TACKLING MEDICAL NECESSITY AND QUALITY ISSUES PRIOR TO DOJ, OIG, & CMS INTERVENTION

TACKLING MEDICAL NECESSITY AND QUALITY ISSUES PRIOR TO DOJ, OIG, & CMS INTERVENTION HOSPITAL AND HEALTH SYSTEM LAW INSTITUTE AMERICAN HEALTH LAWYERS ASSOCIATION ORLANDO, FLORIDA FEBRUARY 9-10, 2012 Kirk Ogrosky 202-942-5330 Kirk.Ogrosky@aporter.com Topic Outline Introduction & Overview Legal Theories Factually False vs. Legally False Claims Worthless Services Express False Certification Implied False Certification Condition of Payment Condition of Participation (Materiality Considerations) Recent Case Examples Dealing with Allegations prior to FCA Chief of Staff and MEC Peer Review Process Compliance and Legal Counsel Internal Investigations Alienating Practitioners 2 1

Introduction & Overview Topic involves intersections between the practice of medicine, potential differences of opinion on medical options and standard of care, and legal rules. Address concerns as soon as possible. Do not allow professional differences or employment issues to devolve into questions about the quality of care. Understand the law and when concerns raise potential FCA issues. 2012-13 focus on: Acute Care Hospitals Home Health Agencies SNFs Key factors leading to investigation: Allegations of patient harm, abuse or neglect Reports of low staffing levels 3 Current Enforcement Environment President signed the Fraud Enforcement and Recovery Act of 2009 (FERA) into law on May 20, 2009. First significant False Claims Act (FCA) revisions in more than twenty years. Created Health Care Fraud Prevention & Enforcement Action Team (HEAT) on May 20, 2009. First Cabinet level initiative targeting the reduction of fraud, waste and abuse in healthcare. CMS and government officials opening talking about quality of care The New Yorker article related to over utilization of services in McAllen, TX Patient Protection and Affordable Care Act -- March 23, 2010. Increased Funding to DOJ, OIG, and CMS. Expanded FCA and AKS Provisions. 2

Factually False & Worthless Services Claims A factually false claim incorrectly describes goods or services or lists goods or services that were never provided. The "worthless services" theory of FCA liability is a variety of the facially false claim theory in which the relator alleges that the defendant did not provide what it billed the government for, because what it ultimately provided had no value. Worthless Services Case United States ex rel. Lee v. SmithKline Beecham, Inc., 245 F.3d 1048 (9th Cir. 2001). Relator alleged that laboratory falsified medical test results and billed Medicare for the allegedly worthless tests. Id. at 1050-51. Relator tried to couch FCA action as one for express false certification of compliance with federal testing regulations. Id. at 1052-53. District court dismissed his complaint, reasoning that regulatory violations cannot support an FCA action. Id. Ninth Circuit reversed and granted relator leave to amend complaint to allege that laboratory billed for worthless services. Id. at 1054. In Ninth Circuit, filing claims for worthless services tantamount to submitting facially fraudulent claim: "knowingly billing for worthless services... may be actionable... Neither false certification nor a showing of government reliance on false certification for payment need be proven if the fraud claim asserts fraud in the provision of goods and services." Id. at 1053-54. Other courts have accepted theory. United States ex rel. Landers v. Baptist Mem'l Health Care Corp., 525 F.Supp.2d 972, 979-980 (W.D. Tenn. Dec. 17, 2007). 3

Express False Certification Claim An express false certification claim is a false representation of compliance with a federal statute, rule or regulation. Second Circuit: Claim is only legally false when the party certifies compliance with a law that is a precondition of payment. Claims that are based on certifications that involve conditions of participation are not viable because not material to government s decision to pay. First Circuit: distinction between factually and legally false... Derives from 2001 decision of the Second Circuit... [t]hese categories may do more to obscure than clarify.... United States ex rel. Hutcheson v. Blackstone Medical, Inc., 647 F.3d 377, 385-86 (1st Cir. 2011). 7 Express False Certification Case United States ex rel. Riley v. St. Luke's Episcopal Hospital, 355 F.3d 370 (5th Cir. 2004). Hospital submitted Medicare claim forms stating: "[t]he services shown on this form were medically indicated and necessary for the health of the patient." Id. at 376 n.6. Nurse brought qui tam action, alleging hospital filed claims falsely certifying that patient hospitalizations were medically necessary. Fifth Circuit held that the plaintiff stated FCA claim by alleging that hospital executed claim forms knowing that certifications were false and not merely scientifically debatable or erroneous. Id. 8 4

