Religious universities seek support from a higher authority

Houston Baptist University (HBU) and two of its co-plaintiffs have petitioned the Supreme Court for certiorari, seeking to overturn the decision of the Fifth Circuit Court of Appeals rejecting their challenge to HHS regulations requiring coverage of all FDA-approved contraceptives as a violation of the Religious Freedom Restoration Act (RFRA) (42 U.S.C. §2000bb et seq.) (see Mandate withstands religious challenge, providing contraceptives has “nothing to do with it,” Health Reform WK-EDGE, June 22, 2015). The petitioners contend that: (1) the Court of Appeals incorrectly applied RFRA by “second-guessing” their belief that executing a form and submitting it to the government would make them complicit in their employees’ potential use of birth control methods that are abortifacients; and (2) the decision is inconsistent with the Supreme Court’s decision in Burwell v. Hobby Lobby Stores, Inc.

The petitioners

HBU and East Texas Baptist University (ETBU) are universities affiliated with the Baptist General Convention. Westminster Theological Seminary (WTS) is run by Presbyterian elders and educates people preparing for Christian ministry but is not affiliated with any one denomination or church; its legal status disqualifies it from exemption from the preventive services mandate as an independent auxiliary of a church. All three institutions contend that they provide generous health benefits for their employees but have never covered four FDA-approved methods of contraception that prevent the implantation of a fertilized egg; they consider such methods to be abortion.


The challenged regulations require religious organizations that are not recognized as churches under the tax code to attest to their religious objections by completing a form, which they must submit to the government and their insurer or third party administrator (TPA). The form legally authorizes the insurer or TPA to provide coverage of the alleged abortifacients to their employees. The petitioners believe that execution of the form is closely connected with the coverage; the coverage is not provided unless or until they execute the form.

The trial court granted summary judgment to the petitioners, ruling that self-certification under the HHS regulations substantially burdened the exercise of religion. It rejected the government’s arguments that: (1) any burden was so slight as to be de minimis; and (2) the connection between the certification and the employee’s use of the abortifacients was too attenuated because independent actions by others had to occur.

The trial court also ruled that requiring the certification was not the least restrictive means available to achieve the government’s compelling interests in preventing unwanted pregnancies, as RFRA requires. For example, the government could provide free emergency contraception at clinics.

Why take this case?

The petitioners stressed that the Supreme Court should hear this case because they would actually face onerous penalties if they refused to self-certify. The trial court had already entered final judgment. The Court had already stayed other rulings by courts of appeals pending its review.

There already are other petitions for certiorari pending involving the same issues and decisions by the D.C. Circuit and the Sixth Circuit (see Demanding a better answer, Catholics ask SCOTUS for review, Health Reform WK-EDGE, July 1, 2015; ACA’s contraceptive coverage provisions may not provide sufficient protection, Health Reform WK-EDGE, April 27, 2015).

Unclear on the concept: no burden, so no injunction for religious college

The Seventh Circuit Court of Appeals has upheld the denial of an injunction that would have barred HHS from enforcing the contraceptive coverage mandate against Wheaton College (Wheaton). The court ruled that Wheaton was not burdened by the requirement that it identify its insurers to HHS so that HHS could notify the insurers of their obligation to provide cost-free coverage of the contraceptives that Wheaton will not cover (Wheaton College v. Burwell, July 1, 2015, Posner, R.).

The parties

Wheaton, a nondenominational, evangelical Christian college, requires students and staff to sign a “community covenant” that requires them to “uphold the God-given worth of human beings, from conception to death.” The covenant does not mention contraception, but the government accepted Wheaton’s position that it objected to any form of contraception that would either destroy or prevent the implantation of a fertilized ovum because it defines “conception” as the moment of fertilization and did not dispute Wheaton’s claims about the effects of the specific birth control methods.

