RRecently, amendments to the Medicare statute, evolving False Claims Act (FCA) jurisprudence, and subtle changes in Medicare regulatory requirements and interpretations have expanded the potential for exposure of clinical laboratories and other providers to false claims and allegations and overpayment demands.

These changes alone warrant greater attention to regulatory compliance, but there is also a worrying trend in enforcement—compliance issues that regulators have historically addressed through provider “corrective action plans” or “plans of correction” are increasingly being used as bases for the position that the claims for the services provided while the compliance issue was pending are not payable by the Medicare program and constitute overpayments that must be refunded or, worse still, treated as false claims, with attendant draconian penalties.

By now most providers are aware of the mandatory “voluntary” refund requirement adopted in the Affordable Care Act, which increases the burden on providers to find, quantify, and refund Medicare overpayments (see 42 U.S.C. §§1320a-7k(d) and 1320a-7a(a)(10)).

Since at least 2001, providers have relied upon the series of cases, beginning with the decision in U.S. ex rel. Mikes v. Straus, 247 F.3d 687 (2nd Cir. 2001), that recognized the distinction between “conditions of participation” (COPs) and “conditions of payment” within the context of the FCA. The developing FCA case law in question—discussed further below—has blurred or outright rejected the well-established distinction between conditions of participation and conditions of payment, with the result that services furnished during any regulatory compliance misstep is a candidate for a false claims lawsuit predicate.

The Centers for Medicare and Medicaid Services (CMS)—which created the distinction between conditions of participation and conditions of payment and maintained it for decades—has taken a policy turn to expand the scope and impact of conditions of payment to include regulatory requirements that long were considered conditions of participation by revising the general certification included in provider enrollment applications and directly amending longstanding regulations. The result of these changes is to disqualify payments and generate overpayment liability based on regulatory lapses that would previously have been corrected without denying payment for services that were provided. Obviously, it is important to comply with COPs; failure to comply with COPs can result in termination of provider agreements, exclusion from government health care programs, and the imposition of onerous corrective action plans and integrity agreements.

Proper identification of overpayments requires recognizing when a lapse of compliance with regulatory requirements triggers an overpayment and when a deficiency, while requiring corrective action, does not render otherwise proper claims improperly paid. Decisions in the Mikes line of cases recognize that false claims liability could not properly be premised on certification of compliance with rules that established conditions for participation in the Medicare program rather than preconditions for receiving reimbursement. In Mikes, the allegations were that failure to adhere to certain professional society guidelines in furnishing services was a failure to provide services of quality meeting recognized standards of health care. The Mikes court concluded that however it interpreted the professional society guidelines, the quality standard was a condition of participation, not a condition of receiving Medicare payment.

Conditions of Participation
COPs are health and safety standards that health care organizations must meet in order to begin and continue participating in the Medicare and Medicaid programs. A provider’s satisfaction of these fundamental requirements is determined by CMS regional offices based on the state survey agency recommendations.

In the case of clinical laboratory services, these COP conditions are found in 42 C.F.R. Part 493 and include the Clinical Laboratory Improvement Amendments (CLIA) certification and applicable state licensure. These rules, also referred to as “conditions for coverage,” establish the procedures for monitoring compliance with these participation requirements, corrective action procedures, and a range of potential sanctions, including revocation of CLIA licensure and termination of Medicare billing privileges.

In addition to COPs promulgated as regulations, the Medicare statute itself includes several general COPs, including an obligation to provide services economically, only when medically necessary, of a quality that meets professionally recognized standards, and only when supported by evidence of medical necessity and quality as required by a quality improvement organization. Providers can be excluded from program participation if they are found to be unable or unwilling to comply with these fundamental requirements.

When a provider is found to have deficiencies in its compliance with the COPs, the provider is given the opportunity to correct the deficiencies (through a corrective action plan or plan of correction before further action is taken to terminate the provider’s participation in government programs), unless the deficiencies are found to present “immediate jeopardy” to health and safety. Notwithstanding the certification in the CMS 855 Forms, according to CMS Program Integrity Manual §3.1A, unless and until a provider’s participation is terminated, deficiencies in compliance with COPs are not to be considered a basis for denial of payment for the services provided. This approach recognizes that even a well-managed provider may, from time to time, fail to maintain perfect compliance with the participation requirements. The provider enrollment certification should be interpreted in the context of these specific Medicare program instructions.

Since these rules allow a provider to continue providing services as long as a provider retains its provider agreement (colloquially, “remains a currently certified Medicare provider”) and has not been decertified or otherwise terminated from participation, lapses in compliance with COPs that are subject to correction would not influence the government’s decision to pay claims submitted by the provider that otherwise satisfy applicable conditions of payment.

