Volume 21 | September 2021

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DOJ Announces National Healthcare Fraud Enforcement Action – 138 Defendants Charged and $1.4 billion in Alleged Losses

In September 17, 2021, the U.S. Department of Justice announced the execution of another nationwide enforcement action targeting healthcare fraud. The enforcement action marks the second year that the DOJ has announced a nationwide takedown. Last year, CG attorneys discussed the DOJ’s nationwide enforcement action involving 345 defendants allegedly responsible for submitting more than $6 billion in fraudulent healthcare claims, involving telemedicine fraud, sober home fraud, opioid schemes, and traditional healthcare fraud schemes.

In the DOJ’s latest takedown, the government levied criminal charges against 138 defendants, which included 42 doctors, nurses, and other licensed medical professionals. According to the press release, the 2021 takedown targeted the same types of fraud as the 2020 takedown: telemedicine fraud, fraud regarding substance abuse treatment facilities (sober homes), illegal opioid distribution schemes, and traditional healthcare fraud. This 2021 takedown included an added, but unsurprising, fraud category – COVID-19 related schemes. The press release notes that the schemes resulted in approximately $1.4 billion in alleged losses.


Telemedicine fraud cases involved in the 2021 takedown amounted to over $1.1 billion in allegedly false and fraudulent claims. The claims were allegedly submitted by over 43 criminal defendants in 11 judicial districts. According to the government, certain telemedicine executives paid medical providers to order unnecessary durable medical equipment, diagnostic testing, pain medications, and other services based on limited or no interaction with patients that the providers never met. DME companies, genetic testing laboratories, and pharmacies then purchased those orders and submitted over $1.1 billion in false and fraudulent claims to the government.

COVID-19 Fraud Cases

The COVID-19 fraud cases involved fourteen defendants. Nine defendants are accused of engaging in schemes to exploit the COVID-19 pandemic. In one scheme, the defendants exploited CMS’ expanded telehealth regulations, which CG attorneys previously discussed. According to the government, the defendants misused patient information to submit claims to Medicare for medically unnecessary services. Five defendants are accused of misusing the Provider Relief Fund, which reimburses eligible providers for healthcare-related expenses and lost revenue due to COVID-19. According to the government, the five defendants allegedly used money from the Provider Relief Fund for personal expenses, gambling, and luxury purchases. The COVID-19 schemes resulted in the submission of over $29 million in false billings.

Substance Abuse Treatment Facility Fraud

The fraud cases related to substance abuse treatment facilities (“sober homes”) involved alleged kickbacks and bribery schemes related to referrals of patients seeking treatment for drug and/or alcohol addiction. These patients could also be subject to medically unnecessary services, according to the government. The sober home scheme also involved claims billed to the government for services not rendered, not medically necessary, or that were excessively expensive. These improper billings allegedly resulted in the submission of millions of dollars of false or fraudulent claims to private insurers.
According to the press release, the 2021 takedown of sober home fraud cases was announced on the first anniversary of the first-ever national sober homes takedown. The first nationwide sober home takedown resulted in charges against more than a dozen defendants for claims that amounted to more than $845 million, according to the DOJ.

Opioid Schemes & Traditional Healthcare Fraud

As part of the nationwide takedown, 19 defendants were charged for their roles in illegal opioid schemes, which included the distribution of over 12 million doses of opioids and prescription narcotics. The schemes also involved over $14 million in false billings, according to the government. More than 60 defendants were charged for their roles in traditional healthcare fraud schemes to submit over $145 million in false or fraudulent claims to government and private payors. The claims submitted were for services either medically unnecessary or never provided.

Chilivis Grubman attorneys have discussed the government’s willingness to collaborate with various agencies to bolster its enforcement capabilities – this 2021 takedown is more of the same. The takedown was led and coordinated by the Health Care Fraud Unit of the Criminal Division’s Fraud Section in conjunction with its Health Care Fraud and Appalachian Regional Prescription Opioid Strike Force program. Thirty-one U.S. Attorneys’ Offices, the FBI, the Department of Health and Human Services Office of Inspector General (HHS-OIG), the DEA, and other federal and state law enforcement agencies aided in the nationwide takedown.

