A landowner/ground lessor considering a renewal or easement buyout of his cell tower lease is making a MAJOR financial decision. As a businessman (or woman), you understand that. You may also realize that information about what’s “market rent” or “market price” is hard to come by.
Your operator is likely one of the big three public tower companies, American Tower, Crown Castle or SBA Communications (Big Three) – well capitalized and extremely sophisticated in dealing with ground leases. Of course, your lessee is trying to make the best deal for itself.
What’s market? What is a fair or good deal for you the landowner? How can negotiations be positioned to your advantage? In a pinch, what might your lessee ACTUALLY BE WILLING TO PAY to secure your land for the long-term? In addition to price, what terms of a renewal lease are most important to the landowner?
Because data is not readily available about the current market, a landowner should seek industry insight. Andrew C. Lynch, a business attorney at Liles Parker PLLC, has years of experience in the cell tower industry, access to industry data and sources (for all states in the U.S.), and a specialized focus on ground lease renewals. By virtue of years of working collaboratively with clients, Mr. Lynch offers insight and strategic approaches that can position your renewal or buyout negotiations to your advantage.
To make an informed decision, a landowner should consider:
- The rental stream that the cell tower on your land generates for its Big Three operator
- What rents the Big Three have recently paid for ground lease renewals (ie. rent comparables) – the magnitude of price increases may surprise you
- What amounts have the Big Three paid for lease or easement purchases – you might be pleasantly surprised
- Whether the cell tower on your property might be relocated or de-commissioned
- Industry standards for annual rent increases (escalators)
- Tower industry economics
- The value of the tower asset to your lessee – generally speaking, a very healthy multiple of net tower cash flow
- The Big Three’s ROI (return on investment) model and its impact on ground lease renewals or purchases
- Ground lease aggregators – a competitive threat to which the Big Three are responding
- The corporate priority of the Big Three to securing tower sites for the long term and the substantial capital being allocated to that effort
- Other key lease terms and conditions for a ground lease renewal
The landscape has changed dramatically in the tower industry since your cell tower was put in service. Your land is substantially more valuable to the tower operator than it was many years ago. The wireless industry has taken flight and your Big Three lessee and its dominant customers – AT&T, Verizon, Sprint, etc. – want to retain access to the tower and cellular antennas elevated thereon.
Third-party investment groups may have contacted you about purchasing your ground lease or an easement. These investors are also experienced and sophisticated in the cell tower industry and generally well capitalized. They represent A COMPETITIVE THREAT and the Big Three have responded. For each of the Big Three, securing its ground leases for the long-term, either by renewal or purchase, is a major corporate priority.
The result – IT’S A SELLER’S MARKET for an astute and informed landowner/ground lessor. If you arm yourself with INFORMATION AND A GOOD ADVISOR, you won’t be taken advantage of and can secure a fair and advantageous deal for yourself. And now is a good time, even if your ground lease has years to run.
Of course, if you are like most lessors, you appreciate the ultra dependable rent check that arrives every month — you don’t want to overplay your hand and jeopardize the income stream. We can help you understand and navigate the ample room that you now have to maximize the present value income from your tower site.
Contact Andy Lynch at 202-298-8750 (office) or 703-447-4959 (mobile) for a no-obligation, free telephone consultation about your ground lease renewal or buyout. Or email Mr. Lynch at firstname.lastname@example.org. Or if you prefer, have your local attorney or advisor contact Mr. Lynch.
In a recent webinar presentation, I was asked whether I believed one of the many file sharing services that are available, was adequately encrypted. After investigating some of the particulars, the answer to that question was “yes”, but the answer raised more questions as to what else the Cloud Service Provider (CSP) may or may not have done to secure and protect the health care provider’s electronic Protected Health Information (ePHI) from loss, misuse, unauthorized access, disclosure, alteration and destruction. This paper addresses some of those issues.
Presently, there are no uniform CSP industry standards or best practices in place on how to best secure ePHI, and as some states like Texas additionally require, confidential information Encryption at the 256-bit banking level meets standards referenced in the HIPAA Technology Safeguards Rule , but this is not the only risk with CSPs. Knowing where your data will be stored is vital to HIPAA breach security and to modifying your BAA to best prevent any unauthorized access, transfers or use of ePHI.
I. Where are the CSP’s Servers Located?
This is a critical question. Frequently, CSP services require their new clients to sign off on the CSP’s Business Associate Agreement (BAA), before cloud services can begin. On the surface, this seems like a good idea and is even a convenience for the health care provider, but is it really? Each Covered Entity health care provider and each Business Associate Cloud Service Provider has a separate and overlapping duty under the HIPAA Final Omnibus Rule as modified by the HITECH Act, to maintain a BAA. This means both entities have their own BAA and can request the other entity to sign it. You may choose to sign and use the CSP’s BAA and abide solely by its terms, but the CSP’s BAA language will control.
Why is this important? The CSP’s BAA is written from their own point of view. The CSP’s primary interest is flexibility to move large amounts of data from location to location as needed to maximize efficient use of space. This is, after all, what they are selling. The CSP considers things like data overflow, backup data, and emergency rollovers in the event of equipment or power failure, fire, earthquake and the like. To accommodate these factors the, CSPs often scatter their servers geographically to multiple locations. Some may even be beyond the borders of the continental United States. They might also subcontract their cloud storage services to other CSPs overseas. Both scenarios create a problem for the health care provider.
Once your ePHI leaves the borders of the United States, you lose control over it and remember that if a breach occurs that the Health and Human Services Department’s Office of Inspector General (HHS-OIG) deems preventable, you could be liable for up to $50,000 per incident in Civil Monetary Penalties. You could also find yourself without a remedy. If the service contract is enforceable in Bangladesh for instance, you could have a contract in hand but no way to enforce it. American law might not apply or in some countries like India, it could take 25 years for your case to reach a judge.
II. Using the BAA to Control the Location and Means of Storing Your ePHI
A. Using your BAA – The health care provider’s primary interest is to maintain control over its patients’ ePHI as much as possible, and that means specifying in your own BAA that your data shall not be received, transmitted, backed up or stored on any server not located within the borders of the continental United States, or it if should be transferred overseas by accident, mistake or negligence, that the CSP must notify you and recover, remove, delete or destroy the information (at your option), within a reasonable length of time such as 48 hours (a weekend). Rather than trying to force the CSP to change their own BAA agreement to incorporate your needs and concerns (an unlikely task), it is simpler to rely on your own right to a BAA and modify it accordingly for a reciprocal signature.
B. Document Refusal by the CSP – If finding another provider is not a practical alternative for you, and you’ve already signed the CSP’s BAA, you can try and get them to modify their own BAA or use your own BAA in a reciprocal signing. Should the CSP refuse to modify their own BAA agreement to accommodate your concerns, which is most likely, or if the CSP verbally agrees then refuses to sign off on the changes, or refuses to sign your version of the BAA, then you should document that refusal by saving the CSP’s e-mail response, fax response, or send them an e-mail memorandum describing the time, date, persons engaged in the conversation, and content of the telephone conversation as you understood it. Include a written opportunity for them to make any additions or changes the memo if they disagree with the content. This is your proof to HHS and your State’s Medicaid enforcement agency, (HHSC in Texas), that you anticipated the issue and affirmatively tried to put policies, procedures or contract provisions in place to prevent this potential breach issue, but the business associate refused to comply. In the event of a server location related breach, this puts the burden of proof and fault back on the CSP as responsible party and helps insulate you from possible Civil Monetary Penalties in the event of such a breach. Because of changes in BAA law by the Omnibus Rule, Covered Entities are now responsible for breach actions by their Business Associates, so this is even more important than it was previously.
III. Additional Liability for HIPAA violations under the ACA
When the Affordable Care Act was passed more than 4 years ago on March 23, 2010, it mandated that every health care provider shall have and maintain a compliance plan. Even though the Secretary of Health and Human Services, Sylvia Mathews Burwell, has not yet set a final deadline date for most providers to have a plan in place, the mandate is well established and could be set at any time. While the date is not certain, the outcome is. Compliance Plans are now mandatory, and inevitable. Every health care service provider should be actively working to get their plan updated now. Health Care Service Providers should understand that the Office of Inspector General is already enforcing the compliance plan mandate in HIPAA breach situations, by charging the provider knew or reasonably should have known of the breach risk and failed to have effective policies and procedures in place to prevent it.
