A lawsuit under the False Claims Act can threaten the very survival of a medical practice. Violations of this statute result in liability for treble damages and potentially ruinous civil penalties. It is a law with which every medical practitioner and practice manager should be familiar.
The federal Government has long considered the False Claims Act (the “FCA” or “Act”) to be its primary tool in fighting fraud against the federal Treasury.1 Congress originally enacted the FCA in 1863 as a means of redressing fraud by military contractors against the Union Army. In recent years, however, the most prevalent use of the Act has been to fight fraud against Medicare, Medicaid, and other federally funded health care programs. Congress has recently amended the FCA to make it an even stronger vehicle for redressing fraud.2
Codified at 31 U.S.C. §§ 3729-3733, the Act is a civil statute giving the Government the ability to recover treble damages and penalties against “persons” (individuals or entities) who violate its provisions. The Act contains substantive provisions setting forth the categories of conduct for which a person can be liable. In addition, the Act sets forth specific procedures that are unique to cases under the Act. The most important of the Act’s procedural provisions govern the filing of “qui tam” cases, which are cases in which a person, acting as a private attorney general, can pursue an action on behalf of the United States. If a private person, known as a “relator,” initiates a False Claims Act case that results in the Government recovering money, the person can receive a substantial reward from the proceeds. In short, the Act turns whistleblowers into bounty hunters. The bounty hunter might be an employee, a competitor, or a patient, and the target could be a medical practice or any other provider of health care services. Under the qui tam provisions, relators have recovered millions of dollars for reporting fraud by health care providers.
This paper will describe the kinds of conduct for which a person might be liable under the False Claims Act, the Act’s qui tam provisions, and the significance of the Act in the context of modern medical practice in the United States.
1. The False Claims Act’s Liability Provisions.
The False Claims Act’s most significant substantive liability provisions state that a person violates the Act when the person:
(A) knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval; (or)
(B) knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim;3 (or)
(C) conspires to commit a violation of subparagraph (A), (B), … or (G); (or)
(G) knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government. § 3729(a)(1).
A person who is found liable for violating any of these provisions must pay three times the amount of damages (“treble damages”) sustained by the Government.4 In addition, the person must pay a civil penalty of between $5500 and $11,000 for each violation of the Act.5
The circumstances under which one can be found liable for violating the Act are different from traditional fraud cases in several significant respects. To be liable for common law fraud, one has to intend to defraud the victim. However, to violate the FCA, one does not have to intend to defraud anyone; one only has to act “knowingly.” Furthermore, the term “knowingly,” as it is used in the Act, does not mean that a person must have actual knowledge of the violation. To satisfy the Act’s “knowing” requirement, it is sufficient that the person act with reckless disregard or in deliberate ignorance of the facts or circumstances of the violation. § 3730(b)(1). Also, plaintiffs in common law fraud cases have to prove their case by “clear and convincing evidence,” which is a high burden of proof; by contrast, plaintiffs in False Claims Act cases are only required to prove the elements of the violation by the “preponderance of the evidence,” § 3731(d), which is tantamount to proving only that it is more likely than not that the defendant committed the violation.
The circumstances that can give rise to liability under the Act are also different from the circumstances that can give rise to liability in traditional breach of contract cases. Under traditional contract law, to be liable for breach, one generally has to have a direct contractual relationship with the victim of the breach, a concept known as “privity of contract.” Under the FCA, however, one can be liable to the Government even if the person is not dealing directly with the Government: a person can be liable for knowingly “causing” another person or entity to submit a false claim – even if the person who actually submitted the claim was an innocent middle-man who did not realize that the claim was false! Also, the term “claim” does not require that someone actually present a claim for payment to an official of the United States Government. As that term is defined in the Act, one can present a “claim” by presenting a demand for payment to another person or entity to whom the Government has provided or will provide some portion of the funds that are demanded. § 3730(b)(2).
It is noteworthy that the False Claims Act, despite its name, does not merely cover situations involving misconduct related to the submission of claims for Government funds. Under § 3730(a)(1)(G), often referred to as the “reverse false claims” provision, a person can be liable for, among other things, knowingly concealing or knowingly and improperly avoiding an obligation to pay money to the Government. Thus, the FCA covers situations where a person has received an overpayment from the Government and, knowing that he is not entitled to the money, fails to repay it.6 Again, the term “knowing” covers situations where the person may not have actually known the circumstances of the overpayment, but acted in “deliberate ignorance” or with a reckless disregard of those circumstances.
