All posts by Seth A. Goldberg

FTC to Keep Healthcare and Pharmaceutical Sectors in Antitrust Crosshairs

While the Trump Administration’s antitrust policy is still developing, and most believe it will provide for less enforcement than antitrust policy under the Obama Administration, the Federal Trade Commission announced on Friday, March 31, that it has no intention of letting up on the healthcare and pharmaceutical sectors, where the FTC has been increasingly active over the past few years.  In 2016, the FTC challenged the mergers of hospitals/health systems in Illinois and Pennsylvania, and initiated actions to protect pharmaceutical price competition; early 2017 has been no different.

Thus, while the Trump Administration’s antitrust policy unfolds, and it may be less strict than the antitrust policy of the prior administration, healthcare and pharmaceutical industry participants should stay vigilant about antitrust compliance because the FTC intends to remain focused on competition in those sectors.

 

 

 

Wound Company’s Antitrust Claim Tossed

Having dismissed the Sherman Act Section 1 conspiracy and Section 2 monopolization claims of Suture Express in August 2013, a federal judge in Kansas, on April 11, 2016, tossed the remainder of plaintiff’s $200 million claim, which asserted that Cardinal Health and Owens & Minor, wound care companies, entered into a predatory pricing scheme to prevent hospitals from buying the plaintiff’s competing products.  Suture Express, Inc., v. Cardinal Health, Inc., et al., 2:12-cv-02760.

The court determined that the summary judgment record did not demonstrate an injury to competition in the acute care market resulting from defendants’ alleged pricing arrangement, as the plaintiff failed to establish that defendants had market power.  Rather, according to the court, the record on summary judgment demonstrated a competitive market, where a number of defendants’ rivals have been able to grow their businesses and compete effectively against defendants, while defendants’ market shares have remained relatively stable; in fact, the court found that defendants’ themselves competed against one another.

In dismissing the case, the court noted, as courts usually do in cases where the record demonstrates, at most, an injury only to the plaintiff, the antitrust laws were designed to protect competition not competitors, and the failure to demonstrate an injury to competition in the market is fatal to a plaintiff’s Sherman Act claims.

Although, as this case shows, antitrust defendants may have to endure lengthy and expensive litigation, experienced antitrust counsel, familiar with the deep and growing body of defense-oriented antitrust decisions, have a number of arrows in their quiver for shooting down antitrust claims.

 

FTC Settles Antitrust Claims Against Orthopedists

Following an investigation, on December 14, 2015, the FTC filed a Complaint and a Decision and Order that resolved antitrust claims against 19 orthopedists in Berks County, PA, arising out of a 2011 merger of six independent physician groups in which the orthopedists practiced.  Those six groups merged to form Keystone Orthopaedic Specialties (“Keystone”).

According to the Complaint, the 19 orthopedists comprised 76% of the 25 physician orthopedic physician services market in Berks County.  Prior to the merger, competition among orthopedists was robust, with the 25 orthopedists in the market practicing in 11 different physician groups.  The merger, however, resulted in market concentration likely well above the thresholds for presuming market power and illegality under the Herfindahl-Hirschman Index.

According to the Complaint, because of the highly concentrated market and entry barriers, health plans operating in Berks County were unable to establish networks of orthopedists for their enrollees in Berks County, and were therefore forced to pay higher rates to the Keystone  orthopedists, which they passed on to their enrollees.

The Decision and Order imposes extensive multi-year restrictions on the types of joint arrangements the Keystone orthopedists and their practices may enter into going forward, prohibiting some arrangements altogether, while requiring FTC consent for others.

The lesson of Keystone is simple.  Physicians practicing in independent physician groups who are contemplating a joint venture of any kind should retain antitrust counsel to advise on and resolve any antitrust issues before the arrangement is consummated in order to avoid regulator scrutiny and the potential for the severe penalties and practice restrictions that come with it.

SCOTUS To Decide Viability and Scope of “Implied Certification” Liability

In Universal Health Services Inc. v. U.S. et al. ex rel. Escobar et al., case number 15-7, the U.S. Supreme Court will decide the viability and scope of the “implied certification” theory of liability under the False Claims Act.   That theory has been upheld in various circuits, resulting in FCA liability and penalties, including treble damages, for government contractors’ reimbursement claims where the contractor has failed to comply with a statute, regulation, or contractual provision that does not state that it is a condition of payment. For the healthcare industry, whose participants are generally subject to a gauntlet of federal and state regulations, statutory requirements, and contractual provisions, the significance of the implied certification theory of FCA liability is obvious.

