backFederal Judge Blocks Preventive Care Mandates Under the Affordable Care Act and Enjoins Further Enforcement of Special Task Force’s Recommendations—On March 30, 2023, the U.S. District Court for the Northern District of Texas vacated actions taken by HHS to implement provisions of the Affordable Care Act (ACA) that require health insurance plans to include coverage for certain preventive healthcare services. Judge Reed O’Connor issued the decision and enjoined HHS from enforcing the ACA requirements after previously finding that the task force that recommended them was not constitutionally appointed.
The ACA empowers the U.S. Preventive Service Task Force (USPSTF), the Health Resources and Services Administration (HRSA), and the Advisory Committee on Immunization Practice (ACIP) to determine the types of preventive care that must be covered by health insurers under the ACA. Since the ACA was enacted, these three agencies have issued pronouncements requiring health insurers to cover, at no cost, preexposure prophylaxis (PrEP) drugs for HIV and sexually transmitted disease screenings. These “preventive care mandates,” as the court referred to them, are all recommended by the USPSTF.
The plaintiffs in the case, which included six individuals and two businesses, objected to the preventive care mandates on religious or personal grounds and claimed that they violated the U.S. Constitution and the Religious Freedom Restoration Act (RFRA). In September 2022, Judge O’Connor agreed with respect to the preventive care mandates recommended by the USPSTF, because its members are not confirmed by the U.S. Senate, and neither HHS nor other constitutional officials review their recommendations. (The court’s September 2022 decision did not impact HRSA or ACIP’s recommendations, which include contraceptive care and vaccine recommendations.) The court left unanswered what remedy to issue.
Following supplemental briefing by the parties, the court released its March 30, 2023 decision, in which it issued a universal vacatur of all the USPSTF’s recommendations. The court agreed with the plaintiffs that the Administrative Procedure Act allowed it to vacate HHS’s actions based on USPSTF’s recommendations. It also enjoined HHS from enforcing the USPSTF’s recommended contraceptive coverage requirements in the future. The court also found that it would violate RFRA to require the employer plaintiffs to purchase health insurance that would pay for PrEP drugs to prevent HIV.
The case is Braidwood Mgmt., Inc., et al. v. Becerra, et al., N.D. Tex., No. 4:20-cv-00283. A copy of the court’s decision is available here.
Reporter, Doug Comin, Atlanta, +1 404 572 3525, dcomin@kslaw.com.
DOJ Settles False Claims Act Allegations for $69 Million with Covenant Healthcare System and Physicians—On March 29, 2023, the Department of Justice (DOJ) issued a press release announcing three related civil settlements totaling over $69 million with Covenant Healthcare System and two physicians—Dr. Mark Adams, a neurosurgeon, and Dr. Asim Yunus, an electrophysiologist, to resolve alleged False Claims Act violations. The settlements resolve allegations of a kickback scheme of physicians’ improper referrals to the hospital system. The case arose from a whistleblower complaint filed by a former vice president and CEO of one of the divisions at Covenant, Stacy Goldsholl, in 2012.
The relator’s complaint against Covenant included allegations of violations of the False Claims Act, Michigan Medicaid False Claims Act, the Anti-Kickback Statute, and the Stark Law. According to the announcement, the complaint alleged improper financial relationships by Covenant with eight referring physicians and a physician-owned investment group, resulting in the submission of false claims to the Medicare, Medicaid, TRICARE, and FECA programs. For example, the complaint alleged that Covenant awarded medical directorships and above fair market compensation to physicians who were top referral sources. The complaint alleged that Goldsholl, the whistleblower, raised this concern but was terminated in 2012.
The DOJ listed the following allegations as resolved by the settlement:
- “At various points between 2006 to 2016, Covenant had contracts with Asim Yunus, M.D., Kimiko Sugimoto, M.D., Sujal Patel, M.D., Sussan Bays, M.D., Guy Boike, M.D., and Thomas Damuth, M.D. to serve as medical directors, and none of these arrangements satisfied any exceptions to the Stark Law or the AKS, such that referrals these physicians made to Covenant violated the False Claims Act.”
- “From June 1, 2006, to December 14, 2009, Covenant employed Mark Adams, M.D., and this financial relationship did not satisfy any exception to the Stark Law, such that referrals for designated healthcare services by Adams to Covenant were prohibited and violated the False Claims Act.”
- “From January 21, 2009, through July 31, 2013, Covenant rented office space to Ernie Balcueva, M.D. Covenant forgave Balcueva’s rent payments, constituting remuneration that Covenant paid in exchange for referrals from Balcueva in violation of the AKS and the False Claims Act, and creating a financial relationship that did not meet any exception to the Stark Law, also violating the False Claims Act.”
- “Covenant permitted Covenant Physician Investment Group [(CPIG)], a group owned by Covenant-employed physicians for the purpose of purchasing large medical equipment that CPIG would lease to Covenant, to secure an equipment lease through non-arm’s-length negotiations, in order to induce referrals of patients from these physicians, in violation of the AKS and the False Claims Act.”
The DOJ’s settlement with Covenant was actually finalized in 2021 and resulted in payments by Covenant of $67,191,436.39 to the United States and $1,808,563.61 to the State of Michigan. The case remained sealed until March 29, 2023, while the DOJ continued to investigate the physicians—Adams and Yunus. As a result of that investigation, Adams will pay to the United States a sum of $406,551.15, and Yunus will pay $345,987.54 to the United States. The whistleblower will receive $12.3 million.
