Volume 15 | March 2021
NEWSLETTER
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Chilivis Grubman Dalbey & Warner LLP
 
is pleased to announce that
 
 
has joined the firm as Counsel

Sarah will head the firm's healthcare transactional and corporate practice areas, where she will continue her focus on healthcare transactions, corporate governance, and regulatory issues. 

Sarah has experience in guiding businesses through all types of transactions, including start up and strategic transactions for established businesses. Sarah’s unique background in both corporate matters and healthcare regulatory matters has made her a well-rounded advisor to organizations and healthcare organizations, in particular.

Sarah has extensive experience with healthcare joint ventures and M&A and is committed to helping clients through the entire deal process, from negotiating the letter of intent through resolving post-closing matters. Sarah’s experience includes structuring, negotiating, and drafting documents for transactions ranging in value from $1.75k to $80M. Sarah also regularly advises clients when negotiating software licenses and SaaS agreements, and other critical technology arrangements.

Sarah's profile and contact information can be read here.

We are also pleased to announce that

 
has been promoted to Counsel

Brittany represents individuals and companies in complex civil litigation, internal investigations, and white collar criminal defense. She has represented clients in various complex business litigation matters involving antitrust, RICO, and the False Claims Act. She also counsels clients in a wide array of issues including commercial business disputes and business torts.  

Before joining the firm, Brittany was an associate with Eversheds Sutherland (US)’s Litigation Practice Group, focusing her practice on complex business litigation, government investigations, and class action defense. 

Brittany graduated in 2013 from the University of Georgia School of law, she served as the Editor in Chief of the Georgia Journal of International and Comparative Law, as an Intern for Superior Court judges of Barrow and Jackson counties, and as a member of the Appellate Litigation Clinic.


Brittany's profile and contact information can be read here.
DOJ Outlines False Claims Act Enforcement Priorities

In an address at the Federal Bar Association’s Qui Tam Conference, Acting Assistant Attorney General Brian Boynton discussed the DOJ Civil Division’s current False Claims Act (FCA) enforcement priorities. Although not the full universe of cases the that the DOJ will pursue, Boynton highlighted 6 enforcement areas. 

  • Pandemic Related Fraud – As the COVID-19 pandemic continues to affect the lives of virtually all Americans, Boynton emphasized that the FCA will play a significant role in how the government responds to the consequences of the pandemic. Through various stimulus packages, Congress has provided direct financial assistance to individuals and businesses. Although the vast majority of the financial assistance has gone to eligible individuals, the programs remain susceptible to fraud. The DOJ has and will continue to crack down on schemes such as false representations regarding eligibility for assistance, misuse of program funds, and false certifications regarding loan forgiveness.

  • Opioids – The pandemic has exacerbated the long-standing crisis of opioid abuse. In December 2020, the CDC reported over 81,000 drug overdose deaths per year. The DOJ remains committed to bringing both civil and criminal enforcement actions against those who are fueling the crisis, including pharmaceutical companies that market opioids with false and misleading statements, those who pay kickbacks to increase prescriptions, or providers with a history of overprescribing. The recent $300 million settlement by Indivior and the $1.4 billion settlement by Reckitt Benckiser to resolve FCA allegations related to the marketing and sale of Suboxone are examples of this commitment.

  • Fraud Targeting Seniors – The DOJ is committed to preventing the abuse and exploitation of senior citizens. In particular, the FCA remains a potent tool to combat schemes that provide poor or unnecessary healthcare to seniors. Recently, the DOJ used the FCA to resolve cases where skilled nursing facilities and rehabilitation contractors knowingly provided or billed for medically unnecessary rehabilitation therapy services.

  • Electronic Health Records – As providers increasingly transition to electronic medical records, the transition has introduced new opportunities for fraud. The DOJ has successfully resolved cases involving the misuse of electronic medical record software. For example, the DOJ recently announced a $18.25 million settlement with Athenahealth, Inc. where it was alleged that Athenahealth paid kickbacks – including Masters and Kentucky Derby tickets – to generate sales of its products. The DOJ is also focused on vendors that misrepresent their software’s capabilities, which resulted in providers claiming incentive payments for using compliant software.

  • Telehealth – COVID-19 related shelter-in-place orders or quarantines have rapidly expanded the use of telehealth. The increased use of telehealth services has also increased the abuse of such services. The DOJ announced that a woman plead guilty to criminal charges and paid $20.3 million to resolve civil allegations that she established dozens of medical equipment companies in the names of straw owners. The companies then submitted medical equipment claims to Medicare, asserting the claims resulted from telehealth visits when in reality no telehealth service was provided and doctors were simply paid kickbacks to approve the claim.

  • Cybersecurity – Electronic health records and telehealth highlight the importance of cybersecurity. Increased reliance on technology means increased cybersecurity measures. To the extent the government pays for systems or services that purport to comply with required security standards and fail to do so, FCA liability may arise.
 