As a covered entity and health care services provider the burden is on you to anticipate problems with business associates you do business with and plan for these problems as best you can. For these reasons, it’s imperative to read all of your contracts carefully. This holds true for your Medicare and Medicaid provider agreement and it holds true for your private payor insurance carriers. If you have a health care related legal issue, administrative appeal or compliance problem, please contact Liles Parker for a free consultation at 1 (800) 475-1906
Richard Pecore, Esq., serves as an Associate at Liles Parker, Attorneys & Counselors at Law. Liles Parker attorneys represent health care providers and suppliers around the country in connection with Medicare audits by RACs, ZPICs and other CMS-engaged specialty contractors. The firm also represents health care providers and medical billers in regulatory compliance reviews, HIPAA Omnibus Rule risk assessments, privacy breach matters, and State Medical Board inquiries. For a free consultation, call Robert at: 1 (800) 475-1906
Attorney Ismail Laher focuses on solving complex issues for Health Care Providers. Mr. Laher assists clients to better understand their option strategically on on a a wide variety of issues in civil and criminal proceedings, complex civil litigation, compliance audits & reviews, practice management and strategic client counseling. He also serves in the role of General Counsel on an as needed basis. Mr. Laher is a graduate of Harvard Business School and Georgetown Law and was previously an associate attorney with Jones Day law firm in their Washington, DC office. Mr. Laher focuses his practice on regulatory compliance oversight, practice management and strategic client counseling. He can be reached directly at 202-596-7863 or at ext 111 at the office 202-298-8750.
(November 10, 2014): The U.S. Department of Health and Human Services Office of Inspector General (“OIG”) recently published a Proposed Rule that would amend the safe harbor regulations under the Federal Anti-Kickback statute (“AKS”) as well as add new safe harbors. The Proposed Rule would also establish new exceptions to the Civil Monetary Penalty (“CMP”) statute related to the beneficiary inducement CMP. OIG will accept comments on the Proposed Rule by mail or electronically until December 2, 2014 at 5 p.m. (Eastern).
I. The Anti-Kickback Statute and Safe Harbor Regulations:
The AKS provides criminal penalties for individuals or entities that knowingly and willfully offer, pay, solicit, or receive remuneration in order to induce or reward the referral of business reimbursable under Federal health care programs. The types of remuneration covered specifically include, but are not limited to, kickbacks, bribes, and rebates, whether made directly or indirectly, overtly or covertly, in cash or in kind. Additionally, prohibited conduct includes not only the payment of remuneration intended to induce or reward referrals of patients, but also the payment of remuneration intended to induce or reward the purchasing, leasing, or ordering of, or arranging for or recommending the purchasing, leasing, or ordering of, any good, facility, service, or item reimbursable by any Federal health care program.
Due to the broad reach of the statute, interested parties expressed concern that some relatively innocuous commercial arrangements would be covered by the statute. This could, in turn, potentially subject entities to unwarranted criminal prosecution. As a result, Congress drafted certain “Safe Harbor” provisions. These regulations describe various payment and business practices that, although they potentially implicate the Federal AKS, are not treated as offenses under the statute.
II. Changes to the Anti-Kickback Statute:
The Proposed Rule would modify certain existing safe harbors under the AKS as well as add new safe harbors that provide new protections or codify certain existing statutory protections. These changes include:
- A technical correction to existing safe harbor for referral services;
- Protection for certain cost-sharing waivers, including pharmacy waivers of cost-sharing for financially needy Medicare Part D beneficiaries and waivers for state- or municipality-owned emergency ambulance services;
- Protection for certain remuneration between Medicare Advantage organizations and federally qualified health centers;
- Protection for discounts by manufacturers on drugs furnished to beneficiaries under the Medicare Coverage Gap Discount Program; and
- Protection for free or discounted local transportation services that meet specified criteria.
III. Changes to the Beneficiary Inducement CMP:
The Beneficiary Inducement CMP statute generally prohibits any person or entity from offering remuneration to a Medicare or Medicaid beneficiary if that remuneration is likely to influence the beneficiary’s selection of a provider. The Proposed Rule would also amend and narrow the definition of “remuneration” to include certain exceptions for the following:
- Copayment reductions for certain hospital outpatient department services
- Certain remuneration that poses a low risk of harm and promotes access to care;
- Coupons, rebates, or other retailer reward programs that meet specified requirements;
- Certain remuneration to financially needy individuals; an
- Copayment waivers for the first fill of generic drugs.
OIG also proposes to codify the gainsharing CMP. The gainsharing CMP prohibits a hospital from knowingly paying, either directly or indirectly, a physician to induce the physician to reduce or limit the services provided to Medicare or Medicaid beneficiaries under the physician’s direct care. The Proposed Rule would narrow the prohibition in light of today’s health care landscape, which focuses on “accountability for providing high quality care at lower costs.”
Health care providers should be interested in the Proposed Rule and make comments as necessary. The Proposed Rule makes pertinent changes to the AKS Safe Harbors and CMP laws that should give providers greater leeway to enter into beneficiary arrangements without fear that they will be subject to criminal penalties under the statutes. In a sense, the Proposed Rule follows OIG’s ongoing efforts to adopt regulations that promote lower costs and greater health care services while protecting patients and federal health care programs from fraud and abuse.
As a provider, if you have any questions about the current regulations found within the Anti-Kickback Statute or the proposed changes, please do not hesitate to give us a call today. We would be more than happy to assist you so that you remain compliant with all federal and statute regulations regarding potentially fraudulent activity.
Robert Saltaformaggio, Esq., serves as an Associate at Liles Parker, Attorneys & Counselors at Law. Liles Parker attorneys represent health care providers and suppliers around the country in connection with Medicare audits by RACs, ZPICs and other CMS-engaged specialty contractors. The firm also represents health care providers in HIPAA Omnibus Rule risk assessments, privacy breach matters, State Medical Board inquiries and regulatory compliance reviews. For a free consultation, call Robert at: 1 (800) 475-1906
 42 U.S.C. § 1320a-7b(b).
 42 U.S.C. § 1320a-7a.
 1128A(b)(1) of the Social Security Act.
(July 3, 2014): The growing trend of storing all kinds of data in the cloud comes with benefits and risks. However, when it comes to storing medical records in to the cloud, patient privacy becomes a special concern.
With a properly implemented cloud storage system, hospitals can share information far more efficiently. Prescriptions and test results are immediately available between hospital departments and floors that previously had ineffective communication networks. This way, tasks can be processed more quickly and performance and overall patient health are improved.
Another benefit of storing medical records in the cloud is that doctors are not tied to their offices to look up patient information, as they can pull up medical records remotely. Also, when a patient moves to a new doctor, their files can be transferred with far less hassle. Finally, cloud computing has proven cost effective for patients and healthcare providers, as the patients do not have to pay twice for the same test when they go to different doctors and medical offices.
While storing medical records digitally on the cloud may offer great promise for increasing the efficiency of the health care system, the cloud is not necessarily as secure as other forms of storage. Data security and privacy of health information are major obstacles. If a medical provider loses control of patient data, privacy could be endangered.
The basic rules for how the American medical industry handles private data are in the Health Insurance Portability and Accountability Act (HIPAA) and the Health Information Technology for Economic and Clinical Health Act (HITECH). Many argue however that just because something is HIPAA and HITECH compliant does not necessarily mean it is secure.
The headline for a year-long Washington Post examination released in December 2012 called the health care sector “vulnerable to hackers.” A computer scientist and technical director of the Information Security Institute at Johns Hopkins University, was quoted as saying, “I have never seen an industry with more gaping security holes.”
In 2012, Eastern European hackers broke into Utah’s state health records database, gaining access to personal information on 780,000 patients including some 280,000 social security numbers.
Like so many other problems, medical privacy in the cloud often comes down to human error. Encrypted data is only safe if the required passwords are well protected, and that requires well-trained and conscientious employees. There have been several instances where employees maliciously stole data before leaving a company or absent-mindedly put data at risk by storing files on mobile devices that become lost or stolen. A couple of years ago, a contractor for a University hospital lost a laptop with medical records of more than 34,000 patients. Last fall, a stolen unencrypted laptop from a California hospital exposed medical records of 250,000 patients.
