Posted On Wednesday, December 16, 2015
Influential Court Defines “Identified” as Known or Should Have Known
Under the Patient Protection and Affordable Care Act (“ACA”), a healthcare services provider who receives an overpayment of Medicare or Medicaid funds must “report and return” the excess funds to the government within sixty days of the “date on which the overpayment was “identified.” 42 U.S.C. § 1320a-7k(d)(1), (2). Failure to do so can subject the provider to liability – in the form of treble damages and statutory fines – under the False Claims Act (“FCA”). Id. § 1320a-7k(d)(3).
The statute does not define “identified,” and that silence has created uncertainty for providers and the government about when the 60-day clock begins to run. In August, the U.S. District Court for the Southern District of New York became the first court to attempt to resolve the uncertainty, but in doing so it placed a heavy burden on providers.[1] In Kane ex rel. U.S. v. Healthfirst, Inc., the court rejected the provider’s argument that an overpayment is “identified” when the payment is “classified with certainty,” or conclusively established. Such an interpretation, according to the court, would allow providers to avoid FCA liability by “putting [their] head[s] in the sand” and declining to investigate potential overpayments. Thus, the court adopted the government’s definition: an overpayment is “identified” when the provider has determined, or “should have determined through the exercise of reasonable diligence,” that it has received a potential overpayment. Once the provider learns that an overpayment may have occurred, it has sixty days to investigate, report, and return any excess funds to the government.
The Kane court recognized that its definition of “identified” would leave providers with often impossibly little time to investigate potential overpayments before being subjected to FCA liability. However, the court insisted that the FCA’s scienter requirement mitigates the burden: one needs to act knowingly or recklessly in order to violate the FCA. “Therefore, prosecutorial discretion would counsel against the institution of enforcement actions aimed at well-intentioned healthcare providers working with reasonable haste to address erroneous overpayments.” In Kane, the government alleges that the provider failed to investigate potential overpayments that were first identified by an employee until months later when the State of New York raised the issue, and then took two years to complete its investigation and return all of the excess funds. According to the government, then, the provider neither exercised “reasonable haste,” nor demonstrated good intentions.
Definition Misconstrues the Nature of FCA Cases
Numerous shortcomings befall the court’s reasoning. The faith it puts in prosecutorial discretion is undermined by the fact that private citizens file the vast majority of FCA actions. Unburdened by the professional obligation to further the interests of justice and motivated by the prospect of a lucrative recovery, these private actors have far less incentive to evaluate whether defendants met the FCA’s scienter requirements before filing suit. And, compared to the U.S. government, they likely have few resources to devote to such an evaluation. Moreover, even if the “well-intentioned” health care provider can demonstrate, to the satisfaction of a court or a jury, that it was working with reasonable haste to remedy overpayments and thus did not knowingly violate the FCA, it may have to expend significant resources in litigation before that issue becomes ripe for disposition.
Limits on Kane’s Impact
The U.S. District Court for the Southern District of New York is just one court, influential though it may be. No other court has defined “identified,” as that term is used in § 1320a-7k, and given the lack of textual guidance as to its meaning, another court could interpret the term differently. Kane itself recognizes that the rules of statutory construction do not unanimously counsel in favor of the definition it adopts.
Moreover, the Center for Medicare and Medicaid Services (“CMS”) has proposed a rule that serves as a compromise between the positions taken by the litigants in Kane. Under that proposed rule, an overpayment would be “identified” when a provider has “actual knowledge of the overpayment or acts in reckless disregard or deliberate indifference of the overpayment.”[2] If adopted, the rule would seem to dissuade providers faced with potential overpayments from “sticking their heads in the sand,” while at the same time providing them with the opportunity to investigate the matter before the 60-day clock begins to run.
Responding to Kane
Unless and until the proposed rule is adopted or other courts disagree with the Kane court, Kane stands as the only interpretation of “identified,” as the term is used in § 1320a-7k. Accordingly, it gives providers the best guidance as to how courts – and, perhaps more importantly, the government – will apply the 60-day rule regarding overpayments. To act as quickly as Kane requires, providers should consider implementing effective post-payment review plans and/or ensuring rigorous adherence to such plans that are already in place. By doing so, the provider can demonstrate that it is “well-intentioned” and acting with “reasonable haste” to remedy erroneous overpayments, even where strict compliance with the 60-day rule proves impossible.
[1] Kane v. Healthfirst, Inc., Case No. 1:11-cv-02325-ER, 2015 WL 4619686 (S.D.N.Y. Aug. 3, 2015).
[2] 77 Fed. Reg. 9179-9187 (Feb. 16, 2012).
On November 30, 2015 a federal jury sitting in the Eastern District of Virginia acquitted Dr. Amir Bajoghli, a dermatologist, of more than 40 counts of health care fraud stemming from billing Medicare, Tricare, and other insurance plans for Mohs micrographic surgery and complex wound repairs. Dermatology, and more specifically, micrographic surgery, is a complex medical specialty requiring great skill. When pursuing health care fraud cases, prosecutors are, at times, provided great latitude in offering evidence of a scheme. However, those same prosecutors must have a complete and thorough understanding of the applicable medical concepts and the billing regulations unique to the subspecialty.
