The federal government’s health care fraud enforcement efforts expanded this week with an announcement by the Office of the Inspector General (OIG), of the U.S. Department of Health and Human Services, that it has created a new litigation team dedicated to pursuing civil penalty and exclusion cases. In a session titled “Leveling the Playing Field: OIG-Initiated Administrative Litigation,” at the American Health Lawyers’ Association Annual Meeting conference in Washington, D.C., on June 30th, the chief of the Administrative and Civil Remedies Branch (ACRB), Lisa Re, said, “We know that many providers are trying to do the right thing, but that the few who are not create competitive disadvantages for the rest. We are looking to level the playing field.”

Re discussed the new affirmative litigation team with its leader, Deputy Chief Robert Penezic. Mr. Penezic brings extensive health care fraud experience to the role in both white-collar defense and as a Florida state prosecutor. He was hired by the OIG several years ago to enhance the office’s affirmative litigation capabilities. But adding more attorneys to build out a brand new dedicated team was stymied by budget issues until this year, when Congress doubled its funding for health care fraud enforcement programs. Before creating the new team, Re said that ACRB had about five full-time equivalents (FTE) working affirmative litigation cases, but that those FTEs were spread among 10 to 12 lawyers who had other responsibilities. Once fully staffed, ACRB’s new team will have at least 10 lawyers dedicating “100 percent of their time” to investigating and litigating civil monetary penalties (CMP) and exclusion cases initiated by the OIG.

Purpose and Goals of Litigation Team

Re and Penezic described the main goals of this new litigation team: 1) holding individuals accountable, 2) enforcing the OIG’s industry guidance, 3) filling enforcement gaps [e.g. pursuing cases that the U.S. Department of Justice (DOJ) does not], and 4) amplifying other OIG component work. Gregory Demske, the OIG’s chief counsel, noted in his panel earlier in the day that this effort is meant to “complement” the DOJ’s enforcement activities—neither replacing nor contradicting them. This indicates that the OIG and DOJ will be coordinating on the CMP and exclusion cases OIG pursues.

Even before creating this team, ACRB’s affirmative case results were increasing, reflecting a re-prioritization of affirmative CMP work. From 2010 to 2012, ACRB settled between 24 and 26 CMP cases per year. In 2013, that number increased to 36; in 2014, it jumped to 60 settlements, with19 settlements in 2015 thus far. The total amount of penalties collected has also increased from approximately $3 million in 2012 to $15 million in 2014 and approximately $15 million in 2015 thus far.

Case Sources and Examples

Re and Penezic identified the following sources of its affirmative cases. First, ACRB receives referrals from other OIG components, such as the Office of Audit Services (OAS), the Office of Evaluations and Inspections (OEI) and the Office of Investigations (OI). These referrals are often based on data analysis: “We look at data to find outliers,” said Penezic. Second, Re and Penezic stated that affirmative cases may be brought to enforce corporate integrity agreements (CIA) and seek either fines or exclusion for breaches of the CIA, such as the stipulated penalties and eventual exclusion the OIG pursued against Small Smiles/FORBA. About entities under a CIA, Re articulated that the OIG “tries to work with [the] provider, but we will take action when appropriate” to enforce the agreement’s terms.

Finally, False Claim Act (FCA) cases may present potential “spin-off” cases against non-settling parties that were involved in the conduct, such as former executives or physicians who had problematic arrangements with the settling entity. Re and Penezic also highlighted the potential that the OIG may pursue an exclusion case against a settling party where the OIG does not give the party an exclusion release in the settlement. This policy statement may cause concern for many FCA defendants given the OIG’s tendency to reserve its exclusion authorities more frequently in recent years in FCA settlements, as Demske discussed in his remarks. Re attempted to address those concerns by saying, “We are not in business of playing ‘gotcha.’ We will tell you our intentions about pursuing exclusion in the negotiation.” As a policy matter, the OIG reserves exclusion if no CIA exists in the settlement. However, they will provide “cold comfort” if they do not believe a CIA is necessary and have no intention of pursuing an exclusion following the settlement. While the settlement agreement does not reflect this issue on its face, Re said that “we are very straightforward at time of settlement.”