In addition to the types of cases the DOJ will focus on, Boynton highlighted how the DOJ is finding cases to prosecute. While whistleblowers still remain a valuable source of leads to root out fraud and abuse, the DOJ is increasing its own efforts to identify fraudsters. The DOJ will rely on data analysis to uncover fraud schemes not identified by whistleblowers. Data analytics allows the DOJ to identify patterns across healthcare providers to identify trends and extreme outliers. The DOJ plans to use data analytics beyond just identifying healthcare fraud, including identifying COVID-19 related misconduct. 
Legal High or High and Dry – The Risks of Selling Delta-8 Products

Over the past several years, the laws governing medical and recreational use of cannabis have gone through a significant transformation. Since 2012, fifteen states and the District of Columbia have legalized recreational use of marijuana. Still, marijuana remains illegal at the federal level and in the majority of the states. But what if there were a product that provided the same high, was derived from the same species of plant, and is completely legal? Or is it legal? Welcome to the world of Delta-8 THC.

Delta-8 THC is a close cousin – maybe even sibling – of Delta-9 THC, the active ingredient in illegal cannabis. Despite their similarities, Delta-8 THC is less potent and is derived from hemp rather than cannabis. Hemp and cannabis are actually the same plant; the difference being that hemp is marijuana with levels of Delta-9 THC below 0.3%. Hemp has been used for centuries to create products such as paper, clothing, and rope. Many viewed hemp as a safe alternative to cannabis because hemp could not get a person high. However, entrepreneurs in the hemp, CBD, and cannabis industries have found what they believe is a loophole that might allow for the legal sale of a hemp byproduct that can provide a high that some say is similar to cannabis.

Delta-8 is less potent than its cousin Delta-9, and it does not occur naturally in hemp in high enough concentrations to provide a high to its users. However, if concentrated and taken in large enough doses, Delta-8 can provide a high similar to Delta-9. Recognizing this, researchers developed methods to distill the Delta-8 in hemp plants and produce products with the concentrated Delta-8 THC. Those who support Delta-8 argue that this substance is derived from hemp rather than cannabis, so the products are perfectly legal to sell. But how can a product derived from the marijuana plant that gets its users high be legal? Enter the 2018 Farm Bill.

Among the many provisions of the far-reaching Farm Bill passed in 2018 was a provision that legalized the production and sale of “all derivates, extracts, cannabinoids, isomers, acids, salts, and salts of isomers” derived from the hemp plant. Whether it is derived or extracted from hemp, distributors of Delta-8 products argue that the Farm Bill authorizes the sale of their products. As an arguably legal alternative to cannabis, merchants and consumers alike have jumped on the bandwagon. So popular is the product that it has begun to pop up in vape shops, CBD stores, and even convenience stores. Some producers of Delta-8 products have begun to bring in millions of dollars in revenue a year. But there is one big problem: The Drug Enforcement Administration appears to be on a different page.

The DEA treats Delta-8 THC as a controlled substance alongside Delta-9 THC. And recognizing the “loophole” that many sought to exploit, the DEA issued an interim final rule in August 2020 stating that the 2018 Farm Bill did not legalize synthetically derived THC. Proponents argue that Delta-8 is naturally occurring and is not synthetic like the product Spice. However, Delta-8 does not occur naturally in the hemp plant in the same concentrations that exist in Delta-8 products being sold in the market, so many consider the distillation process to be synthetic. Under the language of the Farm Bill, some argue that Delta-8 is legal to sell. However, given this ambiguity, which side is correct about whether Delta-8 can be sold legally? That remains to be seen. What is clear, however, is that any company dealing in Delta-8 products runs the risk of facing legal action by both federal and state prosecutors.
Chilivis Grubman News
FREE Webinar

In March, Chilivis Grubman partner Randy Dalbey joined Donna Grindle of Kardon to present a FREE one-hour webinar entitled HIPAA 2021 - A KINDLER, GENTLER HIPAA? You can watch it for FREE on demand here.
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New Publication

Chilivis Grubman partner Scott Grubman's latest article, entitled "Reading the Tea Leaves: False Claims Act Enforcement Under the Biden-Harris Administration," was published this month in the ABA Health eSource. You can read the article here.
Upcoming Presentations
Next month, Scott Grubman and Christian Dennis will present to the American Society of Interventional Pain Physicians (ASIPP). Scott will also present at the Healthcare Compliance Association (HCCA)'s 25th Annual Compliance institute, and the 2021 National Bar Association's Midyear Conference. Lauren Warner will present at the 2021 Ohio Collaborative Laboratory Conference.
M.D. Anderson Wins Appeal Overturning $4.35 Million Penalty for Alleged HIPAA Breaches


The University of Texas M.D. Anderson Cancer Center (“M.D. Anderson”) successfully appealed the imposition of $4.35 million in civil monetary penalties (“CMP”).

In 2017, CMPs were imposed against M.D. Anderson for alleged HIPAA breaches that occurred in 2011 and 2012. The breaches involved electronically protected health information (“ePHI”) of nearly 35,000 individuals that was improperly disclosed when portable devices (two thumb drives and a laptop) were lost or stolen. The data on the devices was not encrypted. M.D. Anderson challenged the Health & Human Services’ (“HHS”) Office for Civil Rights’ (“OCR”) proposed fines and penalties. In June 2018, an Administrative Law Judge (“ALJ”) granted summary judgment in favor of OCR and imposed fines and penalties of $4,348,000.  

