February 24, 2020

Healthcare Law Update: February 2020

Holland & Knight Alert
Nathan A. Adams IV | Shannon Britton Hartsfield | Victor Moldovan | Eddie Williams III | Christine Fuqua Gay


Florida Court Validates Several Rules Governing Assisted Living Facilities

Eddie Williams III

In State of Fla., Dep't of Elder Affairs v. Fla. Senior Living Ass'n, Inc., Case No. 1D18-4140, 2020 WL 464618 (Fla. 1st DCA Jan. 29, 2020), the Florida First District Court of Appeal concluded that an administrative law judge erred in invalidating certain rules proposed and subsequently enacted by the Department of Elder Affairs. In its decision, the court found that the department had the rulemaking authority to enact the rules in dispute. Such rules mandate, among other things, for an assisted living facility to require that: 1) all residents be assessed for the risk of elopement by either a healthcare or mental healthcare provider within 30 days of admission to the assisted living facility and 2) employees be generally aware of the location of all residents assessed at high risk for elopement at all times. In addition, the rules require an assisted living facility with a limited nursing services license to have its employed or contracted nurse coordinate with third-party nursing services providers to ensure resident care is provided in a safe and consistent manner. The rules also incorporated a revised Form 1823, which is the health assessment questionnaire developed by Florida's Agency for Health Care Administration and completed by a licensed medical provider for purposes of assessing whether an individual is suited to live at the facility.

While this appeal was pending, the Florida Legislature transferred the powers, duties, functions and administrative authority of the Department of Elder Affairs pertaining to assisted living facilities to the Agency for Health Care Administration. Thus, the rules enacted by the Department of Elder Affairs have now been transferred to Chapter 59A-36 of the Florida Administrative Code. Assisted living facilities should ensure they have implemented policies and procedures that will bring the facility into compliance with the rules validated by the court. The failure to comply with the rules may result in citation of the facility for a deficiency and the imposition of a civil penalty.


Neurosurgeons' Compensation in Top 10 Percent Nationwide Gives Rise to Stark Act and FCA Claims

Nathan A. Adams IV

In United States ex re. Bookwalter v. UPMC, 946 F. 3d 162 (3d Cir. 2019), the court ruled that the relators stated a Stark Act claim and violations of the False Claims Act (FCA) against a hospital and multiple neurosurgeons by asserting that they submitted false claims for hospital services to Medicare and Medicaid, and made false records or statements concerning those services. The neurosurgeons worked for the University of Pittsburgh Medical Center. Each surgeon had a base salary and an annual work-unit quota. Every medical service is worth a certain number of work units. The longer and more complex the service, the more work units it is worth. Work units are one component of relative value units (RVUs), which are the basic units that Medicare uses to measure how much a medical procedure is worth. Surgeons were rewarded or punished in compensation based on how many work units they generated. The relators accused the surgeons of fraudulently increasing their work units. Most reported total work units that put them in the top 10 percent of neurosurgeons nationwide. Relatedly, the relators pled that as the surgeons performed more procedures, the procedures required the attendant hospital and ancillary services to increase. These are referrals for designated health services under the Stark Act. According to the court, "[t]he surgeons' suspiciously high compensation suggests that it took into account the volume and value of their referrals." Moreover, the court determined that it could be plausibly inferred that the hospitals knew or recklessly disregarded that the surgeons' compensation took into account their referrals. Then, by submitting false claims to Medicare and other federal health programs, the defendants knowingly or recklessly presented false claims for payment to the government in violation of the FCA.

Court Approves U.S. Government's Motion to Dismiss FCA Case Due to Litigation Burden

Victor Moldovan

In Polansky v. Exec. Health Res., Inc., No. 12-cv-4239, 2019 WL 5790061 (E.D. Pa., Nov. 5, 2019), the district court granted the U.S. government's motion to dismiss the complaint filed in a seven-year-old FCA case because of the litigation burden the government would suffer, and on the court's own volition, it also granted summary judgment to the defendant. In the court's decision, it addressed 1) the split between the federal circuit courts as to the scope of discretion it has to dismiss an FCA case where it has not intervened; 2) the application of the federal Administrative Procedure Act (APA) to Medicare billing policies and 3) whether a violation of billing guidance meets the test of materiality to support an FCA case.

