Effective compliance programs cost money. Consider the costs, however, if a whistleblower (known in the trade as “a relator”), believing that your compliance program is ineffective, files a lawsuit alleging that your organization has filed false claims, or if the U.S. Department of Justice does the same thing. Two recent cases highlight the much greater costs associated with such false claims’ investigations. These cases explain part of the reason why health care executives who are otherwise aggressive in protecting their treasury sometimes swallow deeply and settle the case brought against them, even in situations where they may have arguments, sometimes good ones, to raise. Why is this the case? Going to trial and losing can have ruinous consequences for the provider.  

Before looking at two recent cases, we should consider the cost of “knowingly” submitting a claim in violation of the False Claims Act (FCA): the court triples the amount received as a result of the claim; and the court must impose a per claim penalty between $5,500 and $11,000. Consider also what can constitute a false claim: a claim submitted for an amount in excess of what the regulations say the provider is entitled; a claim where there is no medical necessity for the service provided; a claim in violation of the Anti-Kickback statute; or a claim in violation of the Stark law.  

Now let’s look at the two recent cases. In U.S. ex rel. Fry v. The Health Alliance of Greater Cincinnati, et al., a case decided in December 2008, the federal district court considered the case on the motion of the defendants to dismiss the case. The DOJ claimed that the defendants had submitted 11,000 Medicare claims in violation of the Anti-Kickback statute and the Stark law. It is long-settled that such claims are false claims under the FCA. In denying the motion to dismiss, the court noted its concern that, were the claims found to have violated the FCA, “…the number of claims at issue, each of which could be subject to a statutory penalty, in addition to the trebling of damages, could threaten the viability of the Defendant Christ Hospital.” Even without trebling damages, the penalties alone could have that effect: 11,000 claims multiplied by the minimum per claim penalty ($5,500) totals $60,500,000. As noted above, the court is required to impose a penalty in the range noted above; it has discretion only to set the per claim penalty within the statutory range. It is little wonder that few of these cases go to trial. Which institution can risk a mandatory penalty of this magnitude, not counting the damages trebled?  

A second case drives home the point with even greater force. In U.S. v. Rogan, the individual who owned a management company which operated and controlled a Chicago hospital took his case to trial. Here, as in the previous case, the DOJ’s argument was that 1822 claims were improper under the FCA because the relationship between the hospital and several physicians violated the Anti-Kickback statute and the Stark law. After a trial, the judge found that each claim violated the FCA. Because the government would have paid nothing for claims submitted in violation of the law, the court found that the government had been damaged in the full amount paid to the hospital -- $16,864.677.50. When trebled, the damages alone amounted to $50,594,032.50. The court then noted the requirement to impose a per claim penalty between $5,500 and $11,000. The court chose a $7,500 per claim penalty, for a total of $13,665,000. Thus, the total awarded against Rogan was over $64 Million.  

Hence, our usual advice is to fight strenuously to convince the government that the case involves no overpayment at all and should never become a lawsuit. If that is unsuccessful, we fight strenuously to have the government treat the matter purely as an overpayment case, involving no violation of the FCA at all, but in which we negotiate the amount that should be repaid. If that is unsuccessful, we fight strenuously to achieve a satisfactory settlement that involves no trebling of damages and no per claim penalty. In almost no case can the provider afford to take the case to trial and risk the kind of damages and fines involved in these two cases.  

So far as we can tell from the opinions of the courts in the two cases discussed above, neither defendant had a compliance plan that discovered, much less addressed, the potential for an Anti-Kickback or Stark issue in the arrangements under consideration. Yet, if compliance plans are to have any value, they ought to assist in avoiding alleged violations and the consequent exposure to extortionate settlements. To do that, your compliance plan cannot become a dust-gatherer. Instead, it needs to be updated and revised periodically and supplemented with educational sessions to stay abreast of cases where arrangements have been found to violate the Stark law, the Anti-Kickback Statute, and other healthcare fraud statutes. When is the last time that someone took a hard look at your plan and its implementation, as well as the education and training provided to your front-line employees? Is a review of your plan in order?