Anti-Kickback Medicare Part B Fraud Under the Federal False Claims Act

Waiving co-payments and deductibles required under Medicare Part B is a basis for a whistleblower to bring a claim under the federal False Claims Act.

About the Medicare Part B Program

Title XVIII of the Social Security Act prescribes coverage requirements under Part B of the Medicare program. Medicare Part B covers services and items including durable medical equipment (“DME”). DME is “equipment furnished by a supplier . . . that — (1) can withstand repeated use; (2) is primarily and customarily used to serve a medical purpose; (3) generally is not useful to an individual in the absence of an illness or injury; and (4) is appropriate for use in the home.” 42 C.F.R. § 414.202.

Medicare Part B covers blood sugar self-testing equipment, including blood sugar monitors, blood sugar testing strips, lancet devices, lancets and glucose control solutions if the patient meets these requirements:

1. The patient is under a physician’s care for diabetes;
2. The accessories and supplies have been ordered by the patient’s treating physician;
3. The patient (or patient’s caregiver) has been trained to use the required equipment in an appropriate manner; and
4. The equipment is designed for home rather than clinical use.

To become a Medicare DME supplier, an entity must complete a CMS Form 855S (Medicare Enrollment Application for Durable Medical Equipment, Prosthetics, Orthotics, and Supplies). In this form, suppliers must certify the following:

I agree to abide by the Medicare laws, regulations and program instructions that apply to this supplier. The Medicare laws, regulations, and program instructions are available through the Medicare contractor. I understand that payment of a claim by Medicare is conditioned upon the claim and the underlying transaction complying with such laws, regulations, and program instructions (including, but not limited to, the Federal anti-kickback statute and the Stark law), and on the supplier’s compliance with all applicable conditions of participation in Medicare.

DME suppliers are also required to meet certain “supplier standards” under the applicable statutes. 42 CFR §424.57(c). A supplier must meet and must certify in its application for billing privileges that it “[o]perates its business and furnishes Medicare-covered items in compliance with all applicable Federal and State licensure and regulatory requirements.” 42 CFR §424.57(c)(1).

In order to bill to Medicare Part B for diabetic supplies, entities must complete and submit an application to the National Supplier Clearinghouse.  If accepted, the supplier is issued a DME “supplier number.” Suppliers submit claims under their supplier numbers for reimbursement to DME regional carriers (“DMERCs”). DMERCs are under contract with the Center for Medicare and Medicaid Services (“CMS”), the agency which administers the Medicare program.

Under Medicare Part B, payment for diabetic supplies is divided into two elements: 1) a deductible and/or co-pay that is paid by the beneficiary (or secondary insurance), and 2) the allowable cost that is paid by the government.  Providers – in this case, Defendants – have the responsibility to bill and collect the deductible and/or co-pay directly from the patient.

Low-income Medicare Part B beneficiaries may qualify for a waiver of the copayment they owe for diabetic supplies if the beneficiary’s income is no more than 149% of the federal poverty guideline (see “HHS Poverty Guidelines”, available from the U.S. Department of Health and Human Services’ website at http://aspe.hhs.gov), and his/her assets, not including the personal residence, are less than $11,990 ($23,970 for a married couple). In order to qualify for the waiver, the beneficiary must complete a financial disclosure form and provide documentation of proof of income. 42 C.F.R. § 1001.952(k).

The Medicare Part B diabetic supplies landscape is currently under reform. Section 302 of the Medicare Modernization Act of 2003 (“MMA”) established requirements for a new Competitive Bidding Program for certain Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (“DMEPOS”). Under the Competitive Bidding Program, DMEPOS suppliers submit competitive bids to furnish diabetic supplies and CMS awards contracts to enough suppliers to meet beneficiary demand for the bid items. The bids represent the amount a DMEPOS supplier is willing to accept to provide specified items or services to a Medicare beneficiary.  All DMEPOS suppliers must comply with Medicare enrollment rules, be licensed and accredited, and meet certain financial standards.

DMEPOS suppliers submitted bids for the first round of the Competitive Bidding Program in late October of 2009. The bidding window closed in December of that same year. On January 1, 2011, CMS began the new payment system under the Competitive Bidding Program for this first round.  The Competitive Bidding Program is now operating in nine metropolitan areas.

