News & Insights


June 6, 2016

Health Headlines – June 6, 2016


U.S. Supreme Court To Decide Consequences Of Relator Violating Seal Requirement In Qui Tam Cases -- Last week the United States Supreme Court granted certiorari in State Farm Fire and Casualty Co. v. USA, ex rel. Rigsby, Case No. 15-513, to resolve a circuit split regarding the consequences of a qui tam relator violating a seal in a qui tam False Claims Act (FCA) case.  Specifically, the Supreme Court will resolve a three-way split among the circuits regarding the standard that should be applied in determining whether a qui tam case should be dismissed if the relator violates the seal.

In Rigsby, the Fifth Circuit adopted the standard used by the Ninth Circuit to decide whether to dismiss the case when a relator violates the seal.  That standard employs a balancing test pursuant to which courts will dismiss the case only if the seal violation results in actual harm to the Government. 

On the other extreme, the Sixth Circuit has held that dismissal is mandated any time a relator violates the seal.  The Second and Fourth Circuits are somewhere in the middle, finding dismissal is mandated if the seal violation incurably frustrates the congressional goals served by the seal requirement.  And while the Court granted certiorari to answer that question, it refused to review the second question in State Farm’s cert petition, also presenting a circuit split, regarding interpretation of the FCA’s scienter requirement.

At the request of the Court, the United States Solicitor General submitted on behalf of the Government an amicus brief on the question of whether the Fifth Circuit’s ruling warrants review.  In the view of the Government, the Fifth Circuit’s decision that a violation of the FCA seal requirement does not mandate dismissal was correct.  The Solicitor General’s amicus brief reasoned that the Fifth Circuit’s “holding is consistent with Section 3730(b)(2)’s text and purpose, and with the background understanding that courts ordinarily possess broad discretion to determine the appropriate sanction for violations of similar procedural requirements.”  Despite the position of the Government, the Court granted review. 

State Farm’s petition for certiorari is available here. The Government’s amicus brief is available here.  The Fifth Circuit’s decision is available here.

Reporter, Scott Cameron, Sacramento, CA, +1 916 321 4807,

Court Orders Cigna to Pay Out-of-Network Surgical Claims -- On June 1, 2016, the United States District Court for the Southern District of Texas ordered Cigna to pay nearly $13.7 million to Humble Surgical Hospital, LLC (“Humble”).  Of the nearly $13.7 million, almost $11.4 million was for payment of out-of-network services provided by Humble.  The other $2.3 million was for Cigna’s bad faith and breach of fiduciary duties, together with attorney’s fees, pursuant to ERISA and Declaratory Judgment Act, for its failure to provide plan documents to Humble as the plan administrator under ERISA.  In the claims at issue, Cigna acted as an administrator for ERISA welfare benefit plans.

Humble opened in August 2010 as an out-of-network physician-owned hospital, but the physicians who performed surgeries at Humble and referred patients to Humble were typically in-network.  From August 2010 until October 2010, Cigna processed most of Humble’s claims through repricing entities based on negotiated repricing agreements between Humble and the entities.  The repricing entities generally negotiated Humble’s claims based on the usual and customary rate (“UCR”).  However, in October 2010, Cigna determined that Humble’s claims were for exceedingly large dollar amounts and redirected incoming Humble claims to its Special Investigations Unit (“SIU”) to be processed and paid.  Cigna justified this action by alleging that Humble’s claims were inflated to hide kickback payments to physicians and that Humble was consistently waiving the patients’ cost-sharing responsibilities for the services provided.  Thus, apparently from December 2010 to April 2014, Humble’s claims remained largely unpaid in the SIU. 

Cigna initially filed the lawsuit on November 7, 2013, against Humble.  Cigna sought recovery of overpayments in $5,121,137 that Cigna alleged resulted from Humble’s fraudulent practices of routinely waiving patients’ financial responsibility and paying kickbacks to physician owners of the hospital for allwaivinegedly unlawful referrals.  Cigna alleged claims for equitable relief under ERISA § 502(a)(3) based on lien by agreement, the “tracing” method, injunction, declaratory judgment and state law.  Cigna further alleged claims for fraud, negligent misrepresentation and violation of the state’s anti-kickback statutes. 

