Health Highlights

September 24, 2015

Latest Healthcare False Claims Act Roundup and Top 3 Best Practices to Reduce Exposure
Guarding Against Bribery When Conducting Clinical Trials Overseas
New Webinar: Register Now for "Fraud and Abuse 2016: Game-Changing Trends and Cases (and How to Protect Your Organization)"
A Look at the Private Option in Arkansas
New Risks of "No-Poach" Agreements in the Healthcare Industry?
New York OMIG Releases New Audit Protocols
CMS Unveils Value-Based Insurance Design (VBID) Proposal

Latest Healthcare False Claims Act Roundup and Top 3 Best Practices to Reduce Exposure

Authors: Garrett Mott, Associate, Litigation | Katrina Dela Cruz, Associate, Litigation

As the legal landscape in healthcare becomes increasingly complex, healthcare companies that receive federal program funds face increasing exposure under the federal False Claims Act (FCA), 31 U.S.C. §§ 3729–3733. Generally, the FCA imposes liability on persons or entities who knowingly (with actual knowledge or reckless disregard) submit "false claims" for payment from federal funds or who improperly retain amounts received from the United States.

The FCA is enforced primarily by the Department of Justice (DOJ), which, in recent years, has increased its focus on the healthcare industry, with a trend toward targeting pharmaceutical and medical device companies.¹ In 2009, healthcare fraud recoveries amounted to approximately $1.6 billion, more than two-thirds of the $2.4 billion total recovered under the FCA.² By 2013, both collection numbers soared. Of the $3.8 billion the DOJ recovered under the FCA, nearly 70% ($2.6 billion) of the recovered funds came from the healthcare industry.³ By year-end 2014, the DOJ, primarily through its special task force, the Health Care Fraud Prevention & Enforcement Action Team (HEAT), collected $2.3 billion in healthcare-related FCA enforcement.⁴

Fines and penalties were the greatest for the pharmaceutical and medical device industry, such as Abbott Laboratories' billion-dollar settlement in 2012 and its multi-million dollar settlement in 2013 related to off-labeling and illegal kickbacks.⁵ Finally, from the Southern District of Florida to the Central District of California, the DOJ has secured convictions of corporate officers under the criminal FCA statute, resulting in significant sentences of up to 14 years in federal prison.⁶

With hungry plaintiffs' lawyers looking for an attractive qui tam action, easier filing standards due to recent amendments to the FCA as well as pro-enforcement court decisions, and the DOJ's stated mission to "enforce the [FCA] aggressively," it has become essential for providers to be proactive concerning potential FCA liability. This article offers three "best practices" that we suggest healthcare providers consider adopting.

A Brief Primer on the FCA

Theories of Liability

While the FCA provides for seven types of conduct that result in liability, only four are typically used:⁷

False Claim—where one "knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval."⁸
False Record or Statement—where one "knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim."⁹
Reverse False Claim—where one knowingly "makes … a false record or statement material to an obligation to pay" money to the Government, or knowingly and improperly avoids an obligation to pay money to the Government.¹⁰
Conspiracy—where one conspires to do any of the above.¹¹

Healthcare providers have the greatest risk in the following areas: overpayments, price inflation, kickbacks, off-labeling, ineligible claims, upcoding, and physician self-referral violations, as shown by the FCA case decisions.¹²

Who Can Sue?

Either the Attorney General, or a private person acting on behalf of the government, can file suit for violations of the FCA.¹³ A suit filed by an individual on behalf of the government is known as a "qui tam" action, and the person bringing the action is referred to as a "relator," colloquially known as a "whistleblower."¹⁴ There are also significant collateral consequences, including the potential for a parallel criminal proceeding under 18 U.S.C. § 287 and/or suspension/debarment from government contracting.

Damages and Penalties

The FCA imposes a civil penalty of between $5,500 and $11,000 (subject to statutory inflation adjustments) for each false claim, plus treble the amount of the government's damages.¹⁵ In cases where an offender makes a voluntary self-disclosure, the FCA provides "the court may assess not less than 2 times the amount of damages."¹⁶

Recent Legislative Amendments

The FCA has been amended three times since 2009. First, in 2009, the Fraud Enforcement and Recovery Act (FERA) imposed FCA liability on parties that indirectly receive government funds, even if they never directly present a claim to the government; imposed FCA liability on parties that unintentionally receive and fail to return an overpayment from the government; and broadened whistleblower protections.¹⁷ Second, in 2010, the Patient Protection and Affordable Care Act (ACA) strengthened the FCA and substantially increased the pool of potential plaintiffs by, among other things, lowering the FCA's public disclosure bar.¹⁸ Third, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank), by broadening whistleblower protections, such as strengthening the FCA's existing anti-retaliation provisions, increased whistleblower incentives to file FCA claims.¹⁹

Recent Case Law Developments

Kellogg Brown & Root Servs., Inc. v. United States ex rel. Carter, 135 S. Ct. 1970 (2015)

The district court dismissed a qui tam complaint against defendants with prejudice under the first-to-file rule (which precludes a qui tam suit "based on the facts underlying a pending action") because a related suit was already pending at the time the complaint was filed.
The Fourth Circuit reversed and held that the first-to-file bar ceased to apply because the related action had been dismissed. The relator had the right to refile his case.
The Supreme Court agreed and held that the FCA's "first-to-file" bar keeps new claims out of court only while related claims are still alive, but not in perpetuity.

