History of the Federal False Claims Act

(October 27, 2022): As a health care provider, there are several statutory and regulatory authorities of which you must be aware, but one of the most prevalent is the Federal False Claims Act (FCA), 31 U.S.C. §§ 3729 – 3733. The FCA is a whistleblower law which allows private citizens to bring forth information regarding fraud in a lawsuit on behalf of the U.S. government. Billions of dollars are recovered through charges under the FCA each year; of the $5.6 billion in recoveries that the Department of Justice (DOJ) saw in 2021, more than $1.6 billion resulted from qui tam FCA charges[1]. Over the past 22 years, the government has recovered over $21 billion through FCA cases[2].

The health care industry is consistently the largest source of government civil fraud charges in the U.S., and qui tam FCA cases make up a significant portion of those numbers. In this article, we will discuss the basic structure and functions of the FCA, its historical evolution, and the ways in which the statute has impacted health care providers.

I. What is the FCA?

FCA liability is outlined in 31 U.S.C. §§ 3729, which states that any person is liable who:

(A) knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval;

(B) knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim;

(C) conspires to commit a violation of subparagraph (A), (B), (D), (E), (F), or (G);

(D) has possession, custody, or control of property or money used, or to be used, by the Government and knowingly delivers, or causes to be delivered, less than all of that money or property;

(E) is authorized to make or deliver a document certifying receipt of property used, or to be used, by the Government and, intending to defraud the Government, makes or delivers the receipt without completely knowing that the information on the receipt is true;

(F) knowingly buys, or receives as a pledge of an obligation or debt, public property from an officer or employee of the Government, or a member of the Armed Forces, who lawfully may not sell or pledge property; or

(G) 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,

is liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000, as adjusted by the Federal Civil Penalties Inflation Adjustment Act of 1990 (28 U.S.C. 2461 note; Public Law 104–410 [1]), plus 3 times the amount of damages which the Government sustains because of the act of that person.

At its core, the Federal Claims Act is a statute aimed at preventing citizens, businesses, and other private entities from defrauding the U.S. Government. To meet that end most effectively, the statute contains a provision known as the qui tam provision. Qui tam is an abbreviation of a Latin phrase, “qui tam pro domino rege quam pro se ipso in hac parte sequitur,” meaning, “Who sues on behalf of the King as well as for himself.” Thus, the qui tam provision is the section of the law which provides for the whistleblower power to sue for fraud on behalf of the government. U.S.C. §§ 3730(b)(1) states:

(1) A person may bring a civil action for a violation of §§ 3729 for the person and for the United States Government. The action shall be brought in the name of the Government. The action may be dismissed only if the court and the Attorney General give written consent to the dismissal and their reasons for consenting.

The qui tam provision incentivizes private citizens (known as “relators”) to bring forth cases as well, as the whistleblower will receive “15-20% of the proceeds of the settlement of the claim.”[3] In essence, this provision allows government officials to take a proverbial step back from investigations into possible fraud cases while maintaining a steady incline in rates of recoupment year by year.

II. The Lincoln Law:

The concept of a qui tam fraud statute has existed for hundreds of years, with the first proclamation of such in 695 by King Wihtred of Kent. Though the authority was not incredibly sophisticated at the time and had many critics, the creation of a statute which delegated investigations of fraud to private persons has existed and evolved for centuries. Even before the FCA, colonial American legislatures established similar statutes and judiciaries heard cases under these and English qui tam laws.

The False Claims Act originated in America during the Civil War, on March 3, 1863. The law was originally passed in response to the rise in fraudulent business dealings between private companies and the Union Army. Investigations into these exchanges found that companies were aware of the government’s need for wartime supplies and were thus able to hike up prices in exchange for poor quality materials without consequences. The responsive statute provided the following:

• A possible fine of up to $2,000 for violating the FCA;
• A possible prison sentence between one and five years;
• Relators (or whistleblowers, who are plaintiffs in FCA cases) receiving 50% of what the government recovered;
• The government recovering double of what was lost from the fraud; and
• The “Qui Tam” provision to allow private citizens to sue on behalf of the government

