Nonprofit hospitals: state and local tax authorities are again questioning tax-exemptions

Here's a great article from Kaiser Health News (July 11) on recent controversies over tax exemptions for hospitals. 

Tax-exempt status is not a "right"; it has to be earned. That means -- among other things -- that executive pay can't be excessive (or else the tax authorities will conclude the hospital is being run for private and not public benefit) and there has to be a convincing showing of tangible public benefit (uncompensated charity care, educational programs, research, etc.). 

The Kaiser piece starts with an example of the stakes involved in a typical case:

The public school system [in Pottstown, PA] had to scramble in 2018 when the local hospital, newly purchased, was converted to a tax-exempt nonprofit entity.

The takeover by Tower Health meant the 219-bed Pottstown Hospital no longer had to pay federal and state taxes. It also no longer had to pay local property taxes, taking away more than $900,000 a year from the already underfunded Pottstown School District, school officials said.

The district, about an hour’s drive from Philadelphia, had no choice but to trim expenses. It cut teacher aide positions and eliminated middle school foreign language classes.

“We have less curriculum, less [sic] coaches, less transportation,” said Superintendent Stephen Rodriguez. 

The school system appealed Pottstown Hospital’s new nonprofit status, and earlier this year a state court struck down the facility’s property tax break. It cited the “eye-popping” compensation for multiple Tower Health executives as contrary to how Pennsylvania law defines a charity.  

The court decision, which Tower Health is appealing, stunned the nonprofit hospital industry, which includes roughly 3,000 nongovernment tax-exempt hospitals nationwide.

The nonprofit hospital industry should not have been stunned. A wave of official scepticism over claims of tax-exempt status was ushered in at least 38 years ago with the case of Utah County v. Intermountain Healthcare, Inc., 709 P.2d 265 (Utah 1985). And jurisdiction after jurisdiction has viewed tax-exempt hospitals through a critical lens, often concluding that the hospitals in question were virtually indistinguishable from their for-profit competitors and that the public benefits from the nonprofits were too scant to justify the foregone tax receipts. 

This might be less of a problem if the IRS still required some level of charity care for a hospital to qualify for federal tax exemption, as it did from 1956 to 1969. (Compare Rev. Ruling 56-185 (exempt hospital must be operated "to the extent of its financial ability for those not able to pay for the services rendered") with Rev. Ruling 69-545 ("Revenue Ruling 56-185 is hereby modified to remove therefrom the requirements relating to caring for patients without charge or at rates below cost").) See GAO, Tax Administration: IRS Oversight of Hospitals' Tax-Exempt Status (April 26, 2023).

Obamacare added § 501(r) to the Internal Revenue Code to address certain aspects of the problem created by Rev. Rul 69-545, but it did not change the fundamental rule that a hospital may obtain tax-exempt status without offering a drop of unreimbursed charity care.

For its part, Texas (for once) far exceeds the federal standard by requiring minimum amounts of community benefit -- specifically including unreimbursed charity care and government-sponsored indigent health care -- in order for a hospital to qualify as a nonprofit entity under § 311.045 of the Health & Safety Code and for tax-exempt status as a charity under § 11.1801 of the Tax Code. 

COVID-19: GAO Recommendations Can Help Federal Agencies Better Prepare for Future Public Health Emergencies

There's a general consensus that COVID-19 exposed gaps in this country's state and federal public health infrastructure (in the broadest sense of that word). So when Congress passed the CARES Act, it included a provision for the Government Accountability Office (GAO) to report regularly on the public health and economic effects of the pandemic and the federal response. 

GAO's most recent report was issued yesterday (July 11; quick summary). This report includes the topics of (1) public health preparedness, (2) improper payments and fraud, (3) vulnerable populations, (4) distribution of federal COVID-19 funding, and (5) COVID-19 and the economy. It also includes updates for selected indicators related to public health, the economy, and federal COVID-19 funding and spending.

The report provides a wealth of information on how the federal government's $4.7 trillion pandemic-related expenditures have been spent. It also reviews the major areas in which our response was not up to the task. Finally, the report "includes several key data updates and five enclosures that summarize and highlight standalone reports issued from April 2022 (the date of our last comprehensive report) through April 2023 on the following topics: public health preparedness, improper payments and fraud, vulnerable populations, distribution of federal COVID-19 funding, and COVID-19 and the economy." 

New Advisory Opinion from HHS/OIG

It's OIG Advisory Opinion No. 23-04 (Favorable) (posted July 11), only the fourth AO issued this year, which makes it worth reading. It's long and the fact pattern is somewhat complicated, but the OIG's conclusion is favorable (another reason it's worth reading). On the other hand, as the lengthy recitation of facts suggests, the scope of the question (and the OIG's conclusions) are not likely to have broad applicability. Still, health lawyers everywhere should be up-to-speed on any and all Advisory Opinions, right?

The request was "for an advisory opinion regarding: (i) the use of Requestor’s online health care directory by Federal health care program beneficiaries to search for and book medical appointments with providers and the display of sponsored advertisements to Federal health care program beneficiaries on the directory and certain third-party websites (the “Existing Arrangement”); and (ii) certain proposed changes to the functionality of the directory (the “Proposed Changes,” and together with the Existing Arrangement, the “Arrangement”).

The AO recites the usual boilerplate about the payments being illegal remuneration under the Anti-Kickback Statute, and the concludes that it will exercise its discretion and not seek Civil Monetary Penalties or program exclusions. All's well that ends well.

