As we have witnessed through different U.S. administrations, healthcare costs and healthcare fraud and abuse are high-priority issues of bipartisan interest. Both President Joe Biden and former President Donald Trump campaigned on affordable healthcare and lower drug prices. The Trump administration, like Republican and Democratic administrations before it, devoted significant resources to investigating and prosecuting healthcare fraud, particularly where that fraud intersected with administration priorities.
However, there was a decline in recoveries under the False Claims Act (FCA) and other statutes from the healthcare and life sciences industries under the Trump administration. This trend almost certainly will be reversed under President Biden. We expect enforcement by the Department of Justice (DOJ) and private whistleblowers involving healthcare companies and life sciences manufacturers to intensify over the next four years; similarly, civil administrative enforcement actions conducted by the Department of Health and Human Services (HHS) are likely to rise.
Over the four years of the Trump administration we saw 1,858 qui tam suits filed by private whistleblowers against healthcare and life sciences defendants, $6.471 billion collected in judgments where the United States intervened in those suits, and an additional $1.70 billion collected by the government in FCA settlements and judgments in cases initiated by the government. The primary targets of the Trump administration’s healthcare enforcement efforts were issues related to eldercare under the DOJ Elder Justice Task Force, formed in 2016, issues viewed as driving up drug pricing such as patient support programs, opioid enforcement, and enforcement against those taking advantage of the COVID-19 public health emergency.
President Biden’s nominations for Secretary of HHS and Attorney General provide some context for what healthcare and life sciences companies may anticipate in the enforcement landscape over the years to come. President Biden nominated Xavier Becerra, the Attorney General of California and former member of the U.S. House of Representatives for two decades, to lead HHS, and he selected Merrick Garland, former Chief Judge of the D.C. Circuit Court of Appeals, to lead DOJ.
During Becerra’s tenure as California’s top prosecutor, the California Department of Justice implemented a new Healthcare Rights and Access division designed to centralize healthcare expertise within one section of the department. It went on to file numerous lawsuits and charges against healthcare and life sciences defendants, including actions designed to protect healthcare consumers, increase price transparency, and fight fraud in the industry. For example, Becerra targeted one health system for alleged anticompetitive practices that drove up costs for healthcare consumers, resulting in a $575 million settlement. Becerra also sued a device manufacturer for false and deceptive marketing and obtained a $344 million judgment in California state court. Becerra’s nomination may signal a desire by the Biden administration to promote efficient and sophisticated enforcement scrutiny by HHS itself, rather than leaving such enforcement activities primarily in the hands of DOJ.
Under Garland, we are likely to see DOJ show strong deference to and support of federal agencies undertaking enforcement actions, consistent with the perspective he often articulated from the bench. But in doing so, DOJ will need to grapple with reforms implemented under the Trump administration, including a much stronger stance on the permissible uses of guidance documents in enforcement actions.
Becerra and Garland are likely to work together to coordinate enforcement priorities, and they will have a special forum to foment HHS and DOJ collaboration. HHS announced in December 2020 the establishment of an FCA Working Group to enhance HHS’ partnership with DOJ and the HHS Office of Inspector General (HHS OIG) to combat those who seek to defraud HHS programs. Based on this development, we are likely to see an increase in enforcement coordination between HHS and DOJ in pursuing actions under the FCA. But the Working Group also enhances opportunities for defendants to ensure that HHS’ views on DOJ’s theories of liability are taken into account as part of intervention and settlement decisions.
Together, we anticipate that HHS and DOJ under the Biden administration will focus enforcement scrutiny on the healthcare and life sciences industry in particular on the following key areas.
1. COVID-19 and Stimulus-Related Fraud and Misuse of Regulatory Waivers
During the Trump administration, DOJ aggressively pursued fraud and abuse related to COVID-19. Even as early as in a March 16, 2020, memo to all United States Attorneys, former Attorney General William Barr asked U.S. Attorney’s Offices to prioritize prosecution of pandemic-related fraud, explaining that “[t]he pandemic is dangerous enough without wrongdoers seeking to profit from public panic and this sort of conduct cannot be tolerated.” Later in the pandemic, numerous DOJ officials and U.S. Attorneys made public commitments to using the full range of civil and criminal enforcement weapons at their disposal to target COVID-related fraud.