The Health Care Fraud Strike Force keeps 15 strike forces in 24 districts. According to the press release, the Health Care Fraud Strike Force has charged over 4,600 defendants who allegedly billed Medicare for $23 billion. Businesses and individuals should note the government’s efforts and heed the government’s warnings. According to Deputy Inspector General for Investigations Gary L. Cantrell of HHS-OIG, “[t]oday’s announcement should serve as another warning to individuals who may be considering engaging in such illicit activity: our agency and its law enforcement partners remain unrelenting in our commitment to rooting out fraud, holding bad actors accountable, and protecting the millions of beneficiaries who rely on federal health care programs.”
Health Insurer Sued by Government for Alleged False Claims Act Violations

Chilivis Grubman attorneys have discussed the federal False Claims Act (“FCA”) extensively. The FCA prohibits any person from knowingly presenting, or causing to be presented, a false or fraudulent claim for payment to the federal government. The FCA also prohibits any person from knowingly making, using, or causing to be made or used, a false record or statement material to a false or fraudulent claim. Under the qui tam provisions of the FCA, whistleblowers (also known as relators) may receive 15% to 30% of any recovery for cases brought on behalf of the government. The FCA also allows the government to take over, or intervene, in qui tam cases. Such intervention occurred recently, according to a U.S. Department of Justice press release.

On September 14, 2021, the DOJ announced that it intervened and sued Independent Health Association and Independent Health Corporation (“Independent Health”), DxID LLC (“DxID”), and the former CEO of DxID, Betsy Gaffney. According to James P. Kennedy Jr., U.S. Attorney for the Western District of New York, “[t]he defendants are alleged to have submitted unsupported diagnosis codes to inflate reimbursements, which enabled them to receive payments from Medicare that were greater than they were entitled.”

The alleged actions took advantage of Medicare Part C’s payment structure. Under Medicare Part C, private Medicare Advantage Organizations own and operate Medicare Advantage plans in which eligible beneficiaries may enroll. The Centers for Medicare and Medicaid Services (“CMS”) oversees the Medicare program and issues risk-adjusted payments to the Medicare Advantage Plans based on demographics and the health status of beneficiaries, which establishes “risk scores.” Generally, severe diagnoses equate to higher risk scores that result in CMS issuing a higher risk-adjusted payment to the Medicare Advantage Plan.

According to the press release, the defendants are related parties. DxID is a subsidiary of Independent Health and provides retrospective chart review and addenda services to Independent Health’s Medicare Advantage Plans and other Medicare Advantage Plans. DxID operated on a contingency fee based on any added recovery that Medicare Advantage Plans received because of its work. The government alleges that the contingency fee could be as high as 20%.

According to the government, DxID coded conditions not originally documented in the patient’s chart during the encounter. DxID also asked healthcare providers to sign addenda forms up to a year after the encounter, according to the press release. The addenda forms were allegedly used to support adding diagnoses to the records not originally present in the patient’s chart. These diagnoses resulted in inflated risk scores that increased the payments to Independent Health. The government also alleges that Independent Health learned of the unsupported diagnosis codes supplied by DxID but did not take adequate corrective actions, such as identifying and deleting the unsupported codes.

Interestingly, the government initially declined to intervene and informed the court of its decision. The government later changed course and moved to intervene for good cause, which the court granted. According to the press release, “[t]he United States’ intervention in this matter illustrates the government’s emphasis on combating health care fraud. One of the most powerful tools in this effort is the False Claims Act.”

Chilivis Grubman News

We are pleased to announce the addition of our newest litigation associate, Serreen Meki. Serreen has experience in both criminal and civil litigation, having previously served as a prosecutor in both Fulton and DeKalb Counties. Welcome Serreen!
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Chilivis Grubman attorney Andrew Mason's article, "What Does the SEC'S Wells Notice to Coinbase Mean Crypto?" published in the Daily Report. The article is available here.
SEC Issues Wells Notice to Coinbase over Lend Program

If you are reading this, the chances are good that you have heard of cryptocurrency. But what is cryptocurrency? How does it work? Is it actually currency? Is it property? Who regulates it? All great questions and all with answers that leave a little to be desired. Investopedia.com explains that “[a] cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are decentralized networks based on blockchain technology—a distributed ledger enforced by a disparate network of computers.” Essentially, cryptocurrency is an attempt to replace government-backed currency through a digital medium using cryptography to try to replicate the security that government backing provides traditional currency. Many people feel that cryptocurrency provides better security and privacy protections than traditional currencies.

