Preparing for the Aftermath of COVID-19: The Investigations - McDermott Will & Emery

Preparing for the Aftermath of COVID-19: The Investigations


As the US federal government dedicates trillions of dollars toward containing and treating Coronavirus (COVID-19) and stimulating the national economy, it is also waiving many federal health program requirements to allow providers greater flexibility in addressing the pandemic. When the dust settles, however, the use of these dollars and actions taken under loosened restrictions will likely come under increased scrutiny. Providers should practice good compliance hygiene now to stave off potential False Claims Act claims and other alleged violations of federal and state rules and regulations.

In Depth


In recent weeks, the federal government has dedicated trillions of dollars toward containing and treating Coronavirus (COVID-19) and stimulating the economy in response to the pandemic. It also has waived many federal health program requirements to allow providers to have greater flexibility in combatting the virus. When the dust settles, however, government actors will scrutinize the use of those dollars with the help of potential relators who witness provider misconduct. During these challenging times, healthcare providers must remember to practice good compliance hygiene. With federal funds comes federal scrutiny, so providers should be ever vigilant about complying with governmental rules and regulations to stave off potential allegations of false claims in the future.

Impending Governmental Scrutiny

The federal False Claims Act (FCA) has been an often-used tool for relators and governmental enforcement authorities to bring claims against recipients following national crises—whether to penalize universities that received funds from the Department of Veterans Affairs under the post-9/11 GI Bill or contractors failing to perform work for which they receive Hurricane Katrina relief funds.

Healthcare fraud and abuse has been an area of focus for FCA enforcement for many years. In 2019, of the $3 billion recovered by the Department of Justice due to FCA settlements and judgments, $2.6 billion was related to the healthcare, life sciences and pharmaceutical industries, making it the 10th year in a row that healthcare-related recoveries exceeded $2 billion. We anticipate this will continue in 2020 and expand to include COVID-19 due to $2 million allocated to the Department of Health and Human Services (HHS) Office of Inspector General (OIG) for oversight of activities supported with funds appropriated to HHS as part of the Coronavirus Preparedness and Response Supplemental Appropriations Act.

That money may have already been put to use. On March 20, 2020, Attorney General Barr urged the public to report COVID-19-related fraud schemes by calling the National Center for Disaster Fraud, and all US Attorneys were directed to appoint a coronavirus fraud coordinator to serve as the legal counsel overseeing the prosecution of district COVID-19-related crimes and to conduct outreach and awareness. Almost immediately thereafter, on March 22, DOJ filed its first enforcement action in the Western District of Texas against Austin-based operators of “,” alleging that the website was a wire fraud scheme that offered customers access to COVID-19 vaccine kits in exchange for a $4.95 shipping fee, which would be charged to customers’ credit cards. And on March 23, OIG published a fraud alert warning beneficiaries about “fraudsters” targeting them for fraudulent tests or other services.

Keeping the “Care” in Healthcare

On March 3, 2020, the DOJ announced the launch of a National Nursing Home Initiative to investigate nursing home complaints about providing substandard care to nursing home residents. With increasing public scrutiny of nursing homes during the COVID-19 pandemic, especially as it relates to the quality of care provided, providers are at higher risk of investigations or whistleblower suits under the FCA. One potential FCA claim that DOJ and relators have explored in recent years is the “worthless services” claim. As we discussed previously, claimants bringing a “worthless services” claim under the FCA must establish that the services were of such a quality that they were equivalent to no services. Although “worthless services” continue to receive serious court scrutiny, and claimants face high hurdles, at least one court has held that a provider may violate the FCA by making a “knowing request of federal reimbursement for a procedure with no medical value.” (See U.S. ex rel. Mikes v. Strauss, 274 F.3d 687, 702 (2nd Cir. 2001)).

Following the deaths of several individuals from COVID-19 in the Life Care Center in Kirkland, Washington, CMS Administrator Seema Verma posed several questions that the federal government may ask providers where adverse outcomes were excessive: “Were there some breaches of protocol? Was this facility following the guidelines that are in place? Was there handwashing? Were they changing gloves? Were they doing laundry appropriately? Was food handled appropriately?” Under Medicare rules, hospitals, nursing homes, and other facilities are obligated to provide a sanitary environment to avoid the transmission of infections and communicable diseases. (See, e.g., 42 CFR § 482.42; 42 CFR § 483.80). Medicare Conditions of Participation (CoPs) impose certain quality of care standards that providers must meet to participate in the program. Failure to adhere to CoPs may result in administrative sanctions, exclusion from federal health care programs, corrective action plans and other reporting requirements. CMS also imposes emergency preparedness obligations on providers and suppliers as a Medicare CoP. (See Appendix Z of the Medicare State Operations Manual.)

