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AbilityOne OIG Audits are Ramping-Up! Is Your Nonprofit Agency Ready for an Audit?

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(November 11, 2020):  If you run a nonprofit company that contracts with the federal government through the AbilityOne Program, then you should be aware that inadequate compliance policies could put your nonprofit in danger of facing allegations of waste, fraud, abuse, and mismanagement, onerous audits and investigations, and even civil liability.   Under the AbilityOne Program, the federal government assigns contracts for the procurement of goods and services to qualified nonprofit agencies that meet designated requirements for direct labor performed by blind and other severely disabled individuals. The AbilityOne Program is intended to advantage the disabled by giving them the opportunity of a living wage while also reducing expenditures otherwise devoted to transfer payments for unemployed disabled persons. The AbilityOne Program is in fact designed to generate additional tax revenue by increasing the taxable income of the disabled through wages paid out under program contracts.

I.  Background of the AbilityOne Program:

The AbilityOne Program traces its origins to the New Deal era when Congress passed the Wagner-O’Day Act in 1938, which established the Committee on Blind-Made Products for overseeing the procurement of goods made in part using the labor of blind persons. The Javitz-Wagner-O’Day Act of 1971 (JWOD) expanded upon the original legislation by extending its coverage not only to the blind but other severely disabled individuals as well. The legislation also authorized the federal government to utilize AbilityOne program contracts for the procurement of services in addition to goods.

AbilityOne works with a group of special nonprofit organizations that assist in the distribution of AbilityOne contracts. In its formative years, the AbilityOne Committee relied on the National Industries for the Blind (NIB) to help administer the program. Today the NIB has been joined by SourceAmerica and the American Federation for the Blind (AFB) in a collaborative oversight role with AbilityOne. These organizations are designated as central nonprofit agencies (CNAs) that help monitor qualified nonprofits receiving contracts from the procurement list and otherwise facilitate AbilityOne’s distribution of product and service orders at a fair market price. [1]

The AbilityOne program, which has since been reconstituted as a Commission with independent agency oversight, now serves as the nation’s largest indirect employer of disabled individuals through its contracts with hundreds of qualified nonprofit agencies. Its contracts are in the aggregate worth up to $3 billion, and they provide employment and training opportunities to some 45,000 disabled individuals. [2]

II.  Rise of the AbilityOne Commission OIG:

On December 18, 2015, the Consolidated Appropriations Act of 2016 (P.L. 114-113) was passed.  Among its various provisions, Title IV, Section 401 of the legislation amended the the 1978 Inspector General Act and established a new Office of Inspector General (OIG) at AbilityOne as a designated federal entity.  As an independent agency, the AbilityOne Commission has been vested with investigatory and audit authority for the purpose of detecting waste, fraud, abuse, and mismanagement involving agency programs. The statute mandates that the Inspector General have access to all records, reports, audits, documents, and other materials relating to the inspector general’s responsibilities while further empowering the inspector general to issue subpoenas and administer oaths, affirmations, and affidavits. [3]

To safeguard against audits, investigations, and even potential lawsuits, nonprofit agencies must adhere to the full range of compliance mechanisms available to AbilityOne. These mechanisms serve two ends, that AbilityOne programs both help the federal government fulfill its procurement orders and encourage employment and training of blind and severely disabled individuals. The AbilityOne oversight framework centers upon rules regarding direct labor hours performed by disabled individuals. The JWOD implementing regulation requires that nonprofits maintain direct labor hour records for each employee, whether disabled or not, as well as separate files on the visual acuity and normal competitive employment viability of blind workers. [4] Maintaining records of direct labor hours for each employee helps to fulfill one of the most important provisions in the AbilityOne oversight framework, which is the ratio of overall direct labor hours (ODLH) of disabled to non-disabled employees. Nonprofit agencies must ensure that blind or other severely disabled individuals perform at least 75% of all ODLH per fiscal year. A NPA with disabled employees working fewer than 75% of direct labor hours contravenes the purpose of the AbilityOne program and may face probation or even exclusion from the program. [5]  The AbilityOne OIG is equipped with a number of tools at its disposal to ensure compliance in addition to those powers granted under the IG Statute.  Recent enforcement efforts taken by the AbilityOne OIG have included:

  • Issuing policy guidance highlighting the importance of regulatory compliance.
  • Conducting site inspections of nonprofit agencies funded, in part, by AbilityOne programs.
  • Reviewing annual certifications submitted by nonprofit agencies.
  • Providing training to nonprofit agencies on their obligations as a federal contractor / agency receiving federal funding.

As discussed in its Fiscal Year 2019 report on the top management and performance challenges facing AbilityOne, the OIG stated that it would need additional resources to carry out these oversight functions, an indication that in the future the OIG could, with enough funding, even more aggressively utilize these tools to target uniform compliance across the Commission’s entire contracting network. [6]  What does this mean?  In the short run, it means that this relatively new enforcement branch is working through its outstanding audit and investigative duties.  In the long run, it means that nonprofit agencies participating in the AbilityOne program should expect to be audited and may be facing significant penalties if they are not in compliance with their program obligations.

III.  The AbilityOne OIG is Actively Making False Claims Act Referrals to the U.S. Department of Justice (DOJ):

As we have recently seen the AbilityOne OIG is actively making referrals to Department of Justice (DOJ) prosecutors around the country.  Importantly, a number of the referrals being made are for alleged violations of the civil False Claims Act.[7] The civil False Claims Act is the primary civil fraud enforcement tool utilized by the federal government.  It is an extraordinarily useful statute for government prosecutors, both in terms of ease of use and in terms of the damages that may be recovered by the government.   Under Section 3729 of the civil False Claims Act, a person or entity may be in violation of the statute if the individual or entity:

“(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 . . .”

False Claims Act cases are prosecuted by the DOJ Civil Division in Washington, D.C. and by “Affirmative Civil Enforcement” (ACE) Coordinators appointed in each of the 94 U.S. Attorney’s Offices around the country. 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 “mistake” from a non-intentional wrongful claim that could give rise to an action under the False Claims Act is not always easy to discern.  A person or entity found to have violated this statute may be liable for both civil penalties and treble damages. The amount of civil penalties that may be imposed for each false claim depends on when each was made:

  • For claims or statements made on or after August 1, 2016, but before January 1, 2017, the minimum penalty which may be assessed under 31 U.S.C. 3729 is $10,781 and the maximum penalty is $21,563.

  • For claims or statement made on or after January 15, 2017, but before June 19, 2020, the new minimum was raised to $11,181 to the maximum penalty is raised to $22,363.

  • For claims or statement made on or after June 19, 2020, the new minimum was raised to $11,665 and the maximum penalty was raised to $23,331

IV.  Is Your Nonprofit Agency Facing an AbilityOne-Related  False Claims Act Investigation?

Federal prosecutors are actively employing the False Claims Act to target nonprofit agencies that purportedly misrepresent their overall direct labor hours (ODLH) associated with AbilityOne-related set-aside contracts for the employment of blind workers. These lawsuits can result in settlements costing nonprofits hundreds of thousands or even millions of dollars.  Notably, False Claims Act liability isn’t limited only to alleged misrepresentations in annual ODLH certifications.  In one recent case, the Justice Department recovered almost $2 million in a settlement with a nonprofit agency over allegations that it misrepresented its ratio of disabled to non-disabled employees in order to attract AbilityOne contracts. [8]

