American Health Lawyers Association 2015 Fundamentals of Health Law Introduction to the False Claims Act

Collateral Issues

1. Exclusion

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  Exclusion from Medicare, Medicaid, and all federal healthcare programs
  
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  No federal healthcare program payments for items or services furnished, ordered, or prescribed directly or indirectly
  
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  No payment of salary or benefits
  
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  No administrative/management services
  
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  Cannot be an employee or contractor of Medicare or Medicaid providers
  
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  Cannot order services or write prescriptions for Medicare or Medicaid beneficiaries
  
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  Name listed on OIG List of Excluded Individuals/Entities (LEIE)
  
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  Entities that bill Medicare or Medicaid in violation of the above are liable (“knew or should have known” standard) for return of payments and civil monetary penalties.
  

In addition to exclusion, the OIG may seek civil monetary penalties (“CMPs”) for a wide variety of conduct, including, false claims, kickbacks, Stark violations, or the retention of overpayments. See 42 U.S.C. § 1320a-7a.

Criminal prosecution is another tool available to the government to aid in enforcement. Key statutes include: Health Care Fraud (18 U.S.C. § 1347); False Statements (18 U.S.C. § 1001); Mail Fraud (18 U.S.C. § 1341); and Wire Fraud (18 U.S.C. § 1343).

In addition, the Responsible Corporate Officer Doctrine is a criminal liability theory based on United States v. Dotterweich, 320 U.S. 277 (1943), and United States v. Park, 421 U.S. 658 (1975). Pursuant to this theory, the Government can seek to obtain misdemeanor convictions of a company official for alleged violations of the Food Drug & Cosmetic Act – even if the corporate official was unaware of the violation – if the official was in a position of authority to prevent or correct the violation and did not do so. There are several limitations to application of this theory, however: (1) the officer must have a “responsible relationship” with respect to the alleged criminal conduct; and (2) there is an “impossibility” defense (i.e., evidence that the officer exercised extraordinary care).

D. Corporate Integrity Agreements

As Gregory E. Demske, Chief Counsel to the Inspector General, stated: “CIAs are designed to put the entity at the frontline of promoting compliance.” As part of settlements of federal healthcare program investigations, the OIG negotiates corporate integrity agreements (“CIAs”) with healthcare providers or entities. CIAs have various common elements, but each CIA is tailored to address the specific facts at issue. According to the OIG, CIAs typically last five years and include the following requirements:

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  hire a compliance officer/appoint a compliance committee;
  
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  develop written standards and policies;
  
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  implement a comprehensive employee training program;
  
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  retain an independent review organization to conduct annual reviews;
  
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  establish a confidential disclosure program;
  
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  restrict employment of ineligible persons;
  
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  report overpayments, reportable events, and ongoing investigations/legal proceedings; and
  
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  provide an implementation report and annual reports to OIG on the status of the entity's compliance activities.³
  

1. 
   Fraud Enforcement and Recovery Act of 2009.
   

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  On May 20, 2009, the President signed into law S. 386, the Fraud Enforcement and Recovery Act of 2009, Pub. L. No. 111-21, 123 Stat. 1617 (“FERA”). FERA includes revisions to the False Claims Act that its sponsors claim make the FCA consistent with Congress’s intent in the 1986 FCA Amendments by overturning certain judicial interpretations of the FCA. Among other changes, FERA sought to establish clear liability for fraudulent claims submitted to government contractors and grantees—such as contractors administering the Medicaid program—and to create liability for certain attempts to avoid repayment of overpayments, including improper retention of Medicare and Medicaid funds.
  

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  As outlined in the Senate Judiciary Committee’s Report accompanying S. 386, one goal of the amendments is to overturn the Supreme Court’s reading in Allison Engine Co. v. United States ex rel. Sanders, 128 S. Ct. 2123, 2128-31 (2008), that 31 U.S.C. §§ 3729(a)(2) & (3) preclude liability for claims involving government contractors. See S. Rep. No. 111-10, at 10-12 (2009). Congress also sought to overturn the D.C. Circuit’s ruling in United States ex rel. Totten v. Bombardier Corp., 380 F.3d 488, 490, 492 (D.C. Cir. 2004), that 31 U.S.C. §§ 3729(a)(1) requires presentment of a false claim to the government, not a government grantee such as Amtrak.
  