Amarin Pharma, Inc. et al. v. U.S. Food & Drug Admin., et al., No. 15 Civ. 3588 (PAE), 2015 WL 4720039 (S.D.N.Y. Aug. 7, 2015)

Plaintiff sought an injunction or declaration to ensure its ability to make truthful statements to doctors relating to a drug's off-label use, free from the threat of a misbranding action by the FDA.
The court ruled that the plaintiff could engage in such speech.
However, the court noted that a drug manufacturer that promotes a drug for off-label use may face civil suit under the FCA on the theory that the company, in the course of its off-label promotion, caused false claims to be submitted to government healthcare programs for non-covered and non-FDA-approved uses.
Plaintiff separately sought protection from civil claims under the FCA, but the court did not find it to be a ripe controversy and did not provide this requested relief. However, the court's ruling that an FCA claim could theoretically be brought appears to have answered this question.

Kane ex rel. United States v. Healthfirst, Inc., --- F.Supp.3d ----, 2015 WL 4619686 (S.D.N.Y. Aug. 3, 2015)

The court addressed the intersection of recent amendments to the FCA and ACA in the context of the "60-Day Refund Rule," a provision that provides that an overpayment must be reported and returned within sixty days of the "date on which the overpayment was identified." However, the term "identified" is not defined in the ACA.
The court interpreted "identified" to mean that the sixty-day clock begins ticking when a provider is put on notice of a potential overpayment, rather than the moment when an overpayment is conclusively ascertained.

United States ex rel. Drakeford v. Tuomey Healthcare Sys., Inc., 792 F.3d 364 (4th Cir. 2015)

A qui tam action was filed against Tuomey Healthcare Systems, Inc., alleging that it entered into illegal compensation arrangements with physicians, and then knowingly submitted claims to Medicare for reimbursement, which were rendered "false" due to the implied certification, made by every claimant under a federal program, that the claim is not linked to an illegal referral arrangement. The district court entered judgment for the government.
On appeal, Tuomey argued, inter alia, that it, in good faith, had reasonably relied on the advice of counsel and that Tuomey did not possess the requisite intent to violate the FCA.
The record revealed, however, that Tuomey shopped for legal opinions approving of the illegal compensation agreements, while ignoring negative assessments.
The district court found—and the Fourth Circuit agreed—that a reasonable jury could have concluded that Tuomey was not acting in "good faith" reliance on the advice of its counsel in such circumstances of "opinion shopping."

United States ex rel. Absher v. Momence Meadows Nursing Ctr. Inc., 764 F.3d 699 (7th Cir. 2014)

Relators brought suit against a defendant nursing center on a "worthless services" theory under the FCA, alleging that the defendant received reimbursement from the government for services that were so poor in quality as to be essentially worthless. The relators secured a $9 million jury verdict.
The Seventh Circuit vacated the judgment and held that "services that are 'worth less' are not 'worthless,'" and only the latter constitutes false claims under the FCA. The Seventh Circuit concluded that no jury could have reasonably found that the defendant provided truly worthless services, since there was undisputed evidence that the defendant provided services of some value to its patients.

United States ex rel. Foglia v. Renal Ventures Mgmt., LLC, 754 F.3d 153 (3d Cir. 2014)

A relator brought a qui tam action under the FCA against a dialysis care services company for falsely certifying to Medicare that it was in compliance with state regulations regarding quality of care, falsely submitting claims for reimbursement for a particular drug, and improperly reusing single-use vials.
The district court dismissed for failure to state a claim under Rule 9(b), focusing on the relator's failure to provide a representative sample or identify representative examples of specific false claims made to the government.
On appeal, the Third Circuit held that to meet the Rule 9(b) pleading standard, it is sufficient for a plaintiff to allege particular details of schemes to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted.

Top 3 Best Practices to Reduce FCA Exposure

These recent decisions, coupled with past FCA case law and enforcement experience, provide insight into how healthcare providers can minimize their risk of exposure under the FCA. Here are our top three suggestions.

1. Have a Robust Compliance Program

Having a robust compliance program is key. The DOJ has warned providers that it will make "it a priority to continue to use the FCA to encourage the adoption of, and consistent adherence to, best practices."²⁰ Therefore, the most proactive way to avoid FCA exposure is to have comprehensive written policies and procedures in place to detect and prevent fraud, waste and abuse. In addition, any provider that receives more than $5 million in Medicaid funds must also have policies and procedures to train all employees and contractors regarding the FCA.²¹ Providers should listen and investigate when an employee or agent tells them there is a problem and remediate the problem promptly. Failure to have a robust compliance program may constitute actual knowledge or "reckless disregard" of the "truth or falsity" of a claim.

The DOJ has made it a point to require providers who have settled qui tam actions to adhere to Corporate Integrity Agreements (CIA),²² which provide instruction on preparing a robust compliance program, including:

Hiring a compliance officer/appointing a compliance committee,
Developing written standards and policies,
Implementing a comprehensive employee training program,
Retaining an independent review organization to conduct annual reviews,
Establishing a confidential disclosure program, and
Restricting employment of ineligible persons.

2. Consider Self-Reporting

Second, in appropriate circumstances, consider self-reporting. The FCA provides for significantly reduced damages and penalties for a defendant who "furnishe[s] officials of the United States responsible for investigating false claims violations with all information known to such person about the violation within 30 days after the date on which the defendant first obtained the information."²³ Providers that discover issues with their billing practices should first, contact an attorney, and second, consider reporting the violation to the government immediately.

