Trends in Health Care Business: Navigating a Brave New World
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Trends in Health Care Business: Navigating a Brave New World

Brownstein Client Alert, June 24, 2020

With states and localities loosening restrictions across the country, health care businesses have returned to something closer to normal, perhaps refining the “new normal” as they adapt. Health care services previously deemed “non-essential” like dentistry, physical therapy, dermatology and elective procedures have returned, tackling pent-up demand for these health care services that, in point of fact, really are essential. This “brave new world” favors innovation, and may well spur on greater use of technology, from artificial intelligence to wearables to telehealth. The “new normal” could become a “better normal”—health care that embraces extremely controlled environments for required in-person care delivery in tandem with the “virtualization” of the continuum of care, potentially driving a more complete care experience.

Health care businesses have absorbed substantial unfunded costs in connection with the pandemic, what with required surge capacity, testing, and PPE.  Hospitals have particularly been on the front lines, torn between losing high margin, high volume elective procedures for treating COVID-19 patients while being required to maintain 150% capacity for potential surges in COVID-19 cases. Consumer confidence is another barrier; while government officials have switched course and are now encouraging patients to schedule elective procedures and seek necessary care, consumers are not returning at the same pre-COVID-19 levels, because of concern about the safety of health care settings. A fourth COVID-19 relief bill coming out of Washington, D.C., in July may include more funding for hospitals and health care providers, but compromises likely must be struck between House Democrats advocating for funding for state and local governments and Senate Republicans who have prioritized limited liability protections for businesses. 

The government rapidly deployed Health and Human Services and Paycheck Protection Program (PPP) monies to health care businesses to stem the tide. However, these recipients must keep an eye out for false claims and other investigations. Under the False Claims Act (FCA), it is illegal to knowingly submit claims for payment to federal government programs that are false or fraudulent. While the list of federal government programs prominently includes Medicare and Medicaid, any government program through which federal funds are distributed requires compliance with the FCA. This includes both the PPP and the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

The FCA provides two avenues for enforcement. First, the Department of Justice can prosecute fraudulent behavior directly. Second, private citizens can bring whistleblower or “qui tam” actions in which the plaintiff or “relator” stands in the government’s shoes and prosecutes the fraud on behalf of the government. Prior to bringing a lawsuit under the FCA, qui tam relators are required to give the government an opportunity to intervene and prosecute the action itself. Qui tam actions can be quite lucrative for qui tam relators as successful relators are entitled to a percentage of the final judgment or settlement.

Penalties for FCA violations can be devastating. Not only does the FCA provide for a per-claim penalty of up to $23,331, but it also allows for treble damages and attorneys’ fees. In addition to civil liability, the FCA contains a criminal component. Criminal violators of the FCA face up to five years’ imprisonment and fines.

Enforcement of COVID-19-related fraud is a priority for this administration. Not only has Attorney General Barr directed all U.S. attorneys to prioritize the investigation and prosecution of COVID-19-related fraud, but the CARES Act created a new Office of the Special Inspector General for Pandemic Recovery whose job it will be to audit, investigate and monitor loans made under the CARES Act. White House attorney Brian Miller has been nominated for this position, but he has not yet been confirmed by the full Senate.

In light of the vast amounts of money being deployed to desperate parties in a tremendous rush under these COVID-19-related programs, with the administration’s clear directive that fraud enforcement is a priority, and recalling the high levels of fraud seen in connection with the federal funds released as a result of the Hurricane Katrina national disaster and the Great Recession’s Troubled Asset Relief Program (TARP), we anticipate that fraud and abuse enforcement will be a constant companion in the years ahead.

With increased PPE and other costs and the loss of elective procedures, many health care businesses have fallen upon hard times. The past decade had already seen quite a bit of consolidation in health care. This consolidation is likely to continue. However, it is not anticipated that the DOJ and FTC will take a more relaxed view of mergers that raise competitive concerns, notwithstanding the fact that parties may argue that such mergers are necessary to preserve access to health care. While there is a limited “failing firm” defense that permits competitively problematic mergers when the alternative is that the assets will leave the market, this standard is not likely to be relaxed to permit mergers in cases where targets are merely troubled and have fallen on hard times due to COVID-19.

In short, while the overall business climate shows dramatic improvement, health care businesses emerging from the haze of COVID-19 will benefit from identifying and harnessing sources of financial support, implementing prudent safety measures and ensuring controlled care delivery environments, and innovating enhancements to the continuum of care, all while maintaining a careful eye on compliance.

Michael W. King is the founder of Brownstein’s health care transactional practice and past chair of our Corporate Department. He has a special emphasis on mergers and acquisitions, securities offerings and general corporate matters with a particular expertise in the health care industry.

Erin Eiselein is a seasoned litigator who counsels on a wide variety of disputes and regulations in the health care industry. Erin not only helps health care providers comply with the fraud and abuse laws but also defends them in related government investigations and FCA lawsuits.

Emily Felder is our senior policy advisor and counsel from our Washington, D.C., office. Emily brings her comprehensive policy insight on health care issues from her legislative experience. She has a robust understanding of federal health care programs, private health insurance and public health issues currently affecting the country.

Allen Grunes concentrates on antitrust issues, advising clients on mergers and acquisitions and compliance with the Hart-Scott-Rodino (HSR) Act. Allen’s prior experience also includes more than a decade at the U.S. Department of Justice Antitrust Division, where he led many merger and civil non-merger investigations in a variety of industries.

This document is intended to provide you with general information regarding the health care industry, PPP, the False Claims Act and potential legal and policy implications. The contents of this document are not intended to provide specific legal advice. If you have any questions about the contents of this document or if you need legal advice as to an issue, please contact your regular Brownstein Hyatt Farber Schreck, LLP attorney. This communication may be considered advertising in some jurisdictions.

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