In 2013, the program will be expanded to, inter alia, a national mail order program for diabetic supplies.  Mail order diabetic suppliers that are awarded a contract will be required to furnish mail order diabetic testing supplies to Medicare beneficiaries in all parts of the United States, including the fifty states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Guam, and American Samoa.  CMS opened the sixty-day bid window for national mail order competition on January 30, 2012.  CMS expects to begin the contracting process in the Fall of 2012 and implement the contracts and prices in July 2013.  If a diabetic supply company does not receive a contract from CMS through this process, it cannot be reimbursed by Medicare Part B for diabetic supplies it provides to beneficiaries. This is a death knell for a diabetic supply company, since the government is the primary payer for such supplies

The federal Anti-Kickback Statute, 42 U.S.C. § 1320a-7b(b), arose out of congressional concern that remuneration provided to those who can influence healthcare decisions would result in goods and services being provided that are medically unnecessary, of poor quality, or harmful to a vulnerable patient population. To protect the integrity of the Medicare and Medicaid programs from these harms, Congress enacted a prohibition against the payment of kickbacks in any form. First enacted in 1972, Congress strengthened the statute in 1977 and 1987 to ensure that kickbacks masquerading as legitimate transactions did not evade its reach.  See Social Security Amendments of 1972, Pub. L. No. 92-603, §§ 242(b) and (c); 42 U.S.C. § 1320a-7b, Medicare-Medicaid Antifraud and Abuse Amendments, Pub. L. No. 95-142; Medicare and Medicaid Patient and Program Protection Act of 1987, Pub. L. No. 100-93.

The Anti-Kickback Statute prohibits any person or entity from offering, making, soliciting, or accepting remuneration, in cash or in kind, directly or indirectly, to induce or reward any person for purchasing, ordering, or recommending or arranging for the purchasing or ordering of federally-funded medical goods or services:

whoever knowingly and willfully offers or pays any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind to any person to induce such person-

(A) to refer an individual to a person for the furnishing or arranging for the furnishing of any item or service for which payment may be made in whole or in part under a Federal health care program, or

(B) to purchase, lease, order, or arrange for or recommend purchasing, leasing, or ordering any good, facility, service, or item for which payment may be made in whole or in part under a Federal health care program, shall be guilty of a felony and upon conviction thereof, shall be fined not more than $25,000 or imprisoned for not more than five years, or both. 42 U.S .C. § 1320a-7b(b). Violation of the statute also can subject the perpetrator to exclusion from participation in federal health care programs and, effective August 6, 1997, civil monetary penalties of $50,000 per violation and three times the amount of remuneration paid.

42 U.S.C.§1320a-7(b)(7) and 42 U.S.C. §1320a-7a(a)(7).  Violation of the statute also can subject the perpetrator to exclusion from participation in federal health care programs and, effective August 6, 1997, civil monetary penalties of $50,000 per violation and three times the amount of remuneration paid. 42 U.S.C. §1320a-7(b)(7) and 42 U.S.C. §1320a-7a(a)(7).

The waiver of co-payments, deductibles, and other payments owed by Medicare beneficiaries has been directly addressed in government program guidance and advisory opinions for more than 15 years.  The authorities, without exception, hold that these waivers violate the Anti-Kickback Statute.

OIG Special Fraud Alert. 59 F.R. 242 (December 19, 1994)

In 1994, the Office of Inspector General (“OIG”) issued a Special Fraud Alert on Routine Waiver of Copayments or Deductibles under Medicare Part B. In this fraud alert, the OIG advised that:

Routine waiver of deductibles and copayments by charge-based providers, practitioners or suppliers is unlawful because it results in (1) false claims, (2) violations of the anti-kickback statute, and (3) excessive utilization of items and services paid for by Medicare.

A “charge-based” provider, practitioner or supplier is one who is paid by Medicare on the basis of the “reasonable charge” for the item or service provided. 42 U.S.C. 1395u(b)(3); 42 CFR 405.501. Medicare typically pays 80 percent of the reasonable charge. 42 U.S.C. 1395l(a)(1). The criteria for determining what charges are reasonable are contained in regulations, and include an examination of (1) the actual charge for the item or service, (2) the customary charge for the item or service, (3) the prevailing charge in the same locality for similar items or services. The Medicare reasonable charge cannot exceed the actual charge for the item or service, and may generally not exceed the customary charge or the highest prevailing charge for the item or service. In some cases, the provider, practitioner or supplier will be paid the lesser of his [or her] actual charge or an amount established by a fee schedule.

A provider, practitioner or supplier who routinely waives Medicare copayments or deductibles is misstating its actual charge. For example, if a supplier claims that its charge for a piece of equipment is $100, but routinely waives the copayment, the actual charge is $80. Medicare should be paying 80 percent of $80 (or $64), rather than 80 percent of $100 (or $80). As a result of the supplier’s misrepresentation, the Medicare program is paying $16 more than it should for this item.

In certain cases, a provider, practitioner or supplier who routinely waives Medicare copayments or deductibles also could be held liable under the Medicare and Medicaid anti-kickback statute. 42 U.S.C. 1320a-7b(b). The statute makes it illegal to offer, pay, solicit or receive anything of value as an inducement to generate business payable by Medicare or Medicaid. When providers, practitioners or suppliers forgive financial obligations for reasons other than genuine financial hardship of the particular patient, they may be unlawfully inducing that patient to purchase items or services from them.

