The False Claims Act is a long-standing and broadly written federal statute designed to both ferret out and punish the perpetration of fraud against the U.S. Government. The statute contains explicit provisions which provide a financial incentive for individuals, known as relators or “whistleblowers”, to make allegations of fraud on behalf of the Government and be paid a percentage of the recovery for their efforts and information. Though the False Claims Act is designed to prevent many types of fraud committed by federal contractors, it has particular salience in the health care context.
The existence of the False Claims Act (FCA) dates back to the late 1800s when President Lincoln and Congress enacted the statute to address defense procurement fraud that occurred in connection with defense contractors submitting fraudulent bills to the Union Army. In order to uncover the sophisticated fraud schemes being perpetrated against the federal treasury, President Lincoln crafted the law to include qui tam provisions to reward insiders for coming forward to disclose and prosecute the fraud. After its initial enactment, the FCA was amended in 1943 and signed into law by President Roosevelt. For the next four decades, the law’s primary utility remained with defense contractor funding in times of war. In 1986, President Reagan signed into law additional amendments designed to combat misuse of government spending through waste and fraud and to provide enhanced recovery for individuals filing qui tam actions. Although the FCA targets many types of fraudulent claims, health care and procurement fraud cases constitute the vast majority of all FCA actions.
The FCA imposes liability on any person who: “(1)(A) knowingly presents or causes to be presented a false or fraudulent claim for payment or approval; (1)(B) knowingly makes, uses or causes to be made or used, a false record or statement material to a false or fraudulent claim; (1)(C) conspires to commit a violation of the FCA . . . or (1)(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.” 31 U.S.C. § 3729(a). FCA liability takes the form of monetary penalties and the statute authorizes a civil penalty between $5,000 and $10,000 per claim ($5,500 to $11,000 adjusted for inflation, as provided in the statute), plus three times the amount of damages which the Government sustains because of the false claim. Id.
For purposes of the statute, the terms “knowing” and “knowingly” mean that a person (1) has actual knowledge, (2) acts in deliberate ignorance of the truth or falsity of the information or (3) acts in reckless disregard of the truth or falsity of the information. 31 U.S.C. § 3729(b). Accordingly, there is no requirement that the person submitting the claim have actual knowledge that the claim is false.
The Deficit Reduction Act of 2005 modified the Social Security Act to create a financial incentive for States to enact false claims acts that create State liability for the submission of false or fraudulent claims to the State’s Medicaid program. 42 U.S.C. § 1396h(b). If a State false claims act meets specified requirements, the State is entitled to an increase in ten percentage points in the State medical assistance percentage, as determined by Section 1095(b) of the Social Security Act. More specifically, a State must have in effect a law that: (1) establishes liability for the false or fraudulent claims described in the FCA regarding any State Medicaid plan expenditures; (2) contains provisions that are “at least as effective” in rewarding and facilitating qui tam actions as those in the FCA; (3) contains a requirement for filing an action under seal for sixty days pending review by the State Attorney General; and (4) contains a civil penalty that is not less than the penalty authorized under the FCA. Id.
In 2006, the Office of the Inspector General (OIG) published a notice in the Federal Register setting forth the agency’s guidance for reviewing State false claims acts. 71 Fed. Reg. 48552 (Aug. 21, 2006). The guidelines invited States to request OIG review of State laws to determine if they meet the requirements enumerated in the Social Security Act. According to the OIG website, the following is a list of State laws that have been reviewed by the OIG: California; Florida; Georgia; Hawaii; Illinois; Indiana; Louisiana; Massachusetts; Michigan; Nevada; New Hampshire; New Jersey; New Mexico; New York; Oklahoma; Rhode Island; Tennessee; Texas; Virginia; and Wisconsin. See http://oig.hhs.gov/fraud/falseclaimsact.asp.
From 1987 through 2005, settlements and judgments for the federal government in FCA cases exceeded $15 billion, of which almost $10 billion is attributable to cases filed under the FCA’s qui tam provisions. See Letter from Laurie E. Ekstrang, Director, Homeland Security and Justice, United States Government Accountability Office to U.S. Congress, January 31, 2006. As a result, it seems clear that the Government will continue to rely on the FCA to combat fraud against the federal fisc. Given that recoveries in health care fraud cases are larger than recoveries in any other type of FCA case, this reliance is likely to be especially pronounced in the health care context.
Indeed, on May 20, 2009, President Obama signed into law a series of amendments to the FCA to expand the scope of liability and give the Government enhanced investigative powers. As a result of these amendments, a knowing and improper failure to return an overpayment, where there is an established duty to do so, is now the basis for a FCA violation. This expansion is likely to have a direct impact on potential violations of the Stark Law’s physician self-referral prohibitions. Additionally, liability will now attach to funds dispensed by the Government through intermediaries so long as the funds are spent or used on the government’s behalf or to advance a government program or interest. Presumably this will include payments received from Medicare administrative contractors and raises the possibility of FCA liability for claims submitted to Medicare Advantage plans and Medicare Health Maintenance Organizations, in addition to claims submitted directly to the Government. See Fraud Enforcement and Recovery Act of 2009, S. 386.
Common Areas of Concern
FCA cases predicated on the submission of a claim or claims in the health care context are increasingly common and lucrative. Agencies within the Department of Health and Human Services were named fifty-four percent of the time in the 5,129 qui tam cases filed with the Department of Justice from 1987 through 2005 and recoveries for health care fraud cases totaled more than $5 billion during that same period of time. See Letter from Laurie E. Ekstrang, Director, Homeland Security and Justice, United States Government Accountability Office to U.S. Congress, January 31, 2006. In addition, because the FCA authorizes treble damages, the financial implications for individuals and/or providers can be crippling.
FCA cases seem to reach virtually every aspect of the health care delivery system. Recent settlements have involved large pharmaceutical companies, small durable medical equipment suppliers, hospital-physician joint ventures, billing companies, hospital districts and individuals (both physicians and small business operators). See, e.g., The Department of Health and Human Services and The Department of Justice, Health Care Fraud and Abuse Control Program, Annual Report for FY 2007, available at http://oig.hhs.gov/publications/docs/hcfac/hcfacreport2007.pdf.
The FCA represents a legal tool for combating fraud against the Federal Government. Though its roots lie with defense contractors and the Civil War, it is now most frequently used, and generates the most significant recoveries, in the health care context. Given the substantial financial incentives that the statute creates for whistleblowers to come forward with allegations of fraudulent and/or false claims, it seems likely that the statute will only continue to gain traction and that health care providers of all sizes and types may be vulnerable to allegations of FCA violations.