But is it actually currency? Well, yes and no. Currency is only currency if it can be used as a generally accepted medium to engage in trade. In order to do that, the currency has to be acceptable to members of the public as a means to pay for goods and services. While some companies will accept payment in various cryptocurrencies, most companies and individuals still seek to be paid in traditional government-backed currencies. But that is changing. On September 7, El Salvador became the first country in the world to accept Bitcoin as legal tender. Still, relatively few consumers appear willing to accept cryptocurrency as an alternative to government-backed currencies. Instead, most who trade in cryptocurrencies do so because they see it as a promising investment opportunity.
If people see cryptocurrencies as an investment rather than an actual currency, what are they really? The IRS classifies cryptocurrency as property for tax purposes. The Commodity Futures Trading Commission (CFTC) considers cryptocurrencies to be commodities. The SEC has said that some cryptocurrencies may be securities. So, who regulates cryptocurrencies? Currently, there is very little regulation in the crypto space. Both the CFTC and SEC have signaled their willingness to regulate cryptocurrencies, but the industry remains highly unregulated. While it appears that CFTC has a stronger basis for regulating cryptocurrencies, the SEC has already begun bringing actions against actors in the industry. On September 1, the SEC announced that it had brought an action for fraud against BitConnect, an online crypto lending platform, and its founder accusing the company of orchestrating a massive Ponzi scheme. The SEC routinely brings enforcement actions in cases involving massive fraud, and Ponzi schemes in particular. But the SEC’s case against Coinbase represents new ground for the Commission.

On September 7, Coinbase, a cryptocurrency exchange platform, announced that it had received a Wells notice from the SEC indicating that the SEC planned to sue Coinbase over its upcoming “Lend” program. Coinbase’s Lend program is based on USD Coin (USDC), “a type of cryptocurrency known as a stablecoin. USDC is redeemable on a 1:1 basis for US dollars, backed by dollar denominated assets held in segregated accounts with US regulated financial institutions.” As part of the Lend program, Coinbase “lend[s] your USD Coin to verified borrowers, allowing you to earn 4% APY – over 8x the national average for high-yield savings accounts.” Sounds simple enough. That sounds like something banks do all the time. However, Coinbase is not a bank and is not regulated as such. Coinbase is not FDIC insured. Most of the safeguards protecting consumers in transactions with banks do not apply to Coinbase or other companies operating in the crypto sphere. That being the case, the SEC appears to be stepping in to provide protection to consumers.

But how can the SEC regulate this product? Most cryptocurrencies do not fall within the definition of a security; however, the product offered by Coinbase is not actually cryptocurrency. Instead, consumers are lending cryptocurrency to other consumers or entities in order to gain a 4% return on their assets. Taken in that context, the Lend program may be considered a “note” or even a “bond” by the SEC, both of which are heavily regulated by SEC and require significant disclosures to investors. That appears to be the route the SEC is taking. However, there are issues with this theory. As BlackRock explains, “Bonds – also known as fixed income instruments – are used by governments or companies to raise money by borrowing from investors. Bonds are typically issued to raise funds for specific projects. In return, the bond issuer promises to pay back the investment, with interest, over a certain period of time.” Similarly, the definition of “security” included in the Securities Exchange Act of 1934 excludes “any note . . . which has a maturity at the time of issuance of not exceeding nine months.”

Coinbase’s website states that “You can opt-out at any time,” and “You can continue to send and sell your crypto without delay and with no fees.” The description of the Lend program does not appear to contemplate repayment over a specified period of time like a traditional bond. Additionally, the ability to opt out and trade a consumer’s cryptocurrency may bring the program within the nine-month exception in the 1934 Act. But why would the SEC bring an action against Coinbase if the basis for the action is debatable. Two reasons: 1) SEC wants to see if the courts will allow it to bring such actions given the lack of regulation in the crypto sphere, and 2) SEC wants to push Congress to enact legislation allowing it to regulate and bring enforcement actions against crypto companies. A clear mandate from Congress would be welcome, but the SEC is comfortable bringing enforcement actions without a clear mandate if the courts allow it – insider trading enforcement comes to mind. Either way, the case against Coinbase will be a bellwether for future SEC enforcement and regulation in the cryptocurrency industry.
Georgia Companies Resolve False Claims Act Allegations For $900k