Conditions of Payment
By contrast, conditions of payment are requirements governing whether payment is to be made for particular items and services claims by a provider. These statutory and regulatory provisions specify that Medicare payment shall not be made unless the condition is satisfied. These provisions include specific exclusions from coverage, documentation requirements, and the Stark self-referral prohibition. For clinical laboratory services, conditions of payment include 42 C.F.R. §§410.32(a) and (d) and 405.515, and that the services be reasonable and necessary, as reflected in applicable national coverage determinations and applicable local coverage determinations. Certain other statutory and regulatory requirements, including some COP provisions, may become conditions of payment based on required provider certifications or terms of provider agreements. Some regulatory requirements, such a medical necessity, are both COPs and conditions of payment. In other words, failure to satisfy the requirement subjects a provider not only to denied payments but potential termination of its provider agreement of billing privileges.

At least for now, one U.S. Court of Appeals has rejected the distinction and the Mikes rationale. U.S. ex rel. Hutcheson v. Blackstone, which can perhaps be viewed as a case of bad facts making bad law, appears to ignore the structure and internal logic of the Medicare statute in favor of a simplistic rule that is inconsistent with the statutory COP and condition of payment scheme created by Congress and implemented by CMS. The Hutcheson court rejected the district court decision, which had followed Mikes and concluded that a condition of payment could not be hidden in the enrollment form certification but rather must be expressly stated in applicable statutes and regulations. In Hutcheson, the relator alleged that Blackstone paid kickbacks to doctors across the country so they would use its products in certain spinal surgeries. In other words, the case did not involve temporary lapses of perfect compliance with all regulatory requirements.

Is Compliance With the Anti-Kickback Statute a Condition of Payment?
It is true that the 855B certification expressly refers to compliance with the anti-kickback statute (AKS). It is also true that effective March 23, 2010, under 42 U.S.C. §1320a-7b(g), “a claim that includes items or services resulting from a violation of [AKS] constitutes a false or fraudulent claim for purposes [of the False Claims Act].” Does that mean that the AKS is a condition of payment or just a statutorily designated false claim predicate?

The Hutcheson decision can be read to create an untenable situation for providers because it essentially finds that the existence of a kickback anywhere in the chain of relationships upstream from the provision of items or services to a Medicare patient makes claims for those items or services not payable by Medicare—regardless of whether the billing provider knew, or should have known, about the kickback. This holding, if followed by other courts, may make it impossible for any provider to avoid potentially ruinous overpayment and FCA liability because it is impossible to determine whether every indirect upstream relationship was free of a violation of the AKS.

In Hutcheson, the allegations were not that the provider violated the anti-kickback statute, but that its supplier paid kickbacks to physicians who performed services at the provider’s facility, using the supplier’s products. The Hutcheson court concluded that if the government had known about the kickbacks upstream from the provider it would not have paid the provider’s claims.  Although that case was not about overpayments to the provider, if its rationale is correct, the provider has received overpayments because Medicare would not have paid had it known about the alleged kickbacks. This conclusion is questionable, but opens an expansive range of potential exposure for providers.

Consider the following scenario:  A provider reviewing the latest G2 Compliance Advisor discovers, years after its claims were filed and paid, that its supplier or ordering doctor has been convicted of violating the anti-kickback statute, and that the items or services that the provider long ago billed were the subject of a kickback somewhere upstream from the provider. Based on the Hutcheson rationale, the provider would have become aware that it had received Medicare overpayments for those services and have an obligation to report and repay them to avoid FCA liability.

Faced with potential liability based on this line of reasoning, providers should do what they can to demonstrate that they behaved reasonably under the circumstances to avoid entering into arrangements that include improper arrangements somewhere upstream. This will require a broader focus on due diligence in transactions and may warrant stronger representations and warranties up the line.

Furthermore, providers should continue to monitor available information regarding entities with which they have had relationships because frequently fraud and abuse allegations come to light only years down the road. As soon as issues about an entity from a past relationship come to light, providers should evaluate whether they have an obligation based on the new information to consider whether they may have received any improper Medicare payments as a result of prior behavior of an entity somewhere upstream. A provider should document its analysis regarding these matters to demonstrate the functioning of its compliance program and seek qualified legal advice when necessary.

Takeaway: Although there seems to be little that individual providers can do to stem these challenging trends, providers should take steps to improve their ability to defend themselves against significant evolving threats involving conditions of participation and conditions of payment.

Timothy Blachard, Esq., can be reached at tim@blanchardmanning.com, 360-376-2292. Margaret Manning, Esq., can be reached at peg@blanchardmanning.com, 360-376-4465.

Side bar Box:
Enrollment Certification

The current CMS 855B provider enrollment application, which is required for laboratories and other noninstitutional provider types, includes the following certification:
I agree to abide by the Medicare laws, regulations and program instructions that apply to this supplier.  The Medicare laws, regulations, and program instructions are available through the Medicare contractor.  I understand that payment of a claim by Medicare is conditioned upon the claim and the underlying transaction complying with such laws, regulations, and program instructions (including, but not limited to, the Federal antikickback statute and the Stark law), and on the supplier’s compliance with all applicable conditions of participation in Medicare (emphasis added).