Nonprofit agencies that contract with AbilityOne must be aware of their potential liability under the False Claims Act if their actual direct labor hours or other specified employee allocation ratios fail to match up with annual certifications or prior agreements and communications made with AbilityOne. The agencies most vulnerable to lawsuit are therefore not always what the legislative nomenclature characterizes as “at risk agencies.” An “at risk” agency is classified as one with ODLH below 75%, while a high risk agency has ODLH below 60%. [9] At risk or high risk agencies do not necessarily misrepresent underlying deficiencies in their ODLH compliance. Agencies alleged to have engaged in fraud or other misconduct, by contrast, do tend to have known, deliberately ignored or been recklessly ignorant of their failure to comply with ODLH requirements.  This failure may be reflected in the nonprofit agencies periodic ODLH compliance certification sheets. Nonprofit agencies not engaged in fraud but still prone to deficient compliance, such as those with below required ODLH, can still be subject to probation or even debarment from the government’s procurement list

V.  Conclusion — Moving Forward with Your AbilityOne Compliance Obligations:

Management at nonprofit agencies should be mindful of their AbilityOne-related contractual obligations with respect to the reporting of work hours and the employment of blind workers.  An organization’s failure to meet these contractual obligation actions could conceivably result in the loss of funding, the assessment of penalties and damages, and the organization being debarred from doing business with the federal government. Additionally, nonprofit agency executives signing false certification statements may face personal liability for their role in any false statements and / or misrepresentations made to the government that resulted in wrongful claims being submitted to the government for payment.  Nonprofit agency management officials should also be mindful that additional expressions of commitment made to AbilityOne for purposes of securing contracts, such as direct labor hours or employee ratios even higher than the statutory mandates, might also expose the nonprofit to fraud claims if the nonprofit fails to meet those commitments and then additionally fails to fully disclose this to AbilityOne.  Finally, nonprofit management team members must ensure that their policies and procedures will facilitate an agency’s compliance with its contractual obligations, duties and responsibilities as a participating agency in AbilityOne-related funding and blind worker employment programs.  One of the first signs that your nonprofit agency is being investigated for possible violations of the False Claims Act is the receipt of Civil Investigative Demand (CID) from the government.  As discussed in one of our other articles, a CID, it is important that you retain experienced legal counsel if your agencies is ever targeted by the government under the False Claims Act.  Our attorneys have extensive experience handling False Claims Act matters and cases.  For a free consultation, give us a call:  (202) 298-8750.  We represent individuals and entities nationwide in these types of cases and others brought under the False Claims Act.

Robert W. Liles represents nonprofit agencies in AbilityOne OIG Audits Is your nonprofit agency being audited by AbilityOne OIG?  If so, give us a call.  We can help.  For a free consultation, call:  1 (800) 475-1906.   

[1] 41 U.S.C. § 8503. The statute further mandates that the Committee maintain a procurement list for both products and services from which it assigns orders to qualified nonprofits. These nonprofits are in turn grouped into two categories, those that employ the blind and those that employ the other severely disabled. As with other agencies, the Committee is charged with issuing regulations in furtherance of its responsibilities under the statute.

[2] AbilityOne Commission. “Ability One – Milestones.”

[3] 5 U.S.C. § 6. The IG Statute enumerates additional powers, including the requesting of assistance or information from other government agencies and entering contracts with outside parties to carry out its audit and investigatory functions. These powers uniformly apply to all agency IGs, including that for AbilityOne OIG.

[4] 41 C.F.R. § 51-4.3. The direct labor hours reporting rules and additional review requirements for blind individuals represent only a few of the compliance standards imposed on nonprofit agencies. The regulation includes additional requirements, such as those concerning the compensation, employment, and occupational health and safety standards prescribed by the Secretary of Labor, as well as placement programs in coordination with community services.

[5] Some exceptions for below 75% ODLH do apply, depending on the circumstances and at the discretion of the Commission. The Commission is more tolerant of relaxing the requirement if doing so still encourages the employment of disabled persons for specialized projects while also permitting the federal government to meet its procurement orders.

[6] AbilityOne OIG.  Top Management and Performance Challenges Report. December 2, 2019.

[7] 31 U.S.C. § 3729.

[8] See Department of Justice. U.S. Attorney’s Office for the Eastern District of Wisconsin Press Release titled: “Wisconsin-Based Nonprofit to Pay $1.9 Million To Settle Allegations of False Claims and Kickbacks On Federal Contracts for Blind Workers.” September 30, 2020.  In an earlier 2019 case out of the Western District of Tennessee, the government settled another False Claims Act against a different defendant for $150,000. The Press Release announcing this settlement is titled: “Memphis Goodwill Industries, Inc. will pay $150,000 to the United States for claims that were in violation of the False Claims Act.” June 19, 2019.

[9] U.S. AbilityOne Commission. “Nonprofit Agencies Out of Compliance with Commission Regulations.” Policy 51.403. March 22, 2013.

Home Health Revocation Actions by Medicare are Expanding Around the Country

September 28, 2020 by  
Filed under Home Health & Hospice

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Have you received a letter proposing the home health revocation of your agency?(September 28, 2020):  Last September, CMS published a Final Rule titled “Medicare, Medicaid, and Children’s Health Insurance Programs; Program Integrity Enhancements to the Provider Enrollment Process.” [1] Among its many changes, the Final Rule significantly expanded the reasons that may be asserted by the Centers for Medicare and Medicaid Services (CMS) when revoking a health care provider’s enrollment and Medicare billing privileges.  The Final Rule also extended the period that a health care provider can be barred from reenrolling in the Medicare program.  Since the issuance of the Final Rule, the enrollment and Medicare billing privileges of an increasing number of home health agencies nationwide have been revoked.   This article examines several of the primary regulatory bases that have been cited by CMS when pursuing a home health revocation action.  It also examines a number of the issues that a home health agency should consider when faced with a potential revocation action.

I.  Summary Listing of the Reasons a Home Health Agency’s Medicare Enrollment May be Revoked:

With the implementation of the Final Rule, the number of reasons upon which CMS may seek to revoke the enrollment and Medicare billing privileges of a participating provider or supplier grew from 14 to 22. [2]  A summary listing of the expanded list of reasons for revocation is set out below.

Revocation Reason #1. Noncompliance. 42 C.F.R. §424.535(a)(1).

Revocation Reason #2. Provider or supplier conduct. 42 C.F.R. §424.535(a)(2).

Revocation Reason #3. Felonies. 42 C.F.R. §424.535(a)(3).

Revocation Reason #4. False or misleading information. 42 C.F.R. §424.535(a)(4).

Revocation Reason #5. On-site review. 42 C.F.R. §424.535(a)(5).

Revocation Reason #6. Grounds related to provider or supplier screening requirements. 42 C.F.R. §424.535(a)(6).

Revocation Reason #7. Misuse of billing number. 42 C.F.R. §424.535(a)(7).

Revocation Reason #8. Abuse of billing privileges. 42 C.F.R. §424.535(a)(8).

Revocation Reason #9. Failure to report. 42 C.F.R. §424.535(a)(9).

Revocation Reason #10. Failure to document or provide CMS access to documentation. 42 C.F.R. §424.535(a)(10).

Revocation Reason #11. Initial reserve operating funds. 42 C.F.R. §424.535(a)(11).

Revocation Reason #12. Other program termination. 42 C.F.R. §424.535(a)(12).

Revocation Reason #13. Prescribing authority. 42 C.F.R. §424.535(a)(13).

Revocation Reason #14. Improper prescribing practices. 42 C.F.R. §424.535(a)(14).

Revocation Reason #15. Reserved. 42 C.F.R. §424.535(a)(15).

Revocation Reason #16. Reserved. 42 C.F.R. §424.535(a)(16).

Revocation Reason #17. NEW — Debt referred to the United States Department of Treasury. 42 C.F.R. §424.535(a)(17).

Revocation Reason #18. NEW Revoked under different name, numerical identifier or business identity. Under 42 C.F.R. §424.535(a)(18).

Revocation Reason #19. NEW Affiliation that poses an undue risk. 42 C.F.R. §424.535(a)(19).

