© 2011 Winston & Strawn LLP › images › content › 5 › 2 › v2 › 520 › ...Assistant AG Tony West (DOJ Civil) “Unparalleled focus” on “aggressive civil enforcement

© 2011 Winston & Strawn LLP

© 2011 Winston & Strawn LLP 2

Penalties, Prosecutions and Exclusions: Navigating a New Era of Stepped Up

Health Care Enforcement

Brought to you by Winston & Strawn’s Healthcare Practice Group.


Today’s eLunch Presenters

Marion GoldbergHeathcare

Washington, D.C.

[email protected]

Tom MillsHealthcare

Washington, D.C.

[email protected]

Elizabeth PapezLitigation

Washington, D.C.

[email protected]


Overview: Combating Fraud Remains a Political Priority Congress and the Executive Branch June 2011 Executive Order and “Campaign to Cut Waste”

S. 890 (Leahy/Grassley): (5/19/11 out of Judiciary Comm.) Greater funding for agency investment in enforcement/recovery efforts

S. 454 (Grassley): (3/2/11 referred to Finance Comm.) Expansion of exclusion; public access to Medicare provider data Delay payments if fraud suspected; State certification of drug marketing

H.R. 675 (Herger/Stark): (2/11/11 referred to Budget Comm.) Would amend 42 U.S.C. § 1320a-7(b)(15) to allow exclusion of: “Any affiliated entity of a sanctioned entity” and current and former officers and

managers or “person[s] with an ownership or control interest . . . [who] knows or should know . . . of [culpable] conduct”


Overview: DOJ

Fraud enforcement viewed as key to health reform• $2.5 B in healthcare fraud recoveries since 1/09

(34% of all fraud recoveries)

• Jan 2011: 1,341 qui tam cases awaiting intervention decisions (66% allege health care fraud; 500+ CIDs in Q4 2010)


Overview: DOJ

Assistant AG Lanny A. Breuer (DOJ Criminal)“The era of getting away with Medicare fraud is over.”


Overview: DOJ

Assistant AG Tony West (DOJ Civil)“Unparalleled focus” on “aggressive civil enforcement action” and “pursu[ing] individuals . . . just as vigorously as companies”


Overview: HHS

Mary Riordan, Sr. Counsel OIG Government will continue to bring large numbers of cases

against drug manufacturers and device manufacturers

Government is looking to change corporate behavior through penalties and individual prosecutions and exclusions where appropriate


Overview: HHS

HHS-DOJ HEAT Task Force & Medicare Strike Forces

HHS OIG Hospital Audits & New Guidance on Permissive Exclusion

CMS Medicare Crackdown (July 2011 computer modeling)

FDA Pharma Fraud Pilot Program; New Guidance on Prosecution


Overview: Courts

PPACA likely before the Supreme Court Decision could affect entire Act (including overpayment and

other FCA expansions and compliance plan requirements)

Increase in FCA and whistleblower exposure Supreme Court restricts, lower courts expand, exposure

Parallel SEC whistleblower regime will increase compliance and defense burdens for public companies

Prosecutions & exclusions Judicial backstop for some cases (Stevens-Glaxo)

Limited reach


Recent Cases & Headlines

9/30: LHC Group $65 M FCA settlement & HHS CIA Alleged overbilling of home health services to Medicare

9/22: Hill Dermaceuticals FDCA Consent Decree Corporate and individual consent decree

9/16: 50-Year Prison Sentence for Medicare Fraud Lawrence Duran (ATC) $87 M restitution; 50 years prison

9/12: Maxim $130 M civil/criminal & HHS CIA Medicare fraudulent billing

9/7: 91 Individuals/8 cities for Medicare Fraud Medicare Strike Force takedown (including doctors and nurses)


Civil Liability: Statutory Expansions

FERA (2009) and PPACA (2010) FCA amendments

Expand definition of false claims

Expand indirect liability (i.e., liability for entities that do not themselves submit claims to federal programs)

Impose new and significant liability for retention of overpayments (reverse false claims)

Expand whistleblower protections

Eliminate certain judicial protections against suits


Civil Liability: Judicial Decisions

Schindler Elevator (S. Ct. 2010) – FOIA responses are government reports that may trigger the public disclosure bar to FCA whistleblower suits

Summers (CA6 2010, cert. denied 2011) – new circuit split about when to dismiss FCA cases for plaintiff’s failure to file under seal

