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Overview of the False Claims Act


Robert Liles represents health care providers in False Claims Act matters and cases.The civil False Claims Act (31 U.S.C. §§ 3729-3733), [1] is the primary civil health care fraud enforcement tool utilized by the federal government. As discussed below, the False Claims Act is an extraordinarily useful statute for government prosecutors, both in terms of ease of use and in terms of the damages that may be recovered by the government.  False Claims Act cases are prosecuted by the Department of Justice (DOJ) Civil Division Trial Attorneys in Washington, D.C. and by “Civil Health Care Fraud Coordinators” appointed in each of the 94 U.S. Attorney’s Offices around the country. The Civil Division lawyers primarily work on the larger, more complex matters. They often work with Assistant U.S. Attorneys (AUSAs) as they are also trained and experienced in handling False Claims Act and will readily file a case against a health care provider in the event that improper conduct can be shown.

At the outset, it is essential to keep in mind that the civil False Claims Act does not cover mistakes, accidents or mere negligence.  Unfortunately, the line separating a billing “mistake” from a non-intentional wrongful billing that could give rise to an action under the False Claims Act is not always easy to discern. In an effort to provide additional guidance to DOJ attorneys on the judicial use of the False Claims Act, the Department issued guidance that set out a number of factors that may be considered when pursuing a False Claims Act case.

I.  Historical Background:

Sometimes referred to as “Lincoln’s Law,” the False Claims Act was first passed in 1863 in response to war profiteering. It includes measures intended to encourage the disclosure of fraud by incentivizing private persons with knowledge of fraudulent conduct to file qui tam lawsuits on behalf of the government. The term qui tam is taken from a Latin phrase meaning “he who brings a case on behalf of our lord the King, as well as for himself,” and under the qui tam (also commonly referred to as a “whistleblower”) provisions of the statute, a private person (the “relator”) may bring a False Claims Act lawsuit on behalf of and in the name of, the United States and possibly share in any recovery made by the government.

Between government-initiated investigations and qui tam cases brought by whistleblowers, most Compliance Officers become well acquainted with the statute and its provisions. As set out in a February 2022 DOJ Press Release, DOJ secured more than $5.6 billion in civil settlements and judgments in connection with cases involving fraud against the government. Notably, more than $5 billion in recoveries were health care related.[2]  Since 1986, more than $702 billion has been recovered under the False Claims Act.

The number of new False Claim Act investigations has steadily increased over the years. During fiscal year 2021, whistleblowers filed 589 qui tam lawsuits – an average of 11 new cases each week.[3]  At least some of the increase is attributable to legislative changes to the False Claims Act under the Fraud Enforcement Recovery Act of 2009 (FERA) and the Affordable Care Act in 2010, but whistleblower cases now account for the vast majority of all new health care investigations and legitimate concerns have been raised about the role of qui tams in DOJ’s overall health care fraud enforcement strategy.  Recoveries under the False Claims Act over the past five years are outlined below. 

Year

2017

2018

2019

2020

2021

Civil Fraud

Recoveries

$3.4 billion

$2.9 billion

$3.1 billion

$2.2 billion

$5.6 billion

II.   Provisions of the False Claims Act:

The federal civil False Claims Act imposes civil monetary penalties and exposes any person to civil liability under the circumstances below:

      Sec. 3729. False claims

  • Liability for Certain Acts—any person who:
  • Knowingly presents or causes to be presented, to an officer or employee of the United States Government or a member of the Armed Forces of the United States a false or fraudulent claim for payment or approval;
  • 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;
  • Conspires to defraud the Government by getting a false or fraudulent claim allowed or paid;
  • Has possession, custody or control of property or money used or to be used, by the Government and, intending to defraud the Government or willfully to conceal the property, delivers or causes to be delivered, less property than the amount for which the person receives a certificate or receipt;
  • 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;
  • 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 the property; or
  • 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, is liable to the United States Government . . .