3. Respond Decisively to Government Investigations

Third, if the government comes knocking, be appropriately responsive. When a relator files a qui tam action under the FCA, the complaint is filed in camera and shall remain under seal for 60 days, during which time the government may intervene.²⁴ During the 60-day window, the government typically performs an investigation to determine whether, based on the relator's allegations, it should intervene and take primary responsibility for the litigation. This is a critical fork in the road, because where the government intervenes, the defendant usually winds up paying more money in the end—on average, nearly 60 times as much in damages and penalties.²⁵ Moreover, over the 13-year period from 1987 to 2010, according to DOJ statistics, approximately 95% of all cases were settled or received a favorable judgment when the government intervened, while the opposite is true for non-intervened cases—94% were dismissed.²⁶ For this reason, a swift and decisive response, within the 60-day window, is crucial to reducing exposure.

Conclusion

Providers should recognize that seemingly minor issues can give rise to significant exposure. Providers should also recognize that the DOJ's increasingly healthcare-focused enforcement agenda is not letting up anytime soon. Providers should evaluate their compliance and oversight programs and identify weaknesses that could give rise to a qui tam action or a government investigation.

_{¹"The largest health care recoveries came from the pharmaceutical and medical device industries, which accounted for $866.7 million in settlements, including Aventis Pharmaceuticals Inc., Bayer HealthCare LLC, Eli Lilly & Company and Quest Diagnostics Inc. and its subsidiary, Nichols Institute Diagnostics Inc." Justice Department Recovers $2.4 Billion in False Claims Cases in Fiscal Year 2009; More Than $24 Billion Since 1986, Department of Justice (Nov. 19, 2009), last accessed at http://www.justice.gov/opa/pr/justice-department-recovers-24-billion-false-claims-cases-fiscal-year-2009-more-24-billion.}

_²Id.

_{³Justice Department Recovers $3.8 Billion from False Claims Act Cases in Fiscal Year 2013, Department of Justice (Dec. 20, 2013), last accessed at http://www.justice.gov/opa/pr/justice-department-recovers-38-billion-false-claims-act-cases-fiscal-year-2013.}

_{⁴Justice Department Recovers Nearly $6 Billion from False Claims Act Cases in Fiscal Year 2014, Department of Justice (Nov. 20, 2014), last accessed at http://www.justice.gov/opa/pr/justice-department-recovers-nearly-6-billion-false-claims-act-cases-fiscal-year-2014.}

_{⁵See Abbott Labs to Pay $1.5 Billion to Resolve Criminal & Civil Investigations of Off-label Promotion of Depakote, Department of Justice (May 7, 2012), last accessed at http://www.justice.gov/opa/pr/abbott-labs-pay-15-billion-resolve-criminal-civil-investigations-label-promotion-depakote; Abbott Laboratories Pays U.S. $5.475 Million to Settle Claims That Company Paid Kickbacks to Physicians, Department of Justice (Dec. 27, 2013), last accessed at http://www.justice.gov/opa/pr/abbott-laboratories-pays-us-5475-million-settle-claims-company-paid-kickbacks-physicians.}

_{⁶Annual Report of the Departments of Health and Human Services and Justice: Health Care Fraud and Abuse Control Program FY 2014 at 12–21, The Department of Health and Human Services and the Department of Justice (Mar. 19, 2015), last accessed at http://oig.hhs.gov/publications/docs/hcfac/FY2014-hcfac.pdf.}

_{⁷Sections 3729(a)(1)(D), (E), and (F) are rarely invoked.}

_{⁸31 U.S.C. § 3729(a)(1)(A).}

_{⁹31 U.S.C. § 3729(a)(1)(B).}

_{¹⁰31 U.S.C. § 3729(a)(1)(G).}

_{¹¹31 U.S.C. § 3729(a)(1)(C).}

_{¹²Section 1877 of the Social Security Act (the Act) (42 U.S.C. 1395nn), also known as the physician self-referral law and commonly referred to as the "Stark Law," prohibits physician referrals of designated health services for Medicare and Medicaid patients if the physician (or an immediate family member) has a financial relationship with that entity.}

_{¹³See 31 U.S.C. § 3730(a) & (b).}

_{¹⁴See 31 U.S.C. § 3730(b).}

_{¹⁵31 U.S.C. § 3731(a)(1).}

_{¹⁶31 U.S.C. § 3729(b)(2).}

_{¹⁷See The New Lawsuit Ecosystem at 64, U.S. Chamber Institute for Legal Reform (Oct. 2013), last accessed at http://www.instituteforlegalreform.com/uploads/sites/1/The_New_Lawsuit_Ecosystem_pages_web.pdf.}

_¹⁸Id.

_{¹⁹Id. at 65.}

_{²⁰Erica Teichert, DOJ Placing 'Renewed Emphasis' On FCA Compliance Fixes, Law360 (June 5, 2014), last accessed at http://www.law360.com/governmentcontracts/articles/545244?nl_pk=f39d1d7e-5067-4377-909c-58b0fd672114&utm_source=newsletter&utm_medium=email&utm_campaign=governmentcontracts.}

_{²¹Employee Education About False Claims Recovery, Section 6032, Deficit Reduction Act (2005).}

_{²²A sample of a recent CIA can be found here: Corporate Integrity Agreement between the Office of Inspector General and St. Joseph Hospice et al., Office of the Inspector General (Aug. 20, 2015), last accessed at http://oig.hhs.gov/fraud/cia/agreements/St_Joseph_Hospice_LLC_08202015.pdf.}

