Legal Update

Jun 12, 2020

Nursing Homes Will See Increased Survey Activity, Stiffer Penalties On Heels of Recent COVID-19 Relief Fund Payments

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Approximately one week after announcing $4.9 billion in supplemental payments under the Public Health and Social Services Emergency Fund (the "Relief Fund") to skilled nursing facilities ("SNFs") for “critical needs such as labor, scaling up their testing capacity, acquiring personal protective equipment and a range of other expenses directly linked to this pandemic,” the US Department of Health and Human Services ("HHS") through the Centers for Medicare and Medicaid Services ("CMS") issued guidance for ensuring that nursing homes, including both SNFs and nursing facilities ("NFs") reimbursed through Medicaid, better control COVID-19 infection rates. This new guidance raises the stakes for States and nursing homes to prioritize infection control as a primary tool in the fight against COVID-19 and raises implications for potential recoupment or other liability related to Relief Fund payments.

On June 1, 2020, CMS issued a memorandum[1] to all State Survey Agency Directors detailing heightened COVID-19 response measures. Effective immediately, and consistent with the first directive to “Protect People” of the HHS Office of Inspector General’s (“OIG”) “Strategic Plan: Oversight of COVID-19 Response and Recovery,”[2] CMS’s new guidance seeks to protect the most vulnerable Americans at “ground zero” of the COVID-19 public health emergency—nursing homes.  Specifically, CMS’s memorandum lays out a three specific focus areas:

  • Incentivizing States to increase and expand nursing home surveys by tying future CARES Act funding to the completion rate of nursing home infection control and COVID-19 investigation surveys.
  • Incentivizing nursing homes to prioritize infection control by increasing corrective actions and fines for deficiency citations.
  • Bolstering Quality Improvement Organization ("QIO") activities to support rural and at risk facilities.

Incentivizing States to Increase, Expanded Survey Activities

CMS cited its March 4, 2020 directive to the States to focus surveys on infection control, but noted that by June 1, the States’ completion rates for focused infection control surveys ranged as low as 11% with the national average just over half at 54%.

In response to the low completion rate, CMS has given States until July 31, 2020 to complete 100% of their focused infection control nursing home surveys or submit a corrective action plan ("CAP") outlining the strategy for completion of these surveys within 30 days. Failure to complete the focused infection control surveys in accordance with the CAP will require one or more 30-day extensions (perhaps as part of a new CAP) and result in a reduction of the State’s CARES Act FY 2021 allocation by up to 10%.  Failure to achieve 100% infection control survey completion within the 30-day extension(s) will lead to additional reductions of up to 5% for each extension.

States that have completed 100% of their focused infection control surveys will have an opportunity to receive funds deducted from non-compliant States.

In addition to focused infection control surveys, CMS is also requiring States to implement the following COVID-19 survey activities:

  • Perform on-site surveys within 30 days for nursing homes with previous COVID-19 outbreaks.
  • Perform on-site surveys of any nursing homes with 3 or more new COVID-19 suspected and confirmed cases or 1 confirmed resident case in a previously COVID-19 free facility within 3 to 5 days of identification.
  • Perform annual focused infection control surveys of 20% of nursing homes based on State’s discretion or additional data identifying facility and community risks.

States that fail to perform these survey activities timely and completely could forfeit up to 5% of their CARES Act Allocation, annually. Finally, once a state has entered Phase 3 of the Nursing Homes Re-opening guidance[3] it is authorized to expand beyond the current survey prioritization (Immediate Jeopardy, Focused Infection Control, and Initial Certification surveys) to perform (for all provider and supplier types):

  • Complaint investigations that are triaged as Non-Immediate Jeopardy-High.
  • Revisit surveys of any facility with removed Immediate Jeopardy (but still out of compliance).
  • Special Focus Facility and Special Focus Facility Candidate recertification surveys.
  • Nursing home and Intermediate Care Facility for individuals with Intellectual Disability (ICF/IID) recertification surveys that are greater than 15 months.

