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Twenty-Five Individuals Indicted in “Ground Zero” for Medicare Fraud

The United States indicted twenty-five defendants in three Medicare Fraud cases, recently filed in the U.S. District Court for the Southern District of Florida.  William Maddalena, Assistant Special Agent in Charge of the FBI’s Miami Division, dubbed South Florida “ground zero” for health care scams.

These indictments detail two purported schemes involving Medicare Part D, the voluntary prescription drug benefit. In the first, alleged in U.S. v. Hevia et al. (Case No. :16-cr-20267) and U.S. v. Fernandez (Case No. :16-cr-20268), the government claims that two defendants hired co-conspirators to run pharmacies and employed other co-conspirators as “patient recruiters.” The recruiters referred Part D beneficiaries to the pharmacies, which filled prescriptions that were not medically necessary and submitted false and fraudulent claims for the prescriptions to Medicare.  Twenty-two defendants are charged with various offenses, including Conspiracy to Commit Health Care and Wire Fraud, in violation of 18 U.S.C. § 1349; Health Care Fraud, in violation of 18 U.S.C. § 1347; Conspiracy to Pay and Receive Kickbacks, in violation of 18 U.S.C. § 371; and Receipt of Kickbacks from a Health Care Provider, in violation of 18 U.S.C. § 1320a-7(b)(1)(A). In addition to the criminal charges, the government filed notices of forfeiture seeking in excess of $16 million from the defendants. The government claims that figure represents the total loss to the Medicare program resulting from the conspiracy, and it seeks to hold the defendants jointly and severally liable for the sum.

The second scheme, alleged in U.S. v. Diaz (Case No. 1:16-cv-20251), involves similar, though unrelated, claims that a pharmacy owner and co-conspirators bilked Medicare for beneficiaries’ medically unnecessary prescriptions. Three defendants are charged with Conspiracy to Commit Health Care and Wire Fraud;  Health Care Fraud; and Money Laundering, in violation of 18 U.S.C. § 1957. The government seeks forfeiture of approximately $10.5 million. 

The government has identified Part D, the fastest-growing component of the Medicare program, as a vulnerable target for fraud.  According to the Government Accountability Office, of the $120 billon that the government spent on Part D in Fiscal Year 2015, up to $10 billion was for fraudulent claims.  Because of the money expended on Part D and its susceptibility to fraud, the Department of Justice and the Office of the Inspector General, Department of Health and Human Services have signaled efforts to ramp up Part D prosecutions through various press releases and policy statements, as well as the 2016 OIG-HHS Work Plan.  


Ohio Medical Board Telemedicine Prescribing Rule Update

. . . with a Seussian Twist (Strictly for Fun)

 Background - “From There To Here, From Here To There. . . “[1]

Currently, Ohio Admin. Code 4731-11-09 entitled “Prescribing to persons the physician has never personally examined” requires an in-person physical examination to be performed by a physician prior to the physician issuing a prescription for any drug, with limited exceptions (e.g., institutional settings, on-call situations, cross-coverage situations, certain hospice settings, etc.).  This requirement has been the subject of a fair amount of review and debate over the past four to five years by the State Medical Board of Ohio (SMBO), the Ohio Legislature, Ohio Governor John Kasich, and other interested parties. 

Without any change to Rule 4731-11-09, the SMBO in a 2012 interpretive guideline addressing Rule 4731-11-09, opined that when remotely prescribing a non-controlled substance, “[t]he examination need not be in-person if the technology is sufficient to provide the same information to the licensee as if the exam had been performed face-to-face.”  In this interpretive guideline, the technology that is considered “sufficient” is medical equipment capable of transmitting in real-time the patient’s vital signs and other physical data, and requires appropriate diagnostic medical equipment capable of transmitting in real-time high-quality images (including the ability to adjust images to conditions) of the patient’s symptoms. 

In mid-2014, the SMBO began the process of formally reviewing Rule 4731-11-09 with the intention of updating this rule, seemingly to bring it in line with the aforementioned 2012 interpretative guideline.  The SMBO issued an initial draft release of the rule on October 8, 2014, and subsequently released a revised draft on December 17, 2014.  These two drafts of the rule both allowed for a physician to prescribe non-controlled substances to a patient that the physician had not previously examined, provided the physician utilized medical equipment to secure vital signs and images in real-time prior to writing the prescription.  The rule also contained a limited number of exceptions which, for the most part, were consistent with the current set of exceptions set forth in Ohio Admin. Code 4731-11-09. 