The False Claims Act (“FCA”) is a powerful enforcement tool for the U.S. Government. The FCA prohibits any person from knowingly presenting, or causing to be presented, a false or fraudulent claim for payment to the federal government. The FCA also prohibits any person from knowingly making, using, or causing to be made or used, a false record or statement material to a false or fraudulent claim. FCA settlements are widely reported because the settlements often involve a large settlement amount due to the penalty structure of the FCA. Under the FCA, violators are liable for civil penalties of over $23,000 per claim, plus treble damages. For healthcare providers who submit large numbers of claims, the FCA’s penalty structure often results in exceptionally large – newsworthy – settlements. For this reason, it is common for some people to incorrectly believe that FCA cases are limited to the healthcare industry. However, the U.S. Department of Justice (“DOJ”) uses the FCA as an enforcement tool in other industries, like finance, education, and military contracting. Such was the case according to a recent DOJ press release.

On September 10, 2021, the DOJ reported that two Georgia defense contractors, Southeastern Equipment Co., Inc. and SECO Parts and Equipment Co., and their owners (“SECO”) agreed to pay $900k to resolve FCA allegations. Like many FCA settlements, the SECO settlement resolves a qui tam lawsuit. Under the FCA’s qui tam provisions, whistleblowers – known as relators – are granted financial incentives and procedural mechanisms to bring FCA cases on behalf of the government. Whistleblowers are entitled to 15% to 30% of the money the government recovers, based on several factors.

The SECO settlement involves allegations that SECO knowingly supplied substitute parts through the U.S. Army’s Simplified Nonstandard Acquisition Program (SNAP) that were unapproved. SECO also faced allegations it violated the Buy American Act by supplying parts manufactured in a country that did not qualify under the Buy American Act. This case serves as a stark reminder that any entity doing business with the federal government – in any industry – must follow contractual obligations to avoid running afoul of fraud, waste, and abuse laws like the FCA.

There are risks and costs to action. But they are far less than the long range risks of comfortable inaction.

Former U.S. President, John F. Kennedy
Clinton Portis and Other Former NFL Players Plead Guilty to Health Care Fraud

On September 7, the Department of Justice announced that Clinton Portis and two other former NFL players had pled guilty to defrauding a health care program set up by the NFL to benefit former players. This announcement came after a trial resulted in a hung jury and a mistrial on some counts. The health care program entitled former NFL players to tax-free reimbursement of up to $350,000 in medical expenses. Along with the three NFL players that pled guilty leading up to the September 7 announcement, twelve other former players had pled guilty to their involvement in the fraud. Those individuals include Joe Horn, Correll Buckhalter, Carlos Rogers, James Butler, Etric Pruitt, Ceandris Brown, John Eubanks, Antwan Odom, Darrell Reid, Anthony Montgomery, Fredrick Bennett, and Reche Caldwell.

Former player Robert McCune was allegedly the individual managing the fraud across the country. In total, McCune is alleged to have caused $2.9 million in claims to be submitted to the plan, with a total of $2.5 million in claims actually being reimbursed. Another former player, Tamarick Vanover, allegedly encouraged three other former players to join the scheme, causing nearly $160,000 in false claims to be submitted to the program. Portis, the most famous and successful of the players involved, is alleged to have submitted false claims for nearly $100,000 in medical equipment that was not actually purchased.

After pleading guilty to conspiracy to commit wire fraud and health care fraud, and aggravated identity theft, among other counts, McCune faces a potential sentence of over 350 years in prison. After pleading guilty to conspiracy to commit health care fraud, Portis and Vanover face up to 10 years in prison for their conduct. They also must pay restitution to the health care program.
$90 Million False Claims Act Settlement for Sutter Health

On August 30, 2021, the Department of Justice announced that it had reached a $90 million settlement with Sutter Health and its affiliates to resolve allegations that Sutter Health had overcharged the Medicare Advantage Program. The government alleged that Sutter Health had violated the False Claims Act by knowingly submitting inaccurate information about the health status of Medicare Advantage Plan beneficiaries receiving services from Sutter Health. Because Medicare Advantage Plans pay a per-person amount to provide benefits to beneficiaries based on the health status and demographic information of the beneficiaries, false information concerning the health status of beneficiaries can lead to improperly inflated payments.