_{²³31 U.S.C. § 3729(b)(2) (emphasis added).}

_{²⁴31 U.S.C. § 3730(b)(2).}

_{²⁵Fraud Statistics—Overview, Department of Justice (Nov. 20, 2014), last accessed at http://www.justice.gov/civil/pages/attachments/2014/11/21/fcastats.pdf.}

_{²⁶Michael Rich, Prosecutorial Indiscretion: Encouraging the Department of Justice to Rein in Out of Control Qui Tam Litigation Under the Civil False Claims Act, 76 U. Cin. L. Rev. 1233, 1234 (2008); see also supra note 17 at 63 (in nearly all cases in which the DOJ intervenes, there is a favorable judgment or settlement and whistleblowers receive between 15-25% of the total recovery).}

Guarding Against Bribery When Conducting Clinical Trials Overseas

Author: Jacqueline Wolff, Partner, Co-Chair, Corporate Investigations and White Collar Defense Group

Editor's Note: Clinical trials sponsored by pharmaceutical and medical device companies are generally intended to obtain data that support applications to the Food and Drug Administration (FDA) for the approval of new drugs or devices or new indications for currently marketed drugs or devices. In part, to cut down on costs, U.S. life sciences companies are increasingly conducting clinical trials overseas—frequently in countries such as Russia, India, China and Brazil where the risk of corruption is high.

The shift to overseas clinical trials requires stricter implementation of, and adherence to, anticorruption policies and procedures—a need that's heightened by the likely increase in U.S. government oversight in the future. In a new article in the FCPA Report, summarized below, Manatt outlines six steps to address corruption risk in connection with overseas clinical trials. Click here to download a free PDF of the full article.

_________________________________

United States v. Syncor Taiwan, Inc. was the first publicized case of a pharmaceutical company being held responsible for violations under the FCPA based on providing items of value to physicians employed by overseas state-owned hospitals to influence them to prescribe Syncor's drugs. Since Syncor, there have been many life sciences companies caught in the crosshairs of FCPA and local anticorruption law investigations.

To date, no cases have been publicly brought alleging payments to clinical trial investigators in exchange for reporting positive outcomes. This does not mean, however, that life sciences companies should be complacent. Recent activity suggests that the DOJ may be starting to focus on overseas clinical trials. Now would be a good time, therefore, to review clinical trial practices overseas. There are six steps important to consider when addressing corruption risk. (Click here to read the full FCPA Report article, which describes the six steps in detail.) In short:

1. Consider the necessity of the trial.

2. Evaluate the proposed trial site and patient population.

3. Review the trial protocol and conduct anticorruption due diligence on investigators.

4. Ensure appropriate representations are included in the clinical trial agreements.

5. Maintain vigilance throughout the trial including being mindful of fair market value of investigator meeting payments.

6. Impose the same obligations on a clinical research organization.

Overseas clinical trials are increasingly a common part of the global economy. Implementing an anticorruption program now can prevent costly headaches down the road.

New Webinar: Register Now for "Fraud and Abuse 2016: Game-Changing Trends and Cases (and How to Protect Your Organization)"

Sign Up Free—And Join Us November 10 from 2:00 – 3:30 p.m. ET.

In 2014, the Department of Justice recovered $2.3 billion from healthcare fraud, marking the fifth straight year the Department recovered more than $2 billion from cases involving false claims against federal healthcare programs, such as Medicare, Medicaid and TRICARE. From January 2009 through the end of the 2014 fiscal year, the Department used the False Claims Act (FCA) to recover $14.5 billion in federal healthcare dollars. And these amounts reflect federal dollars only. In many of these cases, the DOJ was instrumental in recovering additional billions of dollars for consumers and states.

Clearly, every segment of the healthcare industry is enduring greater levels of scrutiny. While the focus has historically been on pharmaceutical and medical device manufacturers, surgeons, insurers and long-term care facilities, other segments now are finding themselves in the crosshairs. For example, cases involving hospitals resulted in $333 million in settlements and judgments in 2014.

In "Fraud and Abuse 2016," a new webinar for Bloomberg BNA, Manatt examines the growing use of FCA as an enforcement tool and other enforcement trends—including the use of increasingly aggressive techniques, such as video surveillance and wiretaps, making the healthcare landscape more perilous than ever in history. During the program, participants will:

Track the growth in FCA recoveries—and what's anticipated in the months to come.
Look at the new healthcare stakeholders facing FCA cases—and the types of violations being investigated for each segment.
Gain an understanding of FCA definitions, provisions and penalties.
Explore the key FCA cases that are remapping the fraud and abuse landscape—and the decisions to watch for in 2016.
Examine the latest enforcement trends, including the use of predictive modeling, videotaping, wire and securities fraud and more.
Learn the enhanced provisions that are increasingly common in Corporate Integrity Agreements (CIA).
Discover how the ACA raised the stakes.
Hear the new rules and incentives around whistleblowers.
Find out how to build compliance programs that protect your organization in today's stringent and complex enforcement environment.
Gain guidance on how to respond effectively, if a government investigation happens.

Don't miss this chance to learn both how to avoid FCA actions—and what to do if the government does come calling. Even if you can't make the November 10 airing, register now, and we'll send you a link to view the program at your convenience, on demand.

