The Health Insurance Reform Act of 1996

The Health Insurance Reform Act of 1996 ("Act"), which went into effect July 1, 1997, contains sweeping revisions of the Health Care Fraud and Abuse Laws (the "Revisions"). The Act is discussed in detail below.

Safe Harbors, Exceptions, and Revisions

The Act includes considerable provisions relating to the application of the Anti-Kickback Statute, with a mandate to the OIG-HHS issue advisory opinions to those who request them, about what conduct, arrangements and activities are prohibited under the broad-based Statute. The Act calls for the OIG-HHS to issue an advisory opinion within sixty days of a request from a member of the public. The OIG-HHS will be required to publish proposed modifications to existing safe harbors and proposed additional safe harbors, if appropriate, with a sixty-day comment period. The Act also allows any person at any time to request the OIG-HHS to investigate practices that the OIG-HHS considers to be suspect or of particular concern under the Medicare and Medicaid programs, and if merited, to issue a special fraud alert informing the public of such practices.

The Act also creates an important exception under the Anti-Kickback Statute for risk-sharing arrangements. This exception would apply to any remuneration between a Medicare-certified health maintenance organization ("HMO") and an individual or entity providing items or services under the Medicare or Medicaid Programs, so long as the agreement between the HMO and the provider is a risk-sharing arrangement.

The Act also makes major revisions to the Civil Money Penalty ("CMP") Law, including expansion of its application to all "Federal health care programs." The Act also increases assessments from twice to three times the amount claimed and penalties from $2,000 to $10,000 per item. The CMP Law is also amended to redefine the intent standard from "knew or should have known" to "acts in deliberate ignorance of the truth or falsity of the information, or acts in reckless disregard of the truth or falsity of the information." This standard parallels the requirements under the current United States False Claims Act, which also does not require proof of "specific intent to defraud." The elimination of the "knew or should have known" standard should remove mere negligence in the submission of claims for payment as a basis for liability under the Law. The Act does, however, authorize the imposition of CMP's in situations in which inducements are offered to individuals enrolled under certain programs or plans (including waiver of coinsurance and deductible amounts) that the offeror knows or should know are likely to influence such individual to order or receive any item or service from a particular provider or supplier in which payment is made in whole or part under Medicare or Medicaid.

Sanctions Provisions

The Act also establishes intermediate sanctions for Medicare HMO's that have failed substantially to carry out the provisions of their contract with Medicare or Medicaid or have carried them out in a manner substantially inconsistent with the efficient and effective administration of the program. These intermediate sanctions take the form of CMP's of not more than $25,000 for each determination that the deficiency has directly adversely affected or has the substantial likelihood of adversely affecting, a subscriber of the HMO. These provisions preview the prospect of significant CMP administrative actions for time periods when an HMO fails to fulfill its conditions of participation and for as long as the deficiency continues. The Act also authorizes as another intermediate sanction the suspension of the enrollment of new subscribers in an HMO. These provisions are in effect with respect to acts or omissions occurring on or after January 1, 1997.

The Act also provides for a CMP against a physician who executes a document that falsely certifies an individual for Medicare-covered home health services. The penalty shall not be more that the greater of $5,000 or three times the amount of payments under the Medicare program for home health services that were made pursuant to such false certification.

Fraud and Abuse

The Act has many other provisions relating to the fraud and abuse laws, including the establishment of a Medicare Integrity Program designed to provide for the contracting with private companies to carry out certain fraud and abuse detection activities currently done by Medicare contractors, which are generally large insurance companies. Furthermore, the Act calls for a "beneficiary incentive program," which will encourage individuals to report information on providers and suppliers in the health care industry who are allegedly engaging in violations of the Medicare and Medicaid fraud and abuse laws. These individuals will be entitled to receive a portion of any amount collected by the government based on the information supplied by the beneficiary. This provision is a form of "whistleblower" authority similar to that under the United States False Claims Act.

Finally, other significant provisions of the Act create a new criminal health care fraud statute and criminal forfeiture offense for health care fraud violations, authority for injunctive relief, and the obtaining of information through subpoenas by the Attorney General. Other provisions expand the bases for mandatory exclusion and establish a minimum period of exclusion for permissive exclusions. One new exclusion provision authorizes the Secretary of HHS (the "Secretary") to impose sanctions against individuals with a direct or indirect ownership or control interest in a sanctioned entity where the individual "knows or should know" of the activity leading to the conviction or exclusion of the entity or where the individual is an officer or managing employee of the entity. This provision is the mirror image of the current exclusion authority allowing the Secretary to exclude an entity that is owned, controlled or managed by a sanctioned individual.

These legislative amendments further underscore and bolster the federal government's efforts to combat fraud and abuse and provide specific authority to enforce the laws, yet at the same time they establish a mechanism for providers and suppliers to seek clarification of the law in uncertain situations. This will be especially important with the increased incentives for individuals to report fraud and abuse activity and the federal government's increased ability to prosecute it criminally, civilly, and/or administratively.

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