III.   Damages and Penalties under the False Claims Act:

A person (an individual or entity) 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:

  • For claims or statements made on or before October 23, 1996, the minimum penalty which may be assessed under 31 U.S.C. 3729 is $5,000 and the maximum penalty is $10,000.
  • For claims or statements made after October 23, 1996, but before August 1, 2016, the minimum penalty which may be assessed under 31 S.C. 3729 is $5,500 and the maximum penalty is $11,000.
  • 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.
  • For claims or statements made on or after January 15, 2017, but before June 19, 2020, the new minimum was raised to $11,181 to the maximum penalty is raised to $22,363.
  • For claims or statements made on or after June 19, 2020, but before January 15, 2021, the new minimum was raised to $11,665 and the maximum penalty was raised to $23,331.
  • For claims or statements made on or after January 15, 2021, the new minimum was raised to $11,803 and the maximum penalty was raised to $23, 607.

IV.   Statute of Limitations under the False Claims:

The False Claims Act’s statute of limitation provisions have been extensively litigated. As a result, it is important that you work with your legal counsel to determine if the claims at issue are likely to fall outside of the actionable period. Generally, the False Claims Act has a 6-year statute of limitations. However, this 6-year period may be tolled (under certain circumstances) up to a maximum of 10 years from when the government knew or reasonably should have known, that the violation occurred. These statute of limitations provisions are found in 31 U.S.C. § 3731(b).

      A civil action under section 3730 may not be brought —

  • more than 6 years after the date on which the violation of section 3729 is committed or
  • more than 3 years after the date when facts material to the right of action are known or reasonably should have been known by the official of the United States charged with responsibility to act in the circumstances, but in no event more than 10 years after the date on which the violation is committed, whichever occurs first.

In assessing when the period of limitations runs, a court will look at the time at which either the relator or the government became aware or knew of the violation. Additionally, it is debatable whether a relator can avail himself of the three-year tolling provision or if only the government can take advantage of the three-year period.

 V.   Counting Claims under the False Claims Act:

Over the years, there has also been considerable litigation has ensued regarding how claims are to be counted. While decisions vary, most courts have held that each submission constitutes a separate claim. Prior to the emergence of electronic filing, it was not uncommon for providers to bundle a set of claims together and send them in to their Medicare contractor for processing and payment. This “bundle” would likely constitute a single “claim” for purposes of the False Claims Act. Today, most providers send in individual claims as they are entered into the provider’s electronic billing system. As a result, each time that a provider hits “ENTER” to transmit a single claim to the contractor for processing and payment, this action would constitute a single claim for purposes of the statute. As one can easily imagine, even a small number of false claims could result in extensive civil penalties and damages.

VI.   Self-Disclosure of Violations Under the False Claims Act:

The False Claims Act provides for a potential decrease in penalties and damages in cases where the person who violates the False Claims Act voluntarily discloses those violations to the government. In these cases, the person must:

  • Provide the government with all information regarding the violation within 30 days of discovering the violation;
  • Cooperate fully with any subsequent government investigation or inquiry; and
  • Not be the subject of any criminal, civil or administrative inquiry related to the violation.

If a person complies with the requirements set forth above, then liability under the False Claims Act would be limited to twice the amount of damages sustained by the government.[4]

VII.   False Claims Act Liability — Qui Tam or Whistleblower Actions:

A unique aspect of the False Claims Act is that it authorizes and incentivizes private parties with direct knowledge of fraudulent conduct to file a civil lawsuit against the violator on behalf of the government. These civil suits are known as qui tam actions and the private parties who initiate such actions are called “relators”. Relators receive a percentage of any monies recovered as a result of their qui tam action, which generally ranges between 15% – 25% of the amount recovered in a case in which the government intervenes.[5]

