Changes to False Claims Act Present Greater Risks to Healthcare Providers

The Civil False Claims Act (FCA), 31 U.S.C. §3729, has long been an effective weapon for the federal government in combating fraud and abuse in government contracting. The Office of Inspector General (OIG) for the Department of Health and Human Services and the Department of Justice (DOJ) have routinely used the False Claims Act as a particularly powerful tool for prosecuting healthcare fraud and abuse. Earlier this year, Congress passed the Fraud Enforcement and Recovery Act of 2009 (FERA) that expanded the power of the False Claims Act, especially in relation to healthcare, by most notably making it a false claim for a provider to “knowingly” retain any overpayments.

Generally, the FCA provides that any party knowingly submitting a false claim to the federal government for payment is liable for damages of three times the amount of the claim plus a civil penalty of up to $10,000 per claim. When the FCA is used to prosecute fraud and abuse in the healthcare context, the per claim penalty of $10,000 can easily cripple a healthcare provider due to the volume of claims submitted by the average provider.

As such, even before the passage of FERA, False Claims Act suits were already a particularly disastrous possibility for healthcare providers, as evidenced by the published FCA recoveries of hundreds of millions of dollars. Healthcare regulations are exceedingly complex and require constant vigilance to comply with continuous changes. Providers must always be aware that disgruntled employees and others with inside knowledge could file a Qui Tam suit against the provider for violating the FCA. A Qui Tam suit is a FCA civil suit initiated by a private citizen, a whistleblower, who uncovers or is aware of and “blows the whistle” on a party submitting “false” claims to the federal government for payment. The whistleblower can receive between 15 to 30 percent of any funds recovered by the government from the suit. That percentage is a strong incentive considering the amount of money involved.

With the passage of FERA, the FCA provides even greater risks to providers. Congress amended the FCA so that now an entity violates the FCA if it “knowingly and improperly avoids or decreases an obligation” to pay money to the United States, including an obligation based on an “established duty … arising from … the retention of any overpayment.” The retention of overpayments is now a clear False Claims Act violation. This is particularly troubling in the healthcare context due to the potential for inadvertent liability under the physician self-referral prohibitions of Stark II, 42 U.S.C. §1395nn. If a hospital or other entity finds it has a financial arrangement with a physician that violates the Stark II prohibitions, even if it was merely a technical violation, each and every payment the entity received based on a referral from that physician could be considered, among other things, an overpayment and the entity’s failure to return those payments could be prosecuted as a false claim under the amended FCA.

Moreover, whereas the FCA used to protect only whistle blowing employees, FERA amended the FCA to extend whistleblower protection to independent contractors and agents. By expanding this protection, Congress increased the likelihood of more private Qui Tam initiated suits.
With the FCA expansion and ever present possibility of the federal government beginning its active investigation and policing of financial arrangements implicating Stark II through the Disclosure of Financial Relationships Report (See a discussion of the DFRR in the June 26, 2009 issue of the LHA Impact Lawbrief), it is vitally important that all providers engage in active compliance programs and have experienced healthcare counsel review the entity’s contractual relationships.