III. 1943 Amendments:

The statute remained unchanged for about 80 years. However, in the early 1940’s, it became apparent to Congress and Attorney General Francis Biddle that the statute was being abused. Overzealous, opportunistic attorneys had begun to file civil FCA claims parallel to the criminal suits Attorney General Biddle filed. These cases were often “easy wins” for these attorneys and resulted in large rewards to private citizens for cases that were already being prosecuted by the government in another manner. Congress believed this showed that people were still clearly taking advantage of the fraud the government was attempting to prevent. Attorney Biddle wrote in a letter requesting the appeal of the qui tam provision:

The reasons advanced by Senator Howard for the enactment of these sections are no longer pertinent. Recent experience shows that plaintiffs in informers’ suits not only fail to furnish to the United States the information, which is the basis of their actions, but on the contrary, at times base the litigation on information which has been secured by the Government in the regular course of law enforcement. Such plaintiffs at times not only use information contained in indictments returned against the defendant, but also seek to use Government files to prove their cases. Consequently, informers’ suits have become mere parasitical actions, occasionally brought only after law-enforcement offices have investigated and prosecuted persons guilty of a violation of law and solely because of the hope of a large reward.[4]

Originally, Congress intended to repeal the qui tam provision altogether, however—because action on the issue began between sessions of Congress—time created a larger debate over the matter. Congressmen finally decided that a curtailment of the provision was preferable to a full repeal, so Public Law 78-213 was passed.[5] This latest version of the law stated:

• Relators are required to provide the government with the evidence upon which they base their claim[6];
• The government has 60 days to intervene on aforementioned claim[7] ;
• Qui tam suits based on information already in the government’s possession are precluded[8]; and
• Relators may not be awarded more than a 25% share from a successful suit award.[9]

These amendments to the statute drastically reduced the rate of claims filed under the FCA for several decades due to the nature of the restrictions on the qui tam provision.

IV. 1986 Amendments:

During the Reagan administration, an influx of new wartime contracts between private businesses and the government called for a resurgence of the FCA. A Senate Report of the same year read the following:

In 1985 . . . 45 of the 100 largest defense contractors, including 9 of the top 10, were under investigation for multiple fraud offenses. Additionally, the Justice Department has reported that in the last year, four of the largest defense contractors . . . have been convicted of criminal offenses while another . . . has been indicted and awaits trial. . .  The Department of Justice has estimated fraud as draining 1 to 10 percent of the entire Federal budget. Taking into account the spending level in 1985 of nearly $1 trillion, fraud against the Government could be costing taxpayers anywhere from $10 to $100 billion annually.

The benefits of whistleblowers during such a period of extensive fraud schemes necessitated a reinvigoration of the statute. In order to mitigate some of the limits set by the 1943 amendments, the new amendments covered a wide range of issues. The updated FCA included:

• A statement explicitly protecting whistleblowers from retaliation by their employees for reporting fraud;
• An increase in penalties up to $5000 per claim and treble damages (three times the actual damages);
• An increase in the share of settlement relators may be awarded (up to 30%);
• An extension of the statute of limitations for qui tam suits;
• A statement that only matters of “public disclosures” could not be pursued by relatives when the government already had knowledge;
• An explicit definition of the knowledge required for a violation and a declaration that a specific intent was unnecessary;
• A preponderance-of-the-evidence burden of proof;
• A declaration that states could act as qui tam relators;
• A revised jurisdictional bar for qui tam suits based on matters of public knowledge; and
• An authorization for government use of civil investigative demands.

Several of the 1986 amendments resulted in dramatically increased rates of filed fraud cases, as did rates of financial settlement. The extension of the statute of limitations allowed for more cases to be filed. Additionally, the definitions of knowledge and intent created a broader scope of conduct to be encompassed by the FCA. Since the health care industry has moved to the forefront of investigations and enforcement, rates have increased most drastically in health care fraud. According to the Department of Justices’ 2021 Overview of Fraud Statistics, Department of Health and Human Services has settled almost 9,000 fraud cases which have resulted in almost $37 billion dollars in recoupments in the past 36 years. Without the 1986 amendments, there is no guarantee we would have seen that leap.