M.D. Anderson appealed to HHS’ Departmental Appeals Board (“DAB”). One of M.D. Anderson’s arguments was based on the CMP amount, which M.D. Anderson argued was excessive partly because of how the government determined violations. For example, the government argued there were 34,833 violations based on the number of individuals exposed, while M.D. Anderson argued there were only three violations – one for each incident where an item was lost or stolen. M.D. Anderson also argued that the government was far more lenient to other covered entities in similar cases. In February 2019, the DAB upheld the $4.35 million CMP.

In April 2019, M.D. Anderson appealed to the U.S. Court of Appeals for the Fifth Circuit pursuant to 42 U.S.C. §1320a-7a(e). The Court noted that “[a]fter M.D. Anderson filed its petition, the Government conceded that it could not defend its penalty and asked us to reduce it by a factor of 10 to $450,000.” Despite the government’s concession, the Court determined that “[t]he Government’s CMP order against M.D. Anderson was arbitrary, capricious and otherwise unlawful…for at least four independent reasons.”  

  • First, the Court analyzed the Encryption Rule, which requires covered entities to “[i]mplement a mechanism to encrypt and decrypt electronically protected health information.” 45 C.F.R. § 164.312(a)(2)(iv). The Court, accepting that the items lost and stolen were not encrypted, noted that “nothing in HHS’s regulation says that a covered entity’s failure to encrypt three devices means that it never implemented “a mechanism” to encrypt anything at all.” The Court found that M.D. Anderson satisfied the Encryption Rule, even if its encryption mechanisms could have been better.  

  • Second, the Court analyzed the definition of “disclosure” of ePHI in the Disclosure Rule (45 C.F.R. § 160.103) and disputed whether the hospital disclosed PHI in violation of HIPAA. Specifically, the Court “refuse[d] to interpret § 160.103 to mean that HHS can prove that M.D. Anderson ‘disclosed’ ePHI without proving that someone outside the entity received it.” The government conceded that it could not meet the standard described by the Court.  

  • Third, in response to M.D. Anderson’s argument that the CMPs in other instances of ePHI loss were more lenient, the ALJ concluded that the regulations did not require the evaluation of penalties based on a comparative standard. Despite the ALJ’s insistence (and DAB’s agreement), the Court explained that “[i]t is a bedrock principle of administrative law” that an agency must “treat like cases alike.” By failing to consider similar cases, the ALJ allowed the government to enforce the CMP rules arbitrarily and capriciously.  

  • Fourth, the Court vacated the $4.35 million penalty because the government miscalculated the CMP and misinterpreted the statutory caps. 

The Court ultimately held that the government offered no lawful basis for the CMP imposed and vacated the CMP order. The case was also remanded for further proceedings.  
False Claims Act Update: U.S. Supreme Court Passes on Opportunity to Define “Falsity”


On February 22, 2021, the United States Supreme Court declined to resolve a circuit split regarding the definition of “falsity” in False Claims Act (“FCA”) cases.  In November 2020, CG attorneys wrote about the United States Supreme Court potentially hearing the cases because federal circuits were – and continue to – interpret the FCA’s “falsity” requirement inconsistently. That did not occur.

By way of background, the FCA imposes liability for treble damages and civil penalties on “any person who [among other things] … knowingly presents, or causes to be presented, a false or fraudulent claim for payment” to the federal government or who “knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim.”  31 U.S.C. § 3729(a). Although the FCA defines “knowingly,” it does not define “falsity.”  Id.  Without a statutory definition for falsity, circuit courts have undertaken to interpret the FCA’s falsity requirements, resulting in various definitions and standards for determining when falsity exists.  

FCA cases in the healthcare industry exemplify the importance of how a court defines falsity. For medical services to be reimbursed by Medicare, a provider must attest that such services, amongst other qualifications, were “reasonable and necessary.” How falsity is defined impacts whether a provider’s genuine belief that a medical service is reasonable and necessary equates to a lack of falsity under the FCA.  Some circuits, like the Eleventh Circuit, require “objective falsity.” In circuits using the objective falsity standard, falsity is established where there is a false statement or representation based on an objective falsehood. Therefore, a reasonable difference of opinions by physicians may demonstrate subjective disagreement, which is insufficient for FCA liability.  United States v. AseraCare, Inc., 938 F.3d 1278 (11th Cir. 2019). In AseraCare, the court reasoned that “a properly formed and sincerely held clinical judgment is not untrue even if a different physician later contends that the judgment is wrong.”  Id.

Multiple circuits, however, have declined to adopt the objective falsity standard. The Ninth Circuit found that even an honestly held clinical opinion about the need for medical services can be “false” if that opinion contradicts “accepted standards of medical practice.” Winter ex rel. United States v. Gardens Reg’l Hosp. & Med. Ctr., Inc., 953 F.3d 1108 (9th Cir. 2020). Under the Ninth Circuit’s interpretation, a plaintiff need not plead an objective falsehood.  Id.  The Third Circuit, also declining to adopt the objective falsity standard, noted that “a difference of medical opinion is enough evidence to create a triable dispute of fact regarding FCA falsity.”  United States v. Care Alternatives, 952 F.3d 89, 100 (3d Cir. 2020).

