Transcript Slide 1

2009 Federal False
Claims Act Developments:
Practical Implications for
Healthcare Organizations
Fall Compliance Conference
October 21, 2009
Vanderbilt Medical Center, Nashville, TN
AGENDA
• Introduction: Healthcare Fraud
Enforcement Landscape
• False Claims Act (“FCA”) PreFERA Basics
• FERA
• FCA Defenses
2
Healthcare Fraud Enforcement –
“You Ain’t Seen Nothing Yet”
• Dramatically Increased Funding
• Expanded Healthcare Fraud Enforcement
Activities
• Enhanced Whistleblower Protection
• FERA
3
Healthcare Fraud Enforcement
• Dramatically Increased Funding
– Emergency Economics Stabilization Act of
2008
– American Recovery and Reinvestment Act of
2009
– Fraud Enforcement and Recovery Act of 2009
4
Healthcare Fraud Enforcement
• Expanded Healthcare Fraud Enforcement
Activities
– Health Care Fraud Prevention and Enforcement
Action Team (“HEAT”)
• 135 guilty pleas
• 21 trial convictions
• 300 indictments
– Government Contractors
•
•
•
•
RACs
MICs
PSCs/ZPICs
MEDICs
– www.StopMedicareFraud.gov
5
Healthcare Fraud Enforcement
• Enhanced Whistleblower Protections
– American Recovery and Reinvestment Act of
2009
– FERA
6
Civil False Claims Act
• Civil FCA – codified at 31 U.S.C. §§ 37293733
• Origins go back to Civil War – “Lincoln’s
Law”
• Substantial amendments in 1943, 1986
and 2009
7
Use of FCA Has Greatly
Expanded in Recent Years
• DOJ’s fraud enforcement tool of choice
• FCA provides for substantial penalties with
civil intent requirement (“reckless
disregard” is minimum level of intent)
8
Recoveries Under the FCA
• Between 10/1/86 and 9/30/08, more than
$21 Billion recovered under FCA
• In recent years, “healthcare has accounted
for the lion’s share of fraud settlements
and judgments” under the FCA. (DOJ
11/10/08 Press Release)
9
Key FCA Liability Provisions
Prior to FERA
• Prior to FERA, the FCA imposed liability upon any
person who, inter alia:
– (a)(1) “knowingly presents, or causes to be presented, to an
officer or employee of the United States Government or a
member of the Armed Forces of the United States a false or
fraudulent claim for payment or approval;”
– (a)(2) “knowingly makes, uses, or causes to be made or used, a
false record or statement to get a false or fraudulent claim paid
or approved by the Government;”
– (a)(3) “conspires to defraud the Government by getting a false
or fraudulent claim allowed or paid;” or
– (a)(7) “knowingly makes, uses, or causes to be made or used, a
false record or statement to conceal, avoid, or decrease an
obligation to pay or transmit money or property to the
Government.”
10
FCA: Penalties
• Under 31 U.S.C. § 3729(a), violations
of the FCA are punishable by:
– Statutory civil penalties of $5,500 $11,000 per false claim
– Treble damages
11
Elements Of An FCA Claim
• There are four primary elements
of an FCA violation:
–knowledge
–materiality
–causation
–false claim
12
FCA: Whistleblowers
• Private citizens (“relators”) may file qui tam
complaints alleging violations of the FCA.
• The number of whistleblower actions has
been steadily increasing in recent years.
• According to Senator Grassley, more than
1,000 qui tam cases are awaiting an
intervention decision by the government.
13
The Government’s Role in
Qui Tam Cases
• Once a whistleblower files a suit, the
Department of Justice must decide whether to
“intervene” (i.e., take over and prosecute the
suit).
• DOJ has by statute 60 days after service to
investigate the claims and decide whether to
intervene, although it often requests an
extension of time to reach its decision.
14
Relator’s Recovery and Awards
of Attorney’s Fees
• Prevailing relator recovers between 15-30%
depending on whether government intervenes
– 15-25% in intervened case
– 25-30% in non-intervened case
• Can be 0-10% under certain circumstances
• Provisions for recovery of attorney’s fees for
both prevailing relators and prevailing
defendants
15
FCA: Anti-Retaliation Provision
Prior to FERA
• The FCA also has a provision that punishes
retaliation against certain whistleblowers.
