CMS Releases CY 2018 OPPS and ASC Payment System Final Rules Slashing Reimbursement for the 340B Program

On November 1, 2017 the Centers for Medicare and Medicaid Services (CMS) issued its final rule updating payment rates and policy changes for the Hospital Outpatient Prospective Payment System and Ambulatory Surgical Center Payment System.

The most controversial aspect of the Rule is the significant reductions to reimbursement for drugs purchased through the 340B program. The final Rule reduces reimbursement for such drugs from the Average Sale Price (ASP) plus 6% to ASP minus 22.5%.  CMS indicated that it selected this reimbursement rate based on an analysis previously performed by the Medicare Payment Advisory Commission (MedPAC).  However, this reduction greatly exceeds that suggested by MedPAC who when commenting on the proposed Rule recommended a reduction of only 10% of the ASP.  Thus, it is unclear exactly what CMS ultimately relied upon to determine the appropriateness of the ASP minus 22.5% rate.

These reductions exclude certain facilities including Rural Sole Community Hospitals, Children’s’ Hospitals and PPS-Exempt Cancer Hospitals. The Rule also does not apply to Critical Access Hospitals and non-excepted provider based sites under Section 603 of the Bipartisan Budget Act.  Each of these facilities will continue to be paid at the prior rate of ASP plus 6%.

CMS anticipates this policy will result in a decrease of $1.6 billion in drug payments which will be redistributed to non-drug items and services throughout the OPPS to maintain budget neutrality. CMS indicates that overall OPPS payments will increase in 2018 by 1.4%.  Nevertheless, 340B facilities will see significant decreases in drug reimbursement in CY 2018.

Unsurprisingly, the reductions in 340B reimbursement have been met with great criticism from the impacted parties. Indeed, within two weeks of the issuance of the final rule several hospital associations and hospitals filed suit seeking to enjoin the implementation of this provision in the CY 2018 OPPS Rule.  The government has moved to dismiss and a hearing on the matter is scheduled for December 21, 2017.

While the reduction in 340B payments is the most significant change in the final Rule, there are several other aspects of the Rule worth commenting on:

  • The Rule increases OPPS payment rates by 1.35% and ASC payment rates by 1.2%.
  • The Rule removes Total Knee Arthroplasty from the Medicare inpatient only list, thereby allowing reimbursement for such procedures performed on an outpatient basis.
  • The Rule also establishes a new modifier, “FY” to be used to identify X-rays taken using computed radiography technology. Claims submitted with this modifier will be subject to phased-in payment reductions of 7% for services provided in CY 2018 through CY 2022 and 10% for services provided in or after CY 2023.
  • The Rule will also allow laboratories to bill Medicare directly for molecular pathology tests and advanced diagnostic laboratory tests in order to reduce concerns that the current date of service policy known as the “14 Day Rule” creates operational burdens for hospitals and laboratories.

Absent the Court issuing a preliminary injunction in the previously mentioned lawsuit, each of these rule changes will become effective January 1, 2018.

New Jersey Bill Limits Exchange of Information between Insurers and Behavioral Health Providers

On November 21, 2016, Senator, Robert M. Gordon, proposed Senate Bill No. 2805 which is intended to limit the scope of information which can be exchanged between behavioral health providers and insurance carriers. Following recent testimony earlier this month on the bill, it passed the Senate Subcommittee on Commerce and appears primed to makes it way before the full Senate and Assembly in the near future.

The bill specifically prohibits a behavioral health provider from providing, and insurance carriers from requesting, any information regarding a behavioral health patient except the following:

  1. the patient’s name, age, sex, address, educational status, identifying number with in the insurance program, date of onset of difficulty, date of initial consultation, dates of sessions, whether the sessions are individual or group sessions and fees;
  2. diagnostic information defined as therapeutic characterizations of the type found in the current version of the Diagnostic and Statistical Manual of Mental Disorders or in another professionally recognized diagnostic manual;
  3. status of the patient as voluntary or involuntary and inpatient or outpatient;
  4. the reason for continuing behavioral health care services, limited to an assessment of the patient’s current level of functioning and level of stress, to be describes only as “none,” “mild,” “moderate,” “severe,” or “extreme;” and
  5. prognosis, limited to an estimate of the minimal time during which treatment might continue.