Since the United States Supreme Court refused to resolve the circuit split and decide the definition of falsity or establish a national standard, FCA litigants must be especially mindful of the jurisdiction in which their FCA case is pending or will be filed. In circuits that do not apply the objective falsity standard, the government or relator may introduce expert testimony that contradicts the defendant-physician and may overcome certain dispositive motions. In circuits that apply the objective falsity standard, a provider may have a defense if the provider can show that their clinical judgment was sincerely held and reasonable, whether or not the government or relator presents expert testimony contradicting that clinical judgment.  
Medicaid Fraud Control Units Recovered $1 Billion in 2020 Despite COVID-19 Pandemic


On March 19, 2021, the U.S. Department of Health and Human Services Office of Inspector General (“OIG”) published its annual report detailing the Medicaid Fraud Control Units (“MFCUs”) case outcomes. According to the report, MFCUs recovered $1 billion from criminal and civil cases, equating to $3.36 recovered for every $1 spent for investigations. 

MFCUs investigate and prosecute Medicaid provider fraud and patient abuse/neglect in all 50 states, the U.S. Virgin Islands, Puerto Rico, and the District of Columbia. MFCUs’ cases usually begin as referrals from the public, state Medicaid agencies, and other federal and state agencies. As of February 2021, the OIG has approved data mining for twenty-one MFCUs under 42 C.F.R. § 1007.20, which can also be a source for cases. MFCUs review referrals to determine the potential for criminal or civil action, or sometimes, for both criminal and civil action, all of which may result in monetary penalties and administrative action, such as exclusion.

In an internal OIG survey, MFCUs reported significant challenges in 2020 that limited case outcomes due to the COVID-19 pandemic. Despite the challenges, MFCUs achieved significant outcomes. 

  • Convictions. MFCUs reported a decline (from 1527 to 1017) in convictions for fraud and abuse/neglect. Working with the OIG, MFCUs reported a conviction rate of 87.7% for FY 2020, a decline from 90.3% in FY 2019. The 87.7% conviction rate is significant considering it is the lowest conviction rate since FY 2016. Fraud convictions accounted for three-quarters of all FY 2020 convictions. Within the abuse and neglect conviction category, nurse’s aides (e.g., CNAs) and nurses accounted for 42% of the convictions. MFCUs also reported a decline in criminal recoveries of monetary penalties, from $305 million to $173 million.  

  • Exclusions. MFCUs caused 928 exclusions (43%) out of the 2,148 total OIG exclusions in FY 2020, which does not include cases MFCUs worked jointly with the OIG Office of Investigations that may have resulted in exclusions.

  • Civil Settlements.  Unlike criminal convictions, civil settlement and judgments increased from 658 to 786. Not surprisingly, pharmaceutical manufacturers had the highest number of civil settlements and judgments (263). Also, pharmaceutical manufacturers had over four times the number of settlements than the next major industry – Medical Device Manufacturers (54). Durable Medical Equipment, Prosthetics, Orthotics and Supplies (DMEPOS) was third in civil settlements (45), according to the report. While the number of settlements and judgments increased, civil recovery amounts decreased by 48% from $1.6 billion in FY 2019 to $855 million in FY 2020.

Despite the outcome declines associated with COVID-19 pandemic, MFCUs obtained over $1 billion in civil and criminal recoveries. The OIG, MFCUs, and other enforcement agencies will continue to take criminal, civil, and administrative action against individuals and entities that do not comply with fraud, waste, and abuse laws. For example, despite the 87.7% conviction rate in FY 2019, MFCUs (working with the OIG) have set 89% as the target conviction rate for FY 2021 and FY 2022. Likewise, the target rate for indictments is also higher in FY 2021 (19%) and FY 2022 (18.4%), than the actual indictment rate in FY 2020 (17.2%). The increased target indictment and conviction rates highlight the continued and ever-increasing importance that healthcare entities take proactive steps regarding compliance. 
Mortgage Fraud Scheme Leads to Guilty Pleas for Eleven Defendants


The real estate industry is one of the sectors of the U.S. economy that is most susceptible to fraud. The desire to own a home is a defining characteristic of the American public. Occasionally, that desire combined with vanity and fear of missing out lead potential homebuyers to seek to purchase homes that they really cannot afford. This is not a new phenomenon – the subprime mortgage crisis is considered one of the main causes of the great recession. Still, the incentive to get into a big, expensive house extends to homebuyers and many others in the real estate industry. Home builders are incentivized to sell homes for as much as possible. Real estate agents, representing both buyers and sellers, receive larger commissions with higher sales prices. Bigger is always better – at least until the buyers’ financial situation forces them into default and the mortgage is foreclosed. Then, everyone looks for someone to blame. Sometimes, it is just an unfortunate set of events. But other times, the resulting foreclosures are the result of fraud.

In a press release on March 19, the United States Attorney’s Office for the Northern District of Georgia announced that eleven individuals had pled guilty to conspiracy to defraud the United States in connection with a scheme to fraudulently obtain financing for the sale of over 100 homes. The alleged scheme was very complex and involved multiple levels of fraud. Listing agents from a major nationwide homebuilder allegedly aided unqualified homebuyers in obtaining mortgages by instructing the homebuyers as to the types of assets to claim to possess, the employment to list, and the income to represent in their mortgage applications. Those agents then allegedly instructed other defendants to fabricate records concerning direct deposits from a false employer and alter bank statements to reflect the direct deposits. At yet another level, a set of defendants are alleged to have acted as employment verifiers who would respond to phone calls or emails from lenders to falsely verify the homebuyers’ employment.  

