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healthlaw reference
- December 2003 -
District Court Recognizes Good Faith Defense in False Claims
Act Cases
By Michael A. Cassidy, Esq.
The favored prosecutorial vehicle for the Office of Inspector General
(OIG) for the last decade has been the False Claims Acts, 31 U.S.C. §
3729, et seq. The OIG recently announced that False Claims Act
recoveries for the federal fiscal year ending June 30, 2003 were a
record $2.1 billion, bringing the aggregate recoveries since 1986 to $12
billion. Although the False Claims Act was first enacted and signed by
Abraham Lincoln in 1863, as a means of dealing with unscrupulous defense
contractors during the Civil War, it has become a tactic of the OIG
that is favored over the Anti-Kickback Statute because of a less
strenuous burden of proof for the prosecution. However, the recent
decision by the U.S. District Court for the Northern District of Texas
in U.S. v. Medica-Rents Co. may pose some future impediments for
the prosecution.
The False Claims Act states:
Any person who—
(1) knowingly presents, or cause to be presented, to an officer or
employee of the United States Government . . . a false or fraudulent
claim for payment or approval;
(2) knowingly makes, uses, or causes to be made or used, a false record
or statement to get a false or fraudulent claim paid or approved to
Government; or
(3) conspires to defraud the Government by getting a false or fraudulent
claim allowed or paid;
is liable to the United States Government for a civil penalty of not
less than $5,000 and not more than $10,000, plus three times the amount
of damages which the Government sustains because of the act of that
person . . . .
The Medica-Rents court defined the basic elements of a False Claims Act
violation as follows: (1) the claimant presented, caused to be
presented, or conspired to have presented to an agent of the United
States a claim for payment; (2) the claim was false or fraudulent; and
(3) the claimant knew the claim was false or fraudulent. In addition,
most courts, including those in the Fifth Circuit, require a fourth
element: materiality. “Liability for both a ‘false claim’ and a
‘fraudulent claim’ implicitly requires a showing that what makes the
claim either false or fraudulent is material to the asserted claim of
entitlement to receive money or property from the government.”
United States ex
rel. Wilkins, 173 F. Supp.2nd at 630.
The primary difference between the False Claims Act and the
Anti-Kickback Statute is the level of proof required to establish
“intent” or “scienter”. In Anti-Kickback cases, the courts have held
that the prosecution must prove a knowing and intentional violation of
the statute; this standard requires the prosecution to prove that a
provider both knew that his conduct was illegal and intended to violate
the statute. In contrast, False Claims Act cases are traditionally
predicated on the fact that the claim was false for some reason, and
that the actor knows that the claim could be false; specific intent to
commit a crime is not required.
The government’s case on Medica-Rents was based upon the fact that the
billing for an item of durable medical equipment (DME) did not match the
descriptive language for a HCFA Common Procedure Coding System (HCPCS)
code. In this case the complexity and confusion of the Medicare payment
system was recognized by the court as a defense to the issue of
“knowing” violation which stated:
‘However, this attempt by the government to simplify the issue of
whether the defendants submitted false or fraudulent claims when billing
for the ROHO Mattress Overlay fails to take into account the extremely
convoluted factual history of this case and the complexities of the
Medicare HCPCS coding and billing determinations….. Medicare
regulations are “among the most completely impenetrable texts within
human experience.”’
To support its opinion of the complexity of the reimbursement
regulations, the Court’s opinion includes almost 20 pages of explanation
regarding the evolution of DME reimbursement, the establishment of DME
Regional Carriers (DMERCs) and the Statistical Area DMERC (SADMERC),
and years of conflicting correspondence by Medica-Rents with the Health
Care Financing Administration (now CMS), the DMERCs, and the local
carriers, regarding the appropriate reimbursement category for just one
DME item, i.e. an inflatable mattress that helps in treating pressure
ulcers. The confusion regarding appropriate reimbursement is evident
from the Court’s summary:
“Although the government disagrees, the facts are crystal clear on one
point: the scope of code E0277 was, at best, unclear and ambiguous.
This is evident by the contradictory instructions and guidance given by
both HCFA, the Medicare local carriers, and Palmetto concerning code
E0277 between 1992 and 1996. The confusion that existed during this
time is exemplified by the statement of Kaiser, a high -level HCFA
official, that there was general confusion about the identity of the
items described by code E0277 shortly after the inception of the
code. In addition, in a June 1994 letter, HCFA made a statement that it
was unable to provide a definition for code E0277, and was looking to
the finalization of the support-surfaces policy to provide clarification
of the code’s intended coverage. Although there is evidence that HCFA
did try to ameliorate some of the confusion associated with code E0277,
its efforts to do so were directed towards the local carriers.
Furthermore, the evidence clearly shows that SADMERC, the agency that
the government claims had the authority to make coding decisions,
authorized another manufacturer, Rabson Medical Sales, to bill for the
RIK Mattress, which was similar to the ROHO Mattress Overlay in that it
was also non-powered, under code E0277.”
The prosecution attempted to use the voluminous record of correspondence
as proof that Medica-Rents representatives were well aware of the issues
and rules, and were engaged in an aggressive attempt to defraud the
Federal Healthcare Program. Not only did the court reject this
agreement, it turned the tables on the government and held that this
voluminous evidence was in fact proof of the opposite, i.e. that
Medica-Rents had openly disclosed its arguments and billing
arrangements. It was obviously critical to this argument that various
program agents had authorized the Medica-Rents position, so that
Medica-Rents had some reasonable basis for its reimbursement claims. In
so holding, the Court stated:
“The evidence shows that Walsh became very frustrated and angry with
Medicare and various times for not allowing him to bill the overlay
under code E0277, that he ranted and raved about how stupid Medicare
was, and that he made statements that Medica-Rents would go bankrupt if
it could not bill using code E0277. Even assuming that all these things
are true, such statements do not
indicate that Walsh knowingly submitted false claims for the ROHO
Mattress Overlay under E0277. Instead, they indicate the frustration
and anger that any reasonable person would have experienced had he
undergone a trial similar to Walsh’s in trying to deal with the Medicare
program. Any smart business person would naturally want his product to
be properly billed under a code that would legitimately obtain him the
most profit. In trying to get the ROHO Mattress Overlay billed under a
different code, the evidence indicates that Medica-Rents repeatedly
sought direction on how to bill. There is no evidence that Medica-Rents
billed for the ROHO Mattress Overlay under code E0277 when it was
specifically told not to do so.”
