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False Claims Act

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Overview

• The False Claims Act (“FCA”) is the government’s primary litigation tool for combating fraud.

• The FCA empowers both the U.S. Attorney General and private persons to institute civil actions to enforce the Act against anyone that commits fraud by submitting false or fraudulent claims to the federal government. 31 U.S.C.

§ 3730.

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• •

Background

Passed in 1863 during the Civil War to address fraud in military procurement contracts.

Also known as “Lincoln’s Law” or

Qui Tam

Statute.

• Has undergone two substantial amendments by Congress, the last one in 1986 in response to Department of Defense scandals.

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Powerful Weapon

In fiscal year 2003, the federal government recouped a record $2.2 billion in fraud lawsuits and investigations.  75% increase over FY 2002.

 $1.7 billion recovered for health care fraud  $1.48 billion collected from

qui tam

suits Department of Justice, Nov. 10, 2003, Press Release.

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Whistleblower Recoveries

Taxpayers Against Fraud Education Fund, 2004.

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2004 FCA Recoveries

• Total recovery for FY 2004:

$667,782,529

• Realtor's share:

$108,571,026

• Decline from FY 2003: -$1.5 billion or -70% • But 415

qui tam

cases were filed (326 were filed in 2003) Taxpayers Against Fraud, 2005 6

Importance of DOJ Involvement

Qui tam cases with DOJ 2000 $1.2 billion 2001 $1.2 billion 2002 $1.04 billion 2003 $1.48 billion 2004 $545 million Qui tam cases w/out DOJ 2000 $1.8 million 2001 $125.7 million 2002 $26.1 million 2003 $87.01 million 2004 $9.4 million 7

FCA and Health Care

Percentage of cases involving the Department of Health and Human Services (“DHHS”): 1987 1988-1992 1993 1994 1995 1996 1997 1998 2003 12 percent 15 percent 30 percent 36 percent 34 percent 56 percent 54 percent 61 percent 52 percent Taxpayers Against Fraud Education Fund, 2004.

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FCA and Health Care

•

Total recoveries for qui tam by agency

– Department of Defense: $1.59 billion – DHHS: $5.178 billion Taxpayers Against Fraud Education Fund, 2004.

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Benefits and Costs Federal Government Anti-Health Care Fraud Activities $3,000 $2,500 $2,000 $1,500 $1,000 $500 $0

$2,750

Benef its “Fighting Medicare Fraud”; Jack Meyer; June, 2003 (in millions)

$315

Costs 10

FCA and Health Care Prominent Statutory Provisions

1) 2) 3)

PROHIBITED ACTS

Person knowingly presents, or causes to be presented, to the U.S. Government a false or fraudulent claim for payment or approval (31 USC § 3729(a)(1)); Person 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 (31 USC § 3729(a)(2)); and Person conspires to defraud the Government by getting a false or fraudulent claim allowed or paid (31 USC § 3729(a)(3)).

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Cause of Action

ELEMENTS:

1) A “claim” must be submitted to the Government for payment or approval; and 2) The claim must be “false or fraudulent”; and 3) The person must “know” the claim is false.

(31 USC § 3729(a)(1))

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Elements

• Some courts have required a 4 th element – damages – to prove a violation of FCA.

• Majority of courts have held it is not necessary to prove damages under Sections 3729(a)(1) and (a)(2).

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Element #1 “Claim”

A

“claim”

includes: any request or demand, whether under a contract or otherwise, for money or property which is made to a contractor, grantee, or other recipient if the United States Government provides any portion of the money or property which is requested or demanded, or if the Government will reimburse such contractor, grantee, or other recipient for any portion of the money or property which is requested or demanded.

31 USC § 3729(c) 14

Element #1 “Claim

• “Claim” includes any kind of document or other communication that reasonably could be expected to cause the government to make or approve a payment.

• “Claim” includes claims to third parties who are paid/reimbursed by the government.

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Element #1 “Claim”

• Person who “causes” a false claim to be presented, even if not the actual presenter of the claim, may be liable.