Physicians and their staff are not the only ones who could be at fault. Employees of other companies using the same cloud service could also make a mistake, cause a data breech, or even intentionally steal or sell information stored on the cloud. A virus or other malicious program could potentially spread from one client’s office to the cloud server, and from there to other offices.
Finally, if a medical provider closes his practice, medical records stored on the cloud could be lost or at risk. If the provider does not keep a local backup, vital information may be compromised.
It is critically important for health care providers choosing to store medical records in the cloud to implement policies and training requirements to protect the privacy of patients. Providers should go beyond the requirements of HIPAA and HITECH to ensure adequate measures are taken to avoid being hacked, to prevent and fix human errors, and to keep up with technological advancements and threats.
Robert W. Liles, Esq., serves as Managing Partner at Liles Parker, Attorneys & Counselors at Law. Liles Parker attorneys represent health care providers around the country in connection with both regulatory and transactional legal projects. For a free consultation, call Robert at (800) 475-1906.
Liles Parker Attorney has Article Titled “Individual Liability in Medicare Overpayment Cases” Published in Law Journal.
(October 16, 2013): A recent article by Liles Parker attorney David P. Parker in the Health Law & Policy Brief, a law journal publication of American University’s Washington School of Law, examines an issue that is becoming more important to health care providers each day. The article, titled: “Individual Liability for Medicare Overpayment Claims” carefully examines whether an owner of a health care practice, home health agency or DME company, can be held to be personally liable for alleged overpayments owed by the health care entity.
The article examines several of the primary issues which typically arise when a health care entity seeks bankruptcy relief while allegedly owing Medicare a significant overpayment. As the article discusses, it is becoming more common for the government to attempt and “pierce the corporate veil,” in an effort to collect the overpayment debt from one or more of the owners of the bankrupt company. As the article reflects, this area of the law is highly complex and it can be quite difficult to project how hard the government will attempt to collect seek an outstanding overpayment. A copy of Mr. Parker’s analysis can be found on the Law School’s website.
David P. Parker serves as Co-Managing Partner at the health law boutique firm Liles Parker. David counsels health care provider and suppliers on a full range of health care transactional projects. He also represents health care providers in State Medical Board proceedings. For a free consultation, call David today at: 1 (800) 475-1906.
A Recent False Claims Act Case Being Brought Against an Individual Physician has Resulted in a Record Recovery for the Government.
(February 12, 2013): The civil False Claims Act is the primary civil enforcement tool used by the U.S. Department of Justice. As discussed below, the False Claims Act is an extraordinarily useful statute for government prosecutors, both in terms of ease of use and in terms of the damages which may be recovered by the government.
I. Overview of the False Claims Act:
As set out below, the civil False Claims Act imposes civil monetary penalties and will expose a person to civil liability under the circumstances below:
Sec. 3729. False claims
(a) Liability for Certain Acts—any person who:
(1) Knowingly presents, or causes to be presented, to an officer or employee of the United States Government or a member of the Armed Forces of the United States a false or fraudulent claim for payment or approval;
(2) Knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government;
(3) Conspires to defraud the Government by getting a false or fraudulent claim allowed or paid;
(4) Has possession, custody, or control of property or money used, or to be used, by the Government and, intending to defraud the Government or willfully to conceal the property, delivers, or causes to be delivered, less property than the amount for which the person receives a certificate or receipt;
(5) Authorized to make or deliver a document certifying receipt of property used, or to be used, by the Government and, intending to defraud the Government, makes or delivers the receipt without completely knowing that the information on the receipt is true;
(6) Knowingly buys, or receives as a pledge of an obligation or debt, public property from an officer or employee of the Government, or a member of the Armed Forces, who lawfully may not sell or pledge the property; or
(7) Knowingly makes, uses, or causes to be made or used, a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government,
. . . is liable to the United States Government…
II. What is Not Covered Under the False Claims Act:
It is essential to keep in mind that the civil False Claims Act does not cover mistakes, accidents, or mere negligence. Unfortunately, the line separating a billing “mistake” from a non-intentional wrongful billing, which could give rise to an action under the False Claims Act, is not always easy to discern. In an effort to provide additional guidance to DOJ attorneys on the judicial use of the False Claims Act, guidance setting out a number of factors to be considered when pursuing a False Claims Act case.
III. Damages Under the Civil False Claims Act:
A “person” (which would covers individuals, physician practices, home health agencies, hospice agencies, third-party billing companies, ambulance companies, hospitals, skilled nursing facilities and other health care providers) found to have violated this statute is liable for civil penalties in an amount between $5,500 and not more than $11,000 per false claim, as well as up to three times the amount of damages sustained by the government.
IV. What is the Involvement of the U.S. Department of Justice?
While attorneys in DOJ’s Civil Division in Washington, D.C. are likely to be involved in most of the larger, more complex cases under the False Claims Act, it is important to remember that a “Civil Health Care Fraud Coordinator” has been appointed in each of the 94 U.S. Attorney’s Offices around the country. Assistant U.S. Attorneys are highly trained and experienced in handling False Claims Act cases and will readily file a case against a health care provider in the event that improper conduct can be shown.
V. Whistleblower or “Qui Tam” Provisions of the False Claims Act:
One of the most unique elements of the False Claims Act is that it authorizes private parties having direct knowledge of fraudulent conduct to bring a civil suit against the violator on behalf of the government. These civil suits are known as qui tam actions, and the private parties who initiate such actions are called “relators.” Relators may share in any monies recovered as a result of their qui tam action.
A qui tam action is initiated when a relator files a complaint – along with supporting documentation – “under seal” in federal court. When a case is filed under seal, it means that all records associated with the whistleblower are maintained on a non-public docket by the Clerk of the Court. A copy of the complaint is given to the judge assigned to the case. The relator’s attorney also serves a copy of the complaint on the Attorney General in Washington, D.C. and on the U.S. Attorney in the federal judicial district in which the case was filed. Initially, the government will have 60 days to evaluate whether to proceed against the defendant. In almost all cases, the government will seek an extension to allow it an opportunity to investigate the allegations. After showing “good cause” for an extension, most federal courts will readily grant the request for an extension. It is not at all uncommon for a qui tam to remain under seal for over a year (and often much longer) while the government reviews the allegations. The seal is important for several reasons:
- The government can quietly investigate the allegations without the defendant knowing that their company is under investigation.
- The mere existence of a government investigation can be devastating on the public’s view of a company. Moreover, if a company is publicly-traded, the publicity surrounding a government investigation can severely affect the price of a company’s stock—despite the fact that the allegations at issue have not been investigated or proven at this point in the process.
After concluding its evaluation, the government may elect to proceed with the complaint and intervene in the case or it may decline to intervene. If the government decides to intervene in the action, then the relator has the right to remain a party to the action. If the government decides not to intervene in the case, the qui tam relator may elect to proceed on his or her own against the defendant. Notably, the government always retains the ability to intervene in the case at a later time. From a practical standpoint, if the government decides not to intervene in a case, in all likelihood the relator will seek to dismiss the suit. Unlike the government, the relator’s ability to investigate a False Claims Act case is quite limited, both in terms of resources and in terms of investigative tools. As a result, the government’s decision to decline to intervene severely impacts a relator’s ability to move forward with the case.
The government often asks the court to partially lift the seal solely for the purpose of advising the defendant of the existence of the case and to seek their cooperation in resolving the allegations.
Should the government choose not, to intervene, it will often ask that the Court remove the seal to the case. Once the seal is removed, the case (and its allegations) will be part of the public record. In cases where the government chooses to intervene, the case is often kept under seal until a settlement is worked out with the defendant.
There are a number of limitations placed on the filing of qui tam cases. Two of the more commonly seen limitations include:
When the government has already initiated an action against a party for the same allegations that would form the basis of a qui tam suit; or
When the action is based on publicly-disclosed information that was contained in an official hearing, report, investigation, audit, or information disseminated by the news media.
VI. Record Recoveries in 2012 Under the False Claims Act:
In recent years, False Claims Act recoveries resulting from whistleblower suits have exceeded most observers’ expectations. Issues related to the False Claims Act should be at the top of the list of ongoing concerns for most health care Compliance Officers. The potential damages a provider may face for violations of the False Claims Act cannot be understated.
