• Health Care Organizations Targeted with the Fraud Enforcement Recovery Act
  • August 6, 2009 | Author: Michael A. Dowell
  • Law Firm: Theodora Oringher Miller & Richman PC - Los Angeles Office
  • President Obama recently signed the Fraud Enforcement and Recovery Act of 2009 (FERA). Although it was primarily directed toward mortgage fraud, the FERA also amends the civil False Claims Act to significantly expand the potential for False Claims Act liability and gives the government enhanced investigative powers. FERA's amendments to the False Claims Act expands liability for knowingly retaining Medicaid or Medicare overpayments and for presenting false or fraudulent claims for payment or approval. These significant changes have the potential to adversely affect every health care organization that directly or indirectly receives federal funds.

    Background on the False Claims Act

    The False Claims Act is the primary civil enforcement tool used by the federal government to combat health care fraud. The False Claims Act imposes liability on any person who submits a claim to the federal government that he or she knows (or should know) is false. In addition, the False Claims Act imposes liability on an individual who knowingly submits a false record in order to obtain payment from the government. The False Claims Act also permits private parties (known as "qui tam relators" to bring an action on behalf of the United States, and share in a percentage of the proceeds from a False Claims Act judgment or settlement. Offenders may be liable for penalties ranging between $5,000 and $10,000 for each false claim filed plus three times the amount of damages the government sustains because of the act. Another serious consequence for health care organizations found guilty of violating the False Claims Act is the possibility of mandatory exclusion from the Medicare and Medicaid programs.

    Federal Enforcement and Recovery Act

    FERA applies the False Claims Act to a broader array of transactions, reduces the intent standard, expands the definition of "reverse false claims," expands conspiracy liability, expands protection of whistleblowers, and allocates substantial funding to antifraud enforcement agencies. Significant changes to the False Claims Act effectuated through FERA are discussed below.

    Expansion of the Definition of Claim. FERA expands the statutory definition of "claim" to include any payment requests for projects "on the Government's behalf or to advance a Government program or interest," whether or not the United States has title to the money or property. This revision substantially broadens the types of payments that fall within the scope of the False Claims Act, and may include state and local governmental programs that receive indirect funding from the federal government.

    Expanded Liability for Improperly Withholding Government Overpayments. As amended, a health care organization violates the False Claims Act if the provider "knowingly conceals, or knowingly and improperly avoids or decreases and obligation to pay or transmit money or property to the government." The definition of "obligation" expressly includes the definition of overpayment. The definition of "improper" is not set forth in the revised law, thus health care providers should implement a process to repay amounts suspected as "overpayments," retain those payments where there is an ongoing audit or investigation into a potential overpayment, and seek competent health care law legal counsel in situations that potentially involve overpayments.

    Extension of Liability for Reverse False Claims. FERA also expands the False Claims Act's reverse false claim by adding a new definition of the term "obligation" (a term previously interpreted by the courts) that provides that the knowing retention of an overpayment is a violation of the False Claims Act. The "reverse" False Claims Act provision in 31 U.S.C. § 3729(a)(7) makes it illegal for a defendant to misrepresent the facts to avoid paying an "obligation" owed the government.

    Elimination of the Presentment Requirement. The False Claims Act also was expanded to include any false or fraudulent claim for government money or property regardless of whether the claim was submitted directly to the government. False Claims Act liability will therefore attach to government funds received through one or several intermediaries if the funds are spent on the government's behalf or to advance a government program or interest. Health care organizations should anticipate greater scrutiny of their vendor relationships — whether as the provider or recipient of services — under this FERA provision.

    Expansion of Anti-Retaliation Protections for Contractors. FERA eliminates the requirement that any prohibited retaliatory action be taken by an employer, and expands the grounds for retaliation claims under the False Claims Act by broadening the category of individuals entitled to whistle-blower protection from "any employee" to "any employee, contractor, or agent," and provides that protected acts include those taken by the employee, contractor, or agent on behalf of the employee, contractor, agent, or "associated others" in furtherance of "efforts to stop one or more False Claims Act violations."

    Establishment of a "Materiality" Requirement. FERA establishes a materiality requirement, which pertains when one "knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim." "Material" is defined as "having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property."

    Expanded Use and Sharing of Civil Investigative Demands. The FERA also expands the U.S. Attorney General's authority to issue civil investigative demands and broadens the government's authority to share documents obtained through subpoena with qui tam relators and others.

