Moving the HME Industry Forward


Increase in False Claims Act Penalties – Epilogue

July 11, 2016

AMARILLO, TX – On May 23, 2016, Medtrade Monday published an article I wrote entitled “False Claims Act Penalties Will Increase.” In the article, I discussed the fact that a little-known governmental agency, the Railroad Retirement Board, had increased FCA penalties. I pointed out that such an increase would likely be adopted by the Department of Justice (“DOJ”). Well, it looks like the increase is being adopted by the DOJ.

The DOJ confirmed on June 29, 2016 that FCA penalties will soon nearly double, making FCA litigation all the more dramatic. This development has been expected since May, when the Railroad Retirement Board updated FCA penalties in accordance with a budget deal that Congress struck last year. Under the June 29 interim final rule, minimum per-claim penalties will jump to $10,781 from $5,500, and maximum per-claim penalties will rise to $21,563 from $11,000.

The DOJ has latitude under the spending law to enact a smaller increase if the full amount would produce “a negative economic impact.” However, the DOJ said without explanation that is “is not invoking that authority in this rule.” The increase takes effect Aug. 1 and applies to violations after Nov. 2, 2015.

There has been speculation about how the steeper penalties will affect FCA litigation. They could mean that FCA targets will be even less likely to take cases to trial, given the huge potential risk.

On the other hand, there is a possibility that the maximum penalties may not be enforceable in all circumstances. Cases involving large number of claims, but only small amounts of actual damages, could produce “excessive fines” that are barred by the Eighth Amendment.

From a practical standpoint, what does this mean to the DME supplier? The first thing that the supplier must keep in mind is that if a claim “arises from” anything improper, then the claim can be classified as a “false claim.” For example, assume that the supplier is obtaining customers (i.e., Medicare beneficiaries) in a way that violates the telephone solicitation statute. Each claim submitted for each of these “ill-begotten” customers might be classified as a false claim. As another example, assume that the supplier is offering “items of value” to prospective customers in violation of the beneficiary inducement statute.

Each claim submitted for each of these customers might be classified as a false claim. Let’s look at yet another example. Assume that the DME supplier has a relationship with a physician that violates the Stark physician self-referral statute……potential false claims. Or assume that the supplier has a relationship with a referral source (e.g., lab or home health agency) that violates the Medicare anti-kickback statute……again, potential false claims. Switching directions a bit, assume that (A) the DME supplier is improperly using a modifier, (B) the supplier is using the wrong billing code, or (C) the supplier is improperly modifying documents received from the physician. All of these scenarios can result in multiple false claims.

Let’s add a layer of risk to this. Under the Affordable Care Act (“ACA”), if a supplier concludes (or reasonably should conclude) that it was paid for claims that in hindsight should never have been submitted for payment, then the supplier has the obligation to report the mistake to CMS and refund what CMS paid for the claims. If the supplier should fail to do so, then the claims become false claims.

And now let’s add a third layer of risk. Virtually all employees of DME suppliers are aware of the existence of whistleblower (or qui tam) lawsuits. Here is how a whistleblower lawsuit works:

• The employee will determine that his employer (the DME supplier) is doing one of those things discussed above.

• Normally, the employee will share his concerns with his employer. A compliant DME supplier will take the employee’s concerns seriously and will investigate. The compliant supplier will be transparent with the employee and will express gratitude to the employee. If the supplier concludes that the employee’s concerns are well-founded, then the supplier will correct the problem and report back to the employee. On the other hand, if the supplier concludes that the employee’s concerns, while well-intentioned are nevertheless unfounded, then the supplier will report as such to the employee. This is how a compliance program should work.

• Unfortunately, too often the supplier will respond to the employee in such a way that makes the employee feel marginalized or victimized. For example, the supplier may not follow up on the employee’s concerns and simply ignore the employee. Or the supplier may conclude that the employee’s concerns are well-founded but “punishes” the employee for bringing his concerns to the attention of the supplier. When the supplier mishandles the situation like this, then it results in a situation that is ripe for the employee to hire an attorney who specializes in filing whistleblower lawsuits against health care providers.