• Codified at 31 U.S.C. § 3730(h), the provision,
prior to FERA, prohibited discrimination against
an employee “in the terms and conditions of
employment by his or her employer because of
lawful acts . . . in furtherance of an action under
[the FCA].”
16
Fraud Enforcement and
Recovery Act of 2009 (“FERA”)
• Public Law No. 111-21 (May 20, 2009)
• The statute modifies existing federal
criminal, securities, and money laundering
laws and increases funding available to
combat mortgage fraud and predatory
lending.
• Section 4 of the Act modifies the False
Claims Act .
17
FERA
• FERA “clarifies” the scope of the FCA
which FERA’s sponsors said had “been
undermined by court decisions.”
• FERA contains sweeping changes to the
scope the FCA.
18
Overview of FERA’s
Key Changes
• Clarification of the applicability of the FCA
to claims submitted to government
contractors and grantees
• Expanded definition of “claim”
• Adds explicit materiality requirement
19
Overview of FERA’s
Key Changes
• Expansion of false claim liability for certain
retentions of overpayments
• Partially retroactive effective date
• Expansion/Modification of retaliation
liability
• Procedural amendments that strengthen
DOJ’s enforcement authority
20
Application of the FCA to Claims
Made to Contractors and Grantees
• One goal of certain members of Congress in passing
FERA was to overrule Allison Engine Co., Inc. v. U.S. ex
rel. Sanders, 128 S. Ct. 2123 (2008) and U.S. ex rel.
Totten v. Bombardier Corp., 380 F.3d 488 (D.C. Cir.
2004).
• Where there is no presentment of a claim to the
government, Allison Engine held that an FCA plaintiff is
required to prove that “a defendant must intend that the
Government itself pay the claim” for there to be a
violation.
• Totten held that a claim submitted to Amtrak was not a
claim presented to the government because Amtrak is a
federal grantee.
21
Application of the FCA to Claims
Made to Contractors and Grantees
• FERA removes the prior FCA language requiring
a false claim to be presented to “an officer or
employee of the United States Government or a
member of the Armed Forces of the United
States.”
• FERA also removes the language “by the
Government,” “to get,” and “getting” in response
to Supreme Court’s reading of an intent
requirement.
22
Redline of Revisions to Sections
31 U.S.C. §§ 3729 (a)(1) and (a)(2)
• (a)(1)(A) knowingly presents, or causes to be
presented, to an officer or employee of the
United States Government or a member of the
Armed Forces of the United States a false or
fraudulent claim for payment or approval; or
• (a)(1)(B) 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;
23
Retroactive Application
• FERA explicitly makes the change to Section (a)(2) (the
provision at issue in Allison Engine) retroactive to June
7, 2008, two days before the decision in Allison Engine.
• Litigation about the retroactive effect of FERA has
already begun. See, e.g., United States v. Science
Applications International Corp., No. 04-1543, 2009 WL
292950 (D.D.C. Sept. 14, 2009) (limits retroactive
application of FERA amendment to old (a)(2) to FCA
“claims,” not FCA cases); U.S. ex rel. Carter v.
Halliburton Co., 2009 WL 2240331 (E.D. Va. 2009)
(permits retroactive application of FERA amendment to
old (a)(2) to FCA cases).
• Constitutional challenges are also likely.
24
Materiality Test
• Codified “materiality” requirement that had been
recognized by several courts. See 31 U.S.C. §
3729(a)(1)(B).
• Defined “material” as whether the claim was
“capable of influencing” or had “natural tendency
to influence” the government’s payment
decision.
• Rejected the more defendant-favorable
“outcome materiality” test that asked whether
the government actually relied on the
information.
25
Expanded Definition of “Claim”
• FERA modifies the definition of “claim” to include:
“any request or demand . . . for money or property and
whether or not the United States has title to the
money or property, that—
***
(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, . . .”
See 31 U.S.C. § 3729(b)(1)(2).