The FCA imposes liability on any person who “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval.” See 31 U.S.C. § 3729(a)(1)(A)-(G). “Knowingly” requires actual knowledge of false information, deliberate ignorance of the truth or falsity of information, or reckless disregard of the truth or falsity of information.” Id. § 3729(b)(1)(A)(i)-(iii). The FCA imposes a mandatory civil penalty of between $5,500 and $11,000 for each violation of the Act, as well as treble damages. 31 U.S.C. § 3729(a)(1); 28 C.F.R. § 85.3(a)(9).

Under the implied certification theory, a defendant may be held liable under the FCA where it knowingly violates a statute, regulation, or contractual provision, even if that provision has nothing to do with payment. In Universal Health, for example, the Petitioner, a mental health facility, was held liable under the FCA for failing to comply with Massachusetts regulations governing the scope of services and staffing requirements, including staff qualifications, certification, and supervision, at mental health facilities. Unlike other provisions in the Massachusetts regulations, these provisions did not condition reimbursement on their being complied with.  The specific injury in Universal Health alleged by the Relators was that their daughter experienced an adverse reaction to a drug that was prescribed by a nurse who was not supervised in accordance with the Massachusetts regulations; namely, the requirement that she be supervised by a board certified psychiatrist. Among other things, the First Circuit Court of Appeals determined that Petitioner’s lack of understanding of the regulatory requirements regarding supervision was sufficient to constitute a “knowing” violation of the FCA.

The Supreme Court will decide whether the implied certification theory of liability is ever viable, and, if so, whether it can be applied to claims for payment where the alleged falsity resulted from failing to comply with a regulatory, statutory or contractual provision that is not explicitly a condition of payment by the government.

The facts in Universal Health are not uncommon in the healthcare industry. Indeed, among other amici, the American Hospital Association, Federation of American Hospitals and Association of American Medical Colleges have jointly filed an amicus brief in support of Petitioner.

Dental Providers and Labs Allege Antitrust Conspiracy

Dental and orthodontic practices and dental laboratories around the U.S. are being represented in class actions filed this week in federal courts in Texas and New York, see, e.g., Comfort Care Family Dental, P.C. et al v. Henry Schein, Inc. et al, 1:16-cv-00282 (E.D. NY), that claim  defendants Henry Schein, Inc., Patterson Companies, Inc., and Benco Dental Supply Company (“Benco”), alleged to be the dominant dental product distributors in the U.S., together controlling over 80% of the national market for the distribution of dental supplies and dental equipment,  conspired to boycott competitors in that market in violation of Section 1 of the Sherman Act.

The Comfort Care complaint asserts that Defendants’ conduct constitutes a horizontal group boycott that resulted in either a per se violation of Section 1 or a violation of the Sherman Act under the “rule of reason,” and alleges that Defendants “frequently communicated with each other at in-person meetings, via electronic mail and texts, and through phone calls” to collectively respond to new competitors and pressure dental associations as part of the group boycott.   The Comfort Care complaint also provides economic information purporting to demonstrate that the alleged market is highly concentrated, has high barriers to entry, and has experienced increased pricing despite static or declining demand, all of which support the claim of anticompetitive conduct.

In addition to the private antitrust actions, as the Comfort Care complaint alleges,  various state AGs and the FTC are investigating  Defendants’ conduct as well, and Benco has already agreed to a consent judgment with the Texas AG pertaining to some of the conduct at issue in the private actions.

 

Another Healthcare Fraudster Convicted

In addition to the sentencing Tuesday of Patricia Akamnonu, owner of Ultimate Care Home Health Services, for 10 years for conspiring with her husband and others to commit healthcare fraud, late yesterday the owner and manager of three Miami-area home health agencies, Khaled Elbeblawy, was convicted on counts of conspiracy to commit healthcare fraud and wire fraud and one count of conspiracy to defraud the United States and pay healthcare kickbacks.

The $57 million healthcare fraud scheme involved Elbeblawy and his co-conspirators submitting false claims to Medicare for services that were not actually provided, not medically necessary, or for patients who were procured through kickbacks to doctors and patient recruiters.

The case was brought as part of the Medicare Fraud Strike Force, which operates in nine cities across the country, and has charged nearly 2,000 defendants who have collectively billed more than $6 billion.