In the statement proposing the Bill, Senator Gordon stated that “in certain circumstances health insurance carriers have requested, as part of utilization management, information from mental health care providers that the providers are prohibited from disclosing pursuant to the rules and regulations of the providers professional licensure.” The statement did not identify the specific information that has been requested but went on to explain that the Bill is intended to reconcile that conflict by clearly limiting the information that is permitted to be shared between those parties.

On June 1, 2017, the New Jersey Senate Subcommittee on Commerce took testimony from several individuals in favor of the Bill.  Several other individuals had submitted statements in favor of the Bill with only one individual submitting opposition to the proposed Bill.   The individual opposing the Bill did not testify before the subcommittee.

The subcommittee unanimously voted in favor of the Bill.  The only concern was raised by Senator Cardinale who indicated the Bill did not provide any penalty for insurers who request information beyond the scope of that permitted by the Bill.  He suggested that he would speak to Senator Gordon about adding a provision related to same.

It appears this Bill has a great deal of momentum behind it.  Absent additional revisions to the Bill based on Senator Cardinale’s concerns, it will likely go before the full Senate and Assembly in the near future and eventually be presented to the Governor.

DC Circuit Rejects Attempt to Revive Anthem-Cigna Merger

On April 28, 2017 the United States Court of Appeals for the District of Columbia Circuit, in a split decision, upheld the District Court’s earlier ruling enjoining a merger between Anthem, Inc. (“Anthem”) and Cigna Corporation (“Cigna”) based on the merger’s anticompetitive effects.  The proposed merger was described by the Court as being “the largest in the history of the health insurance industry, between two of four national carriers.”

The appeal had been pushed mostly by Anthem with the Court noting that Cigna was a “reluctant supporter.”  Anthem did not challenge the anticompetitive effects of the increased market share created by the merger which would reduce the number of insurers in the relevant market from four to three.  Rather, Anthem argued that those anticompetitive effects would be outweighed by the efficiencies resulting by combining Cigna’s superior product with Anthem’s lower rates.

Anthem argued that the merged company would realize $2.4 billion in medical cost savings through its ability to (1) rebrand Cigna customers as Anthem to access Anthem’s existing lower rates; (2) exercise a clause in some of Anthem’s provider agreements to permit Cigna customers to obtain Anthem rates; and (3) renegotiate lower rates with providers. Anthem claimed that 98% of these cost savings would be passed through to its customers. The District Court rejected Anthem’s efficiencies defense finding each strategy cited by Anthem to obtain these efficiencies was either likely to fail in the face of business reality or could be achieved by each company without the merger.

Writing for the divided three judge panel, Judge Rodgers found the District Court did not abuse its discretion in rejecting the proposed merger.  Judge Rodgers noted that the evidence presented by Anthem did not support a conclusion that any efficiencies obtained through rebranding were merger specific because they were based on the application of rates that each of the companies had already earned on their own.  Additionally, Judge Rodgers indicated that the ability to obtain lower rates through the renegotiation of provider contracts was speculative and therefore could not outweigh the anticompetitive effects of reduced competition.

Judge Millett issued a concurring opinion which attacked Anthem’s claim of lowered costs to its consumers claiming such decreases would come at the cost of lesser services, stating “[p]aying less to get less is not an efficiency; it is evidence of the anticompetitive consequences of reducing competition and eliminating an innovative competitor in a highly concentrated market.”  Judge Millett also dismissed Anthem’s claim that the merged entity’s ability to negotiate lower rates with providers was procompetitive.  In this regard, Judge Millett indicated that “securing a product at a lower cost due to increased bargaining power is not a procompetitive efficiency when doing so ‘simply transfers income from supplier to purchaser without any resource savings.’”

Judge Kavanaugh in dissent looked at the weight of the evidence differently.  While the majority concluded that Anthem’s ability to negotiate lower rates indicated an ability for Cigna to do the same, the dissent found that Cigna’s inability to do so to date demonstrated that any ability to do so in the future would be caused solely by the merger.  Judge Kavanaugh also rejected the majority’s conclusion that the merged entity’s ability to renegotiate provider rates was speculative. Based on those determinations, Judge Kavanaugh concluded that the consumer would obtain significant procompetitive benefits in the form of lower costs which sufficiently outweighed any anticompetitive effects of decreased competition.