The DOJ’s press release is available here.
Reporter, Kasey Ashford, Washington D.C., +1 202 626 2906, kashford@kslaw.com.
OIG Issues Favorable Advisory Opinion Regarding Laboratory Arrangement to Offer Discounts – On March 29, 2023, OIG posted Advisory Opinion No. 23-03 regarding a laboratory’s proposed arrangement to provide a prepaid card of up to $75 to encourage individuals to return the sample collection kit associated with the laboratory’s colorectal cancer screening test. OIG concluded that it would not impose administrative sanctions under the civil money penalties law relating to beneficiary inducements (the Beneficiary Inducements CMP), as the prepaid gift card would satisfy the preventive care exception to the definition of “renumeration,” and the proposed arrangement presented a minimal risk of fraud and abuse under the federal Anti-Kickback Statute.
The colorectal cancer screening test (the Test) is the first and only FDA-approved non-invasive stool-based DNA colorectal screening test available to patients who are at average risk for developing colorectal cancer. The laboratory is the only laboratory that performs the Test.
Medicare covers the Test once every three years for Medicare beneficiaries aged 45 or older who meet certain criteria. In the November 2022 rulemaking, in which the age for coverage was reduced from 50 to 45, CMS stated that it has “recognized there are several advantages to choosing a non-invasive stool-based [colorectal cancer] screening test as a first step compared to a screening colonoscopy, including relative ease of administering the test and potentially reducing the experience of unnecessary burdensome preparation and invasive procedures.” As of January 2023, Medicare’s Clinical Laboratory Fee Schedule provides that the laboratory is reimbursed approximately $500 for each Test performed.
To conduct the Test, the laboratory ships the Test sample collection kit directly to the patient’s home. The patient then collects their own stool sample and ships the Test collection kit with the stool sample back to the laboratory using a prepaid, preaddressed package. The laboratory generally contacts patients to encourage them to promptly return the test kits and follows up at least once by multiple communication methods if the laboratory has not received the kit in a timely manner, including by way of phone calls, text messages, emails, and letters. Even so, the laboratory’s data shows that more than thirty percent of patients fail to return the kit back to the laboratory.
Under the Proposed Arrangement, the laboratory would send the patient a reminder letter to return the kit with an offer to send the patient a prepaid card up to $75 (the Gift Card). This would occur only: (1) between 14 and 180 days after the patient received the Test sample collection kit; and (2) after at least two patient contacts were unsuccessful in encouraging the patient to return the test collection kit.
The Laboratory would implement safeguards related to this Proposed Arrangement, including:
- The Gift Card could not be used for any services by the laboratory.
- Each patient would be limited to one gift card per 36 months, a time period which aligns with Medicare’s coverage for the Test.
- Apart from the letter offering the prepaid card, the laboratory would not engage in any promotion or advertisement of the proposed arrangement.
OIG concluded that the arrangement implicates the Beneficiary Inducements CMP and the federal Anti-Kickback Statute because the discount program may induce referrals for services since the laboratory’s offer of the Gift Card would be likely to influence patients eligible for Medicare or State health care programs to receive a reimbursable service from the laboratory.
OIG determined that the prepaid card would not constitute renumeration under the Beneficiary Inducements CMP, as the Proposed Arrangement would satisfy the preventative care exception to the definition of “remuneration” under the Beneficiary Inducements CMP for two reasons. First, the Test is a specific clinical service described in the US Preventive Service Task Force’s Guide to Clinical Services. Second, the Gift Card would not be convertible to cash, nor would it be disproportionately large in relationship to the value of the preventative care service.
Regarding the federal Anti-Kickback Statute, OIG noted that the offer of the Gift Card could constitute renumeration even if not under the Beneficiary Inducements CMP. OIG also noted its “long-standing concerns” about remuneration that could: (1) influence a patient’s choice of care; (2) create incentives for offsetting remuneration; or (3) favor providers and suppliers with greater financial resources.
OIG, however, concluded that the proposed arrangement would present a minimal risk of fraud and abuse under the federal Anti-Kickback Statue for the following reasons:
- The proposed arrangement is unlikely to lead to improperly increased costs to federal health care programs, as the prepaid card would only be available to patients once every three years, the prepaid card is unlikely to influence a prescriber to order the Test, and the Test is reimbursed at a fixed rate under the Clinical Laboratory Fee Schedule.
- The proposed arrangement would promote patient compliance with a screening test for colon cancer where more than 30 percent of patients fail to return the kit currently and the gift card would only be provided to patients who do not return the kit after at least three reminders and within a specified time period.
- Finally, the proposed arrangement contains safeguards, including a lack of any advertising of the Proposed Arrangement.
The OIG Advisory Opinion is available here.
Reporter, Christopher C. Jew, Los Angeles, + 1 213 443 4336, cjew@kslaw.com.
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King & Spalding Roundtable: Restructuring Takeover – A Crash Course on Hot Topics in Healthcare Restructurings
Please join an experienced cross-panel of our restructuring and healthcare colleagues on April 5, 2023, from 1:30 pm – 2:30 pm ET for a review of hot topics in the healthcare restructuring space. Learn the issues that have been key in recent out of court workouts and chapter 11 bankruptcies, as well as other important legal and regulatory developments, and what these could mean for this coming year, including:
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