2. Procedures for Filing “Qui Tam” Cases.
There are two ways that False Claims Act cases can be commenced. First, the Department of Justice (“DOJ”) has the authority to file cases under the FCA. § 3730(a). In that situation, DOJ simply files a complaint in federal district court alleging violations of the Act and serves the defendant with a copy of the complaint. The defendant must file a response to the complaint within one or two months after receiving service, and the lawsuit proceeds like any other federal civil lawsuit.
The second, and more common, way a FCA case can be commenced is through a private citizen’s filing of a “qui tam” lawsuit. § 3730(b). The procedures for filing a qui tam lawsuit are very different from the procedures governing other legal proceedings. The relator, nearly always acting through counsel, files the complaint “under seal,” which means secretly and without any public record of the filing, in a federal district court. The relator must not notify the defendant or anyone else of the existence of the complaint, with one exception: the relator must serve a copy of the complaint on the Department of Justice. At the same time, the relator must serve on DOJ a written statement setting forth substantially all material evidence and information the relator possesses in connection with the allegations.
After receiving a qui tam complaint from the relator, DOJ is given a minimum of 60 days in which to investigate the allegations and, on the basis of that investigation,notify the court whether DOJ wishes to intervene in the case or not. Although DOJ has a minimum of 60 days in which to make this decision, in reality, these cases usually involve complex allegations that take far more than 60 days to investigate. DOJ can, and nearly always does, ask the court for extensions of the time period, and the courts usually grant the requests; in complex cases, DOJ may receive extensions of several years in order to complete its investigation and determine whether DOJ should intervene in the case.
If DOJ decides to intervene in a qui tam case, DOJ becomes the lead plaintiff responsible for conducting the lawsuit. The relator can still participate in the case as a secondary plaintiff. If the Government prevails in the case, the relator is usually entitled to a reward of 15-25% of the proceeds recovered by the Government (paid to the relator by the Government), plus an additional award of attorneys’ fees and costs (which are paid to the relator by the defendant). If DOJ elects not to intervene, then DOJ steps aside and the relator has the opportunity to conduct the lawsuit. Whether DOJ intervenes in the lawsuit or not, when DOJ notifies the court of its decision on intervention, the court is supposed to unseal the complaint, making it a matter of public record. At that point, the lead plaintiff (either the Government or the relator) can serve the complaint on the defendant.
When a relator chooses to pursue a “declined” qui tam case, the relator is still acting on behalf of the Government, and if the relator prevails, the money still goes to the federal Treasury. However, the relator’s share of any recovery increases to 25-30% of the case proceeds, plus attorneys’ fees and costs paid by the defendant.
As a practical matter, a relator almost always stands a much better chance of recovery if DOJ intervenes in the case, for several reasons. First, DOJ has considerable expertise in handling FCA cases, and prior to intervening in any qui tam case, DOJ usually does an extensive investigation into the facts and the applicable law. If, as a result of that process, DOJ elects to intervene in the case, chances are it is a strong case. For that same reason, in the eyes of the presiding judges, a decision by DOJ to join a qui tam case generally lends considerable credibility to the relator’s allegations. Second, these cases are usually large cases involving complex issues and big stakes, and the allegations can be difficult and expensive to prove. Moreover, the defendant is usually willing to spend considerable sums to defend the charges, hiring teams of lawyers who throw all sorts of roadblocks in the way of plaintiff’s case. When DOJ chooses to get involved, it brings to the table considerable legal and investigative resources which otherwise might not be available to the relator. Third, because these cases involve allegations that the defendant has cheated or lied in connection with a specific Government program, one of the critical issues is this: What would the responsible Government officials have done if they knew the truth of the matter? In other words, if Government officials knew what was really happening, as opposed to what the defendant said was happening, what, if anything, would the Government officials have done differently? Would the officials have simply done the same thing and paid the defendant the same amount of money? Would the officials have paid the defendant any money at all? In order to answer these questions, a lawyer needs access to Government witnesses, and DOJ attorneys have much better access than any lawyer from outside the government.
The critical juncture of nearly every qui tam case is the Department of Justice’s decision whether to intervene in the case. In the large majority of cases in which DOJ intervenes, the defendant either settles the case or loses in court. Conversely, in the large majority of declined cases, the relator either voluntarily dismisses the case or, at some point in the proceeding, the court dismisses the case before it reaches a trial on the merits.
3. The Impact of the FCA on Medical Practices.
The Supreme Court has held that the False Claims Act “was intended to reach all types of fraud, without qualification, that might result in financial loss to the Government.” United States v. Neifert-White Company, 390 U.S. 229, 233 (1968).
