OIG Rescinds Advisory Opinion Due to Requestor’s Failure to Disclose Information

On November 28, 2017, the Office of Inspector General (OIG) rescinded advisory opinion 06-04, in which it had previously determined that a charity’s (Requestor) proposal to provide assistance to financially needy Medicare beneficiaries did not warrant the imposition of sanctions. The OIG explained that “public interest requires rescission” after finding that Requestor failed to comply with earlier factual certifications that were material to the original advisory opinion.

Under the program, the Requestor provides assistance with premiums and cost-sharing obligations for patients with two specific chronic diseases. Most of the funding for the assistance comes from non-profit organizations, home health agencies, drug manufacturers and service providers that provide services to the patients receiving assistance from Requestor.

In its advisory opinion, the OIG based its conclusion to not impose sanctions on the Requestor on several factors, including: (1) donors cannot link their donations to assistance received by beneficiaries and vice versa, meaning that there is little chance that the donors would influence referrals by Requestor; (2) Requestor awards assistance without regard to any donor’s interests and without regard to a beneficiary’s choice of provider or supplier; (3) Requestor does not provide donors with data that would enable the donors to correlate the amount or frequency of their donations with the use of the donor’s products or services, and similarly, beneficiaries would not receive any information regarding the donors. The OIG modified this advisory opinion in 2015 to align with a May 21, 2014 OIG bulletin regarding patient assistance programs.

The OIG recently determined that the Requestor failed to fully and accurately disclose to the OIG all material and relevant information about its patient assistance program. Specifically, the OIG found that the Requestor provided patient-specific data to the donors so that the donors could correlate the amount and frequency of their donations with the use of their products. Additionally, the OIG found that the Requestor allowed donors to influence the manner in which the Requestor chose the recipients of financial assistance. As with all advisory opinions, the OIG based its conclusions in advisory opinion 06-04 on the Requestor’s certifications presented to it; the OIG does not perform independent investigations of the facts underlying a request for an advisory opinion.

The Requestor did not dispute the OIG’s determination, but instead argued that advisory opinion 06-04 should be further modified so that it could continue with its program, representing that it may cease operations if advisory opinion 06-04 was terminated. The OIG rejected the Requestor’s argument and found that, because Requestor failed to disclose information that contradicted the facts upon which the OIG based advisory opinion 06-04, that advisory opinion must be immediately rescinded, effective from April 20, 2006, the original date of issuance of advisory opinion 06-04.

Fourth and Fifth Circuits Rely on Escobar to Render Important Fraud Decisions

Recent decisions in the Fourth and Fifth Circuit Courts of Appeals demonstrate the central role that the Supreme Court’s Escobar decision continues to play in fraud litigation despite, or as a result of, continued uncertainty as to the application of the “rigorous” and “demanding” materiality standard endorsed in that decision. The decisions discussed below provide additional circuit-level guidance for litigants, but also raise additional questions as to the scope of the Escobar ruling and the efficacy of the implied false certification theory of FCA liability.

First, on September 29, 2017 the U.S. Court of Appeals for the Fifth Circuit issued a ruling in U.S. ex rel. Harman v. Trinity Industries, Inc., a complicated FCA case involving allegations of non-compliance with Federal Highway Administration (FHWA) requirements for highway guardrail systems subsidized by the FHWA. The relator alleged in part that Trinity failed to disclose design revisions to the FHWA affecting its previously-approved guardrail sold to states, and that Trinity’s receipt of state funds reimbursed by the FHWA thereafter gave rise to implied false certification liability under the FCA. In 2015, a federal district court awarded a final judgment against Trinity for over $600 million, which Trinity appealed to give rise to this decision.