In Fiscal Year 2012, the U.S. Department of Justice secured settlements and judgments in civil False Claims Act of $4.9 billion. Notably, this includes a “record recovery for a single year” by more than $1.7 billion. Over the last four years, $13.3 billion has been recoveries. Notably, this represents more than a third of the total recoveries achieved since the False Claims Act was amended over 26 years ago.
VII. Are Physicians Being Targeted Under the False Claims Act:
While large pharmaceutical, durable medical equipment and hospital chain cases continue to dominate the press, physicians, dentists and other solo health care providers are increasingly finding themselves and their practices subject to whistleblower suits under the False Claims Act by former employees, competitors and others who believe that false claims are being submitted to the government for payment.
Notably, a recent whistleblower case pursued by the U.S. Department of Justice against an individual physician (a dermatologist) resulted in a $26.1 million settlement. In this case, the physician was alleged to have accepted kickbacks from a pathology laboratory. The physician was also accused of billing Medicare for medically unnecessary services. The whistleblower reportedly collected $4 million as part of the settlement.
VIII. How Can You Prevent a False Claim Act from Being Filed Against You?
Ultimately, your ability to avoid the filing of a False Claims Act case against you or your practice rests on your ability to comply with state and federal laws, regulations and rules governing the provision, coding and billing of health care services. Without a doubt, the single most important step you can take in this regard is to develop, implement and adhere to the provisions and guidelines set out in an effective Compliance Plan. While most hospitals and other institutional providers have had Compliance Plans in place for many years, very few physicians have taken this necessary preventative step.
Will a Compliance Plan prevent you from having a False Claims Act case brought against you or your practice? No, not necessarily. Instead, you should look at a Compliance Plan as being akin to a flu shot. Just because you have received a flu shot does not mean that you will never catch the flu. However, if you do come down with the flu, chances are that it won’t be as serious and it might otherwise have. All of us make mistakes, and physicians are not immune to this risk. Nevertheless, having an effective Compliance Plan in place is likely to greatly assist you in your efforts to stay within the four corners of the law.
Robert W. Liles serves as Managing Partner at Liles Parker. Robert and other attorneys at Liles Parker have extensive experience working on False Claims Act matters and case. For a free consultation, please call Robert at: 1 (800) 475-1906.
 Whistleblowers (also known as “Relators”) can receive between 15% and 25% of any recovery in a qui tam action where the government has intervened in the case. In a non-intervened case, a relator may recover up to 30%. Consequently, there is a tremendous financial incentive to file and pursue these types of actions.
 The relator must also serve a “disclosure statement” on DOJ (normally, it is provided to the U.S. Attorney’s Office) which sets out the evidence that the relator has in support of the allegations set out in his/her Complaint. This statement is not filed with the Complaint and is not given to the defendant.
 This rule is known as the “public disclosure bar.” The Affordable Care Act modifies this rule in several respects. First, a qui tam action will not be dismissed under the public disclosure rule if the government opposes dismissal. Second, fraud disclosed in private legal actions will not activate the public disclosure bar; the government must have been a party to the action in order for the public disclosure rule to apply. Third, information obtained from state proceedings or hearings likewise will not qualify under the public disclosure bar. Finally, the public disclosure bar will not operate where the relator was the “original source” (e.g., has independent knowledge) of the fraud or false claim allegation.
Definition of Civil Fraud
Merriam-Webster defines fraud as:
a: deceit, trickery; specifically : intentional perversion of truth in order to induce another to part with something of value or to surrender a legal right
b : an act of deceiving or misrepresenting:
Fraud is founded upon a misrepresentation of past or present fact. Courts have defined fraud as trickery, deceit, intentional misrepresentation, concealment, or nondisclosure for the purpose of inducing another to part with something of value. It also includes false representation of a matter of fact by words or conduct or by the concealment of what should have been disclosed that deceives or is intended to deceive another so he shall act upon it to his legal injury. See In re E.P., 185 S.W.3d 908 (Tex. App. Austin 2006).
Elements of Civil Fraud
The elements or actions that are common to most legal definitions of fraud are:
- There was a material representation made that was false;
- The person who made the representation knew the representation was false or made it recklessly as a positive assertion without any knowledge of its truth;
- The person who made the representation intended to induce another to act upon the representation; and
- The person to whom the material representation was made actually and justifiably relied on the representation, which caused the injury. See Ernst & Young, L.L.P. v. Pac. Mut. Life Ins. Co., 51 S.W.3d 573, 577 (Tex. 2001)
However, courts have broadly defined the elements of civil fraud in various situations and there is no single definition that covers civil fraud entirely. There are laws passed by the legislature that define fraud. Courts of law have provided common law definitions of fraud. There are actions for negligent misrepresentation, a cause of action which is similar to fraud. Fraud by itself is not a fact but rather a conclusion that is reached after the facts of the relationship or transaction complained of have been reviewed.
The above comments on fraud are not inclusive and there are exceptions and other considerations to review to determine if civil fraud has occurred. Whenever you feel you have suffered a legal wrong because someone has misrepresented a fact to you, it is recommended you take action and consult with an attorney to determine if you have a valid claim.
Leonard Schneider and other Liles Parker attorneys have extensive experience in business litigation, civil fraud matters, contract review and drafting. Call 1 (800) 475-1906 today for a free consultation.
Personal liability of individual owners of health care provider companies for claims against the company by CMS or Federal contractor
1. Scope of this Article. This article addresses the case where an individual or “natural person” owns an interest in a Medicare health care provider which is incorporated under the laws of a state, as a corporation, limited liability company, limited partnership, or another type of legal person. The individual may be a shareholder, member, limited partner, or some corresponding term for an owner of the company, but in all these cases the common factor is limitation of liability of owners.
Owners of providers facing ZPIC or other Medicare contractor audits or appealing an overpayment demand often ask what risk they face of being held personally liable for the overpayment claims, or otherwise punished personally, if their appeals are unsuccessful.
2. Definition of Our Case. The hypothetical situation addressed here is a common one, namely a provider organized as a corporation or LLC (the “Company”) with one or more individual owners (i.e. individual shareholders or members) is enrolled with Medicare, has provided services to Medicare beneficiaries over a substantial period of time, and has received payments from one or more Medicare contractors. Then, a ZPIC or similar contractor selects the Company for post-payment audit. After reviewing a sample of records, the contractor determines that overpayments have occurred and issues an audit results letter assessing an amount claimed to be overpaid in the sample, and an extrapolated (much larger) amount deemed to be overpaid in all of the Company’s Medicare receipts during the period under review. The Medicare Administrative Contractor (the “MAC”) then makes a written formal demand for refund by the Company of the extrapolated amount.
Our hypothetical assumes the Company either fails to appeal the above overpayment determination (referred to as an “Initial Determination”), or appeals and loses. Either way the Company owes the full extrapolated amount to CMS, plus interest from the date of the formal demand by the MAC. Assume further that this sum amounts to several years’ gross revenues for the Company; and it has no means to repay it. The MAC begins recoupment from payments of new Medicare billings by the Company, and the Company shuts down as it exhausts its funds available to cover payroll and operating expenses. Finally, assume (as is commonly the case) that the Company has no significant assets which CMS can seize and liquidate to satisfy the overpayment.
Given the above, the question presented is whether the individual owner or owners of the Company are on the hook for the unpaid amount of the CMS overpayment claim? Are other provider entities owned by the same individuals on the hook? Phrased another way, under what circumstances can CMS or its contractors lawfully collect the above overpayment from the individual owners or their other provider companies? And what other sanctions can the Government apply against the individuals and affiliates in such a case?
3. Concept of Limited Liability. In the US and most Western legal systems the concept of incorporation of a business is available to shield its owners from claims for the business’s debts. This is the concept of limited liability, meaning the owners’ personal liability for the debts of the business is usually limited to the amount of the capital they have invested in it. If the business owes money to a creditor, the creditor will have recourse to the business, meaning the money and other assets the business itself owns. In this way, the creditor can collect the capital the owner has bound up in the business; but the creditor has no right to make the owner pay from his own assets.
4. Threshold Rule of Limited Liability; Exceptions and “Piercing the Corporate Veil.” The general rule of limited liability applies to CMS and its contractors when dealing with shareholders of incorporated health care providers, just as it does to other creditors. No statute or case law makes owners of incorporated Medicare health care providers personally liable for their companies’ debts to CMS, except in certain very narrow circumstances which apply to all debtors and creditors. And nothing about the health care industry makes these circumstances more likely to arise than in other industries.