Cyber attacks against hospitals increase over 2022

Hospital giant HCA announced this morning that data on 11 million patients -- patient names, phone numbers, dates of birth, appointment dates and other personal details -- had been stolen from its system and posted on-line. This comes on the heels of this morning's report in Chief Healthcare Executive that cyber breaches against hospitals in the first half of 2023 approached the number of hospital breaches for all of 2022.

All the more reason for SMU law students to sign up for our one-week August course on cyber breaches!

Surprise medical bills, 'junk' insurance - new proposals from Biden administration

We've been hearing about "surprise medical bills" for years. A colleague of mine had surgery over a decade ago and did everything humanly possible to avoid an unpleasant surprise, including checking with the anesthesiology group to make sure the assigned anesthesiologist would be an "in network" physician -- that is, would be covered by our insurance plan. "No problem," said the group's manager. Come the day of the surgery and a last-minute schedule change for the assigned anesthesiologist led to a substitution in the OR and guess what? The substitute anesthesiologist, despite being under contract with the group, was "out of network." As a result, instead of a bill for anesthesia services in the hundreds of dollars, the actual charge -- 100% of which was my colleague's responsibility -- was in the thousands. Surprise!

NPR and Kaiser Health News produce a monthly feature entitled "Bill of the Month." The stories would be comical if they weren't soul-crushing. 

The stories persist, though, even after January 1, 2022, the effective date of the federal No Surprises Act (part of the previous year's omnibus appropriations bill). And even after reams of analysis and guidance from HHS/CMS, Brookings, the Commonwealth Fund, the Consumer Financial Protection Board, the Department of Labor, the Federal Trade Commission, and of course Kaiser Health News.

So, as reported by Becker's Payer Issues, "the Biden administration is issuing guidance to end the abuse of 'in-network' designation, according to a July 7 White House news release." [President's remarks; fact sheet] 

The White House fact sheet provides impressive detail that describes steps to address the following problem areas:

• "New proposed rules would close loopholes that the previous administration took advantage of that allow companies to offer misleading insurance products that can discriminate based on pre-existing conditions and trick consumers into buying products that provide little or no coverage when they need it most."
• "New guidance will help stop providers from gaming the system by evading the surprise billing rules with creative contractual loopholes that still leave consumers with unexpected costs."
• "For the first time in history, the Consumer Financial Protection Bureau, HHS, and Treasury are collaborating to explore whether health care provider and third-party efforts to encourage consumers to sign up for medical credit cards and loans are operating outside of existing consumer protections and breaking the law."

"Futility" Policy at Mass General Hospital

Thad Pope has alerted us to the publication of a report from within Massachusetts General Hospital, "Declining to Provide or Continue Requested Life-Sustaining Treatment: Experience With a Hospital Resolving Conflict Policy." It's apparently "open access" and is available in HTML as PDF. The report is well worth reading, for a number of reasons:

• Texas has had a statutory policy for 23 years. It is, like the MGH policy, an example of a "due process" approach to resolving disputes over life-sustaining treatment (LST). A hospital policy without statutory protections for participants in the process leaves the hospital legally exposed, which is bound to have an effect on how the process plays out in real time, but it is still possible to learn some valuable lessons from a stand-alone hospital's experience.
• The report covers 20 years' worth of cases that were handled under the MGH policy.
• It demonstrates a pattern that I have experienced in Texas hospitals: The futility policy gets invoked in an almost vanishingly small percentage of cases in which it could be useful.

There are many aspects to futility disputes that are outcome-determinative in terms of the utility of invoking the policy. In other words, details concerning the family dynamics, patient characteristics, and the treatment team's history with patients and surrogates (or lack thereof) may be more important to achieving a satisfactory than the policy itself. The policy, however, does provide some degree of rigor and consistency from patient to patient. Whether the results justify the existence of a policy is very much in the eye of the beholder. The MGH report is a good place to start.

False Claims Act and Circuit Splits

Who doesn't love a good circuit split? It's the stuff dreams are made of. Well, if not dreams, at least law review comments, cert. petitions, amicus briefs, and the occasional grant (or denial) of certiorari.

My friend Rachel Rose is giving a lecture for the Federal Bar Association on July 12 in which she will discuss the False Claims Act in the context of Fed. R. Civ. P. 9(b)'s requirement that fraud be pleaded with particularity. Rachel's starting point is the Supreme Court's denial of certiorari in United States ex rel. Owsley v. Fazzi Associates, Inc. on Oct. 17, 2022. In Owsley the qui tam relator posed this issue for the Court: "Whether Federal Rule of Civil Procedure 9(b) requires plaintiffs in False Claims Act cases who plead a fraudulent scheme with particularity to also plead specific details of false claims." [emphasis added] The district court dismissed the complaint and the Sixth Circuit affirmed, stating: "Owsley's complaint provided few details that would allow the defendants to identify any specific claims—of the hundreds or likely thousands they presumably submitted—that she thinks were fraudulent. For that reason alone her complaint fell short of the requirements of Civil Rule 9(b)."

The cert. petition identified "a longstanding circuit split about how Rule 9(b) works in FCA cases":

The Sixth Circuit is one of five that adopt a more rigid approach to Rule 9(b), requiring relators to plead details of false claims in addition to details of fraudulent schemes. Seven circuits adopt a more flexible approach that allows the presentment of claims to be inferred from circumstances (including from a fraudulent scheme), and does not require details of claims.  [Pet. at 10]

Of course, the Court doesn't give reasons when it denies review. That's what it means to have discretion to control this part of the Court's docket. So we don't know why the Court decided, as it has repeatedly in the past, to punt. 