Prior proceedings

Wheaton filed its lawsuit to challenge an earlier HHS rule, which required the employer to complete a form to notify its insurer of the contraceptives it would not cover and direct the insurer to do so. The Supreme Court agreed to hear Wheaton’s challenge and ruled that, pending further proceedings, the college did not have to complete the form to which it objected as long as it notified the government that it qualified for the exception. The government then would assume all responsibility for communicating with the insurer or third party administrator (See Supreme Court: religious college doesn’t have to file contraception mandate opt-out form, Health Reform WK-EDGE, July 9, 2014.).

The government amended its rules to require Wheaton only to notify the government of its religious objections and identify its insurers so that the government could communicate directly with them. Nevertheless, without amending its complaint, Wheaton continued to claim that its rights under the Religious Freedom Restoration Act (RFRA), (42 U.S.C. §2000bb et seq.) were violated, arguing that it should not have to identify the insurers or, perhaps, should be permitted to choose insurers who would not agree to provide the coverage even through the government.

Wheaton’s arguments

Wheaton contended that the revised procedure effectively allowed the government to use its insurance plans to provide contraception coverage to students and staff, so that Wheaton remained complicit in facilitating the behavior it finds sinful. The court rejected Wheaton’s characterization of the requirement and its claim of complicity, reasoning that the government could not know about Wheaton’s specific objections unless Wheaton told it. In addition, the law, not Wheaton’s communication to the government, triggered the obligations of its insurers.

Wheaton also argued that all of its students and staff sign the community covenant, so that they would not access the forbidden contraceptives. But the court noted that the community covenant did not mention contraception, so that it could not assume that everyone who signed it would understand that they were pledging not to use the intrauterine devices or emergency contraception to which Wheaton objected. In addition, Wheaton did not claim that dependents of the students and staff signed the covenant, but their coverage was affected.

The court’s reasoning

The court observed that Wheaton claimed that it would have no objection to the government providing universal access to contraception; it reasoned that the effect on the college was the same as that of the requirement that it tell the government about its objections and identify its insurers. If Wheaton sought to enjoin its insurers from providing coverage, it should have added them as defendants.

In addition, Wheaton demanded to be treated as a church, but it has never identified itself as a church. It argued that the HHS rule violated section 706 of the Administrative Procedure Act (APA) without explaining how or why; similarly, Wheaton claimed violation of the Employee Retirement Income Security Act (ERISA) (29 U.S.C. §§1001 et seq.) by requiring the contraception coverage, but the document that requires the insurer to cover contraception is issued by the government, not Wheaton.

The court also observed that Wheaton’s claims that the contraceptive methods worked to prevent implantation of an embryo, but the scientific evidence did not support the claim. It also noted that Wheaton did not seek simply to avoid complicity in the sin of using the contraceptive methods, it wanted to make it hard for the employees or students to obtain them.

The ultimate ruling

Finally, the court ruled that Wheaton had not met the basic requirements for issuance of a preliminary injunction because it failed to show that: (1) delaying the relief it requested until after a trial on the merits would harm it in any way; and (2) there was any reason to expect that an employee would use the coverage to which it objected. Wheaton’s entire case was based on the alleged forced use of its health plans, and the court found that allegation factually and legally untrue.

The case is No. 14-2396.

Kusserow on Compliance: Lessons learned from the Tuomey case

Now that the dust is settling on the decision in the Tuomey case, it is worth reflecting on what can be learned from it. It is rare for a hospital system to go to trial based on government charges relating to the Stark Law or Anti-Kickback Statute (AKS). Most health care providers reach a settlement with the Department of Justice (DOJ), rather than expend the resources to challenge the government in a trial and risk greater penalties in the case of a loss. The Tuomey Health Care System of Sumter, South Carolina was an exception. Its case went to trial twice and after being ruled against in both trials, made multiple appeals on the verdicts. Now, after a decade of fighting the government, the 4th Circuit Court of Appeals affirmed the verdicts of the lower court in favor of the government. The health care system is now saddled with over $230 million in False Claims Act (FCA) penalties. The many arguments raised by Tuomey in its appeal and answered by the court in its 67-page opinion provide a vast commentary and will likely prove to be a landmark case. Moreover, the decision provides a number of lessons that can be used by others who intend to or have entered into physician arrangements.