Presenters:

Arunabha Bhoumik, Partner, Co-Chair, FCA Group
Jacqueline Wolff, Partner, Co-Chair, Corporation Investigations and White Collar Defense Group
Robert Hussar, Counsel, Healthcare Industry

A Look at the Private Option in Arkansas

Authors: Jocelyn Guyer, Director | Naomi Shine, Analyst | MaryBeth Musumeci, Associate Director, Kaiser Commission on Medicaid and the Uninsured | Robin Rudowitz, Associate Director, Kaiser Commission on Medicaid and the Uninsured

Editor's note: In September 2013, Arkansas became the first state in the nation to receive approval from the federal government for a section 1115 demonstration waiver to require most adults who are newly eligible for coverage under the Affordable Care Act's (ACA's) Medicaid expansion to enroll in private health plans through the Marketplace, with the federal government paying the costs through premium assistance. This initiative has allowed Arkansas to cover 245,000 newly eligible adults. Arkansas's political leaders have announced they will continue the initiative through 2016 while a state task force develops recommendations for the future—and the initiative continues to be closely watched by other states.

A new issue brief prepared for the Kaiser Family Foundation draws on early data, as well as interviews conducted in spring 2015 with state officials, providers, insurance carriers and consumer advocates to offer an initial look at how implementation of the private option is going. The executive summary below captures key findings. Click here to download a free PDF of the full issue brief.

_________________________________

Arkansas's Section 1115 demonstration waiver—the first in the country—requires adults newly eligible for Medicaid with incomes up to 138 percent of the Federal Poverty Level (FPL) who are not medically frail to enroll in private health plans offered through the Arkansas Marketplace. (Newly eligible adults who are medically frail are served through the state's fee-for-service system, rather than the demonstration.)

Often referred to as the "private option," this approach was designed with the goals of:

Increasing access to care by placing beneficiaries in private health plans with robust provider networks,
Reducing the effects of churning as enrollees move between Medicaid and Marketplace coverage when their incomes fluctuate, and
Reinforcing the state's broader healthcare delivery reform efforts.

The private option expansion now covers close to 220,000 newly eligible adults in Arkansas. An additional 25,000 medically frail adults are covered through the state's fee-for-service system, bringing to 245,000 the number of newly eligible adults covered in Arkansas as of June 30, 2015. As a result, Arkansas has been able to drive down its uninsured rate and reduce uncompensated care costs.

Policymakers within Arkansas and around the country are watching the private option closely. To provide an initial look at implementation, the authors drew on a dozen interviews with a broad array of Arkansas stakeholders, as well as early data on coverage, reduced uncompensated care costs and other topics. The findings also are informed by data and reports from the state Medicaid agency and the state insurance department, state legislative oversight committees, and the Centers for Medicare and Medicaid Services (CMS).

Cuts in Uninsured Rates

Arkansas cut its uninsured rate among non-elderly adults nearly in half (from 27.5 percent to 15.6 percent) between 2013 and 2014. This reduction, the second-largest percentage point decline nationally, was realized in large part through the coverage pathway offered through the private option, as Arkansas had the lowest eligibility threshold for adults in the country prior to 2014. Arkansas's gains are consistent with the experience of states that expanded coverage through their traditional Medicaid coverage.

Arkansas's increase in coverage occurred despite limits on funding for outreach and enrollment, eligibility computer system issues, and confusion among some beneficiaries about where to seek enrollment assistance. Arkansas's use of fast-track enrollment strategies, by using SNAP data to identify beneficiaries eligible for the private option, contributed to strong early enrollment in the program.

Increases in Access and Decreases in Uncompensated Care Costs

Stakeholders reported that private option enrollees are generally able to access services, and hospitals are seeing sharp drops in uncompensated care, while the impact on community health centers is more mixed. Close to four in ten private option enrollees gained coverage for the first time in their lives, and stakeholders reported that enrollees were able to access a broad set of services, including specialty care and providers in rural areas.

Hospitals experienced a 55 percent drop in uncompensated care costs, and saw signs that people were seeking care in more appropriate community-based settings instead of emergency rooms. Community health centers also were seeing more insured patients, but some reported challenges due to delays in cost-based reimbursement payments from the state or note that new clinics established by Marketplace plans could "skim off" their insured patients. These findings are similar to the experience of other states that have expanded coverage, regardless of the mechanism used to implement the Medicaid expansion.

Wraparound Protections

Early reports indicate that private option beneficiaries are receiving wraparound protections for premiums and cost sharing that exceed Medicaid limits, while access to wrapped benefits required by Medicaid but not covered in the Marketplace was more mixed. Stakeholders credited Arkansas with protecting beneficiaries from having to make burdensome out-of-pocket payments up front and then be reimbursed. This was accomplished by standardizing the Marketplace plans' cost-sharing design and having the state make supplemental cost-sharing reduction payments directly to the Marketplace plans.

Nearly all required Medicaid benefits are provided directly through Marketplace plans, minimizing the need for a "wrap." However, two benefits—non-emergency medical transportation and Early Periodic Screening and Diagnosis Treatment (EPSDT) for 19- and 20-year-olds—are provided as a wrap through the fee-for-service system. Stakeholders reported some concern that beneficiaries do not always know how to access these benefits, particularly EPSDT.

Medically Frail Screening: Working Well but Underused

The screening tool used to identify medically frail beneficiaries is reported to be working well, although some stakeholders are concerned that it is underutilized. As of June 2015, 9.95 percent of beneficiaries (25,800 individuals) were considered medically frail and served through the state's traditional fee-for-service Medicaid program, which includes long-term services and supports, instead of in Marketplace plans. While there are no reports that beneficiaries were unable to secure a designation as medically frail, some stakeholders expressed concern that many beneficiaries are auto-assigned into a Marketplace plan. Therefore, they bypass the screening, raising the possibility that some medically frail individuals are not being identified sufficiently early.