• If the whistleblower’s attorney files such a lawsuit, then the plaintiffs (or “relators”) will be “John Smith, Individually, and in the name of The United States of American.” Said another way, Smith is suing the supplier individually and on behalf of the United States. The lawsuit will be based on the FCA. The lawsuit will allege that the supplier has committed multiple “bad acts” and such bad acts have resulted in multiple false claims.

• When the whistleblower (or qui tam) lawsuit is filed, then the federal court clerk will place the lawsuit “under seal.” This means that nobody (other than the whistleblower and the government) will know of the existence of the lawsuit. The lawsuit (“complaint”) will be forwarded to a civil Assistant U.S. Attorney (“AUSA”). He will review the complaint and instruct federal agents (FBI, OIG, IRS) to investigate the allegations set out in the complaint. The investigation might take one or more years to complete. If the investigation uncovers facts that support the allegations set out in the complaint, then the DOJ will likely “intervene.” This means that the DOJ will take the lawsuit over and instruct the whistleblower and his attorney to “sit on the sidelines and watch.” The AUSA will “unseal” the complaint and have it served on the DME supplier. While all of this is going on, the civil AUSA may hand his file over to the criminal AUSA to determine if criminal charges should be brought against the supplier. In fact, most criminal cases against health care providers result from whistleblower lawsuits. A DME supplier might have to deal with a criminal case…..and a civil case……at the same time.

• The DOJ has a huge stick to hang over the supplier’s head to persuade the supplier to settle. This “stick” is the astronomical liability that the supplier faces under the FCA. Assume that the complaint alleges that the supplier has submitted 2000 false claims. Assume that the actual amount of each claim is $100. Under the FCA, the supplier faces potential liability of $200,000 (single damages) + $600,000 (treble damages) + $43,126,000 (2000 x $21,563) = $43,926,000. In other words, if the supplier goes to trial and loses, then it is looking at potential damages and penalties of $43,926,000. There is not a DME supplier out there that can pay anything close to this amount of money. And so the supplier is motivated to reach a settlement with the DOJ. Other “sticks” that the government can hold over the supplier’s head are (A) payment suspension, (B) revocation of PTAN, and (C) exclusion.

• In most cases where the DME supplier settles with the DOJ, the settlement is an “ability to pay” settlement. Said another way, the supplier says to the DOJ: “I cannot pay $43,926,000. You might as well take me out into the cornfield and shoot me in the head.” And so the DOJ requires the supplier to product financial documents that show how much the supplier can actually pay……which will be a small percentage of the $43,926,000. The whistleblower will normally receive 15% to 20% of the settlement amount paid by the supplier. Note that if such a settlement is reached, then the supplier will likely be required to execute a Corporate Integrity Agreement (“CIA”) with the Office of Inspector General (“OIG”) that has a five year term. During the term of the CIA, the supplier will essentially be on probation; the supplier will have to “jump through a number of hoops” to show the OIG that the supplier is operating in a compliant manner.

The message for suppliers is that they “live in a glass house.” If a supplier is doing something it should not be doing, then somebody knows about it. That “somebody” is a potential whistleblower. The FCA penalties are so huge that suppliers must implement a robust compliance program that will prevent whistleblower lawsuits from ever arising.

Jeff Baird will be presenting the following webinars:
Buying and Selling a DME Supplier
Presented by: Jeffrey S. Baird, Esq., Brown & Fortunato, P.C.
Tuesday, July 12, 2016
2:30-4:00 p.m. EASTERN TIME
When a person intends to buy…or sell…a DME supplier, there are a number of documentation and regulatory issues that must be addressed.  First, the seller must take a number of steps to make itself more “attractive.”  The buyer and seller need to decide whether the transaction will be an “asset” sale or a “stock” sale.  The parties will need to engage in the normal transactional steps: mutual nondisclosure agreement, letter of intent, stock purchase agreement/asset purchase agreement, and other closing documents.  The buyer will need to engage in three types of due diligence: financial, corporate and regulatory.  And the parties will need to meet a number of regulatory requirements such as submitting change of ownership notifications.  This program will discuss all of these (and other) issues associated with the purchase and sale of a supplier.