Baltazar (CA7 2011) – allowing FCA suit despite reports of industry-wide fraud

Wilkins (CA3 2011) – express or implied certification of Anti-Kickback Statute (AKS) compliance can give rise to FCA exposure

Blackstone Medical (CA1 2011) – downstream third parties can face FCAliability for another entity’s breach of implied AKS certification


Civil Liability: Lessons Learned

Large recoveries and whistleblower incentives top enforcement priority (federal and state)

Statutory amendments and lower court decisions expanding liability increased costs and exposure

Ramifications may justify new and more aggressive compliance and defense strategies

Civil cases are often the starting point for criminal prosecution and corporate and individual exclusions


Criminal Enforcement: Statutes

Criminal Statutes Anti-Kickback Statute (42 U.S.C. § 1320a-7b(b))

(automatic civil FCA liability)

Health Care Fraud (18 U.S.C. § 1347)

Mail and Wire Fraud (18 U.S.C. §§ 1341, 1343)

Social Security Act (SSA) (42 U.S.C. §§ 1128, 13120a-7b)

Food, Drug, & Cosmetic Act (FDCA) (21 U.S.C. §301)


Example: InterMune

Civil FCA claims and investigation into off-label violations criminal prosecution and exclusion

Actimmune FDA approval to treat two orphan indications (low profit)

Clinical trials for treatment of a fatal lung disease (idiopathic pulmonary fibrosis) Increase in overall survival rate was insignificant

Increased survival, however, for patients with mild-to-moderate disease


InterMune

August 28, 2002, Company press release stated a strong trend in survival for overall patient population and statistically significant survival in patients with mild-to-moderate disease

Company representatives reported to have told an investors’ conference that its sales force included 60 pulmonary specialists to call on every lung doctor in the country in the context of its education and awareness program


InterMune

October 2006, InterMune was charged with FDCAviolation by promoting with intent to defraud or mislead, off-label promotion and false claims for unnecessary and off-label use

Settlement 2-year deferred prosecution agreement

Company barred from entering into a joint defense agreement

$30.2 M to Medicare, VA, DOD, Federal Employees Health Program, and federal portion of Medicaid

Close to $6.7 M to state Medicaid programs


InterMune

March 18, 2009 - Former CEO, W. Scott Harkonen, M.D. indicted on wire fraud and felony FDCA charges Promotion and causing promotion of off-label use

Press release was part of a scheme to induce doctors to prescribe, and patients to take, Actimmune for IPF

DOJ conceded data in the press release was accurate but prosecuted Harkonen for his interpretation of the data

September 29, 2009 – Harkonen found not guilty of off-label promotion and guilty of wire fraud


InterMune

Sentence Three years probation

200 hours community service

$20,000 fine

6 months home confinement if appeal is unsuccessful

Judge criticized government bringing the charges

Felony wire fraud conviction resulted in Harkonen’sexclusion

Conviction of a criminal offense related to fraud … in connection with the delivery of a health care item or service.


Example: Perdue Pharma

Civil FCA claims and investigation into off-label violations criminal prosecutions and exclusions

Promoted OxyContin as less addictive and less subject to abuse than other painkillers

Purdue Frederick (subsidiary) pled to single felony count of misbranding $276.1 M

Parent – Purdue Pharma $19.5 M to 27 states

$634.5 M to federal government (90% of the profits)

Non-prosecution Agreement (NPA)


Purdue Pharma

Executives charged under responsible corporate officer doctrine

CEO, General Counsel, and Chief Medical Officer each pleaded guilty to misdemeanor counts of misbranding

CEO – $19 M fine; General Counsel – $ 8 M; Chief Medical Officer – $7.5 M

Exclusion – 12 years each for CEO, GC and CMO Exclusions now on appeal to D.C. Circuit


Responsible Corporate Officer Doctrine

Initially introduced in US v. Dotterweich, 320 U.S. 277 (1943) “The offense is committed… by all who do have such a

responsible share in the furtherance of the transaction which the statute outlaws…”

Principle FDCA protects the public by keeping impure and adulterated

food and drugs out of commerce

Therefore, law “dispenses with the conventional requirement for criminal conduct – awareness of some wrongdoing”


Responsible Corporate Officer Doctrine

Refined in U.S. v. Park, 421 U.S. 658 (1975)

“Government establishes a prima facie case when it introduces evidence sufficient to warrant a finding … that the defendant had, by reason of his position in the corporation, responsibility and authority either to prevent in the first instance, or promptly to correct, the violation complained of, and he failed to do so.”