Although not included in the press release, the conspiracy charges are likely premised on mail and wire fraud. However, given that the subject mortgages were insured by the Federal Housing Administration (FHA), and many claims were paid for mortgages that went into default, the defendants and the major nationwide homebuilder could face liability under the False Claims Act. Consumer mortgages are often insured by the FHA or the Department of Veterans Affairs. When a mortgage insured by one of those two agencies goes into default, the agencies pay out to cover any shortfall between the sales price of the property at foreclosure and the outstanding principal on the loan. Because documents were allegedly falsified in order to induce the government to insure the mortgages, the defendants may be liable for causing false claims to be submitted to the government in the form of insurance payouts upon default. This is another reminder that fraud of any kind against the government could result in False Claims Act liability.
340B Program Feud Continues: Eli Lilly Wins District Court Challenge to the New ADR Rule


On Tuesday, March 16, 2021, Judge Barker in the Southern District of Indiana issued a preliminary injunction halting the progress on a newly established 340B Administrative Dispute Resolution (ADR) Program. The new ADR Program is a tool that many hospitals, community health centers, and federally funded clinics have planned to use to challenge recent restrictions large drug manufacturers have placed on sales of 340B drugs to contracted pharmacies.  

340B Program:

The 340B Program is a discount drug pricing program established in 1992 to arrange for large drug manufacturers to sell outpatient drugs at a heavily discounted price to certain public and non-profit hospitals, community centers, and other federally funded clinics serving low-income patients. Manufacturers are required to participate in the 340B program as a condition of participating in Medicaid and Medicare Part B. At the same time, covered entities are prohibited from requesting “duplicate discounts or rebates,” meaning that covered entities may not request both a 340B discount and a Medicaid rebate for the same drug. 

The Current Controversy:

At the start of the 340B Program, covered entities purchased and dispensed 340B drugs exclusively through in-house pharmacies. In 1996, HHS issued guidance advising that covered entities may purchase 340B drugs through outside, contracted pharmacies.  

In 2010, as part of the Affordable Care Act, Congress directed HHS to, within 180 days, establish a 340B Program administrative dispute resolution (ADR) process for covered entities and manufacturers. In September 2010, HHS released an advanced notice of proposed rulemaking on the ADR procedures, however HHS did not release a proposed rule until August 2016. Following comments, the proposed ADR rule was added to a semiannual compilation of federal regulations under development, and in 2017, was removed from this agenda entirely and without explanation. 

Controversy around the 340B Program picked up in 2020 as several major drug manufacturers, including AstraZeneca and Eli Lilly, began refusing discounts for 340B drugs if they were to be dispensed through contract pharmacies. In addition, other large drug manufacturers began requesting that covered entities provide more detailed reports on their 340B drug distributions to patients.

In December 2020 and in the middle of this ongoing controversy, HHS released a final rule on 340B ADR procedures. About two weeks after the release of the ADR final rule, HHS also released an advisory opinion stating that “to the extent contract pharmacies are acting as agents of a covered entity, a drug manufacturer in the 340B Program is obligated to deliver its covered outpatient drugs to those contract pharmacies and to charge the covered entity no more than the 340B ceiling price for those drugs.”  

On January 12, 2021, the HRSA launched a website announcing that stakeholders could begin submitting petitions. Covered entities immediately began filing petitions against several major drug manufacturers, including Eli Lilly, challenging the manufacturers’ recent restrictions on the sale of 340B drugs to covered entities using contracted pharmacies. 

Eli Lilly’s Case:

On the same day the HRSA website launched, Eli Lilly filed a complaint challenging both HHS’ 2020 advisory opinion and the ADR final rule and sought a preliminary injunction to stop HHS from implementing or enforcing the ADR final rule. Specifically, Eli Lilly argued that HHS violated the notice-and-comment rulemaking requirements in promulgating the ADR final rule. In an opinion released on March 16, 2021, Judge Barker agreed with Eli Lilly’s arguments and issued a preliminary injunction, effectively halting the ADR program.
Georgia General Assembly Considers Campaign Finance Legislation


Two bills are moving through the Georgia General Assembly which, if passed, will modify campaign finance laws for state and local elections.  

HB 333: Introduced with bipartisan support, HB 333 passed the State House of Representatives unanimously. The bill would make several changes to increase the regulatory authority of the Georgia Government Transparency and Campaign Finance Commission, the state agency charged with regulating campaign finance for state and local candidates, by among other things:

  • expressly allowing staff attorneys of the Commission to initiate investigations and file complaints regarding campaign filings and use of campaign funds;
  • clarifying the statutes of limitations for when allegations of wrongdoing must be brought;
  • extending the period for which campaign records must be retained, with a minimum of three years from the date of the particular contribution or expense;
  • clarifying that unused funds from a campaign may not be loaned to the former candidate, the former candidate’s business, or any nonprofit organization for which the former candidate has a controlling interest or receives a salary; and
  • requiring the Commission to adjust campaign contribution limits in increments of $100.00 every four years.

HB 333, the current version of which is available here, is pending in the State Senate.  

