On November 2, President Obama signed the Bipartisan Budget Act of 2015. As an offset for near-term increases in federal spending, the new law extends by one year – to 2025 – two-percent sequestration reductions in federal spending for mandatory federal programs including Medicare.  The end result is that Medicare Advantage Organizations (MAOs) can expect their capitated payments from Centers for Medicare and Medicaid Services (“CMS”) to continue to be reduced, and Medicare fee-for-service providers can also expect to have sequestration reductions on their CMS reimbursements until at least 2025.

First established by the Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA), “sequestration” is a process of automatic, largely across-the-board reductions enacted to constrain federal spending. Sequestration in its current form began on March 1, 2013, when President Obama, pursuant to the Budget Control Act of 2011, ordered cuts to federal spending effective April 1, 2013, after Congress and the President failed to reach a budget compromise.

Under the Budget Control Act of 2011, the size of reductions to the Medicare program is limited to two-percent. As required by President Obama’s sequestration executive order, on March 8, 2013, CMS notified providers that a “2 percent reduction in Medicare payment[s]” would apply to “Medicare FFS claims with dates-of-service or dates-of-discharge on or after April 1, 2013.” In other words, due to sequestration, as of April 1, 2013, CMS reduced the amount it pays to providers for fee-for-service Medicare claims by two-percent.

Continue Reading Sequestration Extended to 2025 in Federal Budget Deal

Last week, in a case that will have a significant impact on future False Claims Act (FCA) suits against health care entities, the Supreme Court granted certiorari in Universal Health Services, Inc. v. United States ex rel. Escobar.  By agreeing to hear the case, the Court will resolve the circuit split over the so-called “implied certification” theory of legal falsity under the FCA.  For more information about the circuit split, read the post co-authored by Jason Crawford and Jared Engelking on the Whistleblower Watch blog.

In short, FCA cases based on the “implied certification” theory allege that claims submitted by the defendant are “false” or “fraudulent” because of noncompliance with a statutory, regulatory, or contractual provision even though no express certification of compliance has been made.  While cases based on this theory often include an allegation that compliance is a condition of payment not all courts require it. Of note, both whistleblowers and the government have increasingly relied on this theory to prosecute health care FCA cases alleging noncompliance with the Physician Self-Referral (“Stark”) Law, which is a strict liability statute that bans physicians in prohibited financial relationships from submitting claims to Medicare and Medicaid for reimbursement.  The Court’s decision on whether and to what extent implied certification is viable will likely prove a turning point in the use of the FCA and eliminate diverging outcomes for attaching FCA liability under factually identical circumstances dependent on where the case is filed.  We will monitor the case and provide more insights in future posts. 


Since their inception, California health care service plans have been considered not to be insurers for purposes of the State’s 2.35 percent gross premium tax. Under a controversial ruling issued by the Court of Appeal, this could change.

On September 25, the Court of Appeal held that a suit alleging that California’s Blue Shield and Blue Cross plans—which are otherwise regulated as health care service plans—are insurers for purposes of the State’s 2.35 percent gross premium tax, stated a claim for trial.1 The Court held that the test for whether a health care service plan is an insurer for purposes of the tax is whether “indemnifying” against future contingent medical expenses is a “significant financial proportion” of its business. The Court said that allegations that California Physicians’ Service, dba Blue Shield of California (Blue Shield) and Blue Cross of California, dba Anthem Blue Cross (Blue Cross) paid between 75-80 percent of member expenses under their PPO and HMO plans on a fee-for-service basis, rather than on a capitated basis, would be sufficient to find that they were predominantly providing “indemnity.”

