Health Care Reform: The Regulatory, Compliance, and Fraud and Abuse Developments Providers Must Understand Now

The federal health care reform legislation (collectively, the Reform Law) includes significant changes that affect the regulatory compliance and enforcement landscape for the industry. Some of the changes are not slated to occur for years, and might undergo significant revision (or even repeal) before they become effective. Others are implemented immediately.

This advisory highlights the provisions in the Reform Law relating to regulatory compliance and fraud and abuse enforcement1 that we believe health care providers need to know about now.

The government will establish a Stark self-disclosure protocol. The Reform Law directs the secretary of the Department of Health and Human Services (HHS) to develop a formal protocol for disclosing actual or potential violations of the Stark law by Sept. 23, 2010. This is a welcome change. Despite repeated industry requests, the Centers for Medicare and Medicaid Services (CMS) had failed to develop a self-disclosure process on its own initiative.

The government may compromise penalties for Stark violations. The Reform Law gives CMS explicit authority to settle Stark violations for less than the full amount Medicare paid while the prohibited financial relationship was in effect. Again, this is good news for health care providers. CMS had historically taken the position that it lacked the authority to compromise the amount owing as a result of a Stark violation.

It is easier for the government to obtain a conviction under the Anti-Kickback Statute (AKS). The AKS requires the government to prove that the defendant’s actions were “knowing and willing.” Under the case law in the Court of Appeals for the 9th Circuit (essentially the West Coast), the courts had interpreted that language to require that the defendant knew that specific conduct was prohibited by the AKS and engaged in that conduct with the specific intent to violate the law. The Reform Law rejects this standard and provides that “a person need not have actual knowledge” that the AKS prohibits a particular conduct, and the government is not required to prove “specific intent to commit a violation of” the AKS.

Anti-kickback violations as the basis for False Claims Act (FCA) suits. The Reform Law includes a provision that explicitly acknowledges that claims for items and services ordered or provided as a result of an arrangement that violates the AKS are false claims under the FCA.

Some physicians need to disclose imaging competitors. Retroactive to Jan. 1, 2010, a physician referring a Medicare patient for certain imaging services provided by the physician’s group practice pursuant to the in-office ancillary services exception to the Stark law must inform the patient that he/she can obtain the imaging services from another provider and give the patient a list of alternative providers. (The Reform Law is silent on how the disclosure was to occur before the law was enacted.)

No new physician-owned hospitals. The Stark law includes an exception that allows physicians to own a hospital to which they refer. The Reform Law amends this exception to preclude the establishment of new physician-owned hospitals. Hospitals that have physician ownership in place and a provider agreement with Medicare as of Dec. 31, 2010, may continue to operate, but such hospitals may not expand the number of operating rooms, procedure rooms or beds at their facilities. The amount or percentage of physician ownership in a hospital may not be increased above the level that existed as of Dec. 31.

Return of overpayments. The Reform Law includes a provision requiring providers to report and return overpayments (potentially including overpayments received in connection with Stark or AKS violations) within 60 days of discovering the excess reimbursement. The 60-day period begins when the person “knows” of the overpayment.

Miss the deadline, violate the FCA. Retaining an overpayment after 60 days is defined as an “obligation” under the FCA and the failure to discharge an obligation violates the FCA.

Voluntary compliance programs may soon no longer be voluntary. The secretary of HHS has the authority to require specific types of providers and suppliers to implement compliance programs as a condition of participating in Medicare or Medicaid. It is not clear how broadly the secretary will exercise that power, but any group that has received guidance on “voluntary” compliance plans (e.g., small group medical practices, hospitals, skilled nursing facilities), should consider themselves a candidate.

Make a false statement, get excluded. Any individual or entity that knowingly makes or causes to be made a false statement, omission or misrepresentation of a material fact in an application to participate or enroll in Medicare or Medicaid can be excluded.

New civil money penalty (CMP) provisions. Under the Reform Law the secretary is empowered to impose CMPs: (1) if an excluded provider orders Medicare/Medicaid services; (2) if an individual or entity knowingly makes a false statement or omission on a Medicare/Medicaid enrollment application; or (3) if an individual or entity enrolled in Medicare or Medicaid fails to report and return an overpayment.

Suspension of payments based on “credible allegations.” The Secretary may suspend payments to a provider pending an investigation of a “credible allegation of fraud.” The Reform Law, however, does not define what constitutes “credible allegations of fraud.”

Computers talking to computers. The HHS secretary will establish a national health care fraud and abuse data collection program for reporting adverse actions taken against health care providers, suppliers and practitioners, and submit information on the actions to the National Practitioner Data Bank (NPDB).

Excluded in one state or from one program, excluded from all. States must terminate individuals or entities from their Medicaid programs if the individuals or entities were terminated from Medicare or another state’s Medicaid program. Medicaid agencies must exclude individuals or entities from participating in Medicaid if the entity or individual owns, controls or manages an entity that: (1) has failed to repay overpayments; (2) is suspended, excluded or terminated from participation in any Medicaid Program; or (3) is affiliated with an individual or entity that has been suspended, excluded or terminated from Medicaid participation.

Name, rank and serial number. Agents, clearinghouses or other payees that submit claims on behalf of health care providers must register with the state and the secretary. States and Medicaid managed care entities must submit data elements for program integrity, oversight and administration. States must not make any payments for items or services to any financial institution or entity located outside of the United States.

More dollars for enforcement. Starting in 2011, the Reform Law increases funding for health care enforcement activities by $250 million over five years.

The scope of the Reform Law is daunting. Health care providers will need to consider the changes to the regulatory and enforcement landscape in order to make informed decisions and effectively manage their risks.


1 This advisory focuses only on regulatory and fraud and abuse matters, and does not address other changes in the law—e.g., tax exemption, health insurance, enrollment, level of reimbursement, accountable care organizations, programmatic innovations, demonstration projects—that are not currently in effect. We will continue to update you in all areas of health reform as they evolve.