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<br />Government Health Program Regulations Governing Fraud and Abuse and Certain Referrals.
<br />Federal and state health care fraud and abuse laws generally regulate services furnished to beneficiaries of
<br />federal and state and private health insurance plans, and they impose penalties for improper billing and
<br />other abuses. Under these laws, health care providers may be punished for billing for services that were
<br />not provided, not medically necessary, provided by an improper person, accompanied by an illegal
<br />inducement to use or not use another service or product, or billed in a manner that does not comply with
<br />applicable government requirements. Violations of these laws are punishable by a range of criminal, civil
<br />and administrative sanctions. If the Borrower violates any one of the fraud and abuse laws, among other
<br />possible sanctions, federal or state authorities could recover amounts paid, exclude the Borrower from
<br />participation in the Medicaid program, and impose civil money penalties. The federal government (and
<br />individuals acting on its behalf) have brought many investigations, prosecutions and civil enforcement
<br />actions under the fraud and abuse laws in recent years. In some cases, the scope of the fraud and abuse
<br />laws is so broad that they may result in liability for business transactions that are traditional or
<br />commonplace in the health care industry.
<br />Federal Anti-Kickback Law. There is an expanding and complex body of state and federal law,
<br />regulation and policy relating to relationships between providers of health care services to patients and
<br />potential referral sources such as, but not limited to, physicians. The federal Medicare-Medicaid Anti-
<br />Fraud and Abuse Amendments of 1997 to the Social Security Act, as amended (the “Anti-Kickback
<br />Law”), prohibits the offer, payment, solicitation, or receipt of any remuneration (including any kickback,
<br />bribe or rebate), directly or indirectly, covertly or overtly, in cash or in kind in order to induce business
<br />for which reimbursement is provided, in whole or in part, under a federal health care program, including
<br />Medicaid, even without actual knowledge or specific intent to commit a violation. Violations may result
<br />in civil penalties that include temporary or permanent exclusion from government health care programs,
<br />civil money penalties up to $50,000 per kickback, and treble damages. Notably, any claims for items or
<br />services that violate the Anti-Kickback Law are also considered false claims for purposes of the federal
<br />civil False Claims Act (the “Civil FCA”), further broadening the scope of liability. Federal regulations
<br />describe certain arrangements (i.e., safe harbors) that are exempt from prosecution under the Anti-
<br />Kickback Law. Because the law is broadly applied and safe harbors are narrowly drawn, there can be no
<br />assurance that the Borrower will not be found in violation of the Anti-Kickback Law in the future.
<br />False Claims Act. The Civil FCA prohibits anyone from knowingly submitting a false, fictitious
<br />or fraudulent claim to the federal government. Violation of the Civil FCA can result in civil money
<br />penalties and fines, including treble damages. Private individuals may initiate actions on behalf of the
<br />federal government in lawsuits called qui tam actions. Qui tam lawsuits typically remain under seal
<br />(hence, unknown to the defendant) for some time while the federal government decides whether or not to
<br />intervene on behalf of private qui tam plaintiffs and take the lead in litigation. The plaintiffs, or
<br />“whistleblowers,” can recover significant amounts from the damages awarded to the government. In
<br />several cases, Civil FCA violations have been alleged solely on the existence of alleged kickback
<br />arrangements or violations of Section 1877 of the Social Security Act (commonly known as the “Stark
<br />Law”), even in the absence of evidence that false claims had been submitted as a result of those
<br />arrangements. The ACA creates Civil FCA liability for knowingly failing to report and return an
<br />overpayment within a specified time. The federal criminal False Claims Act (the “Criminal FCA”)
<br />prohibits the knowing and willful making of a false statement or misrepresentation of a material fact in
<br />submitting a claim to the government. Sanctions for violation of the Criminal FCA include
<br />imprisonment, fines, and exclusions. Amendments to the FCA in the Fraud Enhancement and Recovery
<br />Act of 2009 (“FERA”) and the ACA amend and expand the reach of the FCA. FERA expanded the
<br />FCA’s reverse false claims provision, imposing liability on any person who “knowingly conceals” or
<br />“knowingly and improperly avoids or decreases” an “obligation to pay or transmit money or property to
<br />the Government,” whether or not the person uses a false record or statement to do so. FERA also clarified
<br />that an “obligation” can arise from the retention of an overpayment. ACA Section 6402 further addresses
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