FDCA “imposes the highest standard of care and permits conviction of corporate officials who, in light of this standard of care, have the power to prevent or correct violations of its provisions.”


Example: Synthes – Norian

Civil investigation RCO pleas

October 4, 2010: Norian paid selected spine surgeons to travel to seminars to learn to use a bone cement to treat spine fractures (a procedure for which it was not FDA-approved) in a “test market” Conduct of illegal clinical trials

Promotion of off-label use

Shipping adulterated and misbranded products

Three patients died from blood clots – could not rule out bone cement as a factor


Synthes – Norian

Settlement Norian pled guilty to 1 felony count and 110 misdemeanor

counts – adulterated and misbranded products introduced into interstate commerce

Paid $22.5 M

Synthes (parent) pled guilty to one misdemeanor count Criminal penalties $669,800

Civil penalties for false claims – $138,000

Repayment of unallowable costs

Forced to sell Norian to avoid exclusion


Synthes – Norian

Norian sale Assets sold to Kensey Nash for $22 M cash ($.5M less than

the fine)

Four executives Pled guilty to misdemeanors a “responsible corporate

officers”

Paid $100,000 fines

In June 2011 presentencing hearing, government asked for prison terms


Example: Maxim Healthcare Services

Civil investigation RCO issues and indictments

Home health service provider charged with: $61 M of fraudulent billing – overstated number of hours of

services provided

Licensed offices billed for services provided by unlicensed offices hidden from government inspectors

Fraudulently represented that supervision was provided

Settlement $20 M criminal penalty

$130 M civil penalties

Deferred prosecution agreement


Maxim

6 individuals (lower-level executives) were indicted

Company terminated senior executives and other employees identified as responsible for the conduct

Company established and filled positions of CEO, Chief Compliance Officer, COO/Chief Clinical Officer, Chief Quality Officer/Chief Medical Officer, Chief Financial and Strategy Officer, and VP of Human Resources, hired a new General Counsel

Not clear if other indictments will issue


Criminal Enforcement: Prosecutions

New & Aggressive FDCA Prosecution Agenda 1/2011: FDA: New Guidance and Procedures re Strict

Liability Criminal Prosecutions FDA to “increase the appropriate use of misdemeanor

prosecutions”

Knowledge of, involvement in, or negligence re offense is notrequired for prosecution

New Regulatory Procedures Manual (RPM) provisions relax prosecution criteria and erode 21 U.S.C. § 335 protections

Criminal enforcement based on discretionary agency consideration of three primary and seven discretionary factors



2011 Primary Factors in Recommending RCO/Park Prosecutions: Individual’s position in the company;

Individual’s relationship to the violation;

Individual’s authority to correct or prevent the violation.



2011 Additional, discretionary factors: whether the violation involves actual or potential harm to the public;

whether the violation is obvious;

whether the violation reflects a pattern of illegal behavior and/or failure to heed warnings;

whether the violation is widespread;

whether the violation is serious;

the quality of the legal and factual support for the proposed prosecution; and

whether the proposed prosecution is a prudent use of agency resources.



Not unreasonable to expect Government to extend aggressive FDCA prosecution agenda to other areas of criminal health-care enforcement and statutes

Medicare Strike Force takedowns

High concern for patient well-being

Concern for public fisc

Congressional pressure to incent corporate compliance through individual officer accountability


Criminal Enforcement: NPAs and DPAs

Non-Prosecution Agreements (NPAs) and Deferred Prosecution Agreements (DPAs) Trend toward standardization (including of provisions giving

USG sole discretion to determine breach) Heaviest use remains FCPA but some health care and SEC

Elan Corp – NPA Drug Misbranding – $203 M penalty; 5 yr CIA Forest Labs – NPA Drug Misbranding – $313M penalty; 5 year CIA

May 2011: U.S. Atty Declares Wright Medical Breach of DPA Sept 2010 DPA resolving Anti-Kickback allegations DPA gave U.S. Atty “sole discretion” to determine breach Collateral consequences; resignations; potential shareholder claims


Example: Forest Labs

Civil FCA claims and investigation criminal pleas by the company but NO permissive exclusion of CEO

September 15, 2010 Levothroid (hypothyroidism) Sold without FDA approval

Celexa and Lexapro (anti-depression drugs) Promoted off-label pediatric use

Paid kickbacks (grants, consulting fees, expensive meals, and entertainment) to physicians to prescribe

False claims resulted


Forest Labs

Criminal and Civil Penalties Against the Company Criminal Offenses and Guilty Pleas

