Fraud and Abuse Update (09/05)
Mark Fitzgerald & Barbara Straub Williams
September 2005
This is to alert you to a few recent developments in the area of fraud and abuse law.
First, the Centers for Medicare and Medicaid Services (“CMS”) issued a Stark Advisory Opinion, the first since 1998. The ruling holds that a physician’s ownership of a share in a group practice corporation that is organized as a stock corporation but is recognized as tax exempt under IRC § 501(c)(3), does not constitute an ownership interest triggering the Stark Law’s self referral prohibitions. Importantly, the stock at issue did not pay dividends, was not transferable, and was not entitled to liquidating distributions in excess of the initial purchase price. Under these circumstances, CMS concluded that the stock did not constitute an ownership or investment interest for purposes of the Stark Law.
The Advisory Opinion removes a cloud of uncertainty from many hospitals that have established captive group practice corporations to comply with corporate practice of medicine laws. It is also advantageous for many AMC faculty practice plans around the country that are organized as a group of affiliated specialty practice corporations. The Advisory Opinion is also welcome in that it may signal that additional opinions on more difficult Stark issues may be forthcoming.
Second, a recent decision from the Sixth Circuit reversed a lower court ruling granting summary judgment in favor of Battle Creek Health System (“Battle Creek”) on a false claims charge. The issue in the case was whether a hospital violates the False Claims Act if it overcharges Medicare for an item when reimbursement for that item is based on outpatient cost (inpatient reimbursement was not at issue on appeal). Battle Creek admittedly charged Medicare for a full multi-dose vial of anesthesia medication each time a vial was used for a patient. Battle Creek’s principal defense was that its Medicare charges were inconsequential because it was reimbursed for outpatient services based on its costs. This defense was premised on the fact that Battle Creek’s medication charges were uniform and, therefore, its Medicare costs were correctly calculated through application of the cost-to-charge ratio during cost report settlement.
The court determined that Battle Creek could be guilty of a false claim if it made false statements to Medicare that resulted in interim overpayments, even if Battle Creek repaid those overpayments through settlement of its final cost report. The court also found that there was some question as to whether Battle Creek’s medication charges were uniform and if they were not, overpayments to Battle Creek may not have been properly calculated through in the final cost report. The court also found that Battle Creek’s billing practices could lead to increased Medicare bad debt payments. The case was remanded to the lower court for further proceedings.
Finally, the United States Court of Appeals for the Eleventh Circuit recently held that a violation of the anti-kickback statute can form the basis for a whistleblower action under the False Claims Act (“McNutt”)1. The McNutt case involved a medical services company that allegedly paid kickbacks disguised as rental payments and commissions to pharmacists for patient referrals to the company. The court had little trouble dispensing with the issue, holding that the defendants knowingly submitted false claims for reimbursement because they knew their conduct violated the anti-kickback statute and they knew that compliance with the anti-kickback statute was required for payment.
What makes this case interesting is that it is contrary to the conclusion reached by a federal district court in the southern district of New York in 2002 (“Barmak”)2. In Barmak, the district court noted that the anti-kickback statute does not provide for a private right of action; rather, the Department of Justice has exclusive jurisdiction to enforce the statute. The court refused to allow a whistleblower to use the FCA as a vehicle for pursuing a violation of the anti-kickback statute. The recent Eleventh Circuit decision, coupled with an earlier similar decision in the Fifth Circuit3, indicates that the Government is winning the battle on expanding the FCA to cover claims attributable to kickback violations, and thereby opening another fertile area for whistleblower suits.
Please call Mark Fitzgerald or Barbara Straub Williams at (202) 466-6550 with any questions.
1. United States ex rel. McNutt v. Haleyville Medical Supplies, Inc., 2005 WL 2179164 (11th Cir. Sept. 9, 2005).
2. United States, ex. rel. Barmak v. Sutter Corp. and Orthologic Corp., 2002 WL 987109 (S.D.N.Y).
3. United States ex. rel. Thompson v. Columbia/HCA Healthcare Corp., 125 F.3d 899 (5th Cir. 1997).
Powers, Pyles, Sutter and Verville PC is a nationally-recognized law firm located in Washington, DC. The firm specializes in all aspects of health care, including long term care, and represents a wide variety of clients on industry issues and problems.
This article should not be considered legal advice or guidance as to particular issues or situations. In the event that you have specific questions or circumstances that require such advice or counsel, you should feel free to contact the authors or other attorneys of your choice.
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