SB 221: The State Senate recently passed SB 221, which would create a new entity under campaign finance laws called a “leadership committee.” The legislation defines a “leadership committee” to mean “a committee, corporation, or organization chaired by the Governor, Lieutenant Governor” or a party’s nominee for Governor or Lieutenant Governor and committees designated by the majority and minority caucuses in the House and Senate. The legislation would allow such leadership committees to accept contributions and make expenditures to affect the outcome of an election or to advocate for the election or defeat of a candidate. Because Georgia law currently does not permit candidates to have separate committees (separate from their own campaign committee), this legislation, if passed, would allow certain elected officials or candidates to have a leadership committee that is separate from that person’s campaign committee. 
 
SB 221, the current version of which is available here, passed the State Senate by a vote of 30-21 and is now pending in the State House.  

The Georgia General Assembly will adjourn sine die on March 31, 2021. The attorneys at Chilivis Grubman are actively monitoring whether these bills pass both chambers and move to the Governor for consideration, and have significant experience representing clients in a variety of campaign finance and election-related matters.

DOJ Charges Individuals for Falsifying Clinical Trial Data


The Department of Justice (DOJ), Civil Division announced in a March 8, 2021 press release that it had charged four individuals who allegedly falsified clinical trial data. The charges include conspiracy to commit mail and wire fraud, mail fraud, money laundering, and making false statements to Food and Drug Administration (FDA) inspectors. DOJ alleges that, while working for Tellus Clinical Research in Miami, the physician serving as the primary investigator for clinical trials, the business owner, and two senior employees conspired to falsify data in pending clinical trials.  

According to DOJ, the defendants allegedly allowed subjects to be enrolled in clinical trials despite knowing that the patients did not meet the criteria to be eligible for the clinical trials. The defendants also allegedly falsified lab results, medical records, and clinical trial data. And the defendants allegedly said that patients were being administered drugs that were the subject of clinical trials despite the defendants knowing that the patients were not, in fact, being administered those drugs. The FDA Assistant Commission working on the investigation reiterated the importance of accurate and reliable data to ensure the safety and efficacy of new drugs and treatments.

If convicted, the individual defendants face potentially decades in prison. The severity of the punishment demonstrates the importance of providing accurate data when participating in a clinical trial. It is imperative that physicians, nurses, and all other individuals assisting in clinical trials ensure the accuracy of the information being reported to manufacturers and the FDA. Indeed, those administering clinical trials face far stiffer consequences from the FDA than from the manufacturer of a new drug or device. Providing inaccurate clinical data could result in significant fines and prison time for individuals that provide false information.
The Eleventh Circuit Hears Eighth Amendment Challenge to False Claims Act Judgment


On Friday, March 12, 2021, the Eleventh Circuit Court of Appeals heard oral arguments in the case of United States of America, ex. rel. Michele Yates v. Pinellas Hematology & Oncology, P.A., where the defendant argued that the judgment entered against it in a False Claims Act (FCA) case violates the Eighth Amendment’s prohibition against excessive fines. 

By way of background, the FCA imposes liability on “any person who [among other things] … knowingly presents, or causes to be presented, a false or fraudulent claim for payment” to the federal government or who “knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim.” 31 U.S.C. § 3729(a).  Those who violate the FCA are liable for civil penalties of over $23,000 per claim, plus treble damages.  Id. at §3729(a)(1)(G). In FCA cases against healthcare providers, penalties are often astronomical due to the volume of claim submissions, even when the actual damages are disproportionately less. FCA defendants have often argued that this disproportionate penalty-to-damage ratio violates the Eighth Amendment.  

Such was the case for Pinellas, which had only $2,266.62 in damages and penalties of $1,177,000. 

The case against Pinellas was brought under the qui tam provisions of the FCA, which allows a whistleblower (known as a “relator”) to initiate an FCA action on behalf of the government and to receive a portion of the recovery. In Pinellas, the relator was the defendant’s billing manager, and alleged that Pinellas submitted improper claims to Medicare, in which it certified that a specific physician saw the patients when the patients were actually seen by other employees and providers.  

The government also alleged that Pinellas ran a laboratory out of its satellite office, despite the satellite office not having the certificate needed to bill Medicaid and Medicare, per the Clinical Laboratory Improvement Amendments (“CLIA”), 42 U.S.C. § 263a. Pinellas allegedly relabeled claim forms to indicate that the submission was made from a CLIA-certified lab. At trial, the jury found that Pinellas submitted 214 false claims for a total of $755.54. Over the defendant’s objections, the trial judge trebled that amount and imposed damages in the amount of $2,266.62, and also imposed civil penalties totaling $1,177,000.00, which was based upon the minimum per claim penalty for each of the 214 false claims. In addressing the defendants’ Eighth Amendment arguments, the trial judge noted that while imposing such a high penalty ($1.17M) on such a small amount of actual damages ($2,266.22) is “quite harsh,” the court was required to do so.