The Fifth Circuit reversed the district court and rendered a judgment as a matter of law in favor of Trinity. The court determined that Trinity was entitled to judgment as a matter of law on the issue of materiality, largely on the basis of the Supreme Court’s Escobar decision. In support of its decision, the court noted that the FHWA had expressly rejected the relator’s claims against Trinity, and continued to reimburse state purchases of Trinity’s products after being notified of the relator’s claims. The court stated that its approach to FCA materiality follows the “natural tendency” standard, under which “a defendant’s false statements [that] ‘could have’ influenced” a governmental payment decision are sufficient to bring an FCA claim. The court found that the most importance guidance for this case was the Supreme Court’s statement in Escobar that where “the Government pays a particular claim in full despite its actual knowledge that certain requirements were violated, that is very strong evidence that those requirements are not material. Or, if the Government regularly pays a particular type of claim in full despite actual knowledge that certain requirements were violated, and has signaled no change in position, that is strong evidence that the requirements are not material.” The court thus concluded that a jury’s “determination of materiality cannot defy the contrary decision of the government, here said to be the victim, absent some reason to doubt the government’s decision as genuine.”

Second, on October 30, 2017 the U.S. Court of Appeals for the Fourth Circuit affirmed health care fraud convictions against two defendants who sought to use the heightened materiality standard endorsed by Escobar to overturn their convictions in United States v. Palin and United States v. Webb. This decision arose from a consolidated appeal of convictions of a husband and wife for health care fraud related to their operation of an addiction medicine clinic and affiliated laboratory that processed urine drug tests ordered by the clinic’s physicians. The defendants were convicted of criminal health care fraud (18 U.S.C. § 1347) and conspiracy to engage in health care fraud (18 U.S.C. § 1349) – not under the civil FCA (31 U.S.C. § 3729 et seq.) – for allegedly instituting procedures at the addiction clinic under which insured patients automatically received both an inexpensive “quick-cup” urine drug test and a more expensive “analyzer” urine drug test, without regard to medical necessity, whereas uninsured patients paid cash and only received the inexpensive “quick-cup” test. At trial, the court determined that performing the additional analyzer test on a weekly basis for insured patients only “was not medically necessary,” that the defendants hid this fact from insurers, and that the defendants sought payment for the drug tests from insurers despite knowing they had violated applicable reimbursement rules.

On appeal, the defendants sought to overturn their conviction on the basis that the trial court failed to directly address materiality in rendering its decision, and further that the Supreme Court’s decision in Escobar heightened the materiality standard for fraud and their alleged misrepresentations were not material under that new standard. In response, the Fourth Circuit found that any error by the trial court in failing to expressly address materiality was harmless, as the record indicates that insurers would not have paid for the analyzer drug tests had they known the tests were not medically necessary. Interestingly, the court then found that the defendants sought to stretch Escobar “too far,” and that the defendants’ misrepresentations “were material even under” the Escobar standard since insurers would not have paid for the expensive analyzer tests if they had known the tests were not medically necessary, and “no evidence even suggests that medical necessity was less than a critical prerequisite to payment.”

Draft Interpretive Guidelines for COPs for Home Health

The Centers for Medicare & Medicaid Services (CMS) has released a draft of interpretive guidelines (Guidelines) to the Home Health agency Conditions of Participation (the COPs).  After having previously been delayed, the COPs are set to be implemented January 13, 2018.  While feedback is being solicited on the draft and final guidelines have yet to be released, agencies should begin preparing in the event that no further delay is provided.

While information is provided on all of the COPs, examples of the topics guidelines are provided for include OASIS, patient rights, assessments, care planning, coordination of services, quality of care, quality assessment and performance improvement, infection prevention and control, skilled professional services, home health aide services, compliance, emergency preparedness, functional capacity, clinical records and personnel qualifications.

New York 13 Hour Rule

The New York State Department of Labor (DOL) adopted an emergency temporary regulation on October 6, 2017 to address home care aides who work shifts of 24 hours or more.  This action comes amidst much anxiety in the industry caused by recent case law which called into question a prior DOL opinion letter as not being a proper interpretation of existing laws and regulations.  In the DOL’s own words, the reason for this emergency temporary regulation is as follows:

This emergency regulation is needed to preserve the status quo, prevent the collapse of the home care industry, and avoid institutionalizing patients who could be cared for at home, in the face of recent decisions by the State Appellate Divisions that treat meal periods and sleep time by home care aides who work shifts of 24 hours or more as hours worked for purposes of state (but not federal) minimum wage. As a result of those decisions, home care agencies may cease to provide home care aides thereby threatening the continued operation of this industry that employs and serves thousands of New Yorkers by providing vital, lifesaving services and averting the institutionalization of those who could otherwise be cared for at home. Because those decisions relied upon the Commissioner’s regulation, and rejected the Department’s opinion letters as inconsistent with that regulation, this emergency adoption amends the relevant regulations to codify the Commissioner’s longstanding and consistent interpretations that such meal periods and sleep times do not constitute hours worked for purposes of minimum wage and overtime requirements.

