F.E.R.A. Amendments to False Claims Act Likely to Generate More Cases Against Healthcare Providers

Posted by Jason Greis on October 18, 2009 under Articles | Be the First to Comment |  Print

Recent substantive and procedural amendments to the Federal False Claims Act (“FCA”) enacted under the Fraud Enforcement and Recovery Act of 2009 (“FERA”) are expected to fuel growth in the number of whistleblower-generated cases brought against healthcare providers—including LTACHs.  The FERA amendments closed a loophole in the FCA that previously prevented overpayment cases from being brought against providers.  The FCA now allows whistleblowers to bring false claims actions against providers who knowingly and improperly keep government funds paid to them in error.  FERA was signed into law May 20, 2009.

 Retention of Overpayments

FERA expands the “reverse false claim” provision of the FCA, which now makes even the retention of funds that were paid in error a violation.  In the past, the government rarely pursued an entity that obtained or received funds in error.  FERA now explicitly states that concealing or avoiding the “obligation” to return funds is a violation of the FCA.  FERA broadly defines an “obligation” as an “established duty, whether or not fixed,” that can arise from a variety of contractual relationships.  Additionally, the provision makes it a violation to conspire to violate the reverse claim section of the statute.

This amendment resolves past confusion about whether repayment is in fact mandatory.  However, the length of time required for retention of an overpayment to become a liability remains unclear, as well as what constitutes a reasonable repayment period.   Government prosecutors and investigators, however, have recently  indicated that healthcare providers may continue to retain excess payments for a reasonable period of time pending audits or payment reconciliations.  Further, FERA appears vague as to whether the new provision applies to overpayments made prior to passage of the legislation.

Reversal of Allison Engine

FERA also legislatively reverses the Supreme Court’s 2008 Allison Engine Co. v. U.S. decision.  In Allison Engine, relators filed a qui tam suit against subcontractors for allegedly violating the FCA.  Allison Engine held that subcontractors on a Navy project were not liable under the FCA because they submitted false compliance certifications to the primary contractor and not directly to the government.  The Court further held that because the primary contractor, not the government, paid the falsified bill, the suit failed to prove that the subcontractor “intended that the false record or statement be material to the government’s decision to pay or approve the false claim.”

FERA reverses Allison Engine by expanding the chain of liability to include entities that directly or indirectly make claims for government funds.  This means that a false record or statement need only be “material to a false or fraudulent claim.”  FERA amends the FCA by broadly defining “materiality” as a record or statement “having a natural tendency to influence, or being capable of influencing, the payment of receipt of money or property.” “Claim” is now defined as a request for money, regardless of “whether or not the United States has title to the money or property.”  This means that intent to submit a false claim is now irrelevant.  Liability attaches even if a subcontractor is unaware that Federal funds are implicated.  The legislative reversal of Allison Engine applies retroactively to cases pending in Federal courts as of June 7, 2008—two days prior to the Allison Engine decision.

FERA further expands the types of relationships that give rise to FCA liability by removing the “presentment” requirement.  Presentment previously required that a claim actually be “presented” to a government officer or employee.  This revision eliminates the requirement that the claim be submitted to the government.  This presentment requirement also applies to state Medicaid programs.

Expanding Whistleblower Protections and Right to Information

FERA expands qui tam relator “whistleblower” to contractors or agents that may report fraud.  Some of these individuals may now fall outside the scope of employee relationships.  In the past, employee whistleblowers only received protection if they took actions in furtherance of an FCA action.  FERA extends the scope of protection to individuals that make an effort to stop a violation, whether or not that effort was made in furtherance of a qui tam suit.  Therefore, the revised statute seeks to provide protection for an employee, contractor or agent who reports misconduct to their employer or company before a suit is filed.

Furthermore, procedural changes made to the FCA will impact the way the government investigates and litigates FCA claims.  FERA expands the amount of information available to relators by allowing them to access information gained through government subpoenas.  FERA increases utilization and sharing of Civil Investigative Demand information with relators, consultants and counsel. Additionally, FERA allows the government to share information gathered by relators with state and local law enforcement.  These changes not only increase a relator’s access to information but also expand an entity’s potential liability at the state and local level.

Expansion of the Statute of Limitations

FERA allows a government complaint to relate back to an original relator’s complaint.  This change allows for a delayed intervention by the government and inhibits a defendant’s ability to build a defense.  Additionally, since complaints are often filed under seal, this eliminates the defendant’s benefit of notice.  Years may pass before a defendant is notified of a qui tam action.

Recommendations

Both Federal investigators and the OIG in its 2010 Work Plan have reaffirmed that heightened FCA enforcement, particularly within the healthcare industry, is a priority.  Healthcare providers therefore should take steps to minimize exposure to severe financial penalties by:

• Updating outdated or incomplete compliance programs and record retention policies;
• Updating current billing procedures to screen funds received and identify overpayments;
• Ensuring that voluntary disclosure programs are in place to root out potential fraud; and
• Scrutinizing contracts that may involve government funding.

Please contact me if you have any questions about the scope of recent amendments to the FCA under FERA.

Jason S. Greis, Esq.
McGuireWoods LLP
312.849.8217