As part of the Fraud Enforcement and Recovery Act of 2009, the U.S. Congress made numerous substantive and procedural changes to the federal False Claims Act (FCA) (18 U.S.C. § 3729 et seq.). Many of these amendments were made in response to recent court decisions, most notably Allison Engine Co., Inc., et al v. United States ex rel. Sanders et al, which Congress viewed as limiting the scope of the law and, in some cases, permitting subcontractors paid with government money to escape responsibility for fraud. Allison Engine Co. v. United States ex rel. Sanders, 128 S. Ct. 2123 (2008).
In Allison Engine Co., the U.S. Supreme Court refused to find a subcontractor liable under the FCA for allegedly submitting false certifications of compliance to the prime contractor for claims paid by the prime contractor and not the government. The court held that § 3729(a)(2) of the FCA required the defendant to make a "false record or statement ‘to get’ a false or fraudulent claim paid or approved by the Government." Id. at 2128. The government must prove that "a defendant must intend that the government itself pay the claim," for a violation of the FCA to occur. Id. No liability would be found if a subcontractor knowingly submits a false claim to a prime contractor and is paid with government funds. A subcontractor must actually intend to defraud the federal government, not just the prime contractor.
In response to these decisions, Congress amended the FCA to clarify that "liability under section 3729(a) attaches whenever a person knowingly makes a false claim to obtain money or property, any part of which is provided by the Government without regard to whether the wrongdoer deals directly with the federal Government; with an agent acting on the Government’s behalf; or with a third-party contractor, grantee, or other recipient of such money or property."
S. Rep. No. 111-10 at 11 (2009).
Congress also revised § 3729(a) (liability for certain acts) by deleting the words "to get" and inserting a materiality requirement. Previously, the statute imposed liability on any person who "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." (Emphasis added.) Congress deleted the words "to get" as these were the words relied upon by the Supreme Court in Allison Engine Co. to find an intent requirement for false claims liability under that section. Congress instead added the words "material to" prior to "a false or fraudulent claim." Material is defined as "having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property."
In summary, in order to be liable under the revised FCA, a defendant no longer needs to intend that the government rely on its submission of a false record or statement when paying a claim. The record or statement only needs to have "a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property." A claim also need not be submitted to the government in order for liability to attach. As a result, the FCA may reach false or fraudulent claims submitted by a subcontractor to a prime contractor.
Reverse False Claims
Perhaps the most noteworthy changes applicable to the health-care industry are the amendments to the "reverse false claims" provision. Previously, the FCA imposed liability on any person who "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." 31 U.S.C. § 3729(a)(7) (1986). This provision was commonly referred to as the "reverse false claims" provision because it was designed to target government money or property that was knowingly retained by a person who has no right to it.
Under the FCA amendments, this provision now applies to any person that "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." [Emphasis added.] § 3729(a)(1)(G). Previously, liability attached only in the case of a submission of a false record or statement. Under the amendments, simply concealing or avoiding an obligation to pay back an overpayment can create liability.
These changes have raised numerous concerns about the potential expanded scope of liability in connection with the retention of an overpayment. For example, some practitioners question whether a Medicare provider that retains overpayments subject to a reconciliation process, such as cost reporting, may be subject to liability under the FCA. Congress has expressed that it is not its intent to create liability for a simple retention of 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." Id. at 15. In other words, Congress may focus on whether the retention was "improper" within the meaning of the reverse false claims provision. Some observers have expressed concern that routine overpayments for services, such as improper coding or a violation of the Medicare Secondary Payer rules, may create liability under the amended FCA. Others have questioned whether a Stark law or anti-kickback violation could be viewed as the retention of an overpayment. The scope of liability under the amended reverse false claims provision and how much protection will be afforded by the term "improper" is unclear. This provision will certainly be the subject of greater discussion and litigation.
1. Employee retaliation claims
Previously, the FCA provided relief from retaliatory actions for an employee. Under the amendments to the FCA, this section was expanded to apply not only to employees but also to contractors and agents.
2. Mandatory liability for recovering costs
The amendments to the FCA also include a new provision that establishes mandatory liability for the government’s costs of a civil action brought to recover any penalty or damages for defendants that have violated the FCA. 31 U.S.C. § 3729(a)(3).
Previously, the FCA provided that subjects who knowingly conspire to defraud the government by getting a false or fraudulent claim allowed or paid would be subject to liability. Some courts interpreted this provision narrowly and therefore the FCA was amended to clarify that conspiracy liability can arise whenever a person conspires to violate any of the provisions in § 3729 imposing FCA liability.
The FCA amendments also include numerous procedural changes that will allow the government to delay intervention in qui tam suits and expand the sharing of information. These changes are summarized as follows.
1. Statute of limitations
Recently, courts have disagreed as to whether the statute of limitations begins to run at the time the government receives the relator’s complaint or when the relator files its complaint. Thus, Congress revised the FCA to state that, for statute of limitations purposes, government pleadings shall relate back to the filing date of the complaint of the person who originally brought the action, provided that the government’s claim arises out of the conduct, transactions, or occurrences set forth in a prior complaint of that person. 31 U.S.C. § 3731(c). This amendment provides the government with additional time to investigate and intervene in a qui tam suit.
2. Civil investigative demands
The FCA was also amended in a way that expands the government’s sharing of information. As it pertains to civil investigative demands (CID), the amendments permit the attorney general to delegate the authority to issue a CID. The amendments also permit information obtained by the attorney general or a designee to be shared "with any qui tam relator if the Attorney General or designee determine[s] it is necessary as part of any false claims act investigation." 31 U.S.C. § 3733(a)(1)(D).
3. Service on states
With respect to any state or local government that is named as a co-plaintiff with the United States, the amendments permit the government and qui tam relators to serve the complaint, any other pleadings or written disclosures of substantially all material evidence and information possessed by the person bringing the action on law enforcement authorities authorized under state or local government to investigate or prosecute such actions. This applies even while those documents remain under seal in accordance with FCA procedure. 31 U.S.C. § 3732 (c). The sharing of information for investigative purposes may increase the likelihood that businesses, already subject to potential liability under the federal FCA, could also be subject to state or local government investigations and causes of action under state FCA statutes. This is particularly relevant in Minnesota as the state recently adopted its own false claims act as discussed further in this Update.
4. Effective dates
The majority of the FCA amendments were effective May 20, 2009. However, the amendments to the liability provision shall apply retroactively to all claims pending as of June 7, 2008, two days before the date that Allison Engine Co. became law. § 3729(a)(1). The statute of limitations provisions, the CID provisions and the sealing provisions shall apply to all cases pending on or after May 20, 2009. The constitutionality of retroactive application is almost certain to be challenged.