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Where the Law and Practice Intersect: The Latest Legal Issues Impacting Physical

Therapy Private Practice

Presented by:

Catherine S. Dorvil, OTR, MS, JDChambliss, Bahner & Stophel, P.C.

605 Chestnut Street, Suite 1700Chattanooga, TN 37450

(423) 757-0240cdorvil@chamblisslaw.com

Disclosure

No relevant financial relationship exists.

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Topics

• Fraud Investigations and Whistleblower Lawsuits – Overpayments– Medical Necessity– Anti-Kickback Statute

• Phase II Medicare Audits• Other regulatory issues

Fraud: The Current Landscape• The health care industry is evolving quickly, and the

Government is demonstrating increasingly aggressive enforcement approaches and tactics.

• Approximately $2.4 billion was returned to the Federal Government in fiscal year 2015 from individuals and companies that attempted to defraud federal health programs

• The Government has recovered $16.2 billion between 2009 and 2015).

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Fraud: The Current Landscape

• Rehabilitation practices have recently been hit with enormous fines for failing to comply with regulations relating to reporting and coding, referrals, and reimbursement.

Brief Overview: False Claims Act

• Government’s authority stems from:

– Federal False Claims Act (31 U.S.C. §§ 3729-3733).

– State Medicaid False Claims Acts

• The laws set forth liability for any person who (1) knowingly submits a false claim to the government to get more money from the government or (2) avoids paying back money owed to the government

• Intent to defraud is not necessary

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Why Do We Need to Know About the FCA?

• Damages and Penalties:

– Under the Federal False Claims Act, the government can recover 3 times its actual damages, plus $10,781 to $21,563 per claim in penalties

– Attorneys’ fees of qui tam relator

• Exclusion from Participation in Medicare and Medicaid Programs

• Criminal Liability

Why Do We Need to Know About the FCA?

• Example:– 100 “false claims” totaling $15,000 in actual

damage to the government. – Actual Damages x 3: $45,000– Federal Penalties:• Minimum: 100 x $10,781 = $1,078,100• Maximum: 100 x $21,563 = $2,156,300

– Total Liability = $1,123,100 - $2,201,300

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Who Can Bring a Claim?

• The government, pursuant to an audit

• A whistleblower, known as a qui tam relator

Who Can Bring a Claim?

• Qui Tam/Whistleblowers– Qui Tam relators are often current or former

employees with inside knowledge

– The government may or may not chose to join in the litigation

– These lawsuits are filed under seal initially, but you will know it exists because you will receive a Civil Investigative Demand

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Civil Investigative Demands

• The subpoena power is one of the most effective devices employed by federal and state investigators to obtain evidence in healthcare related fraud and abuse investigations.

• The Government primarily uses two types of subpoenas:

– Grand Jury Subpoenas – Issued only in connection with a criminal investigation

– Administrative Subpoenas/Civil Investigative Demands (CIDs) – Used to collect evidence related to either a criminal or civil violation.

Civil Investigative Demands

• CIDs are a type of administrative subpoena specifically authorized by the False Claims Act. See31 U.S.C. § 3733.

• CID laws give prosecutors broad powers to take statements under oath and obtain documents while False Claims Act cases are pending and under seal.

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Two Types of False Claims

• Knowingly submit a false claim to the government or cause another to submit a false claim to the government

• Knowingly avoid paying money back to the government (“reverse false claims” or overpayments)

What is an Overpayment?

• “Overpayment” is defined to include any funds payable under Medicare or Medicaid to which the recipient is not entitled. See 42 U.S.C § 1320a-7k(d)(4)(B).

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What is Credit Balance?

• A “credit balance” occurs when a provider’s accounting records indicate that the payment received exceeds the amount charged for a particular service. See Centers for Medicare & Medicaid Servs., U.S. Dep't of Health & Human Servs., former Hospital Manual (Pub. 10) § 10-484.

