• Supreme Court's False Claims Decision: A Temporary Win for Health Care Providers?
  • November 19, 2008 | Author: Katherine M. Keefe
  • Law Firms: Marshall, Dennehey, Warner, Coleman & Goggin - King Of Prussia Office; Marshall, Dennehey, Warner, Coleman & Goggin - Philadelphia Office
  • With significant potential impact for the health care industry, a U.S. Supreme Court decision issued on June 9, 2008 rejected the federal government's broad reading of the federal False Claims Act (FCA). In Allison Engine Co. Inc., et al. v. United States ex rel Sanders, the Supreme Court increased the proof required of government and whistle-blower plaintiffs alleging FCA violations. Although seemingly a win for government subcontractors, including health care providers who serve federal health care program beneficiaries, the likely result of this case may be renewed efforts in Congress to push through legislation which would significantly expand the reach of the FCA.

    The Allison Engine case addressed the issue of whether and to what extent a government subcontractor who submits a claim for payment to a government contractor may be liable under the FCA. In Allison Engine, the Navy contracted with a shipyard that in turn subcontracted with Allison Engine. A whistle-blower alleged that Allison Engine and other subcontractors falsely certified that work complied with Navy requirements in submitting invoices to the shipyard for payment. The government joined the case and argued that it was not necessary to provide evidence that a claim had been submitted to the Navy because it was shown that government funds were used to pay the invoices that were presented to the shipyards.

    The Supreme Court unanimously rejected the government's arguments and said that it is not enough to simply show that government funds were used to pay a false claim. The high court held that a plaintiff alleging a violation of the FCA must prove that a defendant intended a false record or statement be material to the government's decision to pay or approve the false claim. The case clarifies a prior split between federal circuits by finding that FCA liability can attach only if the alleged false claim is presented to the government for payment, and not where the claim is submitted to a government contractor. However, the Supreme Court noted that FCA liability can attach if a false claim is submitted to a government contractor intentionally to get the government to pay the false claim.

    In reaching its decision, the Supreme Court carefully scrutinized the wording of the relevant FCA provisions. The government argued that the FCA requirement that the claim be "paid by the Government" should not be taken literally, and gave the example of a college student who, in saying that his expenses are "paid by" his parents, does not typically mean that his parents send checks directly to his creditors; rather, the student means that his parents are the ultimate source of the funds he uses to pay those expenses. The high court rebuked the government for its colloquial use of the phrase "paid by," and chided that such informal interpretations have no place "in statutory drafting where precision is both important and expected."

    In the health care arena, where the federal Medicare program utilizes private contractors and health plans to pay provider claims, the Allison Engine case should make it harder to maintain FCA cases against health care providers, as there is usually a third party interposed between health care providers who submit claims for payment and the Medicare program.

    However, this victory may be short-lived if the Allison Engine case reignites, as it is likely to do, efforts in Congress to expand the FCA. Bi-partisan sponsored S. 2041, "The False Claims Corrections Act of 2008," is designed to widen the reach of the FCA. While S. 2041 may undergo further revisions in the Senate or beyond, its key current features include clarifying the language of the FCA to apply to subcontractors who ultimately receive federal funds, increasing the time a whistle-blower or the government could bring a FCA suit and further protecting whistle-blowers from intimidation and other job-related retaliation.

    Whether the FCA is expanded or not, as financial pressure on government health care programs continues to increase, health care providers should anticipate increased legislative, regulatory, and enforcement activity.