Revocation Reason #20. NEWBilling from a non-compliant location. 42 C.F.R. §424.535(a)(20),

Revocation Reason #21. NEW — Abusive ordering, certifying, referring, or prescribing of Part A or B services, items or drugs. 42 C.F.R. §424.535(a)(21).

Revocation Reason #22. NEWPatient harm. 42 C.F.R. §424.535(a)(22).

For a detailed discussion of the 22 revocation reasons summarized above, you may wish to review our article titled “42 CFR Sec. 424.535(a) Medicare Revocation Actions — Your Medicare Billing Privileges Can be Revoked for a Host of New Reasons. Are You Facing a Medicare Revocation Action? If so, You Must Act Fast to Preserve Your Appeal Rights.”

II.  Primary Reasons Cited in Home Health Revocation Actions:

In reviewing the 22 reasons that CMS may revoke a home health agency’s enrollment and Medicare billing privileges, it is worth noting that only Revocation Reason #11. Initial reserve operating funds. 42 C.F.R. §424.535(a)(11), specifically targets home health agencies.  Under this provision, CMS can revoke the Medicare billing privileges of a home health agency if the agency fails to provide documentation that CMS can use to verify that the home health agency meets the initial reserve operating funds requirement described in 42 C.F.R. §489.28(a).  Although this particular basis for Medicare revocation is explicitly aimed at home health agencies, to date, it is rarely been cited by CMS as the primary reason for revoking an agency’s enrollment and Medicare billing privileges.

Of the remaining revocation reasons cited above, the reasons CMS has repeatedly relied on a home health revocation action are Revocation Reason #5. On-site review. 42 C.F.R. §424.535(a)(5) and Revocation Reason #8. Abuse of billing privileges. 42 C.F.R. §424.535(a)(8).  Both of these reasons for revocation are discussed in more detail below, along with recent home health Medicare revocation case decisions examining these regulatory violations.

III.On-Site Review” as a Basis for a Home Health Revocation Action:

In recent years, our attorneys have represented numerous home health agencies whose enrollment and Medicare billing privileges have been revoked due to the fact that an unannounced, on-site visit by a CMS-contracted inspector found that the provider was no longer operational to furnish Medicare covered home health services. As 42 C.F.R. §424.535(a)(5) provides:

“(5) On-site review. Upon on-site review or other reliable evidence, CMS determines that the provider or supplier is either of the following:

(i) No longer operational to furnish Medicare-covered items or services.

(ii) Otherwise fails to satisfy any Medicare enrollment requirement.” (emphasis added).

What does this mean?  Simply put, if a CMS-contracted inspector conducts an unannounced site visit of a home health agency’s existing certified location and finds that the agency is no longer “operational” at that location, the home health agency’s enrollment and Medicare billing privileges are subject to revocation.  A home health agency is considered to be operational [3] if it:

“. . . has a qualified physical practice location, is open to the public for the purpose of providing health care related services, is prepared to submit valid Medicare claims, and is properly staffed, equipped, and stocked (as applicable, based on the type of facility or organization, provider or supplier specialty, or the services or items being rendered), to furnish these items or services.”

Many of these revocation cases are the result of a home health agency’s failure to properly notify the appropriate MAC that it intends to move from its surveyed and certified location to a new site (within its current approved geographic area). [4]  Home health agencies must also submit an amended Form CMS-855A, along with any other required documentation within 90 days. [5]  A recent DAB decision affirmed the revocation of a home health agency by CMS on the basis that an on-site review of the provider’s surveyed location found that the agency was not operational.

March 2020.  Texas Home Health Agency. Reason for Revocation – On-Site Review.  In a recent case decided by an Administrative Law Judge (ALJ) of the HHS, Departmental Appeals Board (DAB), the ALJ reviewed a revocation case involving a Texas home health agency that allegedly failed to meet its regulatory requirements under 42 C.F.R. §424.535(a)(5).

The facts in the case are fairly straightforward. In July 2017, a CMS-contractor inspector attempted to conduct an unannounced site visit of a home health agency in Tyler, Texas.  When the inspector arrived at the agency address on file with CMS and the MAC, she found that the building at that location was “[v]acant and locked.”  The inspector also found that no employees were present and there were no signs of customer activity.”

At appeal, the home health agency argued that the regulations require that a provider NOT the provider’s physical practice location was required to be “open to the public” for the purpose of providing health care related services.  The home health agency argued that since its staff delivered home health services in the homes of patients and not in a single practice location, it was, in fact, “open to the public.”  Based on the facts presented, the DAB ruled that since the home health agency was not operational at the address on file with CMS, it was in violation of the requirements under 42 C.F.R. §424.535(a)(5)(i).  The DAB therefore affirmed the revocation action and the two-year enrollment bar that had been imposed.

III. “Abuse of Billing Privileges” as a Basis for a Home Health Revocation Action:

As a review of 2019 and 2020 DAB decisions will confirm, CMS is increasingly citing a home health provider’s abuse of billing privileges when exercising its Medicare revocation authority.  Most of the revocation actions taken during this period alleged that the home health agency “has a pattern or practice of submitting claims that fail to meet requirements.” [6] As 42 C.F.R. §424.535(a)(8) provides:

“(8) Abuse of billing privileges. Abuse of billing privileges includes either of the following:

(i) The provider or supplier submits a claim or claims for services that could not have been furnished to a specific individual on the date of service. These instances include but are not limited to the following situations:

(A) Where the beneficiary is deceased.

(B) The directing physician or beneficiary is not in the state or country when services were furnished.

(C) When the equipment necessary for testing is not present where the testing is said to have occurred.

(ii) CMS determines that the provider or supplier has a pattern or practice of submitting claims that fail to meet Medicare requirements. In making this determination, CMS considers, as appropriate or applicable, the following:

(A) The percentage of submitted claims that were denied.

(B) The reason(s) for the claim denials.

(C) Whether the provider or supplier has any history of final adverse actions (as that term is defined under § 424.502) and the nature of any such actions.

(D) The length of time over which the pattern has continued.

(E) How long the provider or supplier has been enrolled in Medicare.

(F) Any other information regarding the provider or supplier’s specific circumstances that CMS deems relevant to its determination as to whether the provider or supplier has or has not engaged in the pattern or practice described in this paragraph.”  (emphasis added).

What does this mean?  When analyzing this revocation reason, it is worth noting that it is comprised of two parts, paragraphs (i) and (ii).  Under 42 C.F.R. §424.535(a)(8)(i), several straightforward criteria are outlined in sections (i)(A)-(C) that can serve as the basis for revoking a provider’s enrollment and Medicare billing privileges.  In contrast, paragraph (ii) permits CMS to revoke a provider’s enrollment if it determines that the provider “has a pattern or practice of submitting claims that fail to meet Medicare requirements.”   Although sections (ii)(A)-(F) are intended to provide a framework that can be used by CMS to determine if a “pattern or practice” of improper billing conduct is present, in our opinion this reason for revocation is still remarkably broad and subject to the vagaries of the discretion of CMS and its contractors.  An overview of one of the more interesting Medicare revocation cases brought under 42 C.F.R. §424.535(a)(8) is set out below.

May 2020.  Texas Home Health Agency. Reason for Revocation — Abuse of billing privileges:  In this case, an ALJ was faced with a case where a Texas home health agency was alleged to have submitted 38 claims (associated with 13 beneficiaries) to Medicare for services that were allegedly provided without a valid certification of eligibility.

In this case, the 13 home health Medicare beneficiaries at issue listed a Houston physician as the ordering / certifying physician.  Qlarant, the Unified Program Integrity Contractor (UPIC) for Texas, conducted a review of these claims and discussed them with the physician who allegedly ordered the home health services.  The physician attested that he did not order home health services for any of the 13 beneficiaries under review.  Based on Qlarant’s findings, Palmetto (the assigned Medicare Administrative Contractor) revoked the home health agency’s enrollment and Medicare billing privileges, citing violations of 42 C.F.R. § 424.535(a)(8)(ii). In support of its decision, Palmetto noted that the physician denied ordering the home health services.  Palmetto further stated that the physician did not have a prior Part B relationship with the 13 beneficiaries at issue. [7] Therefore, Palmetto took the position that the Physician was not involved in the care, treatment, or monitoring of the 13 beneficiaries whose medical records he reviewed.