Implied False Certification Claim Implied false certification claim grounded in the notion that act of submitting claim for reimbursement implies compliance with governing laws that are a precondition to payment. In other words, underlying statute or regulation must be a condition of payment, as opposed to simply a condition of participation. Support for this doctrine can be found in Congress's stated purpose that the FCA encompass at least some kinds of legally false claims AND is intended to reach all types of fraud that might cause financial loss to government. See Mikes v. Straus, 274 F.3d 687, 699 (2d Cir. 2001). Second Circuit: "[I]mplied false certification is appropriately applied only when the underlying statute or regulation upon which the plaintiff relies expressly states the provider must comply in order to be paid." Id. at 700. First Circuit: Precondition of payment need not be found in a statute or regulation. Implied False Certification Case United States ex rel. Hutcheson v. Blackstone Medical, Inc., 647 F.3d 377 (1 st Cir. 2011). Relator alleged that Defendant engaged in a nationwide kickback scheme to induce physicians to use its medical devices. Id. at 380-81. District court dismissed relator's claims, finding that relevant statutes and regulations did not expressly condition payment on compliance with antikickback statute. Id. at 383. First Circuit reversed, rejecting the arguments that "implied conditions of payment can only be found in statutes and regulations, and that these sources must expressly state the obligation." Id. at 386. By rejecting Mikes and abandoning categorical approach (e.g., factual v. legal falsity; express v. implied certification), opinion holds potential for dramatic expansion of FCA liability. 10 5

Implied False Certification Case United States ex rel. Blundell v. Dialysis Clinic, Inc., 5:09-CV-710 (N.D.N.Y. 2011). Relator alleged that dialysis clinic's failure to meet provisions in 42 C.F.R. 494 et seq. resulted in compromised patient care. Id. at *2-*3. Defendant argued that regulation provides conditions for coverage, not conditions for payment. Id. at * 17-18. Court held that alleged non-compliance with 42 C.F.R. 494, a condition of participation, did not create liability under implied false certification theory and dismissed with prejudice. Id. at *19-21. Conditions of Payment Under majority view, person submitting claim for payment only certifies compliance with statutory and regulatory health care quality requirements that are conditions of payment. Mikes, 274 F.3d at 700 United States ex rel. Conner v. Salina Reg'l Health Ctr., Inc., 459 F. Supp.2d 1081, 1086-87 (D. Kan. 2006) Sweeney v. ManorCare Health Servs., Inc., Civ. Action No. C03-5320RJB, 2005 WL 4030950, at *5 (W.D. Wash. Mar. 4, 2005) United States ex rel. Swan v. Covenant Care, Inc., 279 F. Supp. 2d 1212, 1221 (E.D. Cal. 2002) United States ex rel. Swafford v. Borgess Med. Ctr., 98 F. Supp. 2d 822, 827-28 (W.D. Mich. 2000), aff'd, 24 F. App'x 491 (6th Cir. 2001). 6

Conditions of Payment (cont.) Under majority view, can only impute certification of compliance if health care quality provision upon which the relator relies expressly states that the person seeking payment must comply with the provision to obtain payment. See Conner, 459 F. Supp. 2d at 1086-87. Express-language rule limits the scope of a defendant's potential FCA liability for sub-standard health care because so few quality provisions contain express condition-of-payment language. Conditions of Payment Courts have construed condition-of-payment language in Medicare, Medicaid provisions narrowly. Relator in Mikes argued that physicians' claims for certain medical tests were false because physicians impliedly certified compliance with medical standards of care for testing. 274 F.3d at 701-702. Second Circuit held that requirement for services to be "reasonable and necessary" pertained to the physicians' selection of tests, and not their clinical performance. Mikes, 274 F.3d at 701. Medical acceptance and effectiveness of tests impacted reasonableness and necessity of selecting tests, but compliance with qualitative standard of care in administering the tests did not. Id. Because statute in question only established qualitative standard of care and did not expressly condition payment on compliance with that standard, defendants' certifications were not false. Id. at 701-702. 7