The issue in Owsley is pretty darned fundamental to all False Claims Act litigation, including those involving health care providers (which appears to be a very large percentage of all False Claims Act litigation). It may be impossible for some (many?) relators to plead the details required to identify specific false claims without discovery, and a strict application of the particularity requirement will result in a dismissal before discovery can begin. 

Hellacious (and Audacious) Health Care Fraud of the Week (V)

Another fine example of the alleged Willie Sutton explanation for robbing banks  except now the miscreants barely need to leave home to get to where the money is. Tapping into the vast funds swishing around the health care system is so easy, who needs to rob banks? By the way, earlier this year I cast doubt on the effectiveness of criminal law as a deterrent to crime. There is a nice essay that just went on-line today that develops that thought with more finesse and insight. Take a look at Christopher Slobogin, "The Rationality of Criminality," JOTWELL (July 3, 2023) (reviewing Harold Winter, The Economics of Crime: An Introduction to Rational Crime Analysis (2020)), https://crim.jotwell.com/the-rationality-of-criminality/.

Ocean County Man Admits $21.7 Million Health Care Fraud Scheme And COVID-19 Wire Fraud Scheme (June 30, 2023; U.S. Attorney's Office, District of New Jersey). From DOJ's announcement:

Alexander Schleider, 57, of Lakewood, New Jersey, pleaded guilty before U.S. District Judge Michael A. Shipp in Trenton federal court to an information charging him with one count of conspiracy to commit health care fraud and one count of wire fraud. According to documents filed in the case and statements made in court:

• Schleider owned and operated durable medical equipment (DME) companies in New Jersey that provided orthotic braces to beneficiaries of Medicare and other federal and private health care benefit programs without regard to medical necessity. Schleider and his conspirators obtained prescriptions for the DME braces through the payment of kickbacks and bribes to individuals operating marketing call centers, who in turn utilized the service of telemedicine companies to obtain prescriptions for the DME. Schleider caused losses to Medicare and other health care benefit programs of $21.7 million.
  
  
• Schleider also committed wire fraud in connection with funds made available in response to the COVID-19 pandemic. After one of his DME companies received $322,237 from the Department of Health and Human Services’ Health Resources and Services Administration Provider Relief Fund, Schleider submitted a fraudulent attestation to HRSA in which he claimed that the DME company provided diagnoses, testing, and care for individuals with possible or actual cases of COVID-19 after Jan. 31, 2020. In reality, the DME company had ceased billing for any services in April 2019. The attestation also falsely claimed that the payment would only be used to prevent, prepare for, and respond to coronavirus, and that the payment shall reimburse the recipient only for health care related expenses or lost revenues that are attributable to coronavirus. Schleider did not use the funds for those purposes, but transferred them into other accounts and subsequently used them to purchase real estate and vehicles, among other things.

The maximum penalties are pretty stiff:

The charge of conspiracy to commit health care fraud is punishable by a maximum potential penalty of 10 years in prison and a fine of $250,000, or twice the gross profit or loss caused by the offense, whichever is greatest. The charge of wire fraud is punishable by a maximum potential penalty of 20 years in prison and a fine of $250,000, or twice the gross profit or loss caused by the offense, whichever is greatest. 

And yet . . . hope springs eternal in the hearts of health care fraudsters! 

UNOS's Dispute with Contractor Threatens Supply of Organs to 63 Transplant Centers

 You read that right. And the disruption could have happened as soon as today,  according to an article in the Washington Post (7/3; if you can't get past the paywall, try Newsmax). In a late-breaking development on the 4th, the corporation that runs the nationwide transplantation system extended the deadline for an agreement to end its dispute with a major player for two weeks, to July 19. Just to cut to the chase: The national organ transplantation system is too important for a couple of key players to be playing chicken.

UNOS is the United Network for Organ Sharing. It's a Virginia nonprofit corporation that runs the national organ transplantation system under an exclusive contract with the federal Health Resources and Services Administration (HRSA), an agency under the umbrella of HHS. 

It's a tough gig. Managing the supply of transplantable organs is a life-or-death proposition for the more than 104,000 people on wait lists, 19-22 of whom die each day without a match. And transplantation is big business for the hospitals that run transplant centers and obviously an important source of income for the health care professionals who provides the services. Keeping the system running smoothly is a high-stakes undertaking with lots of stakeholders.

Speaking of services, the day-to-day on-the-ground business of identifying donors, evaluating the suitability of potential donor organs, and transporting organs to waiting recipients is mostly managed by 56 Organ Procurement Organizations (OPOs), local or regional nonprofits that keep the supply chain moving. Buckeye Transplant Services competes with OPOs for basically the same set of services, which they provide to transplant centers all over the country.

In order for Buckeye to do all this, it needs access to UNOS's data. To that end, it has apparently developed a bot of some kind that scrapes UNOS's database, picking up -- according to UNOS -- data that Buckeye doesn't need to carry out its contractual duties for UNOS. UNOS is not happy and wants Buckeye to start playing by its rules. Buckeye is not happy and sued UNOS on July 3 in federal court in Richmond, home based for UNOS. 

If Buckeye loses access to the data maintained by UNOS, it's out of business until access is restored. Much if not all of the burden of screening and evaluating donations will fall to transplant centers themselves, and they are pretty busy trying to keep patients (donors, recipients) alive. It's a mess.