Overpayments and Credit Balances – Common Causes

• Examples of Medicare overpayments and credit balances include the following:– Provider is paid twice for the same service either by Medicare or by Medicare

and another insurer– Provider is paid for services planned but not performed, or for noncovered

services– Provider is overpaid because of errors made in calculating beneficiary

deductible and/or coinsurance amounts– Insurer overpayments or duplicate payments– Bill under individual codes that should have been billed “bundled”– Rehab provider bills and is paid for outpatient services included in

beneficiary’s inpatient claim– Uncashed refund checks

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Identifying and Returning Overpayments

• Section 6402(a) of the Affordable Care Act established a new Section 1128J(d)(1) of the Social Security Act. See 42 U.S.C. §1320a-7k(d).

• Section 1128J(d)(1) of the Social Security Act requires that healthcare providers report and return “overpayments” received from Medicare or Medicaid to the government “by the later of”: – (a) 60 days after the date on which the overpayment was “identified”;

or – (b) by the date on which a corresponding cost report was due. See 42

U.S.C. § 1320a-7k(d)(2).

Identifying and Returning Overpayments

• A health care provider must report and return the overpayment to one of the following: the secretary of the U.S. Department of Health and Human Services, a state, fiscal intermediary, carrier or contractor. See 42 U.S.C. § 1320a-7k(d)(4)(B); 42 U.S.C. § 1320a-7k(d)(1).

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CMS’s Final “60 Day” Rule

• On February 12, 2016, CMS published the much-awaited “Final Rule” regarding reporting and returning overpayments. See 81 Fed. Reg. 7654-7684 (Feb. 12, 2016).

60-Day Rule• An overpayment has not been “identified,” for purposes of

triggering the 60-day reporting window, until both the fact and amount of an overpayment are known or should have been known. See 81 Fed. Reg. 7654, 7655 (Feb. 12, 2016).

• ‘‘Reasonable diligence” investigatory standard into overpayment issues that includes: (a) proactive compliance activities to monitor for the receipt of overpayments, and (b) investigations in response to obtaining credible information of a potential overpayment. See 81 Fed. Reg. at 7662.

• 6-year look-back period for identified overpayments.

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60-day Rule

• Importantly, because an overpayment is not “identified” until the amount of the refund has been quantified, providers have potentially as much as an 8-month period to investigate and return the overpayment.

Case Example: 60-day Rule• U.S. ex rel. Kane v. Healthfirst, Inc., 120 F. Supp. 3d

370 (S.D.N.Y. 2015).– On August 24, 2016, the DOJ announced a settlement in

the first case involving the ACA’s 60-day rule. – Defendants were alleged to have failed to make timely

repayment of money overbilled to Medicaid, which resulted from a software glitch.

– The overcharges were discovered in 2010. An employee investigated and sent an email with all overpaid claims in 2011.

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Case Example: 60-day Rule

– Claims were not refunded until March 2013– Employee filed qui tam action; government

intervened– Defendant and DOJ settled for $2.95 million

dollars for Defendant failing to repay on time more than $800,000 in Medicaid overpayments

Other False Claims

• Examples:– Bill for physical therapy treatments that are

carried out by unqualified staff– Bill for medically unnecessary services– Receive illegal kickbacks

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Case Example: Medically Unnecessary Services

• United States ex rel. Ribik, Carson, Slough v. HCRManorcare, Inc., et al., Case No. 1:09-cv-00013-CMH-TCB, (E.D. Va. Apr. 2015)– Government intervened and alleged that ManorCare

knowingly and routinely submitted false claims for rehabilitation therapy services that were not medically necessary or reasonable.

Case Example: Medically Necessary Services

• Specific allegations:– ManorCare exerted pressure on SNF administrators and

therapists to meet unrealistic financial goals that resulted in medically unnecessary services

– ManorCare set billing goals designed to increase revenues without regard to patients’ clinical needs

– Threatened to terminate therapists if they did not administer treatments necessary to qualify for “ultra high” Medicare payments.

– Kept patients longer than necessary. • Case is ongoing

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Case Example: Medically Unnecessary Services

• United States ex rel. Halpin v. Kindred, No. 11-12139-RGS (D. Mass.)– Qui tam action that alleged that nursing facility

operators falsely inflated therapy reimbursement claims to Medicare.