Growth in Competition and Reduction in Premiums

The private option has helped to increase competition in the Arkansas Marketplace and contributed to reductions in premiums. The private option has nearly tripled enrollment in Arkansas's Marketplace:

Helping to boost the number of carriers offering Marketplace plans statewide from two in 2014 to as many as six in 2016,
Generating a younger and relatively healthy risk pool, and
Contributing to a 2 percent drop in the average rate of Marketplace premiums between 2014 and 2015.

On Track to Meet or Outperform Federal Budget Neutrality Requirements

Despite early concerns, the private option appears on track to meet or even outperform federal budget neutrality requirements. Spending on the private option initially was higher than the budget neutrality projections prepared for the waiver, but more recent data suggests that the state is meeting its targets and may even succeed in limiting spending to significantly below the allowable levels.

Stakeholders also are watching closely the broader question of whether the private option will prove cost-effective compared to traditional Medicaid coverage. As part of its waiver, Arkansas is permitted to use criteria that differ from what is otherwise required under federal law to evaluate cost-effectiveness. These include the private option's impact on coverage, access to care, Marketplace competitiveness, and reductions in churning between Medicaid and Marketplace coverage. While it may be some time before data is available to answer this question, the private option is credited with saving the state over $88 million and generating new revenue of $29.7 million in state fiscal year 2015.

Looking Ahead

Slated to continue through 2016, the private option is now part of an active political and policy debate in Arkansas. A state legislative task force and a Medicaid advisory group are in the midst of developing recommendations for the future of Arkansas's Medicaid program, including the private option. Many stakeholders expect that coverage for newly eligible adults will continue in some form, building on the foundation that the private option established and also that the private option will be modified in the years ahead. Just as importantly, the state will need to consider the future of its fee-for-service system, which continues to serve the vast majority of the state's beneficiaries, including medically frail adults with the greatest healthcare needs.

For other states, the Arkansas experience offers lessons on how they might combine their Medicaid programs and Marketplaces, leveraging the buying power of these two markets and potentially providing greater access to care and continuity of coverage. Stakeholders have noted that the private option has proven more administratively complex to implement than traditional Medicaid expansion, requiring close collaboration across state agencies and other stakeholders.

Unlike many other states, Arkansas did not have an established Medicaid managed care delivery system prior to expansion or a fee-for-service network that was equipped to serve a significant number of newly eligible adults. In some states, particularly those that already have a well-developed Medicaid managed care system, the private option may not be a good fit. Even in these states, however, the Arkansas experience highlights the considerable flexibility available to design an extension of coverage to newly eligible adults consistent with a state's delivery system, political culture and larger healthcare goals.

New Risks of "No-Poach" Agreements in the Healthcare Industry?

Authors: Lisl Dunlop, Partner, Litigation | Carri Maas, Associate, Litigation

"No-poach" agreements, under which employers agree not to steal each other's employees, have long been a feature of industries in which key talent is in short supply. But such agreements can restrict competition in employment markets by restricting employee movement and limiting the compensation of employees who might otherwise be attracted to work for a competitor. Accordingly, "no-poach" agreements can violate antitrust prohibitions against agreements that restrict competition, and result in high penalties.

In 2010, the U.S. Department of Justice (DOJ) brought civil claims against several prominent tech companies for agreements to refrain from poaching each other's employees. After the tech companies settled the lawsuit with the DOJ, several class actions were filed by the tech companies' employees seeking compensation for harm resulting from the no-poach agreements, which were recently settled for $415 million.¹

"No-Poach" Agreements Increasing in Healthcare

Although antitrust litigation concerning no-poach agreements came to prominence in the tech sector, two recent matters highlight that agreements among competitors which serve to stifle competition for employees may be on the rise in the healthcare industry.

In one recent case, Detroit Medical Center agreed to pay $42 million to settle claims that it conspired with other healthcare providers to depress compensation of Registered Nurses (RNs) in Southeast Michigan.² Prior to this latest settlement, the court also approved over $48 million in settlements relating to seven other defendant hospitals.

The class action complaint in this matter alleges that the defendants, who own and operate hospitals in the Detroit area, agreed among themselves and with other hospitals in the area to regularly exchange detailed and non-public information about compensation of their RN employees through meetings, telephone conversations and written surveys. The complaint alleges that this exchange of information suppressed competition among Detroit-area hospitals in the compensation of RN employees and depressed compensation paid.

In addition, the hospitals allegedly agreed to recruit RNs jointly at job fairs and elsewhere to avoid competing to attract RNs to their respective hospitals. The complaint highlights that the alleged conspiracy has occurred amidst a national nursing shortage, and alleges that absent the conspiracy, Detroit-area hospitals would have responded to the shortage by increasing compensation. Instead, the complaint alleges that despite years of high vacancy rates, compensation for RNs has remained unexpectedly low and stagnant.

Even more recently, a class action was filed against Duke University, the University of North Carolina (UNC), and their respective health systems, alleging that they conspired to suppress the compensation of their employees by entering into agreements to not "poach" certain medical facility faculty and staff from each other.³ The complaint alleges that the deans of Duke and UNC had entered into an agreement not to recruit each other's faculty and medical staff after Duke tried to recruit UNC's entire bone marrow transplant team, resulting in UNC paying a large retention package in order to keep the team from moving.