The fact that the Circuit Court issued a divided decision would lead one to conclude Anthem will seek further review from the United States Supreme Court.  However, the Court’s description of Cigna as a “reluctant supporter” may indicate that conflicts between the companies will prevent them from seeking further review.  Only time will tell.


Governor Christie Signs Bill Aimed at Combating Opioid Abuse

On February 15, 2017 Governor Christie signed into law P.L. 2017, c. 28, Senate No. 3 designed to curb the ongoing opioid abuse epidemic facing the State of New Jersey.  The scope of the overwhelming opioid epidemic facing the State was demonstrated by the bipartisan support the bill received.  Indeed, the bill passed with virtually no opposition, passing with a Senate vote of 33-0 and an Assembly vote of 64-1 with 5 abstentions.

The bill takes a multipronged approach to combating the ongoing opioid crisis by: (1) requiring insurance companies to provide coverage for both inpatient and outpatient substance abuse treatment; (2) limiting the amounts of opioid medications practitioners can prescribe; and (3) imposing additional continuing education requirements on the medical community.

In regard to insurance coverage, the bill requires insurers to provide 180 days per plan year of inpatient and outpatient treatment of substance abuse disorders when determined to be medically necessary by the patient’s physician, psychologist or psychiatrist without the need for any prior authorization.  The bill further prohibits any retrospective or concurrent review of medical necessity for the first 28 days of inpatient or intensive outpatient substance abuse treatment.

Thereafter, inpatient treatment may be subject to concurrent review which cannot be initiated more frequently than two week intervals.  However, the law provides the patient with both internal and external review processes on an expedited basis if the insurer’s review determines treatment is no longer medically necessary.  Moreover, even if the insurer’s determination is upheld on appeal, the patient cannot be discharged until after all appeal rights have been exhausted and the insurer must provide benefits through the date following the final determination.

Conversely, outpatient treatment after the initial 28 days may be subject to retroactive review of medical necessity by the insurer.  Nevertheless, it is not until the first 180 days of either inpatient or outpatient substance abuse treatment has passed that further treatment can be subject to preauthorization by the insurer.

The bill further limits initial prescriptions of opioid medications to a five day supply which shall be for the lowest effective dose of the immediate-release opioid medication.  Prior to issuing an initial prescription a practitioner is required to: (1) take and document a thorough medical history, including the patient’s past experience with non-opioid medication and pain management techniques, and the patient’s substance abuse history; (2) conduct and document a physical examination of the patient; (3) develop a treatment plan focused on determining the cause of the patient’s pain; and (4) access relevant information from the Prescription Monitoring Program.

Four days after the issuance of an initial opioid prescription, a practitioner may issue a subsequent prescription for up to a thirty day supply. However, such prescriptions may be written only if: (1) the patient’s prior prescription for the opioid drug was given within the last year; (2) the practitioner determines the subsequent prescription is necessary and appropriate to the patient’s treatment needs and documents his or her rationale for that determination; and (3) the practitioner determines and documents that the subsequent prescription does not present an undue risk of abuse, addiction or diversion.

Moreover, if a third prescription for opioid medication is given the practitioner must enter into a “pain management agreement” with the patient.  The “pain management agreement” is a written contract executed between practitioner and patient which is designed to: (1) prevent the development of physical or psychological dependence; (2) document both the practitioner’s and patient’s understanding of the pain management plan; (3) establish the patient’s rights in regard to treatment  and obligations associated with the use and storage of opioid medications; (4) identify the specific medications and other modes of treatment that are included in the pain management plan; (5) specify the measurers the practitioner may employ to ensure the patient’s compliance, including random specimen screens and pill counts; and (6) establish the process for terminating the agreement, and consequences if the practitioner has reason to believe the patient is not complying with the agreement.