Disagreements Arise - “You Do Not Like Them, So You Say. . . .”[2]

On February 11, 2015, the Ohio House of Representatives introduced the State’s biennial budget, H.B. 64.  Interestingly, the biennial budget bill contained an amendment to the Ohio Revised Code definition of “Telehealth Service” and certain provisions that addressed the standard of care for remote prescribing by physicians. 

Specifically, the proposed amendment to the Ohio Revised Code authorized a physician to:

 “ C)    [* * * *] prescribe, dispense, or otherwise provide, or cause to be provided a prescription drug that is not a controlled substance to a person on whom the physician has never conducted a medical evaluation, and who is at a location remote from the physician, if the physician meets all of the following requirements:

    (1) In a manner that is consistent with the standard for in-person care by a physician, the remote physician shall complete and document a medical evaluation of the patient and collect clinical data as needed to establish a diagnosis, identify any underlying conditions, and identify any contra-indications to the treatment that is recommended or provided.

     (2)(a) Except as provided in division (C)(2)(b) of this section, the remote physician shall complete an examination of the patient using appropriate technology that is capable of all of the following:

         (i) Transmitting images of the patient’s condition in real time;

         (ii) Transmitting information regarding the patient’s physical            condition and other relevant clinical data needed for compliance            with division (C)(1) of this section;

         (iii) Being adjusted for better image quality and definition.”

See Ohio H.B. 64.

On May 13, 2015, while H.B. 64 was still pending in the legislature, the SMBO revised Rule 4731-11-09 a third time.  This version of the proposed rule deleted the words “vital signs” and replaced them with the words “physical data” as being required to be transmitted to a remote prescribing physician.    

The proposed draft of Rule 4731-11-09 read in relevant part:

       (1) A physician shall complete and document a clinical assessment and collection of relevant clinical history which conforms to minimal standards of care consistent with an assessment that was completed in a face-to-face interaction necessary to establish the diagnosis and identify any underlying condition and/or contra-indications to the treatment recommended or provided; 

       (2) The physician shall complete an examination of the patient using appropriate diagnostic medical equipment that meets both of the following criteria:

           (a) The diagnostic medical equipment is capable of transmitting in            real-time the patient’s physical data;

           (b) The diagnostic medical equipment is capable of transmitting in            real-time images of the patient’s physical condition and also            has the ability to be adjusted for better quality and definition.

“A Person’s a Person, No Matter How Small . . . “[3]

As a result of the dueling attempts by the SMBO and the Ohio Legislature to set forth the standard of care for remote physician prescribing, two factions came to the fore:  (1) Those that believe a physical examination (regardless of whether it is done in-person or via video conferencing with the patient) requires a physician to secure basic vital signs (or stated another way “physical data”), and (2) Those that believe that the need for such information should be left to the discretion of the treating physician on a case-by-case basis depending upon the symptoms the patient is presenting with.

For example, the Ohio Academy of Family Physicians believes that the amendment was written to accommodate a specific telemedicine company that wished to do business in the Ohio Market.  In a May 27, 2015 letter from the Academy directed to Ohio State Senator David Burke, the Academy expressed its opposition to the telemedicine amendment added to H.B. 64. 

The Academy, in its letter, advised Senator Burke that the Academy had been working along with physician organizations and stakeholders with the SMBO to draft rules and interpretive guidelines that provide safeguards for the use of telemedicine, “and that a lot of time and energy has been invested into drafting Rule 4731-11-09, which was approved during the Medical Board’s meeting held May 13, 2015”.

Similarly, the SMBO forwarded a letter to Representative Ryan Smith expressing its opposition to the amendment.  In its letter, the Executive Director of SMBO noted that in order “[t]o ensure a high quality of remote medical care” the provider/prescriber should, among other things, have appropriate diagnostic medical equipment capable of transmitting:

          • In real-time, the patient’s vital signs and other physical data;

           • A real-time image of the patient’s symptoms and that also has the ability to adjust for better image quality and definition. 

Notwithstanding the opposition by the Ohio Academy of Family Physicians and the SMBO, H.B. 64 was reported out of conference committee and ultimately sent to Governor Kasich with the legislature’s language regarding telehealth and the standard of care for remote prescribing intact. 

On June 30, 2015, Governor Kasich exercised his right of line-item veto to the biennial budget, and in doing so, struck, among other provisions, the specific provisions relating to the amendment to the definition of “telehealth service”, including the prescribing language.

At around the same time period H.B. 64 was making its way through the legislative process, the SMBO approved on May 13, 2015 a third revised draft of Rule 4731-11-09 and announced that it was being forwarded to Ohio’s Common Sense Initiative for administrative review (and public comment).  However, the SMBO subsequently pulled the Rule from consideration by the Common Sense Initiative.  It seems plausible that this third proposed rule was pulled from further consideration in light of the legislative activity surrounding H.B. 64 and the Governor’s subsequent line-item veto of the telehealth provisions.