The complaint alleges that due to the alleged agreement, and compounded by the fact that Duke and UNC are the dominant and preeminent employers of skilled medical labor in North Carolina, doctors have been effectively foreclosed from seeking alternative employment. Further, the agreement has allegedly fixed compensation of medical faculty and staff at artificially low levels. The case is currently pending in the United States District Court, Middle District of North Carolina.

Conclusion

Historically, the healthcare industry has not been the focus of litigation concerning agreements not to solicit or recruit employees. However, as healthcare and hospital mergers continue, and the number of employers in a geographic market decreases, competition for highly trained employees may intensify, driving up salaries and costs. The recent cases are a good reminder that healthcare employers should avoid discussions about employees with other providers in a region that may have the effect of limiting competition for employees. The recent cases also raise the possibility that use of "no-poach" agreements in healthcare contexts may carry new, potential litigation-related risks.

_{¹See In re High-Tech Employee Antitrust Litigation, Northern District of California, Case No. 11-VC-2509-LHK.}

_{²See Cason-Merenda et al. v. VHS of Michigan, Inc., d/b/a/ Detroit Medical Center et al., Case No. 06-15601 (E.D. Mich.).}

_{³Danielle Seaman v. Duke University; Duke University Health System, et al., Case No. 1:15-cv-462 (M.D.N.C.).}

New York OMIG Releases New Audit Protocols

Authors: Robert Hussar, Counsel, Healthcare Industry | Susan Ingargiola, Counsel, Healthcare Industry

On August 14, 2015, the New York Office of the Medicaid Inspector General (OMIG) posted six new audit protocols on its website. With the addition of the six new audit protocols, there are a total of 30 audit protocols currently available on the site. Each audit protocol is focused on a particular type of Medicaid provider or category of service and is designed to help Medicaid providers evaluate their compliance with Medicaid program requirements.

OMIG uses the audit protocols during audits to determine if a provider properly claimed Medicaid reimbursement for services. Specifically, the audits are designed to verify that: (i) Medicaid reimbursable services were rendered for the dates billed; (ii) the appropriate rate codes were billed for the services rendered; and (iii) claims were submitted in accordance with Medicaid rules, regulations, and provider manuals.

A sampling of some of the criteria in each of the new audit protocols is provided below. While these new protocols take effect immediately and any existing audits in these areas will likely be reviewed against the new protocols, OMIG should only apply those standards in place at the time the services were provided. Due attention should be given to the timing of any changes in relevant regulations or billing requirements.

Office of Mental Health (OMH) Outpatient Clinic Treatment Services Audit Protocol

This audit protocol includes 30 different criteria for evaluation by OMIG, including, but not limited to:

Missing Recipient Record: If the Medicaid recipient's record is not available for review, claims for all dates of service associated with the recipient record will be disallowed.
No Documentation of Clinic Service: If recipient records lack documentation that a face-to-face clinic treatment service was provided, the claim will be disallowed.
Excessive Preadmission Visit: Claims for preadmission visits in excess of the maximum allowed three preadmission visits will be disallowed. For services performed on October 1, 2010 and after, claims for service dates that involve more than one collateral preadmission visit for an adult recipient will be disallowed.
Missing Individual Service Plan: A written individual service plan must be completed within five visits after admission. Claims for services provided after the fifth visit from the admission date will be disallowed if the written individual service plan is missing.

OMH Continuing Day Treatment Audit Protocol

This audit protocol includes 19 different criteria for evaluation by OMIG, including, but not limited to:

Criteria, Similar to Those Listed above, relating to missing recipient records, lack of documentation of services, excessive preadmission visits and missing or incomplete individual treatment plans.
Missing Record of Attendance: There must be a record of all face-to-face contacts with the recipient, the type of service provided and the duration of the contact. The claim will be disallowed if documentation of attendance is missing.
Missing Progress Note: For continuing day treatment services, progress notes related to treatment plan goals must be recorded at least every two weeks. If the progress note is missing, claims will be disallowed for all visits within that specific interval for services that were to have been summarized by the progress note.
Failure to Meet Minimum Duration Requirements: Claims for visits of less than one hour in duration for continuing day treatment services, less than 30 minutes for collateral visits, or less than 60 minutes for group collateral visits will be disallowed. For services rendered 4/1/2009 and after, claims for visits of less than two hours in duration for continuing day treatment services, less than 30 minutes for collateral visits, or less than 60 minutes for group collateral visits will be disallowed.

OMH Day Treatment Programs Serving Children Audit Protocol

This audit protocol includes 18 different criteria for evaluation by OMIG, which are very similar to those for the OMH Continuing Day Treatment program. These include but are not limited to:

Criteria, Similar to Those Listed Above, relating to missing recipient records, lack of documentation of services, excessive preadmission visits, missing or incomplete individual treatment plans, missing records of attendance, missing progress notes, and failure to meet minimum duration requirements.
No Explanation of Benefit (EOB) for Third Party Health (TPHI) Covered Service (Excluding Medicare): If an EOB for a TPHI (commercial carrier) covered service is not found, the claim will be disallowed.
Failure to Bill Medicaid Managed Care: Claims will be disallowed for services billed to Medicaid that bypass the Medicaid Managed Care company responsible for payment.
Billing for Nonreimbursable Services: Educational-only services documented without the required additional billable day treatment service will be disallowed.

