AMARILLO, TX – According to a recent Department of Justice (“DOJ”) Press Release, Boston Heart Diagnostics Corporation (“BHDC”), a Framingham, MA lab, has agreed to pay $26.67 million to resolve False Claims Act (“FCA”) allegations involving payments for patient referrals in violation of the federal Anti-Kickback Statute (“AKS”) and the federal Stark physician self-referral statute (“Stark”).

According to the press release, the settlement resolves allegations that BHDC (i) provided physician practices with in-office dieticians in exchange for physician referrals for laboratory testing, (ii) conspired with others to pay kickbacks to physicians disguised as investment returns, and (iii) routinely waived patient copayments. The allegations were originally made in a whistleblower (qui tam) lawsuit that contends that in submitting claims to Medicare that arose from violations of the AKS and Stark, such claims constituted “false claims” under the FCA. The two whistleblowers will receive approximately $4.36 million of the settlement.

This settlement provides several important lessons for DME suppliers. Before discussing the lessons, we will first discuss the law.

Law
AKS – The AKS makes it a felony to knowingly and willfully offer, pay, solicit, or receive any

remuneration to induce a person or entity to refer an individual for the furnishing or arranging for the furnishing of any item or service reimbursable by a federal health care program (e.g., Medicare, Medicare Advantage, Medicaid, Medicaid Managed Care, TRICARE), or to induce such person to purchase or lease or recommend the purchase or lease of any item or service reimbursable by a federal health care program (“FHCP”).

Stark – According to Stark, if a physician has a financial relationship with an entity providing designated health services (“DHS”), then the physician may not refer Medicare/Medicaid patients to the entity unless a Stark exception is met. DHS includes laboratory services and DME. A “financial relationship” arises when (i) a physician has an ownership interest in e.g., a DME supplier or lab, and/or (ii) a physician is receiving compensation from an entity such as a DME supplier or lab.

Beneficiary Inducement Statute – This statute imposes civil monetary penalties upon a person/entity that offers or gives remuneration to an FHCP patient that the offeror knows or should know is likely to influence the recipient to order an item for which payment may be made under an FHCP. The statute does include a “nominal value” exception that permits providing incentives that are of “nominal value” (i.e., no more than $15 per item or $75 in the aggregate to any one beneficiary on an annual basis).

Lessons for DME Suppliers
The DME Supplier Cannot Hide From the Truth – There are two legal systems in the United States: (i) state legal systems (there are 50 of them) and (ii) federal legal system. Pursuant to state legal systems, virtually every county in the United States has a District Attorney’s Office. Conversely, on the federal side, there are only 93 U.S. Attorney’s Offices throughout the United States. This tells us that the DOJ has limited resources: it does not have the manpower to seek out – and prosecute – most of the health care fraudulent arrangements that arise. By necessity, the DOJ has had to “outsource” or “subcontract out” much of its investigation initiatives. The DOJ accomplishes this through whistleblower lawsuits:

• If a DME supplier is doing something it should not be doing, then someone knows about it. That “someone” is normally an employee. If the employee determines that the supplier is violating a federal anti-fraud statute, then the employee can hire an attorney who will, in turn, file a whistleblower (or qui tam) lawsuit in federal court.
• The lawsuit will be in the employee’s name…and in the name of the United States. The lawsuit will be based on alleged violations of the FCA. It is the government’s position that if a supplier violates a federal anti-fraud law (e.g., AKS, Stark, beneficiary inducement statute), then any claim submitted that arises out of the fraudulent act constitutes a false claim.
• The lawsuit will initially go “under seal,” meaning that only the DOJ, the Office of Inspector General (“OIG”) and other government agencies will know about the lawsuit. A civil Assistant United States Attorney (“AUSA”) will oversee an investigation of the allegations set out in the whistleblower lawsuit. The investigation will likely be conducted by OIG and FBI agents. The investigation may take months or even years to complete.
• If the civil AUSA concludes that the whistleblower lawsuit has merit, then the DOJ will “intervene” by assuming responsibility for the lawsuit. It is at this point in time that the whistleblower lawsuit is “unsealed”, and the defendant finds out about it.
• If the civil AUSA concludes that the facts are particularly egregious, then he/she may bring a criminal AUSA into the picture and ask if a parallel criminal case needs to be brought against the defendant. It is not uncommon for a civil whistleblower lawsuit to spin off a separate criminal investigation. In fact, most criminal investigations of health care providers arise out of whistleblower lawsuits.
• Most whistleblower lawsuits, in which the DOJ intervenes, end up settling. This is because the potential damages under the FCA are so high that the defendant does not want to risk a trial. The whistleblower will normally receive 15% to 20% of the settlement proceeds.

