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Healthcare Regulatory Check-Up | August 2022 –


This issue of McDermott’s Healthcare Regulatory
Check-Up
highlights significant enforcement activity between
July 21 and August 20, 2022. Key updates include a case in which
the US Court of Appeals for the Eighth Circuit decided that the
phrase “resulting from” in the Anti-Kickback Statute
(AKS) creates a but-for causal requirement between an antikickback
violation and the items or services included in the claim to the
government. This decision established a circuit split regarding the
appropriate standard for establishing causation in False Claims Act
(FCA) cases related to AKS violations. In another notable case, the
US Court of Appeals for the Second Circuit upheld an unfavorable
Office of Inspector General (OIG) advisory opinion and subsequent
district court ruling related to a pharmaceutical
manufacturer’s proposed copay assistance program. The Second
Circuit held that “corrupt” intent is not required to
establish an AKS violation. This issue also reviews several
criminal and civil enforcement actions related to AKS violations
and false claims allegations.

In addition to examining a recent OIG advisory opinion, we
provide a summary of key healthcare-related provisions of the
Inflation Reduction Act, which allows the Centers for Medicare
& Medicaid Services (CMS) to negotiate drug prices under
Medicare for the first time, and the Joint Commission’s new
health equity standards for accreditations. Finally we take a look
at recent CMS activity, including its 2023 proposed and final rules
for its various prospective payment systems, along with a recent
proposed rule updating CMS’s interpretation of the
nondiscrimination provisions of Section 1557 of the Affordable Care
Act (ACA).

NOTABLE ENFORCEMENT RESOLUTIONS AND ACTIVITY

EIGHTH CIRCUIT CREATES CIRCUIT SPLIT ON CAUSATION STANDARD FOR
FCA CASES ALLEGING AKS VIOLATIONS

In 2018, a Missouri neurosurgeon was found guilty and ordered to
pay almost $5.5 million for violating the AKS by submitting claims
for the use of spinal implants that were distributed by a company
wholly owned by his fiancée, on the grounds that commissions
on the purchase of particular devices and stock offers from the
device manufacturer used by the neurosurgeon were unlawful
kickbacks. On July 27, 2022, the US Court of Appeals for the Eighth
Circuit remanded the case for a new trial because the jury was not
properly instructed on the requirement of but-for causation. This
ruling established a circuit split on the appropriate standard for
establishing causation in FCA cases related to AKS violations.

As amended by the ACA in 2010, the AKS provides that “a
claim that includes items or services resulting from a
violation of [the AKS] constitutes a false or fraudulent claim for
purposes of [the FCA].” In its 2018 ruling in U.S. v. Medco
Health Solutions Inc., the US Court of Appeals for the Third
Circuit interpreted the “resulting from” requirement by
applying a middle-ground approach between IN THIS ISSUE NOTABLE
ENFORCEMENT RESOLUTIONS AND ACTIVITY 1 OIG ADVISORY OPINIONS 5 CMS
REGULATORY UPDATES 7 OTHER NOTABLE DEVELOPMENTS 9 MWE.COM
HEALTHCARE REGULATORY CHECK-UP 2 requiring a direct causal link and
no link at all that requires some evidence showing a link between
the alleged kickbacks and subsequent reimbursement claims submitted
by healthcare providers.

The Eighth Circuit rejected the Third Circuit’s approach of
relying on legislative history and the “drafters’
intentions to interpret the statute,” noting that it had
previously rejected this interpretive approach in a different
context. Instead, the Eighth Circuit took a more textual approach
in D.S. Medical, holding that the “resulting from”
language in the AKS creates a but-for causal requirement between an
antikickback violation and the items or services included in the
claim to the government.

United States ex rel. Cairns v. D.S. Medical
LLC
, No. 20-2445 (8th Cir., July 26, 2022)

SECOND CIRCUIT RULES THAT PHARMACEUTICAL COMPANY MAY NOT PAY
MEDICARE BENEFICIARIES’ COPAYS FOR MEDICATIONS

The US Court of Appeals for the Second Circuit upheld a lower court’s finding that the
OIG’s interpretation of the AKS was not contrary to law when it
issued an advisory opinion finding that a pharmaceutical
company’s plan to give copay assistance to Medicare
beneficiaries for an expensive heart medication would violate the
AKS.