 

 

Wife Joins Husband Behind Bars for Healthcare Fraud

On Tuesday, January 19, a federal judge in Texas sentenced Patricia Akamnonu to 10 years in federal prison for her role in a conspiracy to commit healthcare fraud.   Akamnonu and her husband, Cyprian  Akamnonu, who together owned Ultimate Care Home Health Services, pleaded guilty to their role in the conspiracy, which involved them and others recruiting Medicare beneficiaries for treatment at Ultimate and then billing for skilled nursing services that the beneficiaries either did not qualify for or were not necessary.  Mr. Akamnonu is currently serving out a similar 10-year sentence, and both were ordered to each pay $25 million in restitution.

The conspiracy, which raked in $40 million plus for Ultimate and $375 million for all of the co-conspirators, is considered one of the largest healthcare frauds in history.  Dr. Jacques Roy, who certified more than 78% of the false claims submitted to Medicare by Ultimate and the Akamnonus, is scheduled to be tried for his role in the conspiracy in May 2016, and faces a possible life sentence.

A reminder to providers that healthcare fraud can carry stiff criminal and civil penalties.

False Claims Act Claims Dismissed by Federal Court in Florida

In an important decision for providers facing a lawsuit alleging violations of the False Claims Act, the U.S. District Court for the Middle District of Florida, in U.S. ex rel. Pelletier v. Liberty Ambulance Service, Inc., Case No. 3:11-cv-587-J-32MCR (Middle District of Florida, Jacksonville Division), dismissed the government’s complaint intervening in a qui tam action that alleged that Liberty Ambulance Service, among other providers that settled with the government prior to the dismissal, submitted false claims to Medicare and Medicaid for ambulance services that were never provided, on the basis that the government’s complaint failed to satisfy the heightened pleading requirements under Federal Rules of Civil Procedure 8 and 9.

The Court’s decision is significant because the government attached to its complaint affidavits of current and former employees of Liberty and a dispatcher, along with other materials, suggesting that falsified reports were submitted to Liberty that would be payable by Medicare and Medicaid, but, as the Court found, “the allegations stop short of describing what happened once the run reports were submitted to the Liberty office for processing.”  The Court’s decision hinged on the lack of any evidence pertaining to the actual billing process employed by Liberty.  In fact, the affidavit of the person who claimed the most familiarity with that process, did not claim to have witnessed the submission to the government of any actual false claims.

Although the dismissal was without prejudice to the government amending the complaint to provide greater particularity, the decision is an important example for providers facing False Claims Act claims of how the heightened pleading requirements under FRCP 8 and 9 may strengthen their defense.

 

$125 Million Settlement For Alleged FCA Violations

In a settlement with the US DOJ in U.S. ex rel. Halpin and Fahey v. Kindred Healthcare Inc. et al., 1:11-cv-12139, Kindred Healthcare, Inc., a skilled nursing and long-term care company, has agreed to pay the federal government more than $125 million for alleged False Claims Act violations by a therapy services company, RehabCare Group, Inc., acquired by Kindred in June, 2011.

RehabCare contracts with more than 1,000 skilled nursing facilities across the country, and, along with Kindred, is alleged to have caused those facilities to submit Medicare claims for services at the highest reimbursement levels that were not actually provided, or not necessary.   Two whistleblowers stand to receive almost $24 million from the settlement.

While all providers need to have strong compliance, this is a reminder that larger providers, whose operations span multiple offices, cities and states, need to be especially vigilant and install strong company-wide compliance programs.

SCOTUS Limits Claims Brought by Healthcare Providers’ for Denied Medicaid Reimbursement

In a recent 5-4 decision by the U.S. Supreme Court, Armstrong v. Exceptional Child Center, Inc., Slip. Op., 575 U.S. ____ (March 31, 2015), Justice Scalia, writing for the majority, took aim at health care providers seeking to enforce Medicaid rate-setting provisions against a state that refused to incorporate those provisions in the state’s Medicaid plan, and instead reimbursed providers for Medicaid services at lower rates.

In Armstrong, the plaintiffs, providers of habilitation services under Idaho’s Medicaid plan sought an injunction to prevent Idaho’s State Department of Health from violating Section 30(A) of Medicaid, 42 U.S.C. § 1396(a)(30)(A), which requires a state to “assure that payments are consistent with efficiency, economy, and quality of care,” while “safeguard[ing] against unnecessary utilization of. . . care and services.”  The Court reversed the Ninth Circuit’s decision that the Supremacy Clause gave the providers an implied right of action to seek an injunction requiring Idaho to comply with Section 30(a). Continue reading SCOTUS Limits Claims Brought by Healthcare Providers’ for Denied Medicaid Reimbursement