As the legal landscape in healthcare becomes increasingly complex, healthcare companies that receive federal program funds face increasing exposure under the federal False Claims Act (FCA), 31 U.S.C. §§ 3729–3733. Generally, the FCA imposes liability on persons or entities who knowingly (with actual knowledge or reckless disregard) submit "false claims" for payment from federal funds or who improperly retain amounts received from the United States.

The FCA is enforced primarily by the Department of Justice (DOJ), which, in recent years, has increased its focus on the healthcare industry, with a trend toward targeting pharmaceutical and medical device companies.1 In 2009, healthcare fraud recoveries amounted to approximately $1.6 billion, more than two-thirds of the $2.4 billion total recovered under the FCA.2 By 2013, both collection numbers soared. Of the $3.8 billion the DOJ recovered under the FCA, nearly 70% ($2.6 billion) of the recovered funds came from the healthcare industry.3 By year-end 2014, the DOJ, primarily through its special task force, the Health Care Fraud Prevention & Enforcement Action Team (HEAT), collected $2.3 billion in healthcare-related FCA enforcement.4

Fines and penalties were the greatest for the pharmaceutical and medical device industry, such as Abbott Laboratories' billion-dollar settlement in 2012 and its multi-million dollar settlement in 2013 related to off-labeling and illegal kickbacks.5 Finally, from the Southern District of Florida to the Central District of California, the DOJ has secured convictions of corporate officers under the criminal FCA statute, resulting in significant sentences of up to 14 years in federal prison.6

With hungry plaintiffs' lawyers looking for an attractive qui tam action, easier filing standards due to recent amendments to the FCA as well as pro-enforcement court decisions, and the DOJ's stated mission to "enforce the [FCA] aggressively," it has become essential for providers to be proactive concerning potential FCA liability. This article offers three "best practices" that we suggest healthcare providers consider adopting.

A Brief Primer on the FCA

Theories of Liability

While the FCA provides for seven types of conduct that result in liability, only four are typically used:7

  • False Claim—where one "knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval."8
  • False Record or Statement—where one "knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim."9
  • Reverse False Claim—where one knowingly "makes … a false record or statement material to an obligation to pay" money to the Government, or knowingly and improperly avoids an obligation to pay money to the Government.10
  • Conspiracy—where one conspires to do any of the above.11

Healthcare providers have the greatest risk in the following areas: overpayments, price inflation, kickbacks, off-labeling, ineligible claims, upcoding, and physician self-referral violations, as shown by the FCA case decisions.12

Who Can Sue?

Either the Attorney General, or a private person acting on behalf of the government, can file suit for violations of the FCA.13 A suit filed by an individual on behalf of the government is known as a "qui tam" action, and the person bringing the action is referred to as a "relator," colloquially known as a "whistleblower."14 There are also significant collateral consequences, including the potential for a parallel criminal proceeding under 18 U.S.C. § 287 and/or suspension/debarment from government contracting.

Damages and Penalties

The FCA imposes a civil penalty of between $5,500 and $11,000 (subject to statutory inflation adjustments) for each false claim, plus treble the amount of the government's damages.15 In cases where an offender makes a voluntary self-disclosure, the FCA provides "the court may assess not less than 2 times the amount of damages."16

Recent Legislative Amendments

The FCA has been amended three times since 2009. First, in 2009, the Fraud Enforcement and Recovery Act (FERA) imposed FCA liability on parties that indirectly receive government funds, even if they never directly present a claim to the government; imposed FCA liability on parties that unintentionally receive and fail to return an overpayment from the government; and broadened whistleblower protections.17 Second, in 2010, the Patient Protection and Affordable Care Act (ACA) strengthened the FCA and substantially increased the pool of potential plaintiffs by, among other things, lowering the FCA's public disclosure bar.18 Third, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank), by broadening whistleblower protections, such as strengthening the FCA's existing anti-retaliation provisions, increased whistleblower incentives to file FCA claims.19

Recent Case Law Developments

Kellogg Brown & Root Servs., Inc. v. United States ex rel. Carter, 135 S. Ct. 1970 (2015)

  • The district court dismissed a qui tam complaint against defendantswith prejudice under the first-to-file rule (which precludes a qui tam suit "based on the facts underlying a pending action") because a related suit was already pending at the time the complaint was filed.
  • The Fourth Circuit reversed and held that the first-to-file bar ceased to apply because the related action had been dismissed. The relator had the right to refile his case.
  • The Supreme Court agreed and held that the FCA's "first-to-file" bar keeps new claims out of court only while related claims are still alive, but not in perpetuity.

Amarin Pharma, Inc. et al. v. U.S. Food & Drug Admin., et al., No. 15 Civ. 3588 (PAE), 2015 WL 4720039 (S.D.N.Y. Aug. 7, 2015)

  • Plaintiff sought an injunction or declaration to ensure its ability to make truthful statements to doctors relating to a drug's off-label use, free from the threat of a misbranding action by the FDA.
  • The court ruled that the plaintiff could engage in such speech.
  • However, the court noted that a drug manufacturer that promotes a drug for off-label use may face civil suit under the FCA on the theory that the company, in the course of its off-label promotion, caused false claims to be submitted to government healthcare programs for non-covered and non-FDA-approved uses.
  • Plaintiff separately sought protection from civil claims under the FCA, but the court did not find it to be a ripe controversy and did not provide this requested relief. However, the court's ruling that an FCA claim could theoretically be brought appears to have answered this question.