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  The revisions to the substantive liability provisions of 31 U.S.C. §§ 3729(a)(1)-(3) are as follows:
  

(2) knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim to get a false or fraudulent claim paid or approved by the Government;

(3) conspires to commit a violation of subparagraph (A), (B), (D), (E), (F), or (G) defraud the Government by getting a false or fraudulent claim allowed or paid;⁴

Pub. L. No. 111-21, § 4(a) (emphasis added) (codified at 31 U.S.C. §§ 3729(a)(1)(A), (B), and (C)).

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  The statute further clarifies that conspiracy liability under § 3729(a)(3) may be premised on any of the FCA’s substantive provisions in § 3729(a). The text of § 3729(a)(3) before the amendment did not explicitly cover all of the FCA’s substantive liability provisions. This change overturns cases such as United States ex rel. Huangyan Import & Export Corp. v. Nature’s Farm Products, Inc., 370 F. Supp. 2d 993, 1004-05 (N.D. Cal. 2005), which found § 3729(a)(3) did not reach conspiracies to violate § 3729(a)(7). See S. Rep. No. 111-10, at 13.
  

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  The statute expands the definition of a “claim” to reverse United States ex rel. DRC, Inc. v. Custer Battles, LLC, 376 F. Supp. 2d 617, 641 (E.D. Va. 2005).⁵ In that case, the court held that a defense contractor who had defrauded the government in connection with work in Iraq fell outside of the FCA’s ambit because the money lost was Iraqi money under the United States government’s control. Id. at 646. The amendments allow FCA suits based on claims made to the federal government for money or property to which the United States does not have title but which is under the control of the United States government.
  
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  FERA revises the definition of claim to expand the definition:
  

(A) means any request or demand, whether under a contract or otherwise, for money or property and whether or not the United States has title to the money or property, that—

(i) is presented to an officer, employee, or agent of the United States; or

(ii) is made to a contractor, grantee, or other recipient, if the money or property is to be spent or used on the Government’s behalf or to advance a Government program or interest, and if the United States Government—

(I) provides or has provided any portion of the money or property requested or demanded; or

(II) will reimburse such contractor, grantee, or other recipient for any portion of the money or property which is requested or demanded; and

Pub. L. No. 111-21, § 4(a) (emphasis added) (codified at 31 U.S.C. § 3729(b)(2)).

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  This provision is very broad and has the potential for significant litigation. One can expect suits based on requests for money made to a recipient of federal funds, if the United States government has provided any portion of the money demanded, and the money would advance a government interest.
  
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  Indeed, recognizing the potentially broad scope of this provision, the Senate passed the bill with an amendment included in the text above that carves out claims for funds paid to federal employees and Social Security beneficiaries. Fraud perpetrated against other recipients of federal funds could implicate this definition of a “claim.”
  

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  A major change of interest to the healthcare industry is the revision of re-designated § 3729(a)(1)(G)’s prohibition of “reverse false claims.” The pre-amendment text of what was then 31 U.S.C. § 3729(a)(7) imposed liability on anyone who
  

FERA expanded § 3729(a)(1)(G) to cover not only the use of false records to decrease an obligation, but also actions to decrease an obligation in which no false record is used. According to the legislative history, this change is intended to make § 3729(a)(1)(G) parallel not only to § 3729(a)(1)(B)’s use of a false record, but also to § 3729(a)(1)(A)’s inclusion of knowing concealment alone without use of a false record or statement. See S. Rep. No. 111-10, at 14. The revised provision imposes liability on anyone who:

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.

Pub. L. No. 111-21, § 4(a) (emphasis added) (codified at 31 U.S.C. § 3729(a)(1)(G)).

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  Courts are beginning address the significance of the language “knowingly and improperly avoids or decreases,” which FERA added to re-designated § 3729(a)(1)(G).
  
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  FERA also added a definition of “obligation,” which was not previously defined in the statute. The new provision provides:
  

Pub. L. No. 111-21, § 4(a) (codified at 31 U.S.C. § 3729(b)(3)).

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  The Committee Report notes that this provision is not intended to capture simple retention of an overpayment permitted by a reconciliation process so long as it is not the product of any willful act to increase payments to which the entity is not entitled. Id. See also 155 Cong. Rec. H5260, 5268 (daily ed. May 6, 2009) (Statement of Rep. Maffei). But see S. Rep. No. 111-10, at 15 (leaving open possibility of liability even during pending reconciliation periods in cases of an “action or scheme to intentionally defraud the Government by receiving overpayments”).
  
