Monday, October 2, 2023
HomeBusiness of MedicineSupreme Court's False Claims Act Opinion Raises Stakes for Physician Billing

Supreme Court’s False Claims Act Opinion Raises Stakes for Physician Billing

In a ruling that legal experts say could heighten scrutiny of physicians and hospitals that bill government-funded insurance programs, the US Supreme Court voted unanimously last week to reopen two False Claims Act (FCA) cases, reversing a lower court’s ruling and issuing an opinion that could expand the scope of the antifraud statute.

The ruling is viewed as a loss for the American Medical Association (AMA) and the American Hospital Association (AHA), which filed amicus briefs urging the Supreme Court not to expand the FCA’s scope. It is viewed as a win for whistleblowers.

Doctors, hospitals, and pharmacies are often charged with FCA violations in improper billing cases, but they say the rules are unclear and that as a result, they are being sanctioned when there was no intent to defraud. Whistleblowers say organizations try to justify fraud by using post facto “explanations” for the way they bill.

“This opinion is a game changer that will impact everyone who bills the government for goods and services,” Brett W. Johnson, PC, an attorney specializing in government contracting and regulatory compliance, told Medscape Medical News. “If you accept Medicaid or Medicare, like almost every healthcare provider in America, take Tricare, or are subject to the Emergency Medical Treatment and Active Labor Act, this will affect you.”

The cases center on whistleblower allegations that SuperValu and Safeway pharmacies defrauded the government by overcharging Medicaid and Medicare for prescription drugs. Reimbursement for prescription drugs is typically capped at the usual and customary (U&C) price, defined as the cash price charged to the general public.

But according to court documents, from 2008 to 2012, Safeway offered customers discounted cash pricing, including $10 for a 90-day supply of a generic cholesterol drug. Instead of reporting the cash price to insurers, the pharmacies submitted the retail price, upwards of $108. Whistleblowers allege that customers rarely paid the retail price and that pharmacies knowingly misreported sales information to collect more money from insurers, in violation of the FCA.

Ambiguous Billing Guidelines

Prescription discount programs first became popular in 2006, when Walmart began advertising 30-day supplies of certain generic drugs for $4. Whistleblowers allege that to remain competitive, SuperValu and Safeway started offering discounts such as price-match guarantees. Some discounts were advertised to the public, while others had to be requested by the customer.

Under the FCA, a person is liable when they knowingly submit false claims or suspect the claim is incorrect but neglect to verify the information, something the law refers to as reckless disregard and deliberate ignorance. Violators must pay three times the government’s damages plus an inflation-adjusted penalty. As a deterrence of healthcare fraud, individuals can file an action on behalf of the United States and receive a portion of the recovery .

Joel D. Hesch, JD, professor of law at Liberty University and former trial attorney with the Civil Fraud Section of the Department of Justice, told Medscape the recent opinion confirms what was always the intention of the FCA: “A person is liable if they should have known better but chose not to ask for clarification.”

In the past, he said companies could knowingly submit fraudulent claims and then hire an attorney to argue that the billing regulations were ambiguous. “The Supreme Court rejected the notion that after-the-fact rationales are a golden ticket to escape liability. If a person acts with knowledge that they are not entitled to federal funds, they are liable,” said Hesch.

Both cases had previously been heard in district court. In those cases, the FCA threshold was not met because the pharmacies could not have acted “knowingly” because at that time, there was no authoritative guidance from Medicaid and Medicare about reimbursement of discounted pricing models, the lower courts ruled.

Whistleblowers subsequently appealed. The cases went before the 7th US Circuit Court of Appeals last year, where the rulings were upheld. The court concluded that failing to report discounted prices resulted in false claims, likely due to the Centers for Medicare & Medicaid Services (CMS) issuing a memorandum in 2006 in which it updated the definition of U&C to include cash discounts and price matches. However, the appeals court said the pharmacies’ interpretations of U&C charges were “objectively reasonable.”

In April, the cases were argued before the Supreme Court. The AMA warned that if the rulings were overturned, the FCA “would be used to pursue treble damages based on unsettled and disputed questions involving salutatory, regulatory, or contractual minutiae” instead of for “blatant acts of fraud.”

But in the opinion last week, Justice Clarence Thomas said that FCA liability hinges on whether the defendants knew that the claims were false on the basis of their own “knowledge and subjective beliefs — not [on] what an objectively reasonable person may have known or believed.”

Compliance Going Forward

Johnson says healthcare organizations and providers should review their billing and internal compliance policies and commit to conducting regular audits. For example, if one patient receives discounted pricing or incentives, healthcare entities must evaluate whether to provide those discounts or incentives to all patients, especially if Medicare or Medicaid billing is involved.

“What matters now is what are you thinking when you bill the government,” said Johnson. Providers and hospitals involved in FCA disputes may have to go through expensive and time-consuming discovery processes to determine that information, which will now be necessary in the SuperValu and Safeway cases. Regardless, he said medical billing will be “under more scrutiny than ever” and that the impact on industry will be similar to that of electronic medical records.

In addition, experts say that it is unlikely that billing guidance will come from trade groups and that healthcare entities should pay close attention to notices and updates published by federal agencies such as the Department of Health and Human Services and CMS.

In a statement, Ben Teicher, AHA’s associate director of media relations, said the association is “evaluating the decision and will look for opportunities to ensure that the government and whistleblowers are following [FCA] requirements.”

While it is unclear when or if further guidance may be released, a CMS spokesperson told Medscape that the organization is currently reviewing the Supreme Court decision and will continue to “work with law enforcement to identify and investigate fraud and abuse.”

Steph Weber is a Midwest-based freelance journalist specializing in healthcare and law.

For more news, follow Medscape on Facebook, Twitter, Instagram, and YouTube.

- Advertisment -

Most Popular