Furthermore, the bill attempts to ensure that patients taking these medications are doing so with informed consent.  To do so, prior to issuing the first and third prescriptions of an opioid drug a practitioner is required to discuss with the patient, or the patient’s parent or guardian if under 18 years of age, the risks associated with the drugs being prescribed.  This discussion must include, but is not limited to: (1) the reasons the prescription is necessary; (2) alternative treatments that may be available; and (3) the risks of addiction and overdoes associated with the drugs being prescribed, including that: (i) opioids are highly addictive, even when taken as prescribed; (ii) that there is a risk of developing physical of psychological dependence on the drug; and (iii) that taking more opioids than prescribed, or mixing opioids with alcohol, sedatives or benzodiazepines can result in fatal respiratory depression.  A record of these discussions must be documented in the patient’s chart.

There are additional requirements on practitioners treating patients requiring long term treatment, exceeding three months, from opioid medications.  Under those circumstances, the practitioner must: (1) at a minimum of every three months, review and document the course of treatment, any new information regarding the source of the pain and the patient’s progress toward treatment objectives; (2) determine and document whether the patient is experiencing problems associated with physical and psychological dependence prior to each prescription renewal; (3) periodically make and document reasonable efforts, unless clinically contraindicated, to stop the use of opioid medications by attempting other medications or treatments to reduce the potential for abuse or dependency; (4) review Prescription Drug Monitoring information; and (5) monitor compliance with the pain management agreement.

Finally, the bill adds additional continuing education requirements on practitioners.  Specifically, to meet their continuing education requirements practitioners are now required to complete at least one credit per compliance period of educational programs on topics or issues concerning prescription of opioid medications including responsible prescribing, alternatives for managing and treating pain and the risks and signs of opioid abuse, addiction and diversion.  These continuing education requirements apply to physicians, physician assistants, nurses, advanced practice nurses, optometrists, dentists and pharmacists.

The new bill is a significant attempt to curb the opioid epidemic facing New Jersey.  While it remains to be seen how effective these attempts will be, if success is shown, given Governor’s Christie’s recent appointment by President Trump as the chairman to the White House’s commission to combat America’s opioid problem, this bill may form the basis for federal attempts to combat this nationwide epidemic.

Say Goodnight To The Two Midnight Rule’s Payment Reductions

The Two Midnight Rule, which was introduced as part of CMS’ FY 2014 Inpatient Prospective Payment System (“IPPS”) rule, dictates that when a physician expects a beneficiary to require care that crosses two midnights and admits the beneficiary based on that expectation, Medicare Part A payment is generally appropriate.  Conversely, if the beneficiary’s hospital stay is expected to be less than a period spanning two midnights, payment under Medicare Part A is generally inappropriate.

Because CMS anticipated significant increases in expenditures as a result of the Two Midnight Rule, CMS exercised the Secretary’s “broad authority” under 42 U.S.C. 11395ww(d)(5)(I)(i) to impose a 0.2% reduction to the national capital federal rate in FY 2014 to offset the anticipated increase in expenditures.  That same reduction was applied to the national capital federal rate in FY 2015 and FY 2016 as well.

In connection with the adoption of the Two Midnight Rule numerous commenters questioned the validity of the Secretary’s prediction of increased expenditures, upon which the decision to reduce rates was based. However, CMS never addressed these comments in detail when adopting its final rule except to say that the reductions were an appropriate use of the Secretary’s statutory exceptions and adjustments authority.

Having not received an adequate response to their comments during the rule making process, numerous hospitals filed suit challenging the 0.2% reduction. Several of those suits were consolidated before the United States District Court for the District of Columbia under the caption Shands Jacksonville Medical Center, et al. v. Burwell, Consolidated Civil Case Nos. 14-263, 14-503, 14-536, 14-607, 14-976, 14-1477 (the “Shands Litigation”).

On September 21, 2015 the Court in the Shands Litigation found that the Secretary’s failure to disclose critical assumptions made by the actuaries who calculated the alleged increase in expenditures, which was relied upon to impose the 0.2% reduction, failed to meet the standards of the Administrative Procedures Act by depriving the public of a meaningful opportunity to comment on the proposed rule. As a result, the Court remanded the matter back to the agency for further proceedings regarding the adequacy of the 0.2% reduction.

After remand, CMS issued public notice of the basis for the 0.2% reduction and its underlying assumptions.  As a result of the comments received to that public notice, CMS eliminated the 0.2% reduction for FY 2017 in connection with the FY 2017 IPPS final rule.  Additionally, CMS adjusted the FY 2017 capital IPPS rate to effectively eliminate the impact of the 0.2% reduction to rates in previous years by implementing a one-time prospective adjustment of 1.006 in FY 2017 to the national capital Federal rate.

