False Claims Act (FCA) developments have splashed the health care headlines in recent weeks reflecting continued aggressive health care fraud enforcement in 2013 by the United States Department of Justice (DOJ) and the Department of Health and Human Services (HHS) Office of Inspector General (OIG). Recent FCA cases and settlements have involved alleged violations of the federal anti-kickback statute, the Stark Law and other Medicare program regulations in an effort to support claims of FCA violations. The FCA generally imposes civil liability and potential criminal liability on any person who submits, or causes the submission of, a false or fraudulent claim to the government, including federal health care programs, such as Medicare and Medicaid.

These cases and settlements reflect the recent continued efforts of the Health Care Fraud Prevention and Enforcement Action Team (HEAT), a joint initiative announced in May 2009 between the DOJ and HHS, to focus their efforts to prevent and deter fraud and enforce current anti-fraud laws around the country. The HEAT partnership has focused on reducing and preventing Medicare and Medicaid financial fraud through enhanced cooperation. One of the most powerful tools in that joint effort is the FCA, which DOJ has used to recover $10.3 billion since January 2009 in cases involving fraud against federal health care programs.

Recent FCA Cases. Recent noteworthy health care FCA cases and developments include:

Stark Law and Physician Compensation

Intermountain Health Care, Inc., Salt Lake City, Utah. On April 3, 2013, the DOJ announced a $25.5 million settlement of alleged violations of the Stark Law and the FCA based on Intermountain’s self-disclosed payment of bonuses to 37 employed physicians, which improperly took into account the volume and value of the physician’s referrals. The federal Stark Law prohibits a physician from referring to hospitals and other entities for certain designated health services payable by Medicare if the physician has a financial relationship with the entity, unless an exception applies. The Stark Law also prohibits such entities from billing Medicare for designated health services referred by physicians who have a financial relationship with the entity if a Stark Law exception is not met.

Media reports indicated that the compensation formula took into account revenues received by Intermountain from services referred by these employed physicians. Intermountain also self-disclosed that it failed to properly document space lease and other service arrangements with physicians in Stark Law-compliant written agreements or that rent was not fair market value. In addition, because Intermountain voluntarily disclosed its noncompliance, the OIG did not seek to exclude Intermountain from Medicare or Medicaid or require a Corporate Integrity Agreement.

The substantial size of this settlement, particularly for a settlement originating from a provider’s voluntary self-disclosure, underscores the draconian financial penalties resulting from Stark Law violations, which continue to fuel the government’s strong interest in pursuing Stark Law enforcement. This settlement signals that physician compensation formulas for hospitals' employed physicians must comply with the Stark Law requirements, including ensuring that physicians are not compensated based on the volume or value of designated health service referrals and revenues realized from those referrals. Entities compensating physicians who refer to them for designated health services should review their physician compensation formulas and other arrangements to ensure compliance with Stark Law requirements.

St. Vincent Healthcare, Billings, Montana; Holy Rosary Healthcare, Miles City, Montana. In another self-disclosure based on Stark Law noncompliance with physician compensation requirements, on May 1, 2013, the DOJ announced in a press release that St. Vincent Healthcare and Holy Rosary Healthcare had self-disclosed to the government and agreed to pay $3.95 million to resolve allegations that they violated the Stark Law and the FCA by paying several physicians incentive compensation that took into account the value or volume of their referrals by improperly including certain designated health services in the formula for calculating physician incentive compensation.

In statements included in the DOJ’s press release announcing the settlement, the OIG cautioned that there is “an expectation that corporations providing services to Medicare and Medicaid beneficiaries adhere to the provision of the Stark Law. . . . Working closely with our partners at the Department of Justice, we will vigilantly protect federal health care programs against violations of the Stark Law.” In the DOJ press release, OIG representatives “applauded” the hospitals for self-disclosing their noncompliance.

Although the specific incentive compensation terms were not made available in the DOJ press release, this settlement again underscores that the government will scrutinize physician compensation formulas for Stark Law compliance, including whether physicians are being compensated based on the volume or value of designated health service referrals and revenues realized from those referrals, and also expects designated health service entities to conduct compliance audits and self-disclose Stark Law noncompliance. As noted above, entities that compensate physicians who refer designated health services to them should review their physician compensation formulas to ensure compliance with Stark Law requirements.

FCA and Anti-Kickback Allegations

Sacred Heart Hospital Owner and CEO Edward Novak, CFO Roy Payawal and Four Physicians, Chicago, Illinois. On April 16, 2013, Edward Novak, Roy Payawal and four physicians were arrested for allegedly conspiring to violate the anti-kickback statute by paying physician kickbacks in return for their referrals of Medicare and Medicaid patients to Sacred Heart Hospital, a 119-bed acute care hospital owned by Novak. The arrests followed the filing of a criminal complaint by the DOJ on April 15, which included a 90-page affidavit in support of the criminal complaint.