On March 22, HRSA announced a modernization initiative. According the WaPo article above, Congressional Republicans and Democrats seem supportive of reforms. Sen. Grassley (R-Iowa) was pretty emphatic about the need for change: "Thousands of patients are dying every year and billions of taxpayer dollars are wasted because of gross mismanagement. The system is rife with fraud, waste and abuse, corruption, even criminality.”

FDR's Four Freedoms on the 4th of July 2023

In his State of the Union speech on Jan. 6, 1941, FDR famously offered up "the Four Freedoms" to explain why the United States was at war abroad and on a war footing at home. He introduced the Four Freedoms with this eerily familiar list of goals for the country: 

[T]here is nothing mysterious about the foundations of a healthy and strong democracy. The basic things expected by our people of their political and economic systems are simple. They are:

Equality of opportunity for youth and for others.

Jobs for those who can work.

Security for those who need it.

The ending of special privilege for the few.

The preservation of civil liberties for all.

The enjoyment of the fruits of scientific progress in a wider and constantly rising standard of living.

These are the simple, basic things that must never be lost sight of in the turmoil and unbelievable complexity of our modern world. The inner and abiding strength of our economic and political systems is dependent upon the degree to which they fulfill these expectations.

Many subjects connected with our social economy call for immediate improvement.

As examples:

We should bring more citizens under the coverage of old-age pensions and unemployment insurance.

We should widen the opportunities for adequate medical care. [emphasis added -- this is a HealthLawBlog, after all]

We should plan a better system by which persons deserving or needing gainful employment may obtain it.

Then FDR got to the part of his speech that made it so enduring:

In the future days, which we seek to make secure, we look forward to a world founded upon four essential human freedoms.

The first is freedom of speech and expression--everywhere in the world.

The second is freedom of every person to worship God in his own way--everywhere in the world.

The third is freedom from want--which, translated into world terms, means economic understandings which will secure to every nation a healthy peacetime life for its inhabitants-everywhere in the world.

The fourth is freedom from fear--which, translated into world terms, means a world-wide reduction of armaments to such a point and in such a thorough fashion that no nation will be in a position to commit an act of physical aggression against any neighbor--anywhere in the world. 

As the Smithsonian has noted:

The public response? Crickets. Congress barely applauded. The next day most newspapers didn't even mention the “Four Freedoms.” Those who were still talking about the phrase in the weeks and months that followed did so to lambaste its “hollow, empty sound.” The government hired [E.B.] White and other A-list scribes to drum up some buzz, but White’s boss called his pamphlet “dull.” The “Four Freedoms,” in the words of one federal administrator, were a “flop.”

Ever the optimist, FDR concluded the list with this: "That is no vision of a distant millennium. It is a definite basis for a kind of world attainable in our own time and generation." Eighty-two years later the Four Freedoms are still aspirational, not real, for much of the world and for many of our fellow citizens. 

Teva & Gilead Prevail in $3.6 Billion "Pay for Delay" Suit

I haven't seen much discussion of this verdict handed down by a federal jury on Friday out in California that cleared the two pharmaceutical companies of antitrust liability. As reported by thepharmaletter's "Brief," consumers and other direct purchasers, including the Blue Cross and Blue Shield Association, filed the antitrust lawsuit in 2019 in which they alleged Gilead Sciences and Teva Pharmaceutical Industries entered into an illegal "pay for delay" patent deal that inflated prices for two HIV medications. The jury found that plaintiffs had not shown Gilead had market power or that it paid Teva to delay its generics, IP Law 360 reported.

The FTC has a good website on "Pay for Delay: When Drug Companies Agree Not to Compete." The policy against "pay to delay" seems sound. Usually to settle a private patent infringement suit between two drug manufacturers (which itself may or may not be hatched for this sole purpose), the practice amounts to extended patent protection for the original drug beyond what is contemplated by the Hatch-Waxman Act. That protection keeps a lower-cost generic off the market and allows the original patentee to reap what amounts to monopoly profits.

Good policy, but if the facts aren't there, the case will fail. It will be interesting to read the details surrounding this verdict in the days and weeks ahead.

Private Equity, Consolidation, and Prices of HC Goods and Services

Good article in the Washington Post on June 29. The case study concerns U.S. Anesthesia Partners, which has been on a buying spree. The business model is basic: Go into a market, purchase private anesthesia practices, and once they are under one roof, raise the prices these groups charge hospitals and surgery centers. One study, "based on six years of data, for example, found that when anesthesia companies backed by private-equity investors took over at a hospital outpatient or surgery center, they raised prices by an average of 26 percent more than facilities served by independent anesthesia practices."

The Federal Trade Commission is supposed to be watching out for mergers and acquisitions that produce enough market power to give the resulting entity the power to raise prices, According to the article, the FTC has given these consolidations of market share the equivalent of a raised eyebrow and nothing more. The Kaiser Family Foundation has published on this topic. Is anyone in government paying attention?

Health Affairs: Forefront articles from June

If I have any recommendations for "must-read" sources of insight into the world of health care policy and law they would be the Kaiser Family Foundation (KFF) Health News website/homepage and the policy journal Health Affairs. Today KFF recapped its most popular Forefront articles (June 2023). Here's a summary:

• Sara Rosenbaum, Tim Jost, and coauthors broke down the Supreme Court’s Talevski decision regarding Medicaid beneficiaries.
• Sean Tunis and Peter Neumann wrote about Medicare and Alzheimer’s drug coverage.
• Aletha Maybank and coauthors embrace creative tensions to advance health equity.
• Denver Health shares their experience with inclusive race and ethnicity data collection.
• Corwin Rhyan and George Miller share an early look at what drove 2022’s health care spending slowdown.