Humble filed a counterclaim seeking to recover payment on 595 claims for services provided to patients under plans administered by Cigna beginning October 2010 until March 25, 2014.  Humble alleged that as the patients’ assignee, it was entitled to reimbursement for services provided to patients pursuant to ERISA.  Humble sought a declaratory judgment that it properly submitted all claims to Cigna, did not engage in fraud or misrepresentation in seeking benefits from Cigna, billed Cigna properly pursuant to the UCR or Cigna’s maximum reimbursable charge formulation (“MRC”), properly disclosed its out-of-network status to prospective patients and was entitled to a full and fair review of its claims.

In its June 1 ruling, the District Court held that Cigna’s claims for reimbursement of overpayments under ERISA and common law failed as a matter of law and that Cigna’s defenses to Humble’s counterclaims failed.  The Court also held that Humble was entitled to a declaratory judgment under ERISA § 502(a)(3)(b), damages under ERISA § 502(a)(1)(B) because Cigna abused its discretion “in its unwarranted interpretation of the MRC and/or terms of the plans” and penalties under ERISA § 502(c)(1)(B) for Cigna’s bad faith and breach of fiduciary duties for its failure to provide plan documents, together with attorney’s fees.  See Cigna et al. v. Humble Surgical Hospital, LLC, Civ. Action No. 4:13-CV-3291 (S.D. Tex. June 1, 2016).

A copy of the District Court’s opinion is available here.

Reporter, Kate Stern, Atlanta, +1 404 572 4661,

Tenth Circuit Rebukes CMS for Applying Wrong Regulations in Overpayment Action – The United States Court of Appeals for the Tenth Circuit shot down CMS’s overpayment recoupment related to physical therapy and skilled nursing services, citing multiple errors in CMS’s appeal briefing and concluding that “an agency decision that loses track of its own controlling regulations and applies the wrong rules in order to penalize private citizens can never stand.”  Furthermore, the Court alluded to the fact that CMS’s actions were not “substantially justified,” suggesting that the provider could reasonably seek attorney’s fees from the agency.

In Caring Hearts Personal Home Services, Inc. v. Burwell (No. 14-3243), CMS questioned whether the services provided by the plaintiff home health agency were “reasonable and necessary” and provided to “homebound” patients.  The Tenth Circuit stated that although Congress had not clearly defined these key terms, CMS’s attempt to apply more onerous regulations and policy not in effect when Caring Hearts provided the services in dispute was inappropriate.  Because Caring Hearts “can make out a pretty good case that its services were entirely consistent” with the regulations and policy that were in effect in 2008 when the services were provided, and because those regulations and policy were not contrary to the statute, the Court vacated the lower court’s order, which directed Caring Hearts to repay more than $800,000.  Furthermore, the Court stated that it “would not be surprised if – should Caring Hearts bring an otherwise eligible application for [attorney’s] costs and fees under the Equal Access to Justice Act, 28 U.S.C. § 2412(d) – CMS were to accept on remand that its positions in this case were not ‘substantially justified.’”

With regards to whether a patient was “homebound,” the Medicare Benefit Policy Manual (MBPM) stated in 2008 that a patient is generally considered homebound if he/she has a condition restricting his/her ability to leave the home without the aid of a supportive device such as a wheelchair.  MBPM, (CMS Pub. 100-02), Ch. 7, § 30.1.1 (Rev. 1, Oct. 1, 2003).  That is, the MBPM focused on whether the patient could leave home without a supportive device. 

By comparison, CMS’s current policy states that a homebound patient must normally be unable to leave the house, even with a supportive device.  Under this newer interpretation, many Caring Hearts patients would not qualify as homebound.  See MBPM, Ch. 7, § 30.1.1 (Rev. 208, May 11, 2015).  The Court strongly suggested that CMS’s current policy may be inconsistent with the statute, but stopped short of actually reaching that issue because it found Caring Hearts’s interpretation of the underlying statute (42 U.S.C. § 1395f(a)) to be reasonable and consistent with CMS’s policy in 2008.