– False claims were based on unreasonable, unnecessary, or unskilled therapy or on therapy that never occurred.

Case Example: Medically Unnecessary Services

• Specific allegations:– Presumptively placed patients in highest therapy category– Ramping– Scheduled and reported therapy even after recommended discharge– Providing more therapy than medically necessary to reach minimum

time threshold for highest reimbursement level– Reported time spent on initial evaluations as therapy time. – Reported skilled therapy performed when patients were asleep or had

been transferred to palliative end-of-life care.– Estimating or rounding minutes instead of reporting actual minutes.

• DOJ and Defendants settled for $133 million

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Case Example: Failure of Care

• U.S. ex rel. Lovvorn and Gallick v. EHSI, C.A. 10-1580 and 2:13cv-092 (E.D. Pa. and S.D. Ohio)– Alleged that Extendicare billed Medicare and

Medicaid for materially substandard skilled nursing services and failed to provide care to its residents.

– Settled for $38 million

Federal Anti-Kickback Statute

• 42 U.S.C. § 1320a-7b(b)

• Prohibits offering, paying, soliciting or receiving anything of value to induce or reward referrals or generate Federal health care program business

• Must prove intent

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Federal Anti-Kickback Statute• Penalties:– Criminal:• Fines up to $25,000 per violation• Up to a 5 year prison term per violation

– Civil/Administrative:• False Claims Act liability• Civil monetary penalties and program exclusion• Potential $50,000 CMP per violation• Civil assessment of up to three times amount of

kickback

Case Example: Anti-kickbacks

• U.S. ex rel. Health Dimensions Rehab., Inc. v. Rehabcare Group, Inc., No. 4:12CV00848 (E.D. Mo. Mar. 13, 2013). – RehabCare allegedly arranged with Rehab Systems of

Missouri to obtain contracts to provide therapy to patients in 60 nursing homes controlled by Rehab Systems. RehabCare paid Rehab Systems $400,000 to $600,000 and allowed Rehab Systems to retain a percentage of the revenue generated by each referral.

– RehabCare and Rehab Systems settled for $30 million.

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Case Example: Anti-kickbacks

• U.S. v. Pikus, Tsyvin, Vernik, Satyr & Yablonskaya, No. CR16-329 (E.D.N.Y. June 17, 2016)– Indicted in a scheme involving over $86 million in physical

and occupational therapy claims.– Alleged to have filled a network of clinics that they

controlled with patients by paying bribes and kickbacks. – Once at the clinics, patients were subjected to medically

unnecessary therapy.

• Case is ongoing.

Your Response: Organize Your Team

• Before responding to governmental inquiry, your company should designate a “Corporate Representative” capable of:

– Receiving the Governments demands– Coordinating with in-house counsel and/or outside counsel– Managing the process of responding

• The Corporate Representative may want to consider forming a “Response Team” (typically composed of your company’s compliance officers and attorneys) to aid in solidifying a single response on behalf of the company.

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Your Response: Preserve Documents

• Most Government investigations impose document preservation obligations. These must be followed exactly.

• As such, as soon as an investigation is reasonably anticipated, customary document destruction or data purges must stop.

• “Documents” should be widely construed and includes electronic information.

Educate Your Staff

• Staff should understand:– Investigators may arrive unannounced on the premises and

request information– Your company’s policy is to cooperate with investigators– Your company will invoke legal protections for itself and its

employees– They may speak to investigators if they choose, but also may

decline an interview if they wish– Do not tell employees that they should not discuss the

investigation with anyone. The government may view this as obstruction of justice. See 18 U.S.C. § 1518.

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Educate Your Staff

• Staff should understand (cont.)– If approached or questioned, they should request the name,

agency, and telephone number of the investigator (ask for a business card)

– They should request to know the purpose of the interview – They may notify the Corporate Representative or other senior

management if approached– They should provide no records without express consent of senior

management

Take-Aways• Have policies and procedures in place to promptly investigate,

identify and return any overpayments or reports of wrongdoing

• Document, document, document

• Multiple layers of billing oversight

• Train staff on proper billing and coding.