The drug in question costs $225,000 per year. Under
Medicare’s pricing formula, patients would be responsible for a
copay of about $13,000 per year. In order to sell the treatment to
Medicare Part D beneficiaries, the company planned to provide a
copay assistance subsidy to reduce those costs, such that patients
would only be responsible for paying $35 per month, with the
company covering the remainder of the copay. On June 27, 2019, the
company sought an advisory opinion from OIG to confirm that its
program was in compliance with federal laws. OIG ultimately issued
an unfavorable advisory opinion on September 18, 2020,
concluding that the program “would present more than a minimal
risk of fraud and abuse under the Federal anti-kickback
statute,” and was “highly suspect . . . because one
purpose of the [program]-perhaps the primary purpose-would be to
induce Medicare beneficiaries to purchase [the company’s]
federally reimbursable Medications.”

The company challenged OIG’s interpretation of the AKS,
arguing that it would only be liable under the AKS if there was
some “corrupt” intent in the copay program. The company
pointed to various phrases in the statute to back up its argument.
For example, the company argued that the phrase “any
remuneration . . . to induce” implied a quid pro quo that
“improperly or corruptly” skews the patient’s
decision-making. The district court, however, found nothing in the
text of the AKS that suggested that there must be
“corrupt” intent involved for a violation. The Second
Circuit agreed and affirmed the district’s court conclusion
that OIG’s interpretation was not contrary to law.

Pfizer, Inc. v. United States Department of Health
and Human Services et al
., No. 21-2764 (2nd Cir, July 25,
2022)

DENTAL PROVIDER SETTLES FCA ALLEGATIONS FOR $1.5M

A Tennessee-based dental provider and his affiliated companies
agreed to pay $1.5 million to settle
allegations that they knowingly and improperly submitted false
claims for dental services to TennCare, Tennessee’s Medicaid
program, in violation of the federal FCA and the Tennessee Medicaid
False Claims Act. The settlement resolved allegations that from
January 2015 through February 2019, the companies knowingly
submitted or caused to be submitted to TennCare claims for payment
that falsely identified the dental provider as the rendering
provider for services that were actually rendered by
uncredentialled dentists who were ineligible to bill TennCare.

MEDICAL PRACTICE PAYS $850,000 TO RESOLVE ALLEGATIONS OF
IMPROPER INCIDENTTO BILLING

A New York-based medical practice agreed to pay $850,000 for what it admitted
was “improper” and “reckless” billing to
Medicare on an “incident-to” basis for services rendered
by a non-physician practitioner (NPP) without the requisite direct
supervision of the billing physician.

The medical practice admitted that on 120 occasions it
“submitted or caused to be submitted claims for payment to
Medicare that improperly listed a physician as the rendering
provider for services rendered by a physician assistant when no
physician was physically present in the office and immediately
available to furnish assistance and direction throughout the
performance of the procedure.” The HEALTHCARE REGULATORY
CHECK-UP 3 practice further admitted that it “knew or should
have known the requirements of incident-to billing and that it was
improper to submit claims to Medicare in a physician’s name for
services rendered by an NPP when no physician was in the
office,” because, among other reasons, its billing company had
informed the practice’s owner of separate incident-to billing
violations several years earlier.

The settlement also addressed instances in which the medical
practice improperly billed Medicare for administration of the drug
Botox even though other insurers had already paid for the drug. The
practice admitted that on approximately 761 occasions from March
2015 through February 2021, its providers administered and the
practice billed Medicare for Botox that was paid for by another
insurer “in reckless disregard to the fact that Medicare
reimbursement for the administration of Botox included
reimbursement for the cost of the drug being
administered.”