A. The “Knowing” Definition and Its Consequences 

After the 1986 amendments, the standard of “knowing” and intent needed to be charged under the FCA was forever shifted. Until this point in the legislation’s history, one could only be charged if it were proven that the actor knew that their actions were such that intention to defraud the U.S. Government would be the result of their actions. In other words, one could only be charged with a violation of the FCA if it could be shown that the actor(s) knew that their conduct would or could lead to a specific outcome (fraud). The new amendment diminished that burden’s level of severity. The modified FCA definition of “knowing” is as follows: 

The terms “knowing” and “knowingly”—  

(A) Mean that a person, with respect to information— 

(i) has actual knowledge of the information; 

(ii) acts in deliberate ignorance of the truth or falsity of the information; or 

(iii) acts in reckless disregard of the truth or falsity of the information; and   

(B)      require no proof of specific intent to defraud.10 

This adjustment to the definition of “knowing” opened the proverbial floodgates for more FCA claims to succeed. No longer was the scope of the liability limited to those with the intention to perform fraudulent activities. From this point on, once an actor has knowledge of an improperly filed or errant claim submitted to the government, any conduct that does not effectively remedy that misstep could be construed as intent to submit a false claim. The government does not need to show that the actor intended to defraud, only that there was knowledge of the improper claim prior to its submission.  

V. Contemporary Amendments:

The most recent updates to the FCA occurred in 2009 and 2010. The 2009 amendments came in the form of the Fraud Enforcement and Recovery Act. This legislation reinserted the significance and authority of the 1986 amendments, but it also expanded the scope of conspiracy and false claims charges and heightened the penalties for each possible claim under the FCA. In 2010, small definitions regarding the term “relator” were adjusted in the Patient Protection and Affordable Care Act, and the Dodd-Frank Wall Street Reform and Consumer Protection Act created a 3-year statute of limitation in which a civil action responding to retaliation must be started.

Overall, the most significant adjustments to the FCA remain to be the 1986 Amendments.

VI. Conclusion:

The Federal False Claims Act will likely keep evolving over time as the Department of Justice continues to increase enforcement efforts. As a health care provider, it is prudent to maintain up-to-date knowledge of the current and most impactful components of the whistleblower law. Additionally, keeping the components of the FCA in mind when creating your compliance plan will help to keep your staff educated on their roles in preventing fraud and the potential consequences of failing to do so. Finally, maintaining close contact with your legal counsel and consulting on any matters involving potential fraud is crucial to preventing a potential FCA claim against you.

If you or your practice receives notice of an FCA claim filed against you, you should immediately contact your legal counsel and take steps to ensure that no spoliation of the evidence takes place.  Questions? Give us a call for a free consultation. We can be reached at: 1 (800) 475-1906.

Robert W. Liles, Esq. is Managing Partner at the health law firm, Liles Parker PLLC. With offices in Washington, DC, Houston, TX, and Baton Rouge, LA, our attorneys represent health care providers around the country in connection with the audit and / or investigation of their physical therapy and aquatic therapy claims. Should you have any questions, please call us for a free consultation. Robert can be reached at: 1 (800) 475-1906.

_________________________

[1] Department of Justice, Civil Division (2021). Fraud Statistics Overview 1986-2021. Retrieved at https://www.justice.gov/opa/press-release/file/1467811/download

[2] Id.

[3] Doyle, Charles (2021). Qui Tam: The False Claims Act and Related Federal Statutes (CRS Report No. R40785).

[4] Id, referencing S. Rept. No. 77-1708, at 2; H. Rept. No. 78-263, at 2

[5] 57 STAT. 608 (1943)

[6] Id.

[7] 57 STAT. at 608, 31 U.S.C. § 232(C) (1946 ed.).

[8] Id.

[9] 57 STAT. at 609; compare, 31 U.S.C. § 234 (1940 ed.), with 31 U.S.C. § 232(E) (1946 ed.).