A significant portion of the presentation reviewed various CMP and exclusion cases that the OIG has resolved in recent years. These case examples show the breadth of the different entities and individuals which the OIG is willing to pursue. Cases ranged from 1) a $12.64-million payment by Sandoz for allegedly failing to submit accurate drug pricing; 2) a $1.5-million payment and 15-year exclusion against Dr. Joseph Raia (an owner of a physical therapy practice for false claims allegations); and 3) the 12 settlements with physicians who had medical director agreements stemming from an FCA settlement with Fairmont Imaging and Dr. Jack Baker.

The presentation also addressed the emphasis placed on linking CMP cases with OIG guidance and other OIG audit work. For example, the Sandoz case was characterized as “building on a body of work OEI had done” examining pharmaceutical manufacturers’ compliance with the drug-price reporting requirements. The OIG issued a fraud alert on this topic in 2010 as “a warning to the industry.” Penezic described a series of cases against Mississippi physicians for allegedly improper medical director agreements and re-assignment of their billing privileges, which resulted in a 2012 fraud alert. Over the next few years, the OIG then pursued the Fairmont physician cases and issued another fraud alert this year in 2015. As Penezic said, “When we issue an alert, it is reasonable to conclude that OIG will continue to follow up on issues discussed in that guidance.”

Practical Implications

Dedicating and increasing the lawyer resources to CMP and exclusion cases demonstrates that the OIG is ready and motivated to grow its penalty and exclusion case portfolio. It shows a commitment to put more teeth in enforcing its industry guidance and acting on the often-expressed desire to “hold individuals accountable.” Given the announcement in a high-profile legal community setting, we should expect the OIG will work hard to produce results worth showcasing in the coming years.

If the OIG moves forward as intended, this development changes the dynamics involved with  settling an FCA case; counsels physicians and other entities to examine their compliance programs; and emphasizes the importance of thoughtful and thorough due diligence review of physician arrangements. It also highlights the importance of using government disclosure of potential issues to mitigate liability.

FCA Settlements

Organizations in the midst of an FCA negotiation may feel the impact of the OIG more actively examining the case for potential “spin-off” cases against individuals or other actors. This increased potential of the OIG taking such an action changes the FCA negotiation calculation. A primary goal of settling a case is to achieve finality and certainty that the organization’s liability is extinguished to the government’s satisfaction. However, the specter of OIG CMP or exclusion cases following the settlement can have a significant impact on achieving this goal, especially if the organization has indemnification obligations to current or former employees or board members who are OIG targets. Also, FCA settlement agreements or CIAs often contain requirements for the defendant to cooperate with future government investigations related to the underlying conduct. As a result, it will be critical to obtain clarity from the OIG about their intentions to pursue spin-off cases against current or former executives, and others connected to the investigated conduct, such as physicians with whom the organization may have an ongoing relationship. Obviously, it will also be necessary to understand OIG’s intentions if there is no exclusion release in the FCA settlement. And if a CIA does exist, compliance with its terms, and developing a positive monitoring relationship with the OIG, are essential to mitigating the potential for the OIG to take a breach action.

Physician Compliance

The DOJ tends to focus on the “deep pocket” in the FCA context, but the OIG’s administrative cases tend to be smaller in size (in terms of dollars and the type of provider), and individual physicians and executives are the more frequent target. This new OIG team is seeking to expand the universe of the government’s fraud-enforcement activities in order to bring more cases against physicians and other individuals. Physician-owned entities are well advised to examine their compliance programs to determine if said programs are adequate to address their risks. It also cautions organizations engaged in physician engagements to ensure they have sufficient compliance structures in place for both creating an arrangement and monitoring the physicians’ compliance with the arrangement’s terms.

Due Diligence and Disclosure

Typically, larger organizations have sophisticated compliance programs working to prevent or detect, and act on, potential problems early. When purchasing or affiliating with another entity—whether physician-owned or not—the possibility exists for assuming the seller’ potential liabilities. Organizations should carefully scrutinize compliance issues, especially physician relationships, in due diligence and make decisions about government disclosures, to ensure it is not buying potential problems in the future.