On appeal, it was argued that a licensed nurse practitioner working under a valid collaboration agreement with a Houston-based physician properly certified the need for home health services in connection with these 13 beneficiaries.  As the home health agency noted, the supervising physician had signed a letter which stated:

To whom it may concern: This is [to] certify that I [Physician] authorized [Nurse Practitioner] NP of [Pasadena Medical Clinic] to sign all Home Health orders on my behalf as her supervising physician.”

In its arguments, the home health agency conceded that “all related orders were signed and submitted by [Physician] and/or [Nurse Practitioner] of [Pasadena Medical Clinic].”  On appeal, the home health agency acknowledged that the claims were noncompliant because there was an impermissible delegation of his authority to sign home health certification documents” by the nurse practitioner.  Therefore, the DAB found that the claims did not qualify for coverage and payment.  The DAB also ruled that it was appropriate to revoke the home health agency’s enrollment and Medicare billing privileges for violating 42 C.F.R. § 424.535(a)(8), “Abuse of Billing Privileges.”  The ALJ also upheld the three-year enrollment bar that had been imposed by CMS.

As a final point, it is worth noting that during the period at issue (August 2016 through November 2017), Medicare paid for home health services only if a physician certifies the beneficiary’s eligibility for the home health benefit – not a nurse practitioner.[8]

IV.  Length of a Medicare Enrollment or Re-enrollment Bar:

As the case examples above reflect, until recently a health care provider could only be barred from being enrolled in the Medicare program for a period of one to three years.  Under the Final Rule effective November 4, 2019, [9] this period was extended to ten years [10] (under certain circumstances, a provider may be barred from enrolling or re-enrolling in the Medicare program for up to 20 years). [11]

V.  Anticipated Impact of New Medicare Revocation Authorities:

Six of the reasons that may be relied on by CMS when revoking a home health agency’s enrollment and Medicare billing privileges are new and became effective November 4, 2019.  Of the six new reasons, we believe that Revocation Reason #17: Debt referred to the United States Department of Treasury.  42 C.F.R. §424.535(a)(17) may represent the most significant risk to your home health agency.  As 42 C.F.R. §424.535(a)(17) provides:

“(17) Debt referred to the United States Department of Treasury. The provider or supplier has an existing debt that CMS appropriately refers to the United States Department of Treasury. In determining whether a revocation under this paragraph (a)(17) is appropriate, CMS considers the following factors:

(i) The reason(s) for the failure to fully repay the debt (to the extent this can be determined).

(ii) Whether the provider or supplier has attempted to repay the debt (to the extent this can be determined).

(iii) Whether the provider or supplier has responded to CMS’s requests for payment (to the extent this can be determined).

(iv) Whether the provider or supplier has any history of final adverse actions or Medicare or Medicaid payment suspensions.

(v) The amount of the debt.

(vi) Any other evidence that CMS deems relevant to its determination.”

What does this mean?  Many home health agencies around the country have been subjected to postpayment audits by UPICs (or their predecessor contractors, ZPICs).  Alleged overpayments in these cases have been as high as $10 million.  As you are likely aware, the Medicare administrative appeals process used to appeal these alleged debts has been hopelessly overwhelmed by the appeal of alleged debts identified in audits by UPICs, ZPICs and RACs.  From a practical standpoint, if your home health agency files for a hearing before an ALJ, it will be an average of 3.9 years before your case gets adjudicated.

Assuming that you haven’t paid-off the alleged debt, while your administrative appeal is pending, CMS and its contractors will be required under the Debt Collection Improvement Act of 1996 (DCIA) to refer eligible delinquent debt to the Department of Treasury (Treasury) for collection or offset through the Treasury Offset Program (TOP).  Upon receipt of the referral, Treasury or one of its contracted collection agencies will initiate proceedings to satisfy the alleged debt.

We can typically get Treasury to place its collection efforts on hold while an alleged Medicare overpayment is actively being appealed,  Unfortunately, with the implementation of 42 C.F.R. §424.535(a)(17), CMS is now also able to revoke a home health agency’s enrollment and Medicare billing procedures after referring an alleged debt to Treasury for collection.

VI.  Responding to a Proposed Home Health Revocation Action:

We cannot overstate the seriousness of a home health revocation action.  For most home health agencies, traditional Medicare is the largest payor, with Medicaid typically constituting the second-largest payor.  From a practical standpoint, if your home health agency’s Medicare enrollment and billing privileges are revoked, it will be difficult, if not impossible, for your company to remain solvent.

It is therefore crucial that you contact experienced health law counsel to represent you when you first receive notice of a revocation action.  The appeals procedures followed in a revocation case is quite different from that employed in the appeal of a claim denial or an alleged overpayment.  Liles Parker attorneys have extensive experience representing health care providers and suppliers in challenging the imposition of a Medicare revocation action.  Is your home health agency facing revocation?  Give us a call for a free consultation.  1 (800) 475-1906.

Robert W. LilesRobert W. Liles and the health lawyers at Liles Parker, Attorneys & Counselors at Law have extensive experience representing health care providers and suppliers nationwide in Medicare revocation actions.  Has CMS proposed that your enrollment and Medicare billing privileges be revoked?  Give us a call for a free consultation.  We can be reached at:  1 (800) 475-1906.

[1] The Final Rule under 42 C.F.R. §424.535(a), was published in order to implement sections 1866(j)(5) and 1902(kk)(3) of the Social Security Act (as amended by the Affordable Care Act).

[2] Two of the new reasons for revocation have not yet been announced.  Placeholder slots remain open at 42 C.F.R. §424.535(a)(15) and (16).

[3] The definition of “operational” is set out at 42 C.F.R. §424.502.

[4] For additional information, please see CMS guidance titled Home Health Agencies (HHAs): Change of Address Notification of the Medicare Administrative Contractor (MAC).”

[5] See 42 C.F.R. §424.516(e)(2).

[6] The revocation reason “Abuse of Billing Privileges” was added to the existing list of revocation reasons that may be asserted by CMS effective February 3, 2015.  79 Fed. Reg. at 72,513 (adding paragraph (ii) to 42 C.F.R. § 424.535(a)(8)).

[7] While not explicitly stated, we suspect that this means that the so-called ordering physician had not billed Medicare for an Evaluation and Management (E/M) service in the course of caring for these 13 patients.

[8] Prior to the emergence of COVID-19, CMS had identified limited exceptions to this rule.  For example, under Maryland law, a nurse practitioner can provide primary care services.  Effective January 1, 2020, CMS allowed Medicare-enrolled nurse practitioners to certify home health services for Medicare beneficiaries as part of the Maryland Total Cost of Care (TCOC) Model. See MLM Matters Number MM 11330Additionally, as provided Section 3708 of the CARES Act, CMS is temporarily allowing a Medicare-eligible home health patient to be under the care of a nurse practitioner, clinical nurse specialist, or a physician assistant who is working in accordance with State law (for Medicare claims with a “claim through date” on or after March 1, 2020).  For additional information on the temporary regulatory waivers that CMS has implemented in response to COVID-19, see the agency’s guidance entitled “Home Health Agencies: CMS Flexibilities to Fight COVID-19,” issued September 8, 2020.

[9]Medicare, Medicaid, and Children’s Health Insurance Programs; Program Integrity Enhancements to the Provider Enrollment Process”

[10] See 42 C.F.R. §424.535(c)(1)(i).