On January 22, 2020, the defendants filed an appeal in the Eleventh Circuit, arguing among other things that the judgment below violated the Eighth Amendment’s Excessive Fines Clause. Although this is a matter of first impression in the Eleventh Circuit, other circuit courts throughout the country have held that FCA penalties are subject to analysis under the Eighth Amendment. For example, in United States v. Mackby, the Ninth Circuit Court of Appeals held that “the civil sanctions provided by the False Claims Act are subject to analysis under the Excessive Fines Clause because the sanctions represent a payment to the government, at least in part, as punishment.” 261 F.3d 821, (9th Cir. 2001). According to the Ninth Circuit in Mackby, “[i]nquiry must be made . . . to determine whether the payment required by the district court is so grossly disproportionate to the gravity of [the defendant’s] violation as to violate the Eighth Amendment.” The court in Mackby went on to hold that the FCA’s treble damages provision is also subject to Eighth Amendment analysis. The Fourth Circuit Court of Appeals also held that FCA penalties are subject to Eighth Amendment analysis in United States ex rel. Drakeford v. Tuomey, although it ultimately held that the judgment in that case did not violate the Eighth Amendment. 792 F.3d 364 (4th Cir. 2015).

The Eleventh Circuit heard oral arguments in Pinellas on March 12, 2021. The Eleventh Circuit’s pending decision in that case could have a significant impact on FCA cases in the Eleventh Circuit.

QUOTE OF THE MONTH

"The Liberties of None Are Safe Unless the Liberties of All Are Protected."

Justice William O. Douglas

Health Systems Successfully Defeat FTC Challenge to Merger


On March 1, 2021, the Federal Trade Commission (FTC) ceased its efforts to block a $599 million health system merger in Philadelphia after losing its bid in court to stop the deal between Jefferson Health (Jefferson) and Albert Einstein Healthcare Network (Einstein). The proposed deal would expand Jefferson from its existing 14 facilities to 18 facilities.

The FTC’s efforts to challenge the deal kicked off in February 2020, with an administrative complaint arguing that Jefferson and Einstein are two leading providers of acute care and acute rehabilitation services in their geographic area, and the merger would eliminate competition between Jefferson and Einstein for inclusion in health insurance companies’ hospital networks, to the detriment of patients. The FTC, together with the Pennsylvania Attorney General, also sought a preliminary injunction in the federal district court to stop the merger until the completion of the administrative proceedings. The hospitals agreed to halt the merger until one week after the federal district court ruled on the motion for a preliminary injunction. 

Hearings on the preliminary injunction began on October 1, 2020 and concluded on October 26, 2020. The district court denied the FTC’s request for a preliminary injunction on December 8, 2020. On December 11, 2020, the FTC (without the Pennsylvania Attorney General) filed an emergency motion for an injunction pending an appeal in the Third Circuit, which was denied on December 21. On Monday, March 1, 2021, the FTC confirmed in its case summary that it would no longer seek to prevent the merger. 

Consolidation in the healthcare industry has been surging forward in the past decade and we expect this trend to continue and even increase in light of the COVID 19 pandemic. At the same time, the FTC is expected to become even more aggressive in enforcement activities against healthcare deals it considers anticompetitive.   

For the moment, keep in mind the following healthcare antitrust considerations:

  • Expect increased scrutiny for healthcare mergers. Bear in mind the FTC’s announcement in September 2020 of a revamped Merger Retrospective Program.  

  • Scrutiny will not be limited to hospital mergers. The FTC also announced in January 2021 that it will be studying the effects of not just hospital consolidation, but physician group consolidation as well.

  • As seen in the Jefferson-Einstein merger, an FTC challenge does not necessarily mean the death of the deal, and a challenge can successfully be defeated. 
SEC Charges AT&T with Violations of Regulation FD


In a press release on March 5, 2021, the U.S. Securities and Exchange Commission (“SEC”) announced that it had charged AT&T and three of its executives with violations of Regulation FD. Regulation FD was first promulgated by the SEC in 2000 in order to curtail the sharing of material non-public information with securities analysts.  The “FD” in Regulation FD stands for “fair disclosure,” signaling the Commission’s intent to make disclosure of material information fair for all investors. While Regulation FD has the flavor of insider trading, violations of the rule do not require any actual trading to occur. Prior to its promulgation, corporations felt that they could receive more favorable treatment and more positive reports from analysts if they provided the analysts with information before the information was made public. Although such disclosures were typically paired with trading recommendations, the link between the disclosure and the eventual trade was often too tenuous to prosecute as insider trading. Regulation FD requires that any disclosure of material non-public information to a securities analyst be accompanied by disclosure to the public via a Form 8-K filing with the SEC. Because violations of Regulation FD require only the disclosure of the material non-public information and not necessarily a trade, corporations are incentivized to provide material information to the entire market, thus making the disclosure a “fair disclosure.”