26
Expanded Definition of “Claim”
• This provision is, in part, a response to the
district court decision in United States ex rel.
DRC, Inc. v. Custer Battles, LLC, 376 F.Supp. 2d
617 (E.D. Va. 2005), in which a jury verdict in
favor of the whistleblower was overturned
because the funds at issue were Iraqi funds
under the control of the U.S. Government.
• The district court decision was reversed on April
10, 2009 by the Fourth Circuit -- before passage
of FERA.
27
Expanded Definition of “Claim”
• New definition of “claim” coupled with
deletion of presentment requirement at
least facially permits application of FCA to
downstream vendors where there is no
direct damage to the government.
– e.g., vendor to a hospital
• But, must there be a “federal interest” at
stake?
28
Pre-FERA FCA Exposure for
Retention of Overpayments
• Required an affirmative false statement or
record used to conceal or avoid an
obligation to refund to government.
• “Finders/Keepers” activity not expressly
covered by FCA.
• Congress wanted to close what it
perceived to be a “loophole.”
29
Expansion of FCA Liability for
Retention of Overpayments
• Under FERA FCA liability now extends to a
person who “knowingly and improperly
avoids or decreases an obligation” to pay or
transmit money or property to the
government. See 31 U.S.C. § 3729(a)(1)(G).
• There has been much discussion within the
healthcare industry about this change.
30
Redline of Revision to
“Reverse” FCA Provision
31 U.S.C. 3729 (a)(7)(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
Expansion Of FCA Liability For
Retention of Overpayments
• “Obligation,” which previously was undefined, is
defined by FERA as:
“[A]n 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”
See 31 U.S.C. § 3729(b)(3).
32
Expansion of FCA Liability for
Retention of Overpayments
• Under FERA, for retention of overpayment
liability:
– Is a claim required?
– Is falsity required?
– Is any affirmative act of any sort required?
33
Expansion of FCA Liability for
Retention of Overpayments
• New, untested standard: “knowingly and
improperly”
• “Knowingly” is defined in FCA.
• “Improperly” is not.
34
Expansion of FCA Liability for
Retention of Overpayments
• Senator Kyl: “Knowingly and improperly”
requires “improper motives or inherently
improper means”
– “Improper” means malum in se:
• Inherently improper means
• Must constitute an independent tort
35
Legislative History –
Reconciliation Processes
• The Senate Judiciary Committee Report
notes that the retention of overpayments
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.
S. Rep. No. 111-10, at 15.
36
Legislative History –
Reconciliation Processes
• Representative Dan Maffei (D.-N.Y.) echoed this point on
the House floor during consideration of S. 386. Maffei
noted:
– “[T]he drafting problem we faced was avoiding language that
would impose liability on research institutions or hospitals for
holding on to overpayments at a time when the applicable
rules would allow them to do so pending repayment through
the normal process. This would include reconciliation
processes established under statutes, regulations, and rules
that govern Medicare, Medicaid, and all sorts of other various
research grants and programs.” 155 Cong. Rec. H 5260,
5268 (daily ed. May 6, 2009).
37
Expansion of FCA Liability for
Retention of Overpayments
• Difficult questions for healthcare lawyers:
– When is an overpayment “discovered”?
– When is an overpayment “determined”?
– Whose “knowledge” binds the entity?
– What is an “overpayment”?
– When does statute of limitations begin to run?
38
Expansion of FCA Liability for
Retention of Overpayments
• What about credit balances?
– Reconciliation process
• What about internal pre-RAC audits?
39
Expansion of FCA Liability for
Retention of Overpayments
• Other ramifications for healthcare lawyers
and their clients:
– Must carefully plan and execute audits and
remedial actions
– When is extrapolation appropriate?
– What constitutes “concealment”?
40
Expansion of FCA Liability for
Retention of Overpayments
• What about Stark?
– Overpayment or Penalty?
41
Stark
An “entity may not present or cause
to be presented a claim under this
subchapter or bill to any individual,
third party payor, or other entity for
designated health services furnished
pursuant to a referral prohibited [by
Stark].” 42 U.S.C. § 1395nn(a)(1)(B)
(emphasis added)
42
Stark
“No payment may be made under this
subchapter for a designated health
service which is provided in violation
of subsection (a)(1) of this section
[i.e., the Stark referral prohibition].”