This dispute is far from over. The Court of Appeal’s analysis can be criticized as failing to come to terms with the extent of California’s dual health plan regulatory system, which has long treated health care service plans differently and not considered them to be insurers, even when they provide so-called “indemnity” coverage. It can be criticized for failing to understand that plans today frequently contract with providers under other financial models, such as shared risk contracts, that do not fit neatly into the capitation versus fee-for-service dichotomy. It also potentially fails to understand the impact of its decision on the health care industry in California.  For non-self-insured commercial health benefit plans, the vast majority of California health plan enrollees are covered by plans regulated by the Department of Managed Health Care (DMHC) which do not currently pay the insurance premium tax.2

Continue Reading New California Court of Appeal Decision May Impose Premium Taxes on California Health Plans

The Department of Justice (DOJ) has further focused its sights on individual executives as responsible parties for corporate misconduct.  On September 9, 2015, Deputy Attorney General Sally Quillian Yates issued a strongly worded seven-page memorandum to all U.S. Attorneys and the Assistant Attorneys General of DOJ’s various divisions nationwide titled “Individual Accountability for Corporate Wrongdoing” (the “Memorandum”).  Overall, the Memorandum imposes further expectations that government attorneys will investigate the acts of individual executives and management personnel before providing cooperation credit to or allowing the resolution of a civil or criminal case against a corporate entity.  Moreover, the Memorandum serves as a tacit warning to defense counsel that it will be even harder to negotiate concessions for corporate liability without providing information about potentially responsible individuals that is satisfactory to the investigating agencies.

Continue Reading DOJ’s Memo on Individual Accountability Tears at the Corporate Veil

On August 3, 2015, in Kane v. Healthfirst, Inc., No. 1:11-cv-02325-ER (S.D.N.Y. Aug. 3, 2015), Judge Edgardo Ramos of the Southern District of New York decided an issue of first impression under the False Claims Act (FCA) requirement to return identified overpayments from Medicare and Medicaid within sixty (60) days. In denying the defendants’ motion to dismiss, the court provided some guidance on what it means to “identify” an overpayment and start the sixty-day clock created by the Affordable Care Act (ACA). At the very least, a party with an “identified” overpayment increases its risk of incurring FCA liability the longer it takes to quantify and return the overpayment beyond the first sixty days.

The ACA requires that an overpayment must be reported and returned within sixty days of the “date on which the overpayment was identified,” and any overpayment retained beyond this period is considered to be an “obligation” with the potential for FCA liability. 42 U.S.C. § 1320a-7k(d).

The alleged overpayments in Kane stemmed from a glitch in defendant Healthfirst’s computer system which caused its participating providers in a network operated by Continuum Health Partners, Inc. to seek additional payment from Medicaid based on erroneous remittance advices. In 2010, New York state auditors asked Continuum about the incorrect billing, and Continuum tasked its employee Robert Kane (the relator) with determining which claims had been improperly billed to Medicaid. Four days after Kane submitted a spreadsheet containing claims with alleged erroneous overbillings, Continuum fired him. The complaint alleged that Continuum took no further action to investigate or repay the claims until June 2012 when the government issued a Civil Investigative Demand (CID).

Continue Reading S.D.N.Y. Provides First Judicial Guidance on Identifying Overpayments and Effect on FCA Liability

Managed Care Lawsuit Watch is Crowell & Moring’s summary of key litigation affecting managed care. If you have questions or need assistance on managed care law matters, please contact any member of the Health Care Group. Cases in this issue include:

  • Armstrong v. Exceptional Child Ctr, Inc
  • Golden v. Cal. Emergency Physicians Med. Grp.
  • Johnson v. U.S. Office of Pers. Mgmt.
  • U.S. ex. rel. Whipple v. Chattanooga-Hamilton Cnty. Hosp. Auth.
  • U.S. ex rel. Oughatiyan v. IPC The Hospitalist Co., Inc.
  • Rumble v. Fairview Health Servs.
  • MHA, LLC v. Healthfirst, Inc.
  • State Dep’t of Pub. Health v. Superior Court of Sacramento Cnty.
  • Commonwealth of Massachusetts v. Partners Healthcare System, Inc. et. al.