The Biden administration’s top priority will be to continue to address the COVID-19 pandemic and its economic impact on Americans. Consistent with this focus, this administration will continue to target fraud and abuse related to COVID-19 stimulus funding and all aspects of billing for COVID-19 tests, treatments, and vaccines. Additionally, we expect HHS and DOJ to examine potential misuse of the panoply of COVID-19-specific emergency regulatory waivers that have been granted to allow the healthcare and life sciences industries to adapt to the emergency.
Misuse of Stimulus Program Payments
Healthcare providers that received stimulus-related funds perceived to have been misused or that misreport the use of these funds will be under the enforcement microscope. The Coronavirus Aid, Relief, and Economic Security Act (CARES Act, Pub. L. No. 116-136) allocated $100 billion to a Provider Relief Fund (PRF) for HHS to distribute to eligible healthcare providers for expenses and lost revenues attributable to COVID-19. Subsequent COVID relief legislation contributed an additional $78 billion to the PRF. HHS set forth high-level requirements for the use of funds in terms and conditions associated with each payment and released guidance for providers through a series of frequently asked questions. Additionally, the COVID-19 Uninsured Program provides reimbursement to providers for testing and treating uninsured individuals with COVID-19 as well as vaccinating uninsured individuals.
At the same time, the CARES Act further invested in the government’s enforcement arsenal by directing $139 million in funds to the existing Inspectors General of 14 federal agencies, including HHS OIG. It also established the Special Inspector General for Pandemic Recovery (SIGPR) to provide oversight of any fraud, waste, or abuse of funds distributed under the CARES Act. Recently, the Acting U.S. Attorney for the Middle District of Pennsylvania became the first U.S. Attorney’s Office to announce a partnership with the SIGPR to investigate and prosecute fraud related to CARES Act funding.
Providers that receive any stimulus funds under the CARES Act will be subject to scrutiny under the FCA; the terms and conditions associated with payment from the PRF, for example, state, “Your commitment to full compliance with all Terms and Conditions is material to the Secretary’s decision to disburse these funds to you.” Such certifications link directly to the FCA’s materiality requirement, enabling enforcement actions against providers who are perceived to have misused or falsely certified eligibility for funds. As Michael Granston, the DOJ official with responsibility for FCA enforcement efforts, recently noted, the conduct the Department will target in this space will thus “resemble misconduct that the [FCA] has long been used to address.”
Providers will need to familiarize themselves with PRF guidance issued by HHS, which may evolve with the change in administrations. Risks will be heightened for providers that lack sophisticated systems and personnel to ensure compliance with restrictions on use of funds and reporting requirements.
Abusive Practices Relating to COVID-19 Tests, Treatments, or Vaccinations
The Biden administration also will continue to bring criminal and civil enforcement actions aimed at upholding the integrity of everything from supply chains to billing practices for COVID-19 diagnostic tests, treatments, and vaccinations. While many of these enforcement actions will relate to sham products or services, we expect that DOJ will ultimately cast a wider net to target providers, hospitals, clinical laboratories, and manufacturers and apply more nuanced theories of fraud.
The Food and Drug Administration (FDA), in partnership with DOJ, is responsible for policing drug and device promotional materials for false or misleading statements. FDA maintains a website devoted to warning letters issued in response to COVID-19 prevention or treatment claims deemed to be unsupported. We expect continued scrutiny by FDA of all claims relating to COVID-19 testing or treatment.