There still remain several areas of concern with respect to this issue.  Chief amongst them is the question of back-pay liability, a potential threat to the entire industry.  It is anticipated that further rulemaking on this topic will be forthcoming.

CMS Releases 2018 OPPS/ASC Payment Systems Final Rule

The Centers for Medicare and Medicaid Services (CMS) issued the 2018 Medicare: Hospital Outpatient Prospective Payment and Ambulatory Surgical Center Payment Systems and Quality Reporting Programs Final Rule with comment period, scheduled to be published in the Federal Register on November 13, 2017. The Final Rule, effective January 1, 2018, includes the following changes to Medicare payment rates and policies, among others:

  • Increased Outpatient Prospective Payment System (OPPS) and Ambulatory Surgical Center (ASC) Payment Rates. CMS is increasing the payment rates under the OPPS by 1.35 percent for CY 2018. After applying the other policy changes in the Final Rule, CMS estimates a total impact to OPPS providers of 1.4 percent in increased payment. CMS updates ASC payment rates annually by a factor based on the Consumer Price Index for urban consumers (CPI-U). After application of the CPI-U factor increase, including estimated changes in enrollment, utilization, and case-mix, CMS expects total ASC payment to increase by approximately 3 percent for CY 2018.
  • Reduced Reimbursement for 340B Drug Program. Citing increasing drug prices, CMS will be reducing reimbursement for separately payable drugs and biologicals (other than pass-through drugs and vaccines) from Average Sales Price (ASP) plus 6 percent to ASP minus 22.5 percent. CMS is imposing this increase despite the fact that MedPAC had previously recommended a decrease to only ASP minus 4 percent.  Rural Sole Community Hospitals (SCHs), Children’s Hospitals, and PPS-exempt Cancer Hospitals will be excluded from this adjustment in CY 2018.
  • Changes to the Inpatient Only List and ASC Covered Surgical Procedures. For CY 2018, CMS removed six procedures from the “inpatient only” list and added one procedure. Total knee arthroplasty (TKA) was among the procedures removed from the inpatient only list. In addition, CMS decided to preclude the Recovery Audit Contractors from reviewing TKA procedures for “patient status” (site of service) for a 2 years. CMS is adding 3 procedures to the ASC covered procedures list:  CPT codes 22856 and 22858, certain total disc arthroplasty (artificial disc) procedures, and 58572, certain laparoscopy surgical procedure with total hysterectomy.
  • Revisions to the Laboratory Date of Service (DOS) Policy.  The DOS is normally the date a laboratory specimen is collected, unless certain conditions are met. CMS is adding an additional exception to the current laboratory DOS regulations. According to CMS, the new exception generally permits laboratories to bill Medicare directly for advanced diagnostic laboratory tests (ADLTs) and molecular pathology tests excluded from OPPS packaging policy, if the specimen was collected from a hospital outpatient during a hospital outpatient encounter and the test was performed following the patient’s discharge from the hospital outpatient department.
  • Direct Supervision of Hospital Outpatient Therapeutic Services.  CMS is reinstating the moratorium on enforcement of the requirement for direct physician supervision of outpatient therapeutic services furnished in Critical Access Hospitals (CAHs) and small rural hospitals having 100 or fewer beds.
  • Packaging of Low-Cost Drug Administration Services.  In CY 2015, CMS had implemented a policy to conditionally package ancillary services assigned to Ambulatory Payment Classifications (APCs) with a geometric mean cost of $100 or less prior to packaging, with some exceptions, including drug administration services.  For CY 2018, under the Final Rule, CMS is removing the exception for certain drug administration services and will be conditionally packaging payment for low-cost drug administration services.
  • Skin Substitute Products (Used to Aid Wound Healing).  CMS is assigning all skin substitutes to a category of “high cost group” to maintain similar levels of payment for these products while CMS decides whether it will refine the payment methodologies.  In CY 2017, CMS had established a threshold for skin substitute products having a geometric mean unit cost (MUC) or a per day cost (PDC) that exceeded either the MUC threshold or the PDC threshold to the high cost group.  The Final Rule eliminated this threshold requirement for CY 2018.
  • Declining to Approve Device Pass-Through Payment Applications.  CMS evaluated five devices for eligibility to receive pass through payments, and did not approve any of the applications for CY 2018.
  • Continuations.  CMS will continue, among other things, the following for CY 2018:
    1. Application of the statutory 2.0 percentage point reduction in payments for hospitals failing to meet the hospital outpatient quality reporting requirements.
    2. The 7.1% adjustment to the OPPS payments to certain rural SCHs, including Essential Access Community Hospitals (EACHs), applicable to all services paid under the OPPS, except separately payable drugs and biologicals, devices paid under the pass-through payment policy, and items paid at charges reduced to cost.
    3. Providing additional payments to Cancer Hospitals, as needed to result in a payment-to-cost ratio (PCR) equal to 0.88 for each Cancer Hospital, which will be paid at cost report settlement.
    4. The methodology established in CY 2017 for a unified rate structure with a single Partial Hospitalization Program (PHP) payment rate for each provider type for days with 3 or more services per day.
  • Hospital Outpatient Quality Reporting (OQR) Program for Outpatient Services.  Under the OQR Program, hospital outpatient facilities must submit data on quality measures and meet certain other requirements or face a 2 percentage points reduction to their annual payment update.  CMS is making changes to certain measures, anticipating this will limit provider burden.  Beginning with the CY 2020 payment determination, CMS will remove:
    1. OP-21: Median Time to Pain Management for Long Bone Fracture;
    2. OP-26: Hospital Outpatient Volume Data on Selected Outpatient Surgical Procedures;
    3. OP-1: Median Time to Fibrinolysis;
    4. OP-4: Aspirin at Arrival;
    5. OP- 20: Door to Diagnostic Evaluation by a Qualified Medical Professional;
    6. OP-25: Safe Surgery Checklist

