Starting Aug. 1, many pharmaceutical companies, medical device manufacturers, biotech companies and group purchasing organizations (GPOs) must begin collecting information on the financial relationships they have with physicians and teaching hospitals.
By March 31, 2014, they will need to report this data to the Centers for Medicare & Medicaid Services, which will display the information on a public website by Sept. 30, 2014.1
This transparency initiative, as the theory goes, will allow patients to better understand the financial relationships their doctors may have with the drug and device industry, question whether financial relationships might negatively affect their course of treatment, and, ultimately, make better informed decisions.
It remains unclear how, if at all, patients will use this information or alter their behavior based on these disclosures. What is clear, however, is that patients will not be the sole users of this information. Other groups likely to tap into this data include law enforcement entities charged with ferreting out fraud and abuse, lawmakers critical of physician-industry ties, and whistleblowers looking to make a profit.
Financial ties between physicians and manufacturers of drugs and devices are not inherently suspect, and collaboration among these groups over the decades has fostered significant clinical innovation.
These otherwise beneficial financial relationships may violate the law, however, if the providers are being paid as part of an inducement to, or a reward for, referring patients to or recommending the manufacturers' products.
Could the public reporting of these financial relationships invite enhanced scrutiny from state or federal investigators, lawmakers, and even private citizens? How might the public reports be used to combat fraud and abuse in government health care programs?
This article explores some of these issues and addresses how this new nationwide reporting system might impact enforcement of state and federal fraud and abuse laws.
The Physician Payment Sunshine Act, or “Sunshine Act,” was enacted as part of the Patient Protection and Affordable Care Act (PPACA) of 2010. 2
The Sunshine Act and its implementing regulations place annual reporting obligations on “applicable manufacturers”–defined to mean “any entity engaged in the production, preparation, propagation, compounding, or conversion of a covered drug, device, biological or medical supply”3–and “applicable GPOs”–defined to mean entities that purchase, arrange for or negotiate the purchase of covered drugs, devices, biological or medical supplies.”4
Under these new obligations, and subject to certain exceptions, applicable manufacturers and GPOs must annually report to CMS any direct or indirect payments or other transfers of value they make to physicians and teaching hospitals, as well as all ownership and investment interests held by physicians. CMS will in turn make these reports available to the public on a website from which users can search, aggregate, and even download the data.5
Categories of payments excepted from the reporting requirements include, among others, de minimus payments of less than $10 (as long as annual aggregate is $100 or less), product samples, educational materials, temporarily-loaned devices or supplies, discounts, distributions from a publicly traded security or mutual fund, and other types of personal, non-business-related payments.6
Outside of these exempted categories, any other payments or transfers of value will be reported to CMS and ultimately published on the Internet. Tied to this payment will be the physician's name, business address, specialty, National Provider Identifier, state professional license number, the amount, date, nature and form of the payment, and the name of the drug or device to which the payment relates.7
Payments from manufacturers to physicians have historically drawn scrutiny because of the fear the payments will improperly influence clinical decision-making. For instance, a physician might chose a particular drug or device based not on clinical appropriateness, but on the potential for profit.
From the standpoint of the government, which pays for the health care of millions of Americans, these financial ties might also result in overutilization and overcharges to the government.
To dis-incentivize this behavior, the federal government has numerous tools at its disposal, including the Anti-Kickback Statute (AKS) and the False Claims Act (FCA). Several states also have similar laws in place aimed at combating fraud and abuse in the health care industry.
The AKS is a criminal statute that prohibits the knowing or willful receipt or payment of anything of value to influence the referral of federal health care program business.8 The government has recognized that certain types of arrangements are common in the industry and present a low risk of fraud and abuse, and has created a number of safe harbors that offer protection for those arrangements that meet all of the required elements. For example, the safe harbor for personal services safe harbor can protect properly structured physician consulting agreements from scrutiny.9
But even contractual arrangements that appear to conform to a safe harbor's requirements can still come under scrutiny if, for instance, the payments exchanged are excessive in amount, there is no legitimate need for the services contracted, or the physician does not perform the services for which he or she is being paid.
