On May 20, 2009, President Obama signed into law the Fraud Enforcement and Recovery Act of 2009 (“FERA”), which includes the first significant amendment of the civil False Claims Act (“FCA”), 31 U.S.C. § 3729-3733, since 1986. FERA is chiefly focused on the government’s ability to prosecute fraud in the financial industry. However, because the FCA is the primary enforcement tool used by the federal government to prosecute and sanction fraud in the health care industry, these amendments will have a substantial impact on that industry. The amendments increase the scope of liability under the FCA, provide added protection for “whistleblowers”, and expand the U.S. Department of Justice’s investigative tools.
Parties may now be liable under the FCA for knowingly concealing an innocent overpayment.
Before FERA, the FCA prohibited using false records or statements for the purpose of avoiding or decreasing an obligation to pay money to the government. The portion of the FCA is commonly referred to as “reverse false claims” provision. FERA imposes FCA liability if a party “knowingly conceals, or knowingly and improperly avoids or decreases an obligation to pay or transmit money to the Government,” regardless of whether a claim has been submitted. FERA defines “obligation” to include the retention of an overpayment.
As a result, if a party is the innocent recipient of an overpayment but knowingly fails to return the overpayment to the government where there is an established duty to do so, the party risks liability under the FCA even if no false claim or statement has been made.
Conspiracy liability is expanded to include conspiring to violate any prohibition under the FCA.
Prior to FERA, some courts interpreted the conspiracy provisions of the FCA narrowly so certain acts, such as making false statements to conceal an obligation to pay money to the government, were not covered by the provisions. As amended by FERA, conspiracy liability arises whenever a person conspires to violate any of the prohibitions of the FCA, such as knowingly retaining an overpayment, delivering less government property than promised, or making false statements to conceal an obligation to pay money to the government.
Intent to defraud the government is no longer required for a FCA violation, as long as there is a false statement that is material to a false or fraudulent claim.
Prior to FERA, a unanimous U.S. Supreme Court held in Allison Engine v. Unites States ex rel. Sanders, 128 S. Ct. 2123 (2008) that proof of intent to defraud the government is a necessary element of a false statement claim under the FCA. Under the amended FCA, the government need only prove that the false statement was “material” to the government’s decision to pay a false claim. “Material” is defined as being capable of influencing, or having the natural tendency to influence, the payment or receipt of money or property. This amendment lessens the government’s burden of proof in a FCA action.
The amended FCA contains expanded protection for “Whistleblowers”.
Previously, the FCA prohibited a company from taking retaliatory actions against its actual employees for reporting or participating in a FCA investigation or action. As amended by FERA, the FCA’s prohibition against retaliation is extended to also include any “contractor, or agent” of the company alleged to have defrauded the government.
In addition, the only actions formerly protected from retaliation were those taken in connection with a FCA investigation or action, such as initiating or testifying in a FCA case. The amended FCA also prohibits retaliation against employees, contractors, or agents who attempt to stop a violation of the FCA.
The government’s statute of limitations in qui tam FCAs is expanded.
Under FERA, if the government files a complaint in a qui tam FCA action or amends the complaint filed by the relator, then the government’s pleading will “relate back” to the filing date of the relator’s original complaint, provided that the government’s claims arise from the conduct or transactions identified in the relator’s complaint. As a result, the government benefits from the relator’s filing date for statute of limitations purposes. This effectively eliminates the government’s need promptly to investigate qui tam allegations.
The government’s investigative tools under the FCA are increased.
The amended FCA expands the U.S. Department of Justice’s ability to investigate alleged violations. Previously, only the U.S. Attorney General had authority to issue Civil Investigative Demands (CID) to subpoena documents, depose witnesses, and otherwise investigate potential violations before filing a FCA action. Under the amended FCA, designees of the Attorney General are authorized to issue CIDs, and to serve sealed qui tam complaints and other materials on state and local law enforcement so they may assist in investigating a case. Additionally, materials obtained by the government during a FCA investigation may now be disclosed to a qui tam relator and his counsel, as well as consultants and experts. Finally, the government is allowed to recover its costs in bringing a FCA action from the defendant.
What are the implications for health care companies?
The expanded scope of liability under the FCA is likely to result in an increase in FCA claims filed against health care providers, both by qui tam relators and directly by the government. In addition, the amendments have improved the government’s investigative powers and ability to establish liability under the FCA, and increased health care providers’ retaliation exposure to include independent contractors.
Against that backdrop, health care companies should ensure that they maintain a proactive compliance program to manage the risk associated with the government’s intensified efforts to prevent, identify, and punish fraud.