Tuomey physician agreements

Local physician specialty groups told Tuomey of their intention to perform surgical procedures in-office instead of at their hospital. In response, in an effort to avoid a reduction in surgical case volume, the hospital employed the 19 specialists as part-time employees. The contracts contained 18 parts and were complex. The basic terms included:

  • a 10-year agreement;
  • a requirement that the physicians perform outpatient procedures at Tuomey;
  • a provision stating that Tuomey would bill and collect from patients and other payers (e.g. Medicare/Medicaid);
  • a provision stating that physicians would be paid with base salaries related to net cash collections for procedures;
  • a provision stating that physicians would get productivity bonuses equal to 80 percent of the net collections;
  • an incentive bonus that could total up to 7 percent of the productivity bonus;
  • a prohibition from competing with Tuomey during the contract and two years after it expired;
  • a provision that covered physician health care;
  • terms that confirmed malpractice premiums for the physicians were paid;
  • physician cell phone reimbursement;
  • periodicals and journal reimbursement; and
  • Continuing Medical Education reimbursement.

Tuomey entered the employment arrangements after its board discussed the potential lost revenue from such physicians’ referrals to other less costly facilities in the community. Tuomey asserted it relied upon legal counsel advice in developing the contracts and argued that no false claims were ever submitted because the patients got needed care; claims met Medicare standards; and there was no evidence of overbilling, up-coding, or billing of unnecessary services. The record of the case during trial showed that Tuomey entered into the arrangements to prevent the physicians from performing their services outside the hospital, either in-office or at ambulatory surgery centers. The jury for the Tuomey case concluded that even though the health system relied upon legal and valuation expertise, when other factors were considered, the arrangements were in essence payment for referrals. The Tuomey third-party valuation consultant provided only a three-page opinion letter that included little supporting documentation or explanation of the methodology behind the valuation opinion. The government presented testimony and exhibits demonstrating that Tuomey also disregarded adverse legal and expert opinions when entering into the contracts.

Lessons learned

  • If you need multiple legal and consultants to support an agreement, reconsider the idea.
  • Relying upon advice of attorneys in physician arrangements is not an absolute protection.
  • If raising the “advice of counsel defense,” disclose all material facts to the attorneys.
  • All hospitals’ relationships with physicians need legal and expert consultant support.
  • Physician contracts should be subjected to periodic outside independent review.
  • Use independent outsider experts to periodically review the compliance program as a whole.
  • Fair market value (FMV) is not just a fair business deal, it also must meet specific requirements.
  • Physician compensation should not take into account volume/value of anticipated referrals.
  • The more complex the agreement, the more questions will be raised about it.
  • Negotiating at arm’s length will not provide protection from DOJ or whistleblower suits.
  • Not complying with a Stark exception or AKS safe harbor risks potential claims and liability.
  • Reasons for considering a financial arrangement are important.
  • Qui tam actions come from physicians, competitors, possible partners, and/or employees.
  • Taping meetings where sensitive information is discussed is not a good idea.
  • Contracts taking into account anticipated referrals implicate Stark’s volume/value standard.
  • Keep records/minutes related to arrangements; if concerns about arrangements remain, reconsider the deal.

Richard P. Kusserow served as DHHS Inspector General for 11 years. He currently is CEO of Strategic Management Services, LLC (SM), a firm that has assisted more than 3,000 organizations and entities with compliance related matters. The SM sister company, CRC, provides a wide range of compliance tools including sanction-screening.

Connect with Richard Kusserow on Google+ or LinkedIn.

Subscribe to the Kusserow on Compliance Newsletter

Copyright © 2015 Strategic Management Services, LLC. Published with permission.