False Claims Act Penalties Have Risen for the Second Time Within the Last Year

(March 30, 2017):  The False Claims Act is the primary civil enforcement tool utilized by the U.S. Department of Justice to address false claims submitted to government programs and contracts by individuals and entities.  The statute was first passed during the Civil War in 1863 in an effort to address the wrongful conduct of was profiteers.  Among its various provisions, the False Claims Act includes specific measures intended to encourage the disclosure of fraud by private persons through the filing of a whistleblower suit. Under these provisions, a private person (often referred to as a “relator”) can may bring a False Claims Act lawsuit on behalf of, and in the name of, the United States.  If a recovery is made, the relator may be eligible to a share of these monies.

I. Recoveries Under the False Claims Act in 2016 Were Substantial:

Most of the False Claims Act cases brought against health care providers are filed by whistleblowers. As set out in a December 2016 DOJ Press Release, during Fiscal Year 2016 the federal government obtained more than $4.7 billion in False Claims Act settlements and judgments. Of this total, $2.5 billion came from individuals and entities in the health care industry.

II. The Penalties That May be Assessed Under the False Claims Act Vary, Depending on the Date a False Claim or Statement to the Government Was Made:

A person found to have violated the False Claims Act may be liable for both civil penalties and treble damages. Under the 1986 amendments to the False Claims Act the range of civil penalties for violations of the False Claims Act from $5,000 to $10,000.  Since that time, the following additional adjustments have been made:

• For false claims or statement made after October 23, 1996, but before August 1, 2016, the minimum penalty which may be assessed under 31 U.S.C. 3729 is $5,500 and the maximum penalty is $11,000, per false claim or statement.

• For false claims or statements made on or after August 1, 2016, but before February 3, 2017, the minimum penalty which may be assessed under 31 U.S.C. 3729 is $10,781 and the maximum penalty is $21,563, per false claim or statement.

Although the amount of civil penalties assessed in False Claims Act cases almost doubled in August 2016, additional increases were recently announced.  On February 3, 2017, DOJ issued a Final Rule further adjusting the amount of civil monetary penalties that may be assessed under the False Claims Act to account for inflation.  For false claims or statements made after February 3, 2017, the minimum penalties which may be assessed under 31 U.S.C. 3729 is $10,957 and the maximum penalty is $21,916, per false claim or statement.

III. Health Care Providers Must Ensure that Their Claims to Medicare and / Medicaid Meet Statutory and Regulatory Requirements for Coverage and Payment:

In today’s health care billing environment, where the number of electronic claims submitted to Medicare can be significant, the potential penalties an organization could face for the submission of false claims can add up quickly. In light of the increases in penalty amounts implemented in August 2016 and in February 2017, we should expect to see future challenges under the Eighth Amendment of the Constitution.  As you will recall, the Eighth Amendment prohibits the imposition of “excessive fines,” or fines that are grossly disproportional to the gravity of an offense.

Liles Parker attorneys have extensive experience working on False Claims Act cases.  If your practice or health care organization has questions regarding the False Claims Act, give us a call.  For a free consultation, call Robert W. Liles.  He may be reached at:  (202) 298-8750.

Application of the “60-Day Overpayment Rule” Under the False Claims Act

(September 14, 2016):  On March 23, 2010, the Affordable Care Act (ACA) was signed into law. Among its various provisions, §6402(a) of the ACA established new requirements under the Social Security Act.  Under §1128J(d)(1) of the Social Security Act if a person[1] receives a Medicare overpayment, it must be reported and returned to the appropriate contractor.  Moreover, the appropriate Medicare contractor must be notified in writing of the reason for the overpayment.  Importantly, an overpayment must be reported and returned by the later of:

 

(A)     the date which is 60 days after the date on which the overpayment was identified; or

(B)     the date any corresponding cost report is due, if applicable.[2] (emphasis added).

I.  Penalties Under the False Claims Act:

Under §1128J(d)(3) of the Social Security Act, if a Medicare overpayment were to be retained by a health care provider or supplier after the deadline for reporting and returning an overpayment, it would be considered to be an “obligation”[3] and could give rise to liability under the civil False Claims Act.[4]  A person found to have violated this statute may be liable for both civil penalties and treble damages. The amount of civil penalties that may be imposed for each false claim depends on when each was made:

(a) For claims or statements made after October 23, 1996, but before August 1, 2016, the minimum penalty which may be assessed under 31 U.S.C. 3729 is $5,500 and the maximum penalty is $11,000.