The case was filed in 2012 by the relator, who claimed that the defendant (a physician advisor company) had committed fraud by exploiting the difference in reimbursement rates for inpatient and patient services. According to the relator, the defendant billed for inpatient services when these services should have been billed as outpatient, which caused the government to overpay. The government declined to intervene in 2014 after the plaintiff amended the complaint twice. The government notified the parties and the court that it intended to dismiss the case on Feb. 21, 2019, because of burdensome discovery from the parties. After some discussions with the plaintiff, the government decided not to dismiss the case if the plaintiff narrowed his claim, which would narrow the discovery. The plaintiff filed a third amended complaint to purportedly comply with the government's request. The government determined that the third amended complaint did not narrow the issues. The result was that the government remained subject to significant discovery requests.

Under 31 U.S.C. §3730(c)(2)(A), the government retains control over false claims cases and may dismiss them. The statute does not provide a specific standard for courts to use when considering a motion to dismiss. As a result, the circuit courts have split on their interpretation. One group believes the government must show a rational relationship to the decision to dismiss, and the other group believes the government has unfettered discretion. Under the rational relationship standard, the government must show that it has a valid purpose supporting the dismissal and that there is a valid relationship between the dismissal and accomplishment of the asserted purpose. If the government meets this test, the plaintiff can rebut it by showing the decision was arbitrary and capricious or illegal. Under the unfettered discretion standard, the government may dismiss the false claims case for any reason.

The Polansky court held that it was not required to pick because the government met both standards. The court determined that the government's decision to dismiss met the rational relationship standard because the litigation burden was not justified and the dismissal would address it. The court found that the government showed the costs of monitoring the case, handling discovery and preparing government witnesses for deposition were all costs that would be avoided by dismissal. The court then rejected the plaintiff's argument that the government's decision was arbitrary and capricious or illegal, noting that the plaintiff had not reduced the scope of the claims or the discovery burden as he promised.

The court also granted summary judgment to the defendant and ruled the parties had sufficient notice that the court could do so without any motion. The court, citing the U.S. Supreme Court decision in Azar v. Allina Health Services, 139 S. Ct. 1804 (2019), held that the two-midnight rule that the plaintiff claims was violated by the defendant and was a substantive legal standard (not just a procedure or informal guidance) that should have been adopted through APA rulemaking. The court held that since the rule was not formally adopted, any argument that it was violated was made invalid. Thus, the defendants cannot be subject to a false claims case thereunder. Finally, the court determined that compliance with the rule was not material to the government's decision to pay.

Medically Unnecessary Nondiagnostic Tests Are Grounds for FCA Claim

Patrick Scott O'Bryant

In U.S. v. Anesthesia Servs. Assocs., PLLC, Case No. 3:16-cv-0549 2019 WL 7372510 (M.D. Tenn. Dec. 31, 2019), the court ruled that recognized medically unnecessary nondiagnostic tests can form the basis of an FCA claim. The defendant is a now dissolved entity that, during the relevant time period, operated over 60 pain management clinics across 12 states, employing approximately 250 healthcare providers and serving about 48,000 patients per month. The government alleged that the defendant defrauded various government healthcare programs by billing for nonreimbursable and/or medically unnecessary urine drug testing, blood testing for genetic risk factors and psychological testing using iPads. In fact, the defendant developed guidelines that stated that all new patients were to be urine drug tested, and that established patients receiving narcotics would be tested at least six times per year. The defendant distributed these guidelines to its providers. The complaint alleges, in sum, that the defendant should not have utilized this standing order for urine drug testing because the defendant did not allow for an individualized determination of patient-specific risk and medical necessity, did not comply with the requirements of various Medicare Administrative Contractors (MACs), and performed medically unnecessary and duplicative testing. The complaint also alleged that the defendant ordered a variety of other medically unnecessary tests, or did not use the results of certain tests in the treatment of patients. The defendant moved to dismiss the complaint, arguing that the express false certification claims, premised upon false certifications of medical necessity, fail to state a claim for which relief may be granted, because opinions about medical necessity cannot be objectively false. The defendant also argued that the government's implied false certification claims must fail, because the local coverage determinations (LCDs) issued by various MACs are nonbinding interpretive guidance, and the FCA claims premised upon "[a]llegations of false certification of compliance with such guidance therefore cannot state a claim under the FCA." The court disagreed and ruled that the government adequately alleged there was no medical need or basis for submitting certain claims, and met all its requirements at the pleading stage. The court also found that violation of an LCD may give rise to an FCA claim, and that based on the spare record offered at the current stage of the proceedings, this possibility was not foreclosed by Azar v. Allina Health Servs., 139 S. Ct. 1804 (2019).

