Sixth Circuit Reverses $82 Million Judgment Against Dialysis Provider – On October 5, 2012, the Sixth Circuit held that a dialysis provider’s attempts to comply with ambiguous federal regulations regarding Method I and Method II reimbursements did not violate the False Claims Act. United States v. Renal Care Group, Inc., 6th Cir., No. 11-5779, Oct. 5, 2012. The court’s decision focused on whether Renal Care Group’s (RCG) wholly-owned subsidiary Renal Care Group Supply Company (RCGSC) was a separate entity for purposes of Method II reimbursement and whether the defendants acted with reckless disregard of Medicare regulations in submitting Method II claims.
RCG operates dialysis facilities and provides dialysis supplies and services to home dialysis patients with end stage renal disease, while RCGSC supplies only dialysis equipment to home dialysis patients. Medicare reimburses dialysis facilities for all dialysis services, including home dialysis, under Method I reimbursement, a “uniform composite weighted payment.” Pub. L. No. 97-35, § 2145(a), 95 Stat. 357, 799-800 (1981). Method II reimbursement applies to independent companies that provide only equipment and supplies to home dialysis patients, such as RCGSC. Method II payments are based on fee-for-service and are generally more expensive than Method I reimbursements. See H.R. Conf. Rep. No. 101-386, reprinted in 1989 U.S.C.C.A.N. 3018, 3429. 42 U.S.C. § 1395rr(b)(4)(B) further restricts Method II reimbursements to suppliers who are “not under the direct supervision of an approved provider of services or renal dialysis facility.” The purpose of this bifurcated scheme is to provide patients with a range of providers and the opportunity to engage in cost comparisons, while still having the option of home support services if needed.
In concluding that RCGSC was not the alter ego of RCG, the court focused on the fact that federal regulations suggest “an organization can be controlled by another and yet still be considered an ‘entity’ for purposes of Method II reimbursement.” The court did not see any reason to punish a business simply for “seeking to maximize profits,” especially if the purposes behind the reimbursement schedules were not compromised. In addition, the court noted that RCG and RCGSC had not acted in reckless disregard of the Method I and II regulations. Specifically, the defendants sought legal counsel and clarification on the rules from CMS, with a positive response regarding the organizational structure from the government, and had disclosed RCGSC’s ownership structure to the OIG and CMS. Finally, RCGSC was separately incorporated with its own Medicare supplier number, showing an attempt to comply with the separate entity requirement. The court emphasized that the limited duty to inquire need only be “reasonable and prudent under the circumstances.” S. Rep. 99-345, at 21, U.S.C.C.A.N. 5266, 5286. Accordingly, the court concluded there was no evidence of a violation of the False Claims Act. The opinion is available here.
Reporter, Paige Fillingame, Houston, +1 713 615 7632, pfillingame@kslaw.com.
OIG Roundtable on Corporate Integrity Agreements – On October 9, 2012, HHS-OIG released a summary report of its August 7, 2012 roundtable concerning corporate integrity agreements (CIAs). Representatives from 32 companies that have entered into CIAs since 2009 attended the roundtable, the purpose of which was to solicit feedback from the representatives regarding their compliance “best practices” and their efforts to implement the requirements of their CIAs. According to the summary report, the “OIG will consider the feedback when deciding what terms to include in future CIAs.”
Among the topics discussed at the roundtable were: (1) the definitions of “covered persons” and “relevant covered persons” and CIA requirements relating to a code of conduct, compliance policies and procedures, and training and education; (2) the role of the compliance officer, the board of directors and internal auditing; (3) claims review requirements; and (4) arrangements review requirements. The October 9 summary will be the only report issued concerning the roundtable and can be accessed by clicking here.
Reporter, Lora L. Greene, New York, +1 212 556 2174, lgreene@kslaw.com.
Supreme Court Will Not Review Sixth Circuit Ruling That Government May Seek Full Reimbursement of Medicare Payments to Beneficiary Who Settled With Third-Party Tortfeasor – On October 1, 2012, the United States Supreme Court said it would not review a decision by the U.S. Court of Appeals for the Sixth Circuit which ruled 2-1 that, upon settlement by a Medicare beneficiary with a third-party tortfeasor, the government has authority under the Medicare Secondary Payer Act (MSPA) to recover against the beneficiary for expenses that Medicare had paid on his behalf separate and distinct from its rights of subrogation. See Hadden v. United States, 661 F.3d 298, 304 (6th Cir. 2012), cert denied Oct. 1, 2012.
This case stemmed from injuries sustained when Mr. Hadden was hit in Kentucky by a truck owned by Pennyrile Rural Electric Cooperative Cooperation. As a result of this accident, Mr. Hadden sued Pennyrile. The parties settled for $125,000. Prior to the settlement, Mr. Hadden was treated for widespread injuries from the accident and Medicare conditionally paid his medical bills, totaling $82,036, pursuant to the MSPA. See 42 U.S.C. §1395y(b)(2)(B)(i) (Medicare may pay a beneficiary’s expenses if the responsible entity will not promptly pay); 42 U.S.C. §§1395y(b)(2)(B)(ii) & (iii) (when a beneficiary receives a third-party settlement, Medicare may seek reimbursement). As a result, Medicare sought full reimbursement of the $82,036, but Mr. Hadden paid the amount under protest and pursued an administrative appeal, arguing that because his settlement covered only ten percent of his total damages, he should only be required to repay ten percent of Medicare’s claim. This argument was rejected by both the Medicare Appeals Council and a federal trial court.
The Sixth Circuit, in upholding the lower court and Medicare Appeals Council rulings, held that the Medicare statute provides for full reimbursement upon a settlement resolving a claim, even if the party thinks the settlement was only a partial recovery. The Sixth Circuit held that §1395y(b)(2)(B)(ii) provides that “an entity that receives payment” shall reimburse” Medicare “if it is demonstrated that such primary plan” “has or had a responsibility to make payment.” See Hadden, 661 F.3d at 302.
The petition for certiorari, filed March 30, 2012, argued that Supreme Court review was necessary because of a split in the circuits. In his petition, Mr. Hadden argued that the Sixth Circuit misinterpreted the MSPA and issued a decision conflicting with a ruling by the U.S. Court of Appeals for the Eleventh Circuit in Bradley v. Sebelius, 621 F.3d 1330 (11th Cir. 2010). Further, Mr. Hadden claimed the Sixth Circuit ruling was also incompatible with the Supreme Court’s decision in Arkansas Dep’t. of Health & Human Svcs. v. Ahlborn, 547 U.S. 282 (2006), in which the Supreme Court rejected Arkansas’ efforts to recover its Medicaid costs from a third-party settlement.
According to amicus briefs filed pursuant to the petition for cert, the Supreme Court’s refusal to hear this case “will frustrate settlements and increase litigation costs unnecessarily in the more than 400,000 cases involving MSP claims that otherwise would be expected to settle annually,” and will “will clog the courts with litigation that the parties might have been willing to settle and actually leave the federal government with less than it would have received if it had agreed to accept a proportionate share of the beneficiary's recovery.” See Supreme Court Lets Stand Appellate Ruling Refusing to Limit MSP Settlement Recoveries, Peyton M. Sturgess, BNA’s Medicare Report, Oct. 5, 2012, available here.
Reporter, Katy Lucas, Atlanta, +1 404 572 2822, klucas@kslaw.com.
This bulletin provides a general summary of recent legal developments. It is not intended to be and should not be relied upon as legal advice.
>> Back to Top