Despite implementing this adjustment, CMS denies any error and continues to maintain that “the assumptions underlying the 0.2% reduction to the rates put in place beginning in FY 2014 were reasonable at the time we made them in 2013.”  Nevertheless, whether CMS recognized its error, or felt compelled to make this change as a result of the Shands Litigation, the end result is the same for hospitals throughout the country.  They have been relieved of the burden imposed by the 0.2% reduction associated with the adoption of the Two Midnight Rule.


Catholic Hospital Not Covered By ERISA’S Religious Exemption

The U.S. Court of Appeals for the Third Circuit in Kaplan v. St. Peter’s Healthcare System, has ruled that St. Peter’s Healthcare System’s (“St. Peter’s”) pension plan is not entitled to a religious exemption under the Employee Retirement Income Security Act (“ERISA”).

In May 2013, Laurence Kaplan, a former St. Peter’s employee filed a putative class action suit against St. Peter’s alleging, among other things, that St. Peter’s pension plan was significantly underfunded. St. Peter’s moved to dismiss the Complaint arguing that it qualified under Section 4(b)(2) of ERISA for a church plan exemption and was thus not required to comply with the provisions of ERISA which Kaplan claimed it had violated. The District Court disagreed with St. Peter’s who then sought review from the Third Circuit. 

The Third Circuit acknowledged that in the last few decades various courts “have assumed that entities that are not themselves churches, but have sufficiently strong ties to churches can establish exempt church plans.” However, the Court did not find those cases to be controlling stating that the current case is part of a “new wave of litigation” which argues that the definition of church plan precludes that result. Lower courts which have addressed this current “new wave of litigation” have been split in their decisions. 

ERISA § 3(33)(A) defines a church plan as “a plan established and maintained . . . for its employees (or their beneficiaries) by a church or a convention of churches.” Section 3(33)(c)(i) further clarifies that a “plan established and maintained” by a church “includes a plan maintained by an organization . . . controlled by or associated with a church or a convention of churches.” 

St. Peter’s argued that the clarification in Section 3(33)(c)(i) annulled the requirement that a church establish a plan in order for it to qualify for an exemption. The Court, however, relying on the plain language of the statute as well as various canons of statutory construction, found that the provision merely expanded the definition of church plan to include plans maintained by other tax exempt organizations. It did not, as St. Peter’s contended, eliminate the requirement that the plan be established by a church or convention or association of churches. Accordingly, the Court found St. Peter’s could not rely upon the church plan exemption to avoid the obligations imposed by ERISA. 

This decision will have a serious impact on religious based healthcare organizations as it imposes significant reporting and funding obligations on those organizations. However, this is unlikely to be the last word on the subject. It is anticipated that St. Peter’s will seek certiorari and the same issue is currently being addressed by the Seventh Circuit in Stapleton v. Advocate Health Care Network where the Court heard argument on September 18, 2015. Should the Seventh Circuit rule contrary to the Third, there is a good possibility the matter may ultimately be decided by the United States Supreme Court.

High Court to Weigh Healthcare Providers’ Standing to Sue States Over Medicaid Reimbursement

On January 20, 2015, the United States Supreme Court heard oral arguments in the matter of Armstrong v. Exceptional Child Care Center, et al., regarding whether healthcare providers have a right to challenge Medicaid reimbursement rates under the Supremacy Clause and Section 30(A) of the Federal Medicaid Statute or whether only the federal government is allowed to challenge rates during its approval process.

In Armstrong, a group of service providers for developmentally disabled Medicaid patients sued the State of Idaho for failing to increase Medicaid payments for several years.  Specifically, the Idaho Legislature disregarded cost studies performed by its agency which suggested the need for increased Medicaid reimbursement and instead continued to freeze rate increases through the appropriations process due entirely to budgetary considerations.  The District Court ruled in favor of the providers finding that the Legislature could not rely solely on such considerations in determining Medicaid reimbursement. The matter was appealed to the Ninth Circuit on the issue of whether the providers had standing to file such claims. The Ninth Circuit affirmed the lower court’s decision.