The Court’s holding is good news for providers because it supports the
position that providers are not liable for false claims, even when the
claim is in fact a mistake, when there is evidence of a good faith
effort to bill correctly, even while simultaneously attempting to
maximize revenue.
Michael Cassidy is Chair of the firm’s Healthcare Practice Group. If you
have any questions about this article, please
contact Mike at 412.594.5515 or via e-mail at
mcassidy@tuckerlaw.com.
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Take Advantage of Year-End Tax Planning Strategies
By Michelle L. Kopnski, Esq.
It is not too late to take advantage of some year-end tax planning
strategies that could reduce your tax bill for 2003.
As a general rule, tax savings can be achieved if: (1) income is
decreased in the current tax year (i.e., deferred to a later tax year),
and/or (2) if deductions are increased for the current tax year (i.e.,
accelerated to the current tax year from a future tax year.)
Income can be decreased in the current tax year by postponing receipt
until 2004. Tax basis businesses (and self-employed individuals) can do
this by delaying final 2003 client billings until 2004. Also, consider
delaying until 2004 the sale of any asset which would result in a
taxable gain.
Deductions can be increased in the current tax year by paying some
anticipated 2004 expenses in 2003. For example, taxpayers should
consider paying January 2004 mortgage payments in 2003 to increase the
amount of interest expense that can be deducted for 2003. Be aware of
the threshold amounts that must be met before certain expenses become
deductible. For example, medical expenses must exceed 7.5 percent of
adjusted gross income in order to be deductible, and miscellaneous
expenses, such as payments for tax advice and unreimbursed employee
expenses, must exceed 2 percent of adjusted gross income in order to be
deductible. Taxpayers who are approaching these threshold amounts
should take steps to move medical expenses and/or miscellaneous expenses
into 2003. For example, taxpayers can move routine medical and dental
exams to December instead of waiting until January, and can get early
refills on prescription drugs.
Businesses should consider making purchases of depreciable property
prior to year end. By placing depreciable property in service prior to
year-end, depreciation expense may be deducted in 2003.
Taxpayers who own poorly performing stock should consider selling enough
of that stock prior to year-end in order, first, to offset any capital
gains that may have been realized in 2003 and, second, to offset up to
$3,000 of ordinary income. Taxpayers can utilize any excess capital
losses in future years. (Caution: an investment loss will be
disallowed as a deduction if a taxpayer purchases the same security
within 30 days of the sale that created the investment loss.)
Taxpayers can lower their 2003 tax bills by maxing out (or at least
increasing) their contributions to employer-sponsored retirement plans,
such as 401(k) plans. The maximum 401(k) contribution for 2003 is
$12,000 ($14,000 for employees who are at least 50 years old.) Income
is reduced off the top by the amount of the contribution. Self-employed
taxpayers should consider establishing a Keogh plan.
Taxpayers also can lower their 2003 tax bills by making contributions to
charitable organizations prior to year-end. Contributions can be made
in cash, by credit card or with gifts of property. The full market
value of property as of the date of the gift may be deducted. As an
added incentive, if the property contributed happens to be appreciated
property (and held for more than one year), the donor does not have to
pay capital gains taxes on the amount of the appreciation.
Taxpayers should remember to plan ahead for 2004. Now is the time to
review tax strategies used in 2003 to determine if those same strategies
will be beneficial for 2004. Such a review will assist tax-payers in
making any necessary adjustments prior to the beginning of the new
year.
Michelle Kopnski is an attorney in the firm’s Healthcare Practice Group.
For more information on this topic, please contact Michelle at
412.594.55223 or via e-mail at
mkopnski@tuckerlaw.com.
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Physician/Shareholders Are Not “Employees” For Title VII
Purposes
By Scott R. Leah, Esq.
In order for an employer to be liable for discrimination (racial,
sexual, etc.) under Title VII, it must meet the threshold of having 15
employees. In an important decision, a federal appeals court in
Pennsylvania recently held that physician/shareholders are not counted
as “employees” of the practice for the purposes of determining whether
the practice has 15 employees and is subject to Title VII.
In Ziegler v. Anesthesia Associates of Lancaster, Ltd., the trial
court dismissed sex discrimination claims brought by two terminated
employee anesthesiologists. The trial court held that Title VII did not
apply to the practice because it did not have the requisite 15
employees. The terminated anesthesiologists had argued that the 19
shareholders in the practice should be counted, which would cause the
practice to satisfy the 15 employee requirement.
The appellate court upheld the trial court’s finding that the
physician/shareholders were not employees. The factors the court
considered were that the physician/shareholders all had ownership
rights, equal voting rights, made capital contributions, were not
evaluated or supervised, and were compensated based on profits. Those
factors are, however, critical. A physician/shareholder may be
considered an employee if the “economic reality” is that he or she is
really an employee of the practice.
Scott Leah is an attorney in the firm’s Healthcare Practice Group. For
more information on this topic, please contact Scott at 412.594.5551 or
via e-mail at
sleah@tuckerlaw.com.
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