A recent rule indicates that donations from healthcare entities could be subject to scrutiny by the DOJ

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March 7, 2022

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On February 14, 2022, the Department of Justice and the U.S. Attorney’s Office for the Intermediate District of Florida announced that they had reached a $5.5 million settlement with NCH Healthcare System (“NCH”) to resolve the common law claims arising from NCH donations to local government entities. – payments that the government says were improperly used to fund Florida’s share of Medicaid payments to NCH.

NCH ​​is a not-for-profit entity that operates two hospitals in Collier County, Florida. The government alleged that between October 2014 and September 2105, NCH provided free nursing and athletic training services to the Collier County School Board and paid other financial obligations on behalf of Collier County.[1] According to the government’s theory, these donations were designed to artificially increase Medicaid payments to NCH without any corresponding expenditure of state or local health care funds. Instead, the donations allowed the county and its local school board to avoid various expenses, which left funds available to disburse to the State of Florida as a share of Medicaid payments owed to NCH. Under federal law, specifically 42 USC § 1396b(w)(2)(B), Florida’s share of Medicaid payments must be made up of state or local government funds, not ” non-bona fide donations” from private health care providers. A non-bona fide donation triggers a corresponding federal expenditure for the federal portion of Medicaid without any corresponding increase in state expenditures. This is prohibited by law to ensure states pay their required share of Medicaid payments and have an incentive to prevent fraud, waste, and abuse in their Medicaid programs.[2]

Notably, the NCH Settlement Agreement only discharged common law claims for error and unjust enrichment, and the United States expressly reserved its rights to subsequently file claims under the False Claims Act (“FCA ”) and other laws.[3] Of the $5.5 million settlement payment, just under $5 million has been designated as “restitution” for tax purposes, suggesting the parties agreed that NCH would pay a multiple of 1.1 single damages, notwithstanding that the United States is limited to recovering single damages under common law theories.[4] By comparison, DOJ policy is to compromise False Claims Act claims for no less than double the damages, with exceptions to go lower where the defendant demonstrates substantial cooperation with the government’s investigation. While it is not necessarily true that the narrow release in this case means there will ultimately be subsequent FCA litigation, it does underscore that the DOJ may be willing to pursue and settle cases involving potential allegations of fraud in health care matters for less than double the damages based on so-called “innocent” overpayments – albeit without an FCA release – where a scientist’s evidence may not meet the threshold of a viable FCA case.[5] In addition, NCH has agreed to cooperate fully with the government’s investigation of other potential defendants, including its officers and employees, and to provide the United States with all relevant non-privileged documents, including reports and memos. interview, relating to the alleged conduct.[6]

The NCH Rules also warn that in-kind and monetary donations made to state and local entities may be at increased risk of scrutiny by the Department of Justice. The NHS settlement comes amid ongoing investigations and settlements involving donations made by pharmaceutical manufacturers to supposedly independent foundations and patient aid schemes, and could signal that the government could deduct bad intention of a wider range of donations made by health entities. Clearly, the government will not hesitate to prosecute transactions under fraud and abuse laws that it believes violate regulatory requirements, even if such transactions confer a public benefit. In light of these heightened risks, customers are urged to carefully consider their donation practices, whether monetary or in-kind.

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[1] Settlement Agreement NCH Healthcare, Office of Pub. Affairs, US Dep’t of Justice (February 14, 2022) at recital B, https://www.justice.gov/opa/press-release/file/1471946/download; see also Press Release, Pub Office. Affairs, US Dep’t of Justice, Florida’s NCH Healthcare System Accepts to Pay $55 Million to Settle Common Law Allegations (February 14, 2022), https://www.justice.gov/opa/pr/florida-s-nch -le -health-system-agrees-to-pay-55-million-to-settle-law-spouse-allegations.

[2] The federal government provides partial funding to state Medicaid programs through Federal Equity Funding (“FFP”). 42 CFR § 431.958. The amount of FFP funds each state is eligible for is based on the state’s Medicaid spending amount, which can only include state or local government funds. 42 USC § 1396b(a). Non-bona fide donations from private health care providers, including in-kind services, may not be included in calculating the state’s own Medicaid expenditures. Identifier. §§ 1396b(w)(1)(a), (2)(B).

[3] NCH ​​Healthcare Settlement Agreement, above footnote 1, ¶ 3.

[4] See, for example, US ex rel. Robinson Hill v. Nurses’ Registry & Home Health Corp., no. CIV.A. 5:08-145-KKC, 2015 WL 3403054, at *4 (ED Ky. May 27, 2015) (“Recovery of a claim for payment in error is limited to the portion of the payment that exceeds the actual amount owed. Finally , the recovery of an action for unjust enrichment is limited to the amount of benefits wrongfully received by the defendant. Medicare program, but the government has no right to collect penalties or punitive damages.”) (internal citations omitted).

[5] See also, e.g., Drakontas LLC Settlement Agreement, US Atty’s Office for the Eastern Dist. of Pa. (May 3, 2016) at III.C–D, https://www.justice.gov/usao-edpa/file/849061/download (publishing only common law breach of contract, payment in error, and enrichment claims while the alleged DOJ defendant used a non-compliant accounting system that resulted in the United States making improper and excessive payments).

[6] NCH ​​Healthcare Settlement Agreement, above footnote 1, ¶ 8.


The following attorneys for Gibson Dunn participated in the preparation of this alert: Jonathan M. Phillips, Winston Y. Chan, Brendan Stewart and Emma Strong.

Gibson Dunn attorneys are available to answer any questions you may have regarding these developments. Please contact the Gibson Dunn attorney you usually work with, the authors, or any member of the firm’s False Claims Act/Qui Tam Defense, FDA and Health Care, Government Contracts, or White Collar Defense and Investigations practice groups.

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