What’s a Board to Do? - “The more that you read, the more things you will know, The more that you learn, the more places you’ll go”[4]

On December 22, 2015, Governor Kasich signed H.B. 188 into law with an effective date of 90 days.  This law enacted Section 4731.74, Ohio Revised Code, which requires, among other things, the SMBO to adopt revised rules governing the prerequisites for a physician to prescribe, personally furnish, otherwise provide, or cause to be provided a prescription drug to a person on whom the physician has never conducted a physical examination and who is at a location remote from the physician.  The rule is required to be adopted not later than March 23, 2017.  The new rule will be applicable to physician assistants who have prescriptive authority.

After enactment of Section 4731.04, the SMBO acted swiftly. On February 10, 2016, the board convened a hearing, inviting interested parties to present information to the board about the adoption of appropriate rules for physician prescribing for patient’s not previously seen by a physician.  Several diverse interests were represented at the hearing and there was a fair amount of productive dialog exchanged between board members and the different speakers.

Last week, the SMBO released a complete overhaul of its proposed Rule 4731-11-09.  In its latest draft, the SMBO has seemingly taken the same approach that many other progressive states recently have taken with their telemedicine rules: rather than delineating a set of specific rules, SMBO has reverted to a more neutral and balanced approach, focusing on minimal standards of care applicable to the condition for which the patient presents to the physician.  In other words, the onus is on the physician to conduct a proper telemedicine visit (and proper prescribing) depending upon the facts and circumstances for which the patient presents.  Should the physician fail, the physician could be the subject of disciplinary review by the SMBO.  This is, in reality, the standard that all physicians are subject to in order to maintain their license in any given state.

Specifically, the proposed rule would now authorize a physician to prescribe non-controlled substances to a person whom the physician has never conducted a physical examination on and who is at a remote location from the physician when the physician: 

  • Establishes the patient’s identity and physical location;
  • Obtains the patient’s informed consent for treatment through remote examination;
  • Obtains the patient’s consent to forward the medical record to the patient’s PCP or other healthcare provider;
  • Completes a medical evaluation through interaction with the patient that meets the minimal standards of care appropriate to the condition for which the patient presents;
  • Establishes a diagnosis and treatment plan, including documentation of necessity for the utilization of a prescription (non-narcotic) drug; including contra-indications to the recommended treatment;
  • Documents the care provided and referrals made to other providers;
  • Provides appropriate follow-up care or recommend follow-up care;
  • Makes the medical record of the visit available to the patient; and
  • Uses appropriate technology that is sufficient for the physician to conduct all of the above steps and as if the medical evaluation occurred in-person;

The proposed rule also addresses prescribing of controlled substances in a telemedicine context and limits such prescriptions to on-call/cross-coverage arrangements, consistent with telemedicine practice as defined under federal law (21 CFR 1300.04), or the patient is an inpatient or resident of an “institutional facility”.

What is the next step you ask?  The SMBO seeks public input on proposed rules several times during the rule-making process.  Public input is sought after the SMBO has conducted its initial review of rules, after rules are filed with the Common Sense Initiative Office, and at the public hearing that occurs after the rules are formally filed with the Joint Committee on Agency Rule Review.

The SMBO is currently seeking public comment on the proposed Rule 4731-11-09.  Comments are due by May 12, 2016.  Comments that are received will be reviewed by the SMBO and could possibly result in changes to the initially proposed language before the rule is filed with the Common Sense Initiative Office. 

While it remains to be seen what the final result will be, the SMBO (along with many other state medical boards) is certainly to be commended for continuing to tackle this issue in a forthright manner - seeking to balance its mandate to protect the interests of the public on the one hand, with the current and future status of the daily practice of medicine on the other.  With disquieting projected physician shortages, increasing financial burdens on government and family budgets, and inconceivable technological advances being made at precipitous pace, telemedicine is destined to become indispensable to the provision of medical care in all settings and circumstances.

Stay tuned!

[1] One Fish Two Fish Red Fish Blue Fish, by Dr. Seuss

[2] Green Eggs and Ham, by Dr. Seuss

[3] Horton Hears a Who!, by Dr. Seuss

[4] I Can Read with My Eyes Shut, by Dr. Seuss


South Florida Physician Sentenced to Nine Years in Medicare Fraud Conspiracy

Miami-area physician Henry Lora was sentenced to 108 months’ imprisonment and ordered to pay more than $30 million in restitution pursuant to his guilty plea to one count of conspiracy to commit health care fraud, in violation of 18 U.S.C. § 1349; and one count of conspiracy to defraud the United States, receive health care kickbacks, and make false statements regarding health care, in violation of 18 U.S.C. § 371.