Conditions of Payment Second Circuit noted that unreasonable, unnecessary service will typically be one performed solely for profit, unproven, or experimental. Mikes, 274 F.3d at 698. Billing for effective and medically-accepted services is actionable if performed solely to increase economic benefit or provider knows that the patient does not need the service. In United States ex rel. Kneepkins v. Gambro Healthcare, Inc., 115 F. Supp. 2d 35, 38 (D. Mass. 2000), laboratory allegedly billed Medicare for two blood tests that it split from a single test in order to increase its reimbursement. Court concluded that statutory requirement for Medicare-reimbursable services to be medically necessary AND "economically" provided created a condition of payment. Kneepkins, 115 F. Supp. 2d at 42-43. Court denied defendant's motion to dismiss, reasoning that government sufficiently pled implied false certification claim by alleging that laboratory performed tests in an "intentionally wasteful manner." Id. Condition of Participation Question: Can a condition-of-participation action involving providers operating on a fee-for-service basis be brought? Courts in Oklahoma and Missouri have held that claims for payment impliedly certified compliance with all express preconditions for payment, plus all health care quality requirements. United States ex rel. Aranda v. Cmty. Psychiatric Ctrs. of Okla., Inc., 945 F. Supp. 1485, 1488-89 (W.D. Okla. 1996) United States v. NHC Healthcare Corp., 115 F. Supp.2d 1149, 1152-56 (W.D. Mo. 2000). 8

United States ex rel. Aranda v. Cmty. Psychiatric Ctrs. of Okla., Inc., 945 F. Supp. 1485 (W.D. Okla. 1996). Government alleged that inpatient psychiatric hospitals impliedly certified compliance with provisions requiring that Medicaid beneficiaries receive "appropriate quality of care and a safe and secure environment." Aranda, 945 F. Supp. at 1487. Hospital argued that regulations did not impose "an objective standard of safety or quality of care as a billing requirement." Id. at 1488. District court rejected these arguments, reasoning that "a problem of measurement should not pose a bar to pursuing an FCA claim against a provider of substandard health care services under appropriate circumstances." Id. United States v. NHC Healthcare Corp., 115 F. Supp.2d 1149 (W.D. Mo. 2000). Government alleged that nursing home failed to provide two residents with quality of care required by Medicare, Medicaid regulations. NHC Healthcare Corp., 115 F. Supp. 2d at 1151. Government claimed that nursing home billed Medicare and Medicaid despite knowing that it did not meet required quality of care. Id. Court characterized substandard care as failure to provide some of the items from menu of services for which nursing home billed on a capitated, per diem basis. Id. at 1155. Court explained that "the [nursing home] failed to adhere to the relevant standard of care and, therefore, billed the United States for care it did not actually perform." Id. at 1156 (emphasis added). 9

Condition of Participation Important to contrast Aranda and NHC Healthcare with U.S. ex rel. Swan v. Covenant Care, Inc., 279 F.Supp.2d 1212 (E.D.Cal.,2002). Finding that "questionable holdings" of Aranda and NHC Healthcare have not been adopted by the Ninth Circuit or any other appellate court. Also, the court in United States ex rel. Woodruff v. Hawai'i Pacific Health, 2007 WL 1500275 at *7 (2007) found no "case holding that violations of conditions of participation are sufficient to state a [false certification] claim." Providers should anticipate that relators and the government will push FCA cases into substandard care allegations against (1) acute care hospitals, (2) outpatient specialty clinics, and (3) other providers that bill on an itemized, fee-for-service basis. United States ex rel. Main v. Oakland City University, 426 F.3d 914 (7th Cir. 2005). United States ex rel. Hendow v. University of Phoenix, 461 F.3d 1166 (9th Cir. 2006), cert. denied, 127 S. Ct. 2099 (2007). United States ex rel. Tyson v. Amerigroup Ill., Inc., 488 F. Supp.2d 719 (N.D. Ill. 2007). 2011 Case Example United States ex rel. Blundell v. Dialysis Clinic, Inc., 5:09-CV-710 (N.D.N.Y. 2011). Questions? Nurse filed FCA case against her employer, alleging compromised patient care for Medicare, Medicaid and VA patients (e.g., inadequate staffing, unqualified personnel, techs inappropriately providing nursing services, and failure to train personnel to handle emergencies). What theories of liability do you think relator asserted? What would you argue to get the case dismissed? On what basis would you move to dismiss? 10