Kane ex rel. United States v. Healthfirst, Inc., --- F.Supp.3d ----, 2015 WL 4619686 (S.D.N.Y. Aug. 3, 2015)

  • The court addressed the intersection of recent amendments to the FCA and ACA in the context of the "60-Day Refund Rule," a provision that provides that an overpayment must be reported and returned within sixty days of the "date on which the overpayment was identified." However, the term "identified" is not defined in the ACA.
  • The court interpreted "identified" to mean that the sixty-day clock begins ticking when a provider is put on notice of a potential overpayment, rather than the moment when an overpayment is conclusively ascertained.

United States ex rel. Drakeford v. Tuomey Healthcare Sys., Inc., 792 F.3d 364 (4th Cir. 2015)

  • A qui tam action was filed against Tuomey Healthcare Systems, Inc., alleging that it entered into illegal compensation arrangements with physicians, and then knowingly submitted claims to Medicare for reimbursement, which were rendered "false" due to the implied certification, made by every claimant under a federal program, that the claim is not linked to an illegal referral arrangement. The district court entered judgment for the government.
  • On appeal, Tuomey argued, inter alia, that it, in good faith, had reasonably relied on the advice of counsel and that Tuomey did not possess the requisite intent to violate the FCA.
  • The record revealed, however, that Tuomey shopped for legal opinions approving of the illegal compensation agreements, while ignoring negative assessments.
  • The district court found—and the Fourth Circuit agreed—that a reasonable jury could have concluded that Tuomey was not acting in "good faith" reliance on the advice of its counsel in such circumstances of "opinion shopping."

United States ex rel. Absher v. Momence Meadows Nursing Ctr. Inc., 764 F.3d 699 (7th Cir. 2014)

  • Relators brought suit against a defendant nursing center on a "worthless services" theory under the FCA, alleging that the defendant received reimbursement from the government for services that were so poor in quality as to be essentially worthless. The relators secured a $9 million jury verdict.
  • The Seventh Circuit vacated the judgment and held that "services that are 'worth less' are not 'worthless,'" and only the latter constitutes false claims under the FCA. The Seventh Circuit concluded that no jury could have reasonably found that the defendant provided truly worthless services, since there was undisputed evidence that the defendant provided services of some value to its patients.

United States ex rel. Foglia v. Renal Ventures Mgmt., LLC, 754 F.3d 153 (3d Cir. 2014)

  • A relator brought a qui tam action under the FCA against a dialysis care services company for falsely certifying to Medicare that it was in compliance with state regulations regarding quality of care, falsely submitting claims for reimbursement for a particular drug, and improperly reusing single-use vials.
  • The district court dismissed for failure to state a claim under Rule 9(b), focusing on the relator's failure to provide a representative sample or identify representative examples of specific false claims made to the government.
  • On appeal, the Third Circuit held that to meet the Rule 9(b) pleading standard, it is sufficient for a plaintiff to allege particular details of schemes to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted.

Top 3 Best Practices to Reduce FCA Exposure

These recent decisions, coupled with past FCA case law and enforcement experience, provide insight into how healthcare providers can minimize their risk of exposure under the FCA. Here are our top three suggestions.

1. Have a Robust Compliance Program

Having a robust compliance program is key. The DOJ has warned providers that it will make "it a priority to continue to use the FCA to encourage the adoption of, and consistent adherence to, best practices."20 Therefore, the most proactive way to avoid FCA exposure is to have comprehensive written policies and procedures in place to detect and prevent fraud, waste and abuse. In addition, any provider that receives more than $5 million in Medicaid funds must also have policies and procedures to train all employees and contractors regarding the FCA.21 Providers should listen and investigate when an employee or agent tells them there is a problem and remediate the problem promptly. Failure to have a robust compliance program may constitute actual knowledge or "reckless disregard" of the "truth or falsity" of a claim.

The DOJ has made it a point to require providers who have settled qui tam actions to adhere to Corporate Integrity Agreements (CIA),22 which provide instruction on preparing a robust compliance program, including:

  • Hiring a compliance officer/appointing a compliance committee,
  • Developing written standards and policies,
  • Implementing a comprehensive employee training program,
  • Retaining an independent review organization to conduct annual reviews,
  • Establishing a confidential disclosure program, and
  • Restricting employment of ineligible persons.

2. Consider Self-Reporting

Second, in appropriate circumstances, consider self-reporting. The FCA provides for significantly reduced damages and penalties for a defendant who "furnishe[s] officials of the United States responsible for investigating false claims violations with all information known to such person about the violation within 30 days after the date on which the defendant first obtained the information."23 Providers that discover issues with their billing practices should first, contact an attorney, and second, consider reporting the violation to the government immediately.

3. Respond Decisively to Government Investigations

Third, if the government comes knocking, be appropriately responsive. When a relator files a qui tam action under the FCA, the complaint is filed in camera and shall remain under seal for 60 days, during which time the government may intervene.24 During the 60-day window, the government typically performs an investigation to determine whether, based on the relator's allegations, it should intervene and take primary responsibility for the litigation. This is a critical fork in the road, because where the government intervenes, the defendant usually winds up paying more money in the end—on average, nearly 60 times as much in damages and penalties.25 Moreover, over the 13-year period from 1987 to 2010, according to DOJ statistics, approximately 95% of all cases were settled or received a favorable judgment when the government intervened, while the opposite is true for non-intervened cases—94% were dismissed.26For this reason, a swift and decisive response, within the 60-day window, is crucial to reducing exposure.

Conclusion

Providers should recognize that seemingly minor issues can give rise to significant exposure. Providers should also recognize that the DOJ's increasingly healthcare-focused enforcement agenda is not letting up anytime soon. Providers should evaluate their compliance and oversight programs and identify weaknesses that could give rise to a qui tam action or a government investigation.