PHYSICIAN PAYS ALMOST $2M TO RESOLVE FALSE CLAIMS ALLEGATIONS
REGARDING STIVAX DEVICE REIMBURSEMENT

A California-based physician and his medical corporation agreed to pay almost $2 million to resolve
allegations that they violated the FCA by submitting millions of
dollars of false claims to Medicare for surgically implanted
neurostimulators and paying kickbacks to sales marketers. According
to the settlement, the physician and the medical corporation
admitted that claims were submitted to Medicare for surgically
implanted neurostimulator devices even though they did not perform
surgery or implant neurostimulators. Instead, they taped a
disposable electroacupuncture device called Stivax to their
patients’ ears. Stivax devices do not require surgical
implantation and are not reimbursable by Medicare. The physician
and his medical corporation also admitted that they paid a
marketing company a percentage of the reimbursements they received
from Medicare for billing implantable neurostimulators in return
for the marketing company arranging for and recommending that
patients order Stivax from them. In addition to the settlement,
both parties agreed to enter into an integrity agreement with the
OIG.

BIOTECH COMPANY SETTLES KICKBACK CLAIMS FOR $900M DAYS BEFORE
TRIAL

A biotech company settled a whistleblower lawsuit for $900 million just days before the decade-long
case was set to go to trial. The relator accused the company of directing millions of
dollars in kickbacks via “sham” consulting deals and
speaker programs, lavish dinners and entertainment for physicians
and other healthcare professionals to prescribe its drugs for
treatment of multiple sclerosis from 2009 to 2014. The lawsuit
alleged that these kickback schemes caused the submission of
hundreds of millions of dollars in false reimbursement claims for
the multiple sclerosis drugs to government healthcare programs,
including Medicare and Medicaid, in violation of the federal FCA
and 11 states’ false claims acts. The US Department of Justice
(DOJ) had declined to intervene in the case in 2015, leaving the
relator to litigate the case on his own.

DERMATOLOGIST SETTLES FCA VIOLATION ALLEGATIONS FOR $1.66M

An Iowa-based dermatologist and his practice agreed to pay $1.66 million and enter into an integrity
agreement with ongoing monitoring to settle allegations that he
violated the FCA by submitting “up-coded” claims related
to dermatology office visits and the destruction or removal of skin
tags and lesions (i.e., billing for services at a higher level than
provided).

HOME HEALTH COMPANY OWNER SENTENCED TO PRISON FOR 18
MONTHS

The owner of a home health company pleaded guilty to one count
of conspiracy to commit healthcare fraud and one count of
conspiracy to pay and receive healthcare kickbacks, and was sentenced to 18 months in prison by the US
District Court for the Eastern District of California. Despite the
owner’s billing certifications, from at least July 2015 through
April 2019 the owner paid and directed others to pay kickbacks to
multiple individuals for beneficiary referrals, including employees
of healthcare facilities and employees’ spouses. Of the $31
million that Medicare paid to the home health company for more than
8,000 claims during that period, more than $2 million was for
services purportedly provided to beneficiaries referred in exchange
for kickbacks paid. Several recipients of the kickbacks also
pleaded guilty for their roles in the kickback scheme and await
sentencing.

MEDICAL DEVICE MANUFACTURER SETTLES ALLEGATIONS OF PHYSICIAN
KICKBACKS FOR $12.95M

An Oregon-based medical device manufacturer agreed to pay $12.95 million to resolve allegations that it
violated the FCA by causing the submission of false claims to
Medicare and Medicaid by paying kickbacks to physicians to induce
their use of the manufacturer’s HEALTHCARE REGULATORY CHECK-UP
4 implantable cardiac devices, such as pacemakers and
defibrillators. The manufacturer allegedly used a new employee
training program to pay physicians for an excessive number of
trainings and, in some cases, for training events that either never
occurred or were of little or no value to trainees. The settlement
also resolves allegations that the manufacturer violated the AKS
when it paid for physicians’ holiday parties, winery tours,
lavish meals with no legitimate business purpose, and international
business class airfare and honoraria in exchange for making brief
appearances at international conferences. The civil settlement
includes the resolution of certain qui tam claims brought under the
FCA by independent sales representatives previously employed by the
manufacturer.