According to the factual basis, which was signed by all parties and filed with the court in support of Lora’s guilty plea, Lora was a physician at, and for a time the medical director of, Merfi Corp, a now-defunct clinic that employed physicians, physician assistants, and other medical professionals. In exchange for bribes and kickbacks, Lora and his co-conspirators wrote prescriptions for home health care services, pharmaceuticals, and laboratory and diagnostic tests that were medically unnecessary. Lora and his co-conspirators also falsified patient records to make it appear as if Medicare beneficiaries qualified for these services, and caused the submission of claims for the unnecessary services to Medicare, which ultimately paid the claims.

One of Lora’s co-conspirators was Isabel Medina, who owned Merfi Corp.  She pleaded guilty to her role in the conspiracy and was sentenced to 108 months’ imprisonment in March 2014.  Other co-conspirators, who worked primarily as patient recruiters, received sentences ranging from 24 to 27 months’ imprisonment. 


Alert - West Virginia Updates its Telemedicine Law

The telemedicine market is growing at an astonishing rate in the United States with more providers jumping on the band-wagon on a daily basis.  The advances in telemedicine technologies hold great promise to address some of the ailments within the healthcare market place, such as the increasing costs of healthcare, an aging population looking to stay in their own homes longer, and mounting incidences of chronic and lifestyle associated diseases. 

The promise of telemedicine notwithstanding, obstacles abound and one misstep could be a costly one.  Not only is there a lack of uniform telemedicine laws among the states, within each state there is no single statute or regulation governing the practice of telemedicine.  Rather, in each state an assemblage of outdated and/or irreconcilable statutes and regulations (if there are any in the first place) must be divined including those addressing physician-patient relationships; teleprescribing; standards of care; consent issues; licensure requirements; pharmacy prohibitions; scope of practice; certificates of need; fee-splitting prohibitions; state privacy laws; and corporate practice of medicine prohibitions, just to name a few.   As a result, there has been a flurry of activity within various states seeking to address some of the main obstacles to telemedicine.  West Virginia is no exception.

On March 24, 2016, West Virginia Governor Earl Tomblin signed into law House Bill No. 4463.  HB 4463 is, comparatively speaking, fairly comprehensive telemedicine legislation, addressing  standards of care issues, types of technologies that are permitted to be utilized, remote prescribing, and other general requirements relating to a proper telemedicine encounter.  The bill also authorizes the Board of Medicine and the Osteopathic Board to propose joint rules that implement further the statutory provisions contained with HB 4463.  The bill has an effective date of June 11, 2016. 

Some of the highlights from the bill include:

 I.    Definition of Telemedicine. 

  • "Telemedicine" is defined as “the practice of medicine using tools such as electronic communication, information technology, store and forward telecommunication, or other means of interaction between a physician in one location and a patient in another location, with or without an intervening healthcare provider.”
  • “Telemedicine technologies" are defined as “technologies and devices which enable secure electronic communications and information exchange in the practice of telemedicine, and typically involve the application of secure real-time audio/video conferencing or similar secure video services, remote monitoring, or store and forward digital image technology to provide or support healthcare delivery by replicating the interaction of a traditional in-person encounter between a physician and a patient.”

 II.   Establishing the Physician-Patient Relationship through Telemedicine.

(1) A physician-patient relationship may not be established through:

  • Audio-only communication;
  • Text-based communications such as e-mail, internet questionnaires, text-based messaging or other written forms of communication; or
  • Any combination of the above.

(2) If there is no existing physician-patient relationship prior to the utilization of telemedicine technologies, or if services are rendered solely through telemedicine technologies, a physician-patient relationship may only be established:

  • Through the use of telemedicine technologies which incorporate interactive audio using store and forward technology, real-time videoconferencing or similar secure video services during the initial physician-patient encounter; or
  • For the practice of pathology and radiology, a physician-patient relationship may be established through store and forward telemedicine or other similar technologies.
  • Once a physician-patient relationship has been established, either through an in-person encounter or in accordance with either of the above, the physician may utilize any telemedicine technology that meets the standard of care for the particular patient presentation.