CMS also decided it will publicly report OP-18c: Median Time from Emergency Department Arrival to Emergency Department Departure for Discharged Emergency Department Patients – Psychiatric/Mental Health Patients.  In addition, CMS will delay the OAS CAHPS Survey-based measures (OP-37 a-e) beginning with the CY 2020 payment determination (CY 2018 reporting).

  • Ambulatory Surgical Center Quality Reporting (ASCQR) Program.  Beginning with the CY 2019 payment determination, CMS will remove three measures from the ASCQR Program measure set:
    1. ASC-5: Prophylactic Intravenous (IV) Antibiotic Timing;
    2. ASC-6: Safe Surgery Checklist Use;
    3. ASC-7: Ambulatory Surgical Center Facility Volume Data on Selected Ambulatory Surgical Center Surgical Procedures.

CMS also plans to delay the OAS CAHPS Survey measures (ASC-15a-e) beginning with the CY 2020 payment determination (CY 2018 data collection). In addition, starting with CY 2018, CMS will: (1) expand the CMS online tool to also allow for batch submission of measure data and make corresponding changes to the CFR; and (2) align the naming of the Extraordinary Circumstances Exceptions (ECE) policy with that used in our other quality reporting and value-based payment programs and make corresponding changes to the CFR. Beginning with the CY 2022 payment determination, CMS will adopt two new measures collected via claims:  (1) ASC-17: Hospital Visits after Orthopedic Ambulatory Surgical Center Procedures, and (2) ASC-18: Hospital Visits after Urology Ambulatory Surgical Center Procedures.