Distributing a misbranded drug (Celexa)

Distributing an unapproved new drug (Levothroid)

Felony obstruction of FDA investigation into Levothroid

Criminal Penalties $150 M fines and $14 M asset forfeiture

Civil Charges & Liability $149 M False Claims Act liability


Forest Labs

April 2011 OIG issued intent to exclude letter to CEO Howard Solomon

Basis for exclusion Solomon was a managing employee of a sanctioned entity

No allegation of wrongdoing

September 2011 OIG decided to close the case without exclusion

HHS cited as the basis for the decision “review of the information in our file and consideration of the information that your attorneys provided to us”


Exclusion

Professional death sentence Cannot work in, for, or provide any item to any entity that

received federal or state health-care program funds

Imposed by HHS OIG

Mandatory (SSA § 1128(a)) Following certain criminal convictions

Permissive (OIG discretion) (SSA § 1128(b)) October 2010 OIG guidance and factors trigger

“presumption” in favor of exclusion


Mandatory Exclusion

Mandatory exclusion – 5 year+ minimum periods Conviction of program-related crimes (5 yrs)

Felony conviction relating to health-care fraud (5 yrs)

Conviction relating to patient abuse or neglect (5 yrs)

Convictions of two mandatory exclusion offenses (10 yrs)

Conviction on 3 or more occasions of mandatory exclusion offenses (permanent exclusion)

Felony conviction involving controlled substance (5 yrs)


Permissive Exclusion

Permissive exclusion under § 1128(b) of the Social Security Act – 15 different grounds One subsection permits exclusion “from participation in

any Federal health care program … [of] [a]ny individual … who is an officer or managing employee … of [a sanctioned] entity”

“Managing employee” means: “individual . . .who exercises operational or managerial control . . . or who directly or indirectly conducts the day-to-day operations of the entity.”

A “sanctioned entity” is an entity that has been convicted of an offense that qualifies for mandatory exclusion or has otherwise been excluded.



Offenses resulting in 1 or 3-year minimum exclusion:

Misdemeanor conviction relating to health care fraud (3 yr)

Conviction relating to non-health care program fraud (3 yr)

Conviction relating to obstruction of an investigation (3 yr)

Misdemeanor conviction involving controlled substance (3 yr)

Claims for excessive charges, unnecessary services, services that fail to meet standards of health care, failure of an HMO to furnish medically necessary services (1 yr)



Offenses where exclusion keyed to triggering event Exclusion under federal or state health-care program (min.

of other exclusion)

Entity controlled by a sanctioned individual (same as the individual)

Individuals controlling a sanctioned entity (min. same as entity)

Entities controlled by a family or household member of an excluded individual where there has been a transfer of ownership/control (same as individual)



Offenses with no minimum exclusion period Fraud, kickbacks, and other prohibited activities

Failure to disclose required information, supply requested information on contractors and suppliers, or supply payment information

Failure to grant immediate access

Failure to take corrective action

Making false statements or misrepresentations of a material fact


October 2010 OIG Exclusion Guidance

Individuals with ownership or control interest in sanctioned entity May be excluded if knew or should have known of the

conduct that led to the sanction

Presumption in favor of exclusion

Presumption may be overcome if OIG finds significant factors weigh against exclusion



Officers and managing employees

Prong 1: Presumption of Exclusion Applies where there is evidence that an individual officer or

managing employee knew or should have known of the conduct giving rise to corporate conviction or exclusion.

The individual bears the burden of showing significant factors against exclusion to overcome the presumption.

Prong 2: No Presumption In the absence of evidence that the individual knew or should

have known of the conduct, the individual may still be excluded. HHS will consider several factors in determining whether exclusion is warranted.



Discretionary Exclusion Factors:

Circumstances/Seriousness of Misconduct

Nature and scope of misconduct (any other misconduct, level of company where occurred)

Was criminal sanction imposed on entity or related entities or on individuals (amount of criminal or civil penalty, length of entity exclusion)

Evidence of actual or potential harm to individuals or financial harm to a federal health-care program or other entity

Isolated incident or pattern of wrongdoing over a significant period of time




Individual’s Role at Sanctioned Entity

Current position, positions held over time and at time of misconduct, degree of individual’s managerial control

Relation of individual’s position to the conduct, was it within the individual’s chain of command




Individual’s Response to Misconduct

Did individual take steps to stop or mitigate the conduct

Did the individual disclose the misconduct, cooperate in investigation?