(b) For claims or statements made on or after August 1, 2016, but before January 1, 2017, the minimum penalty which may be assessed under 31 U.S.C. 3729 is $10,781 and the maximum penalty is $21,563.[5]

II.  When is an Overpayment “Identified”?

On February 13, 2012, the Centers for Medicare and Medicare Services (CMS) first published a Proposed Rule outlining how the provisions of §1128J(d)(1) of the Social Security Act would be implemented.[6]  CMS issued its Final Rule on Final Rule on February 12, 2016.[7]  At that time, the agency commented that:

The 60-day time period begins when either the reasonable diligence is completed or on the day the person received credible information of a potential overpayment if the person failed to conduct reasonable diligence and the person in fact received an overpayment.” [8]

The Final Rule further notes that a provider can establish that it demonstrated reasonable diligence in assessing a potential overpayment if it conducted a “timely, good faith investigation of credible information, which is at most 6 months from receipt of the credible information, except in extraordinary circumstances.”[9]

III.  Meaning of “Reasonable Diligence”

CMS’ final rule still leaves questions unanswered as to what exactly represents “reasonable diligence” by a provider. The final rule explains that the 60-day window starts while the healthcare provider is executing “reasonable diligence” as to whether the provider has received any overpayments and the total amount of overpayments. Furthermore, the preamble of the final rule discusses a six-month interval as a goal for providers to conduct reasonable diligence into potential overpayments absent extraordinary circumstances.

IV.  Application of the 60-Day Overpayment Rule in a False Claims Act Case:

While it has only been a little more than six months since the Final Rule on the 60-day overpayment rule has been published, the first case dealing directly with this issue, United States ex rel. Kane v. Healthfirst, Inc., et al., recently settled for $2.95 million on August 23, 2016.

The case arose out of a qui tam action, which alleged that the Mount Sinai Health System violated the False Claims Act (FCA) because it did not fulfill its repayment obligation until nearly two years after it was notified about the potential overpayments. One of the main issues in the case was the meaning of “identify” as used in the ACA. In this case, the court held that an overpayment is identified at the moment a provider is put on notice of a potential overpayment; rather then when the full extent of an overpayment is conclusively ascertained.

V.  Conclusion:

The recent Healthfirst settlement is merely the first of what will likely be many cases brought against a health care provider or supplier under the False Claims Act for the failure to report and return an alleged overpayment in a timely fashion.  Now, more than ever, it is imperative that your organization have an effective Compliance Program in place so that any potential overpayments can be promptly identified, investigated, and repaid to the government, as necessary.

Robert W. Liles, M.B.A., M.S., J.D., serves as Managing Partner at Liles Parker, Attorneys & Counselors at Law. Liles Parker is a boutique health law firm, with offices in Washington DC, Houston TX, San Antonio TX, McAllen TX and Baton Rouge LA. Robert represents physicians and other health care providers around the country in connection with Medicare revocation actions. Our firm also represents health care providers in connection with federal and state regulatory reviews and investigations. For a free consultation, call Robert at: 1 (800) 475-1906.

[1] The term ‘‘person’’ as a provider (as defined in 42 C.F.R. §400.202) or a supplier (as defined in 42 C.F.R.§400.202).

[2] Section 1128J(d)(2).

[3] As the term “obligation: is defined in 31 U.S.C. §3729(b)(3) for purposes of liability under the False Claims Act.

[4] In addition to liability under the False Claims Act (31 U.S.C. §3729), should a provider or supplier fail to properly report and return an overpayment, the provider could also be subject to civil monetary penalties and / or exclusion from participation in the Medicare program.

[5]   81 Fed. Reg. 26127, 26129 (May 2, 2016).

[6] 77 Fed. Reg. 9179 (February 16, 2012), titled Medicare Program; Reporting and Returning of Overpayments.

[7] 81 Fed. Reg. 7654 (February 12, 2016), titled, Medicare Program; Reporting and Returning of Overpayments.

[8]  81 Fed. Reg. 7654, 7661 (February 12, 2016).

[9] 81 Fed. Reg. 7654, 7662 (February 12, 2016).