On March 28, 2013, in a reverse False Claims Act case, the United States District Court for the Eastern District of Wisconsin denied Lakeshore Medical Clinic’s motion to dismiss and allowed the relator’s claim to go forward. U.S. ex rel. Keltner v. Lakeshore Med. Clinic, Ltd., No. 11-CV-00892 (E.D. Wis. Mar. 28, 2013). This case shows the increased risk the Fraud Enforcement Recovery Act of 2009 (“FERA”) presents for government contractors, particularly Medicare and Medicaid providers.

Among other changes to the FCA, FERA broadened the scope of the FCA’s reverse false claims provision to encompass retained overpayments. The FCA, as amended by FERA, prohibits “knowingly and improperly avoid[ing] . . . an obligation to pay” the government even without a false statement to conceal the obligation, 31 U.S.C. §372(a)(1)(G), and expansively defines “obligation” to include a duty to pay the government arising “from the retention of any overpayment.” 31 U.S.C. § 3729(b)(3). Knowledge under the FCA is defined broadly as “actual knowledge . . . deliberate ignorance of the truth [or] reckless disregard of the truth.” 31 U.S.C. 3729(b). Thus, government contractors face FCA liability for knowingly or recklessly failing to return a government overpayment of funds.

In Keltner, the relator, a former billing department employee, brought a qui tam suit alleging that the defendant medical group violated the FCA by knowingly submitting false claims to the government and failing to repay government overpayments. The relator claimed that Lakeshore in its annual audits found that two doctors had an upcoding error rate greater than 10%. She further alleged that even though Lakeshore repaid the specific overpayments identified in the sample audits, it did not go back and review other claims by those doctors to repay additional upcoded claims, and Lakeshore later ceased auditing the doctors.

Lakeshore moved to dismiss the complaint arguing that the realtor failed to plead fraud with the particularity required by Rule 9(b). The district court denied this motion and held that the relator “plausibly suggest[ed] that [Lakeshore] acted with reckless disregard for the truth and submitted some false claims.” As to the retained overpayment theory, the court held that the relator sufficiently pled this claim because Lakeshore failed to review additional claims after the audit and by discontinuing the audits going forward. Thus, the court found that Lakeshore “intentionally refused to investigate the possibility that it was overpaid,” and “may have unlawfully avoided an obligation to pay money to the government.”

This case potentially represents an expanded area of liability for health care providers and other government contractors under FERA and the FCA. Because knowledge is defined broadly to include reckless disregard, contractors must act quickly if they discover any evidence of government overpayment. Government contractors must be aware of their affirmative burden, follow up on any evidence of overpayment, and repay to the government any overpayments.