Emerging Trends in Stark, False Claims and Anti-Kickback Cases for Health Systems

During a March 6 webinar titled "Seven Emerging Issues in Stark, Kickback and False Claims Cases," four attorneys from McGuireWoods' Chicago office discussed trends in healthcare compliance, investigations, lawsuit and settlements, particularly those related to Stark Law, the federal anti-kickback statute and the False Claims Act.

Speakers during the webinar included Scott Becker, JD, CPA, partner and chairman of the firm's healthcare department; Christina Egan, JD, partner and former assistant U.S. attorney in the Northern District of Illinois; Benjamin Christenson, JD, associate; and David Pivnick, JD, associate. Scott Becker, JD, CPA

Mr. Becker began by noting a range of "interesting issues" from the regulatory standpoint in healthcare, mainly that the government's interest in healthcare activities is split between conduct that is clearly improper and illegal and ordinary business relationships gone awry. This makes two main categories of healthcare providers facing False Claims Act, Stark Law and ant-kickback cases: those that are clearly bad actors and those that believed they were acting properly and in compliance.

"Ordinary business relationships" includes things like medical directorships, coverage arrangements and employment relationships between physicians and health systems. Mr. Becker said some of the most fascinating cases recently involved health systems exerting caution by seeking and receiving multiple valuations and legal opinions for these relationships only to undergo government investigations later on.

Considerations for health system and provider transactions

Mr. Christenson discussed some of the main considerations health systems should take into account when structuring any type of transaction. "First and foremost is fair market value," said Mr. Christenson. FMV is the key component to avoiding Stark and anti-kickback liability and inquiries from the government.

To demonstrate FMV, systems must prove the price for the service or entity is comparable for similar services or entities in the industry, as evidenced by prices in surveys or appraisals. Mr. Becker added that while valuation reports and surveys can help systems navigate FMV, the system must go beyond these resources. Systems must exercise caution, seek counsel and exercise a review in which they determine the price is "truly…realistic and appropriate," said Mr. Becker.

Commercial reasonableness is another consideration related to but separate from FMV. Commercial reasonableness is required for certain exceptions and safe harbors. Essentially, it requires that the transaction make sense for the parties involved even if the entire subject of referrals were taken out of the equation.

Ben Christenson, JD"Is this [deal] something a business in your circumstances would want to get involved in if there were no possible referrals coming in?" said Mr. Christenson. To demonstrate commercial reasonableness, systems must have a narrative explaining why the deal makes sense without any mention of referrals.

Mr. Christenson also noted the government's increasing scrutiny as hospitals acquire physician practices. These types of transactions are increasing in number after a decline in frequency in recent years, said Mr. Christenson. The Office of Inspector General declined to adopt a safe harbor for hospital-physician practice transactions under the anti-kickback statute, which suggests investigators may be more likely to exercise increased scrutiny over these types of deals in coming years.

Considerations in compliance efforts
Ms. Egan said the ultimate goal is for a system to never be in the crosshairs of a government investigation, and that starts with creating a culture of compliance. Systems can look to the OIG website for a starting point when designing or revamping their compliance program. The OIG lists specific areas of regulatory concern and detailed guidance for entities within numerous industries.

Systems should also identify central points of the government's focus, particularly within the False Claims Act. "You want to get a source of where the government is devoting its resources and attention," said Ms. Egan.

It's also critical for systems to look for industry guidance when crafting their compliance program. This is something the government can look to as intent, said Ms. Egan. "If you don't have X in your compliance program, and that's the industry standard, then that's something the government could potentially use against you," she said.

The most effective compliance programs maximize employees' understanding. "It's not helpful to have 135-page documents that recite statutes in legalese," said Ms. Egan. Instead, officers must decide what content to share in compliance documents, and how to do so thoroughly yet effectively. Include specific explanations and basic definitions, such as terms like "duplicate billing," for example. This way, even an employee who doesn't directly work in billing may recognize improper activity and come forward with their concerns.

When improper activity is identified
When a hospital employee identifies potentially improper activity and comes forward, or the hospital uncovers questionable activity as the result of an audit, compliance officers and hospital leaders must determine whether and how to move forward with an internal investigation.

Some factors in this decision include the pervasiveness of the problem and whether it involves one employee or several. The system will also need to make decisions about self-disclosure. Although no health system wants to forecast a sentencing, "there can be significant benefits under sentencing guidelines for self-reporting to the government," said Ms. Egan.  Christina Egan, JD

Mr. Becker added that when an employee comes forward with evidence of potentially improper activity, hospital leaders must respond in a positive and concerned fashion. "The response to the employee must be, 'Thank you so much. We'll look into it,'" says Mr. Becker. "So often we see investigations go horribly wrong because the first response was one of stress or negative reaction, which then plays into the government's hands later on."

Then there are times when systems learn of potentially improper activity only after the government comes knocking at the hospital door. Under a qui tam action, private individuals can take their concerns of non-compliance to the government. The government then has 60 days to decide whether to intervene on the relator's complaint. But the government can request extensions when deciding whether to intervene, sometimes taking up to three years.

Once the government is presenting subpoenas and launching an investigation, it is time for the hospital to communicate the issue to employees so they "understand their rights but also don't do anything obstructive," said Ms. Egan. The government may interview employees, and issue search warrants and subpoenas for documents or testimony.

A government investigation can cause operational issues that must be addressed ahead of the investigation. If investigators are seizing computers and records, does the hospital have back-up? Are privileged documents clearly marked as such? Written procedures for issues like these should be established and communicated before investigators come knocking, said Ms. Egan.

Trends in the False Claims Act
The realm of the FCA is expanding, said Mr. Pivnick, and it should be front-of-mind among healthcare leaders when making decisions. In 2008, there were 379 FCA cases filed. In 2011, that number nearly doubled to 638. "I think 2012 will approach 700," says Mr. Pivnick.

David Pivnick, JDA myriad of factors is influencing the proliferation of FCA cases. The government has consistently increased its budgetary requests and allocations to enforce healthcare fraud, and it's easily able to increase federal funding "because there is no lobby or [person] who is pro-fraud," said Mr. Pivnick. "I think we can realistically expect continued growing budgets for fraud enforcement."

And those growing budgets are yielding returns. The government is getting a significant amount of money through qui tam lawsuits: Approximately $5 billion was collected from this type of litigation in 2011 alone. It's important to emphasize the fact that the government is both intervening in a larger percentage of cases while the number of qui tam filings is substantially increasing, as well.

Another factor contributing to the increase in False Claims litigation is financial motivation. Any member of the public can file a qui tam lawsuit. Since they are assisting the government by uncovering fraud or improper activity, relators receive a portion of the settlement. Therefore, when economic conditions worsen, people may feel more motivated to bring claims forward.

Mr. Pivnick noted that certain individuals have made careers out of filing qui tam lawsuits. One individual in New Jersey has recovered approximately $17 million from roughly 12 qui tam claims.

But Mr. Pivnick was also careful to explain that many relators are not motivated by money alone. Many employees may have a true concern about compliance within their organization and "their point is not shaking down the entity or making money," he said. This makes it all the more crucial for systems to establish cultures of compliance — not just perfunctory compliance plans that sit in a binder collecting dust — and to conduct internal investigations when employees come forward with concerns.

More Articles on Legal Issues in Healthcare:

How to Avoid a Regulatory Nightmare: Establishing an Effective Data and Records Management Program
What the FTC's Recent Advisory Opinion on Clinical Integration Means for Hospitals
22 Advisory Opinions Issued by the OIG; 6 Relevant to Hospitals, Surgery Centers and Other Providers

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