[11] See 42 C.F.R. §424.535(c)(1)(ii).

Medicare Revocation Actions Resulting from Telemedicine Evaluations are on the Rise!

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Medicare Revocation Actions are Increasing Around the Country(September 25, 2020):  In recent years, many individuals (especially younger members of our work force) have embraced the chance to supplement their income through short-term engagements in the “gig economy.”  Notably, both professionals and non-professionals alike have found flexible, part-time opportunities online, allowing them to work remotely as independent contractors.  A number of physicians, nurse practitioners and physician assistants have taken advantage of the chance to participate in the gig economy, working virtually and providing telemedicine services for patients.  Unfortunately, many of these licensed professionals have conducted little or no due diligence into the companies engaging them to conduct evaluations by phone, video or asynchronously.  In some cases, the company engaging these licensed professionals to provide telemedicine evaluations has been alleged to have illegally funneled prescriptions issued by these professionals to third-party durable medical equipment (DME) suppliers.  Associated physicians, nurse practitioners and physician assistants (collectively referred to as “Telemedicine Providers”) have then found themselves subject to administrative sanctions, civil liability, and, in some case, criminal prosecution.  This article examines the Medicare revocation actions that have resulted from a Telemedicine Provider’s failure to provide access to documentation related to telemedicine services that are currently being pursued by Medicare Administrative Contractors (MACs) around the country.

I.  Overview of Statutory and Regulatory Concerns When Providing Telemedicine Evaluations:

With the advent of COVID, both governmental and private payors alike have supported the expansion of telehealth / telemedicine services.  Coverage and payment rules have been expanded by most payors and patients have welcomed the opportunity to be evaluated remotely by their caregiver.  Generally, the current wave of telemedicine related enforcement actions has been unrelated to the coverage expansions resulting from the spread of COVID.  The vast majority of Medicare revocation actions associated with improper telemedicine business practices have been related to pre-COVID conduct.   An overview of these improper telemedicine cases is provided below:

  • Intermediary marketing companies.  Over the last few years, licensed providers with prescribing authority have been actively recruited by an intermediary company[1] OR have responded to an online advertisement seeking to hire physicians, nurse practitioners or physician assistants to perform remote telemedicine evaluations. These companies essentially serve as middlemen – they are not typically participating providers or suppliers in the Medicare program.
  • Lists of beneficiaries to be evaluated remotely are assembled by the intermediary marketing companies. Using a variety of patient recruiting and screening methods, representatives of the intermediary marketing company will work to assemble a list of prospective beneficiaries who have expressed an interest in being evaluated for DME.  The intermediary marketing company then provides these beneficiary lists to Telemedicine Providers who have been engaged to conduct remote assessments and evaluations[2] of these individuals. After completing an evaluation, the Telemedicine Provider then decides whether it is medically necessary and appropriate to order DME for the beneficiary. Typically, the licensed providers have been paid a fixed amount of $25 — $30 for each telemedicine evaluation conducted.
  • Beneficiaries have no control of where an order or prescription is referred.  In the cases we have handled, orders for DME have NOT been issued to a supplier, pharmacy or testing laboratory selected by the patient.  Instead, the order has been directed by the intermediary marketing company to a particular supplier, pharmacy or testing laboratory with whom the company has a business relationship.[3]
  • Unified Program Integrity Contractors (UPICs) are using data mining to identify potentially fraudulent telemedicine business relationships.  Through an analysis of billing data, UPICs have noted that some DME suppliers have billed Medicare for items based on orders issued by a physician, nurse practitioner or physician assistant who did NOT bill Medicare for an associated Evaluation and Management (E/M) service, either directly or through an appropriate reassignment relationship.
  • UPIC requests for medical records have often gone unanswered or unfulfilled.  Both UPICs and a variety of state and federal law enforcement agencies around the country have been investigating questionable telemedicine related business relationships.  One of the essential steps in investigating the propriety of these claims has included an assessment of the beneficiary’s medical records, along with the telemedicine evaluation conducted.  These medical records and intake documents are often maintained by the intermediary marketing company and have not been downloaded or maintained by the ordering physician, nurse practitioner or physician assistant. Moreover, the contracts between the parties often prohibit the physician from retaining copies of documents. In several cases we have handled, the licensed provider’s relationship with the intermediary marketing company was terminated long ago and the provider no longer has access to the beneficiary records now being requested.
  • Telemedicine providers are often unaware that a marketing company is engaging in illegal kickback activities.  Licensed providers are not usually privy to the terms of any business relationship between an intermediary marketing company and an associated DME supplier.  Both UPICs and law enforcement agencies around the country are investigating these telemedicine related business relationships.

II. Medicare Revocation Actions Based on a Provider’s Failure to Provide Access to Documents are Being Pursued by CMS Around the Country:

The failure to respond or comply with a UPIC request for records is one of the many bases[4] that CMS may assert to revoke a provider’s enrollment in the Medicare program, along with any corresponding provider agreement. As provided by 42 C.F.R. § 424.535(a)(10):

Ҥ 424.535 РRevocation of enrollment in the Medicare program.

(10) Failure to document or provide CMS access to documentation. (i) The provider or supplier did not comply with the documentation or CMS access requirements specified in § 424.516(f). . .”

As 42 C.F.R. § 424.516(f) provides:

  • 424.516 – Additional provider and supplier requirements for enrolling and maintaining active enrollment status in the Medicare program.

“(f) Maintaining and providing access to documentation. (1)(i) A provider or a supplier that furnishes covered ordered, certified, referred, or prescribed Part A or B services, items or drugs is required to –

(A) Maintain documentation (as described in paragraph (f)(1)(ii) of this section) for 7 years from the date of service; and

(B) Upon the request of CMS or a Medicare contractor, to provide access to that documentation (as described in paragraph (f)(1)(ii) of this section).

(ii) The documentation includes written and electronic documents (including the NPI of the physician or, when permitted, other eligible professional who ordered, certified, referred, or prescribed the Part A or B service, item, or drug) relating to written orders, certifications, referrals, prescriptions, and requests for payments for Part A or B services, items or drugs.

(2)(i) A physician or, when permitted, an eligible professional who orders, certifies, refers, or prescribes Part A or B services, items or drugs is required to

(A) Maintain documentation (as described in paragraph (f)(2)(ii) of this section) for 7 years from the date of the service; and

(B) Upon request of CMS or a Medicare contractor, to provide access to that documentation (as described in paragraph (f)(2)(ii) of this section).

(ii) The documentation includes written and electronic documents (including the NPI of the physician or, when permitted, other eligible professional who ordered, certified, referred, or prescribed the Part A or B service, item, or drug) relating to written orders, certifications, referrals, prescriptions or requests for payments for Part A or B services, items, or drugs.” (emphasis added).

III.  Medicare Revocation Actions for the Failure to Provide Medical Records Have Typically Sought a 10-Year Re-Enrollment Bar.