• Person actually presenting the claim need not know it is false.

• Example: Physician may be liable for false claims submitted to Medicare by a hospital even though the physician did not submit the claim.

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Element #2 “False/Fraudulent”

Examples: • Billing for services that were never delivered or rendered, either at all, or in the manner documented.

• Performing inappropriate or unnecessary medical procedures.

• Unbundling – Using multiple billing codes instead of the correct bundled code in order to increase payment.

• Bundling – Billing more for a panel of tests when a single test was asked for.

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Element #2 “False/Fraudulent”

Examples: • Double billing – Charging more than once for the same goods or service.

• Upcoding – Inflating bills by using diagnosis billing codes that suggest a more expensive illness or treatment.

• Billing for brand – Billing for brand-named drugs when generic drugs are actually provided.

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Element #2 “False/Fraudulent”

Examples: • Upcoding employee work: Billing at doctor rates for work that was actually conducted by a nurse or resident intern. • Billing for research that was never conducted; falsifying research data that was paid for by the U.S. government.

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Element #2 “False/Fraudulent”

Examples: • Prescribing a medicine or recommending a type of treatment or diagnosis regimen in order to win kickbacks from hospitals, labs or pharmaceutical companies.

• Billing for unlicensed or unapproved drugs.

• Forging physician signatures when such signatures are required for reimbursement from Medicare or Medicaid.

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Element #3 “Knowing”

• “person 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” • 31 USC § 3729(a)(2) 21

Element #3 “Knowing”

“Knowing"

and

"knowingly"

means a person 1) 2) 3) has actual knowledge of the false information; acts in deliberate ignorance of the truth or falsity of the information; or acts in reckless disregard of the truth or falsity of the information. 31 USC § 3729(b) 22

“Knowing”

Under § 3729(a)(1): • Specific intent to defraud?

– Not Necessary.

• Mere negligence in submission (e.g., typo)?

– Not Actionable.

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“Knowing”

“False Certification” Theory

- claim may be fraudulent even if the claim does not contain false information.

– Government may allege that a violation of another federal statute, regulation, or contract serves as the basis for liability under the FCA. – For example, falsely certify that you are in compliance with Stark or Anti-Kickback Statute.

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False Certification Theory

EXAMPLE CASES: 

United States ex. rel. Pogue v. American Healthcorp., Inc.,

914 F. Supp. 1507 (M.D. Tenn. 1996) 

United States ex rel. Goodstein v. McLaren Reg’l Med. Ctr.

, 202 F.Supp.2d 671, (E.D. Mich. 2001) 

U.S. ex rel Perales v. St. Margaret’s Hosp.

, 243 F.Supp.2d 843 (C.D. Ill. 2003) 25

“Knowing”

Conspiracy Claim – 31 USC § 3729(a)(3)

 “Person conspires to defraud the Government by getting a false or fraudulent claim allowed or paid.”  In this context, failing to prevent the submission of a false claim may give rise to liability under the FCA if the defendant had a duty to prevent a fraud on the government 26

Penalties



Civil penalties of $5,500 to $11,000 per claim, plus treble damages (i.e., 3 times the amount of the government’s damages).



Exclusion from Medicare/Medicaid.

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Additional Risk

• Significant costs to defend against government investigation.

• Significant costs to defend against a lawsuit.

• Example: Columbia-HCA fraud case went on for

13 years

and just one side’s lawyers billed

85,000 hours.

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Qui Tam/Whistleblower Provisions

• The FCA contains

qui tam

, or whistleblower, provisions.

Qui tam

is a unique mechanism in the law that allows citizens to sue, on behalf of the government, in order to recover damages. 31 U.S.C.

§ 3730(b).

– Disgruntled employees – Unhappy patients – Estranged spouses 29

Qui Tam/Whistleblower Provisions

 A qui tam suit initially stays “under seal” (confidential) with the Court for at least 60 days during which the U.S. Department of Justice can investigate and decide whether to join the action.

 Whistleblowers can recover: – 15-25% of the settlement or judgment if DOJ participates; or – 30% if DOJ declines to intervene.