In terms of the potential application of the FCA to medical practices, the first and most obvious application would be to situations where practices are billing Government programs (such as Medicare) for services that are not rendered. Another similar application would be to cases involving “upcoding,” i.e., where a provider renders a service to a patient but bills a government-funded insurance program for a higher level of service than what is provided. A third application would be to cases where the provider provides and bills for a service, but the service is so substandard that the patient – and the Government payor – does not receive the service that was paid for. For example, in the context of a Medicare managed care plan, if the provider knowingly withholds services that are medically necessary and covered under the plan, the provider could be liable under the FCA.
The FCA extends well beyond the situations described above, however. The Act also covers situations where the provider actually renders the amount and quality of services that were paid for, but the claim is considered “false” because the service is provided in violation of another law or rule which, if the violation were discovered by the payor, would result in a denial of payment. See United States ex rel. Kirk v. Schindler Elevator Corp., 2010 U.S. App. LEXIS 7097 (2nd Cir. April 6, 2010); Mikes v. Strauss, 274 F.3d 687(2nd Cir. 2001). For example, if a provider who is not eligible to submit claims to Medicare nonetheless submits claims for services, using someone else’s Medicare provider number, that would violate the Act, whether or not the services were provided. For another example, suppose a medical practice is paying kickbacks to another entity in order to induce the referral of Medicare patients for treatments, in violation of the Anti-Kickback Statute (“AKS”). See 42 U.S.C.A. § 1320a-7b. The Medicare program will not pay claims for services that are “tainted” insofar as they were performed on patients who were referred in violation of the AKS7. Consequently, if the medical practice bills Medicare for services resulting from violations of the Anti-Kickback Statute – even though the services were medically necessary and were provided exactly at the level billed – the claims would be in violation of the FCA. Moreover, courts have held that in this situation, the Government’s damages is the entire amount claimed for the service, and therefore, under the FCA, the Government is entitled to recover treble that amount, plus civil penalties. See Rogan v. United States, 517 F.3d 449 (7th Cir. 2008).
Since 1986, when the FCA’s qui tam provisions were overhauled and modernized, those provisions have played an enormous role in the Government’s health care fraud enforcement efforts, resulting in cases that have yielded billions of dollars in Government recoveries. In several cases, relators have received rewards in the tens of millions of dollars for initiating lawsuits to redress major fraud schemes. No one should underestimate the power of qui tam provisions as an effective law enforcement tool, one that converts wrongdoers into targets and anyone who discovers the wrongdoing into a potential bounty hunter.
In summary, the range of conduct covered by the FCA is broad, the damages and penalties for violations are severe, and there are strong financial incentives for employees, competitors, and others to file qui tam suits under the Act. The FCA is a statute of which every person involved the practice of medicine should be aware.
1 See S. Rep. No. 345, 99th Cong., 2d Sess. at 2 (1986), reprinted in 1986 U.S.C.C.A.N. 5266.
2 Congress amended the liability provisions of the FCA in § 4 of the Fraud Enforcement and Recovery Act of 2009, Pub. L. 111-21, 123 Stat. 1617 (May 20, 2009). In addition, Congress amended an important procedural provision of the FCA — which provision, under some circumstances, barred qui tam suits based on allegations that had already been publicly disclosed — in § 10104(j)(2) of the Patient Protection and Affordable Care Act, Pub. L. 111-148, 124 Stat. 119 (March 23, 2010).
3 The term “material” is defined in the Act to mean “having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property.” § 3729(b)(4).
4 The Act contains three other liability provisions which are rarely used: §§ 3729(a)(1)(D) (knowing failure to return Government money property), (a)(1)(E)(knowing delivery of a false receipt), and (a)(1)(F)(knowingly receiving Government property in pledge of a debt). In addition, the Act provides that where a person discovers a violation of the Act, promptly discloses the violation to the Government, and fully cooperates in an ensuing investigation, person’s damages can be limited to double rather than treble damages. 31 U.S.C. § 3729(a)(2).
5 31 U.S.C. § 3730(a)(1). The False Claims Amendments Act of 1986 provided that the range of civil penalties was between $5,000 and $10,000 per false claim. However, this range was increased to between $5,500 and $11,000 per false claim for conduct that occurred on or after September 29, 1999. See 64 Fed. Reg. 47,099, 47,104 (Aug. 30, 1999).
6 Under § 6402(d) of the Patient Protection and Affordable Care Act, supra note 2, when a health care provider has discovered an overpayment, the provider generally has 60 days to report and return the overpayment and state in writing the reason for the overpayment. If the provider does not fulfill these requirements, the overpayment is considered an “obligation” for which the provider may be liable under the FCA.
7 Section 6402(f) of the Patient Protection and Affordable Care Act, supra note 2, amends the AKS to state explicitly that a “claim that includes items or services resulting from a violation of [the AKS] constitutes a false or fraudulent claim for purposes of [the FCA].”