False Claims Act Update: A Statistical Review of 2015 and Key Events for 2016

2015 proved to be another banner year for the federal government as it relates to False Claims Act (FCA) recovery.  In 2015, the DOJ recovered $3.583 billion in FCA actions, the fourth year in a row that such recoveries have exceeded $3.5 billion.  As in the past,  the majority of these recoveries were related to healthcare and defense-related government contracts (respectively, $1.9 billion and $1.1 billion).

Perhaps the most notable conclusions to be drawn from the DOJ’s recent report, however, relate to the role of whistleblowers in bringing and prosecuting FCA claims.  As the Department of Justice noted: “Most (FCA) actions are filed under the Act’s whistleblower, or qui tam, provisions that allow individuals to file lawsuits alleging false claims on behalf of the government.  If the government prevails in the action, the whistleblower, also known as the relator, receives up to 30 percent of the recovery.”  In 2015, the government recovered $2.9 billion from whistleblower-initiated lawsuits, and whistleblowers received a record-setting $597 million for their share.

Even more notable is the fact that in 2015, for the first time, whistleblower recoveries in cases where the government declined to intervene ($334.6 million) exceeded whistleblower recoveries in cases where the government intervened ($262.9 million) – e.g., the government made a formal appearance in the case and took the lead in litigating it.  This statistic is contrary to a prior commonly held belief that a government decision not to intervene was the “kiss of death” to the relator’s chances for recovery, and reflects the growing sophistication of the FCA plaintiff’s bar.  Notably, the total amount recovered in declined cases during 2015 ($1.149 billion) exceeded the amount recovered in declined cases for all prior years combined (approximately $1 billion during 1987-2014), and it remains to be seen whether 2015 is an outlier year for whistleblower recoveries.

Looking ahead, 2016 promises several notable developments relating to the False Claims Act:

•    Increased Civil Penalties – Due to the recent passage of the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015, the per claim civil penalties for the FCA (currently $5,500 to $11,000) will be adjusted to account for inflation by August 1, 2016, and again on January 15 of each subsequent year.  Agencies are allowed some discretion in reducing the penalty adjustment so long as certain procedures are followed and the Office of Management and Budget consents.

•    Anticipated Supreme Court Decision – In order to resolve a long-standing split among the Federal Circuit courts, the U.S. Supreme Court has granted certiorari in U.S. ex rel. Escobar v. Universal Health Services (1st Cir. 2015).  The issues to be resolved focus on whether the “implied certification” theory of FCA liability – which establishes an FCA violation for presenting a claim to the government while in violation of a legal/contractual obligation, regardless of whether the claimant has expressly verified their compliance with that obligation – is valid.  If so, the Court will be presented with the question of whether implied certification requires that the legal or contractual obligation that was not complied with to expressly state that it is a condition of payment.  A ruling that implied certification need not be based on an express condition of payment arguably opens the door wide to a variety of FCA claims that have been since been denied by several circuits. Therefore, this decision will be closely watched.

•    Fourth Circuit to Rule on Extrapolation in FCA cases – The Fourth Circuit Court of Appeals will hear an appeal in U.S. ex rel. Michaels et al. v. Agape Senior Community, Inc. (D.S.C. 2015)  regarding, among other issues, the reliance on statistical sampling to prove liability and damages.  The District court in Michaels held that while some cases may be suited for statistical sampling, the fact intensive nature of the claims before it rendered sampling unreliable.  Given the extent to which whistleblowers (and the government) rely upon statistical sampling in healthcare cases and the conflicting way in which lower courts have treated this methodology, this case may ultimately end up at the Supreme Court as well .

Given the potential liability associated with the False Claims Act (i.e., treble damages and significant statutory fines) and the growing likelihood of success for whistleblower-initiated lawsuits, health care providers should take care that their internal compliance programs are well-designed and that  internal reports and complaints are promptly investigated.

If you are interested in learning more about the False Claims Act or believe you may be the subject of a FCA investigation please feel free to contact a member of our health care practice group.

Eric Cottrell

Eric Cottrell

Eric Cottrell leads the firm’s Antitrust, Business Torts & White Collar Practice Group. He is a seasoned litigator in both civil and criminal matters and has been lead counsel in multiple jury trials. He divides his practice between white collar criminal matters and commercial litigation. Mr. Cottrell is also a member of the Public Company Growth & Compliance group.