As a health care services provider contracted to provide services to Medicare beneficiaries in California, Sutter Health received payments for treating Medicare Advantage Plan beneficiaries. Sutter Health allegedly reported beneficiary diagnoses without the necessary supporting documentation, leading to increased payments to Sutter Health, and once the conduct was identified by Sutter Health, it failed to correct the issue. Pursuant to the settlement, Sutter Health and its affiliates entered into a five-year Corporate Integrity Agreement with the Department of Health and Human Services, Office of Inspector General. Among other things, Sutter Health is required to engage an independent entity to review its Medicare Advantage patients’ medical records on an annual basis.

In its announcement, DOJ stated that the investigation and eventual settlement was the result of a qui tam complaint filed by a former employee of one of the Sutter Health affiliates. The government relies heavily on relators to reveal potential fraud to the government. Fraud, by its nature, is concealed from the prying eyes of regulators and government investigators. The government believes that relators are crucial in pealing back the shades and revealing fraud, and it rewards relators with a portion of any recovery against individuals and entities that the relator has reported on; however, DOJ did not announce the amount that the relator against Sutter Health would be awarded. There are also protections in place to prevent retaliation and ensure that previous employees are not hampered in bringing fraud to the attention of the government.
Netflix Employees, Family, and Friends Charged with Insider Trading

On August 18, the SEC announced that it had charged three former Netflix Inc. software engineers and two close associates with insider trading. The SEC alleges that the group realized over $3 million in profit by trading on material non-public information concerning Netflix’s subscriber growth. The SEC claims that, between 2016 and 2017, Sung Mo Jun provided his brother Joon Mo Jun and his friend Junwoo Chon material non-public information concerning the growth of Netflix’s subscriber base, a key metric in Netflix’s quarterly earnings. Based on that information, SEC alleges that the brother and friend both traded in advance of Netflix earnings announcements.

According to the SEC, Sung Mo Jun continued to obtain material non-public information concerning Netflix subscriber growth following his departure from the company in 2017. After obtaining the information from a former colleague at Netflix, the SEC alleges that Sung Mo Jun, his brother, and his friend traded in advance of earnings announcements until 2019. The SEC further alleges that another Netflix engineer, Jae Hyeon Bae, provided another individual, Joon Jun, subscriber growth information in advance of Netflix’s July 2019 earnings announcement. Joon Jun, Sung Mo Jun, and Mo Jun’s friend all allegedly used encrypted messaging in an attempt to conceal the illicit trades. SEC also alleges that the defendants paid kickbacks to the sources of the material non-public information. Five individuals have been charged with insider trading, and all five have consented to the entry of judgments against them. Four of the individuals have also been charged criminally by the U.S. Attorney’s Office for the Western District of Washington.

These charges are significant because the alleged illegal conduct was detected through the SEC’s use of sophisticated data analytics tools. More and more, these tools are being used to identify suspicious trading that would not otherwise be detected. In the past, trading in the accounts of relatives might have shielded a trader from the consequences of illegal trades, but with the growing use of data analytics, that sort of covert conduct is being discovered and prosecuted more often. The SEC’s Market Abuse Unit’s Analysis and Detection Center has made detection of illicit trading by relatives and friends common place, and increasingly, insiders who tip their loved ones are facing charges.
Doctor Indicted for Alleged Participation In $5.1 Million Healthcare Fraud Scheme Involving Illegal Prescriptions for Controlled Substances

Despite the COVID-19 pandemic and the government’s increased focus on CARES Act relief fund fraud, the government continues to investigate and enforce healthcare fraud unrelated to the COVID-19 pandemic. A recent indictment demonstrates the government’s continued enforcement efforts.

On August 27, 2021, a federal grand jury indicted a Louisiana doctor for his alleged participation in a scheme that distributed over 1.2 million doses of Schedule II controlled substances. A Schedule II drug is a drug or other substance that has a high potential for abuse, and abuse of the drug or other substance may lead to severe psychological or physical dependence. 21 U.S.C. § 812(b)(2). Since many prescriptions were filled and paid for using health insurance benefits, the Louisiana doctor was also charged with defrauding health care benefit programs of more than $5.1 million.

According to the press release and indictment, the defendant formed Medex Clinical Consultants in Slidell, Louisiana in 2010. Medex was a primary care clinic that purportedly offered general medical services; however, the government alleges that Medex primarily provided pain management services. The government noted that Medex kept irregular business hours. According to the indictment, patients frequently arrived at Medex before 5 a.m. and would enter the practice when the doors opened, frequently before 7 a.m. The patients would remain in the practice until a nurse practitioner arrived, usually around 7:30 a.m. or 8 a.m. The patients then exited as a group with prescriptions. The indictment further alleges that Medex typically closed before noon.