The principal exceptions to the rule of limited liability of shareholders are collectively known as piercing the corporate veil. Under certain circumstances, courts will allow creditors of an insolvent corporation, LLC or other legal entity to reach through the corporate structure and collect their debts from shareholders or similar owners. Numerous factors have been cited by courts to justify imposing liability of shareholders for corporate debts, and an exhaustive discussion of this topic is beyond the scope of this article; but common examples of circumstances which can justify veil piercing are as follow:
(a) Defective Incorporation. Failure to meet legal the statutory requirements for organizing the corporation or LLC can and will result in shareholders being liable for corporate debts. A better statement of this rule is that, without compliance with the requirements for incorporation, no corporation ever exists in the first place to shield the shareholders from liability.
(b) Ignoring the Separateness of the Corporation. Entering into contracts and otherwise transacting business variously in a corporate name and an individual name can justify piercing the corporate veil. Likewise, commingling corporate and individual assets, or transferring assets without formalities between company and owner, or company and sister company, can give the same result.
(c) Significant Undercapitalization. A requirement of incorporation is injecting money or other capital into the new company reasonably sufficient to pay its expected debts. Failure to do this is called undercapitalization, and is grounds to impose liability on the shareholders. The adequacy of capital, however, is judged at the time it is injected, not when the liability arises, and courts tend to defer to any good-faith estimate of how much capital will be needed, so undercapitalization is normally difficult to prove.
(d) Excessive Dividends or Other Payments to Shareholders. When owners are actually working for a corporation they can in most cases pay themselves whatever compensation is even remotely fair, as long as it is clearly characterized as salary or wages. Dividends and other non-compensation distributions, however, are judged very differently, and can safely be taken out by shareholders only to the extent of profits. When shareholders take non-compensation distributions in excess of profits, they constitute a return of capital and can give rise to an undercapitalization claim by any corporate creditor who is subsequently not paid. If such distributions are made when the corporation is actually insolvent, the creditors’ claims against the shareholders will be almost impossible to defend.
(e) Misrepresentation and other Unfair Dealings with Creditors. Dishonesty and false statements to corporate creditors, asset concealment and other deceptive practices, can make shareholders liable for corporate debts.
(f) Absence or Inaccuracy of Records. If corporate records go missing or prove to be inaccurate, they can form a basis to pierce the corporate veil, especially if they hinder a creditor’s collection efforts against the corporation.
(g) Failure to Maintain Ongoing Legal Requirements. Each state’s statutes impose annual franchise fees and various report-filing requirements on corporations and similar entities. Although these have generous grace periods and cure provisions, if they are neglected long enough, the corporation or LLC will legally cease to exist and shareholder liability will result.
Given any of the above fact circumstances, CMS and its Medicare contractors can seek to pierce the Company’s corporate veil and collect the overpayment from the Company’s owners in our hypothetical. These circumstances however are not typical for health care providers, and are easily avoided. Veil piercing depends on facts which by their nature are difficult to prove in a court of law, often involve subjective judgments, and in most cases are subject to dispute. The burden of proving the facts is always on the creditor. Correspondingly, courts tend to disfavor veil-piercing claims and narrowly construe the applicable law, so veil piercing has a reputation as a difficult remedy to invoke successfully.
5. Rules in Bankruptcy. While CMS does enjoy certain advantages and unique rights under US Bankruptcy laws, this doesn’t include any advantage over other creditors in reaching the pockets of shareholders of a bankrupt company.
A basic rule in Bankruptcy is that filing a petition automatically halts or “stays” all acts by creditors to collect debts which pre-date the petition. Since 2005, this “automatic stay” has been ruled not to impair CMS’s right to exclude providers from its programs. Additionally, Federal case law appears to hold that the automatic stay does not prevent CMS and its contractors from recoupment against new Medicare billings by a provider in bankruptcy. But no bankruptcy law gives Government health care programs special debt collection rights against shareholders of providers, so CMS and its contractors, like other creditors, can collect Medicare overpayments from shareholders and other owners of a bankrupt entity only in the Veil Piercing circumstances described above, which are narrowly-drawn and strictly interpreted against the creditor.
6. Federal Agency Practice on Pursuing Individual Liability. Federal agencies are not as a rule aggressive in collection of their debt claims, and CMS is no exception. For example, in government loan programs where shareholders are required personally to guarantee the debt, once corporate assets are exhausted in default cases, Federal agencies rarely pursue the guarantors’ personal credit, and discourage their contractors and even private holders of Government-guaranteed loans from doing so. With this in mind, it should be no surprise that most Federal agencies seldom if ever seek to pierce any corporate veil. As was noted, veil-piercing involves lots of gray areas and disputed facts and is hard to do successfully; and Government agencies are reluctant to risk the time and money required. Government agencies also fear the adverse publicity that regularly arises from collection efforts against individuals. While Federal authorities could be moved to pursue such remedies in an extreme case or under the glare of unusual publicity, they are otherwise unlikely to do so. In 30+ years of representing participants in Federal programs, I have never been involved in any case where such a remedy was sought against a client or any other individual.
7. Successor Liability. In our hypothetical, the individual owners won’t be able to continue in the health care industry using the Company itself as a practice vehicle. They may wish to organize and capitalize another entity to provide the same or a similar type of services. In what circumstances can new entities organized by the owners after the Company’s demise be held liable for the Company’s overpayment obligation? This area of the law is referred to as successor liability, and it provides remedies which do indeed allow creditors to pursue the new entity in some cases. Like veil piercing, this remedy is an exception to the general rule of limited liability of corporate owners, is available to creditors generally in certain narrow circumstances, and is not specific to Government creditors or health care provider debtors.
Simply stated, successor liability flows from state statutes and state court case rulings which allow the creditors of a debtor company to collect their debt claims from another company to which one or more assets of the debtor have been transferred, if it is a successor to the original debtor. The exact circumstances which make the other company a successor vary from state to state. In most states the law gives a list of elements which can establish successor status, but uses a balancing test, meaning there is no hard and fast rule of which or how many elements have to be present to prove the claim. The creditor sues the transferee company to initiate such a claim, and the court hearing the case decides not only which elements are present, but also whether they are enough to make the defendant a successor. But if a creditor can prove enough of them, it can make the transferee pay the debt.
Elements commonly listed to impose liability on the transferee of a debtor’s assets include, (i) common ownership (whole or part) between the original debtor and the separate company; (ii) the transferee was established to hinder the creditors of the debtor; (iii) the original debtor and the transferee company provide the same goods or services; (iv) the same or recognizably similar company name or DBA; (v) same business location; (vi) same customers or customer sources; (vii) same officers or managers; (viii) same employees; and (ix) the transferee pays other debts of the original debtor, or states that it will do so. In most cases, one or two elements alone will usually be insufficient to establish liability.
Successor liability is not as uniformly disfavored in courts as is veil piercing, but remains uncommon in practice. Like veil piercing, it is rarely if ever used by Federal agencies and contractors. Whether any specific circumstances will make a transferee company liable as a successor to another is beyond the scope of this article; but asset transfers between commonly-owned companies occur frequently, and many not easily be identifiable as such to a non-lawyer. In our hypothetical, the Company’s owners may be sorely tempted to use the same business location or same employees or managers in the new provider as in the Company, and may wish to have the new entity collect unpaid receiveables. Any of these steps could subject the new entity to the overpayment, or to any other creditor claim. Successor liability can be invoked against pre-existing entities under common ownership with the Company as well. Owners of health care providers having other companies which are subject to any Medicare contractor collection action need to avoid any such transfers scrupulously, and bear in mind that they can make their other provider liable in common for an overpayment claim.
8. Other Government Sanctions Against Owners and Affiliates for Non-payment by an Incorporated Provider. Pursuing owners personally for repayment of a provider’s overpayment liability isn’t the only sanction CMS and its contractors might logically seek to apply to punish non-payment. Excluding related persons and companies from health care program participation comes to mind. This could take at least 3 forms, each of which we will examine in turn.
(a) Exclusion of Individual Owners. The authority for HHS to exclude both companies and individuals from involvement in its health care programs has been established at the statute, regulation, and policy manual levels.