Qui tam actions are initiated when the relator files a complaint – along with supporting documentation – “under seal” in federal court. When a case is filed under seal, the Clerk of the Court maintains all records associated with the whistleblower out of view and on a non-public docket. A copy of the complaint is given to the judge assigned to the case and he alone may grant access to filings in the matter. The complaint must also be served on the Attorney General in Washington, D.C. and on the U.S. Attorney in the judicial district in which the case was filed.[6]

The government has a statutory obligation to investigate all qui tams that are filed and it is automatically given 60 days to evaluate and investigate the matter during which time the matter remains under seal. The government almost never completes its investigation in that time and the court may grant extensions of the time to investigate upon a showing of “good cause.” Most federal courts readily grant the request for an extension and keep the matter sealed during that period of time. It is not at all uncommon for a qui tam to remain under seal for over a year (and often much longer) while the government investigates the allegations. Maintaining the seal is important for several reasons:

  • The government can quietly investigate the allegations without the defendant knowing that their company is under
  • The mere existence of a government investigation can negatively impact a company in the eye of the public – particularly if it is publicly traded – as the publicity surrounding a government investigation can severely affect the price of a company’s stock even if the allegations at issue are without merit or any factual
  • Maintaining the matter under seal also allows defendants that elect to resolve the matter by settlement to better manage the information that becomes publicly available as a result of the settlement and, in general, to take actions to minimize the impact of any

After concluding its evaluation, the government may elect to proceed with the complaint and intervene in the case or it may decline to intervene. If the government decides to intervene in the action, then the relator has the right to remain a party to the action. If the government decides not to intervene in the case, the qui tam relator may elect to proceed on his or her own against the defendant. Notably, the government always retains the ability to intervene in the case at a later time. From a practical standpoint, if the government decides not to intervene in a case, in all likelihood the relator will seek to dismiss the suit. Unlike the government, the relator’s ability to investigate a False Claims Act case is quite limited, both in terms of resources and in terms of investigative tools. As a result, the government’s decision to decline to intervene severely impacts a relator’s ability to move forward with the case.

The government will often ask the court to partially lift the seal solely for the purpose of advising the defendant of the existence of the case. This typically happens when the government is mostly finished with its investigation and wants to hear the defendants side to the story and is seeking cooperation in resolving the allegations.

At the conclusion of its investigation, the government must choose to either legally “intervene” in the matter and take it over or to decline to take over the matter and give the relator a chance to pursue it on his own. In many, perhaps most, of the cases in which the government elects to intervene, the matter is resolved through settlement and the Court will look to the parties for guidance in removing the seal of the matter. For many years, relators only rarely pursued through litigation cases that had been declined by the government, however there has been some increase in recent years of the number of cases pursed by relators after declination. It is noted that if a relator pursues a declined case, he may receive 30% of the total recoveries in addition to attorney fees and any potential retaliation claim he might have.

There are a number of limitations placed on the filing of qui tam cases. Two of the more commonly seen limitations include:

  • When the government has already initiated an action against a party for the same allegations that would form the basis of a qui tam suit; or
  • When the action is based on publicly disclosed information[7] that was contained in an official hearing, report, investigation, audit or information disseminated by the news.

False Claims Act recoveries resulting from whistleblower suits in health care matters routinely exceed several billion dollars each year. As such, issues related to the False Claims Act should be at the top of the list of ongoing concerns for most health care Compliance Officers. The potential damages a provider may face for violations of the False Claims Act cannot be understated.

VIII.   Overpayments Leading to False Claims Liability:

The government has long maintained the position that providers in federal or state health care programs are required to voluntarily return any overpayments they may have received. The government further contends that providers who receive unearned or undeserved payments due to a mistake (whether by the government or the provider) or some other reason, should not be able to enrich themselves at the government’s expense. In fact, the government has long argued that there was an affirmative obligation for a party to return an overpayment to the government without an overpayment determination being made by the government. As OIG’s Compliance Program for Third Party Billing Companies states:

“Failure to repay overpayments within a reasonable period of time could be interpreted as an intentional attempt to conceal the overpayment from the government, thereby establishing an independent basis for a criminal violation.” [8]

This position was upheld in the case of United States v. Yale University School of Medicine, Civil Action No. 3:97CV02023 (Sept. 1998, USDC Connecticut) where the government intervened in a qui tam action based on the failure to repay money owed to the government. In the case, the government ultimately obtained a $1.2 million False Claims Act settlement based on the failure to return credit balances owed to the government.