In 2015, at the defendant’s direction, Medex discontinued accepting Medicare benefits for office visits. The indictment notes that the defendant required patients to sign consent forms acknowledging that Medicare would not be billed or reimburse any services he provided “but that beneficiaries could utilize their Medicare benefits for other purposes.” Because the consent forms noted that the beneficiaries could utilize their Medicare benefits for other purposes, the government alleges that the defendant knew that patients continued to use their insurance benefits to fill their Medex prescriptions at pharmacies.

In February 2015, the defendant maintained a full-time position at a VA Medical Center, an approximate 3.5-hour drive away from his Medex clinic. The indictment noted that the defendant usually worked Monday through Friday from 8:00 a.m. until 4:30 p.m. The defendant is accused of pre-signing prescriptions for Schedule II controlled substances to be issued at Medex when he was not physically in the office. The indictment cited an instance on July 27, 2013, where the defendant wrote 66 prescriptions for patients at the VA Medical Center between 8:53 a.m. and 4:21 p.m. On the same day, Medex issued prescriptions with the defendant’s signature to 15 patients.

In August 2016, the defendant took a leave of absence from his position at the VA Medical Center. A few months later, the defendant hired a physician (co-conspirator) to work at Medex. The defendant is accused of directing his co-conspirator to pre-sign prescriptions. The co-conspirator pre-signed prescriptions for controlled substances and, at times, pre-signed blank prescriptions. These pre-signed prescriptions were left with Medex office employees, including a non-medically trained employee.

According to the indictment, Medicare paid over $1.8 million, Medicaid paid over $2.4 million, and Blue Cross paid over $800,000 for controlled substance prescriptions that the defendant and his co-conspirator pre-signed at the defendant’s direction. These prescriptions were pre-signed without examinations being performed. As a result of the scheme, the defendant is charged with one count of conspiracy to unlawfully distribute and dispense controlled substances, one count of maintaining a drug-involved premises, and four counts of unlawfully distributing and dispensing controlled substances. If convicted, the defendant faces 20 years in jail for each of these charges. The government also charged the defendant with one count of conspiracy to commit healthcare fraud, for which he faces up to 10 years in prison.
A Recipe for Fraud, Waste, Abuse Enforcement: Off-label Amniotic Treatments

For years, the knowledge and discussion of potential uses and benefits of medical treatments based on human amniotic tissue and fluids were limited to the healthcare community. However, the potential benefits of such treatments have moved to the forefront of public awareness and are sometimes presented as a miracle treatment for various illnesses. But the scientific community currently only recognizes limited uses of human amniotic tissue – though research continues. CMS and commercial payors also recognize amniotic-based treatments as medically necessary in limited circumstances. For example, CMS recognizes the limited use of amniotic membrane for treatment in venous stasis ulcers and diabetic foot ulcers.

Despite the limited use of amniotic-based treatments, there has been increasing off-label use and claims associated with off-label use, often not yet backed by scientific evidence. Some advertisements and pitches create ambiguity as to whether the amniotic product contains stem cells, whether the treatment is approved by the FDA, and whether the treatment is covered by CMS or commercial insurances. A common ambiguity involves the purported assignment of Q-codes by CMS, which to the unwary, could appear to be CMS approval of off-label uses.

The assignment of a Q-code alone does not render a treatment reimbursable or approved by CMS for broad and off-label use. CMS’ Healthcare Common Procedure Coding System (HCPCS) Level II Coding Procedures, which describes the procedures CMS follows to process HCPCS codes and to make coding decisions, explains that “the Q codes are established to identify drugs, biologicals, and medical equipment or services not identified by national HCPCS Level II codes, but for which codes are needed for Medicare claims processing.” Any advertisement or pitch relying exclusively on Q-code assignment should be scrutinized, especially where a Local Code Determination (LCD) has not and cannot be provided. An LCD is a determination by a Medicare Administrative Contractor (MAC) on whether to cover a particular service on a MAC-wide basis, and coverage criteria are defined within each LCD. The LCD associated with amniotic-based treatment is LCD L36690 Wound Application of Cellular and/or Tissue-Based Products, Lower extremities. Notably, CMS contractors have started early discussions focusing on amniotic product injections for musculoskeletal indications (non-wound).

