Legal Insights and Perspectives for the Healthcare Industry

We hosted a very informative Fast Break session last week on complex FCA issues. If you weren't able to join, the session was led by Katie McDermott and Matt Hogan, who are both authorities in False Claims Act (FCA) litigation. Understanding the complex dynamics for dealing with both the US Department of Justice (DOJ) and qui tam relators, Katie and Matt led us through the minute details of relator litigation, declined qui tams, and partial interventions, just to name a few things.

Among the overarching issues we discussed, coming on the heels of the US Supreme Court’s Cochise decision, is the Court’s seemingly renewed interest in the FCA and the possibility of statutory amendments to the FCA to balance out many of the, as Katie termed it, “procedural inequities” that now exist when a healthcare organization is an FCA defendant. Katie and Matt also discussed recent DOJ pronouncements about their FCA enforcement procedures and priorities, highlighting that the FCA remains the most significant overarching risk area for healthcare stakeholders.

Paired with the recent decision in Azar v. Allina, the healthcare industry in particular can hope for a greater voice in the regulatory process in the wake of the US Supreme Court’s directives. With Allina’s requirement that all statements of policy or guidance with substantive legal effect must proceed through notice and comment rulemaking, and Kisor’s instructions for greater judicial diligence with respect to interpreting agency rules, the healthcare industry may have increased confidence that the courts can provide a meaningful role in protecting regulated parties from unchecked agency authority. This is of great value in an era of rapidly changing and thoroughly regulated healthcare delivery systems.

In an opinion with significant implications for the healthcare industry, the US Supreme Court has held that information that is both customarily and actually treated as private by its owner—and that is provided to the government under an assurance of privacy—is exempt from disclosure under the Freedom of Information Act (FOIA). As a result, federal agencies may refuse to disclose a much broader swath of proprietary commercial and financial information obtained from healthcare organizations under federal regulation, or as part of an investigation, or otherwise. There may be interesting interplay between this broader definition of “confidential” in the FOIA release context and the varying federal government policies under consideration for promoting or imposing greater transparency in pricing and quality reporting among healthcare providers. Ultimately, Congress will have the final say.

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In an opinion of significant importance to the administration of the Medicare program, the US Supreme Court issued a 7–1 decision requiring the Centers for Medicare & Medicaid Services (CMS) to follow notice and comment rulemaking when adopting a “statement of policy” that establishes or changes a “substantive legal standard.” The near unanimous Court[1] upheld the DC Circuit Court’s decision in Allina Health Services v. Price, 863 F.3d 937, 939 (DC Cir. 2017), which highlighted an important distinction between Medicare Act and Administrative Procedure Act (APA) rulemaking requirements.

The APA establishes a statutory exemption from notice and comment rulemaking procedures in the case of “interpretive rules, general statements of policy . . . or agency . . . practice.” 5 USC § 553(b)(A) (emphasis added). CMS relied on an assumption that this “interpretive rule exception” applied to the policy it adopted in order to include Medicare Part C patient days in the Medicare fraction of the payment formula used to calculate the qualification for, and amount of, the Medicare disproportionate share hospital (DSH) payment adjustment. The policy resulted in the reduction of Medicare DSH payments for hospitals until 2013, when the agency furnished notice and comment. Like the DC Circuit, the Supreme Court rejected the government’s argument that the Medicare Act rulemaking requirement in 42 USC § 1395hh(a)(2) implicitly incorporated a similar interpretive rule exception permitting such a policy.

The US Supreme Court issued its decision on May 13 in Cochise Consultancy v. United States ex rel Hunt, unanimously holding that the three-year tolling provision in 31 U.S.C. 3731 (b)(2) applies in favor of relators in declined FCA cases. This decision resolves a three-way split in the circuits on whether relators may have up to 10 years to pursue allegations in declined whistleblower cases.

There is an important pleading standard question being posed to the US Supreme Court in the petition for writ of certiorari by Intermountain Healthcare (IHC) in a False Claims Act (FCA) case filed by a whistleblower in 2012. The issue involves the pleading requirements under Federal Rule of Civil Procedure 9(b), which requires a plaintiff to plead fraud with particularity.

The healthcare industry awaits the US Supreme Court’s decision in Azar v. Allina Health Services with nervous anticipation. The high court stepped in to settle the dispute and the broader legal question developing among the circuit courts relating to the Centers for Medicare & Medicaid Services’ (CMS) authority to adopt so-called “interpretive rules” affecting significant Medicare program policies. CMS asserts that it possesses such authority under the Medicare Act based on an analogous exception in the more general Administrative Procedures Act (APA), which permits agencies to adopt interpretive rules, and CMS has used this presumed authority to sidestep the formalities of notice and comment rulemaking in certain Medicare policy changes. In the instant case, CMS was defending its ability to change, without notice and comment, its construction of the statutory phrase “entitled to Medicare Part A” in the Medicare disproportionate share (DSH) payment formula, a change that ultimately worked to dilute the amount of Medicare DSH payments for hundreds of hospitals. The US Court of Appeals for the DC Circuit rejected CMS’s argument.

Does a relator have a shorter statute of limitations period than the United States to pursue a False Claims Act (FCA) case when the United States has declined to intervene? A split among the circuit courts has created an opportunity for the US Supreme Court to resolve this vexing question and potentially confirm whether relators are government officials under the statute. In issuing certiorari to the US Court of Appeals for the Eleventh Circuit, in Cochise Consultancy Inc. v. United States, ex rel. Hunt, the Court will address the limitations issue against the backdrop of a growing litigation trend in declined qui tams and lengthy seal durations when sued defendants have no idea they’ve been sued for many years. Partner Kathleen McDermott breaks down the Cochise appeal—characterized in a recent Morgan Lewis LawFlash as “a hot case to watch”—and offers a timely analysis of the case, and the potential legal consequences of a decision by the US Supreme Court to level set the FCA statute of limitations provisions.

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