OMH Intensive Psychiatric Rehabilitation Treatment Audit Protocol

This audit protocol includes 14 different criteria for evaluation by OMIG, including, but not limited to:

Criteria, Similar to Those Listed Above, relating to missing recipient records, lack of documentation of services, excessive preadmission visits, missing or incomplete individual service plans, and failure to meet minimum duration requirements.
No Documentation of Initial Referral by a Licensed Practitioner: Claims will be disallowed if documentation of the initial referral by a licensed practitioner is missing.
No Documentation of a Renewal of Authorization: A written renewal of authorization is needed within four months after admission and quarterly thereafter. Claims will be disallowed if documentation of the required renewal of authorization for services by the referring licensed practitioner or another licensed practitioner who is not affiliated with the intensive psychiatric rehabilitation treatment program is missing.
Reimbursement in Excess of the Allowable Hours of Service: Claims for services provided in excess of 72 hours per recipient per month and/or in excess of 720 hours per recipient per year will be disallowed.

OMH Partial Hospitalization Audit Protocol

This audit protocol includes 20 different criteria for evaluation by OMIG, including, but not limited to:

Criteria, Similar to Those Listed Above, relating to missing recipient records, lack of documentation of services, excessive preadmission visits, missing or incomplete individual treatment plans, missing progress notes, and failure to meet minimum duration requirements.
Improper Medicaid Billings for TPHI Recipients (Excluding Medicare): If Medicaid's co-payment is incorrect, the amount of the claim disallowed will be the difference between Medicaid's incorrect co-payment billed and the correct co-payment amount.
Duration of Visit Not Documented: There must be a record of all face-to-face contacts with the recipient, the type of service provided and the duration of the contact. If the duration of the partial hospitalization visit is not documented in the recipient's records, the claim will be disallowed.
Incorrect Collateral Billings: Collateral persons are defined as (1) members of the recipient's family or household; (2) significant others identified in the treatment plan; or (3) significant others identified in preadmission notes. Claims billed for individuals not meeting the definition of collateral persons or for collateral persons not listed on the recipient's treatment plan or preadmission notes will be disallowed.

Traumatic Brain Injury Audit Protocol

This audit protocol includes 29 different criteria for evaluation by OMIG, including, but not limited to:

Criteria, Similar to Those Listed Above, relating to lack of documentation of services and missing or incomplete individual treatment plans.
Services Performed by Unqualified Service Coordinator Staff: If the Service Coordinator does not meet the requirements for qualification of the position (education/experience) at the date of service, all paid claims provided by the unqualified Service Coordinator will be disallowed.
Services Performed by Unqualified Independent Living Skills Training (ILST) and Development Staff: If the provided service was performed by staff that did not meet the standards required for the ILST position (education/experience) at the date of service, the paid claims provided by the unqualified staff will be disallowed.
Services Performed by Unqualified Behavioral Specialist: If the provided service was performed by staff that did not meet the standards required for the Behavioral Specialist position (education/experience) at the date of service, the paid claims provided by the unqualified staff will be disallowed.

Conclusion

With the release of these new audit protocols, healthcare providers that participate in the service categories above can expect that OMIG will likely perform audits of these service categories in the relatively near future. When undergoing an audit by OMIG, it is important to keep in mind that, although OMIG's audit protocols have been reviewed by the relevant Medicaid program office (e.g. the NY State Department of Health, the NY State Office for People with Developmental Disabilities and OMH), OMIG's findings in an actual audit can often successfully be challenged on a number of fronts, including timeliness and procedural violations. Manatt regularly advises providers on identifying acceptable secondary documentation and/or developing successful audit defense strategies.

We recommend that healthcare providers perform frequent self-audits, using OMIG's protocols, to ensure that they are complying with Medicaid's various requirements. Performing self-audits is an effective way to protect against a real audit by OMIG and demonstrate compliance program effectiveness. Plans and providers are reminded that findings contrary to the audit protocols leading to overpayments must be disclosed and returned within 20 days of identification.

For more information, please contact Robert Hussar in Manatt's Albany office at (518) 431-6730 or Susan Ingargiola in Manatt's New York City office at (212) 790-4639.

CMS Unveils Value-Based Insurance Design (VBID) Proposal

Author: Alex Dworkowitz, Associate, Healthcare Industry

Editor's Note: Although we've come a long way in defining the specifics of healthcare transformation since the passage of the Affordable Care Act (ACA), many critical details are just now emerging in upcoming federal regulations and policy guidance. These new rules will require that all healthcare stakeholders rethink how they manage their organizations and structure their business relationships.

To help our clients navigate this volatile healthcare environment, Manatt Health offers a series of analyses, fully explaining new federal healthcare guidance and its implications. Below is a brief excerpt from our latest summary, analyzing the new Centers for Medicare and Medicaid Services (CMS) VBID proposal. To learn more about subscribing to our full series of federal healthcare guidance summaries, please contact Patricia Boozang at pboozang@manatt.com.

_________________________________

CMS unveiled its proposal for a VBID under Medicare Advantage. Under the proposal, plans would be able to offer a different, more favorable benefit design to specific populations with chronic illnesses. Plans have the option of providing beneficiaries in these groups with lower cost sharing when they receive high-value services, get care from providers determined to be "high value," or participate in disease management or similar programs. Plans also may provide these beneficiaries with additional benefits not offered to all of their beneficiaries.

Examples of possible interventions include reduced cost sharing for eye exams for diabetics, reduced cost sharing for heart disease patients who receive care at a cardiac center of excellence, or physician consultations via telehealth for patients with hypertension. Plans must operate in Arizona, Indiana, Iowa, Massachusetts, Oregon, Pennsylvania, or Tennessee to participate in the test, and they must certify that their planned interventions are likely to save money. Applications will likely be due in November.