In its press release, SEC alleges that in March 2016, three AT&T investment relations executives disclosed to analysts at 20 firms that a steeper-than-expected decline in its first quarter smartphone sales would cause AT&T’s revenue to fall short of analysts’ estimates for the quarter. The executives allegedly made these disclosures despite the fact that internal AT&T documents made it clear that smartphone sale data was considered material to AT&T’s investors. SEC alleges that, as a result of the calls, analysts reduced their revenue projections for AT&T, and the new projections were “just below the level that AT&T ultimately reported to the public on April 26, 2016.” The SEC’s complaint seeks injunctive relief and civil monetary penalties. In the SEC press release, Richard Best, Director of the SEC’s New York Regional Office, reiterated the SEC’s commitment to “level[ing] the playing field by requiring that issuers disclosing material information do so broadly to the investing public, not just to select analysts.”
United Airlines Settles Allegations that It Defrauded USPS, Agrees to Pay $49 Million


A young woman in Austin, Texas sends a letter home to her mother in the U.K. A man mails a package to his family in Colombia. A small business owner ships a product to an online customer in South Korea. They all used the United States Postal Service (“USPS”) to send their parcels. But how did the letter get to its international destination? Often, the answer is that USPS has contracted with an airline to carry mail and parcels from the United States to the foreign land. These contracts are very useful for USPS and very lucrative for the airlines. However, there have been numerous investigations into fraud concerning airlines and other government contractors allegedly defrauding the USPS in carrying out their contractual obligations.

In a press release on February 26, 2021, the Department of Justice (“DOJ”) announced that it had entered into a non-prosecution agreement and a civil settlement with United Airlines (“United”) to resolve allegations that United had been falsifying information concerning its deliveries to international destinations and defrauding USPS in the process. United agreed to pay $49 million to resolve the allegations. United had entered into International Commercial Air (“ICAIR”) contracts with USPS, by which United transported U.S. mail internationally on behalf of USPS. The contract required United to scan bar codes of receptacles when the mail had been delivered to the mail authority of the destination country. However, the DOJ alleged that United submitted automated delivery scans based on aspirational delivery times rather than actual delivery times in order to meet the requirements of the ICAIR contracts with USPS. The DOJ alleged that United was not actually meeting the deadlines and thus was defrauding USPS.

In coming to the resolution, the DOJ considered a number of factors, including the nature and seriousness of the offense, United’s failure to voluntarily self‑disclose the conduct, and United’s 2016 non-prosecution agreement related to potential criminal bribery or corruption violations. However, the DOJ gave United credit for cooperating with the investigation and implementing remedial measures once the conduct came to light. Under the non-prosecution agreement (“NPA”) with the Criminal Division’s Fraud Section, United agreed to pay $17,271,415 in criminal penalties and disgorgement. In a separate civil settlement with the Civil Division, United agreed to pay $32,186,687 to resolve False Claims Act liability stemming from the conduct. Going forward, United has further agreed to strengthen its compliance program and to submit yearly reports to the Fraud Section regarding the status of its remediation and implementation of United’s compliance program. 


On February 25, 2021, the U.S. Department of Health and Human Services (“HHS”) announced the resolution of three complaints alleging that MedStar Health Hospitals (“MedStar”) refused disabled patients access to support persons. According to HHS Office of Civil Rights (“OCR”), a support person is “a family member, personal care assistant, similar disability service provider, or other individual knowledgeable about the management or care of the patient who is authorized to assist the patient in making decisions.” Like many hospitals, MedStar implemented temporary visitor restrictions and policies to combat the spread of COVID-19, and specifically, infection control measures under the COVID-19 public health emergency. Unfortunately, it appears MedStar’s policies and efforts went too far. 

According to OCR’s press release, three disabled individuals were negatively affected by MedStar’s visitor policies. The three individuals did not have COVID-19, but all alleged that MedStar denied them access to their support person. One patient with a neuro-cognitive deficit from a stroke, partial blindness, and cancer, allegedly was denied a support person while in the emergency department at MedStar St. Mary’s for seizure symptoms. The second patient, who suffered hearing loss and brain dysfunction, allegedly was denied a support person while recovering from heart surgery at MedStar Washington. The final patient had advanced neuro-muscular autoimmune disease with memory loss and physical impairments, and allegedly was denied a support person at MedStar Georgetown University Hospital. According to the press release, “the complainants collectively alleged they were denied effective communication with their treatment teams, denied the ability to make informed decisions and provide consent, and were subjected unnecessarily to physical and pharmacological restraints.” OCR and MedStar resolved the complaints using OCR’s early complaint resolution. OCR provided technical assistance on disability law requirements, while MedStar updated its policy to distinguish between “visitor” and “support person.”

Since the beginning of the COVID-19 pandemic, various government entities have tried to balance care with individual rights. In 2020, then OCR director Roger Severino warned healthcare providers that “[p]ersons with disabilities, with limited English skills, or needing religious accommodations should not be put at the end of the line for health services during emergencies. Our civil rights laws protect the equal dignity of every human life from ruthless utilitarianism.” Also, on March 28, 2020, OCR issued a bulletin to remind covered entities of “their obligations under laws and regulations that prohibit discrimination on the basis of race, color, national origin, disability, age, sex, and exercise of conscience and religion in HHS-funded programs,” despite the COVID-19 pandemic and related emergency orders.  

Healthcare providers of all sizes should consider their policies and ensure the policies do not violate various federal and state laws regarding discrimination – even during a pandemic. For example, under Title II of the Americans with Disabilities Act, “no qualified individual with a disability shall, by reason of such disability, be excluded from participation in or be denied the benefits of the services, programs, or activities of a public entity, or be subjected to discrimination by any such entity.” 42 U.S.C. §§ 12131-12132. Similarly, section 504 of the Rehabilitation Act and section 1557 of the Affordable Care Act also ban recipients of federal financial assistance from discriminating against disabled individuals. 29 U.S.C. § 794(a).  
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