• Appoint designated compliance personnel

• Establish a line of communication to allow employees to report potential issues

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Take-Aways

• Monitor patient or customer complaints relating to billing

• Set a strong tone at the top that highlights regulatory compliance as a high priority

• Involve lawyers when you receive a Civil Investigative Demand, subpoena or other indication that you are under investigation

• Be careful with pay-for-performance programs (should be based on quality not quantity)

Phase II HIPAA Audits• The Health Information Technology for

Economic and Clinical Health Act was enacted to promote the adoption and meaningful use of health information technology.

• HITECH requires the OCR to conduct periodic audits of covered entity and business associate compliance with the HIPAA privacy, security and breach notification rules. OCR began its initial “pilot” or “Phase 1” audits in 2011 and 2012 to assess the controls and processes implemented by 115 covered entities to comply with HIPAA.

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Phase II HIPAA Audits• The OCR announced on March 21, 2016 that it had launched

Phase II audits and may select from any and all covered entities and business associates.

• Will include desk audits and onsite audits. • OCR will look at compliance with particular provisions of the

privacy, security, and breach notification rules.• The purpose is to give OCR a way to examine different sectors

and geographic regions of the industry, as well as different sized entities, to evaluate some of the risks they may be facing before those risks “ripen” into breaches.

Phase II Audit - Process• Criteria for selection: – size of the entity– affiliation with other health care organizations– the type of entity and its relationship to individuals– whether an organization is public or private,– geographic factors, and – present enforcement activity with OCR. OCR will not audit

entities with an open complaint investigation or that are currently undergoing a compliance review.

• The OCR notification letter will introduce the audit team and include initial requests for documentation.

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Phase II Audit - Process

• Must submit requested information via OCR’s secure portal within 10 business days of the date on the information request.

• Auditor will review the information submitted and provide the auditee with draft findings. Auditees will have 10 business days to review and return written comments, if any, to the auditor. The auditor will complete a final audit report for each entity within 30 business days after the auditee’s response. OCR will share a copy of the final report with the audited entity.

After the Phase II Audit

• Phase II HIPAA Audits are primarily a compliance improvement activity.

• Generally, OCR will use the audit reports to determine what types of technical assistance should be developed and what types of corrective action would be most helpful.

• However, should an audit report indicate a serious compliance issue, OCR may initiate a compliance review to further investigate.

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The Importance of HIPAA Compliance

• Private Practices are the most common type of entities that experience HIPAA violations

• Recent case examples:– Respiratory Therapy and Medical Equipment Provider

(2016)• $239,000 in penalties imposed by OCR for failing to comply with

HIPAA. • Employee left patient records after moving residences.• Evidence found that Company had insufficient policies to

safeguard patient information taken offsite.• Company took only minimal action to correct its policies.

The Importance of HIPAA Compliance

• Recent case examples (cont.):– Physical Therapy clinic (2016)• Allegations that physical therapy clinic impermissibly

disclosed PHI on its website when it posted patient testimonials, including full names and face photograph images• Clinic paid $25,000 to resolve and entered into

corrective action plan.

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In-Office Ancillary Services Exception

• The physician self-referral law, or Stark Law, prohibits physicians who have a direct or indirect financial relationship with an entity from making a referral to that entity for the furnishing of a designated health service for which payment otherwise may be made under Medicare.

• The in-office ancillary services exception to the Stark Law was intended to allow physicians to self-refer for certain services, including physical therapy, to be furnished by their group practices for patient convenience.

In-Office Ancillary Services Exception

• Some evidence suggests that this exception may have resulted in overutilization and rapid growth of certain services.

• Proposed amendment to the in-office ancillary services exception to prohibit certain referrals for therapy except in cases where a practice is clinically integrated and required to demonstrate cost containment, as defined by the Secretary.

• Estimated $5.0 billion in savings over 10 years• This amendment is also in the FY 2017 proposed budget• Worth keeping this on your radar

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