  III.   Additional Requirements to Practice Telemedicine. A physician using telemedicine technology shall:

  • Verify the identity and location of the patient;
  • Provide the patient with confirmation of the identity and qualifications of the physician;
  • Provide the patient with the physical location and contact information of the physician;
  • Establish or maintain a physician-patient relationship that conforms to the standard of care;
  • Determine whether telemedicine technologies are appropriate for the particular patient presentation for which the practice of medicine is to be rendered;
  • Obtain from the patient appropriate consent for the use of telemedicine technologies;
  • Conduct all appropriate evaluations and history of the patient consistent with traditional standards of care for the particular patient presentation; and
  • Create and maintain healthcare records for the patient which justify the course of treatment and which verify compliance with the requirements of this section,
  • The above requirements do not apply to the practice of pathology or radiology medicine through store and forward telemedicine.

  IV.    Standard of Care.  The practice of medicine via telemedicine technologies is subject to the same standard of care, professional practice requirements and scope of practice limitations as traditional in-person physician-patient encounters. Treatment, including issuing a prescription, based solely on an online questionnaire, does not constitute an acceptable standard of care.

  V.     Patient Records. The patient record established during the use of telemedicine technologies shall be accessible and documented for both the physician and the patient. All laws governing the confidentiality of healthcare information and governing patient access to medical records shall apply to telemedicine patient encounters. A physician must make the documentation of the telemedicine encounter easily available to the patient, and subject to the patient's consent, to any identified care provider of the patient.

  VI.    Prescribing Limitations.

  • A physician-patient relationship that utilizes telemedicine technologies only (no in-person encounter) may not prescribe to that patient any controlled substances listed in Schedule II of the Uniform Controlled Substances Act.
  • A physician may not prescribe any pain-relieving controlled substance listed in Schedules II through V of the Uniform Controlled Substance Act as part of a course of treatment for chronic non-malignant pain solely based upon a telemedicine encounter.

However, a physician is not prohibited from using audio-only or text-based communications to:

  • Responding to call for patients with whom a physician-patient relationship has been established through an in-person encounter by the physician;
  • Providing cross coverage for a physician who has established a physician-patient relationship with the patient through an in-person encounter; or
  • Providing medical assistance in the event of an emergency situation.

SCOTUS Holds Pre-Trial Freeze of Defendant’s “Untainted” Assets a Violation of Sixth Amendment

In 2012, a federal grand jury indicted Sila Luis, along with two other individuals, for paying and conspiring to pay kickbacks for patient referrals and conspiring to defraud Medicare. Allegedly, Luis was orchestrating a Medicare fraud scheme that involved giving kickbacks to nurses for recruiting patients who enrolled with her home healthcare companies. Patients who did enroll were also allegedly paid a kickback. Moreover, Luis' home healthcare companies allegedly billed Medicare for either unnecessary or unprovided medical services to patients in the home healthcare network. The government alleged that, even though Medicare had paid out an astonishing $45 million to Luis over the course of her alleged fraudulent activity, her total assets were valued at just $2 million at the time of her indictment.

Hoping to preserve the availability of Luis' assets for potential restitution and the payment of fines if Luis was convicted, the government brought a civil action under 18 U.S.C. 1345, which allows for a pretrial motion to restrain assets of a defendant accused of particular types of criminal fraud, such as those underlying Luis' indictment. Accordingly, upon the government’s request, the District Court for the Southern District of Florida issued a pretrial order to restrain all of Luis’ assets, including those substitute assets not directly connected to the alleged crimes. Luis appealed to the Eleventh Circuit Court of Appeals, arguing that restraining her “untainted” assets prevented her from hiring a criminal defense attorney of her choosing, in violation of her right to counsel under the Sixth Amendment to the Constitution. In arguing that the order was constitutional, the government asserted that Luis’ Sixth Amendment rights do not give her a right to counsel that she cannot afford, and that the government has a strong interest in ensuring money is available to fulfill a criminal judgment, whether from directly forfeitable assets or substitute assets.

The Eleventh Circuit affirmed the district court’s decision, and the Supreme Court granted a writ of certiorari on June 8, 2015 to resolve the circuit court split on the question of whether the pretrial restraint of assets that are not directly related to the underlying fraud and are needed to retain defendant’s counsel of choice violate the Fifth and Sixth Amendments. In a plurality opinion with a 5-3 ruling, Chief Justice Roberts and Justices Breyer, Ginsburg, and Sotomayor voted to upend the judgment, and Justice Thomas concurred in a separate opinion. Writing for the Court’s main opinion, Breyer reasoned that although a defendant’s right to counsel is not unlimited, it is fundamental and protects Luis from a court freezing her “untainted” assets. According to the Court, Luis’ right to counsel should not be undermined or outweighed by the governmental interest of ensuring a defendant’s assets are available to pay fines or restitution.

The impact of the Luis ruling remains unclear, however, considering that the government remains free to restrain assets connected to the underlying crime, and courts remain free to use tracing rules to differentiate tainted from untainted assets if and when they appear intermingled. Nonetheless, the Luis decision remains a win for the criminal defense bar.



