Fraud and Abuse Provisions in the PPACA

Spring Issue 2010Newsletters Staying Well Within the Law

The Patient Protection and Affordable Care Act gives the government significant new ammunition to help curb fraud and abuse, including an additional $350 million of fraud enforcement funding over 10 years, a third of which is allocated to the 2011 budget year. The Act may also clear the way for expansion of the False Claims Act and qui tam whistleblower cases to situations where they would not have applied under previous law. Coupled with the Obama administration's statements about a renewed emphasis on curbing fraud, waste and abuse in health care, these changes suggest that enforcement efforts using these powerful tools will be on the increase. Stark Law changes are a mixed bag, requiring a new self-disclosure protocol and permitting some variation in penalties, and also requiring more public disclosures and transparency.

False Claims Act Changes

Anti-Kickback violations are deemed to be False Claims Act violations.
Previously, it was also necessary to show that a false statement was made, i.e., the certification that the provider was in compliance with applicable laws. Hospitals have been required to make such certifications for years, but physicians generally are not required to do so. The Act resolves a contentious issue that has been handled differently in different federal circuits. This change, along with changes to the anti-kickback law's intent standard,may make False Claims and qui tam actions more common.

Retention of Overpayments.
The PPACA expanded on changes made by the 2009 Fraud Enforcement and Recovery Act (FERA), under which so-called "reverse false claims" are prohibited. FERA imposed penalties on any person who knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the government. PPACA requires that an overpayment must be reported and returned under paragraph (1) by the later of 60 days after the date on which the overpayment was identified or the date any corresponding cost report is due, if applicable. Any overpayment retained by a person after the deadline for reporting and returning such an overpayment is defined as an "obligation" subject to FERA.

Public Disclosure Bar.
A qui tam case may not be brought unless the relator (whistleblower plaintiff) is the "original source" of the underlying information. This is to prevent socalled "parasitic" cases where a whistle-blower files a suit based on information reported in the media or in administrative actions that reveal fraudulent activities. The PPACA makes it easier for a whistle-blower to qualify as the original source and file suit. Courts are directed to dismiss claims based on allegations or transactions that were publicly disclosed in a federal criminal, civil or administrative hearing in which the government or its agent is a party; in a congressional, Government Accountability Office or other federal report, hearing, audit or investigation; or from the news media, unless the action is brought by the attorney general or the person bringing the action is an original source of the information. An "original source" is an individual who has voluntarily disclosed to the government the information on which allegations or transactions in a claim are based prior to a public disclosure, or who has knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions, and who has voluntarily provided the information to the government before filing a qui tam action. The Act removes the requirement that the relator have "direct and independent knowledge."

This change will impact situations like those in the recent U.S. Supreme Court decision in Graham County Soil and Water Conservation District v. U.S. ex re. Wilson, in which the Court held that the existing False Claims Act prohibits suits based on disclosures made in state and local administrative actions as well as federal actions. The court rejected the whistleblower's position that the statute's provisions barring actions based on "Congressional, administrative or GAO report, hearing, audit or investigation" should be interpreted as applying only to federal administrative matters. The court also noted that the PPACA changed this provision by limiting the exception to federal sources and removed the vague term "administrative," but only prospectively, so their ruling will apply to all pending cases.

Under the new law, a whistle-blower may bring an FCA suit based on info learned in a state or local administrative proceeding in some circumstances.

Payments Under Exchanges Subject to FCA.
PPACA provides that payments made by, through or in connection with the state exchanges to be established under the Act will be subject to the False Claims Act if those payments include any federal funds. This means the FCA, and its qui tam enforcement mechanism, will apply to a variety of claims submitted to and reimbursed by payors beyond Medicare and Medicaid.

Anti-Kickback Statue (AKS) Changes

The anti-kickback statute provides criminal penalties for individuals and entities that knowingly offer, pay, solicit or receive bribes or kickbacks or other remuneration in order to induce business reimbursable by federal health care programs. Civil penalties, exclusion from participation in the federal health care programs and civil False Claims Act liability may also result from a violation of the prohibition. To establish a violation, the government must prove the defendant acted "knowingly." The PPACA added a provision that clarifies that with respect to violations of the AKS, "a person need not have actual knowledge of this section or specific intent to commit a violation of this section." This change overturns a series of judicial interpretations that set a higher standard under which prosecutors had to prove the specific intent to disobey the law.

Stark Law Changes

Ownership Disclosure.
Referring physicians are required to inform patients in writing that they have ownership or compensation relationships with providers of in-office ancillary services and inform them that they may obtain the specified service elsewhere. Details are murky, and CMS is expected to provide guidance in regulations. Self-Disclosure Protocol. The Secretary of HHS, in cooperation with the OIG, is required to develop a Stark violation selfdisclosure protocol within six months of enactment of the Act. OIG had previously refused to accept such disclosures involving only Stark violations.

Physician-Owned Hospitals.
No new physician-owned hospitals will be allowed to participate in Medicare unless they have a provider agreement by December 31, 2010. Those existing physician-owned hospitals grandfathered as of this date will not be permitted to expand their capacity or add more physician owners after this year.

Factors for Reduced Penalties.
Finally, some good news: the Secretary is also directed to consider reduced penalties for Stark violations, based on:

  1. The nature and extent of the improper or illegal practice;
  2. The timeliness of such self-disclosure;
  3. The cooperation in providing additional information related to the disclosure; and
  4. Such other factors as the Secretary considers appropriate.

That change may mean that purely technical violations where the guilty party comes clean may not be subject to the draconian maximum penalties under current law ($15,000 per claim submitted where a prohibited financial relationship exists). Note that FCA penalties may also apply to Stark violations in many situations.

For more information about this topic, contact William H. Maruca at 412.394.5575 or [email protected].