Mohs surgery is a specialized, highly effective surgical technique for the removal of certain types of skin cancer. During Mohs surgery, thin layers of skin are progressively removed and, while the patient waits, each layer is examined under a high-powered microscope. It is particularly appropriate for the head and neck regions, where tissue is thinner and less abundant. In subsequent stages, only areas with microscopic tumor present are removed, which has the effect of sparing the surrounding healthy tissue. The process is repeated until the entire malignancy has been removed.
Due to the methodical manner in which tissue is removed and examined, Mohs surgery, when done correctly, has been recognized as the skin cancer treatment with the highest reported long-term cure rate. Mohs surgery is performed on an outpatient basis, but is often very time consuming. The procedure was developed in 1938 by Dr. Frederic Mohs, who was working at the time as a general surgeon at the University of Wisconsin.
The prosecution of Dr. Bajoghli was hotly contested, including an interlocutory appeal to the Fourth Circuit. The government alleged, inter alia, that Dr. Bajoghli:
(1) fraudulently diagnosed benign lesions as cancerous and subjected patients to unnecessary Mohs surgery – leading to costly bills to their insurance carriers;
(2) fraudulently marked up prices for pathology services that he subcontracted to another provider; and
(3) fraudulently billed insurance plans for improperly delegated wound repairs (closing the surgical site) to unlicensed, unqualified, and unsupervised medical assistants.
Interestingly, allegations of aggravated identity theft (using patients’ identifying information to submit fraudulent bills to insurers) were all dismissed at trial.
The Government Filed, And Won, An Interlocutory Appeal
An interlocutory Fourth Circuit appeal makes this health care fraud prosecution unique. What makes the case all the more newsworthy is that despite the appellate court’s ruling in favor of the government on all issues, the defense still achieved a full acquittal. The government appealed the District Court’s rulings on a variety of motions in limine:
(1) the government was precluded from introducing evidence of Dr. Bajoghli’s practice of billing public health plans a multiple of the dollar amount he truly expected to be reimbursed for pathology services by the health plan or the amount he actually paid pathology contractors to perform the work;
(2) the government was precluded from introducing evidence of purported subsequent remedial measures Dr. Bajoghli undertook at his practice after he learned of the investigation – which the government intended to offer as evidence of the doctor’s consciousness of guilt; and
(3) the government was precluded from introducing volumes of uncharged conduct that occurred during the same time period of the alleged 3 ½ year health care fraud scheme but did not relate factually to the 53 specific billing events charged in the indictment.
The Fourth Circuit reversed all three of the District Court’s ruling by holding that the District Court abused its discretion. In its ruling, the Fourth Circuit found that the evidence excluded by the District Court was admissible to prove “fraudulent intent and guilty knowledge.” The Court went so far as to quote the Supreme Court of the United States in Old Chief v. United States, 519 U.S. 172, 182, in recognizing the government’s “need for evidentiary richness and narrative integrity in presenting a case.”
The Court Provided Insight Into Dr. Bajoghli’s Successful Defense Strategy
Although jurors have not publicly announced their reasons for acquitting Dr. Bajoghli, the Fourth Circuit’s opinion provides insight into the aggressive and successful defense strategy. The Court noted that criminal intent was “hotly contested” in this case, and the government “need[ed] to rebut the defense that the charged transactions were ‘isolated mistakes’ by demonstrating that it did not merely ‘cherry pick’ aberrant transactions.” Dr. Bajoghli asserted that he exercised reasonable medical judgment in performing Mohs surgeries and “any errors were the product of innocent…mistakes.” Without reviewing all transcripts of the trial, it is likely that one would find references to confusing CPT does and detailed, yet often contradictory, coverage determinations by insurance carriers regarding Mohs surgery, pathology, and wound repairs. Such arguments are common in litigating health care prosecutions, especially in the area of dermatology. It is difficult for the government to prove criminal intent when the billing guidance available to physicians is so ambiguous. Our practice has seen an uptick in dermatology fraud cases throughout the United States.United States v. Bajoghli is docketed at case number 1:14-cr-00278 in the Eastern District of Virginia. To review the decision of the Fourth Circuit in its entirely, see United States v. Bajoghli, 785 F.3d 957 (4th Cir. 2015).
____________________________________________________________________________________________
MARC S. RASPANTI is a founding partner of Pietragallo Gordon Alfano Bosick & Raspanti, LLP. Following his tenure as a prosecutor, Mr. Raspanti has devoted more than 28 years to representing the interests of individuals and corporations in courts throughout the United States. His experience includes defending against charges of health care fraud (including dermatology matters), defense contracting, political corruption, tax evasion, and alleged violations of antitrust laws and the FCPA. For more information, please contact Mr. Raspanti at msr@pietragallo.com or (215) 988-1433.
DOUGLAS K. ROSENBLUM is a partner and Certified Fraud Examiner in the Government Enforcement, Compliance, and White Collar Litigation Practice Group of Pietragallo Gordon Alfano Bosick & Raspanti, LLP. Mr. Rosenblum previously served as an Assistant District Attorney in Montgomery County, Pennsylvania, as well as a Special Assistant United States Attorney for the Eastern District of Pennsylvania. Mr. Rosenblum’s experience includes defense of myriad fraud allegations, including those in the health care field generally, an in the specialty of dermatology, specifically. Mr. Rosenblum may be contacted at dkr@pietragallo.com or (215) 988-1464.