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  See, e.g., Simoneaux v. E.I. du Pont de Nemours & Co., No. CIV. 12-219-SDD-SCR, 2014 WL 4352185, at *2 (M.D. La. Sept. 2, 2014)
  
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  “The Court concluded that the 2009 amendments had changed the meaning of obligation within the FCA by providing a statutory definition for this term, which could apply to regulations, such as the [Toxic Substances Control Act (“TSCA”)]. Strictly construing this new statutory language, the Court found that because the TSCA gives rise to an obligation to report chemical leaks, and failure to do so will result in the imposition of a fine or penalty, whether fixed or not, the 2009 Congressional definition of obligation was satisfied; therefore, the Court denied DuPont's summary judgment motion.”
  

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  The revised language adds an explicit materiality requirement to currently-numbered §§ 3729(a)(1)(B) and (a)(1)(G), which is defined in § 3729(b)(4) as “having a natural tendency to influence, or be capable of influencing, the receipt of money or property.” Pub. L. No. 111-21, § 4(a).
  
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  One key question related to the addition of a materiality requirement to §§ 3729(a)(1)(B) and (a)(1)(G), but not § 3729(a)(1)(A), is how the requirement will impact materiality defenses to § 3729(a)(1)(A).
  

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  Section 3730(h) was amended by FERA to include retaliation against “contractors and agents” in addition to employees. Pub. L. No. 111-21, § 4(d). Interestingly, the word “employer” in the provision was deleted by FERA. The protected conduct was also modified to mean lawful acts in furtherance of “efforts to stop one or more violations” of the FCA. See Section IV below, however, for additional changes made by the Dodd-Frank financial reform legislation.
  

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  All revisions to substantive liability provisions take effect on the date of enactment and apply prospectively to “conduct on or after the date of enactment,” with the exception of the amendment to § 3729(a)(2). Pub. L. No. 111-21, § 4(f). The amendment to § 3729(a)(2) is applied retroactively “as if enacted on June 7, 2008,” two days before Allison Engine was decided, and shall apply to all “claims under the False Claims Act (31 U.S.C. 3729 et seq.) that are pending on or after that date.” Pub. L. No. 111-21, § 4(f)(1). By comparison, in FERA § 4(f)(2), Congress specified that certain procedural changes made by FERA apply to “cases pending on the date of enactment” (emphasis added).
  
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  Congress clearly intended to eliminate defenses based on Allison Engine to some extent, but the precise application of the retroactive effective date is not clear.
  
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  The emerging majority position among federal courts is that “claims” refers to requests for payment and not to cases. See, e.g., U.S. ex rel. Barko v. Halliburton Co., 952 F. Supp. 2d 108, 117–18 (D.D.C. 2013); Hopper v. Solvay Pharm., Inc., 588 F.3d 1318, 1327 n.3 (11th Cir. 2009) (following Sci. Applications Int’l Corp. in holding that FERA applies to pending claims, not cases), cert denied 130 S. Ct. 3465 (2010); United States ex rel. Burroughs v. Cent. Ark. Dev. Council, No. 4:08CV2757, 2010 WL 1875580, at *2 (E.D. Ark. May 10, 2010). But see United States ex rel. Stephens v. Tissue Sci. Labs., 664 F. Supp. 2d 1310, 1315 n.2 (N.D. Ga. 2009) (because case was pending on June 7, 2008, FERA applies).
  
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  The legislation applies new procedural sections—relation back of complaints in intervention, modification of CID procedures, and service on state or local authorities—to all cases pending on the date of enactment. See Pub. L. No. 111-21, § 4(f)(2).
  
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  The retroactive application of a punitive statute also may implicate the Ex Post Facto Clause of the U.S. Constitution. In United States ex rel. Sanders v. Allison Engine Co., 667 F. Supp. 2d 747 (S.D. Ohio 2009), the court found FERA’s retroactive effective date for certain claims pending on or after June 7, 2008 to be a violation of the Ex Post Facto Clause because of the FCA’s punitive nature. The court quoted numerous statements by legislators regarding their intent to use the FCA to “punish” defendants and concluded “Congress intended to impose punishment when it enacted the FCA and the amendments thereto.” Id. at 756.
  

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  FERA added three noteworthy procedural amendments.
  

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  A civil investigative demand is a powerful tool that allows the government to seek document production, data, written answers to interrogatories, and/or sworn deposition testimony prior to the commencement of litigation so long as that person may be in possession of information relevant to a False Claims Act investigation. See 31 U.S.C. § 3733(a)(1).
  
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  Prior to FERA, the Attorney General was required to authorize the issuance of a CID. FERA permitted the Attorney General to delegate authority to issue CIDs. Pub. L. No. 111-21, § 4(c) (codified at 31 U.S.C. § 3733(a)). On March 24, 2010, the Department of Justice published a final rule delegating to all 93 U.S. Attorneys the authority to issue CIDs in matters arising under the False Claims Act. See 75 Fed. Reg. 14,070 (Mar. 24, 2010).
  