Medical necessity requirements have long been a fertile enforcement area for DOJ, and despite the quickly shifting medical landscape around COVID-19 testing and treatment, we expect the government to express enforcement interest. For example, the Centers for Medicare & Medicaid Services (CMS) initially announced that it would not require a doctor’s order for COVID-19 tests to be payable by Medicare. But several months later, citing concerns over fraud, abuse, and patient harm, CMS revised its coverage policy to permit only one COVID-19 test to be payable without the order of a healthcare provider. However, the extent of the interaction with a medical professional that will lead to the “proper medical attention or oversight” HHS is seeking is unclear.
Misuse of Regulatory Waivers
The Secretary of HHS is authorized to waive certain statutory and regulatory coverage and billing requirements for Medicare, Medicaid, and Children’s Health Insurance Program during public health emergencies. In response to the pandemic, CMS implemented a number of emergency regulatory blanket waivers related to, among other things, permission for use of audio-only technology for certain telehealth evaluation, management, and counseling services; waiver of hospital utilization review plan requirements for hospitals participating in Medicaid and Medicaid; waiver of the requirement for a three-day prior hospitalization for coverage of a skilled nursing facility (SNF) stay for patients affected by COVID-19; and billing flexibilities associated with the “hospitals without walls” initiative.
We anticipate that HHS and DOJ will scrutinize providers’ and hospitals’ use of these waivers. Providers that have relied on these emergency waivers must ensure they are operating within the four corners of the waivers, as the waivers apply only “absent any determination of fraud or abuse.” Similarly, they must be prepared to quickly return to compliance with existing requirements once the emergency has passed. Even providers acting in good faith, consistent with the waivers offered, may be subject to at least a DOJ document request. The scope of the current waivers is unprecedented, and private whistleblowers, particularly those who are current or former employees, may be apt to misunderstand the propriety of their employer’s changed business practices and file a qui tam lawsuit under the FCA.
2. Healthcare Consumer Protection
As the healthcare industry continues to consolidate, the Biden administration is likely to ramp up efforts to prevent anticompetitive practices and increase pricing transparency in its effort to address rising healthcare costs. President Biden has publicly committed to addressing anticompetitive practices in the healthcare industry, and Becerra’s work in this area as California Attorney General has reflected a strong commitment to consumer protection in a variety of forms.
We anticipate that HHS is likely to partner with DOJ’s antitrust division to challenge any practices viewed as anticompetitive. Becerra demonstrated an interest in antitrust enforcement during his office’s pursuit of anticompetitive behavior by hospitals. In 2018 he brought an antitrust case against Sutter Health alleging that the nonprofit healthcare system engaged in monopolistic practices that resulted in higher medical care costs for Northern California residents. In December 2019, Sutter settled the case for $575 million and committed to ending the practices that Becerra alleged were anticompetitive.
Coupled with President Biden’s commitment to “aggressively use” DOJ’s antitrust authority to address market concentration and anticompetitive practices and Becerra’s background as California Attorney General, this may be one of the administration’s primary enforcement efforts to ensure consumers have access to fair, competitive healthcare pricing.
Hospital Price Transparency Rule
The Hospital Price Transparency Rule (the Rule) went into effect on January 1, 2021, following the Trump administration’s successful defense of it before the D.C. Circuit Court of Appeals. It requires all hospitals to publicly release standard charges for items and services and provides CMS with enforcement mechanisms for violations. Under the Rule, the standard charges that hospitals must make publicly available include prices for supplies, procedures, room and board, use of the facility, services of employed physicians and nonphysician practitioners, and any other items or services for which a hospital has established a charge in connection with an inpatient admission or outpatient department visit. In response to violations, CMS can issue a written warning to hospitals, request a corrective action plan, and impose civil monetary penalties (CMPs) and publicize the penalty publicly on CMS’ website. CMS has already announced that it intends to begin auditing hospitals in January 2021, and its website encourages members of the public to report hospital noncompliance. While some have criticized the CMPs authorized by the rule — $300 a day — as too modest, HHS and DOJ may seek to use other tools in their arsenal if the rule’s CMPs are deemed insufficient to drive compliance.