Furthermore, the Court held that Caring Hearts documented its services sufficiently to qualify as “reasonable and necessary.”  The relevant statute, 42 U.S.C. § 1395y(a)(1)(A), does not dictate any specific documentation.  Under current regulations, providers must meet a stringent documentation requirement to prove medical necessity of physical therapy services, but the Court found that this was not retroactive to the time period at issue.  Instead, 42 C.F.R. § 409.44(c)(2)(I), as in effect in 2008, required simply that the services meet the “accepted standards of medical practice” – a benchmark Caring Hearts met.  The Court also applied the less exacting standard for skilled nursing medical necessity documentation found in the MBPM in 2008.

The Court also roundly criticized CMS’s incorrect citations in its briefing, stating that “like the agency’s order itself, the agency’s briefing on appeal struggles to keep up with the right regulations, repeatedly citing and quoting and relying on the 2010 provisions . . . even go[ing] so far as to quote the 2010 language . . . with a mistaken parenthetical date reading ‘(2008)’.”  CMS also attempted to argue that 42 U.S.C. § 13955pp would not allow it to relieve a provider of liability if the dispute centered on whether a patient was homebound.  The Court rebuked CMS by stating that “here too it seems CMS is unfamiliar with its own law” noting that although the statute 30 years ago precluded relief related to homebound condition, that is not the current status of the law.

A copy of the Court’s decision is available here.

Reporter, Elizabeth N. Swayne, Washington, D.C., + 1 202 383 8932,

MedPAC Releases Comment Letters on Fiscal Year 2017 Inpatient Hospital, Hospice, Skilled Nursing, and Inpatient Rehabilitation Facility Payment Proposals – In late May, the Medicare Payment Advisory Commission (MedPAC) issued comment letters in response to multiple CMS payment proposals in which MedPAC encouraged refinements to the hospital star rating system to emphasize patient outcomes and opposed payment increases to Skilled Nursing Facilities (SNFs), hospices and Inpatient Rehabilitation Facilities (IRFs).

With respect to the Inpatient Prospective Payment System (IPPS) Proposed Rule for Fiscal Year 2017, among other things, MedPAC provided comments regarding CMS’s star rating program whereby hospitals will be given overall star ratings.  In the comment letter, MedPAC emphasizes that the star rating system should highlight patient outcomes rather than process measures. MedPAC also suggests that CMS could move towards using all-condition measures, rather than measuring cost and outcomes for specific conditions.  Further, MedPAC explains that such an approach is consistent with its proposal that CMS use readmission quality measures that focus on all conditions.  MedPAC’s IPPS comment letter is available here.

MedPAC also provided comments on the CMS Proposed Rule on SNF Payment, stating, among other things, that CMS should not increase reimbursement to SNFs.  Instead, MedPAC believes that Medicare’s current level of payments remains appropriate.  Similarly, in its comment letter on hospices and IRFs, MedPAC also encourages CMS not to increase payments at this time. 

MedPAC’s SNF comment letter is available here.  MedPAC’s hospice comment letter is available here and the IRF letter is available here

Reporter, Lauren S. Gennett, Atlanta, + 1 404 572 3592,


Watch Sessions of the King & Spalding Health Law and Policy Forum Online! – King & Spalding is pleased to share sessions from its Health Law and Policy Forum by video. These will be offered in coming weeks with individual registration and viewing opportunities. In the first session, Hospital Consolidation Speeds Up, presenters share insights on recent key trends in consolidation transactions in healthcare and factors driving the trends; some common transaction structures for these investments; challenges occurring in acquisitions of distressed hospitals; future trends; and how to start the process of seeking a partner. Find out more and register here.

You're Invited! King & Spalding to Host Reception at AHLA Annual Meeting – Please join King & Spalding on June 28, 2016 from 5:30-7:30 p.m. in the Club Room of the Brown Palace Hotel during the AHLA Annual Meeting. Please RSVP by June 17 by clicking here. We hope to see you in Denver!