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  The Attorney General or his delegates can share information gained from a CID with relators if “necessary as part of any false claims act investigation.” 31 U.S.C. § 3733(a)(1).
  

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  The government may intervene and file its own complaint or amend a relator’s complaint, and the pleading will be deemed to relate back to the filing date of the original complaint if it arises from the same conduct, transactions, or occurrences. Pub. L. No. 111-21, § 4(b) (codified at 31 U.S.C. § 3731(c)).
  

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  The seal does not preclude the federal government from sharing the complaint, any other pleadings, or the qui tam disclosure with any state or local government entity named as a co-plaintiff. Pub. L. No. 111-21, § 4(e) (codified at 31 U.S.C. § 3732(c)).
  

2. 
   Patient Protection and Affordable Care Act.
   

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  On March 23, 2010, the President signed into law H.R. 3590, the Patient Protection and Affordable Care Act, Pub. L. 111-148, 124 Stat. 119 (“PPACA”). PPACA revised several elements of the FCA, most notably the public disclosure bar and original source provision, and the definition of overpayment for purposes of the “reverse false claims” provision. PPACA expanded on FERA’s changes, which impose penalties on any person who knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the government. By linking the retention of overpayments and FCA liability PPACA has increased the potential exposure for healthcare providers under the FCA.
  
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  On March 30, 2010, the President signed H.R. 4872, the Health Care and Education Reconciliation Act of 2010, Pub. L. 111-152, 124 Stat. 1029, in order to amend and reconcile House and Senate versions of health care reform legislation.
  

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  Section 6402(d) of PPACA amends provisions relating to Medicare and Medicaid Program Integrity. This provision only covers claims paid under the Medicare or Medicaid programs. As described above, under FERA, Congress expanded liability for the retention of overpayments to eliminate the requirement of taking the affirmative step of using a “false record or statement.”
  
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  PPACA provides that if a person has received an overpayment, the person shall: “(A) report and return the overpayment to the Secretary, the State, an intermediary, a carrier, or a contractor, as appropriate, at the correct address; and (B) notify the Secretary, State, intermediary, carrier, or contractor to whom the overpayment was returned in writing of the reason for the overpayment.”
  

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  Section 6402(d) of PPACA provides a deadline for the reporting and return of overpayments which is the later of (1) “the date which is 60 days after the date on which the overpayment was identified” or (2) “the date any corresponding cost report is due.” In addition, PPACA establishes that any overpayment retained after this deadline is an “obligation” for purposes of the FCA. However, this also presumably means that for FCA liability to attach, there must also be a “knowing[] and improper[] retention of the overpayment.” See 31 U.S.C. §3729(a)(1)(G).
  
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  As discussed above, the legislative history of FERA clarifies that interim retention of an overpayment associated with the cost report reconciliation process is not an FCA violation unless the retention is the product of a willful act to increase payments to which the entity is not entitled. The text of PPACA confirms this intent when it defines “overpayment” as “any funds that person receives or retains under title XVIII or XIX to which the person, after applicable reconciliation, is not entitled under such title.” Pub. L. No. 111-148, § 6402(d)(2) (emphasis added).
  
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  Pursuant to PPACA, any overpayment retained by a person after the 60 day reporting period would be an “obligation” for purposes of the FCA’s “knowing and improper retention” liability. Complicating matters, PPACA offers no guidance on when an overpayment is “identified.” As such, what constitutes an “identified” overpayment, thereby triggering the 60 day reporting period, is unknown at this point and likely to be the subject of litigation, unless further agency guidance is provided.
  
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  But see Kane ex rel. United States v. Healthfirst, Inc., No. 11 Civ. 2325 (ER), 2015 WL 4619686 (S.D.N.Y. Aug. 3, 2015).
  
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  Hospitals allegedly erroneously billed New York Medicaid as a secondary payor after they had already been paid in full by Healthfirst, the patients’ Medicaid managed care plan.
  
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  The billing errors were allegedly caused by a coding error in the remittances produced by Healthfirst. Although the hospitals allegedly learned of the computer coding error in February 2011, they did not make the final refund payments to New York Medicaid until March 2013.
  
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  DOJ and New York State Attorney General's Office intervened in 2014.
  
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  In August 2015, the district court denied the hospitals’ motion to dismiss and ruled that a provider identifies an overpayment when it is “put on notice of a potential overpayment, rather than the moment when an overpayment is conclusively ascertained.”