    Implications for Health Care Providers, Managed Care Plans and Medicare and/or Medicaid Providers

    FERA allocates over $500 million to numerous federal agencies to fund additional investigations and prosecutions of fraudulent claims. Parties receiving federal funds (such as health care providers) are generally held to a high ethical standard and violations of statutory or regulatory provisions can carry significant penalties. Given a health care organizations' daily exposure to False Claims Act risk, the recent changes are expected to have a dramatic impact on health care providers and managed care plans, including Medicare and Medicaid providers. Significant implications of the changes and expansions of the False Claims Act for health care organizations include the following:

    • Increased Risk of Investigation and Liability. FERA increases the overall scope of liability under the False Claims Act and removes several defenses that were previously available to certain defendants. For example, false claims or inaccurate encounter data, quality of care information or other reports submitted to a Medicare Advantage Plan, Medicaid Managed Care Plan, or Medicare Part D Plan are now within the scope of the False Claims Act.
    • Increased Cost in Defending a False Claims Act Matter. The cost of defending and potentially settling a False Claims Act matter has been increased because defendants are now obligated to pay the government's costs in most instances.
    • Expansion of Persons Liable Under the False Claims Act. Persons liable under the False Claims Act will now include those who make or cause a false statement or record to be made that is "material" to a false claim. FERA redefines "claim" to include claims submitted "to a contractor, grantee, or other recipient, if the money or property is to be spent or used on the Government's behalf, or to advance a Government program or interest." This language makes explicit the ability of Government and whistleblowers to pursue subcontractors and contractors with grantees for the claims they submit to contractors and grantees. This has a significant effect on health care providers who contract with Medicaid or Medicare managed care plans, who will now have liability to the United States under the Act.
    • Retention of Overpayments as a Source of Liability. FERA redefines "obligation" to include "an established duty, whether or not fixed," arising from a variety of relationships, and specifically includes obligations "arising from statute or regulation, or from the retention of any overpayment." This change allows the government and whistleblowers to pursue violations of regulatory statutes with penalty provisions as False Claims Act cases and to pursue false documents which are "material to an obligation to pay or to transmit money…to the Government" regardless of whether a false claim has been submitted.
    • False Claim Submitted to an Agent of the Government May Create False Claims Act Liability. FERA defines "claim" to clearly include claims made to federal government contractors, grantees or other recipients of government funds who are further spending those funds on the government's behalf or to advance a governmental interest. For health care providers, this FERA amendment means that any federal health care dollars, regardless of which entity paid the dollars, could be the basis for False Claims Act liability.
    • Increase in Retaliation Exposure. FERA expands the anti-retaliation provisions from only employees to include "contractors and agents" who "act to stop one or more violations." This provision could protect contracted physicians in a Medicare Advantage, Medicaid Managed Care, or Medicare Part D Plan, for example, who took action to stop false reporting or illegal denial of services by the Plan.
    • Allowing the Government to add New Claims and Relate Back to the Date of the Relator's Filing. This change is a major shift in the law and means that, once a complaint has been filed and is not dismissed, the statute of limitations does not apply to the government and can adversely affect health care organization defendants because of the government's delay.

    The United States Department of Justice will actively step up health care fraud enforcement efforts in the near future, and large hospitals, medical groups, Medicare Advantage, Medicare Part D, and Medicaid Managed Care Plans are likely to be the first to receive audits and/or enforcement actions related to FERA compliance.

    Actions Recommended to Implement the FERA Requirements

    The revised law reinforces the importance of establishing and closely following a program to detect, track and return overpayments, as failure to return overpayments promptly may result in a false claim violation. The decreased level of proof, the broadening of the statute of limitations and the expanded authority given to government officials to share documents will likely cause an increase in False Claims Act enforcement actions in the near future. Health care providers and physicians should reassess billing and compliance programs and policies and should establish a mechanism to specifically track possible overpayments. It is important to consider whether any compliance policies and contracts regarding suppliers/contractors need to be revised given the new retaliation. Health care organizations should review and revise Deficit Reduction Act compliance policies, if necessary.

    For the near future, governmental contracting will be a high risk environment, and the guidance of knowledgeable legal counsel is essential in identifying the new False Claims Act risks, and crafting potential solutions related thereto.