Criminal Investigations of Compounding Pharmacies on the Rise in 2016

The first few months of 2016 have witnessed a rash of investigations, and even indictments, involving compounding pharmacies throughout the United States. Previously beset by contamination scandals, the industry now faces widespread allegations of fraud.

Significant Recent Developments

On January 26, the Federal Bureau of Investigations, the U.S. Postal Inspection Service, the U.S. Department of Defense Criminal Investigation Service, and state authorities conducted joint raids of nine compounding pharmacies in Mississippi. The agencies reported a seizure of more than $15 million in assets and reams of documents. Search warrants pertaining to the investigation were also issued in Florida, Alabama, and Utah.

Then, on February 5, the Dallas Morning News reported that federal authorities had begun investigating a compounding pharmacy, RXpress, and related entities in the Dallas-Ft. Worth (Texas) area. The investigation involved potential violations involving pay-for-prescription arrangements to sales reps.

Two weeks later, on February 18, the United States indicted Robert Cesario and John Paul Cooper, in the Northern District of Texas on one count of conspiracy to commit health care fraud, seven counts of illegal receipt of remuneration, and six counts of illegal payment of remuneration. According to the indictment, Cesario and Cooper, who marketed pain and scar creams for various compounding pharmacies, conspired with others to defraud the military healthcare program, TRICARE, by (1) receiving payments from pharmacies in exchange for referring TRICARE beneficiaries for prescription of their creams; (2) paying TRICARE beneficiaries to induce them to fill prescriptions for the creams; and (3) paying physicians in exchange for prescribing the creams.

These matters follow a 2015 federal investigation of compounding pharmacies in the Middle District of Florida for violations of the Anti-Kickback Statute and other allegedly fraudulent conduct. Numerous pharmacies and individuals, most in the Jacksonville area, reached settlements with the United States in order to avoid civil suit under the False Claims Act. According to the Department of Defense, a related criminal investigation is ongoing.

No End in Sight

All signs point to more investigations and prosecutions, as agencies throughout the federal government have expressed concerns about industry-wide fraud. The agencies’ rationale? Ballooning costs associated with compound pharmaceuticals, mostly pain and scar creams like the ones at issue in the case against Cesario and Cooper.

While the full array of government healthcare programs – including Medicare and Medicaid – may cover compound pharmaceuticals to varying degrees, TRICARE has taken the largest hit. The Department of Defense, which was involved in the January raids of the Mississippi pharmacies, limited its coverage of compound pharmaceuticals in 2015, after the claims for such prescriptions submitted to TRICARE increased exponentially. Compound pharmaceuticals cost the program $1.7 billion in the first nine months of fiscal year 2015 – up from $515 million in 2014 and $23 million in 2010.

The U.S. Postal Service, another participant in the Mississippi raids, has experienced similar issues. Its costs under the Federal Employees’ Compensation Act related to compound pharmaceuticals more than tripled from 2014 ($30.1 million) to 2015 ($98.7 million).

Given the current climate, it is imperative that compounding pharmacies ensure that their operations and contracts – including those with sales and marketing representatives – comply with relevant federal and state statutes and regulations.  Two particular practices likely to attract the unwanted attention of federal investigators are: physician ownership of, or investment interest in, a compounding pharmacy; and compensating sales or marketing representatives as independent contractors based on the volume or value of their referrals, rather than hiring an employee sales force. Both practices may draw scrutiny for potential violations of the Anti-Kickback Statute and other laws.



Philadelphia-Area Medicare Fraud Defendant Raises Interstate Commerce Argument in Post-Trial Motions

This past February, Home Care Hospice Service, Inc.’s former professional services director, Patricia McGill, stood trial in the U.S. District Court for the Eastern District of Pennsylvania for 14 counts sounding in Medicare fraud.  The indictment alleged that McGill and other nurses from the Philadelphia-based company permitted the admission of more than 100 patients for medically unnecessary hospice services, for which Medicare was billed.  A jury returned a guilty verdict on four of the 14 counts.

Post-trial, McGill moved for a judgment of acquittal and, alternatively, a new trial, and the government filed its opposition to the motion on March 25. Motions for judgment of acquittal are infrequently granted, because the court must view all evidence in the light most favorable to the prosecution and grant the motion only if no reasonable trier of fact could have found the defendant guilty.  Courts are similarly reluctant to grant motions for new trial such as this one, which are not based on newly discovered evidence, absent cumulative trial errors that likely had a substantial influence on the outcome.