42 U.S.C. § 1395nn(g)(1).
43
Stark
“If a person collects any amounts that
were billed in violation of subsection (a)(1)
of this subsection [i.e., the Stark referral
prohibition], the person shall be liable to
the individual for, and shall refund on a
timely basis to the individual, any amounts
so collected.” 42 U.S.C. § 1395nn(g)(2)
(emphasis added).
44
Stark-CMS Regulation
CMS’ implementing regulation goes further:
“An entity that collects payment for a
designated health service that was
performed under a prohibited referral must
refund all collected amounts on a timely
basis . . . .” 42 C.F.R. § 411.353(d)
(emphasis added).
45
Proposed Health Reform Bill
•
•
•
The House version of the health reform bill, America’s
Affordable Health Choices Act of 2009, provides at §
1641, if a person knows of an overpayment, that
person must:
1) report and return the overpayment, and
2) provide notice in writing to the entity to which the
overpayment was returned of the reason for the
overpayment.
The overpayment must be returned within 60 days
“after the date the person knows of the overpayment.”
Retention of the overpayment more than 60 days
creates an “obligation” as defined in the FCA.
46
Expansion of FCA Liability for
Retention of Overpayments
• Underscores need for a well-functioning
effective Compliance Program
• Requires appropriate discipline, sound
judgment and solid execution
• Close coordination between compliance
and legal is critical
47
FCA Exposure from
RAC Process
• RAC Statute: “A recovery of an overpayment...under
[the RAC Statute] shall not be construed to prohibit the
Secretary [i.e., OIG] or the Attorney General [i.e., DOJ]
from investigating and prosecuting, if appropriate,
allegations of fraud or abuse arising from such
overpayment.”
• RAC Statement of Work: RAC must report instances of
potential fraud immediately to the CMS Project Officer.
• Enforcement agencies expect RACs to make referrals.
OIG’s FY2010 Work Plan includes a review of the extent
of such referrals to CMS.
48
Procedural Changes:
Relation Back of Government Complaints
in Intervention
• In the case of government intervention, a new or
amended government complaint relates back to
the filing date of the original relator complaint so
long as the government claims arise out of the
conduct or occurrences set forth in the initial
complaint or claims the relator attempted to
plead. See 31 U.S.C. § 3731(c).
49
Procedural Changes:
Expanded Use of Civil Investigative
Demands
• FERA permits the Attorney General to delegate
authority for issuance of civil investigative
demands, which allow requests for documents,
interrogatories, and the taking of sworn
testimony. See 31 U.S.C. § 3733(a)(1).
• Authority previously was vested solely in the
Attorney General.
50
Procedural Changes:
Government Permitted to Share CID
Information with Relators and States
• FERA explicitly allows the Government to share
information from CIDs with Relators. See 31
U.S.C. § 3733(a)(1).
• The seal does not preclude the federal
government from sharing the sealed complaint,
any other pleadings, or the written disclosure
with any state or local government entity named
as a co-plaintiff. See 31 U.S.C. § 3732(c).
51
Revision to FCA Retaliation
Provision
• Prior to FERA, Section 3730(h) of the FCA
prohibited discrimination against an employee
“in the terms and conditions of employment by
his or her employer because of lawful acts . . . in
furtherance of an action under [the FCA].”
• FERA amended Section 3730(h) to include
retaliation against “contractors and agents” in
addition to employees and changed the
protected conduct to lawful acts in furtherance of
“efforts to stop one or more violations” of the
FCA. The word “employer” was deleted. See 31
U.S.C. § 3730(h).
52
Current Focus Areas of FCA
Enforcement
•
•
•
•
•
•
Off-label cases
Stark/Anti-Kickback Statute
Quality of care
Medical necessity/short stays
Miscellaneous billing issues
DME
53
A Few Words About Whistleblowers …
• Retention, reassignment, leave of
absence, suspension or termination?