Incentivizing Nursing Homes to Prioritize Infection Control

CMS is incentivizing nursing homes to improve accountability and sustained compliance with infection control requirements by expanding enforcement actions and penalties. CMS is also providing Directed Plans of Correction, including use of Root Cause Analysis.  Substantial non-compliance (D or above) with infection control requirement deficiencies will result in at least a directed plan of correction and, depending on prior compliance history, can result in denial of payment while the deficiencies are remedied and penalties of up to $20,000 per incident, or the highest amount allowed for a Level G, H, or I (Harm, non-Immediate Jeopardy) or J, K, or L (Immediate Jeopardy) violation. (See Table 1).

Quality Improvement Organization Support

CMS is also bolstering the QIO initiative started in November 2019 by providing all nursing homes access to National Infection Control Training; providing direct assistance to approximately 6,000 small, rural nursing homes and those serving vulnerable populations; and providing technical assistance to approximately 3,000 low performing nursing homes who have a history of infection control challenges. In this regard, States may request QIO technical assistance specifically targeted to nursing homes that have experienced an outbreak.

Impact on Relief Funds

Facilities cited for infection control deficiencies may also risk recoupment or other liability with respect to payments from the Relief Fund. As noted previously, HHS recently authorized an additional $4.9 Billion in payments to SNFs from the Relief Fund.  These payments, as well as the prior $50 Billion distributed to Medicare providers generally, are subject to certain Terms and Conditions directing how the money is spent and imposing reporting obligations.  Compliance with these Terms and Conditions will be overseen by the Pandemic Response Accountability Committee (“PRAC”) created in Section 15010 of the CARES Act. The PRAC’S functions include

auditing or reviewing covered funds, including a comprehensive audit and review of charges made to Federal contracts pursuant to authorities provided in the Coronavirus Aid, Relief, and Economic Security Act, to determine whether wasteful spending, poor contract or grant management, or other abuses are occurring ... including conducting randomized audits to identify fraud ...

CARES Act, § 15010(d)(1)(B)(ii).  The PRAC is one of many ways in which the Federal Government has clearly expressed its intent to root out and punish fraud, waste and abuse in the use of COVID relief funds. For example, we recently reported on the OIG’s strategic plan for COVID-19 relief and recovery which includes “protecting funds” as one if its pillars. CMS’s recent infection control survey initiative is entirely consistent with this commitment to strict oversight.

It remains to be seen whether PRAC audits will be limited to confirming that Relief Fund money was spent on proper uses, e.g., labor, scaling up testing capacity, or acquiring personal protective equipment,[4] or, for facilities with infection control deficiencies, the audits will go deeper to see whether money spent on proper uses was nevertheless mismanaged.  A determination of mismanagement or waste could lead to recoupment and/or referral to the HHS OIG for further enforcement.  While the CARES Act can be read to authorize such deep dives, the breadth of the Federal Government’s spending in response to the pandemic, including the Paycheck Protection Program and other non-health care focused programs, may limit the PRAC’s ability to delve into such granular considerations as whether the facility should have allocated more money to PPE rather than testing or covering financial losses from the pandemic.

These practicalities offer cold comfort, however, in the face of potentially thousands of unofficial PRAC deputies authorized to bring whistleblower suits under the qui tam provisions of the False Claims Act. It is not difficult to foresee an employee of a Relief Fund recipient asserting that the funds were squandered such that the receipt and/or retention of the money constitutes a false claim. This possibility is especially acute for facilities with infection control deficiency citations and employees involved in the cited acts or omissions.

Facilities receiving money from the Relief Fund can take action to mitigate and minimize these potential liabilities.  From an operations standpoint, facilities can develop a written plan for use of the funds before spending any money. This plan can include a risk assessment for COVID-19 infection and treatment, identify and quantify areas (based on the risk assessment) of vulnerability for residents and staff, and allocate use of the funds for these vulnerabilities according to the risks they pose (in terms of both severity and likelihood) and the cost of addressing them. The plan should also provide for periodic reviews to determine whether funds should be reallocated for changing needs as the facility’s pandemic response progresses. Finally, the plan should include provisions for documenting that the money is spent as designated. This is particularly important in light of recent events showing that even PPE received from seemingly reliable sources can fall short of what is needed.[5] In these instances documentation of nonconforming deliveries, including pictures, should be kept.