Also, we had many articles in our major Forefront series:

• In the Accountable Care for Population Health series, Gabriel Drapos and Michael Kopko argue that valued-based care fuels innovation, not consolidation.
• In our Medicare and Medicaid Integration series, Allison Rizer and Henry Claypool wrote two articles on the proposed Medicaid managed care rules. Here’s the first article.
• In our Provider Prices in the Commercial Sector series, Ann Kempski and Ge Bai write that the North Carolina Medicaid expansion puts employers and workers at risk for higher hospital prices.

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$2.5 billion in health fraud schemes charged against 78 suspects

I'm skipping my "Hellacious Health Care Fraud of the Week" feature to highlight DOJ's announcement of a massive health fraud enforcement action. Some of these schemes are old-fashioned wine (fraud) in new bottles (telemedicine, e.g.). Most, though, are audacious in concept if not execution. It seems never to have occurred to most of the accused individuals that the government also has computers!

NPR (among others) reports on a nationwide sweep by DOJ that resulted in 78 individuals being charged with various schemes to commit health care fraud at a value of $2.5 billion.

From the DOJ announcement: 

The defendants allegedly defrauded programs entrusted for the care of the elderly and disabled, and, in some cases, used the proceeds of the schemes to purchase luxury items, including exotic automobiles, jewelry, and yachts. In connection with the enforcement action, the Department seized or restrained millions of dollars in cash, automobiles, and real estate. 

“These enforcement actions, including against one of the largest health care fraud schemes ever prosecuted by the Justice Department, represent our intensified efforts to combat fraud and prosecute the individuals who profit from it,” said Attorney General Merrick B. Garland. . . .

Telemedicine Fraud

The enforcement action included charges against 11 defendants in connection with the submission of over $2 billion in fraudulent claims resulting from telemedicine schemes. In a case involving the alleged organizers of one of the largest health care fraud schemes ever prosecuted, an indictment in the Southern District of Florida alleges that the chief executive officer (CEO), former CEO, and Vice President of Business Development of purported software and services companies conspired to generate and sell templated doctors’ orders for orthotic braces and pain creams in exchange for kickbacks and bribes. The conspiracy allegedly resulted in the submission of $1.9 billion in false and fraudulent claims to Medicare and other government insurers for orthotic braces, prescription skin creams, and other items that were medically unnecessary and ineligible for Medicare reimbursement. 

As part of the alleged conspiracy, individuals in a massive telemarketing operation, located in the United States and abroad, targeted the elderly and disabled with direct mail, television advertisements, and other forms of advertising to induce them to contact offshore boiler-rooms staffed by individuals who “up-sold” the elderly and disabled on unnecessary medical equipment and prescriptions. According to the indictment, the software platform that the defendants allegedly operated was actually a conduit for these telemarketers to coordinate the payment of illegal kickbacks and bribes to telemedicine companies to obtain doctors’ orders for Medicare beneficiaries. The defendants allegedly programmed the software platform to generate false and fraudulent orders for telemedicine practitioners to sign and obstruct Medicare investigations by concealing that the interactions with beneficiaries had occurred remotely using telemedicine. The program-generated orders falsified certifications that the telemedicine doctors had examined the beneficiaries in person, and falsified diagnostic testing that Medicare required for brace orders. After the original CEO sold the company in a corporate acquisition, the new corporate leadership allegedly chose to continue the pre-existing fraud scheme.

In another telemedicine fraud case, in the Eastern District of Washington, a licensed physician was charged for signing more than 2800 fraudulent orders for orthotic braces, including for patients whose limbs had already been amputated. As alleged, the physician took less than 40 seconds to review and sign each order.

The cases announced today build on earlier telemedicine enforcement actions involving over $10.1 billion in fraud. The April 2019 Operation Brace Yourself Telemedicine and Durable Medical Equipment Takedown alone resulted in an estimated cost avoidance of more than $1.9 billion in the amount Medicare paid for orthotic braces in the 20 months following that enforcement action, preserving the Medicare trust fund for necessary medical care.

Pharmaceutical Fraud

The enforcement action also included charges against 10 defendants in connection with the submission of over $370 million in fraudulent claims submitted in connection with prescription drugs. In one case announced today, the owner and corporate officer of a pharmaceutical wholesale distribution company was charged for an alleged $150 million fraud scheme in which the company purchased illegally diverted prescription HIV medication, and then marketed and resold the medication by falsely representing that the company acquired it through legitimate channels. The defendant allegedly purchased the diverted medication at a substantial discount from individuals who obtained the drugs primarily through illegal “buyback” schemes in which they paid HIV patients cash for their expensive HIV medication and repackaged those pills for resale. To cover up their scheme, the defendant and others falsified labeling and product tracing documentation to make it appear legitimate. Pharmacies purchased the misbranded medications, dispensed them to patients, and billed them to health care benefit programs, all while the defendants reaped substantial illegal profits. 

In a related case, on June 15, an individual in the Southern District of Florida was sentenced to 15 years in prison for his role in this nationwide scheme. According to court documents, the defendant illegally acquired large quantities of prescription drugs from patients for whom the drugs had been prescribed but not yet consumed. The defendant and others then repackaged the drugs and sold them to wholesale companies. In some instances, the medication that the defendant sold contained the wrong medication, broken pills, and even pebbles, leading to complaints by pharmacies. The defendant used his share of the proceeds to purchase luxury goods, including a $280,000 Lamborghini, a $220,000 Mercedes, and three boats. 