The basic authority for exclusion is granted to the Secretary of HHS under Sections 1128 and 1156 of the Social Security Act. These sections list all the grounds for which a party may be excluded. Most of these sections are written so that if an entity commits acts which are grounds for exclusion, the owners are likewise at risk. Most of the grounds for exclusion are not relevant here, such as conviction for felonies, or health care related misdemeanors. Three grounds for exclusion however are listed which relate to providers’ services, namely submitting charges to any Federal health care program in excess of the provider’s usual charges, furnishing services in excess of the needs of patients, and furnishing services of a quality not meeting recognized professional standards. The lack of medical necessity grounds for denial which appear in most overpayment cases, corresponds to the furnishing services in excess of the needs of patients grounds for exclusion. So the question is whether lack of medical necessity of our Company’s services is, in and of itself, valid grounds to exclude it, and therefore also exclude its owners?
These service-related grounds for exclusion are addressed in the Medicare Program Integrity Manual (the “PIM”) in Chapter 4, Sec. 4.19. This section states that
In order to prove such cases, the PSC and the ZPIC BI unit shall document a long-standing pattern of care where educational contacts have failed to change the abusive pattern. Isolated instances and statistical samples are not actionable. Medical doctors must be willing to testify.
Only this service-related grounds for exclusion could plausibly be applied to the facts of our overpayment hypothetical, without serious wrongdoing being present beyond simple failure to repay. The contractor documentation in a typical post-payment audit would not appear to satisfy the PIM requirement of “document[ing] a long-standing pattern of care where educational contacts have failed to change the abusive pattern”. No practitioner at this health care law firm has seen exclusion attempted or threatened against the provider or its owners in a simple overpayment case. Accordingly, exclusion of the provider and its individual owner does not appear to be a substantial risk in our hypothetical situation.
(b) Bars to Subsequent Applications. In our hypothetical, the individual owners won’t be able to continue in the health care industry using the Company itself as a practice vehicle. They may wish to organize and capitalize another entity to provide the same or a similar type of services. If our hypothetical is extended to such a case, what are the risks that CMS and its contractors might punish the Company’s failure to satisfy its proven overpayment demand, by barring the enrollment application of the owner’s new provider entity?
In order to bar a new provider owned or controlled by owners of our hypothetical defaulting provider, however, CMS and its contractors must be aware of the relationship between the 2 companies. So our initial inquiry must be whether the new-provider enrollment process will itself call the attention of CMS or its contractors to the relationship between the non-paying Company and the new applicant. This process is largely embodied in the enrollment application document. The current form of Medicare enrollment application for most incorporated providers, CMS-855A (07/11) requires disclosure of any “Adverse Legal Actions/Convictions” of individuals with ownership or control of the entity (in Sec. 6), and so would clearly be required for the Company’s owners in our hypothetical. The listing of adverse adjudications which constitute Adverse Legal Actions/Convictions is at page 16 in the CMS-855A, and includes most criminal convictions, state license and Government program revocations, suspensions, exclusions and debarments, and also
4. Any current Medicare payment suspension under any Medicare billing number.
This form does not require the new applicant’s owner to disclose the problems of the Company in our hypothetical, or even mention its existence, for 2 reasons. First, “payment suspension” is a very specific Medicare sanction, and usually not present in an overpayment demand case. Second, the disclosure is explicitly directed at the individual owner, and its wording does not extend it to other entities under the owner’s ownership or control. The operative text at Section 6 is:
1. Has the individual in Section 6A, under any current or former name or business identity, ever had a final adverse legal action listed on page 16 of this application imposed against him/her?
New program developments in Medicare, however, may change the above situation and extend required disclosures to entities under common ownership or control with new applicants. In the HHS OIG Work Plan for FY 2012, under Part IV: Legal and Investigative Activities Related to Medicare and Medicaid, there is an item captioned Providers and Suppliers with Currently Not Collectible Debt. This proposes that
We will also determine whether [currently not collectible] debtors are closely associated with other businesses that continue to receive Medicare payment. CMS defines a [currently not collectible] debt as a Medicare overpayment that remains uncollected 210 days after the provider or supplier is notified of the debt and for which recovery attempts by CMS contractors have failed.
No mention is made in the Work Plan of what if any sanctions HHS is considering against businesses “closely associated” with its defaulting debtors, but affiliates of defaulting overpayment debtors are clearly a topic of concern to the agency. So, program changes on this subject may be forthcoming, and would logically be brought to bear in the new provider enrollment process.
Means already exist for CMS and its contractors to identify other providers under common ownership with a defaulting debtor by simple data mining, and any individual Government employee familiar with the overpayment could connect that to the new enrollment application if it came to their personal attention. So with or without changes coming from the Work Plan, there is a substantial risk that in our hypothetical, CMS or its contractors would become aware of the connection between the new application and the Company’s unsatisfied overpayment.
CMS’s authority to deny new enrollments into its programs is set forth in regulations enacted under the Social Security Act at 42 CFR §424.530(a). Grounds for denial of enrollment are similar to grounds for exclusion, and include (for example) felony convictions and program debarments and exclusions of
[a] provider, supplier, an owner, managing employee, an authorized or delegated official, medical director, supervisiong official, or other health care personnel furnishing reimburseable Medicare services who is required to be reported on the enrollment application, in accordance with section 1862(e)(1) of the Act….
Denial of enrollment based on an existing overpayment is expressly mentioned in this regulation as follows:
(6) Overpayment. The current owner (as defined in §424.502), physician or nonphysician practitioner has an existing overpayment at the time of filing of an enrollment application.
This provision does not include the Company’s overpayment in our hypothetical as grounds for denial of the new provider’s enrollment, and no other part of the regulation appears to do so either. So it appears that even if CMS or its contractor is aware of the affiliation of the Company and the new entity in our hypothetical, it could not deny the new enrollment. I believe that in practice, however, it is highly likely the agency would strive to find other grounds for denial in such a case, and the affiliation with the Company would make enrollment extremely difficult for the new provider entity. Additionally, I expect that any changes to the Medicare enrollment process resulting from the OIG Work Plan discussed above would include an expansion of the grounds for denial of enrollment to include overpayments by entities under common control with the applicant.
(c) Sanctions Against Companies Under Common Ownership or Control. If we add to our hypothetical another existing health care provider business which is incorporated as an entity separate from the Company but under common ownership or control, another question arises. What are the risks that CMS and its contractors might punish a failure to satisfy a proven overpayment demand with sanctions against the other existing Medicare provider entity? In the veil-piercing and successor liability topics above, we noted that such acts as ignoring the formalities of legal separateness between the Company and the other provider entity, and transferring assets between them, can allow creditors such as CMS and its contractors to pursue their debt claims against both entities. But as also noted in that topic, such remedies are hard to invoke, disfavored by courts in practice, and seldom used by Government agencies. So our inquiry turns to exclusion of the other entity from Government programs and revocation of its Medicare enrollment.
The relevant portion of the Social Security Act, 42 USC §1320a-7(b)(8), allows incorporated entities to be excluded if a 5% or more owner or control person has been excluded. The Company’s owners will own the other entity in our hypothetical, so if the conduct of the Company were grounds to exclude the owners, §1320a-7(b)(8) would allow the other entity to be excluded likewise. But as discussed in (a), above, the PIM exclusion requirements make it unlikely that the exclusion sanction could be applied in a normal overpayment case. Likewise, the revocation of enrollment regulations do not identify an overpayment by a provider under common control as grounds for revocation. Accordingly, no clear avenue exists under current Medicare law and policy to exclude or revoke the enrollment of the commonly owned provider in our hypothetical.
9. Conclusion. In sum, the established legal rule of limited liability of owners of incorporated businesses appears to be alive and well in the Medicare service provider area, and Federal agencies and their contractors by and large respect it. The separateness of legally-distinct incorporated businesses under common ownership also remains in effect. These rules however have significant exceptions.
Owners of incorporated health care provider entities, absent some written agreement to the contrary, are insulated from personal liability for overpayment obligations owed by their companies to Federal health care authorities by the same state laws which insulate them from their companies’ other debts. Generally, Federal health care laws do not change these rules. If your company’s assets are insufficient to satisfy its debts, procedures exist for Federal claimants (like other creditors) to try to reach through your company and pursue your personal credit to satisfy their claims. But this requires a lawsuit to be filed against you personally; and the laws of the states specify only certain narrow circumstances where they can be successful. Accordingly, creditors rarely try to “pierce the corporate veil”, and this is probably more true of Federal creditors than private ones.