Register for Buying and Selling a DME Supplier on Tuesday, July 12, 2016, 2:30-4:00 pm ET, with Jeffrey S. Baird, Esq., of  Brown & Fortunato, PC.

Contact Ika Sukh at if you experience any difficulties registering.

Member: $99.00    
Non-Member: $129.00

Webinar sponsored by
PA Association of Medical Suppliers

Distancing Ourselves From Medicare Fee-For-Service
Presented by: Jeffrey S. Baird, Esq., Brown & Fortunato, P.C.
Wednesday, July 13, 2016
3:00-4:30 p.m. EASTERN TIME
On June 23, 2016, CMS published the July Fee Schedule for DME suppliers. The rates encompass the expansion of competitive bid rates to non-CBAs. The cuts range between 45%-59% on common respiratory products, but reach 82% on TENS units and Enteral IV Poles. Said another way, the rates are ugly. This is an additional “wake-up call” to the DME industry: As much as possible, suppliers need to distance themselves from Medicare fee-for-service. This webinar will discuss ways that the DME supplier can accomplish this. For example, the supplier can elect to be nonparticipating and provide DME on a non-assigned basis. The supplier can work with hospitals to reduce the incidences of readmissions of patients soon after discharge; to accomplish this, the supplier and a hospital can jointly own a DME operation….or the supplier and the hospital can enter into a collaborative agreement in which the supplier serves as the hospitals “preferred provider” and the supplier agrees to work closely with the patient and his caregiver following discharge. The supplier can, and should, focus on selling products for cash in a retail setting. And yet another approach the supplier can take is to furnish DME that provides a higher profit and discontinue furnishing DME that is unprofitable.

Register now for “Distancing Ourselves From Medicare Fee-For-Service” on Wednesday, July 13, 2016, 3:00-4:30 p.m. ET, with Jeffrey S. Baird, Esq., of  Brown & Fortunato, PC.

Member: $59.00    
Non-Member: $89.00

Responding to Reimbursement Cuts: Billing Non-Assigned and Other Options
Presented by: Jeffrey S. Baird, Esq., Brown & Fortunato, P.C.
Wednesday, July 27, 2016
2:30-4:00 p.m. EASTERN TIME
We now know what Medicare reimbursement is……and it is not pretty. The bottom line is that Medicare will pay as little as possible for DME. And yet, with 78 million Baby Boomers retiring at the rate of 10,000 per day, the demand for DME will dramatically increase. This webinar will primarily focus on billing on a non-assigned basis. Specific issues to be addressed include: (i) What does it mean to bill non-assigned? (ii) If the supplier bills an item non-assigned, then can the supplier set the price without limitations? (iii) Can a supplier bill a rental item non-assigned? If so, can the supplier demand a purchase price up front or is the supplier obligated to take rental payments from the patient? (iv) If the supplier bills non-assigned, then is it required to submit a claim for reimbursement on behalf of the patient? (v) If a supplier is a non-contract supplier providing competitive bid products on a non-assigned basis in a CBA, must the supplier utilize an ABN? (vi) If a supplier provides products, on a non-assigned basis, to patients residing outside a CBA, must the supplier utilize an ABN? (vii) If a supplier provides a rental item on a non-assigned basis, and receives monthly rental payments from the patient, is one ABN at the beginning sufficient or must the supplier utilize an ABN every month? In addition to non-assigned billing issues, the webinar will discuss other options for the supplier to lessen its dependence on Medicare fee-for-service.

Register for Responding to Reimbursement Cuts: Billing Non-Assigned and Other Options on Wednesday, July 27, 2016, 2:30-4:00 pm ET, with Jeffrey S. Baird, Esq., of  Brown & Fortunato, PC.
Contact Ika Sukh at if you experience any difficulties registering.
This webinar is free to AAHomecare members, and $49.00 for non-members.

Jeffrey S. Baird, JD, is Chairman of the Health Care Group at Brown & Fortunato, PC, a law firm based in Amarillo, Tex. He represents pharmacies, infusion companies, HME companies and other health care providers throughout the United States. Mr. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization, and can be reached at (806) 345-6320 or