The scheme allegedly involved Sacred Heart making more than $225,000 in illegal cash kickbacks to physicians, as well as other improper payments to physicians, including paying for physician office staff, fictitious rental payments for space not needed by the hospital and ghost medical director positions with no actual responsibilities, such as teaching non-existent students.

The scheme also allegedly involved submitting orders for unnecessary emergency room care and tracheotomy procedures that were fraudulently billed to Medicare and Medicaid by Sacred Heart. In addition, the complaint alleges that Sacred Heart paid kickbacks to marketing staff for soliciting Medicare and Medicaid patients based on their volume of patient referrals and also employed drivers to transport patients to and from the hospital who were paid for referring individual patients to the hospital.

Federal authorities seized more than $2 million in Medicare reimbursement from hospital accounts. Federal authorities built their case against the defendants with the help of three cooperating witnesses inside the hospital who agreed to wear wires after they were recorded taking part in the conspiracy. Conspiracy to violate the federal anti-kickback statute carries a maximum penalty of five years in prison and a $250,000 fine with mandatory restitution.

Amgen, Inc., Thousand Oaks, California. On April 16, 2013, the DOJ announced a $24.9 million settlement to resolve a whistleblower suit alleging FCA and anti-kickback violations involving Amgen payments to long-term care pharmacy providers and facility operators, including Omnicare, Inc.'s PharmMerica Corporation and Kindred Healthcare, Inc., in exchange for switching Medicare and Medicaid patients’ prescriptions for anemia therapies from competing drugs to Amgen’s Aranesp and encouraging use of Aranesp in patients who may not need the drug. Amgen allegedly made payments to these entities based on the sales volume of market share of Aranesp, according to DOJ statements.

These cases involving alleged improper knowing and willful payments to induce referrals of patients for services and items payable by Medicare in violation of the anti-kickback statute highlight the role whistleblowers can serve in helping the government build their cases against health care providers and others furnishing items or services payable by federal health care programs. The Sacred Heart case is a cautionary tale highlighting that the penalties for such willful violations are not solely financial penalties on institutions, but can also mean criminal liability for culpable individuals.

FCA and Medicare Conditions of Participation

United States v. MedQuest Associates, Inc., Nashville Tennessee. On April 1, 2013, the United States Sixth Circuit Court of Appeals reversed the United States District Court for the Middle District of Tennessee’s $11.1 million FCA judgment against MedQuest, an Atlanta-based medical imaging company. The Sixth Circuit Court found that MedQuest did not violate the FCA when it failed to comply with i. Medicare’s physician supervision requirements for imaging services by using supervising physicians who had not been approved by Medicare, and ii. Medicare enrollment requirements for Independent Diagnostic Testing Facilities (IDTFs).

The court found that because these requirements were conditions of participation in the Medicare program, and not conditions of payment of Medicare claims, MedQuest’s failure to meet these requirements did not result in FCA liability. In its decision, the Sixth Circuit reiterated its view that the FCA, with its substantial penalties, is not an appropriate tool for enforcing compliance with technical Medicare program conditions, such as the physician supervision and enrollment requirements at issue. Rather, for noncompliance with Medicare program conditions of participation, Medicare administrative remedies are available, including suspension or disqualification from the Medicare program.

The Sixth Circuit’s reversal is a positive development for Medicare-participating providers, reiterating that noncompliance with Medicare conditions of participation does not support a claim for FCA liability, which should be reserved for enforcement of Medicare conditions of payment.

HHS Releases Proposed Rule for Incentive Reward Program

In a recent move that may increase health care fraud enforcement, on April 29, 2013, HHS published in the Federal Register a proposed rule that would increase rewards to individuals for tips that uncover Medicare fraud from $1,000 to as much as $10 million. HHS stated that the proposal is aimed at increasing incentives for individuals to report information on sanctionable conduct and increasing the number of antifraud rewards to an average of 145 per year from the current total of 18 between 2002 to 2012. HHS is seeking comments on the proposed rule until 5 p.m., June 28, 2013.

If the proposed rule is finalized, such dramatically increased rewards could result in increased whistleblowers similar to FCA whistleblowers who, if successful, receive a percentage of any money recouped from fraud schemes they identify.

As the above developments demonstrate, health care providers and other health care program participants need to remain vigilant in their compliance efforts to identify potential violations of the Stark Law, the anti-kickback statute and other Medicare and Medicaid program requirements, which may give rise to government allegations of FCA liability.