Opioid Distribution and Other Types of Health Care Fraud

The charges also targeted over $150 million in false billings submitted in connection with other types of health care fraud, including the illegal distribution of opioids and clinical laboratory testing fraud. Today’s enforcement action includes charges against 24 physicians and other licensed medical professionals who lined their own pockets, including doctors who allegedly put their patients at risk by illegally providing them with opioids they did not need. The charges also include cases where healthcare companies, physicians, and other providers paid cash kickbacks to patient recruiters and beneficiaries in return for patient information, so that the providers could submit fraudulent bills for Medicare reimbursement. 

[Other] 

The Center for Program Integrity of the Centers for Medicare & Medicaid Services (CPI/CMS) separately announced today that it took adverse administrative actions in the last six months against 90 medical providers for their alleged involvement in health care fraud.

Hot Topics in Health Law from AHLA's Annual Meeting

The American Health Law Association (AHLA) wrapped up its annual meeting on June 28 with a presentation on hot topics. Speakers were from DHHS/OIG (Susan Edwards), DOJ (Kelley Hauser), and private practice (Scott Hasselman, Reed Smith).

Take-aways:

• According to Edwards, OIG plans to release a general Compliance Program Guidance (CPG) by the end of this year that will help providers develop and maintain an effective compliance program. OIG will then issue by the end of next year managed care and nursing facility CPGs, Edwards said.
• The informative session also covered fraud issues related to the end of the COVID-19 public health emergency. Hauser, noting that fraud enforcement always lags behind implementation of new reimbursement, assured the audience that more enforcement actions would be coming. Hauser also said that given the sensitivity of the emergency funds, DOJ would likely look harder at use of the funds and will pursue enforcement actions even if the recovery is not a big dollar amount.
• Edwards also mentioned the OIG final rule on information blocking that was released early on June 27 and noted that a separate rule that will apply to providers will list “disincentives” for information blocking.
• Hauser reviewed recent fraud case law, such as the SuperValu case on scienter—if there’s evidence that a defendant is questioning the accuracy of certain statements or billing, you’re probably going to hear from DOJ.
• The speakers also discussed the use of AI and questioned whether it could be used to create clinical notes. Hauser noted that the government is generally in favor of any technology that could improve accuracy and predicted that more widespread use of AI will likely lead to a certification process of some sort to ensure that such programs work as intended.
• Each speaker then chose an emerging topic to discuss. Hauser picked parallel criminal and civil investigations, highlighting that such investigations are advantageous to the government and he has seen a steady increase in them during his tenure at DOJ.
• Edwards talked about managed care oversight and its increasing importance amid explosive growth in managed care. And Hasselman highlighted the corporate practice of medicine doctrine (and here) and urged lawyers to be aware of it while structuring transactions.

Cryopreservation of whole organs may be a transplantation game-changer

Human organs, once removed from their owner's body, are very fragile things. As reported in Science (News, June 21, 2023), this poses a problem for transplant medicine:

The rapid decay of organs is one of the biggest problems bedeviling organ transplants for people. From the moment a human heart or lung is disconnected from a donor, doctors have 4 to 6 hours to get it hooked up to a new patient’s blood supply before it is irretrievably damaged. For a liver, the window is 8 to 12 hours. For a kidney it’s about 1 day.

The effort to cut the warm ischemic time between organ removal and successful implantation has transformed the legal landscape for organ transplantation. 

• It was one of the reasons for the development of "brain death" in 1968 -- waiting around for a patient with no brain function to lose all cardiopulmonary function often led to the loss of organs that start to deteriorate while still in the patient's body. It may not have been "a driving force" behind the 1968 recommendation of a Harvard Ad Hoc Committee, but it surely benefited the transplant industry and certainly escaped nobody's attention at the time. The 1968 recommendation was crucial to the development of the Uniform Determination of Death Act.
• It was the reason for widespread adoption of UNOS policy and hospital protocols for "Donation After Cardiac [or "Cardiopulmonary" or "Cardiac and Circulatory" or "Controlled Cardiocirculatory"] Death" ("DCD" or "DCCD"). Careful timing and choreography of the removal of life support, determination of death, and organ retrieval can reduce warm ischemic time dramatically. No new law was needed to make this legal, but DCD provoked a vigorous debate about a practice that involved inducing death, withholding life-saving and life-supporting measures, and deeming a patient to be dead while autoresuscitation might still be possible (multiple citations are available on PubMed; here's one).

The latest wrinkle in technology's advance to the frontiers of medicine and law was reported in a Science news report this past week (citation above). A team at the University of Minnesota took a kidney out of white lab rat, stuck it into a deep freeze (-150ºC), and then successfully transplanted the organ into a recipient rat. Within minutes, the once-frozen kidney began producing urine -- according to the young surgeon who produced this result, "First successful transplant of vitrified, nanowarmed rat kidney."

Although still a ways off, the implications of this breakthrough process are vast. Organs that cannot be used immediately -- say, after death has been declared but a donor match cannot be found -- can be frozen for future use. Stockpiling frozen organs could put a real dent in the waiting times experienced by potential recipients on the various organ waiting lists. 

