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From Health Law Daily, February 7, 2017

Successor parent corporation not liable for subsidiary’s prior Medicare claims misconduct

By Jeffrey H. Brochin, J.D.

A company that purchased a skilled home health services company was not liable for the prior conduct of its subsidiary where the alleged Medicare fraud ended before the acquisition, a federal district court in Illinois has ruled. However, the pleading of an example of a kickback scheme involving the subsidiary-provider and a skilled nursing facility (SNF) was sufficient to meet the FCA pleading requirements against that provider. (U.S. ex rel. Stop Illinois Marketing Fraud, LLC v. Addus Homecare Corp., February 3, 2017, Pallmeyer, R.).

Background: A confidential witness, who was a salesperson for a home health care provider and later became an employee of the relator, provided the primary basis for allegations of Medicare fraud against the home health care provider and its parent company. Among Medicare’s requirements for reimbursement of skilled services are that: (1) health care providers must certify that they personally rendered the services; (2) the patient must be "confined to the home;" (3) and the services must be "reasonable and necessary." The relator claimed that several members of an Illinois-based home health care services company violated the Anti-Kickback Statute (AKS) (42 U.S.C. § 1320a-7b) and by extension, the False Claims Act (FCA) (31 U.S.C. §§ 3729–3733) by scheming to provide marketing services to a SNF in exchange for referrals from the facility of Medicare patients who needed skilled services. The relator further alleged that the provider offered skilled services to residents even if they were not homebound. Finally, it alleged that numerous referrals came from a doctor after his daughter obtained employment from the provider, but that they ceased upon her departure eight months later. The parent company that acquired the provider moved to dismiss on the grounds that a parent company was not liable for the acts of its subsidiary, and the court granted the motion.

Claims against the subsidiary-provider included, in addition to the above allegations, the allegation that a physician services company received exclusive referrals from the provider in exchange for favorable patient assessments and certifications necessary for skilled services reimbursement by Medicare. The provider moved to dismiss all counts as being time-barred and because the complaint failed to state the FCA allegations with particularity. The court held that the complaint was not time-barred, that it sufficiently pleaded the allegations as to a certain SNF, but that allegations as to other referral schemes, including a scheme related to the doctor whose daughter worked for the provider, were to be dismissed.

Anti-Kickback Statute. The AKS prohibits soliciting, receiving, offering, or paying any "remuneration" in exchange for referring a patient for services that are reimbursed by a federal health care program. The goal of the statute is to ensure that compensation for referrals does not affect patient care. A submitted claim that violates the AKS also violates the FCA. When a health care provider submits a claim to Medicare, he or she must certify that the claim complies with all Medicare regulations, including the AKS. Therefore, to receive or provide kickbacks to influence referrals for Medicare patients would necessarily require a false statement in the CMS claims form, resulting in a violation of the FCA.

Liability of successor-in-interest. It is a general principle of corporate law that a parent corporation is not liable for the acts of its subsidiaries. An exception to this rule is the successor-in-interest theory which allows lawsuits against even a genuinely distinct purchaser of a business if: (1) the successor had notice of the claim before the acquisition; and (2) there was "substantial continuity in the operation of the business before and after the sale." In the present case, the court found that the relator pleaded no facts to show that either element was satisfied. Accordingly, the motion by the parent company to dismiss the claims against it was granted.

Certification compliance. The provider argued that the complaint failed to allege that certifying compliance with AKS was a condition of payment under Medicare. However, because the complaint stated that compliance with the AKS was a condition of payment under federal health care programs, and Medicare was one such program, the court found that participation in Medicare programs in fact required health care providers to submit certifications attesting to their compliance with the AKS. The court noted that the notion that a party claiming reimbursement from a government program must certify that it has complied with all conditions of that program was not an inferential stretch.

Defining remuneration. The provider also asserted that the referral arrangement between the physician services company and the provider did not violate the AKS because certifying compliance with Medicare requirements was not remuneration, and that an illegal referral arrangement under the AKS required giving or receiving "remuneration" in exchange for federally-reimbursed health care referrals. However, the court disagreed and held that the physician services company’s certifications could constitute a kickback, even though the provider actually rendered the skilled services that it billed to Medicare, because billing for services actually provided did not sanitize a kickback.

Pleading the SNF scheme. Regarding the marketing services kickback scheme with the specific SNF, the provider objected that the relator failed to sufficiently plead reimbursement from Medicare because the complaint did not identify specific claims submitted to Medicare. However, the court was satisfied that the relator’s allegations both described the scheme with particularity and supported a strong inference that the provider submitted claims to Medicare for patients referred by the SNF. The relator alleged that a significant amount of the provider’s revenue came from skilled services reimbursements from Medicare, and the relator inferred that the provider submitted many claims to Medicare because the provider paid the confidential witness bonuses for each Medicare patient to whom the provider provided skilled services.

Other alleged referral schemes. As to allegations of referral schemes other than the marketing services provided to the SNF, the court found that the relator did not allege examples of any specific patients who were part of the referral schemes at other facilities. The relator provided no particulars about any patients referred by the doctor whose daughter obtained a job with the provider. Similarly, regarding the allegations that the provider participated in a referral scheme with the physician services company to certify unqualified patients, the relator provided few details about those patients or how they were unqualified. The confidential witness was in a position to have that information and should have been able to identify at least some of them. The relator’s failure to cite examples of the alleged wrongdoing resulted in the court’s granting the motion to dismiss as to those alleged schemes.

Allegations of improper evaluations. Additional allegations that the provider actually submitted claims and supporting records to the government for reimbursement falsely certifying that patients were eligible for skilled services, and that the claims complied with Medicare conditions for payment, were found to suffer from the same problem as the alleged kickback scheme between the provider and the physician services company: the relator did not provided sufficient detail about the purported examples describing how those patients were allegedly unqualified. Although the relator alleged that the provider and physicians did not comply with Medicare conditions for payment, namely the face-to-face evaluation and certification requirement, the relator relied on the same insufficient examples of unqualified patients. No information was provided about whether these patients had face-to-face evaluations or improper certifications. Accordingly, the motion to dismiss the claims was granted as to these allegations.

For the foregoing reasons, the court granted the parent company’s motion to dismiss, and partially granted and partially denied the provider’s motions to dismiss.

The case is No.: 13 CV 9059.

Attorneys: Jeffrey Michael Hansen, U.S. Attorney's Office, for the United States of America. Thomas Lee Kirsch, II (Winston & Strawn LLP) for Addus Homecare Corp. Robert R. Stauffer (Jenner & Block LLP) for Cigna Corp.

Companies: United States of America; Addus Homecare Corp.; Cigna Corp.; Home Physicians Management, LLC, d/b/a Alegis Care

MainStory: TopStory CaseDecisions AntikickbackNews FCANews FraudNews HomeNews PartANews PartBNews QuiTamNews SNFNews IllinoisNews

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