In an effort to carry her heavy burden, McGill advances numerous arguments regarding the import of both admitted evidence and evidence the government did not proffer.  One argument – unlikely to succeed – is of particular note for what it teaches about the federal criminal system. McGill contends that the government offered no direct proof of the effect that the Medicare fraud had on interstate commerce, which is an element of the offense.

To be sure, there is facial appeal to that argument. Defining crimes is traditionally the province of states and localities. Federal crimes must be founded in the U.S. Constitution, and the nexus for most is the Commerce Clause.  Here, the charged Medicare fraud must affect interstate commerce to be constitutionally valid.  However, as demonstrated by the generations-long expansion of the federal criminal code, an offense’s connection to interstate commerce need not be significant. Consistent with the governing law, the McGill court instructed the jury that “[a]ffecting interstate commerce means any action, which in any way interferes with, changes, or alters the movement or transportation or flow of goods, merchandise, money, or other property in commerce between or among states.  The effect can be minimal.”

McGill does not argue that the charged offense has no effect on interstate commerce – a contention that would be difficult to support in light of the complex state of health care delivery. Rather, she argues that the government neglected to present testimony on the issue, thus creating “a failure of proof of [a] critical element[] of the offense.” The government quips that the argument “borders on the frivolous,” and, while that response may be an overstatement, given the lack of direct precedent, governing case law has endorsed the general notion that juries may infer an effect on interstate commerce from the totality of the evidence. See, e.g., United States v. Haywood, 363 F.3d 200, 210 (3d Cir. 2004). Furthermore, a rule requiring the government to present direct testimony on interstate commerce would be difficult to reconcile with the approach that has permitted the federalization of crimes that have only a minimal or hypothetical effect on interstate commerce.

If McGill does not prevail on her post-trial motions, her case will proceed to sentencing.  The U.S. Sentencing Guidelines advise a sentence of imprisonment with the range of 33-41 months.  However, the court has discretion to depart from that range, either upward or downward, based on a number of factors identified in the Guidelines or the U.S. Code, including her history and characteristics and the nature and circumstances of the offense.  


Pardon Attorney Cites Lack of Resources, Access in Resignation

The resignation letter of United States Pardon Attorney Deborah Leff was made public Monday, following a FOIA request by USA Today.  The letter draws attention to a clemency process long shrouded in secrecy as well as to the shortcomings of President Obama’s much-touted clemency program. 

In the letter, dated January 15, 2016, Leff claims that a lack of resources and a lack of access to the Office of White House Counsel prevented her from effectively doing her job. 

The role of the Patent Attorney is to investigate pardon and commutation petitions and make recommendations to the Deputy Attorney General, who then forwards these recommendations to the Office of White House Counsel.  Since many of these cases are very sensitive, the workings of this process are typically kept secret.

In 2014, the Obama administration announced the Clemency Project, designed to use the president’s pardon power to release federal inmates (mostly nonviolent drug offenders) who would have received shorter sentences if sentenced under today’s less severe guidelines.  After the Obama administration announced the initiative, the number of clemency petitions skyrocketed – now standing at over 10,000 cases pending. 

In her resignation, Leff stated that while she supported the initiative, a lack of resources, including staffing, has stymied not only her ability to provide timely clemency recommendations, but also required that she set aside “thousands” of traditional pardon and commutation petitions as well.

Besides the funding and staffing issues, Leff also pointed to the lack of access she had during her tenure to the Office of White House Counsel.  Citing the increasing number of instances in which the Deputy Attorney General reversed the Pardon Attorney’s recommendation, Leff asserted that “it is important for the President to have a full set of views” when making the complex decisions related to clemency.

In closing, Leff pointed to the fundamental untenability of her situation: asked to address 10,000 clemency petitions with few attorneys and little support staff.  And the paltry figures yielded to date by the initiative seem to bear out Leff’s complaints: with ten months to go in his second term, President Obama has granted only seventy pardons – the fewest since John Adams.


Novartis AG Settles Foreign Corrupt Practice Act Claims with the SEC

Last week, Novartis AG reached settlement with the Securities and Exchange Commission (“SEC”) over alleged bookkeeping and accounting failures of its subsidiaries in China. Per the cease-and-desist order, available here, Novartis agreed to pay approximately $21.5 million in disgorgement, approximately $1.5 million in prejudgment interest, and a $2 million civil penalty, without admitting liability, for concealing improper payments to Chinese health care providers (“HCPs”) and failing to implement and maintain sufficient accounting controls to prevent such improper payments, in violation of the Foreign Corrupt Practices Act (“FCPA”), 15 U.S.C. § 78m(b)(2)(A), (B). 