The process won't be quite as straightforward with larger human organs, which take longer to freeze and are harder to squeeze water out of than tiny rat livers. But we now know that it can be done in small mammals, and you can be sure efforts are under way (or soon will be) to scale up to human organs. Stay tuned.

Texas abortion laws: A little bit of sanity (or at least clarity) enters from both stage left and stage right

When SB 8 was enacted in 2021, there was widespread concern that the state had made it a crime to treat a pregnant woman who  had experienced an ectopic pregnancy or previability rupture of her membranes. The artlessness of the language of SB 8, and the truly ugly legislative intent that undergirded the law, did not provide much comfort, despite the very clear standards of care for both life-threatening conditions for the woman and the nonsurvivability of such conditions by the fetus. (Multiple factors have a bearing on the health consequences for the pregnant woman and the fetus, but delays in fetal extraction is one of the risk factors. Sources: here (previability premature rupture of membranes) and here (ectopic pregnancy).)

Existing law -- Health & Safety Code § 245.002 -- provides: "An act is not an abortion if the act is done with the intent to: (A) save the life or preserve the health of an unborn child; (B) remove a dead, unborn child whose death was caused by spontaneous abortion; or (C) remove an ectopic pregnancy." This is actually not particularly helpful in reining in SB 8 for two reasons. First, it does not exclude previability rupture of membranes. Second, this exclusion is part of a definition of abortion that starts with this phrase: "In this chapter," and Chapter 245 is titled "Texas Abortion Facility Reporting and Licensing Act." It would be simple enough for an aggressive DA to argue that the exclusions apply only to abortion facilities and do not apply to a physician who is prosecuted under the provisions of SB 8.

In the most recent regular session, the legislature passed HB 3058, and Governor Abbott signed it into law on June 17. It's a relatively modest bill, but it's one of the only bills (I'm being generous; it is the only bill I know of) enacted this session that protects women's health and provides legal protection for physicians who provide treatment pursuant to reasonable medical judgment (an endangered concept in this state).

Here's a thumbnail sketch of HB 3058:

• The key to this bill is the addition of § 74.255 to the Texas Civil Practice & Remedies Code. The new provision creates an affirmative defense in a civil action brought against a physician or health care provider if "the physician or health care provider exercised reasonable medical judgment in providing medical treatment to a pregnant woman in response to: (1)  an ectopic pregnancy at any location; or (2) a previable premature rupture of membranes. The clear purpose of this language is to expand the exclusion if Chapter 245 beyond licensed abortion facilities to any setting in which treatment is provided, as well as to add treatment of previable premature ruptured membranes to the protection of the law.
• A pharmacist or pharmacy that "receives, processes, or dispenses a prescription drug or medication order written by a physician or health care provider to whom [the previous affirmative defense] applies is entitled to the affirmative defense provided by Subsection (a).
• Section 2 of HB 3058 prohibits licensing boards from pursuing disciplinary measure against health care provider whose actions are consistent with § 74.255.
• Section 3 of HB 3058 amends the Penal Code to extend the affirmative defense to criminal prosecutions of physicians and health care providers.

The text of the bill originated with the Texas Civil Justice League and was sheparded through the House by Rep. Ann Johnson (D-Houston) and in the Senate by Sen. Bryan Hughes (R-Tyler). Hughes is a reliable vote for Texas Right to Life, so his support was a bit of a surprise. Bipartisan sponsorship was certainly a big factor in getting this passed, and Sen. Hughes's name as Senate sponsor undoubtedly helped the Republicans decide it was safe to jump on board. TCJL's announcement heralded the success  of HB 3058, but provided this additional hopeful note:

The bill was drafted . . . to create a vehicle that could be amended later, once the necessary level of political consensus developed around the idea of doing something to ameliorate some of the unintended consequences of SB 8, the Dobbs decision, and the revival of Texas’ criminal penalties for performing an abortion. 

That is exactly how it played out in the two houses of the Legislature this past session. 

The very fact that Texas needed this clarification is an indication of how crazy and dangerous this state's abortion laws have become. Both medical conditions are relatively rare, but the potentially lethal consequences of not treating them and the utility of well-established standards of care should not have been placed under a legal cloud of doubt. And it's not just our legislature that's to blame. The U.S. Supreme Court's abandonment of women's reproductive health rights cleared the field for state improvisation, no matter how dangerous and ill-considered. (Linda Greenhouse wrote an op-ed in the N.Y. Times today (may require payment), the one-year anniversary of the Supreme Court's ruling in Dobbs). 

The next question is whether the new law will be "a vehicle that could be amended [in] later [legislative sessions] to do[] something to ameliorate" the changes in federal and state law that have stripped women of their right to make one of the most fundamental health decisions of their lives. 

Reducing mortality rates in hospitals: Good. Tying reductions to executive comp: Bad

Becker's Healthcare reports (June 21, 2023) that clinicians at various HCA facilities are pressured to refer patients to palliative care and hospice in order to move those patients' deaths off the hospital's books, thus lowering the mortality rate reported for that hospital. More on that below, where I analyze the ethics of the reported practice. But I don't want to bury the lede, so it's important to understand that executive compensation within the ranks of HCA, from the corporate CEO on down to hospital execs, is based in part upon lowering mortality rates. It is hard for me to see this linkage as anything but an invitation to distort and corrupt end-of-life care in these hospitals. HCA denies every aspect of the story.

[The story in Becker's is based upon an NBC News report. Having read both, I can say that the version in Becker's is a faithful rendition of the NBC News report. I've linked to both in this post because hyperlinks to stories don't last forever.]