Kusserow on Compliance: Breaking News: Decade long saga of the Tuomey Case comes to a close

On July 2, 2015, the U.S. Court of Appeals for the 4th Circuit published a 67-page decision in the decade-long Tuomey Healthcare System case. The original case arose from a qui tam (whistleblower suit) brought by Michael L. Drakeford, M.D., where it was alleged that the Sumter, South Carolina hospital violated the False Claims Act (FCA) (31 U.S.C. § 3729) by submitting tens of thousands of illegal bills to Medicare, arising from corrupt arrangements with 19 specialty doctors that were improperly compensated in violation of the Stark Laws. After losing in two jury trials, Tuomey appealed to the District of South Carolina, which ruled against it in favor of the United States and ordered Tuomey to pay $39,313,065, as well as $237,454,195 on the False Claims Act claims. The total was calculated as the minimum of treble of the $39 million plus the minimum of $5,500 per claim. Tuomey’s appeal to the Court of Appeals resulted in its affirming the U.S. government’s position on all significant issues.

Tuomey’s argument that it only relied upon the advice of its attorneys in its physician compensation arrangements was not accepted by the court. The court noted that one of the lawyers in question, Kevin McAnaney, a recognized expert on Stark Laws, raised concerns about the proposed contracts without even having seen the compensation value determinations. This evidence was seen as critical to its ability to satisfy its burden to prove that Tuomey acted with the requisite intent under the FCA. The court found that the failure to have taken that opinion more seriously was reckless disregard and that a reasonable jury could indeed be troubled by Tuomey’s seeming inaction in the face of warnings about the questionable nature of the proposed agreements. The court observed that “the jury evidently rejected Tuomey’s advice of counsel defense” and found no cause to upset the jury’s reasoned verdict that Tuomey violated the FCA.

Tuomey made several challenges to the amount of judgment entered against it, including: (1) that the district court improperly calculated the civil penalty; (2) that the district court used the incorrect measure of actual damages; and (3) that the award was unconstitutional under the Fifth and Eighth Amendments.

The court noted that a defendant found liable under the FCA must pay the government a civil penalty of not less than $5,500 and not more than $11,000 “plus 3 times the amount of damages which the government sustains because of that person.” In this case, the jury found that Tuomey had submitted 21,730 false claims, for which it awarded actual damages of $39,313,065, which the district court trebled. The district court then added a civil penalty of $119,515,000 to that sum, which it calculated by multiplying the number of false claims by the $5,500 statutory minimum penalty. The court rejected Tuomey’s arguments challenging the calculation and concluded that the jury had sufficient evidence to identify the prohibited referrals and, therefore, the amount of damages and penalties.

Tuomey argued the measure of actual damages and the true measure is not the sum total of all claims the government paid (as the court instructed the jury), but rather the difference (if any) between the true value of the services provided by Tuomey and what the government actually paid, since “there was no evidence that the government did not get what it paid for[,] . . . there were no actual damages under the FCA.” The court rejected those arguments noting that the Stark Law expresses Congress’s judgment that all services provided in violation of that law are medically unnecessary. By reimbursing Tuomey for services that it was legally prohibited from paying, the government has suffered injury equivalent to the full amount of the payments; and that in this case, the damage from the false statement came from the payment to an entity that was not entitled to any payment at all. 

The court disagreed that the damages and civil penalties were unconstitutional under the Excessive Fines Clause of the Eighth Amendment and the Due Process Clause of the Fifth Amendment, citing the Supreme Court position that the treble damages provision of the statute includes a compensatory aspect, in that it accounts for the fact that some amount of money beyond actual damages is “necessary to compensate the Government completely for the costs, delays, and inconveniences occasioned by fraudulent claims.”

The American Hospital Association and the South Carolina Hospital Association had filed briefs as Amici Supporting Appellant (Tuomey). For more information regarding the details, background, issues, and lessons learned from this case can be found in past blog articles on this case.

Richard P. Kusserow served as DHHS Inspector General for 11 years. He currently is CEO of Strategic Management Services, LLC (SM), a firm that has assisted more than 3,000 organizations and entities with compliance related matters. The SM sister company, CRC, provides a wide range of compliance tools including sanction-screening.

Connect with Richard Kusserow on Google+ or LinkedIn.

Subscribe to the Kusserow on Compliance Newsletter

Copyright © 2015 Strategic Management Services, LLC. Published with permission.