The most likely situation where an insolvent provider’s creditor can successfully reach the personal credit of the owner is when the owner has taken dividends and other sums from the company which cannot be characterized as salary or compensation for employment, at times when the debtor company was already insolvent. Likewise, the most likely way a new provider company being organized by an existing provider’s owner can become liable to its creditors is for assets to be transferred from the old provider to the new. Owners of multiple providers should consult legal counsel to examine all dealings between them for successor liability and similar issues whenever one provider becomes liable for overpayments, because many risk-creating activities will not be recognizable as such without legal training.
Apart from debt collection risks, procedures exist for HHS to exclude owners of providers from Federal programs, which will operate to exclude other provider entities under common ownership. The available grounds for exclusion, however, do not normally arise in an overpayment case. Similarly, HHS regulations provide for the revocation of the enrollment of health care providers in certain cases. The grounds for revocation do not include a defaulted overpayment by a separate provider under common control.
The main area of risk for the affiliates of a defaulting provider subject to an overpayment appears to be the enrollment application by a new provider entity under common ownership. While the strict wording of the current enrollment application forms does not compel disclosure of the overpayment situation in our hypothetical, and overpayment by a commonly-owned provider is not currently a listed basis for denial of the new enrollment, in practice the existence of a defaulted overpayment obligation poses a substantial risk to any related party’s enrollment. Initiatives are under way inside HHS which could change these risks to certainties.
David Parker is an attorney practicing at Liles Parker PLLC, a health care and business law firm in Washington D.C. Mr. Parker was formerly a partner at Dickstein Shapiro in Washington, DC. Before entering private practice, Mr. Parker served for 16 years as the in-house general counsel of Allied Capital, a publicly-traded group of mezzanine finance companies headquartered in Washington. For more information, contact David at (202) 298-8750.
 The term incorporated will be used here to refer to the legal process of creating any form of legal entity providing limited liability to its owners (e.g. limited partnerships and LLCs) not just to the creation of a corporation.
 This practice is harder to defend than a claim for initial undercapitalization, because in this case there is evidence that at the time of organization, the owners believed the capital later taken out was needed in the business.
 Failure to hold annual meetings, and failure to keep corporate minutes have seldom been the basis for shareholder liability.
. 11 U.S.C. §362.
 11 USC §362(b)(28)
 See In re Slater Health Center, Inc. 398 F.3d 98 (C.A. 1 2005). The US Bankruptcy Code does not explicitly address recoupment, and the Slater ruling may not apply in all circumstances. Among other things, its application turns on the overpayment and the new billing being part of the “same transaction.” Otherwise, the contractor’s claim against the new billing is a setoff which is specifically addressed in the Code and is generally halted in bankruptcy by the automatic stay. See for example In re University Medical Center 973 F.2d 1065 (C.A.3 1992).
 The notable exception to this rule is the Internal Revenue Service’s pursuit of shareholders to collect corporate tax liability. The IRS has in recent years successfully pierced the corporate veil in a number of well-publicized cases.
 See e.g. Cab-Tek v. E.B.M. Inc. 153 Vt. 432 (Vt. 1990).
 Typical statements of states’ successor liability rules can be found in Marks v. Minn Mining & Mfg. Co 187 Cal. App. 3d 1429 (Cal. Ct. App. 1986) and Sweatland v. Park Corp 587 NYS 2d 54 (App. Div. 1992).
 Codified in 42 USC §§1320a-7 and 1320c-5
 The recurring text appears, for example, in 42 USC §1320a-7(b)(6). That section provides that the Secretary of HHS may exclude “Any individual or entity that the Secretary determines… has furnished or caused to be furnished … items or services to patients substantially in excess of the needs of such patients….” Since owners of a provider entity are normally in control of it, if the entity has done the described act, the owner can be said to have caused the act, and is therefore subject to the same grounds for exclusion [emphasis added].
 42 USC §1320a-7(b)6)
 PIM Ch. 4 Sec. 4.19.2. Similar procedural requirements for exclusion appear at 22.214.171.124 and 126.96.36.199.
 Other versions of CMS-855 (used for other types of providers and entities) contain sections corresponding to Sections 6, page 16 and Section 15 of CMS-855A, discussed herein.
 Sec. 15 of CMS-855A extends the required disclosure to all subsequent periods, effectively making it an Evergreen requirement.
 For example, CMS-855 program application forms have long required owners of all applicants to be identified by name and Social Security Number. A simple cross-checking of these identifiers against identifiers of owners from the CMS-855 of defaulting debtors could easily be implemented.
 Grounds for denial of enrollment are repeated, but not expanded, in the Medicare Program Integrity Manual in Chapter 15.8.
 42 CFR §424.530(2).
 42 CFR §424.530(6). The regulation defining the term owner includes holders of 5% and greater ownership interests. Grounds for denial of enrollment based on payment suspension are set forth in nearly identical language in §424.530(7)
 See 42 CFR §424.535. Note that this revocation regulation includes a grounds for revocation corresponding to §424.530(a)(2) [felony conviction, debarment or suspension by the provide, its owner or key personnel] but no grounds for revocation corresponding to §424.530(a)(6) [existing overpayment by the provider or its owner].
What is the FCA Statute of Limitations?
The statute of limitations for False Claims Act (FCA) cases is already a complex issue. The FCA statute is 6 years, or 3 years after the government knew or should have known about the fraud, up to a maximum of 10 years. This raises questions including when “should” the government know about a certain fraud, especially if it long standing and continuous? What if the government should have known about the case 4 years ago, but the 6 year timeframe has not yet run?
The Wartime Suspension of the FCA Statute of Limitations
But a little known statute was recently used in a case in Texas to completely toll the statute of limitations. The court in U.S. v. BNP Paribas SA employed the “Wartime Suspension of Limitations” statute to toll the statute of limitations beyond what it would have normally been. The Wartime Suspension of Limitations provides that, “the running of any statute of limitations applicable to . . . fraud or attempted fraud against the United States or . . . connected with or related to the prosecution of the war . . . shall be suspended until 5 years after the termination of hostilities as proclaimed by a Presidential proclamation . . . or concurrent resolution of Congress.” 18 U.S.C. 3287.
Importantly, the suspended statute of limitations must be “connected with or related to the prosecution of the war.” In the Paribas case, the court in the Southern District of Texas (which includes Houston) held that a major French bank whose subsidiary was involved in exporting was sufficiently related to the prosecution of a war to toll the FCA statute of limitations, despite the fact that the company is not specifically a contractor for the Department of Defense or otherwise involved in war efforts. The Paribas decision raises many questions:
- What constitutes a “war”? The United States’ last official declaration of war occurred on June 5, 1942 against Romania , Hungary, and Bulgaria during WWII. But as you know, the United States has been, and currently is, frequently engaged in military conflicts around the globe. What about NATO peacekeeping missions, or limited interventions? Under Paribas, it appears that “war” is construed broadly, and any military intervention funded by Congress could be sufficient to activate the statute.
- What is the connection or relation of the war to the specific fraud? In Paribas, the defendant was an exporter of grain dealing with the Department of Agriculture. While not specifically related to the war, an argument can be made that the exportation of food supplies, especially by a major international company, could have a sufficient effect on our military, its ability to obtain food and other supplies, and international relations. But what about healthcare? Certainly claims made under the TriCare program that were found to be false could be tolled by the Wartime Suspension of Limitations. But what about standard Medicare and Medicaid claims? Is the health of the nation sufficiently connected to war efforts to justify completely tolling the statute of limitations?
Obviously, this decision raises important concerns for anyone involved in FCA litigation, or anyone thinking about engaging in FCA litigation. On both sides, whistleblowers and FCA accused alike, this should be a major issue that your legal counsel must consider.
Robert Liles, David Parker, and Paul Weidenfeld are experienced in counseling clients on FCA litigation matters, and have handled a variety of FCA cases in their careers. For a free consultation to discuss the FCA statute of limitations issues raised in Paribas or for other questions regarding the False Claims Act, please call today at 1-900-475-1906.
How a business person can manage attorneys and other professionals in the legal process of his business transactions, to minimize cost and risk and maximize efficiency – Part II of III. Click here for Part II.
