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Expanded Liability Under the False Claims Act
2010 Volume 1
The recently enacted Fraud Enforcement and Recovery Act of 2009 (FERA), Pub. L. No. 111-21, 123 Stat. 1617, included several important amendments to the False Claims Act. 31 U.S.C. §§ 3729–3733. While those amendments affect all contractors interacting with the federal government, this article focuses on the manner in which the FCA amendments are most likely to impact the health care industry. As a general matter, it is safe to declare that the amended FCA exposes health care providers to even greater potential liability for false claims than heretofore existed under the pre-FERA version of the FCA.
Liability for Retention of Overpayments
The prior version of the FCA included a so-called “reverse false claim” provision that made it unlawful to knowingly make or use a false record or statement to conceal, avoid or reduce an existing obligation to the federal government. The amended version of the FCA creates liability for any entity that “knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government.” 123 Stat. at 1622 (to be codified at 31 U.S.C. § 3729(a)(1)(G)).
The amendment makes it unlawful to “knowingly conceal” an “obligation” or to “knowingly and improperly” avoid an “obligation” to pay the federal government. The definitions of key terms used in that provision broaden the scope of the FCA in a way that has a significant impact on providers. The statute defines an obligation as “an established duty, whether or not fixed, arising from an express or implied contractual, grantor-grantee, or licensor-licensee relationship, from a fee-based or similar relationship, from statute or regulation, or from the retention of any overpayment.” 123 Stat. at 1623 (to be codified at 31 U.S.C. § 3729(b)(3)) (emphasis added). The statute defines knowingly as “actual knowledge” of false information, or “deliberate ignorance” or “reckless disregard” as to the truth or falsity of information. 123 Stat. at 1622 (to be codified at 31 U.S.C. § 3729(b)(1)). Those definitions are subject to differing interpretations, and the statute does not attempt to define what constitutes “improperly” avoiding a repayment to the government.
The legislative history of the FCA amendment suggests that providers have a limited window of time to return an overpayment without creating FCA liability:
The new definition of “obligation” includes an express statement that an obligation under the FCA includes “the retention of an overpayment.” . . . The Committee also recognizes that there are various statutory and regulatory schemes in Federal contracting that allow for the reconciliation of cost reports that may permit an unknowing, unintentional retention of an overpayment. The Committee does not intend this language to create liability for a simple retention of an overpayment that is permitted by a statutory or regulatory process for reconciliation, provided the receipt of the overpayment is not based upon any willful act of a recipient to increase the payments from the Government when the recipient is not entitled to such Government money or property. Moreover, any action or scheme created to intentionally defraud the Government by receiving overpayments, even if within the statutory or regulatory window for reconciliation, is not intended to be protected by this provision.
S. Rep. No. 111-10, at 15 (2009), available at 2009 U.S.C.C.A.N. 430, 442.
The legislative history does not draw a bright line between a permissible and impermissible time period for retaining an overpayment, but it appears that Congress intended that the temporary retention of an overpayment could lead to FCA liability if the overpayment is retained beyond the prescribed reconciliation period or if, prior to the close of a reconciliation period, an overpayment is obtained willfully.
The text of the statute creates liability when an overpayment is retained “knowingly and improperly,” which includes situations in which a provider may not have actual knowledge of an overpayment, but nonetheless should have known that it received an overpayment. Thus, the amended FCA creates a potential ticking time bomb for health care providers that receive an overpayment of federal funds.
There are numerous opportunities for a provider to receive an overpayment from a federally funded health care program without necessarily having actual knowledge of the overpayment. For example, the OIG’s Work Plan for fiscal year 2010 highlights examples of potential overpayments currently being scrutinized that may lead to liability under the amended FCA:
- Recovery of overpayments from hospitals due to duplicate GME payments;
- Recovery of overpayments from skilled nursing facilities due to use of incorrect RUG scores;
- Recovery of overpayments from physicians due to incorrect payment of e-prescribing incentives;
- Recovery of overpayments from clinical laboratories due to incorrect unbundling of panel tests;
- Recovery of overpayments from DME suppliers due to incorrect documentation to support medical necessity for power wheelchairs;
- Recovery of overpayments from Medicare Advantage plans due to incorrect status designations of enrollees as institutionalized, Medicaid eligible, or ESRD;
- Recovery of overpayments from Part D sponsors due to incorrect prescription drug event data.
While the scope of the amended FCA remains to be interpreted by courts, a provider’s receipt of funds from a federal health care program — that a provider knows, or should know, amounts to an overpayment — now involves an enhanced risk of liability. Thus, it is more critical than ever for providers to have systems in place that will detect — and refund — any overpayment of federal funds.