CLINICAL LAB OWNERS SETTLE FCA VIOLATION ALLEGATIONS FOR
$5.7M

The owners of clinical laboratories in Mississippi and Texas agreed to pay $5.7 million to resolve
allegations that they violated the FCA by paying kickbacks in
return for genetic testing samples. The owners allegedly
participated in a scheme with various marketers who solicited
genetic testing samples from Medicare beneficiaries. The marketers
allegedly arranged to have a physician fraudulently attest that the
genetic testing was medically necessary, and the owners allegedly
caused the clinical laboratories to process the tests, receive
reimbursement from Medicare and pay a portion of that reimbursement
to the marketers. In an attempt to conceal the nature of the
kickback arrangement, the clinical laboratories entered into
allegedly sham agreements with marketers to provide various
consulting, marketing and other services at an hourly rate.
However, the owners allegedly caused the clinical laboratories to
pay the marketers a percentage of revenue, including Medicare
reimbursement, in return for the samples, and the marketers then
allegedly generated sham invoices for hourly services that matched
the agreed-upon kickback amount.

The owners of the clinical laboratories have each previously
pled guilty to one count of conspiracy to defraud the United States
in connection with this scheme and are awaiting sentencing. See
United States v. Kennerson
, No. 20-cr-00448 (BRM), and
United States v. Madison, No. 20-cr-00449 (BRM)
(D.N.J.)

PHARMACY ADMITS TO ILLEGAL DISTRIBUTION OF PRESCRIPTION
OPIOIDS, KICKBACK SCHEME

A New Jersey licensed retail pharmacy admitted to a conspiracy
to illegally distribute prescription opioids and
give kickbacks to healthcare providers. The pharmacy and its parent
company also signed a civil settlement with the United States for
alleged violations of the FCA and the Controlled Substances Act.
From 2015 through 2019, the pharmacy dispensed prescription
transmucosal immediate release fentanyl (TIRF) medications and
other controlled substances while knowing that the prescriptions
were not written for a legitimate medical purpose. The pharmacy
also knowingly filled prescriptions for controlled substances,
including TIRF medications, for patients exhibiting suspicious and
drug-seeking behavior, including patients who repeatedly requested
early refills, paid thousands of dollars in cash for their
prescriptions, or requested that prescriptions be sent to
suspicious or inappropriate locations, including hotels, casinos
and elementary schools. Despite warnings from third parties,
including some of its suppliers, the pharmacy continued to fill
prescriptions for TIRF medications and other opioids written by
doctors with suspicious and problematic prescribing habits,
sometimes without receiving an original prescription.

The pharmacy also admitted that it conspired to offer kickbacks
to healthcare providers and pharmaceutical company sales
representatives in violation of the federal AKS, in the form of
lunches, dinners and happy hours to induce them to send TIRF
prescriptions to the pharmacy. The pharmacy admitted that its
violations of the AKS caused a loss to federally funded healthcare
programs of more than $4.5 million. While the pharmacy’s
criminal restitution payment will be applied to the civil
resolution, the pharmacy has also agreed to pay up to $50 million
over the next five years to resolve its civil liability if it
generates future revenue.

PHYSICIAN AND PAIN MANAGEMENT GROUP SETTLE FCA VIOLATION
ALLEGATIONS FOR $980K

A Maryland physician and his pain management practice group agreed to pay $980,000 to resolve allegations
that they violated the FCA by submitting false claims for medically
unnecessary urine drug tests (UDTs) to Medicare, Medicaid and the
Railroad Retirement Board. This settlement resolves allegations
that the UDTs billed to the government were not ordered based on an
individualized determination of medical necessity for each patient.
Instead, the physician and the practice group allegedly used
blanket orders that tested all patients for the same 22+ drug
classes. The practice group’s patients were allegedly required
to provide a UDT sample upon entry into the clinic and before being
seen by a provider and discussing the results from any prior UDT
the patient received. According to the government’s
allegations, UDTs showing unexpected positive or negative results
were ignored, or not checked at all, while the practice group’s
providers continued to prescribe the patients opioids and other
controlled substances despite obvious warning signs that the
patients were abusing drugs.

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