October 2010 HHS OIG Guidance


Information About the Sanctioned Entity

Has the entity previously been convicted or a crime or found to have administrative or civil liability, or settled with the government; what was the prior conduct?

Size of the entity (employees, revenue, product lines)

Corporate structure (how many subs and their size)


Strategies

Consider more aggressive compliance and defense approaches to civil liability and FCA cases

Attempt to leverage joint DOJ-HHS investigations

Consider and attempt to avoid corporate exclusion as a consequence of civil settlement

Removes a predicate for certain individual exclusions

Know and understand statutory and OIG grounds for permissive exclusion and account for them in Stipulated Facts or settlement documents


OIG Areas of Particular Interest

Home Health Agencies Payments to third parties for items included in HHA payment

Whether claims meet coverage requirements

Appropriateness of services

Relationships between hospices and SNFs

Appropriateness of outpatient therapy services

Payments for off-label anticancer pharmaceuticals and biologicals


Self-Disclosure

OIG program Anti-Kickback violations

Stark Law violations only if also involves a kickback

Must meet minimum threshold

Will likely have to pay back a multiple of the amount

CMS program for Stark Law New

Disclosure to U.S. Attorney (DOJ)

Reporting and Return of Program Overpayments PPACA amendments to FCA effective March 2010


Overpayments: Reporting & Return

PPACA identifies the “retention of any overpayment” as decreasing an “obligation” to the Government in violation of the FCA

Overpayments must be reported in writing and returned to the Government by the later of 60 days after “identification” (undefined) or, for cost-reporting entities, the date the relevant cost report is due

Overpayment violations can FCA liability, treble damages, and monetary penalties, administrative exclusion

“Claims” may be calculated as number of contracts or number of invoices or services

Section 2 of the Improper Payments Information Act of 2002 (31 U.S.C. § 3321 note), as amended, contains some helpful definitions


Compliance

Corporate Executives cannot monitor every company function or claim submission

Companies can implement programs and mechanisms to detect fraud and other wrongdoing

DOJ and OIG expect robust Compliance Programs

The larger the company, the more sophisticated the program

PPACA mandates Compliance Programs HHS Guidance on compliance programs has issued

HHS Rules on mandatory PPACA programs are forthcoming


Essential Elements of a Compliance Program Compliance Officer – should report to Board

Policies and Procedures designed to preventwrongdoing and identify wrongdoing that occurs

Reporting mechanism – “hot line”

Serious actions against wrongdoers

Protection of individuals who report violations and potential violations in good faith

Culture of Compliance

Only thing worse than not having a program is not enforcing it


PPACA Provisions re Compliance Plans

PPACA Compliance Program Provisions Programs required for Medicare/caid and CHIP

providers

OIG to develop core elements

§ 6102—nursing and skilled nursing facilities by March 23, 2013

Must be effective in preventing and detecting criminal, civil, and administrative violations and in promoting quality of care consistent with regulations developed by the HHS

§ 6401—all health care providers – no statutory timetable


OIG Compliance Guidance

February 2, 2011 Federal Register request for comments re PPACA §§ 6102/6401 Compliance Program Elements

2010 Federal Sentencing Guidelines (FSG) Manual Criteria would be basis for core elements:

Written policies & procedures

Designated compliance officers & committee

Training and education programs on policies and procedures

Designated reporting channels that allow anonymous reporting

Internal monitoring and periodic self-audits

Enforcement through publicized disciplinary policy

Respond to offenses and document corrective actions


General Compliance Strategies

Internal reporting and certification Adhere to statutory provisions & rules requiring compliance programs

Review HHS OIG & FDA Rulemakings and Guidance Monitor HHS rulemakings on required compliance elements

OIG website: Compliance Program Guidance (CPG) manuals and case examples

Consider outside billing and coding consultants to identify risks

Understand express and implied certifications

Mitigating potential exclusion and criminal exposure Take steps to minimize corporate exclusion

Review 10/2010 OIG Guidance and factors for permissive exclusion

Know Jan 2011 FDA RPM revisions and RCO guidelines Review internal structures and civil stipulations/settlements carefully


Questions?


Thank You.


Contact Information

Marion GoldbergHealth Care

Washington, D.C.(202) 282-5788

[email protected]

Elizabeth PapezLitigation


[email protected]

Tom MillsHealth Care


[email protected]

© 2011 Winston & Strawn LLP › images › content › 5 › 2 › v2 › 520 › ...Assistant AG Tony West (DOJ Civil) “Unparalleled focus” on “aggressive civil enforcement

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