Healthcare Fraud 101: The False Claims Act

March 10, 2017

A look into the False Claims Act and how the federal government will aim to prosecute wrongdoers.

The False Claims Act (FCA) prohibits anyone from knowingly submitting a false claim for payment to the federal government. The FCA covers every claim for Medicare reimbursement, so every physician's practice group should understand what it is and how it works. It creates the risk of massive civil damages and civil penalties. For example, in 2013, Olympus Corp. paid $310.8 million to settle a civil FCA case.

In this post, we'll cover what kinds of conduct the FCA prohibits, the penalties that can be imposed for violating it and the unique procedure for bringing a claim under it.

What the FCA Prohibits

The FCA prohibits several broad categories of conduct:

• Knowingly presenting a false or fraudulent claim for payment to the federal government;

• Knowingly "causing to be presented" a false or fraudulent claim;

• Knowingly using (or causing to be used) a false statement or false record to get the federal government to pay a claim; 

• Conspiracy with other individuals or entities to get the federal government to pay a false claim;

• Knowingly using (or causing to be used) a false statement or false record to avoid paying all or part of a financial obligation to the federal government.

To take a simple example, if a practice group submits a Medicare claim for reimbursement for the examination of a patient that never took place, then this is a false claim. But FCA liability can arise in all sorts of contexts, including:

• Upcoding procedures

• Unbundling procedures

• Filing multiple claims for the same procedure

• Billing for medically unnecessary procedures

• Violating the Anti-Kickback Statute

Penalties Under the FCA

The FCA's broad reach is coupled with serious penalties. Perhaps most significant is that the government can recover treble-or triple-damages for violations. So, if you submit $100,000 in false claims to the government, the possible liability is $300,000.

In addition, a court must impose civil penalties for each false claim submitted. In June 2016, the Department of Justice (DOJ) issued interim final rules increasing the civil penalty to $10,781 to $21,563. This may not sound like much, but these are penalties per claim. So if the $100,000 worth of false claims was comprised of 100 individual Medicare reimbursement claims, then your practice faces between $1.05 million and $2.1 million in penalties.

The result of a settlement under FCA can also be the imposition of a Corporate Integrity Agreement (CIA), which requires a company to institute specific - and expensive -compliance policies and procedures.

How a False Claims Act Case Works

The FCA is enforced by the Civil Division of the DOJ. The agency can file direct lawsuits in federal court for FCA violations.

But the FCA also allows whistleblowers to file qui tam lawsuits as well. This is a lawsuit in which a private citizen, called a "relator," files a lawsuit on behalf of the federal government. When first filed, a qui tam lawsuit is under seal, meaning that the defendant does not know that the lawsuit exists.

While the lawsuit is under seal, DOJ will investigate the claims made by the relator and decide whether it wants to intervene in the lawsuit. As a general matter, if DOJ intervenes, the case against the defendant is a strong one and DOJ takes the lead in litigating the case against the defendant. Most cases in which DOJ intervenes settle eventually.

Even if DOJ decides not to intervene, the relator may decide to continue the lawsuit against the defendant. In this situation, the relator's counsel will take the lead in litigating the case.  DOJ can, for good cause, decide to intervene later in the suit if additional information warrants intervention.  

The defendant often learns about DOJ's investigation of the relator's claims while the complaint is under seal. Sometimes DOJ will inform the defendant about the investigation and the complaint, and sometimes the defendant will learn about it through hearing that other individuals or companies have been contacted for evidence or witness interviews.

There is usually an opportunity for the defendant's counsel to try to convince DOJ not to intervene in the case and to explain why the conduct was not wrongful under the FCA. If it is a strong case, it can be an uphill battle to convince DOJ not to intervene, but many relators file weak qui tam lawsuits with farfetched theories of liability.

Why Would a Relator Bring a Case?

The answer to this question is simple: money. The FCA allows for the federal government to award the relator in a successful action a bounty of 15 percent to 30 percent of the recovery. This can be a substantial amount of money in larger cases.

What this bounty means is that all of your employees are possible relators. Qui tam complaints can be filed by anyone with knowledge of a violation - so your billing manager, marketing director or even physicians within the group may decide to report violations. It can be a current or former employee of your practice group, or even someone outside of your practice group who has knowledge of fraud.

You should keep in mind that the relator - even if confronted - cannot admit that they are the relator in the case because the case is still under seal and confidential. There are, however, serious penalties for a defendant in a FCA case retaliating against a relator, so you cannot fire or demote the person (even if you very much want to do so).

Next Post: What To Do If You Learn About a FCA Against Your Practice