(k) Conform to Conventions about Roles of Parties in Transactions. In most transactions, the buyer, investor or lender (i.e. the money side of the deal) will expect their legal counsel to produce the first draft of most documents in the transaction, on which the other side will make comments and negotiate changes. While this means the documents start out skewed in favor of the money side, there are sound reasons why the seller or issuer side should allow this. If the seller, say, insists on providing a first draft document, the process of the buyer negotiating it into a form signable by his side will add more time and expense to the closing for all concerned than will be justified by any drafting advantage.
(l) Understand what Legal Documents are involved in your Deal, and What Function Each Serves. The day is long past (if it ever came) when a business person can turn an important transaction over to legal counsel, say “Close this deal for me please”, and walk away. By now the reader will see that his or her relationship with their professionals should be less like a patient’s relationship with a physician than a boss’s relationship with highly-skilled employees. Your transaction counsel may have been through a hundred transactions, and you through none, but you still need to play a leadership role, and make business (i.e. economic) decisions. While you don’t need to know all the law to do these things, you do need to understand the basics, and know the functions on a business level of all significant documents.
(m) Respect the Negotiation Process. Store up Credits when you Concede a Point. Table small negotiating items, and Trade them down the road for a bigger point you Know Is Coming. Westerners often view the process of negotiation with disdain. I have had clients approach a negotiation saying “I will just open with my bottom line number, and let them take it or leave it. We will cut to the chase.” This is seldom effective. Business people of all cultures hate to take a first offer in any important matter. Rigid intransigence in negotiation usually repels the other side. And humans seldom view any decision as binary, with a fixed bright-line dollar amount where it stops being desirable. The prudent business person allows for this, starts every negotiation a bit away from his bottom number, and assumes the other side is doing likewise.
In section (g) above I mentioned the psychological bonding that usually arises when parties negotiate. There is a natural tendency for a party winning a point in negotiation to feel softer about the next point. Bear this human trait in mind, and use it.
If you are communicating well with your professionals, they will alert you to issues they expect to emerge in the transaction process which may be serious problems for you. Every significant deal has hurdles. One of your biggest challenges will be to keep track of these matters and plan how to deal with them. Most issues in a business negotiation are more important to one side than the other. Experienced deal people look for points more significant to the other side than to themselves, and position themselves to grant the other side one or more “gives” on such points, in exchange for a concession important to them.
(n) Keep Business and Legal Issues Separate. Don’t let Attorneys get Stalemated; Make sure Yours Knows when to Hand-off an Issue. After the drafting side presents its initial draft of a transaction document, the commenting attorney reads the document, flags language possibly creating a problem or “issue” for his client, speaks to his client if necessary to clarify what are and what aren’t problems, replies to the drafting attorney with descriptions of the issues, and (usually) proposed text changes to fix them. When the commenting attorney describes issues with the drafter, he does so in legal terms, while he normally communicates issues to his client in business terms.
One of 3 things must result from the above: Either (i) the drafter agrees with the commenter about both the issue and the text change; (ii) the drafter agrees an issue exists and with the concept of the proposed resolution, but disagrees on the text change; or (iii) the drafter disagrees on the issue and the proposed text change. In case (i) things are obviously fine, and the process continues without interruption. In case (ii), competent attorneys will always be able to craft some mutually agreeable drafting fix, and get to case (i). In case (iii) however, if good faith discussion doesn’t produce case (i) quickly, prolonged haggling by the attorneys becomes wasteful. Your attorney (whether he is the drafter, or the commenter), should recognize the stalemate in this situation, table that discussion with opposing counsel, and add the issue to a list of issues to be referred to you. Further conversation between lawyers is probably useless, and your counsel should know this.
When all documents being drafted have been covered in the process described above, sit down with your counsel and review the full list of open issues. A skill absolutely vital for competent transaction counsel is the ability to translate each issue for you from legal to business terms with perfect clarity. From this conversation, decide what is and what isn’t worth negotiating. Issues falling into the former category are now identified as business issues. These you must resolve with your business counterpart in the transaction, failing which of course the closing process must halt. The point however is that lawyers must never be the ones to hold on to a stalemated issue.
(o) Be ready to Step In if other Professionals Over-Negotiate. If progress seems too slow in negotiating the legal documents, you may discover that opposing counsel is producing too many case (ii)s and case (iii)s in the process described above, which means he or she is either asking for or disagreeing with changes which aren’t really significant to their client. If that occurs, you should be prepared to complain politely but clearly to your counterpart.
I mention this with some hesitation, because it can easily be counter-productive, and you must tread carefully. It’s hard for you to know what is and isn’t truly significant for the other side. Also, be wary if it’s your lawyer who says the other is over-negotiating; perceptions like that are common but sometimes not fair. As you will appreciate, wrongly saying the other side’s attorney is behaving badly violates the courtesy and politeness rule above.
(p) Avoid Too Many Turns of Documents. This is most important in negotiating the umbrella agreement, but applies to other documents too. During the document negotiation phase of the closing process, there is a temptation to urge the drafting lawyer to hurry making redrafts of the umbrella agreement, in an effort to speed the closing process. The problem here is that each time the drafting attorney redrafts a document, the commenting counsel has to read it and perform the discernment process described in (l) above. This is the most exacting work a transaction lawyer ever performs, and as mentioned in the Introduction, is the single most expensive part of the legal process. The drafting lawyer should not use the redrafting process to tell the commenting lawyer which requested changes the drafter’s side disagrees with. Instead, any decline of requested changes should be communicated verbally, and redrafting should wait until all known issues in the document are resolved at least in principle. This means that redrafting must wait until the business people finish the negotiation described in (l). In rare cases, redrafting may proceed although business people are stalemated on an issue, and the relevant text is bracketed in the redraft when this happens. But the only surprises a commenting lawyer should ever find in an intermediate draft is how the drafter chooses to phrase some concept that has been agreed on. Otherwise both the redrafting work and the review and comment work tend to be wasted, and previously-flagged issues get flagged again and re-negotiated. This slows the closing process and wastes legal fees.
(q) Look out for Legal Opinion Letters. Smoke Them Out Early. Lawyers loathe giving written opinions, and perceive them as professionally risky, although very few lawyers are successfully sued over them. Clients seldom appreciate the time they necessarily require, and the resulting bills. Every law firm has rigid internal procedures to follow in signing opinions, and they usually involve partners who aren’t making money from the client in question learning the facts and law involved and approving the opinion. This is a disagreeable experience for all concerned.
Opinion letters are therefore occasions for delay and conflict in legal closings. The best practice is for each party to advise the other as early as possible (around the time the 1st draft of the umbrella agreement is produced) what opinions they will need, with requested text, and what qualifications the signing attorney must have (usually, of what state’s bar must he be a member). Get the texts of opinions your side must provide to the relevant lawyer promptly, and find out if he or she is prepared to give them. Some deviation from requested texts always occurs, but a competent attorney will be able to tell you what if any parts require significant changes. The goal here is for any negotiations over opinions to go on in parallel with the drafting of the documents, which allows time for issues to be resolved. Don’t let these negotiations start near the projected closing date, which is exactly what will happen if opinions are not addressed early.
(r) Arbitration. Arbitration clauses pass in and out of fashion, and are touted as cheaper alternatives to court litigation. Most of the cost savings in arbitration come from the reduced or absent discovery, which in court litigation is the most expensive part of 90% of all cases. In my experience arbitration produces a less predictable result, meaning verdicts which don’t naturally flow from the facts occur more often. I also believe the abbreviated process gives the arbitrators less confidence in their own conclusions than a judge usually has in a court case, creating a reluctance to select clear winners and losers. (It should be appreciated that our laws tend to force courts to determine clear winners and losers). So arbitrators more frequently just “split the baby”; and obviously this favors a contract breaching party. Based on this, my advice to clients is to decline arbitration clauses if they expect to be the party trying to enforce the hard contract terms in a business dispute.
4 Conclusion. Legal transactions require owner’s management to be efficient like any other part of a business operation. Selection of and reliance on an able transaction lawyer who works well with you is vital to an efficient closing process. Likewise, hewing to some simple rules and procedures that are proven over time can save time, legal fees, and wear and tear on the parties.
David Parker is the managing member of Liles Parker in our Washington, D.C. office. David handles corporate finance, structuring and negotiating secured debt and loans, corporate governance and compliance, and business transactions. If you are interested in buying or selling a business, or raising or lending capital, call David for a free consultation today at 1-800-475-1906.