And so, the message for the DME supplier is that if it is engaging in acts that violate a federal anti-fraud law, then it is likely that one or more employees are aware of such acts. If the supplier does not take corrective steps to bring its operations into compliance, then the supplier runs the risk of an employee filing a whistleblower lawsuit.

You Can Put Lipstick on a Pig…. – There is an old Charles Schwab commercial that says: “You can put lipstick on a pig, but it is still a pig.” This maxim holds true when it comes to fraudulent acts. If an act is fraudulent, but the supplier tries to make the act look legitimate, then it is likely that existence of the underlying fraudulent act will bubble to the surface. In other words, the pig emerges out of the lipstick. Plus, if a supplier attempts to mask over a fraudulent act by trying to make the act look legitimate, then this is evidence that the supplier intended to commit fraud.

The Supplier Cannot Provide “Anything of Value” to a Physician – Everybody knows that a DME supplier cannot give a paper sack full of cash to a physician in exchange for a referral. The sack full of cash is “something of value” to the physician. However, providing items of value to physicians goes way beyond providing a brown paper bag full of cash. For example, if the DME supplier is helping the physician make money, or is helping the physician reduce his expenses, then such assistance constitutes “value” to the physician. In the BHDC settlement, BHDC was (i) providing dieticians to physicians and (ii) providing other value in the form of investment returns. Assume that BHDC placed dieticians in the physicians’ offices and did not require the physicians to compensate BHDC for the dieticians’ services

• Assume that the law and/or third party payor (“TPP”) policies require the physician to have a dietician on staff. This is an expense that the physician must incur. If a DME supplier furnishes the dietician without charge, then such free use of a dietician constitutes “something of value” from the supplier to a referral source…hence, a kickback.
• Assume that the law/TPP policies do not require the physician to have a dietician on staff. However, assume that having a dietician on staff will allow the physician to make additional money (e.g., the physician will be able to bill for the dietician’s services). If a DME supplier furnishes the dietician without charge, then such free use constitutes “something of value”…a kickback.

Now let us switch gears and talk about investment returns. If a DME supplier offers an investment opportunity to a physician, then the supplier needs to be careful. If the investment opportunity is a “sweetheart deal,” then it will likely constitute “something of value” to a referral source…hence, a violation of the AKS and/or Stark. In order for an investment opportunity to be legitimate, then the following need to occur:

• The investment opportunity needs to comply with an applicable Stark exception.
• Ideally, the investment opportunity will comply with the Small Investment Interest safe harbor to the AKS. If the arrangement cannot meet the requirements of the safe harbor, then the arrangement needs to comply with (i) the OIG’s 1989 Special Fraud Alert (“Joint Ventures”) and (ii) the OIG’s April 2003 Special Advisory Bulletin (“Contractual Joint Ventures”).

If the above conditions are not met, then the investment opportunity will likely be construed to be a sham arrangement designed to funnel money to a referral source…in violation of the AKS and/or Stark.

The Supplier Must Make a Reasonable Effort to Collect Copayments – The law imposes on the DME supplier the obligation to make a reasonable effort to collect copayments. This means that when a supplier provides a product, the supplier needs to tell the Medicare beneficiary that he/she is obligated to pay the copayment. If the beneficiary asserts that he/she is financially unable to pay the copayment, then the supplier can collect financial information from the beneficiary. Based on the financial information collected, the supplier can (i) waive the copayment, (ii) accept only a percentage of the copayment, (iii) allow the beneficiary a period of time to pay all or a portion of the copayment, or (iv) demand that the beneficiary pay 100% of the copayment. What the DME supplier cannot do is to routinely waive or reduce copayments. Further, the supplier cannot advertise that if a beneficiary qualifies for a financial hardship waiver, then the beneficiary’s copayment obligation will be reduced or waived. Routine waivers/reductions of copayments can lead to violations of the AKS, beneficiary inducement statute, and the FCA.

Jeffrey S. Baird, JD, is chairman of the Health Care Group at Brown & Fortunato, PC, a law firm based in Amarillo, Texas. He represents pharmacies, infusion companies, HME companies and other health care providers throughout the United States. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization, and can be reached at (806) 345-6320 or [email protected].