This case follows a long history of provider lawsuits challenging Medicaid rates under Section 30(A) which have generally been rejected by the Courts. See, Pa. Pharmacists Ass’n v. Houston, 283 F.3d 531 (3rd Cir. 2002); See also Sanchez v. Johnson, 416 F.3d 1051, 1058-1062 (9th Cir. 2005) (“[T]he flexible, administrative standards embodied in [§30(A)] do not reflect a Congressional intent to provide a private remedy for their violation”).  However, the Supreme Court, until now, has never specifically ruled on the issue.

While it is unclear how the Supreme Court will come down on the issue, its previous handling of the issue may provide some insight.  In a 2012 case from California entitled Douglas v. Independent Living Center of Southern California, 132 S.Ct. 1204 (2012), the Court was set to address this exact issue. However, the Court never clearly affirmed or negated the providers’ right to sue.  Rather, after the regulations at issue were approved by CMS, the matter was remanded back to the Circuit Court and then to the District Court.  However, four Justices (Roberts, Scalia, Thomas and Alito) issued a dissent which stated that without explicit language from Congress providing for the right to sue, private parties, such as providers or patients, should not be able to challenge Medicaid fees.

Based on the dissent issued by the four Justices, it will take a full complement of the remaining Justices to decide in favor of the providers in order for them to succeed on this appeal.  While it is unlikely that the Court will rule in favor of the providers, such a decision could lead to a flood of litigation by healthcare providers who have historically been inadequately reimbursed through the Medicaid program.  A decision is anticipated to be issued in late spring.

U.S. District Court Finds the Use of Extrapolation Evidence to Establish Liability Permissible in False Claims Act Litigation

The use of statistical sampling and extrapolation evidence has long been used to determine overpayment amounts in administrative agency decisions.  Such techniques have also been permitted to establish the quantum of damages in False Claims Act (“FCA”) cases once liability has been established.  However, courts have only permitted extrapolation evidence to prove liability in FCA cases under rare circumstances such as when a default judgment has been entered, U.S. v. Cabrera-Diaz, 106 F.Supp. 2d 234 (D. P.R. 2000) or where evidence presented to the jury provided a reasonable basis to find the defendants had a “policy and practice” of submitting false claims. U.S. ex. Rel. Loughren v. Unum Provident Corp., 604 F.Supp.2d 258 (D. Mass. 2009).

On September 29, 2014 the United States District Court for the Eastern District of Tennessee was asked to determine whether the Government could establish liability under the FCA based on extrapolation evidence.  The court answered in the affirmative.

In U.S. ex. Rel. Martin and Taylor v. Life Care Centers of America, Inc., Case No. 1:08-cv-251 a qui tam FCA claim was asserted against Life Care Centers of America (“Life Care”), a corporation headquartered in Cleveland, Tennessee which owns over 200 skilled nursing facilities. The allegations against Life Care were that (1) it pressured its therapists to target Ultra High Resource Utilization Groups (“RUG”) levels and longer average length of stay period for patients in order to maximize its Medicare revenue; (2) it billed Medicare for services that were “medically unreasonable, unnecessary, and unskilled”; and (3) it knew it was billing for medically unreasonable, unnecessary and unskilled services based on numerous complaints by its employees to Life Care’s compliance officer and corporate Rehabilitation Services offices which were either ignored, minimized or retaliated against.

When the Government indicated that it would not undertake a claim-by-claim review but rather use a random sample and extrapolate it to the universe of claims, Life Care moved for partial summary judgment claiming liability could not be determined in such a manner.  In a detailed decision, the court denied Life Care’s motion finding that such evidence could be presented by the Government but that the weight accorded to that evidence would be left to the fact finder.  The court believed that categorically “limiting FCA enforcement to individual claim-by-claim review would open the door to more fraudulent activity because the deterrent effect of the threat of prosecution would be circumscribed.”

The court reviewed each element of an FCA claim and determined that the Government would be able to rely on statistical sampling and extrapolation to establish each.  However, there was one notable exception.  As to the element of knowledge, the Government indicated that it would not be using statistical sampling as proof. Rather the Government would proffer “evidence of [Life Care’s] corporate practice and pressure, and that Life Care knew those practices likely caused the submission of false claims given the complaints it received nationwide from its employees.”  Because such evidence would establish that Life Care acted “in reckless disregard of the truth or falsity of the information” it could potentially establish the knowledge required under the statute. 31 U.S.C. 3729(b)(1).