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Proposed Changes to Methodology to Update ACO Benchmarks

The Medicare Shared Savings Program provides financial rewards to Accountable Care Organizations (ACO’s) that successfully manage overall health care costs for a defined population of beneficiaries while meeting quality of care standards.    An ACO’s performance each year is based on comparison to the ACO’s financial benchmark.   One challenge facing the Shared Savings Program has been criticism of the methodology utilized to establish and update the financial benchmark for each ACO.

Under the current methodology, CMS establishes an initial financial benchmark for each ACO based on the historical healthcare costs for the ACO’s population of beneficiaries.   The ACO is then evaluated based on its ability to reduce cost of care from the benchmark number.   The benchmark number is revised on an annual basis  to reflect (i) updates in the demographics of the ACO’s assigned beneficiaries, (ii) an adjustments based on Medicare’s actual increase in per capital expenditures each year measured on a national basis, and (iii) for years after the first agreement period, adjustments based on the amount of savings generated by the ACO in the prior period.

CMS recently proposed changes to the methodology for adjusting/updating the ACO’s benchmark.   The changes are intended to improve the financial incentives for ACO’s by (i) comparing costs of care within the ACO to care provided outside of the ACO in the same geographic region, and (ii) limiting the link between the ACO’s past shared savings and its future benchmark (i.e., addressing the issue that ACO’s are currently  penalized in future years based on successful cost savings in prior agreement periods).   More information regarding the proposed changes can be found at:  https://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-sheets/2016-Fact-sheets-items/2016-01-28-2.html

If you are interested in learning more about ACO’s, would like to start an ACO or have questions regarding how recent changes within CMS’s Shared Savings Program may impact your organization, please contact a member of our healthcare practice group.

Joy Hord

Joy Hord

Joy Hord focuses her practice on regulatory and compliance matters specifically related to the health care industry. Her clients include hospitals, physicians, pharmacies and other health care providers. Ms. Hord also has significant experience representing health care professionals and organizations with business law and transactional issues, such as mergers, acquisitions and joint ventures. Ms. Hord leads Parker Poe’s Health Care Practice, which includes attorneys from the firm’s North Carolina and South Carolina offices.

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Site Neutral Payments for Off-Campus Locations Established after Nov 1, 2015

Provider‐based off-campus hospital outpatient departments (OC-HOD’s) established after November 1, 2015 will be subject to a new site-neutral payment limitation starting Jan. 1, 2017 as a result of provisions in the Balanced Budget Act of 2015.

Prior to the effective date of the new law, hospitals will continue to receive higher reimbursement for certain types of services, such as evaluation and management services, procedures and surgeries, provided to Medicare beneficiaries at OC-HOD’s, regardless of when the OC-HOD is established.  Commencing on the effective date, however, services provided at OC-HOD’s established after November 1, 2015 will be reimbursed under the Ambulatory Surgical Center or the Medicare Physician Fee Schedule – the same fee schedules currently utilized to reimburse for services provided at free-standing physician offices and ambulatory surgery centers.   OC-HOD’s established prior to November 2, 2015 will be grandfathered and will continue to be reimbursed for services to Medicare beneficiaries pursuant to the Medicare Hospital Outpatient Prospective Payment System (OPPS) – at least for now.

The change could have a significant impact on the rate of hospital acquisitions of certain types of suppliers – specifically physician practices– given that the hospital may no longer be able to realize a higher income stream from the provision of physician services by designating the site as “provider-based”.

Proposed regulations issued between now and the effective date will likely address issues such as (i) how a hospital will differentiate between services provided at an OC-HOD site established before or after the effective date of the new law, (ii) the impact of the rule on OC-HOD sites established as provider based prior to November 2, 2015, but subsequently amending their Medicare enrollment application, (iii) what it means to have an “established” OC-HOD location as of November 1, 2015, and (iv) the ability to include OC-HOD established after November 1, 2015 on hospital cost reports (for instance, for purposes such as 340B eligibility) and how inclusion on the cost-report may impact accreditation requirements.

The healthcare attorneys at Parker Poe know and understand the rules and regulations governing provide-based locations and are able to guide clients through the various considerations related to the establishment and operation of provider‐based off-campus hospital outpatient departments.

Joy Hord

Joy Hord

Joy Hord focuses her practice on regulatory and compliance matters specifically related to the health care industry. Her clients include hospitals, physicians, pharmacies and other health care providers. Ms. Hord also has significant experience representing health care professionals and organizations with business law and transactional issues, such as mergers, acquisitions and joint ventures. Ms. Hord leads Parker Poe’s Health Care Practice, which includes attorneys from the firm’s North Carolina and South Carolina offices.

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