Medicare Update

HHS Releases Health Care Fraud and Abuse Control Program Annual Report for 2006

On February 12, 2008, the Department of Health and Human Services (HHS) and Department of Justice (DOJ) released the Health Care Fraud and Abuse Control Program Annual Report for FY 2006 (Annual Report). 

According to the Annual Report, the Federal government won or negotiated approximately $2.2 billion in judgments and settlements, and attained additional administrative impositions, in health care fraud cases and proceedings during fiscal year (FY) 2006.  During FY 2006, the Medicare Trust Fund also received transfers of approximately $1.5 billion as a result of these efforts (and those of preceding years).  Further, the Annual Report indicates that during FY 2006:

• U.S. Attorneys' Offices opened 836 new criminal health care fraud investigations involving 1,448 potential defendants
• Federal prosecutors had 1,677 health care fraud criminal investigations pending, involving 2,713 potential defendants, and filed criminal charges in 355 cases involving 579 defendants
• a total of 547 defendants were convicted for health care fraud related crimes
• DOJ opened 915 new civil health care fraud investigations and had 2,016 civil health care fraud investigations pending

The Health Insurance Portability and Accountability Act of 1996 (HIPAA) established the national Health Care Fraud and Abuse Control Program (HCFAC).  Under the joint direction of the Attorney General and HHS (acting through HHS' Office of Inspector General), the HCFAC program is designed to coordinate Federal, State and local law enforcement activities concerning health care fraud and abuse.  HIPAA requires that HHS and DOJ detail the amounts deposited and appropriated to the Medicare Trust Fund and the source of such deposits in the Annual Report.

Senators Introduce Medicare Fraud Prevention Act of 2008

On February 6, 2008, Senators Mel Martinez and John Cornyn, and several other Senators, introduced the Medicare Fraud Prevention Act of 2008 (S. 2603). 

If enacted, the Medicare Fraud Prevention Act of 2008 (Act) would double the civil monetary penalties associated with improperly filed claims and payments to induce the reduction or limitation of services. The Act would also quadruple certain criminal fines, including the criminal fines associated with false statements and violations of the Federal anti-kickback provisions.  In addition, the Act would increase the maximum criminal sentence for certain violations. For example, the Act would increase the Federal anti-kickback provision's maximum criminal sentence from 5 to 10 years.

The Act would also amend the Federal statutory provisions establishing a $50,000 surety bond requirement for suppliers of durable medical equipment, prosthetics, orthotics and supplies (DMEPOS).  The Act would increase that surety bond amount to $500,000.  On August 1, 2007, the Centers for Medicare & Medicaid Services (CMS) published a Proposed Rule that would require DMEPOS suppliers to obtain and furnish a surety bond to the National Supplier Clearinghouse in the amount of at least $65,000. In the Proposed Rule, CMS arrived at the $65,000 surety bond amount by adjusting the $50,000 statutory surety bond amount by the Consumer Price Index.

The Medicare Fraud Prevention Act of 2008 (S. 2603) has been referred to the Senate Finance Committee.

CMS Releases List of Poor Performing Nursing Homes

On November 29, 2007, the Centers for Medicare & Medicaid Services (CMS) announced in a Press Release that it has released a list of 54 poor performing nursing homes as part of the "Special Focus Facility" (SFF) initiative.

According to the Press Release, the list was prompted by the number of facilities that were consistently providing poor quality of care, yet were periodically instituting enough improvement to pass one survey only to fail the next.  Further, CMS reports that its effort to identify poor performing nursing homes is intended to "promote more rapid and substantial improvement in the quality of care" and "end the pattern of repeated cycles on non-compliance."

In recent testimony before the Senate Special Committee on Aging, the Acting CMS Administrator stated that:

"Nursing homes on the Special Focus list represent those with the worst survey findings in the country, based on the most recent three years of survey history.  The selection methodology takes into account for the severity of deficiencies and the number of deficiencies.  Deficiencies identified during complaint investigations are also included in the computation.  Each state selects its Special Focus nursing homes from a CMS candidate list of approximately 15 eligible nursing homes in their own State, using additional information available to the State regarding the nursing homes' quality of care in order to make the final selection."

Once a nursing home is selected as a SFF, CMS reports that a state survey agency will conduct twice the number of standard surveys and apply aggressive enforcement until the nursing home: significantly improves and is no longer identified as a SFF; is granted additional time due to promising developments; or is terminated from the Medicare and/or Medicaid programs.

In the Press Release, CMS indicates that nursing homes typically achieve improved survey results after being selected for the SFF initiative, with about 50 percent significantly improving their quality of care within 24-30 months.  However, CMS also reports that about 16 percent are terminated from the Medicare and Medicaid programs. 

Additional information on the SFF initiative can be found in a December 16, 2004 memorandum and November 2, 2007 memorandum to State Survey Agency Directors.

