unqualified therapists and care to hospice patients by untrained nurses. Finally, the report includes resolutions of cases involving allegedly luring mentally disabled residents of adult foster care homes to attend purported psychotherapy sessions with the promise of prescription narcotics, and causing patients to receive saline infected with Hepatitis rather than the prescribed fentanyl.

The report also highlights the HHS Office of Inspector General's (OIG) audit and evaluation findings, including issues with adverse events in skilled nursing facilities, hospitalization of nursing home residents and inappropriate use of HIV drugs. Given the intense focus on quality of care issues within both DOJ and HHS, it is not surprising that the report highlights quality of care initiatives and perceived shortcomings in the industry. Stakeholders can expect to see more quality of care investigations and possible resolutions in the upcoming fiscal year, likely centered on allegations of medically unnecessary care.

Suggestions to Ensure That Your Entity Is Not Next

The FY 2014 report demonstrates that the HCFAC program continues to reap large recoveries for the Medicare and Medicaid Trust Funds and stretch allocated funding. The industry should take note that the departments accomplished this in 2014 in part by continuing to pursue cases against pharmaceutical companies, by increasing the number of cases against medical device companies, by closely scrutinizing potential Stark/Anti-Kickback Statute violations and by committing to reduce health care costs by improving quality of care.

What does this mean for you? Providers in this industry should carefully scrutinize their compliance programs to ensure compliance with billing, statutory and regulatory requirements. According to the DOJ, compliance programs should not be reactive, but instead proactive and focus on the company as a whole, rather than just those lines of business subject to regulation.

To avoid ending up as a statistic in next year's report, entities should consider this checklist of suggestions:

• Audit billing procedures.
• Monitor sales and promotional practices.
• Review transfers of value (in whatever form) to health care providers, payors and beneficiaries.
• Evaluate physician relationships and documentation of those relationships.
• Examine medical necessity of services.
• Check providers' credentials.
• Fully investigate employee complaints about business practices.
• If providing products or services directly to the government, comply with all government contractor requirements.
• Analyze OIG advisory opinions and compliance guidance.
• Keep apprised of settlements and pending actions to learn about evolving theories of liability.

Marilyn May is a counsel in Arnold & Porter's Washington, DC, office. Her litigation practice focuses on pharmaceutical, medical device and health care defense matters. Victoria M. Wallace is an associate in the firm's FDA and health care practice. This article also appeared in Corporate Counsel, an ALM sister publication of this newsletter.