Physician Payment Sunshine Act: Fraud and Abuse Implications of Sunshine

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A recent article written by Kelly M. Cleary, a lawyer from Akin Gump Strauss Hauer & Feld, discussed some of the potential federal and state healthcare fraud issues that may be implicated by the Sunshine Act.  We previously wrote back in 2011 about these risks, but this update is timely and provides added analysis about potential implications for physicians, teaching hospitals, and applicable manufacturers.  

Fraud and Abuse Implications of Sunshine 

The Sunshine Act or “transparency initiative” is supposed to “allow patients to better understand the financial relationships their doctors may have with the drug and device industry, question whether financial relationships might negatively affect their course of treatment, and, ultimately, make better informed decisions.”  However, as Cleary points out, “It remains unclear how, if at all, patients will use this information or alter their behavior based on these disclosures.” 

While Charles Ornstein, a reporter at ProPublica who runs the Dollars for Docs campaign recently noted that the database attracted more than 5 million page views, a recent survey from Kaiser shows that “42 percent of the public does not know the Affordable Care Act is still law of the land and is being implemented.”  Thus, almost half of America does not even know the Sunshine Act exists, and it is highly unlikely that of the citizens who know the ACA is law, they even have a clue what the Sunshine Act is—particularly since most physicians don’t even know about the Sunshine Act, so how could they even tell their patients?   

Additionally, only about one in 10 Americans report getting information about the reform law from federal agencies, such as the U.S. Department of Health & Human Services, so how will anyone even know when these payments are published and how to use the site?  There is a high likelihood, however, that the Obama Administration will use funds to educate consumers about the Sunshine Act through its OpenPayments website. 

Regardless of whether tax-paying patients will use the database they are paying for, Clearly recognized that others will almost certainly be using this data including “law enforcement entities charged with ferreting out fraud and abuse, lawmakers critical of physician-industry ties, and whistleblowers looking to make a profit.”   

“Could the public reporting of these financial relationships invite enhanced scrutiny from state or federal investigators, lawmakers, and even private citizens? How might the public reports be used to combat fraud and abuse in government health care programs?”  Her article “explores some of these issues and addresses how this new nationwide reporting system might impact enforcement of state and federal fraud and abuse laws.” 

For example, given that the Sunshine Act was drafted by Senator Grassley (R-IA) and former Senator Kohl (D-WI), there is a high likelihood that Grassley and other Senators or Congressmen will use the Sunshine data to continue exposing potential conflicts of interest or inappropriate financial ties—holding more hearings or conducting more investigations.   

Consequently, the increased scrutiny and transparency rules may have a negative effect on research and innovation.  For example, “medical device companies rely on physician-owned startups for many of the patents that drive innovation at large companies, but rules that govern the relationships between physicians and device makers may cool those relationships, researchers warned.” 

A recent study conducted by Wolters Kluwer Health concluded that patents emerging from physician-owned startup companies more frequently supported premarket approval applications filed with the FDA than patents generated by non-physician-owned startups.  Various types of financial relationships between physicians and medical device manufacturers are common, but are increasingly subject to policies regarding disclosure of potential conflicts of interest,” according to a press release.   

“The new findings raise concerns that, if conflict of interest rules are too tight, they could have the unintended effect of slowing the pace of new advances in the medical device industry.”  While “transparency rules may engender more trust among patients and consumers, they could harm innovation if companies drift away from investment in physician-owned startups.” 

Anti-Kickback Statute and False Claims Act 

Given the increased focus on reducing waste and abuse in the health care system, and fighting fraud, on both the state and federal level, government agencies will use the Sunshine database to “identify unusual billing patterns and provider linkages that may be evidence of fraud.”  The government has touted its use of data mining in identifying high-risk practices and the Sunshine Act database will be no exception, particularly with the reporting of physician’s specialty, NPI #, and the product associated with a transaction.   

In addition, “Taxing authorities also may look to these reports and compare the information in the reports to what individual physicians are reporting as their income. Because these reports will include both monetary and non-monetary transfers of value, physicians will need to be extra diligent about keeping track of what payments they receive from industry and reporting them as income where appropriate.” 

The Sunshine Act does not outlaw physician-industry relationships and CMS made clear in its final rule that “the inclusion of a payment or transfer of value, or an ownership or investment interest, in the public database does not necessarily mean that the parties were engaged in any wrongdoing or illegal conduct.”  However, CMS recognized that reporting a payment in compliance with the law will not protect parties from liability under other laws, including the Anti-Kickback Statute (AKS) and the False Claims Act (FCA).  “Several states also have similar laws in place aimed at combating fraud and abuse in the health care industry,” Clear notes. 

Under the AKS, “otherwise beneficial financial relationships may violate the law … if the providers are being paid as part of an inducement to, or a reward for, referring patients to or recommending the manufacturers’ products.”  “The AKS is a criminal statute that prohibits the knowing or willful receipt or payment of anything of value to influence the referral of federal health care program business.” 