No Stark Act or AKS Claim Due to ACA-Inspired Rescission of Physicians' Ownership Interest in Hospital

Nathan A. Adams IV

In United States ex rel. Patel v. Catholic Health Initiatives, No. 18-20395, 2019 WL 6208665 (5th Cir. Nov. 20, 2019), the court affirmed dismissal of the relators' claims under the Anti-Kickback Statute (AKS), Stark Law and Texas Securities Act (TSA) for alleged misrepresentations. The health system that controlled the hospital (i.e., St. Luke's Health System) sought rescission under the TSA of the physician-relators' ownership interests in a partnership (i.e., St. Luke's Sugar Land Partnership LLP) that owned the hospital (i.e., St. Luke's Sugar Land Hospital), following enactment of the Affordable Care Act (ACA) provision, which prevented the hospital from expanding while preserving physician ownership. The relators alleged that the health system forced their partnership to offer rescission payments for the physicians' shares that were higher than the shares' actual value to induce the physicians to continue referring services for which Medicare made payment. In other words, the relators alleged the payments were kickbacks for referrals in violation of AKS. The court determined that the relators failed to tie the alleged inducement of referrals to payment for physicians' shares in the partnership. The court reasoned, "'If the AKS and FCA are interpreted to sanction this conduct, it is not clear what the System could have done to respond to Congress's new discouragement of physician ownership while complying with health care fraud statutes.'" The relators also argued that the rescission violated the Stark Law because it constituted an improper financial relationship between an entity and physicians. But an exception exists for an "isolated financial transaction" between an entity and the physician. The court ruled that the relators failed to show that remuneration for the transactions did not reflect their fair market value. Therefore, the relators failed to state a qui tam FCA claim under the AKS against the health system that controlled the hospital. The relators' final claim was that the health system made a false claim in violation of the FCA when it represented that, following the purchase of all but four physicians' shares and the termination of those four shares after a missed capital call, the system owned the entirety of the hospital. The court determined that the alleged falsity was not material as evidenced by the fact that even after the federal government knew the facts about the ownership of the hospital, it continued to pay claims submitted by the system.

Alleged Medical Double Billing States FCA Claim, But Not Statutory Noncompliance

Christine Fuqua Gay

In Nichols v. Baylor Research Institute, Civil Action No. 3:19-CV-1883-B, 2019 WL 6134043 (S.D. Tex. Nov. 19, 2019), the court ruled that the plaintiff failed to state a retaliation claim in violation of the FCA based upon statutory noncompliance reported internally and to the U.S. Food and Drug Administration (FDA), but did state a claim related to her complaints regarding Medicare double billing. Plaintiff Christy Nichols was employed as an abdominal transplant research registered nurse by the defendant, Baylor Research Institute (Baylor). Nichols began expressing concerns to Baylor management and reported to the FDA that Baylor was not following all federal laws as a condition of receiving federal grants. Nichols also complained multiple times to her supervisors that Baylor was involved in Medicare double-billing practices. In February 2019, Baylor put Nichols' employment on pause, and in March 2019, offered a severance package to Nichols, which she refused. Thereafter, she was fired. The plaintiff filed a civil action, alleging retaliation in violation of the FCA, requiring her to show 1) that she was engaged in protected activity with respect to the FCA, 2) that her employer knew she was engaged in protected activity and 3) that she was discharged because she was engaged in protected activity. The court ruled that the plaintiff adequately pled the first and second element as relates to Medicare double billing. But for a retaliation claim based on statutory noncompliance to be proper, the plaintiff must show that her decision to report the noncompliance itself was motivated by a concern that the noncompliance was defrauding the government and must establish that she said or did something to give the employer a reasonable basis for believing that litigation is a possibility. She failed these tests. The court found that the plaintiff's general concerns about statutory noncompliance and the FDA report were not sufficient to put her employer on notice.