Liability for False Records
The prior version of the FCA made it unlawful to make or use a false record to “get” a claim paid by the federal government. The Supreme Court in Allison Engine Co. v. U.S. ex rel. Sanders, 128 S. Ct. 2123 (2008), concluded that such language in the statute created liability only when a defendant made a false record or statement with the intent that the claim for payment would be paid by the federal government (rather than another entity). Congress soundly rejected the Supreme Court’s interpretation of the statute by deleting the FCA provision relied upon by the Supreme Court in Allison Engine and adding a provision that creates liability for an entity that “knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim.” 123 Stat. at 1621 (to be codified at 31 U.S.C. § 3729(a)(1)(B)).
The defined terms in that statutory provision reveal the expanded scope of the amended FCA. A claim 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. . . .” 123 Stat. at 1622-23 (to be codified at 31 U.S.C. § 3729(b)(2)). A false record is considered to be material if it has a “natural tendency to influence, or [is] capable of influencing, the payment or receipt of money or property.” 123 Stat. at 1623 (to be codified at 31 U.S.C. § 3729(b)(4)). Furthermore, a record is knowingly false if the defendant had actual knowledge of the falsity or acted with “deliberate ignorance” or “reckless disregard” as to the truth or falsity of the record.
Liability under the “false record” provision of the amended FCA is not limited to payment claims intended to be paid directly by the federal government. Many providers participate in health care programs that are at least partially funded by the federal government. During the course of participating in such programs, providers regularly make and use records in connection with payment claims paid by a variety of entities other than the federal government.
Furthermore, a provider may be liable even if it lacks actual knowledge that a record is false. The statute creates liability if a provider makes or uses a record with “deliberate ignorance” or “reckless disregard” as to the truth or falsity of the record, and the record is “material” to a false claim, i.e., the record would have a tendency to influence payment by the federal government or by another entity acting on behalf of the federal government or advancing a program funded in whole or in part by the federal government.
The false record provision of the amended FCA was given a retroactive effective date of June 7, 2008, and was made applicable to payment claims pending on or after that date. 123 Stat. at 1625. The retroactive effective date was designed to precede the date of the Supreme Court’s decision in Allison Engine. However, the validity of that retroactive effective date has been called into question. The federal district court to which the Allison Engine case was remanded following the Supreme Court’s decision has indicated that the retroactive effective date constitutes an unconstitutional ex post facto law. U.S. ex rel. Sanders v. Allison Engine Co., Inc., slip op., No. 1:95-cv-00970-TMR-TSH (S.D. Ohio Oct. 27, 2009). Providers that are currently involved in FCA litigation should consult with legal counsel to evaluate whether they are subject to the prior or the amended version of the FCA.
Accordingly, providers need to implement systems to ensure the accuracy of records that are created or used in connection with payment requests for any health care program that receives funding in whole or in part from the federal government. Obviously, such systems should be tailored to the specific circumstances and needs of each provider, and developed in consultation with a provider’s legal counsel.
Liability for Retaliatory Conduct
The prior version of the FCA made it unlawful to retaliate against an employee who attempted to investigate or prevent a possible violation of the statute. The amended FCA extends that protection to contractors and agents, which creates new exposure for health care providers who often deliver services through contractors. See 31 U.S.C. § 3730(h)(1). Any adverse action taken by a provider against a contractor, including, for example, the withholding of payment to a contractor or the termination of a contractor’s services, could lead to the contractor’s assertion of a “retaliation” claim. Of course, liability remains for retaliatory action against a provider’s employees.
Retaliatory conduct not only creates potential financial liability to the employee or contractor, but also is often the impetus for a whistleblower to file a qui tam complaint, thereby triggering a federal government investigation with financial consequences far beyond any liability for the retaliatory conduct. Therefore, providers should take steps to minimize the risk that employees or contractors will assert FCA retaliation claims. The appropriate risk management strategies will vary depending on the unique circumstances of each provider and, therefore, should be developed in consultation with a provider’s legal counsel.
The FERA amendments to the FCA reflect Congress’s intent to maintain the expansive scope of the FCA. The FCA already served as a powerful weapon against the health care industry. In its amended form, the FCA will likely be invoked even more frequently by both the government and qui tam relators as a means to seek financial recovery from the health care industry. Consequently, it is more imperative than ever before that providers utilize effective compliance programs to avoid liability under the FCA.