On February 17, 2015, the largest health care provider in Massachusetts, the non-profit Partners Healthcare System, Inc. (Partners), dropped its bid to acquire South Shore Hospital based in South Weymouth, and the Commonwealth of Massachusetts dropped its antitrust suit that had challenged the acquisition.[1] Whether state or federal regulators will permit Partners’s proposed acquisition of Hallmark Health Corp. (Hallmark)’s two acute care hospital remains to be seen.

The decision by Partners comes a month after a Judge rejected a consent judgment that Partners and former Attorney General of Massachusetts Martha Coakley proposed regarding Partners’s agreement to acquire three acute care hospitals in the greater Boston area.[2] Less than a year ago, on June 24, 2014, the Attorney General of Massachusetts had simultaneously filed a complaint and a proposed consent judgment with Partners regarding Partners’s acquisition of South Shore and two hospitals operated by Hallmark.

Continue Reading Partners Halt Acquisition of Boston Area Hospital After Court’s Rejection of Consent Judgment

Crowell & Moring’s 2015 Litigation and Regulatory Forecasts provide an in-depth look at the trends in the courts and in the regulatory agencies, both inside the Beltway and beyond, that will impact business in the coming year.

The Litigation Forecast examines the latest litigation developments facing companies in areas ranging from health care and antitrust to privacy and cybersecurity. We also provide our third-annual jurisdictional analysis that spotlights the data trends that can help shape complex litigation strategy.

In the inaugural edition of the Regulatory Forecast, we dig into the regulatory trends in Washington and beyond that are going to be affecting industry. The report focuses on sectors ranging from energy to health care, and features on-the-ground analysis from key regions, such as California and Europe, that are setting the pace for the future of industry regulation.

To access both reports, please visit crowell.com/forecasts. The PDF for each can also be accessed by clicking on one of the icons below.

2015 Regulatory Forecast 2015 Litigation Forecast


After a protracted battle, Kaiser Foundation Health Plan, Inc. (Kaiser) recently settled a False Claims Act (FCA) qui tam case alleging that it falsely certified compliance with Medicare Advantage (MA) bidding instructions that relator claimed resulted in billions of dollars in damages to the United States. Crowell & Moring represented Kaiser in the litigation.

Kaiser’s former employee, Chris McGowan filed his initial complaint in 2009, but changed his theory of liability through a number of amendments as the case proceeded. Ultimately, he alleged that for its 2008 and 2009 MA bids Kaiser failed to comply with the CMS Office of the Actuary (OACT) “gain/loss margin” guidance directing that an MA plan’s proposed margin requirement be within a “reasonable range” of the margin requirements for its “other lines of business.” McGowan alleged that Kaiser’s certifications of compliance with MA bid instructions for 2008 and 2009 were false.

Continue Reading Settlement in FCA Qui Tam Case Disposes of Claims Alleging Falsely Certified Compliance with Medicare Advantage Rating Instructions

This year Crowell & Moring’s Healthcare Ounce of Prevention Seminar, (HOOPS), will focus on important legal and regulatory developments and their impact on the healthcare industry. Join us on October 27th and October 28th in Washington, DC as our healthcare attorneys and outside speakers share their perspectives on the latest developments in areas of interest including:

  • Providers becoming Payors and Payors becoming Providers – Key Legal Considerations
  • False Claims Act and Government Investigations: How to Survive a CID
  • Hot Issues in Payor/Provider Litigation
  • Changing Landscape of Healthcare: A Panel Discussion
  • Focus on Fraud, Waste and Abuse: Audits, Enrollment and Certification
  • Key Issues in Advertising and Marketing in the Healthcare Industry
  • Medicare Advantage/Prescription Drug Plan Developments and Changes
  • “Don’t Sign that Yet”: Tools and Tips for Identifying and Avoiding Common Traps in Commercial Contracting.
  • Exchanges, Mental Health Parity and Addiction Equity Act and More
  • Antitrust in an Era of Healthcare Reform
  • New Liability Trends in Data Privacy and Security
  • Recovery Action Scene

HOOPS 2014 is a complimentary event.

Please click here to register and to see the complete agenda.