Ultimately, the case falls within the same category as United States ex. rel. Loughren v. Unum Provident Corp., 604 F.Supp.2d 259 (D. Mass. 2009) which allows liability to be established through evidence that a defendant’s “policy and practice” was to submit false claims.  The court specifically held that based on the Government’s representation as to the type of evidence it would present (no evidence was actually presented to the trial court) it was not attempting to use the “collective knowledge” theory to establish scienter; a theory which has never been successfully applied to an FCA case before.

Nevertheless, the limited instances where extrapolation evidence has been permitted to be used to establish FCA liability makes this a significant development in FCA case law.  It will be interesting to see what weight the jury places on this evidence should the matter proceed to trial and what weight other courts will give to this decision.

Third Circuit Adopts More Liberal Pleading Standards For Claims Brought Under The False Claims Act

On June 6, 2014, the United State Court of Appeals for the Third Circuit issued a decision in Foglia v. Renal Ventures Management, LLC, Docket No. 12-0450, which reversed the New Jersey District Court’s dismissal of a False Claims Act (“FCA”) case for failure to satisfy the heightened pleading requirements in F.R.C.P. 9(b).

Foglia was a registered nurse formerly employed by the defendant, Renal Ventures Management, LLC (“Renal”), a dialysis care company.  Foglia alleged Renal violated the FCA by falsely certifying that it was in compliance with state regulations related to quality of care, falsely submitting reimbursement claims for the drug Zemplar, and reusing single-use Zemplar bottles.  The Disctrict Court granted Renal’s 12(b)(6) motion finding that because Foglia failed to “identify representative examples of specific false claims made to the Government” his pleading did not meet the standard of F.R.C.P. 9(b).

In reviewing the matter, the Third Circuit stated that it had not previously ruled specifically on what F.R.C.P. 9(b) requires of a FCA claimant, and noted that the other Circuits were split as to the appropriate requirements.  The Fourth, Sixth, Eighth and Eleventh Circuits require a FCA plaintiff to show “representative samples” of the alleged fraudulent conduct, specifying the time, place, and content of the acts, and the identity of the actors.  Conversely, The First, Fifth and Ninth Circuits require only that the plaintiff allege “particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted.”

The Third Circuit ultimately adopted the more nuanced standard of the First, Fifth and Ninth Circuits.  In doing so, it pointed out that “it is hard to reconcile the text of the FCA, which does not require that the exact content of the false claims in question be shown, with the ‘representative samples’ standard favored by” the other Circuits.  The court further noted that in a recent brief for the United States, as amicus curie, the Solicitor General indicated that the United States believed the more rigid standard followed by the Fourth, Sixth, Eighth and Eleventh Circuits, undermined the effectiveness of the FCA to combat fraud against the United States.

The Third Circuit ultimately reversed the District Court’s decision and remanded the matter for further proceedings.  A copy of the Third Circuit’s decision can be found here.

As Open Enrollment Closes, Secretary Sebelius Steps Down

On Friday April 11, 2014 President Obama announced the resignation of Health and Human Services Secretary Kathleen Sebelius.  The announcement comes after months of derision and calls for her resignation from Republican lawmakers following the troubled rollout of the website.

Despite the difficulties of the past several months, Secretary Sebelius’ resignation comes at what many supporters consider a high point, only days after the March 31, 2014 enrollment deadline under the Affordable Care Act during which more than 7 Million people enrolled for insurance coverage.

In connection with the resignation announcement, President Obama nominated Sylvia Mathews Burwell, the current Director the Office of Management and Budget, as Secretary Sebelius’ replacement.

The choice of Burwell as replacement may signal that the President wants to avoid a contentious election year fight to fill the HHS post as Burwell was unanimously confirmed by the Senate to her current post just last year.  However, given the current contentious atmosphere in Washington, particularly as it relates to the Affordable Care Act, it is hard to believe the confirmation process will be as easy this time around.

Nevertheless, Burwell’s confirmation is nearly assured. With the recent rule changes on most executive and judicial branch nominations, Democrats need only 51 votes to confirm her, and the party controls 55 votes in the chamber.