CMS extended the maximum re-enrollment bar that can be applied after a revocation from three years to ten years through a Final Rule, which was published on September 10, 2019 and became effective November 4, 2019.[5]  Although a 10-year re-enrollment bar is supposed to be reserved for cases involving serious misconduct, CMS has been actively seeking a 10-year re-enrollment bar in cases where the basis for exclusion is the failure to provide access to documentation.[6]

  • What is the impact of a Medicare revocation action?  The imposition of a 10-year re-enrollment bar can effectively destroy a health care provider’s practice.  Moreover, it will likely limit a provider’s employment options.  Additional potential consequences of having your Medicare enrollment revoked are discussed below.
  • Depending on the facts, the role you played in a telemedicine fraud case may result in a referral to the U.S. Department of Justice (DOJ) for investigation and possible prosecution. Since 1994, CMS has participated in an interagency agreement with the DOJ which allows CMS program integrity contractors (in this case, UPICs) to send health care fraud referrals directly to the DOJ without having to first route the referral through the Office of Inspector General (OIG).  Your involvement in a telemedicine related fraud case will be carefully evaluated.  For instance, did you actually conduct evaluations by phone, video or asynchronously OR did you perform an evaluation based solely on the medical information and intake documents provided to you by an intermediary marketing company?
  • You will be likely be barred from enrolling in the Medicare program for a period of 10 years. In light of the cases we have handled since the issuance of the November 4th Final Rule, it appears to be CMS’s policy to seek to impose a 10-year enrollment bar in revocation cases based on a violation of 42 C.F.R. § 424.535(a)(10).
  • You will likely be placed on Medicare’s “Preclusion List.” Individuals and entities that have been revoked from Medicare, are under an active reenrollment bar, AND CMS has determined that the underlying conduct that led to the revocation is detrimental to the best interests of the Medicare program may qualify to be placed on the Medicare Preclusion List.  The Preclusion list is made available to Medicare Advantage and Part D plans.   If placed on the Preclusion List, an individual or entity will not be permitted to enroll in the Medicare Part C or Part D programs.
  • A Medicare revocation action may result in the revocation of your enrollment as a provider in your state’s Medicaid program. Using Texas as an example, Rule § 371.1703(a) of the Texas Administrative Code provides that:

“(a) The OIG may terminate the enrollment or cancel the contract of a person by debarment, suspension, revocation, or other deactivation of participation, as appropriate. The OIG may terminate or cancel a person’s enrollment or contract if it determines that the person committed an act for which a person is subject to administrative actions or sanctions. . . .

(b)(7) a provider that is terminated or revoked for cause, excluded, or debarred under Title XVIII of the Social Security Act or under the Medicaid program or CHIP program of any other state;[7]

  • A Medicare revocation action will result in a report being sent to the National Practitioner Databank (NPDB). As the NPDB Guidebook[8] notes, “formal or official actions such as revocation of suspension of a license, certification agreement, or contract for participation in government health care programs; reprimand; censure; or probation,” is considered to be a final adverse action and must be reported by a Federal agency.
  • A report to the NPDB may result in an investigation by your State Medical Board. A revocation action based on your failure to provide records to a UPIC may generate a collateral investigation by your state licensing board since you are likely required to maintain adequate patient records.  For instance, under Rule § 165.1(a) of the Texas Administrative Code, a licensed physician is required to maintain an “adequate medical record” for each patient that is complete, contemporaneous and legible.  Your failure to maintain a copy of the records you reviewed when making a telemedicine evaluation may constitute a violation of your obligations under the Texas Medical Practice Act. As such, you may be subject to disciplinary action.
  • A Medicare revocation of your billing privileges may result in the termination of your hospital credentialing. Many hospitals require that a physician, nurse practitioner or physician assistant be enrolled in the Medicare program (or at the very least, be eligible to enroll in the Medicare program), in order to be credentialed and granted privileges.  If you have been barred from enrollment in Medicare, you may not be eligible to obtain privileges at a hospital.
  • Termination from commercial payor agreements. Unfortunately, Medicare revocation actions are often used by commercial payors as a basis for terminating a provider from their plan.
  • Loss of employment. The collateral consequences of a Medicare revocation action can greatly limit your ability to work for a practice or entity that treats Medicare and Medicaid patients.   As a result, you may be terminated from employment.

IV.  Responding to a UPIC Request for Records:

We cannot overemphasize the seriousness of a UPIC request for records, especially when those records are related to your telemedicine evaluation of a patient’s DME needs.  Remember – UPICs are tasked with identifying suspected cases of fraud and abuse being committed against the Medicare and Medicaid programs.   Should you fail to provide records requested by a UPIC, the proposed revocation of your Medicare billing privileges may be the least of your problems.  Therefore, it is essential that you engage qualified health law counsel to represent you and guide you through this administrative process.  Liles Parker attorneys have extensive knowledge of the Medicare revocation process and have successfully represented multiple physicians and nurse practitioners in the appeal of a proposed revocation action, including those involving failure to respond to a records request.  For a free consultation, give us a call.  We can be reached at: (202) 298-8750.

Robert W. Liles defends health care providers in Medicare auditsRobert W. Liles serves as Managing Partner at the health law firm, Liles Parker, Attorneys and Counselors at Law.  Liles Parker attorneys represent physicians, NPs and PAs in connection with Medicare revocation actions, administrative audits (UPIC audits / private payor audits), civil False Claims Act cases, and criminal violations of the Federal Anti-Kickback Statute and EKRA.  Are you currently being audited or under investigation?  We can help.  For a free initial consultation regarding your situation, call Robert at: 1 (800) 475-1906.

[1]  Often the companies identify themselves as “locum tenens” agencies, or “telemedicine providers.” Most have a contract the physician signs that (1) doesn’t permit the physician to retain any patient records, and (2) requires the physician to agree not to file any claims or bill the patient.

[2] A variety of telemedicine compliance issues arise at this stage of the agreement.  Many times, the physician does not directly speak with the patient.  The physician’s agreement with the intermediary may say that the physician is supposed to conduct their telemedicine services “in compliance with their state licensing law” but most physicians have no idea what their state law requires.

[3] Licensed providers are not usually privy to the terms of any business relationship between a telemedicine marketing company and an associated DME supplier, compound pharmacy or testing laboratory.

[4] For an overview of the various reasons that a provider’s Medicare enrollment and billing privileges may be revoked, please see our article titled 42 CFR Sec. 424.535(a) Medicare Revocation Actions — Your Medicare Billing Privileges Can be Revoked For a Host of New Reasons. Are You Facing a Medicare Revocation Action? If so, You Must Act Fast to Preserve Your Appeal Rights.(March 9, 2020).

[5] See Medicare, Medicaid, and Children’s Health Insurance Programs; Program Integrity Enhancements to the Provider Enrollment Process, 84 Fed. Reg. 47794 (Sep. 10, 2019).

[6] See 42 C.F.R. § 424.535(a)(10).

[7] Title 1, Part 15, Rule § 371.1703(a) of the Texas Administrative Code, “Termination of Enrollment or Cancellation of Contract.”

[8] NPDB Guidebook (October 2018), (Page E-81).

Sober Home and Recovery Residence Fraud Enforcement Efforts are on the Increase – Are Your Sober Home Business Practices Legal?

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(September 12, 2020):  This has been a rough year for sober home and recovery residence owners, operators and their health care business partners. Literally everyone has been adversely impacted by the public health crisis generated by the rapid spread of COVID-19. While most health care and providers obtained a temporary reprieve from, Medicare, Medicaid and private payor administrative audits[1], many state and federal law enforcement agencies (such as the Federal Bureau of Investigation (FBI), the Department of Health and Human Services, Office of Inspector General (OIG), state Medicaid Fraud Control Units (MFCUs) have continued to investigate allegations of wrongdoing against sober home and recovery residence owners, operators, managers and their health care business partners.  Moreover, these investigative agencies have continued to make referrals to federal and state prosecutors for possible civil and / or criminal enforcement.  This article provides a review of the government’s sober home and recovery residence prosecution efforts and examines the current enforcement landscape.

I.  Alcohol and Drug Addiction Treatment Industry Overview:

The care and treatment of individuals with alcohol and drug abuse issues is estimated to cost $42 billion in 2020.  More than 14,000 treatment and aftercare facilities current treat more than 3.7 million individuals in the United States.[2]  With the expansion of insurance eligibility under the Affordable Care Act,[3] the number of individuals who covered by health insurance has continued to grow over the last decade.