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Recoveries



Total FCA amount recovered by relators in cases declined by DOJ, to date: $362 million.



Total FCA amount recovered in cases that DOJ entered or otherwise pursued: $7.5 billion.

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Retaliatory Provision



(h) Any employee who is discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment by his or her employer because of lawful acts done by the employee on behalf of the employee or others in furtherance of an action under this section, including investigation for, initiation of, testimony for, or assistance in an action filed or to be filed under this section, shall be entitled to all relief necessary to make the employee whole. . . .



(31 USC

§

3730(h))

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Retaliatory Provision cont…

Relief:

(h) . . . Such relief shall include reinstatement with the same seniority status such employee would have had but for the discrimination, 2 times the amount of back pay, interest on the back pay, and compensation for any special damages sustained as a result of the discrimination, including litigation costs and reasonable attorneys’ fees. (31 USC § 3730(h)) 33

Statute of Limitations

Must bring the civil action by

(1) 6 years after the date the alleged FCA violation was committed, or (2) 3 years after the date when the material facts of the claim are known or reasonably should have been known "but in no event more than 10 years after the date on which the violations [was] committed.” 31 USC § 3731(b) 34

Indiana FCA

• In 2005, Indiana State legislature enacted Indiana’s own False Claims Act. (I.C.

§ 5-11-5.5-1

et seq.

) • Enacted in conjunction with the creation of the Office of the Inspector General.

• Very similar to the federal law.

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Indiana FCA – I.C. § 5-11-5.5-2

A person is liable for a civil penalty if he/she knowingly or intentionally: (1) Presents a false claim to the state for payment or approval; (2) Makes or uses a false record or statement to obtain payment or approval of a false claim from the state; etc.

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Indiana FCA – Civil Penalty

•Violation of Indiana FCA (I.C. § 5-11-5.5-2): o Penalty of at least $5,000 and up to 3 times the amount of damages sustained by the State.

o Plus liable for the costs of the civil litigation by the State to recover penalty and damages.* * Penalty is reduced to 2X damages if you gave State all the information you had within 30 days, fully cooperated with the investigation, and did not know of investigation/action when you reported yourself.

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Indiana FCA – Other details



Attorney General & Inspector General have concurrent jurisdiction to investigate these claims. (I.C.

§ 5-11-5.5-3(a))



Qui tam/Whistleblower: Complaint by individual is filed under seal and a copy must go to both AG & IG. (I.C.

§ 5-11-5.5-4(c))



AG or IG may choose to intervene in the qui tam action or let individual go it alone.

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Indiana FCA – Other details

• Person who filed initial complaint gets: – 15-25% of recovered funds if AG or IG intervened in the action; – Not more than 10% if AG or IG intervened and the evidence in the action was primarily public record; – 25-30% if AG and IG do not intervene in the action.

I.C. § 5-11-5.5-6 39

Indiana FCA – Retaliatory Provisions

• Employee who has been discharged, demoted, etc., by the employer because employee objected to actions at issue or helped with the false claims investigation is entitled to be made whole, including: – Reinstatement to previous position; – 2 times amount of back pay owed; – Interest on the back pay; and – Special damages (e.g., atty’s fees).

I.C. § 5-11-5.5-8 40

Other Indiana Statutes

I.C.

§ § 35-43-5-4.5 and 34-24-3-1:

– A person who knowingly and with intent to defraud, presents a false, incomplete or misleading claim to an

insurer

can be held liable for civil damages caused by the actions. – Under Indiana law, the insurer is entitled to recover an amount equal to three (3) times the amount of actual damages suffered as a result of the false or misleading actions, the costs of the litigation and attorney fees.

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Indiana Medicaid Fraud



The Office of Medicaid Policy and Planning can assess a fine in the amount of 3 times the claim amount against a provider who submits, or causes to be submitted, any false or fraudulent claims for Medicaid services.



405 I AC 1-1-6.

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Four Common FCA Cases

1) “Mischarge”

Case – services are not provided in manner set forth in claim.