To the extent that the question remained open to some in the industry, it has been fully and finally resolved with the passage of FERA and the Affordable Care Act (ACA) the following year. FERA was passed to assist health care fraud enforcement efforts and among other things, it expanded the definition of an “obligation” that had to be repaid to the government to include overpayments and it specifically included the “retention of an overpayment” as a possible basis for claims brought under the FCA. The ACA was passed the following year. In addition to fundamentally changing the way people are insured and making coverage accessible to previously uninsured people and containing a large number of fraud enforcement provisions, the Affordable Care Act contained a provision that required health care providers to identify any overpayments they receive and to report and repay them within 60 days of identification.

The most recent link in this chain was added by the Centers for Medicare & Medicaid Services (CMS) which issued its Final Rule in the Federal Register explaining and implementing this 60-day requirement.[9] The rule explains the agency’s view on the efforts providers must make in the identification, report and repayment process and it requires providers to provide a written explanation as to the reason for the overpayment. Any provider who fails to return an overpayment within the allotted time may be liable under the False Claims Act and thereby subject to treble damages plus penalties.

Robert Liles represents health care providers in False Claims Act CasesRobert 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 and suppliers around the country in connection with a wide variety of civil False Claims Act matters and case. Should you have any questions, please call us for a free consultation. Robert can be reached at: 1 (800) 475-1906.

[1] Criminal False Claims may be pursued under 18 U.S.C. § 287.

[2] DOJ Press Release dated February 1, 2022.  A copy of the Press Release can be found at the following link:

https://www.justice.gov/opa/pr/justice-department-s-false-claims-act-settlements-and-judgments-exceed-56-billion-fiscal-year

[3] Id.

[4] The OIG also has a self-disclosure protocol which allows for providers who become aware of conduct that allows providers to “voluntarily disclose irregularities” and make repayments of if necessary. Self-disclosures under this program do not foreclose the possibility of a qui tam being filed or pursued, but if done in good faith, they may significantly limit potential damages and, thereby, diminish prosecutorial interest in pursuing a False Claims Act investigation.

[5] Relators can receive between 15% and 25% of any recovery in a qui tam action where the government has intervened in the case. In a non-intervened case, a relator may recover up to 30%. Consequently, there is a tremendous financial incentive to file and pursue these types of actions.

[6] The relator must also serve a “disclosure statement” on DOJ (normally, it is provided to the U.S. Attorney’s Office) which sets out the evidence that the relator has in support of the allegations set out in his/her Complaint. This statement is not filed with the Complaint and is not given to the defendant.

[7] This rule is known as the “public disclosure bar.” The Affordable Care Act (ACA) modifies this rule in several respects. First, a qui tam action will not be dismissed under the public disclosure rule if the government opposes dismissal. Second, fraud disclosed in private legal actions will not activate the public disclosure bar; the government must have been a party to the action in order for the public disclosure rule to apply. Third, information obtained from state proceedings or hearings likewise will not qualify under the public disclosure bar. Finally, the public disclosure bar will not operate where the relator was the “original source” (e.g., has independent knowledge) of the fraud or false claim allegation.

[8]  63 Fed. Reg. 70138 (Dec. 18, 1998).

[9] Medicare Program; Reporting and Returning of Overpayments, 81 Fed. Reg. 7654 (Feb. 12, 2016) (to be codified as 42 C.F.R. §§ 401 and 405).

 

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