CMS Unexpectedly Withdraws Three Proposed Rules

The Centers for Medicare and Medicaid Services (CMS) recently announced the withdrawal of three proposed rules that, in one case, had been pending since 2014. The first proposed rule that CMS decided to scrap was proposed in December of 2014 that would have ensured same-sex spouses were recognized and afforded equal rights as opposite-sex couples in Medicare and Medicaid participating facilities. The proposed rule was initiated to ensure that the Medicare conditions of participation and conditions of coverage were consistent with the U.S. Supreme Court decision in United States v. Windsor, which struck down a section of the Defense of Marriage Act that restricted the definition of marriage to between one man and one woman. Since publication of the proposed rule, CMS determined that the 2015 U.S. Supreme Court decision in Obergefell v. Hodges, which required states to license marriages between same-sex couples, addressed the concerns that CMS was attempting to correct via the proposed rule, and the proposed rule was no longer necessary.

The second withdrawn proposed rule would have introduced a new Medicare Part B drug payment model to test whether alternative payment structures would reduce Medicare expenditures. Under the proposed rule, CMS would have reduced the add-on to the Part B drug average sales price from six percent to 2.5 percent plus a flat fee. It would have also implemented a number of value-based purchasing tools that are used by commercial health plans, hospitals and others. In reviewing the comments received from the public, CMS determined that the program would be too complex and burdensome to administer.

Lastly, CMS withdrew a rule proposed earlier this year that would have outlined the qualifications for practitioners and suppliers to furnish and fabricate prosthetics and custom orthotics. The proposed rule would have also established accreditation requirements and requirements that an organization must meet to accredit suppliers to bill for such prosthetics and custom orthotics. CMS reasoned that the cost and time burdens would create hardships for providers and suppliers, particularly small businesses, and consequently, withdrew its proposal.

Ninth Circuit Denies Arbitration in a False Claims Act Case

On September 11, 2017, the Ninth Circuit in US and State of Nevada ex rel. Welch v. My Left Foot Children’s Therapy, LLC, upheld the denial of the defendant’s motion to compel arbitration in a False Claims Act (FCA) relator case, holding that an employee-relator’s FCA claims did not fall within the scope of the arbitration agreement with her former employer.  The FCA claims were based on allegations that the employer had filed fraudulent Medicaid claims.

The Court first looked to the Federal Arbitration Act (FAA) in determining that interpretation of the arbitration agreement would generally be a matter of state law.  Nevertheless, the Court also applied certain guiding principles of the FAA, including the rule as interpreted by the U.S. Supreme Court  that “’questions of arbitrability must be addressed with a healthy regard for the federal policy favoring arbitration’” (quoting Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24 (1983)).

In issuing its ruling, however, the Court did not foreclose the potential for arbitration agreements to include FCA claims within their scope.

Continue Reading

FDA Issues Guidance on Hurricane Readiness for Medical Devices

The U.S. Food & Drug Administration (FDA) has issued important guidance on how to prepare for hurricanes when dependent on medical devices.  FDA stresses that during hurricanes and other emergency situations, medical devices may be exposed to fluctuating power, contaminants, or unusual levels of heat or humidity. The guidance links to pages providing information on the use of medical devices during and during emergency situations and afterwards, including:


HHS Issues Limited Waiver of HIPAA Sanctions Post-Hurricane Harvey

The U.S. Department of Health and Human Services (HHS) has used its authority to waive certain provisions of HIPAA in response to Hurricane Harvey.  HHS previously declared a public health emergency in Texas and Louisiana related to the hurricane and its aftermath.   Continue Reading

OIG Issues Advisory Opinion to Pharmacy

On September 7, 2017, the HHS Office of Inspector General (OIG) issued an Advisory Opinion to the owner of a retail pharmacy chain (Pharmacy) that would allow Federal health care program beneficiaries to participate in a paid membership program (Program).  The Program would include discounts and rebates on certain prescriptions and, where offered, on selected clinic services.

The Program was being offered previously to customers who satisfied certain eligibility criteria and paid an annual fee to join, but Federal program beneficiaries had not been permitted to enroll. In seeking the Advisory Opinion, the Pharmacy sought to modify the Program to extend it to Federal program beneficiaries as well. Continue Reading