Violations of the AKS are punishable by up to five years in prison, criminal fines up to $25,000 per violation,10 administrative civil money penalties up to $50,000 per violation,11 and exclusion from participation in federal health care programs.12
Importantly, PPACA made several significant amendments related to AKS enforcement that strengthened the AKS as an enforcement tool. First, PPACA amended the AKS to clarify that in order to violate the AKS, a person need not have specific knowledge of or intent to violate the AKS,13 arguably making it easier to purse and prove the intent element of an AKS violation.
Second, pursuant to the PPACA amendments, any claim submitted to the government that includes items or services resulting from a violation of the AKS now constitutes a false or fraudulent claim for the purposes of the FCA.14
The FCA imposes penalties on any person who knowingly submits or causes another to submit a false claim to the government, or knowingly makes a false record or statement to get a false claim paid by the government.15
The FCA is frequently used as a vehicle for government and private citizens to allege violations of the AKS. The damages can be substantial. Someone found liable under the FCA will face penalties of between $5,000 and $11,000 for each false claim and treble the amount of the government's damages.
Furthermore, the FCA provides a vehicle whereby private citizens can bring lawsuits on behalf of the government, by, for instance, alleging violations of the Anti-Kickback Statute.
These private citizens—known as relators—stand to share in the government's recovery if the lawsuit is a success. As described more fully below, PPACA also made significant amendments to the FCA that will make it easier for some relators to bring and maintain FCA lawsuits.
As CMS pointed out in the Final Rule implementing the Sunshine Act, the inclusion of a payment or transfer of value, or an ownership or investment interest, in the public database does not necessarily mean that the parties were engaged in any wrongdoing or illegal conduct.16
But CMS also makes clear that reporting a payment in compliance with the law will not protect parties from liability under other laws, including the AKS and the FCA.17 With these payments on display for anyone to see, parties to industry-physician interactions are trying to quantify what, if any, additional exposure they face.
In fiscal year 2012, the Federal government won or negotiated over $3 billion in health care fraud judgments and settlements, with some of the largest recoveries coming from the manufacturing sector.18 States, often in partnership with the Federal government, also are scoring large recoveries through health care fraud prosecutions.19
Many states have their own false claims laws, and the Federal government provides strong monetary incentives for States to put in place false claims laws that mirror the FCA.20
As long as health care remains a major cost driver in state and federal budgets, health care fraud enforcement will remain a top priority at both the state and federal level, and health care fraud investigators will use every tool at their disposal.
The data publicly displayed pursuant to the Sunshine Act will be aggregated and searchable across multiple fields.21 The data also will be available for download,22 meaning that an investigator could extract data for further analytics. Data mining is not a new tool for law enforcement but is a strategy that is used routinely by law enforcement agencies to identify unusual billing patterns and provider linkages that may be evidence of fraud.23
The transparency reports will provide a new pool of data for investigators to mine. For instance, investigators may look at the data and identify a disproportionate amount of money being paid to a particular physician or group of physicians. This could lead to a further investigation and ultimately a formal charge. A provider under investigation may also see his or her payments suspended pending the investigation.24
Taxing authorities also may look to these reports and compare the information in the reports to what individual physicians are reporting as their income. Because these reports will include both monetary and non-monetary transfers of value, physicians will need to be extra diligent about keeping track of what payments they receive from industry and reporting them as income where appropriate.
Even if the Medicare and Medicaid fraud investigators don't come knocking, there remains the very real possibility that Congress might.
In the years leading up to the passage of the Sunshine Act, Sen. Chuck Grassley (R-Iowa) has been on a mission to expose financial ties between physicians and industry, and, in his capacity as chairman or ranking member of the Senate Finance Committee, has conducted extensive investigations of industry relationships with individual physicians, teaching hospitals, medical journals, and other physician organizations.25 Some of these relationships have been the subject of federal criminal inquiries.26
These investigations are typically conducted with a lot of fanfare, and the subjects of the committee's investigations are sure to receive unwanted press attention.
Grassley has publicly maintained that increased transparency will ultimately benefit patients, stating in one press release: “The goal of our legislation is to lay it all out, make the information available for everyone to see, and let people make their own judgments about what the relationships mean or don't mean.”27
With the passage of the Sunshine Act, Grassley has succeeded in giving patients the information they need to make informed decisions about choosing a health care provider.
It remains to be seen whether the transparency reports will mark the end of Grassley's campaign against conflicts of interest in medicine or whether the Senate Finance Committee or other oversight committees within Congress will use the transparency reports to identify targets for future congressional investigations.