From a legal standpoint, facilities can look to precedent which limits the Government’s ability under the False Claims Act to judge the quality of services, as opposed to whether the services were actually delivered. In Mikes v. Straus, the Second Circuit recognized that a claim for payment for services can be false, even though the services were actually provided, if the services were worthless, meaning they were “so deficient that for all practical purposes [they were] the equivalent of no performance at all.” 274 F.3d 687, 703 (2d Cir. 2001) (citing United States ex rel. Lee v. SmithKline Beecham, Inc., 245 F.3d 1048 (9th Cir. 2001)). The risk in this context is clear: a facility spending Relief Fund money on approved uses could still be liable if it knowingly, or in deliberate ignorance, spent money in a manner that did not reduce the risk of COVID-19 as evidenced by an infection control deficiency. The Second Circuit stopped short of finding liability in that case because the defendant effectively disproved it knowingly submitted a false claim by presenting evidence of its genuine belief that the services were legitimate. Likewise, a facility with a written plan showing how it decided to spend the money can disprove an allegation that its receipt and use of the funds was a false claim.

More recently, the Seventh Circuit in United States ex rel. Absher v. Momence Meadows Nursing Ctr., Inc., in considering a worthless services claim against a nursing home that had been cited for deficiencies, held the quality of a service (or lack thereof) may establish the amount of damages, but cannot, alone, establish liability. 764 F.3d 699, 710 (7th Cir. 2014).  The court further held that, in considering the quality of the nursing home’s services, the fact that state surveyors allowed the nursing home to continue caring for residents, despite cited deficiencies, effectively disproved that the services were worthless.  Id.  For a Relief Fund recipient, continued care of a vulnerable resident population following citation for infection control deficiencies can similarly be evidence that funds were not mismanaged so as to justify False Claims Act liability.   

Conclusion

In a span of two weeks, HHS has issued supplemental relief payments to SNFs and stepped up survey and enforcement requirements for nursing homes. Taken together, these developments reiterate the Federal government’s commitment to ensuring that the money spent in response to COVID-19 actually benefits those suffering from the disease and the resulting economic fallout. While this commitment applies across industries, the last two weeks have shown that perhaps more than any other industry, nursing homes, which were a primary flashpoint for the pandemic, must show that relief funds are immediately being put to good use for improving the delivery of health care during the pandemic and beyond. Nursing homes should recognize this imperative and can take steps now to mitigate liability risk.

 


[1] https://www.cms.gov/files/document/qso-20-31-all.pdf.

[2] C. DeMeo & J. Coleman, OIG Announces Strategic Plan for Oversight of COVID-19 Response and Recovery Efforts, Seyfarth Legal Update Blog (June 1, 2020), https://www.seyfarth.com/news-insights/oig-announces-strategic-plan-for-oversight-of-covid-19-response-and-recovery-efforts.html.

[3] https://www.cms.gov/files/document/nursinghome-reopening-recommendations-state-and-local-officials.pdf.

[4] See Press Release, “HHS Announces Nearly $4.9 Billion Distribution to Nursing Facilities Impacted by COVID-19,” https://www.hhs.gov/about/news/2020/05/22/hhs-announces-nearly-4.9-billion-distribution-to-nursing-facilities-impacted-by-covid19.html

[5] See “Abandoned” Nursing Homes Continue to Face Critical Supply and Staff Shortages as COVID-19 Toll Has Mounted, JAMA, Medical News and Perspectives (June 11, 2020) - https://jamanetwork.com/journals/jama/fullarticle/2767282?; Federal Help Falters As Nursing Homes Run Short Of Protective Equipment, Kaiser Health News (June 11, 2020) - https://khn.org/news/federal-help-falters-as-nursing-homes-run-short-of-protective-equipment/