Blundell v. Dialysis Clinic, Inc. (cont.) CMS Form 855A: "I agree to abide by the Medicare laws, regulations and program instructions that apply to this provider.... I understand that payment of a claim by Medicare is conditioned upon... complying with such laws, regulations, and program instructions...." Relator argued that language made compliance a precondition of payment. Relator alleged defendant submitted fraudulent claims for payment based on false certification of compliance with rules and regulations for quality of care. Clinic argued that form is merely an agreement to comply in the future with all applicable laws and regulations. Complaint made FCA claims on worthless services and implied false certification theories of liability. Court rejected clinic's argument, but held that relator failed to allege that defendant made false certifications knowingly. Court found that allegations of federal regulatory violations, standing alone, insufficient to establish FCA claim if relator cannot identify with particularity false claim submitted by defendant. Blundell v. Dialysis Clinic, Inc. (cont.) Court analyzed relator's claims under several theories of liability: worthless services; implied and express false certifications. Relator asserted that procedures provided had no medical value. Court found that "[p]laintiff does not allege that defendant failed to provide any services to their patients." Plaintiff challenged the quality of care arguing that defendant's services did not conform with the guidelines set forth in 42 C.F.R. 494. Court found that relator's allegation is not the "equivalent of no performance at all." Case dismissed with prejudice under FRCP 12(b)(6). "Plaintiff's complaint contains imprecise references to 'routine and systematic' violations of Medicare regulations and while he claims that defendant 'submitted thousands of claims for reimbursement of Medicare claims,'" did not identify one specific false claim. 11

Chief of Staff and Medical Executive Committee Hospital medical staff and MEC holds ultimate responsibility for the quality of medical care provided at the facility, but... Hospitals must monitor the quality of medical services provided at the hospital by appropriately overseeing the credentialing and peer review of their medical staffs. OIG Supplemental Compliance Program Guidance for Hospitals. Hospital administration often dependent upon MEC to police quality of care issues among the medical staff, as medical necessity is a matter of independent professional judgment. MEC must take role in hospital management seriously and administrators should encourage participation within framework of medical staff by-laws. Active MEC with clear, independent lines of communication to hospital administration often presents first line of defense against potential FCA liability. Peer Review Process Peer review process should be a cornerstone of medical staff governance and one of several tools used by MEC. Hospital administration should ensure that MEC has access to necessary resources, without inserting hospital s interests into process. Critically important to protect independence and impartiality in order to avoid appearance of favoritism or conflicts of interest. Administration should encourage medical staff members to bring concerns with other practitioners to MEC as outlined in by-laws. Disputes between physicians that involve differences of opinion on appropriate standards of care must be addressed immediately. Quality of care concerns documented during peer review process must be resolved as soon as possible. 12

Compliance Officer Stick to the map - OIG Compliance Program Guidance: Hospitals that fail to train and educate their staff adequately risk liability for the violation of health care fraud and abuse laws. Open communication is essential to maintaining an effective compliance program. The purpose of developing open communication is to increase the hospital s ability to identify and respond to compliance problems. Are all instances of potential fraud and abuse investigated? When to self-report credible evidence of a violation? PPACA directly impacts the work of health care compliance officers by linking the retention of overpayments to FCA liability. When does the clock start to run? Do you have to be certain that you have identified an overpayment? What if you are not sure? What if you are not sure and disgruntled employees have access to all the information? Legal Counsel Maintain open door policy and high visibility. Again, educate, educate, educate. Once credible evidence of potential regulatory violation has been identified, legal counsel should guide internal investigation and resolve issues based on an analysis of the facts. In-house counsel? Outside counsel? Counsel for the corporate provider should be aware of the ethical rules and make clear to individuals that they represent the company's interests. 13

Legal Counsel (cont.) Government agents and investigators must be treated seriously and accorded respect. Suspected obstructive conduct not taken lightly. All government investigatory requests and/or subpoenas should be directed to counsel as soon as possible. Retain all responsive documents. Assess status of records and ability to comply with government request. Contact government to discuss compliance with request for documents and potential to narrow scope. Assess whether client is a target or subject of a criminal investigation. Internal Investigations Critically important to understand the facts as expeditiously as possible. Also, must understand the government's claims and the way that it views its case. When providers fully understand underlying facts, can influence the way the government perceives the case by guiding investigators through documents and witnesses. Initial stages of a government fraud investigation present a unique opportunity to develop a relationship with the investigating agency. Few things are more important than a provider's credibility during a government investigation. In some circumstances, internal investigation may ultimately serve as an indication of corporate responsibility and good citizenship. 14

Alienating Practitioners Administration and medical staff both have important roles to play. Collaboration and cooperation will be key. Don t wait until after you ve gotten a subpoena to involve practitioners in compliance and education process. Direct employment of physicians and acquisition of physician practices makes ongoing education even more important. Practitioners will likely respond negatively to internal investigative efforts and try to create separation from facility. Particularly disgruntled practitioners may be relators or cooperating witnesses. Again, no confusion over who is the client. Questions? Kirk Ogrosky Partner Arnold & Porter LLP Washington, DC Office: (202) 942-5330 Cell: (202) 360-8899 15