It is unclear whether a violation of a CoP relating to emergency preparedness could constitute the basis for a false claim. As we have reported previously, a court reviewing this issue would ask if CMS would consider the violation to be material to its decision to make payment. (See Universal Health Services v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016)). Based on past experience, a Medicare provider’s lack of emergency preparedness compliance is not, alone, likely to give rise to FCA liability. Still, evidence that a facility met the emergency preparedness CoPs should be a strong defense against any such allegations. Furthermore, CMS has instructed surveyors not to cite facilities based on emergency preparedness CoPs for the three weeks that began on March 20, 2020.

Provider and Contracting Matters

Following President Trump’s declaration of a national emergency, the Secretary of HHS issued a broad Section 1135 waiver that authorized certain blanket waivers of requirements related to Medicare, Medicaid and the Children’s Health Insurance Program (CHIP). The current 1135 waiver treats Stark Law as a “case-by-case” waiver, meaning individual providers need to apply for a waiver. However, CMS has publically stated that it is considering issuing a blanket national Stark Law waiver soon.

As we discussed previously in our On the Subject: Section 1135 Waivers Now Available, But Some Waivers May Require Approval, CMS may approve other waivers on a case-by-case basis. CMS typically will review individual waiver requests and respond within three days, but given the volume of waiver requests in response to COVID-19, the process may take longer. Stakeholders such as the American Hospital Association have recommended that enforcement of the Anti-Kickback Statute (AKS) should be temporarily suspended during these challenging times as well.

This situation is very fluid, with developments every day from the government. The problem, of course, is that providers who submit a case-by-case waiver request may face the difficult decision of whether to take action to address medical emergencies before CMS’s final approval. As CMS and other agencies continue to promulgate guidance related to COVID-19, and as states also apply for Section 1135 waivers, there may be confusion about which requirements are still in effect and which ones are waived. Further, even if a provider receives a federal waiver, there may also be state laws or regulations that are as restrictive, if not more stringent, that would need to be waived to proceed. Providers should continue to monitor the changing landscape of regulations to prevent violations of federal requirements that may give rise to FCA claims later on.

Finally, as we discussed previously in our On the Subject: Executive and Physician Compensation, Benefits and Contract Issues in the COVID-19 Era, hospitals and health systems should be prepared for rapid decision-making on physician employment issues, including compensation adjustments, retention arrangements and hiring decisions. Organizations may need to consider executing agreements to retain current healthcare workers and hire new ones to manage the expected surge in hospital capacity. In addition, physicians are starting to request rent abatements or forgiveness for space leases and other financial assistance from health systems due to the dramatic drop in patient services, especially elective procedures.

When decisions are made quickly, it can be tempting to deviate from traditional guidelines and approval processes. However, organizations should continue to maintain compensation discipline and document the reasons behind deviating from the established compensation practices or making changes to existing arrangements, even during an emergency. Contemporaneous documentation explaining why an arrangement was necessary to deliver care, or why an arrangement needed to be changed due to these exigent circumstances, is critical preparation for the inevitable inquiries by the government and relators in the future. This does not mean every request by a physician or other provider or supplier can be granted without risk under the Stark Law and AKS. Organizations need to properly evaluate the reasonableness of the request or arrangement in light of the existing regulatory framework.

Furthermore, some valuation firms have been considering applying a “hazard pay” concept to physicians and other health care practitioners who are placing themselves in harm’s way by treating patients during the pandemic. Obtaining guidance on this issue contemporaneously can help avoid or blunt inquiries in the future.

Mitigation Steps

As the dust settles, enforcement and scrutiny will follow. For these reasons, providers should continue to practice good compliance hygiene:

  • Maintain diligent, contemporaneous records regarding accounting and spending of federal funds.
  • Document, in real-time, deviations from policies. Demonstrate when actions were taken to save lives or continue care delivery because there was no reasonable alternative.
  • Follow government instructions. When an oral instruction or answer to a question is provided, document the details of the conversation contemporaneously, including the name of the government official.
  • Adhere to proper billing and coding rules when submitting claims for COVID-19 tests and treatments.
  • When possible, revise policies and procedures to address the changing circumstances of COVID-19.
  • Consider seeking permission (e.g., Section 1135 waivers).
  • Make information accessible to employees and contractors on proper fraud, waste and abuse compliance and provide key compliance training to new providers as needed.
  • Build up the internal audit function to monitor claims for appropriateness before submission and evaluate audit plans to take into account changed circumstances during COVID-19.

Taking such measures will help providers ensure that they have a road map of the action that they took and why—precisely the kind of road map that will prove useful to stave off government investigations and whistleblowers.