Since the late 1990s, the False Claims Act (“FCA”) heavily affected the healthcare industry. In 2015, two-thirds of FCA lawsuits targeted healthcare entities, which paid out $1.9 billion. However, it is likely that this $1.9 billion will soon become small in comparison to what lies ahead.
The already enormous per-claim penalties under the FCA nearly doubled beginning on August 1, 2016. The minimum per-claim penalty for violation of the FCA has increased from $5,500 to $10,781, and the maximum per-claim penalty has increased from $11,000 to $21,563. The adjusted amounts apply “to civil penalties assessed after August 1, 2016, whose associated violations occurred after November 2, 2015.” 81 Fed. Reg. 42498.
While proponents laud the FCA as one of the most powerful tools in combating healthcare fraud, critics warn against the unintended consequences of FCA abuse, including costly investigations and litigation that ultimately result in employees and patients footing the bill.
Push for Greater Protections for Healthcare Providers Under the FCA
As a result of the significant and growing impacts of the FCA on the healthcare industry, some in the Congress are pushing for greater protections for healthcare providers under the FCA. In April 2016, the House Judiciary Subcommittee on the Constitution and Civil Justice held a hearing to focus on oversight of the FCA. At the hearing, proponents of greater protections for healthcare providers called for measures to protect companies against frivolous FCA suits.
Those advocating for FCA reform focused on two proposed changes: (1) reduced liability for companies that implement compliance programs and self-report, and (2) a requirement that whistle-blowers report fraud internally before filing suit under the FCA.
Participating proponents of FCA reform included Larry Thompson, a law professor at the University of Georgia School of Law and former Deputy Attorney General of the United States, who advocated for incentives for self-reporting which would help prevent rather than simply punish fraud.
Dennis Burke, CEO of Good Shepherd Health Care System, whose company successfully defended against an FCA lawsuit brought by a former employee was also in favor of FCA reform. Burke discussed the injustices companies face when defending frivolous FCA suits, especially when considered against the low risks faced by whistleblowers making meritless allegations in hopes of settlement.
Consequences of Increased Civil Penalties
Over the past few years, we have already seen relators bringing more suits and choosing to proceed with those suits when the government declines to intervene. The increased penalty amounts will surely continue this trend while also incentivizing the government and relators to bring more FCA suits, even in cases where damages are not significant but the number of claims is substantial. The penalty provision is punitive in nature and thus allows for significant liability under the FCA, even when the government has suffered little to no tangible harm. Thus, while the treble damages provision may not provide a lucrative recovery, the increased penalties will more than make up for what damages lack and likely incite litigation that previously may have went unpursued.
The high costs of investigation and defense, combined with the increased penalties and treble damages, will provide greater settlement leverage to the government and relators. As discussed by Burke during the House Judiciary Subcommittee hearing, many healthcare providers are not in the financial position to spend the vast resources required to fight FCA allegations, even when those allegations are meritless. Burke said that the current FCA penalties are so severe that most providers facing allegations will be forced to settle to avoid the uncertainty of trial and all of its related expenses. Settlement will now be more popular and have little to do with the actual merits of the allegations.
With FCA cases against healthcare providers increasingly involving tens of thousands of claims, these higher penalties on a per claim basis raise constitutional concerns regarding healthcare providers’ due process rights and Eighth Amendment rights to be free from excessive fines. The application of these increased penalties could easily result in circumstances where punitive recoveries are dramatically out of proportion with single damages and bear little or no relation to the degree of the defendant’s culpability or wrongdoing. Although in the past courts have rarely stricken penalty awards as unconstitutional, Eight Amendment challenges will likely be more viable in cases with low damages but large amounts of claims.
While these astronomical increases in penalty amounts under the FCA will significantly increase the stakes and costs of FCA cases for healthcare providers, the enormous costs and risks could also be the catalyst that reshapes the FCA landscape to provide greater protections for healthcare providers under the FCA. Additionally, there will likely be a new demand for internal fraud reporting procedures, as well as an added benefit to creating and implementing compliance programs.
Companies that do business with the government should ensure compliance programs have all the elements in place based on prior guidance from the Office of Inspector General, including the maintenance of proactive auditing and monitoring functions. Compliance programs should also have a system for employees to report compliance problems or concerns on a confidential basis and a system for investigating and responding to compliance issues. Additionally, self-reporting can sometimes be an effective strategy when potential FCA risks are internally identified. Risks must be continually assessed and regular dialogue between outside and inside counsel, as well as the compliance officer, is a necessary component of an effective compliance program.