The fact that this data will now be available to the public also raises the question of how private citizens might use the data to bring civil lawsuits against providers and manufacturers. The FCA allows private citizens with knowledge of fraud to bring suit in the name of the government, and share in up to 30 percent of the government's recovery.28 Whistleblowers have brought cases under the FCA against some of the world's largest drug and device companies, and in some cases have scored substantial recoveries.29
Significantly, the PPACA also relaxed the public disclosure bar for qui tam relators, which prohibits qui tam actions that are based upon allegations or transactions that have been publicly disclosed in a federal civil, criminal or administrative hearing; in a congressional, Government Accountability Office, or other federal report, hearing, audit or investigation; or from the news media, unless the relator is considered to be an “original source” of the information.30
The PPACA effectively made it easier for relators to bring lawsuits based at least in part on information found in the public domain. The old public disclosure bar had required an “original source” to have “direct” knowledge that was “independent” of the publicly disclosed information and to have provided that information to the government prior to filing suit.31
Under the amended language, a relator need only have independent information that “materially adds” to the public information.32
The PPACA also amended the public disclosure bar, which historically has been a jurisdictional bar, to provide that a court “shall dismiss” an FCA claim that violates the public disclosure bar, “unless opposed by the Government.”33
In light of historic successes and a newly-relaxed public disclosure bar, would-be whistleblowers may also be paying attention to new sources of information they might use to build a case. However, PPACA amendments notwithstanding, the data disclosed pursuant to the Sunshine Act will likely not contain enough information to support a whistleblower lawsuit.
FCA plaintiffs are generally held to the more rigorous pleading standards of Fed. R. of Civ. P. Rule 9(b), which require that allegations of fraud or mistake be stated “with particularity.”34 So, a relator would need more than simply the names, provider numbers, and the fact that a payment was made. To state a claim, the relator would need some additional specific evidence that the payments themselves were kickbacks and gave rise to false claims that were ultimately submitted to the government.
A whistleblower with enough resources, could, of course, manipulate data in the transparency reports to identify potential targets for further investigation.
A bigger threat, however, may come from those with insider knowledge on physician behavior. For example, an employee with knowledge of a particular physician or group's prescribing practices might develop suspicions, or have existing suspicions validated, upon seeing the amount of money the physician is receiving from industry.
In these types of situations, the transparency reports could serve as a catalyst for a potential whistleblower action, and these whistleblowers could potentially collect enough information to state a viable claim.
Any whistleblower, whether an insider or an outsider, will still need to contend with the FCA's public disclosure bar if he or she relies on data from payments publicly reported on the CMS website to show a kickback was made.
Again, because of the PPACA's amendments to the FCA, a relator need only have independent information that “materially adds” to the public information,35 thus opening the door to individuals that can mine and re-package public information in a way that materially assists the government—and, even if the public disclosure bar is violated, the government could oppose dismissal.
The Sunshine Act is unlikely to reverse this trend. It is also unlikely that the Sunshine Act, by itself, will dramatically increase health care fraud enforcement. At a minimum, however, the Sunshine Act could amplify this trend and provide state and federal governments with another enforcement tool.
This reality, combined with the fact that the PPACA also strengthened existing fraud enforcement mechanisms, means that manufacturers, GPOs, physicians, and teaching hospitals should be prepared for the day when publicly-reported payments could bring unwanted attention.
These parties should keep the enforcement risks in mind prior to making or accepting any payment or transfer of value, and should be prepared to defend each and every payment or transfer.
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DisclaimerThis document and any discussions set forth herein are for informational purposes only, and should not be construed as legal advice, which has to be addressed to particular facts and circumstances involved in any given situation. Review or use of the document and any discussions does not create an attorney-client relationship with the author or publisher. To the extent that this document may contain suggested provisions, they will require modification to suit a particular transaction, jurisdiction or situation. Please consult with an attorney with the appropriate level of experience if you have any questions. Any tax information contained in the document or discussions is not intended to be used, and cannot be used, for purposes of avoiding penalties imposed under the United States Internal Revenue Code. Any opinions expressed are those of the author. The Bureau of National Affairs, Inc. and its affiliated entities do not take responsibility for the content in this document or discussions and do not make any representation or warranty as to their completeness or accuracy.
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