Despite early discussions of broader uses of amniotic-based treatments, off-label uses pose significant risks to providers and businesses. LCD L36690 cautions providers that “it is not appropriate to bill Medicare for services that are not covered (as described by this entire LCD) as if they are covered.… Compliance with the provisions in this policy may be monitored and addressed through post payment data analysis and subsequent medical review audits.” In October 2020, CGS, a CMS contractor, published a warning that amniotic-based treatments outside of the labeled use and as defined in L36690 are considered off-labeled and may not be a covered service. Similarly, Noridian, also a CMS contractor, issued a Local Coverage Article (LCA A56156) in 2018 noting that it received no evidence-based peer-reviewed clinical literature to support off-label uses of amniotic-based treatments and considers such use unreasonable and unnecessary. Noridian also explained that the “FDA has clarified for Medicare Contractors that all injectable amniotic and/or placental-derived products fall under FDA section 351 of the Federal Food, Drug, and Cosmetic Act” and some off-label advertisements could be considered false advertising.

Noridian’s warnings are substantiated. The Federal Trade Commission returned nearly $515,000 to consumers who paid for deceptively advertised amniotic stem cell therapy from Dr. Bryn J. Henderson. According to the FTC, Dr. Henderson advertised that amniotic stem cell therapy could treat serious diseases, including Parkinson’s disease, autism, macular degeneration, cerebral palsy, and other significant illnesses; however, the FTC found that Dr. Henderson lacked the scientific evidence needed to support the claims.
Beyond potential false advertisement risks, providers may face culpability under fraud, waste, and abuse laws. For example, knowingly billing Medicare for services not covered, such as non-reimbursable amniotic injections or those that are not medically necessary, may violate the False Claims Act (FCA), which CG attorneys have discussed extensively. The FCA, in part, prohibits any person from knowingly presenting or causing to be presented, a false or fraudulent claim for payment to the federal government. For civil violations, penalties can amount to over $23,000 per claim, plus treble damages, which can be astronomical for healthcare providers due to the volume of claim submissions. 31 U.S.C. § 3729(a)(1)(G). Individuals may also face criminal prosecution for violating the FCA, which may result in fines and/or jail time.

Another concern related to amniotic-based treatments is the relationship between the provider and the amniotic product supplier. Like any relationship between a provider and supplier, providers should ensure the relationship does not violate the Anti-Kickback Statute (AKS). The AKS prohibits offering, paying, soliciting, or receiving any remuneration in exchange for federal healthcare program referrals. AKS violations carry potential criminal, civil, and administrative consequences, including monetary penalties and possible exclusion from federal healthcare programs. Similarly, providers must ensure their relationship with an amniotic product supplier does not violate the relatively new Eliminating Kickbacks in Recovery Act (EKRA). EKRA, in relevant part, makes it a federal crime to knowingly and willfully (1) solicit or receive any remuneration in return for referring a patient to a recovery home, clinical treatment facility, or laboratory; or (2) pay or offer any remuneration to induce a referral of an individual to a recovery home, clinical treatment facility, or laboratory; or in exchange for an individual using the services of that recovery home, clinical treatment facility, or laboratory. Each violation of EKRA is punishable by up to a $200,000 fine, 10 years in jail, or both. Although EKRA uses similar language to the existing federal AKS, it is broader than the AKS. For example, unlike the AKS, which applies only to federal healthcare programs, EKRA applies to both federal healthcare programs and commercial health plans.

Providers may also run afoul of commercial payor fraud, waste, and abuse policies. In December 2020, the Blue Cross and Blue Shield of Illinois Special Investigations Department issued a warning after it “become aware of several instances involving experimental, investigational and/or unproven applications of human amniotic membrane products.” Blue Cross and Blue Shield of Illinois reminded providers that its policy provided for limited use of human amniotic membrane products. Several commercial payors have taken similar positions.

Providers and businesses must be cautious regarding their communication related to new medical treatments that have not obtained widely accepted approval from the science community and the government – including amniotic-based treatments. Providers must also be especially careful billing payors (government and commercial) for amniotic-based treatments. Applicable medical guidelines and government policies should be consulted and followed. As suppliers and providers increase advertising of off-label medical treatments, especially amniotic-based treatments, so will government scrutiny increase. Bottom line: providing and billing for off-label medical treatments or treatments not yet recognized by the government may increase government scrutiny and make a provider or business vulnerable to government enforcement action(s).
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