– Key considerations
54
Key FCA Defenses: Rule 9(b)
• FCA claims must comply with the
heightened pleading standard of Federal
Rule of Civil Procedure 9(b), which
requires plaintiffs to plead the
circumstances constituting fraud with
“particularity.” Fed. R. Civ. P. 9(b).
55
Key FCA Defenses:
Materiality
• Courts have historically implied a materiality test
in reviewing FCA cases – FERA codified this
requirement.
– United States v. Rogan, 517 F. 3d 449 (7th Cir. 2008)
(allegedly improper kickbacks and referrals were
material to a hospital’s reimbursement claims)
– United States v. Bowseau, 531 F. 3d 1159 (9th Cir.
2008) (improper expenses in a cost report were
material to a hospital’s Medicare reimbursement even
though the reports had never been audited)
56
Key FCA Defenses:
Prospective Payment System
• Several courts have dismissed FCA claims
relating to goods and services reimbursed
through a prospective payment system (e.g.
Medicare DRG system)
– U.S. ex rel. Digiovanni v. St. Joseph’s/Candler Health
Sys. (S.D. Ga. Feb. 8, 2008) (supplies and reusable
equipment)
– U.S. ex rel. Magid v. Barry Wilderman, M.D., P.C.,
(E.D. Pa. Apr. 29, 2004) (lab tests)
– U.S. ex rel. Powell, et al. v. Tissue Science
Laboratories, Inc., (N.D. Ga. Aug. 13, 2009) (porcine
implantable device used in hernia repair)
57
Key FCA Defenses:
Conditions of Participation
• Several courts have concluded that the
Medicare Conditions of Participation are
not “conditions of payment” and, therefore,
a violation cannot serve as the basis for a
FCA claim.
– U.S. ex rel. Landers v. Baptist Mem’l Health
Care Corp. (W.D. Tenn. Dec. 17, 2007)
(staffing ratios and surgical quality standards)
– Woodruff V. Haw. Pac. Health, 560 F.Supp 2d
988 (D. Haw. 2008) (supervision of nurses)
58
Key FCA Defenses:
Regulatory Ambiguity/Intent
• The Supreme Court in Safeco Ins. Co. of Am. v.
Burr, 127 S. Ct. 2201 (2007) held that
“recklessness” is “conduct violating an objective
standard: action entailing ‘an unjustifiably high
risk of harm that is either known or so obvious
that it should be known.’” Safeco was not an
FCA case.
• The Safeco analysis has been applied in the
FCA context: K&R Ltd. P’ship v. Mass. Housing
Fin. Agency, 530 F.3d 980 (D.C. Cir. 2008).
59
Key FCA Defenses:
Regulatory Ambiguity/Falsity
• Courts have held that claims cannot be
deemed “false” under the FCA when a
reasonable interpretation is applied to an
ambiguous statute or regulation.
– United States v. Prabhu, 442 F. Supp. 2d
1008 (D. Nev. 2006) (FCA claim dismissed
where physician followed instructions he
received from carrier on how to bill for
pulmonary stress tests.)
60
Key FCA Defenses:
Public Disclosure Bar
• No court shall have jurisdiction over an action
under this section based upon the public
disclosure of allegations or transactions in a
criminal, civil, or administrative hearing, in a
congressional, administrative, or Government
Accounting Office report, hearing, audit, or
investigation, or from the news media, unless
the action is brought by the Attorney General or
the person bringing the action is an original
source of the information. 31 U.S.C. §
3730(e)(4)(A).
61
Public Disclosure
• Is the disclosure bar only applicable to
disclosures involving Federal authorities?
– Graham Co. Soil & Water Cons. Dist. v. U.S.
ex rel. Wilson, 528 F.3d 292 (4th Cir. 2008)
(“only federal administrative reports, audits or
investigations qualify as public disclosures
under the FCA”).
– Supreme Court has accepted certiorari.
• Does a self-disclosure create the defense?
62
Key FCA Defenses:
Public Disclosure Bar
• An “original source” can bring an FCA case even
where there has been a public disclosure.
• An “original source” is “an individual who has
direct and independent knowledge of the
information on which the allegations are based
and has voluntarily provided the information to
the Government before filing” an FCA action. 31
U.S.C. § 3730(e)(4)(B).
63