Violation of the ADA May Disable Supplier's Ability to Bill Medicare

Shannon B. Hartsfield

The Americans with Disabilities Act of 1990, 42 U.S.C. §§12101 et seq. (ADA), is designed to prohibit discrimination against individuals with disabilities. This includes discrimination in public accommodations. Most businesses open to the public, such as doctors' offices and other healthcare suppliers' premises, must comply with ADA requirements. Virtually every business serving the public is subject to the ADA. Violation of the ADA can lead to civil money penalties, and any person who is subject to discrimination on the basis of disability may bring a civil action. 28 C.F.R. §36.501.

For durable medical equipment, prosthetics, orthotics and supplies (DMEPOS) suppliers that participate in Medicare, failure to comply with the ADA can have dire consequences. The Centers for Medicare & Medicaid Services (CMS) can revoke a provider or supplier's Medicare enrollment and the corresponding provider or supplier agreement for a number of reasons, including in situations where the provider or supplier is determined not to be in compliance with Medicare enrollment requirements and has not submitted a plan of correction. 42 C.F.R. §424.535. Among the other requirements for DMEPOS suppliers is the mandate that the business be operated in compliance with federal regulatory requirements that "ensure accessibility for the disabled." 42 C.F.R. §424.57(c)(1). Additionally, the business must be "accessible." Id. at (c)(7)(i)(C).

In Senegal Enter. Med., Inc. v. CMS, the Departmental Appeals Board for the U.S. Department of Health and Human Services, Docket No. C-19-387, Civil Remedies Div., Decision No. CR5477 (Nov. 25, 2019), issued an opinion affirming CMS' decision to revoke the Medicare billing privileges of DMEPOS supplier Senegal Enterprises Medical, Inc. (Senegal). On July 3, 2018, a site inspector attempted to visit Senegal's location, but was unable to access it. Senegal was notified, in letters dated Aug. 30, 2018, that its Medicare supplier number would be revoked in 30 days and that it would be barred from reenrolling in Medicare for one year. The supplier was given the opportunity to submit a corrective action plan and submit a request for reconsideration if it believed the determination was incorrect.

Senegal submitted a corrective action plan that the National Supplier Clearinghouse (NSC) received on Sept. 13, 2018. A site inspector returned to the facility a short time later. Unfortunately for Senegal, the inspector found the site to be inaccessible and not ADA-compliant due to the fact that several steps were needed to get into the facility. NSC sent Senegal a letter on Oct. 2, 2018, concluding that there was no error in terminating the Medicare billing number due to the failure to comply with the ADA and a lack of verifiable explanation for the noncompliance. Senegal submitted a request for reconsideration on Oct. 17, 2018. The supplier indicated that it would be installing a ramp later that month.

In support of its decision to uphold the termination, the appeals board noted that, in order to bill Medicare, a DMEPOS supplier must meet the Medicare enrollment standards, "including the requirement to maintain a physical location that is accessible to the public." Therefore, it appears that Senegal's compliance efforts amounted to too little, too late. If the accessibility issues had been addressed after the supplier received notice of the problem, and prior to the second inspection, it likely could have avoided Medicare termination and a one-year reenrollment bar. This case serves as a reminder of the importance of maintaining a site that is accessible by all members of the public. 

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.

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