Reducing hospital mortality rates

1. Reducing hospital mortality rates is an admirable goal. For decades hospitals have been enjoined to fight hospital-acquired infections, reduce rapid readmissions, and address various systemic weaknesses in the delivery of quality health care to reduce avoidable morbidity and mortality.
2. Palliative care is a valuable service. Study after study shows greater patient satisfaction with interactions with palliative staff than with with members of the treatment team. In my experience, a hospital's introduction of a palliative care service usually leads to an almost immediate and quite dramatic decrease in requests for consultations with the hospital's ethics committees. This "ethics prophylaxis" -- engaged listening and honest communication that addresses confusion, disagreements, and distress before there is a breakdown in patients' and families' trust in their treatment team -- contributes to the quality of care provided by the team. It's like dealing with small flare-ups before they turn into a conflagration. Ethics committees are often brought into the conversation too late to accomplish a break-through. (It's one reason among many that the model for ethics consultations is mediation, which seeks compromises that are limited in duration and scope.) Also, palliative care consultants are in a position to build a relationship with the patient and family over time. By contrast, ethics committee members walk into a consultation room without the benefit of that healthy relationship. (They also don't walk in with the burden of a bad relationship. Being a neutral has its advantages, though not all patients and families see the ethics team as neutral.) One final point: Palliative care isn't just about end-of-life care. It's appropriate anytime that a seriously ill patient might benefit from expert interactions that address the physical, psychological, or spiritual suffering the patient is experiencing. And with a common but often lethal diagnosis like metastatic cancer, on average it's been found to result in longer lives of higher quality. All of this is to say that a hospital or health care system that encourages appropriate referrals to the palliative care service is doing a good thing, not a bad thing.
3. Much the same can be said for hospice care. It's a valuable multidisciplinary service that addresses a similar set of needs as palliative care. It is also underutilized. Medicare covers 6 months (180 days) of hospice care based upon the reasonable judgment of a physician that the patient is likely to die within those 6 months. (This can be extended if the patient is still alive at the end of 6 months as long as the physician can reasonably determine that the patient is likely to die within the next 6 months.) The reality is that the average lifetime lengths of stay is about 3 months and for a single hospice stay about 50% of patients die or are discharged in less than 2.5 months (source). Encouraging earlier use of hospice is a good thing (as long as the referrals are appropriate) because of the integration of hospice and palliative care for the benefit of the dying patient.

Tying palliative care and hospice referrals to executive compensation is a really bad idea.

1. HCA's policy creates the impression that referrals to what is generally regarded as high quality end-of-life care are made for third-party financial gain and not the needs of the patient. Well, it's actually more than an impression, isn't it? That's exactly the situation that HCA's compensation scheme creates. 
2. Stories like this give the false impression that palliative care physicians and their staffs are inclined for their own reasons to push patients into end-of-life treatments prematurely. If the result is patient or family refusals to accept the referral, the result is often suboptimal care for the patient: the loss of an opportunity for higher quality care whether death is imminent or not.
3. The article illustrates how the pressure from above creates moral distress on the part of attending physicians and other clinical staff. Practicing medicine is hard enough in this day and age without creating yet another conflict of interest (or its appearance) to be negotiated or finessed.
4. Not to be petty, but the base pay of HCA's corporate CEO is already $35.3 million for the two years this incentive has been in place, of which the compensation incentive in question accounted for $305,400. And why? Because $17.8 million a year just isn't enough?

Another week of Hellacious Health Care Fraud Cases (IV)

Some serious violations with serious legal consequences. . . . $54 million bribery and kickback scheme , , , 30 years in prison . . . 25 years in prison . . . Opioid abuse resulting in 5 patient deaths. Every profession has its scoundrels whose hopes for riches overpower their judgment. You don't have to be an evil person to do an evil thing, but these cases do remind me of the opening to the old radio series, "The Shadow."

Man Convicted Of $54M Bribery And Kickback Scheme Involving Fraudulent Prescriptions (June 16, 2023; U.S. Department of Justice)

Lab Billing Company Settles False Claims Act Allegations Relating To Unnecessary Respiratory Panels Run On Seniors Receiving COVID-19 Tests (June 16, 2023; U.S. Department of Justice)

Rome Jury Finds Dr. Charles Adams And Full Circle Medical Center Liable For False Claims Act Violations (June 16, 2023; U.S. Attorney's Office, Northern District of Georgia)

Health Care Information Technology Contractor Agrees To Pay More Than $1.7 Million To Resolve False Claims Act Allegations For Charging Unallowable Costs To The National Institutes Of Health (June 16, 2023; U.S. Attorney's Office, District of Maryland)

Raleigh ENT Doctor Sentenced To 25 Years In Prison For Adulterating Surgical Devices, For Defrauding Medicare, And For Stealing Patient Identities (June 16, 2023; U.S. Attorney's Office, Eastern District of North Carolina)

Cambria County Woman Pleads Guilty To Conspiracy To Commit Health Care Fraud (June 16, 2023; U.S. Attorney's Office, Middle District of Pennsylvania)

Suburban Chicago Doctor Sentenced To Federal Prison And Fined $1 Million For Health Care Fraud (June 16, 2023; U.S. Attorney's Office, Northern District of Illinois)

Former Alaska Advanced Nurse Practitioner Sentenced To 30 Years For Illegally Prescribing Millions Of Opioids Causing Five Deaths (June 16, 2023; U.S. Attorney's Office, District of Alaska)