The improper payments – which, according to the SEC, functioned as bribes to induce HCPs to prescribe, or to reward HCPs for prescribing, Novartis drugs – included cash remuneration for participation in phony studies, the funding of overseas trips with no or limited educational purposes, spa treatments, and cover charges at a strip club. Employees at the Chinese subsidiaries allegedly recorded these illegal payments as legitimate expenses, such as marketing costs and sponsorships. Furthermore, the subsidiaries employed third-party vendors to organize travel and entertainment for HCPs without exercising proper oversight of the vendors or internal controls over the expenditures.

In addition to the monetary settlement, Novartis must submit to monitoring and provide status reports to the SEC on its anti-corruption compliance efforts.   According to the SEC, those efforts are already underway. Beginning in August 2013 and in response to the SEC investigation, Novartis “promptly took remedial steps to improve its internal controls . . . ,” including an overhaul of its anti-corruption policies, the termination and sanctioning of culpable employees, the elimination of relationships with certain vendors, and the enhancement of its training initiatives.  

However, the settlement comes on the heels of similar allegations concerning Novartis’s operations in South Korea. In late February, the Seoul Western District Prosecutor’s Office confiscated accounting records and other documents from Novartis’s office in the capital city. According to the Korea Herald, South Korean law enforcement alleges that Novartis’s South Korean subsidiary paid “rebates” – in the form of cash and other incentives – to local HCPs, possibly to influence prescribing behavior. The cease-and-desist order regarding Novartis’s Chinese operations does not address conduct in South Korea or any other nation.


Apple v. the DOJ: the Fight Over the Company’s Role in Law Enforcement

The U.S. District Court for the Eastern District of New York is the latest forum for the Department of Justice’s battle with Apple over the company’s obligations to help law enforcement investigate criminal matters. On February 29, a magistrate judge ordered that Apple was not required to use existing technology to bypass the lock screen of a defendant Jun Feng’s IPhone, extract the data, and provide it to law enforcement, who seized the phone pursuant to a valid search warrant. The government appealed the order to the district judge, arguing that the All Writs Act of 1789 authorized the Court to compel Apple’s participation in the execution of the search warrant. The All Writs Act, 28 U.S.C. § 1651, permits federal courts to “issue all writs necessary or appropriate in the aid of their respective jurisdictions and agreeable to the usages and principles of law.” Per the government, it is “necessary and appropriate” to compel Apple to help the government execute its warrant and conduct a search of Feng’s phone. Moreover, Apple has voluntarily assisted law enforcement in this manner many times before. Apple has yet to file its response to the appeal.

It is natural to draw a connection between this matter and the more publicized dispute over whether Apple should be compelled to build a special device to allow the government access into the IPhone of the San Bernadino (California) gunman, Syed Rizwan Farook, who, with his wife killed 14 people in a presumed terrorist attack. To be sure, both cases support the general notion that Apple is pushing back against efforts that it views as governmental intrusion into its customers’ privacy. But while the Farook case, for obvious reasons, has captured the public interest, the Feng matter holds more importance for criminal defendants. This is so for at least three reasons.

First, the government is not seeking access to Feng’s phone to investigate his participation in a criminal matter. Feng already pleaded guilty to conspiracy to distribute methamphetamine. During his plea hearing, he admitted to selling methamphetamine “with other people.” The government is seeking access to his phone in order to learn about those “other people” and, presumably, whatever other criminal activity it reveals. This posture dispels the popular notion that the government stops investigating once it obtains a guilty plea. It will continue to look for evidence of other offenses and offenders – and, if possible, compel private companies to participate in its search.

Second, the Feng matter has nothing to do with terrorism. As noted above, it is a drug case, which seems to pose no risk to national security – or at least no risk beyond that of an ordinary drug case. The advancement of national security through the gathering of intelligence related to terrorism is the government’s justification in attempting to compel Apple to infiltrate Farook’s IPhone. In the Feng matter, that justification is non-existent. The government seeks private assistance with run-of-the-mill law enforcement.

Third, and perhaps most significantly, Apple has chosen to litigate the matter despite the fact that it presumably could assist the government with little cost or effort. Farook’s phone has an encrypted passcode, which Apple would have to develop a mechanism to crack. Feng’s phone, on the other hand, features no special technology. Apple need only bypass the standard lock screen, which, according to the government, it can do with ease. Because Apple could comply with the government’s demand without expending significant resources – and without the concern that building a new device could lead create a “back door” for use by rogue governments, terrorists, or criminals – its refusal to participate in the execution of the search is a noteworthy development. Apple’s posture indicates that it will no longer be so complicit with law enforcement. The question whether tech companies are responsible for assisting in the execution of search warrants in ordinary criminal cases now rests with the courts.

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