“The government has recognized that certain types of arrangements are common in the industry and present a low risk of fraud and abuse, and has created a number of safe harbors that offer protection for those arrangements that meet all of the required elements. For example, the safe harbor for personal services safe harbor can protect properly structured physician consulting agreements from scrutiny.”

However, Clearly recognized that “even contractual arrangements that appear to conform to a safe harbor’s requirements can still come under scrutiny if, for instance, the payments exchanged are excessive in amount, there is no legitimate need for the services contracted, or the physician does not perform the services for which he or she is being paid.” 

Violations of the AKS are punishable by up to five years in prison, criminal fines up to $25,000 per violation, administrative civil money penalties up to $50,000 per violation, and exclusion from participation in federal health care programs by HHS-OIG.  In addition, the Patient Protection and Affordable Care Act (PPACA)—which include the Sunshine Act (Section 6002)—made several significant amendments related to AKS enforcement that strengthened the AKS as an enforcement tool.   

“First, PPACA amended the AKS to clarify that in order to violate the AKS, a person need not have specific knowledge of or intent to violate the AKS, arguably making it easier to purse and prove the intent element of an AKS violation.  Second, pursuant to the PPACA amendments, any claim submitted to the government that includes items or services resulting from a violation of the AKS now constitutes a false or fraudulent claim for the purposes of the FCA.” 

“The FCA imposes penalties on any person who knowingly submits or causes another to submit a false claim to the government, or knowingly makes a false record or statement to get a false claim paid by the government.”  Damages can be “substantial” under the FCA, and liable individuals can “face penalties of between $5,000 and $11,000 for each false claim and treble the amount of the government’s damages.” 

“Furthermore, the FCA provides a vehicle whereby private citizens can bring lawsuits on behalf of the government, by, for instance, alleging violations of the Anti-Kickback Statute.  These private citizens—known as relators—stand to share in the government’s recovery if the lawsuit is a success.” 

Whistleblowers and Sunshine 

Clearly also explained the Sunshine Act database might make it easier for private citizens  or whistleblowers to use the data to bring civil lawsuits against providers and manufacturers. “The FCA allows private citizens with knowledge of fraud to bring suit in the name of the government, and share in up to 30 percent of the government’s recovery.”  We have covered numerous settlements under the FCA, such as the $3 billion GlaxoSmithKline settlement.  

PPACA made significant amendments to the FCA that will make it easier for some relators to bring and maintain FCA lawsuits.  Significantly, the PPACA “relaxed the public disclosure bar for qui tam relators, which prohibits qui tam actions that are based upon allegations or transactions that have been publicly disclosed in a federal civil, criminal or administrative hearing; in a congressional, Government Accountability Office, or other federal report, hearing, audit or investigation; or from the news media, unless the relator is considered to be an “original source” of the information.” 

As Clearly explains, “The PPACA effectively made it easier for relators to bring lawsuits based at least in part on information found in the public domain. The old public disclosure bar had required an “original source” to have “direct” knowledge that was “independent” of the publicly disclosed information and to have provided that information to the government prior to filing suit.  Under the amended language, a relator need only have independent information that “materially adds” to the public information.”   

Despite these changes, Clearly maintained that “data disclosed pursuant to the Sunshine Act will likely not contain enough information to support a whistleblower lawsuit.”  Specifically, Clearly explained that “FCA plaintiffs are generally held to the more rigorous pleading standards of Fed. R. of Civ. P. Rule 9(b), which require that allegations of fraud or mistake be stated “with particularity.”  As a result, “a relator would need more than simply the names, provider numbers, and the fact that a payment was made. To state a claim, the relator would need some additional specific evidence that the payments themselves were kickbacks and gave rise to false claims that were ultimately submitted to the government.” 

However, a former employee of a manufacturer or a colleague at a medical institution or private practice may be able to use the database combined with knowledge of a particular set of transactions, relationships or interactions to establish the required level of particularity.  As Clearly noted, “A whistleblower with enough resources, could, of course, manipulate data in the transparency reports to identify potential targets for further investigation.” 

Moreover, Clearly recognized that a “bigger threat … may come from those with insider knowledge on physician behavior. For example, an employee with knowledge of a particular physician or group’s prescribing practices might develop suspicions, or have existing suspicions validated, upon seeing the amount of money the physician is receiving from industry.”  In these types of situations, “the transparency reports could serve as a catalyst for a potential whistleblower action, and these whistleblowers could potentially collect enough information to state a viable claim.” 

Accordingly, “a relator need only have independent information that “materially adds” to the public information, thus opening the door to individuals that can mine and re-package public information in a way that materially assists the government—and, even if the public disclosure bar is violated, the government could oppose dismissal.”

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