2) “Fraud-in-the Inducement”

Case – kickbacks.

3) “False Certification”

Case – false certification of statutory or regulatory compliance.

4) “Substandard Service”

standards.

Case – failure to meet quality of care

Emerging Issues



Abuse of “under seal” time period.



Discovery as fishing expedition.



Extensive litigation on whether “government knowledge” of a false claim precludes liability – emerging consensus that government knowledge does not negate falsity.



Abuse of process in health care market.

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High Profile Cases

HCA - $731,400,000



December 2000, HCA the Healthcare Company (formerly known as Columbia HCA), the largest for-profit hospital chain in the United States, pled guilty to criminal conduct and agreed to pay $731,400,000 under the False Claims Act.



Charges included: billing for lab tests that were not medically necessary and not ordered by physicians, and “upcoding” medical problems in order to get higher reimbursements for more serious medical issues.

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High Profile Cases

TAP Pharmaceutical Products Inc. - $559,483,560

 In October 2001, TAP Pharmaceutical Products Inc. agreed to pay $875 million to resolve criminal charges and civil liabilities in connection with fraudulent drug pricing and marketing of Lupron, a drug sold for the treatment of prostate cancer.  TAP gave doctors kickbacks by providing free samples with the knowledge that the physicians would bill Medicare and Medicaid $500 per dose.

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High Profile Cases

Schering-Plough - $292,969,482

 In July 2004, Schering-Plough, a major pharmaceutical manufacturer, agreed to plead guilty to fraud in the pricing of Claritin sold to Medicaid programs.

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High Profile Cases

Beverly Enterprises Inc. - $170,000,000

 In February 2000, Beverly Enterprises Inc., the nation’s largest nursing home chain, agreed to pay $175 million to resolve civil and criminal charges that it defrauded Medicare.  The fraud allegations involved nursing home workers charging Medicare for time not spent on Medicare patients.

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High Profile Cases

Vencor, Inc./Ventas Inc. - $104,500,000

 In March 2001, Vencor Inc., one of the nation’s largest nursing home chains agreed to pay $104.5 million to resolve civil claims that Vencor knowingly submitted false claims for failure to deliver promised quality of care to nursing home patients due to inadequate staffing, improper care of bedsores, and failure to meet resident’s basic dietary needs.

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Not Just the Big Guys…

August 18, 2004

• Pennsylvania U.S. Attorney reached a operators of two hospitals.

$1.5 million

settlement with an ophthalmologist and the former • There were allegations of improper financial arrangements and referral inducements in violation of the Stark and Anti Kickback laws. • The qui tam relator alleged that Mercy Community Hospital and Brandywine Hospital provided free space, equipment, personnel, supplies, excessive medical director fees, and other services to the ophthalmologist.

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Not Just the Big Guys…

September 15, 2004

• The U.S. Government and a physician, who pursued litigation against a hospital and his fellow physicians settled case for a total of

$2.5 million.

• The case involved Dr. Brooks, who was a physician on the medical staff at Pineville Community Hospital in Pineville, KY., and was a member of the hospital’s quality assurance committee. While carrying out his committee duties, Brooks discovered what he determined to be numerous billing improprieties by Pineville Community Hospital and two physicians. Rather than correcting the improprieties, the hospital rebuffed Brook’s efforts and subjected him to a variety of retaliatory abuses.

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Indiana Not Immune

October 29, 2003 – Chomer v. Logansport Mem ’ l Hosp.

• Plaintiff filed suit against Logansport Memorial Hospital (Hospital) and the Logan Emergency Physicians (LEP), asserting a retaliation claim under the False Claims Act (FCA) whistleblower provisions, 31 U.S.C.

§ 3730(h). • LEP removed plaintiff from the emergency room schedule at the Hospital after he informed patients that abuse before being terminated.

“ it was inappropriate for them to come to the emergency room for colds and non-emergency medical conditions.

” Plaintiff had filed a report about the alleged Medicare/Medicaid fraud and • Court refused to dismiss the physician ’ s FCA complaint. Case is apparently still pending.

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