Congress has recently faced increasing pressure to address “surprise billing,” which most commonly occurs when patients are billed at out-of-network rates by certain providers at in-network hospitals. In December 2020, as part of an additional COVID-19 stimulus package, Congress passed a ban on surprise medical bills that will take effect in 2022. Under the new law, patients generally cannot be billed more than their in-network co-payment and deducible for nonemergency services at in-network hospitals even if provided by out-of-network providers. Patients will also be protected from paying out-of-network rates for emergency care, including transport by air ambulance, until they are stabilized and can consent to transfer to an in-network facility. States have primary authority to enforce violations of this law, but if the Secretary of HHS determines that a state has failed to substantially enforce the surprise billing prohibition, then HHS can take over enforcement in that state. Regardless, HHS is authorized to impose CMPs on any violator in an amount up to $10,000 per violation. HHS can be expected to delegate the authority to investigate alleged surprise billing violations to HHS OIG.
In the meantime, Congress and HHS have scrutinized the role of private equity firms in surprise medical billing. The bipartisan leaders of the House Energy and Commerce Committee launched an investigation into this issue in September 2019, and in July 2020, HHS released a report suggesting that when private equity firms enter the market, the rate of out-of-network billing increases. Particularly in light of recent interest by DOJ in holding healthcare private equity investors accountable for the conduct of their portfolio companies, we anticipate private equity investors in the healthcare provider sector may be swept up in surprise billing enforcement by HHS.
3. Drug Pricing
One of the top four priorities for HHS under the Trump administration was addressing rising prescription drug costs, and this will continue to be a focus for the Biden administration. Based on President Biden’s campaign platform, we are anticipating HHS actions that will target the following areas: price transparency, price rate limits on specialized drugs, limits on drug price increases, and promotion of quality generic drugs. The Trump administration faced legal hurdles to initiatives in this space. For example, its rule generally requiring direct-to-consumer television ads for prescription drugs to include the list price was invalidated, and its rule excluding rebates on prescription drugs paid by manufacturers to pharmacy benefit managers and Part D plans from safe harbor protection under the Anti-Kickback Statute (the Rebate Rule) is the subject of ongoing litigation, although the Biden administration recently delayed the effective date of this rule by 60 days, citing the need to evaluate its litigation position. We expect any Biden administration efforts targeting drug pricing to face a similar wave of litigation.
Despite the legal hurdles faced by the Trump administration, the Biden administration may nonetheless attempt incremental gains on drug pricing through enforcement priorities. As demonstrated by DOJ’s existing enforcement actions relating to Medicaid drug rebates and patient support programs, perceived high drug prices can lead to FCA suits. We expect current enforcement trends focused on patient support programs, reimbursement support activities, and promotional speaker programs to continue to extend to any programs viewed as undermining checks on drug prices, with particular emphasis on higher-priced drugs.
4. Nursing Homes and Skilled Nursing Facilities
We predict a continued enforcement focus and potential expansion of enforcement against nursing homes and SNFs, particularly if substandard care at these facilities is attributed to the spread or failure to prevent or contain a COVID-19 outbreak. Enforcement actions may be spearheaded by DOJ’s Elder Justice Task Force, which has remained active and comprises representatives from various state and federal law enforcement agencies. We also expect DOJ’s National Nursing Home Initiative to play a leading role. DOJ formed this group in March 2020 to coordinate and enhance civil and criminal efforts to hold nursing homes accountable for allegedly providing medically unnecessary or substandard care to their residents. While the development of the initiative predates the pandemic, we expect nursing home and SNFs infection control efforts to be a key enforcement area, with operators being held responsible — whether fairly or not — for COVID-19 outbreaks in their facilities. The National Nursing Home Initiative will also likely continue to pursue the types of billing irregularities that have long been a staple for DOJ. Last year, for example, DOJ reached a number of settlements with SNFs and their owners and operators to resolve allegations that the defendants billed the government for medically unnecessary rehabilitation therapy services and services that were not provided by qualified individuals. These settlements are part of a long list of DOJ settlements relating to billing fraud under the now-defunct Resource Utilization Groups reimbursement model. CMS changed the payment system for SNFs to a Patient-Driven Payment Model in October 2019, but HHS and DOJ can be expected to carefully scrutinize billing patterns for perceived new efforts to maximize billing in ways that may be viewed as inappropriate.