A broad continuum of care is available to individuals seeking treatment for alcohol and drug addiction and dependency issues.  The most intensive level of care is typically provided in an inpatient setting.  Patients residing in inpatient treatment centers are often still dependent on alcohol or drugs and need the intensive level of care to complete a supervised detoxification (detox) program.[4]  After successfully completing a supervised detox program, these individuals are typically discharged from an inpatient treatment facility to a lower level of care such as afforded in a Partial Hospitalization Program (PHP), Intensive Outpatient Program (IOP),[5] or Outpatient Program (OP).  Individuals being treated on an outpatient basis (whether PHP, IOP or OP) often elect to live in a drug and alcohol-free group home or similar facility with other individuals going through recovery.  These supportive, drug and alcohol-free facilities are often referred to as a:

  • Sober Home.
  • Halfway House.
  • Recovery Residence.

In this article, we will collectively refer to the three recovery facilities listed above as a sober home or recovery residence. These facilities are primarily group homes and residential facilities comprised of individuals with a shared history of alcohol or drug abuse who are now in recovery.  Individuals who reside in a sober homes or a recovery residence typically pay rent to live in this supportive, group setting.

II.  Sober Home and Recovery Residence Business Relationships Can Lead to Violations of the Anti-Kickback Statute or the Eliminating Kickbacks in Recovery Act:

Living in a sober home or recovery residence has traditionally served as an essential step in the drug and alcohol recovery process.  While most sober homes do not directly provide and bill insurance for clinical services, the residents of a sober home or recovery residence have a number of ongoing primary care and drug screening needs that must be met.  For instance, recurrent laboratory testing may be needed to verify that a resident is, in fact, remaining alcohol and drug free.  A number of sober homes have therefore engaged a licensed physician to serve as the facility’s Medical Director to oversee and order periodic drug screening tests to verify an individual’s compliance with the rules.[6]  Drug screening tests (such as a urinalysis) conducted on insured patients are then billed by the testing In addition to engaging a Medical Director, a sober home may also establish a business relationship with a testing laboratory and with other types of medical providers (such therapists, counselors, DME suppliers).  When a sober home’s Medical Director orders drug screening for residents, it isn’t unusual for a favored testing laboratory to collect blood and urine samples from residents at their sober home.   Physicians, testing laboratories and other health care providers and suppliers would then bill a sober home resident’s insurance company (such as Medicare, Medicaid, TriCare, FEHBP, Railroad Retirement or a private payor).[7]   Unfortunately, this is where the sober home business model typically runs afoul of state and federal regulatory and statutory requirements. Depending on the facts, the conduct could represent a violation of the federal Anti-Kickback Statute.

Kickbacks arrangements between referring sober homes / recovery residences and testing laboratories are problematic even if only private payors are affected by the improper conduct.  Under the Eliminating Kickbacks in Recovery Act (EKRA)(covered in section 8122 of “The Substance Use-Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and Communities Act” (SUPPORT Act)), it is unlawful to solicit, receive or pay any remuneration (including any kickback, bribe or rebate) directly or indirectly, in return for referring a patient or patronage to a recovery home, clinical treatment facility or laboratory. This is intended to address a number of opioid related issues and it extends these prohibitions to services covered by a private payers as Medicare, Medicaid and other government programs. In addition, since the language of the act is very broad and the term laboratory is not limited to just those laboratories associated with substance abuse services, enforcement actions under EKRA could potentially reach laboratories outside the scope of substance abuse treatment. It could also implicate sales and marketing procedures that have been standard components of many laboratory business models and criminal sanctions under EKRA include fines up to $200,000 and up to 10 years imprisonment for kickbacks with respect to services covered by any type of health care benefit program in or affecting interstate or foreign commerce.

III. Sober Home / Recovery Home Risk Areas:

In recent years, federal auditors have dedicated considerable resources to their assessment of sober homes and recovery residence.  As the Government Accountability Office (GAO) found, the national prevalence of sober homes (referred to as “recovery residences” in GAO’s report) is unknown because there is not comprehensive data that can be relied on to arrive at this figure.[8] The GAO found that four of the five states it reviewed had conducted (or were in the process of conducting) law enforcement investigation of:

“unscrupulous behavior and potential insurance fraud related to recovery homes and outcomes of some of these investigations included criminal charges and changes to health insurance policies.”[9]

While not exhaustive, there are a number of common regulatory fraud risk areas that have been identified by state and federal investigators and prosecutors when investigating treatment centers, sober homes and recovery residences.  For example:

Fraudulent Coding. (Massachusetts Medicaid False Claims Act — M.G.L.c. 118E, § 21A ET SEQ.).  In this Massachusetts case, a physician and his addiction treatment clinic have been indicted for allegedly committing health care fraud against MassHealth, the state’s Medicaid program.  One of the allegations is that the physician billed for the administration of Vivitrol and was able to circumvent the limits on Vivitrol reimbursement by coding some of the Vivitrol treatments as chemotherapy treatments rather than as a treatment to prevent a relapse associated with alcohol or drug abuse.   The government has not detailed how the defendants were able to get past the Medicaid payment restrictions.

Patient Brokering. (Massachusetts “All-Payor” State Anti-Kickback Statute — G.L.c. 175H, §3)(Federal Anti-Kickback Violations — 42 U.S.C. § 1320a-7b(b)(1)(A): When investigating allegations of “patient brokering,” a representative of the Massachusetts Attorney General’s Office testified before Congress that the AG’s Office had been receiving reports that state residents have been lured to out-of-state addiction treatment providers by paid recruiters who promised them free travel to an addiction treatment center in a warm-weather state. When the patients discovered that the treatment they were to receive was low quality or nonexistent, they were often left thousands of miles from home with no health insurance, no access to the medical care they needed, and no resources to return home. In the most tragic cases, these young people suffered fatal overdoses following their continued opioid use without treatment.”[10]  As a result, the Massachusetts AG’s Office opened criminal investigations into addiction treatment fraud and issued a Consumer Advisory, alerting patients and their families that they should be wary of unsolicited offers for free out-of-state addiction treatment.

Illegal Business Relationships (Involving Claims Submitted to Federal / State Payors). (Federal Anti-Kickback Violations — 42 U.S.C. § 1320a-7b(b)(1)(A)).[11]: Generally, sober home and recovery residences do not qualify as health care providers or suppliers and are unable to be credentialed and participate in health benefits programs.  As a result, they cannot bill insurance payors. Some sober home and recovery residence owners and operators have entered into unscrupulous, often illegal referral business relationships with physicians, nurse practitioners, physician assistants, testing laboratories, and others. In exchange for the referral of their residents for medical and clinical services (often in the form of drug screen testing), sober home and recovery home owners, operators (and affiliated Medical Directors) have received a “referral fee” or kickback from the servicing health care provider or supplier who then bills the resident’s insurance company for payment.

Illegal Business Relationships (Involving Submitted to Private Payors).  (Illegal remunerations for referrals to recovery homes, clinical treatment facilities, and laboratories — 18 U.S.C. § 220): Despite the fact that EKRA has now been in place for almost two years,  only a handful of cases have been prosecuted under EKRA.  While illegal sober home conduct was not cited, a recent EKRA case out of the District of New Jersey did allege that a drug treatment center illegally paid a marketing company for patient referrals. To identify patients, the marketing company used a nationwide network of recruiters who were instructed to identify individuals addicted to alcohol or drugs AND were covered under a health care benefit program.  The drug treatment center allegedly paid the marketing company approximately $5,000 for each referral.  The marketing company then supposedly paid a percentage of the referral funds received to its recruiters.  Notably, the government alleged that the drug treatment facility tried to disguise the kickbacks as a “monthly fee” paid to the marketing company.  

