Federal enforcers typically announce (formally as well as informally) work plans or focus areas for the upcoming year that can provide some guidance as to where providers might anticipate enforcement action and, where they might, through self-compliance, mitigate unwanted consequences.

Jody Hunt, Assistant Attorney General (AAG) for the Department of Justice (DOJ), Civil Division, highlighted those areas from the perspective of DOJ’s Civil Division in a speech on February 27th before the Federal Bar Association in DC. One area that received focus was improper care and billing at nursing homes/skilled nursing facilities (SNFs). This speech was quickly followed by a DOJ press release issued on March 3, 2010, announcing a national nursing home initiative that will focus on quality of care issues, and will align DOJ’s Elder Care Initiative, the HHS Administration for Community Living, and the HHS Office of Inspector General. 

What does this mean for FCA cases prosecuted by DOJ and related qui tam relator whistleblower actions? 

Several investigations in recent years have focused on allegedly excessive utilization of therapy services for SNF residents. SNFs have recently undergone a major reimbursement shift to a new system called PDPM (Patient Driven Payment Model), which rotates the focus of reimbursement away from the amount of therapy care provided (i.e., billing based on RUGs (Resource Utilization Groups)) to a focus on the degree of clinical complexity of the residents and their need for appropriate resources overall. While there is great variety amongst operators and regions in the United States, SNFs that have been able to embrace clinically complex patients and are proximate to high volume referral sources such as hospitals are predicted to fare better on average than SNFs providing lower levels of care and/or shorter term rehab stays.

Proper coding (as opposed to additional therapy minutes, a focus under the prior reimbursement system) will likely be the focus of DOJ’s initial work. The plethora of FCA cases dealing with up-coding either for services actually performed, but unnecessary, or services not provided in the first place, may be used as precedent against SNFs struggling to adjust to a new system. 

DOJ’s Nursing Home Initiative also may be enforced with actions brought under the FCA. The string of FCA cases dealing with so-called “worthless services” that are hence “false” under the FCA given up-coding (for example, see DOJ press release regarding Extendicare settlement) might also find their way into claims backed in 2020 by whistleblowers against SNFs. 

Providers, however, are not without their arguments in defense of the care provided. For example, in a related post-acute case, hospice provider AseraCare was able to beat back a decade-old challenge by DOJ that its billings for end-of-life care were not medically needed based on a second opinion later rendered by a government expert witness who had no contact with the patients in questions (see AseraCare FCA Ruling Is A Boon For Health Providers). After the recent victory for AseraCare in the Eleventh Circuit (see id.), that case—for which the government alleged damages of $200 million—recently settled for only $1 million. Courts are now demanding actual evidence of falsity, not merely a difference of opinion or a corporate culture that suggests yet does not prove improper billing. However, providers are cautioned to review the current law in their jurisdiction. Recently, the Third Circuit in Druding et al. v. Care Alternatives disagreed with the approach of the Eleventh Circuit and rejected the concept that DOJ must prove “objective falsity.” The Third Circuit held that a physician’s expert testimony challenging a hospice certification can create a triable issue of fact as to falsity. In all likelihood this issue may go the U.S. Supreme Court.

Why is this a particularly high-exposure time for SNFs?

DOJ’s prioritization of enforcement actions against SNFs comes at a time of uncertainty for, and increased pressure on, SNFs that make it more possible SNFs will commit billing errors. In addition to the above shift in reimbursement (which follows a prior shift from cost-based to prospective payment system reimbursement and was followed by national insolvencies amongst SNFs), SNFs are also facing significant pressure on several other fronts: a) labor costs that continue to rise along with minimum wage laws; b) State Medicaid rates continue to trail Medicare, making resident census mix critical; c) the high cost of major human and technology investments needed to participate in value-based billing; and d) pressure on rents with leases that have built-in escalators. When you couple the challenges of pivoting to the new PDPM reimbursement methodology involving dramatically different objectives and yardsticks against this already stressed ecosystem background, these pressures may result in incorrect claim submission that, however intended, can later be construed to be inaccurate or improper. 

How do agency enforcement priorities impact providers?

The AAG’s remarks regarding enforcement priorities—SNFs, Medicare Advantage, and electronic health records—were at the Federal Bar Association’s annual Qui Tam conference and addressed to an audience including relator (i.e. whistleblowing) attorneys. By providing insight to the qui tam bar of the agency’s objectives, AAG Hunt’s comments may encourage those attorneys to seek out clients and pursue cases falling within the agency’s objectives. The qui tam bar has obvious incentives to bring cases that DOJ is interested in pursuing. Most obviously, cases in a DOJ focus area are likely to receive more attention and resources by DOJ at the investigation stage, and more likely to receive DOJ’s intervention in any litigation, and therefore such cases are likely to result in greater settlement dollars to relators and their counsel (even bearing in mind that relators receive a lesser percentage of recovery for cases in which DOJ intervenes). Even if DOJ does not intervene in a case involving its enforcement priorities, and the relator chooses to litigate anyway, such case is less likely to be subject to a request for DOJ to dismiss it under 2018 DOJ guidance (see Post-Granston Memo, DOJ Can Use Its Dismissal Authority, but Not Without Limits).

What can providers and their investors do to minimize risks?

As can be said for any health care provider working with public payers, there is no foolproof system to prevent all wrongdoing. Rogue employees, ever-changing and vague regulations, and zealous whistleblowers can sometimes create a toxic mix of behavior that can be challenged. What providers can do however is to have an internal system in place that detects wrongdoing, disciplines it, and remedies it, each in a systematic way. Active and effective corporate compliance plans, including robust audit functions, are the surest way for operators, investors, officers and directors to not only safeguard corporate goodwill and success, but also shield those parties from personal liability (see DOJ press release regarding settlement with Diabetic Care Rx LLC and its executives). In challenging economic times where G&A expense can be a focus of cost reduction, financial and compliance functions should remain a priority particularly during the rollout of PDPM. As was the case with the shift to PPS, SNF operators that embrace the new reimbursement regime in a focused and deliberate way will be the survivors and winners in a time of change and challenge for SNFs.