With the aggressive pursuit of cases against the pharmaceutical and device industries (including the recent $2.2 billion settlement with Johnson & Johnson), the implementation of Medicare Fraud Strike Forces in major cities throughout the country, and an increase in the potential criminal penalties under the United States Sentencing Guidelines, the federal government’s determination to root out health care fraud has long seemed vigorous and unrelenting. The government has repeatedly touted its continuing dedication to fighting waste and abuse in health care, and has treated this dedication as part and parcel of its efforts to implement health care reform. Indeed, in a press release issued after the enactment of the health-care reform law, the Department of Health and Human Services (HHS) proclaimed that joint efforts on the part of HHS and the Department of Justice to fight fraud and abuse in the health care industry “will continue to improve with the new tools and resources provided by the Affordable Care Act.”
Kathleen Sebelius, Secretary of Health and Human Services (Photo credit: US Mission Geneva)
Yet less than two weeks ago, one of the most potent resources that law enforcement has had at its disposal in the fight against health care fraud suddenly fell out of the government’s toolbox. In fact, while many in Congress and the mainstream media have focused on problems with the Healthcare.gov website and the cancellation of policies that do not meet the requirements of the Affordable Care Act, another critical development has attracted considerably less attention: HHS Secretary Kathleen Sebelius’s announcement, in an October 30, 2013 letter to Representative Jim McDermott (D-Wash.), that insurance offered through the Affordable Care Act’s new health insurance exchanges do not constitute “Federal health care programs” and thus are not within the scope of the federal anti-kickback statute.
The significance of Secretary Sebelius’s decision is underscored by the critical role that the anti-kickback statute has long played in the government’s ability to impose significant penalties and obtain massive recoveries in the health care industry. Under the anti-kickback statute, any person or entity who receives, pays, offers or solicits anything of value in order to induce or reward the ordering or referral of products and services covered by federal health care programs is guilty of a felony, faces civil monetary penalties of up to $50,000 per violation, and may be the subject of a claim for treble damages under the False Claims Act. The broad scope of the anti-kickback statute has been limited only by its required nexus to federal health care programs such as Medicare and Medicaid, and the power of the anti-kickback statute has been widely used against corporations and individuals alike.
Why, then, has HHS elected not even to argue that the insurance offered under health insurance exchanges are “Federal health care programs” covered by the anti-kickback statute? Why has the government decided, at the same time that it is expanding the federal role in health insurance, that a whole new swath of insurance policies simply do not implicate the statute which, in a 1999 “Fact Sheet”, HHS described as helping “curtail[] the corrupting influence of money on healthcare decisions”?
Secretary Sebelius’s letter sheds little light on the issue. In fact, rather than explain the basis for her determination, the Secretary’s letter notes only that her conclusion was reached “in consultation with the Department of Justice,” was based upon a “careful review” of the statutory term “Federal health care program,” and included an analysis of all aspects of each program offered under the Affordable Care Act.
By contrast, commentators and observers outside of government have offered their own insight into the decision that insurance plans created under the Affordable Care Act do not constitute “Federal health care programs.” In a posting that appeared on the Managed Market Access blog prior to the release of Secretary Sebelius’s letter, the blog’s editor suggested that at least one of the general categories of plans available through the health exchange marketplaces (namely, Qualified Health Plans) likely do not constitute “Federal health care programs” because the consumers who purchase those plans pay the full premiums themselves, and only then can receive a tax credit when filing their individual tax returns. The blog further notes that there does not appear to be any authority indicating that “payment by individuals of the full cost of their plan premiums would transform that plan into a Federal health care program,” and finds no support for the notion that “the extension of premium tax credits to eligible enrollees would constitute federal government ‘funding’ of a particular plan.”
Others, however, have suggested that a considerably less reasoned and more strategic analysis may underlie Secretary Sebelius’s decision. Articles that appeared in the New York Times and the Wall Street Journal after the release of Secretary Sebelius’s letter focus on the fact that the administration’s decision will allow pharmaceutical companies to provide co-payment assistance to Affordable Care Act beneficiaries who cannot afford the co-payments for expensive brand name drugs. Although the practice of providing payment assistance for those who purchase particular medications has been considered an illegal kickback under federal programs such as Medicare and Medicaid, the conclusion that Affordable Care Act plans are not “Federal health care programs” appears to mean that pharmaceutical companies can provide such assistance to beneficiaries who purchase their insurance on the government exchanges. In fact, in its article about Secretary Sebelius’s decision, the Wall Street Journal specifically states that “[p]harmaceutical companies were among the earliest backers of the Affordable Care Act,” thereby implying – whether accurately or not – that the Secretary’s decision may have been intended to reward pharmaceutical companies for their support of health care reform.
Although the precise logic behind Secretary Sebelius’s decision is not yet clear, further light may soon be shed on the issue. In a letter dated November 7, 2013, Senator Charles Grassley (R-Iowa) wrote to Secretary Sebelius and Attorney General Eric Holder, referred to Secretary Sebelius’s letter to Representative McDermott, and expressed “alarm” that the Affordable Care Act may be “exempt . . . from certain federal anti-fraud provisions.” Senator Grassley went on to argue that insurance plans offered under the Affordable Care Act are indeed “Federal health care programs,” and then demanded a host of information regarding the decision reflected in Secretary Sebelius’s letter, including all memoranda, advisory opinions, and communications from and between the Department of Health and Human Services and the Department of Justice.
It remains to be seen whether and to what extent Secretary Sebelius or Attorney General Holder will respond to Senator Grassley’s requests. However, given the critical role that the anti-kickback statute has long played in criminal investigations and civil False Claims Act cases, all practitioners in the health care arena should pay careful attention to this emerging and increasingly contentious debate.
To read more from Robert Radick, please visit maglaw.com.