Senate Committee to Hold Hearing on Medicare Providers with Tax Delinquencies

On March 20, 2007, the Senate Committee on Homeland Security and Governmental Affairs' Subcommittee on Investigations (Subcommittee) will hold a hearing entitled, Medicare Doctors Who Cheat on Their Taxes and What Should Be Done About It.

In a recent article, the Washington Post reports that a Government Accountability Office (GAO) report indicates that "[t]he federal government has failed to collect more than $1 billion in back taxes owed by Medicare doctors and suppliers, nearly half of it payroll taxes deducted by health-care providers who spent the money on luxury cars and other personal expenses rather than sending it to the IRS."  According to the Washington Post article, the taxes have not been collected because the Department of Health and Human Services has failed to connect its computers to those of the Internal Revenue Service and other Treasury Department divisions. 

At the hearing, the Subcommittee is expected to hear testimony on the recent GAO report and its findings.  During the hearing, the Acting Administrator for the Centers for Medicare & Medicaid Services, Leslie V. Norwalk, is also expected to testify.

House Subcommittee Hears Testimony on McNulty Memorandum

On March 8, 2007, the House Judiciary Committee's Subcommittee on Crime, Terrorism and Homeland Security (Subcommittee) heard testimony on the McNulty Memorandum's effect on the right to legal counsel in corporate investigations.

The McNulty Memorandum, entitled "Principles of Federal Prosecution of Business Organizations," revised a January 20, 2003 memorandum of the same name, which was issued by then U.S. Deputy Attorney General Larry D. Thompson (Thompson Memorandum).  The Thompson Memorandum identified 9 factors for prosecutors to consider when deciding to charge a company with a criminal offense. One of those factors calls for a company's willingness to cooperate in the government's investigation.

The Thompson Memorandum created significant controversy because, in deciding whether a company was cooperating with an investigation, prosecutors could consider a company's willingness to waive attorney-client privilege and work product protections, and a company's support of employees, including the advancement of attorneys' fees. The McNulty Memorandum reportedly placed restrictions on such considerations.  For instance, when prosecutors seek privileged attorney-client communications or legal advice from a company, the McNulty Memorandum requires that prosecutors establish a legitimate need for the information and obtain written approval from the Deputy Attorney General.

In testimony before the Subcommittee, the Chairman of the Board of Directors for the Association of Corporate Counsel (ACC) indicated that "reports from in-house and outside counsel in the months since the issuance of the McNulty Memorandum suggest that prosecutors who were likely to request or demand privilege waivers under Thompson, continue to make these demands under McNulty." 

Further, the ACC claims that "the McNulty Memorandum does not substantively change DOJ's policies" and states in testimony that "the in-house legal community has reluctantly reached the conclusion that legislation is now necessary to stop the harmful erosion of attorney client privilege, work product protections, and individual rights in the corporate context."  During the hearing, the Department of Justice presented testimony urging the Subcommittee to give the McNulty Memorandum a "chance to work before considering any legislation."

DOJ Revises Policy on Prosecuting Business Organizations

On December 12, 2006, U.S. Deputy Attorney General Paul J. McNulty announced that the Department of Justice (DOJ) is revising its corporate charging guidelines for federal prosecutors.  This announcement coincided with the DOJ's release of a new Memorandum entitled "Principles of Federal Prosecution of Business Organizations."

According to the DOJ, the new Memorandum revises the January 20, 2003 memorandum of the same name, which was issued by then U.S. Deputy Attorney General Larry D. Thompson (the so-called "Thompson Memo").  The Thompson Memo identified nine factors for prosecutors to consider when deciding to charge a company with a criminal offense.  One of those factors calls for a company's willingness to cooperate in the government's investigation. 

The Thompson Memo has created significant controversy because, in deciding whether a company was cooperating with an investigation, prosecutors could consider a company's willingness to waive attorney-client privilege and work product protections, and a company's support of employees, including the advancement of attorneys' fees. 

The new Memorandum places restrictions on such considerations.  For instance, when prosecutors seek privileged attorney-client communications or legal advice from a company, the new Memorandum requires that prosecutors establish a legitimate need for the information and obtain written approval from the Deputy Attorney General. 

The new Memorandum also instructs prosecutors that they should not consider a company's advancement of attorneys' fees to employees when making a charging decision.  However, an exception is created for extraordinary instances where the advancement of fees, combined with other significant facts, shows that it was intended to impede the government's investigation.  In those instances, fee advancement may be considered only if it is authorized by the Deputy Attorney General.

The new Memorandum follows the U.S. District Court for the Southern District of New York's decision finding that the DOJ's application of the Thompson Memo violated the Constitutional rights of former KPMG employees.  The new Memorandum also follows the recent introduction of Congressional legislation entitled the Attorney-Client Privilege Protection Act of 2006.