Given the success of DOJ’s Elder Justice Initiative and the launch of the National Nursing Home Initiative, the effects of the pandemic on vulnerable members of the population, and the government’s expenditures on specialized care, the enforcement focus is likely to stay on nursing homes and SNFs to ensure the delivery of proper care and appropriate billing practices.
5. Telehealth and Virtual Care
Due to the incredibly rapid uptake of telehealth during the COVID-19 pandemic, we anticipate that there will be further scrutiny on providers, investors, and manufacturers engaged in the telehealth space. The pandemic led CMS to relax certain telehealth statutory and regulatory requirements to promote and expand safe access to remote medical care for a broad variety of Medicare and Medicaid beneficiaries, and the commercial market largely followed suit. Some examples of modifications implemented include allowing rural Medicare patients to receive telehealth care from home rather than having to go to a specified type of medical facility for treatment, rules regarding the technology by which the services are delivered (e.g., two-way audiovisual versus telephone), and the requirements for the remote prescription of drugs. At the same time, some states have relaxed other restrictions on telehealth, including licensure and location requirements.
Even before the public health emergency, CMS was supportive of telemedicine, and the Trump administration made several changes, consistent with statutory limitations, to improve access to virtual care. For example, in 2019, Medicare started making payment for virtual check-ins, which are short patient-initiated communications with a healthcare practitioner, and CMS also began separately paying clinicians for e-visits, which are non-face-to-face patient-initiated communications through an online patient portal. The 2021 Physician Fee Schedule final rule also included additional expansions on digital healthcare outside of the waiver authority. These new frontiers for virtual care may also be ripe for initial enforcement scrutiny as providers settle into broader use of these billing codes.
It appears that expansion of telemedicine services will continue under President Biden. For example, under President Biden’s rural America campaign plan, he announced that he will expand the Department of Agriculture Community Facility Direct Loan and Grant Program funding to expand access to telehealth and also increase funding to the Department of Veterans Affairs to expand telehealth access for rural veterans.
As the federal healthcare programs increase their expenditures on telehealth services, and requirements shift for where patients can receive telehealth services, we anticipate that the enforcement scrutiny on the provision of these services will rise as well.
6. Data Privacy
We saw a continued focus on compliance with data privacy rules under the Trump administration, and we are likely to continue seeing this trend under President Biden. In addition to maintaining traditional data breach investigations stemming from compliance reviews and complaints submitted to the agency and related settlements, the HHS Office for Civil Rights (OCR), which enforces the Health Insurance Portability and Accountability Act (HIPAA), announced a HIPAA Right of Access Initiative in 2019. This priority is aimed at enforcing patient rights under the HIPAA privacy rule to timely access health records at a reasonable cost. By January 12, 2021, OCR announced 14 settlements pursuant to this initiative.
We expect HIPAA investigations and settlements to continue to escalate during the Biden administration. Data privacy was a major enforcement priority for Becerra at the California Department of Justice. He led implementation of the California Consumer Protection Act last year, and during his tenure, his office announced several major data privacy settlements. However, in pursuing HIPAA settlements, HHS will need to contend with the U.S. Court of Appeals for the Fifth Circuit’s recent decision in M.D. Anderson v. HHS. In that case, the Fifth Circuit concluded that penalties imposed during the Obama administration for HIPAA violations, and affirmed more recently through the Department’s administrative process, were unlawful, in particular, because HHS could not justify the disproportionately large penalties imposed on the provider in that case as compared to seemingly similar data breach cases.
As data security concerns increase, healthcare and life science companies should prioritize compliance measures and audits to ensure data security, and providers should take steps to ensure they have a system in place that guarantees patients timely access to health records for a reasonable fee.
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