Expanding Enforcement to Target False Claims

February 28, 2012 By Chip Campbell
TennTopics

Local newspapers are reporting with increased frequency on settlements reached between government agencies and healthcare companies arising from allegations of false claims submitted for Medicare and Medicaid reimbursement.  According to the Civil Division of the U.S. Department of Justice, claims involving the Department of Health and Human Services recouped over $15 billion under the Federal False Claims Act over the past ten years.  A portion of the money recovered from fraud, waste and abuse is funding the 2009 Patient Protection and Affordable Care Act (“PPACA” a/k/a “Obamacare”) which also includes $350 million in funding for fraud enforcement.  As in most states, providers in Tennessee face enforcement under similar state laws.  This article provides a brief overview of the False Claims Act and provides insights with respect to compliance and protecting against false claims.

I.  History of Laws that Target False Claims for Government Payment.

Congress enacted the Federal False Claims Act (“FCA”) in 1863 to combat false claims by military contractors during the Civil War.  Lawsuits were uncommon under the FCA over the next one hundred and twenty-three years until Congress amended the FCA in 1986, making lawsuits easier to pursue and increasing the potential recovery of damages and penalties resulting from false claims.  Following the lead of the federal government, Tennessee lawmakers enacted the Tennessee Medicaid False Claims Act (“TMFCA”) in 1993.[1]

In 2009 and 2010, Congress further broadened the FCA by changing several definitions and broadening the provisions addressing “reverse false claims” - or retaining money that should not have been paid by the government or improperly avoiding or decreasing an obligation to pay the government.[2]  The 2009 amendment also armed U.S. Attorneys at the local level with aggressive investigative tools that previously required approval from high level officials in the Department of Justice.  The FCA has steadily broadened in the past twenty-five years, leaving companies that conduct business with the federal government facing increased exposure and scrutiny.

II.  Overview of Provisions of the FCA and TMFCA.

A classic example of a FCA violation is the presentment of a false or fraudulent claim to the government for payment or approval.[3]  The FCA also prohibits the making of a false record or statement material to a false or fraudulent claim and reverse false claims.  The prohibitions of the TMFCA are similar to certain provisions of the FCA, with some differences relating to the mental state required at the time of the submission of the false claim.[4]  A more nuanced basis for a false claims action can be found in certifications made by a provider to the government.  For example, if a provider submits an accurate claim, but also certified falsely on a cost report or other document that the company complied with certain requirements imposed on providers who participate in government programs, the certification can serve as the basis for the false claim.  Federal courts continue to struggle with defining the scope of these types of claims and whether certification is “material” to payment of a claim.[5]

Both the FCA and the TMFCA provide for payment of three times the actual damages to the government, civil penalties between $5,500 and $11,000 per false claim,[6] and payment of costs and attorneys’ fees.  The FCA and TMFCA allow for qui tam actions, or suits brought by private citizens (a/k/a “relators”), on behalf of the government.[7]  If a relator files suit under the FCA, the suit is kept sealed by the Court while the government investigates the claims to determine whether to pursue the case.  If the government intervenes at any point, the relator may recover 15-25% of the proceeds of the action; the relator’s recovery is increased to 25-30% if the government does not intervene.

To provide an example, ABC, Inc. operates dozens of dialysis clinics that submit claims for Medicare reimbursement.  ABC’s accounting department placed codes on 5,000 claims over a two-year period that did not accurately reflect the care provided, but resulted in a higher Medicare reimbursement of $100 per claim.  (This practice is known as “upcoding.”)  ABC also certifies that it complies with various Medicare regulations which the government conditions for Medicare payments.  An employee in ABC’s accounting department brings a relator action against ABC for violations of the FCA based on these facts.  After the government investigates the claims and declines to intervene in the case, the employee’s lawsuit is unsealed and she may proceed with the suit.  If she prevails, ABC could be liable for $1,500,000 in damages (or $100 x 5,000 x 3) and up to $55,000,000 in civil penalties ($11,000 x 5,000), as well as attorneys’ fees and costs.  The employee stands to keep up to $16,950,000.  Given that potential recovery, a “whistleblower” employee has incredible incentive to file a qui tam action.

III.  Guarding Against Violations of the False Claims Law.

Given the sheer volume of claims submitted to federal and state governments for payments under Medicare and Medicaid, being able to guarantee the complete accuracy of each claim is virtually impossible.  Sound auditing and compliance practices can decrease a provider’s potential for presenting false claims.  Additionally, the FCA and TMFCA provide mechanisms to decrease liability for false claims.  Under both laws, a court may decrease the damages to not less than double the damages - as opposed to triple - sustained by the government if: (1) an entity furnishes government officials with all known information about the violation within thirty days of obtaining that information; (2) the entity cooperates with the government investigation; and (3) at the time of self-reporting, no criminal prosecution, civil action or administrative action has been commenced.

A significant amount of exposure exists for companies who submit claims seeking payment or funds from federal or state governments.  Given the expanding role of government in providing and paying for healthcare services, the government’s interest in protecting against false claims continues to increase.  Providers, administrators and compliance personnel must be aware of the various ways in which liability may arise.  If false claims are discovered through compliance or auditing efforts, self-reporting may be in the provider’s best interest.  Of course, given the potential liability under the FCA and TMFCA, a provider should always consult legal counsel if any concerns arise relating to claims for payment from a governmental agency.


1 Tennessee lawmakers added a more general Tennessee False Claims Act in 2001.  See Tenn. Code Ann. § 4-18-101 et seq.  However, claims for medical payments are expressly excluded from the scope of that law because such claims fall under the scope of the TMFCA.  Tenn. Code Ann. § 4-18-108.

2 The 2009 and 2010 included other meaningful changes to the FCA, most of which make false claims cases and qui tam actions easier to bring and pursue.

3 Brevity prevents an exhaustive analysis of all the various provisions in and issues raised by federal and state false claims laws, including various defenses, procedural issues, criminal provisions and potential for individual liability.  Numerous resources exist for those interested in the breadth and depth of those laws.  See, e.g., John T. Boese, Civil False Claims and Qui Tam Actions (4th ed. 2011) (two volume treatise).

4 An amendment currently under consideration by the Tennessee General Assembly would make claims under the TMFCA easier to prove because, if passed, that amendment would make the TMFCA virtually identical to certain provisions of the FCA.  That bill also proposes an increase in the upper limit of recoverable civil penalties to $25,000 per false claim.  See Senate Bill 2240, available at http://www.capitol.tn.gov/Bills/107/Bill/SB2240.pdf.

5 See Chesbrough v. VPA, PC, 655 F.3d 461 (6th Cir. 2011).

6 The statutory penalties range from $5,000 to $10,000.  Those penalties can be adjusted for inflation by the federal agency involved in the claims at issue.  The Department of Justice adjusted the civil penalties in 1999 to a range of $5,500 to $11,000.

7 “Qui tam” is a shortened version of “qui tam pro domino rege quam pro se ipso in hac parte sequitur” or “he who pursues this action on our Lord the King’s behalf as well as his own.”

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