Business Relationships Resulting in the Violation of the Health Care Fraud and Anti-Kickback Statutes. (Conspiracy to Commit Health Care Fraud — 18 U.S.C. §1349).[12] In this recent case a multi-agency task force[13] investigated the business practices of a Florida osteopathic physician in his role as “Medical Director” for more than 50 addiction treatment facilities and sober homes.  Unlike most relationships where a physician has been engaged to serve as Medical Director, the physician in this case was paid only a nominal salary.  Instead, federal prosecutors have alleged that the physician benefited from the relationship by getting access to a “stable” of insured addiction treatment patients residing in sober homes and addiction treatment centers.   As Medical Director, the physician in this case is alleged to have signed more than 136 standing orders for medically unnecessary urinalysis tests.  These urinalysis tests were processed by testing laboratories that sometimes paid kickbacks to referring sober homes and addiction treatment centers.  As the Criminal Complaint states:  “In addition, the entire referral network made possible by [Medical Director] authorizing such false and fraudulent testing for these addiction treatment centers, sober homes, and testing laboratories by his signing of standing orders often facilitated kickback relationships between these parties and individual recruiters or brokers for these entities, as the sober home and treatment center owners (through these brokers) received kickbacks from the owners and operators of the laboratories in return for sending specimens their way for testing.”  Ultimately, the government has further alleged the standing orders signed by the government resulted in the improper billing of hundreds of millions of dollars of medically unnecessary urinalysis tests and other fraudulent treatments.  Finally, prosecutors have claimed that the defendant Medical Director did not meaningfully review the results of the tests he ordered.  The government has estimated that the fraudulent conduct resulted in approximately $681 million for urinalysis laboratory tests and other medical services billed to the Medicare program and to private payors.  Of this total, approximately $121 million was paid to government and private payors.  The defendant physician (serving as Medical Director) is currently charged with Conspiracy to Commit Health Care Fraud and Wire Fraud (18 U.S.C. §1349).  The government has also filed a Criminal Forfeiture (18 U.S.C. §982(a)(7) count against the physician in an effort to recover to losses incurred by federal health care benefit programs due to the fraud.

Ordering of Medically Unnecessary Controlled Substances.Distributing Controlled Substances Without a Legitimate Medical Purpose. (21 U.S.C. § 841(a)(1).[14]  In a recent Florida case, an internal medicine physician and a licensed mental health counselor were indicted for their roles[15] in the distribution of controlled substances that were not medically necessary and had no legitimate medical purpose.  As the indictment statement, the defendant physician knowingly and intentionally distribute and dispense outside the scope of professional practice and not for a legitimate medical purpose, a controlled substance.”

Aiding or Abetting in the Performance of Illegal Conduct(Principals — 18 U.S.C. § 2).  In the same Florida case discussed above, a licensed mental health counselor was implicated in the illegal dispensing conduct of the principal offender, the ordering physician.

Wrongfully Prescribing Controlled Substances After a Medical License or Controlled Substance Registration has been Suspended(Conspiracy to Unlawfully Distribute a Schedule III Controlled Substance — 21 U.S.C. 846).[16]   In one case, a physician employed as the Medical Director at a substance abuse treatment center was charged by indictment with one count of conspiracy to distribute controlled substances in relation to his employment at the center. While serving as Medical Director, his medical license was suspended.  Nevertheless, the physician continued to prescribe controlled substances for individuals at the treatment center over a five-month period.

IV.  Conclusion:

The business practices of sober homes and recovery residences are under microscope.  It is therefore essential that you carefully review your business relationships and practices to ensure that you are complying with state and federal regulations and statutes.  Steps you can take include, but are not limited to:

Develop and implement an effective Compliance Program for your sober home / recovery residence.

Properly train your staff on their duties and obligations under the law.

Exercise caution before entering into any business relationships with drug treatment centers, physicians, DME companies, and other entities to whom your sober home / recovery residence may make referrals.  Additionally, watch our for marketing companies who may want to send you possible patient referrals.  Contact your attorney before entering into these relationships! 

Conduct a GAP analysis of your business practices.

DOJ is holding owners, operators and management officials to a level of responsibility consistent with their position in the organization.

Educate your owners, operators and managers regarding the “Yates Memo” and DOJ’s interest in individual accountability.

Have your contracts and agreements reviewed by health law counsel before executing the documents.

Finally, if you or your sober home / recovery residence is ever investigated, it is critical that you engage qualified health law counsel to represent your interests. Need assistanceGive us a call for a free consultation:  1 (800) 475-1906.

Robert W. LilesRobert W. Liles serves as Managing Partner at the health law firm, Liles Parker, Attorneys and Counselors at Law.  Liles Parker attorneys represent individuals and entities around the country in connection with administrative audits (UPIC audits / private payor audits), civil False Claims Act cases, and criminal violations of the Federal Anti-Kickback Statute and EKRA.  Are you currently being audited or under investigation?  We can help.  For a free initial consultation regarding your situation, call Robert at: 1 (800) 475-1906.

[1] On March 30, 2020, the Centers for Medicare and Medicaid Services (CMS) suspended most Medicare Fee-For-Service (FFS) medical reviews because of the COVID-19 pandemic. Many private payors also curtailed their audit activities for several months.

[2] The U.S. Addiction Rehab Industry (January 2020).  A summary of this report can be found at: https://www.marketresearch.com/Marketdata-Enterprises-Inc-v416/Addiction-Rehab-12943155/?progid=91619

[3] The Affordable Care Act was enacted on March 23, 2010. Pub. L. 111- 148.

[4] When an individual stops using drugs or taking alcohol, detoxification (commonly referred to a “detox”) occurs.  Detox is essentially the process of allowing drugs and alcohol to be removed or flushed out of an individual’s body.  Inpatient detox programs are designed to medical and mental support to an individual while he / she goes through the withdrawal process.

[5] Under the guidelines issued by U.S. Department of Health and Human Services, Substance Abuse and Mental Health Services Administration, Center for Substance Abuse Treatment (SAMHSA) and the American Society of Addiction Medicine (ASAM), Intensive Outpatient Programs (IOPs) are formal abuse treatment programs that are required to be overseen by a qualified medical professional, and to have a formal treatment plan to be used in the patient’s care.

[6] A sober home’s Medical Director may also offer primary care services to residents.

[7] Both governmental and private payor health plans qualify as “health care benefit programs” under 18 U.S.C. §24(b).

[8] Government Accountability Office (GAO) report entitled “SUBSTANCE USE DISORDER – Information on Recovery Housing Prevalence, Selected States’ Oversight, and Funding.” (GAO-18-315) (March 2018, Page 6).  https://www.gao.gov/assets/700/690831.pdfA representative of GAO was subsequently asked to testify before the Committee on Finance, United States Senate on October 24, 2019 (GAO-20-214T). GAO’s report on this testimony is available at:  https://www.gao.gov/assets/710/702271.pdf

[9] GAO-18-315, page 7.

[10] Hearing Before the Subcommittee on Oversight and Investigations of the Committee on Energy and Commerce, House of Representatives, Testimony of Eric M. Gold. Serial No. 115-87, (December, 12, 2017).

[11] Federal Anti-Kickback Violations, 42 U.S.C. § 1320a-7b(b)(1)(A.

[12] Attempt and Conspiracy, 18 U,S,C, §1349.

[13] Comprised of the FBI, the Drug Enforcement Administration (DEA), and the Internal Revenue Service – Investigative and Forensic Service (IRS).

[14] See 21 U.S.C. § 841(a)(1).

[15] In this case, the licensed mental health counselor was implicated in the illegal dispensing conduct through the operation of 18 U.S.C. §2.  As the statutory provision provides:

“(a) Whoever commits an offense against the United States or aids, abets, counsels, commands, induces or procures its commission, is punishable as a principal. 

(b) Whoever willfully causes an act to be done which if directly performed by him or another would be an offense against the United States, is punishable as a principal.”

Aider and abettor liability is distinct from accessory after the fact under 18 U.S.C. § 3. An aider and abettor, unlike an accessory after the fact, is punishable as a principal.

[16] See 21 U.S.C. 846