At first glance, it may appear that routine waiver of copayments and deductibles helps Medicare beneficiaries. By waiving Medicare copayments and deductibles, the provider of services may claim that the beneficiary incurs no costs. In fact, this is not true. Studies have shown that if patients are required to pay even a small portion of their care, they will be better health care consumers, and select items or services because they are medically needed, rather than simply because they are free. Ultimately, if Medicare pays more for an item or service than it should, or if it pays for unnecessary items or services, there are less Medicare funds available to pay for truly needed services.

OIG Report: Blood Glucose Test Strips: Marketing to Medicare Beneficiaries. OEI-03-98-00231 (June 2000).

In June 2000, the OIG published a report entitled, “Blood Glucose Test Strips: Marketing to Medicare Beneficiaries.”  The OIG reemphasized its concern with routine waiver of copayments and deductibles, stating:

Medicare beneficiaries who utilize medical supplies on a repeated basis, such as blood glucose test strips, may be strongly influenced by marketing practices. Manufacturers’ rebates, special dealer sales, coupons, discounts, and similar financial inducements are all designed to sway consumer product choice. Entities interested in reaching diabetics who use testing supplies resort to a variety of media to promote their products, including radio, television, specialized periodicals, and newspapers.

Advertising incentives which indicate or imply a routine waiver of coinsurance or deductible could be in violation of 42.U.S.C. 1320a-7b(b), the Medicare and Medicaid anti-kickback statute. According to an Office of Inspector General Medicare Fraud Alert (94-04), such routine waivers of coinsurance or deductibles are unlawful because they could result in (1) false claims, (2) violations of the anti-kickback statute, and (3) excessive utilization of items and services paid for by Medicare. Anyone who routinely waives copayments or deductibles can be criminally prosecuted and excluded from participating in Medicare and State health care programs.

In addition, 42.U.S.C. 1320a-7a(a) (5) prohibits a person from offering or transferring remuneration to a beneficiary that such person knows or should know is likely to influence the beneficiary to order items or services from a particular provider or supplier for which payment may be made under a Federal health care program. “Remuneration” is defined as including a waiver of coinsurance and deductible amounts, with exceptions for certain financial hardship waivers, which are not prohibited.

OIG Special Advisory Bulletin: Offering Gifts and Other Inducements to Beneficiaries (August 2002)

In August 2002, the OIG issued a Special Advisory Bulletin entitled, “Offering Gifts and Other Inducements to Beneficiaries,” which stated:

Under section 1128A(a)(5) of the Social Security Act (the Act), enacted as part of Health Insurance Portability and Accountability Act of 1996 (HIPAA), a person who offers or transfers to a Medicare or Medicaid beneficiary any remuneration that the person knows or should know is likely to influence the beneficiary’s selection of a particular provider, practitioner, or supplier of Medicare or Medicaid payable items or services may be liable for civil money penalties (CMPs) of up to $10,000 for each wrongful act. For purposes of section 1128A(a)(5) of the Act, the statute defines “remuneration” to include, without limitation, waivers of copayments and deductible amounts (or any part thereof) and transfers of items or services for free or for other than fair market value. (See section 1128A(i)(6) of the Act.)

Congress has long viewed the elimination of kickbacks as central to any efforts to combat Medicare fraud and abuse. See United States v. Greber, 760 F.2d 68, 70-71 (3d. Cir. 1985).  Because kickback schemes negatively affect the integrity of federal health care programs, the United States has a strong interest in ensuring the continued viability of False Claims Act actions to deter and redress health care fraud predicated upon kickbacks. United States ex rel. Charles Wilkins and Daryl Willis v. United Health Group, Inc. et al., (3d Cir. Oct. 2010)(No. 10-2747) (Brief for the United States as Amicus Curie Supporting Appellant)(“Amicus Brief”).

To protect against the erosion of patient care and patient safety, courts uniformly agree that compliance with the Anti-Kickback Statute is a material condition of payment under the Medicare program.  See United States ex rel. Schmidt v. Zimmer, Inc., 386 F.3d 235, 243 (3d Cir. 2004); United States ex rel. Conner v. Salina Regional Health Ctr., 543 F.3d 1211, 1223 n.8 (10th Cir. 2008); United States ex rel. McNutt v. Haleyville Medical Supplies, 423 F.3d 1256, 1259-1260 (11th Cir. 2005); and United States v. Rogan, 459 F. Supp. 2d 692, 717 (N.D. Ill. 2006), aff’d, 517 F.3d 449 (7th Cir. 2008).

These and other courts have held that a person or entity who violates the Anti-Kickback Statute and submits a claim or causes another to do so has violated the False Claims Act regardless of what form the claim or statement takes.  Many of these courts have reasoned that the claims are false, and thus violate the False Claims Act, because there is a false certification – either express or implied – as to compliance with the Anti-Kickback Statute each time a claim is submitted.

Moreover, the Anti-Kickback Statute was recently amended to expressly state what these courts had already held, namely, that a violation of the Anti-Kickback Statute constitutes a “false or fraudulent” claim under the False Claims Act.  42 U.S.C. § 1320(a)-7b(g).

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