• Congress Substantially Broadens Scope of False Claims Act
  • June 11, 2009 | Authors: Dennis S. Diaz; Adam D. Romney
  • Law Firms: Davis Wright Tremaine LLP - Los Angeles Office ; Davis Wright Tremaine LLP - Seattle Office ; Davis Wright Tremaine LLP - Los Angeles Office
  • Recent changes to the federal False Claims Act (FCA) have substantially increased legal risk to health care providers furnishing Medicare or Medicaid services.

    First, the knowing retention of any government overpayment, including routine Medicare overpayments, can now be pursued by the government even though the initial receipt of the overpayment, or the submissions that caused the overpayment, may not have been, at the time, knowingly false. This, despite the fact that Medicare and Medicaid overpayments can arise in many contexts, including through innocent mistakes in an exceedingly complex regulatory environment.

    Second, a false claim now includes claims submitted to agents of the federal government. Thus, health care providers who submit claims for Medicare or Medicaid reimbursement to agents such as Medicare or Medicaid managed care plans now fall within the expanded scope of the FCA.

    Providers should exercise a great deal more care in assessing and implementing corrective measures, and in making repayments, following discovery of an overpayment. These are difficult issues that require a careful weighing of obligations and risks.

    Background to changes

    The FCA changes, contained in the Fraud Enforcement and Recovery Act of 2009 (FERA), were designed to improve the government’s ability to investigate and prosecute financial frauds such as mortgage, securities and financial institution fraud, and other frauds related to federal assistance and relief programs (such as the Troubled Assets Relief Program, or TARP). However, the spill-over effect of FERA’s broad language may reach many health care providers that participate in the Medicare and Medicaid programs.

    Knowing retention of overpayments

    A provider now violates the FCA if it conceals, improperly avoids or decreases an obligation to pay money to the government. False claim liability will now attach regardless of whether the provider ever submitted a false claim to get government money or used a false statement to hide it.
    FERA makes this change by defining an “obligation” in the FCA to include the “knowing” “retention of an overpayment.” The FCA defines “knowing” to mean that a person: “(1) has actual knowledge of the information; (2) acts in deliberated ignorance of the truth or falsity of the information; or (3) acts in reckless disregard of the truth or falsity of the information.” Accordingly, any knowing retention of a government overpayment will now pose risk under the FCA, regardless of the innocence of the acts that caused the overpayment in the first place.

    Several courts have held that a false claim can be predicated on the violation of other laws (e.g., violation of the Stark law or anti-kickback statute). By expanding the definition of “obligation” to include the retention of an overpayment, false claim liability now extends to the knowing and improper retention of a Medicare or Medicaid overpayment. Overpayments arise in many contexts:

    • Innocent billing or coding mistakes by provider staff;
    • Improper or insufficient documentation of services by providers;
    • Patient ineligibility for Medicare or Medicaid at the time the services were provided;
    • Erroneous Medicare or Medicaid payment where there was another responsible payor;
    • Billing of services subsequently discovered not to be covered by federal programs;
    • Innocent billing of services typically covered but later determined not to be “reasonable and necessary”; or
    • Payor error with respect to medically necessary covered services.

    Many types of innocuous overpayments could now potentially lead to false claim liability. If a provider discovers or “knows” of an overpayment and either retains the funds, avoids repayment or does not make a full refund to the government, the entity is vulnerable to enforcement and penalties under the FCA.

    Congress removes "presentment clause" and amends intent element in the FCA

    Section 4 of FERA also extends potential false claim liability to claims previously beyond the scope of the FCA. The Section 4 amendments were made in response to two recent federal cases.

    In the case of Allison Engine Co. v. United States ex rel. Sanders, the U.S. Supreme Court decided that the FCA requires the federal government to prove that a defendant “intended” the government to pay a claim. There was no liability under the FCA unless a recipient of federal funds intended to defraud the government itself.

    In another case, United States ex rel. Totten v. Bombardier Corp., the D.C. Circuit Court decided the FCA’s presentment clause limits false claim liability only to entities that directly “presented” a claim to the federal government for payment. Thus, a provider that presented a claim for payment to an agent of the government, instead of directly to the federal government, did not present a false claim within the meaning of the FCA, even if that claim was ultimately paid with federal funds.
    Now, there is liability whether or not the recipient intends to defraud the government or the recipient presents a claim directly to the government for payment. To address the issue of intent presented in the Allison Engine decision, FERA removed the language requiring a person using a false statement “to get [a false claim] paid or approved by the government” and replaced it with a requirement that the false statement be “material to” a false claim. To address the “presentment clause” issue presented by the Totten decision, FERA simply deleted the presentment language from the FCA that required direct presentation of a claim to the government in order for liability to attach.

    This means that Medicare or Medicaid dollars dispensed through any agent could lead to false claims liability. Agents of the Medicare and Medicaid programs include Medicare Administrative Contractors, Medicare and Medicaid Advantage Organizations, Medicaid HMOs, and other types of Medicare or Medicaid managed care plans. Submitting a false claim to any of these entities, or the knowing retention of an overpayment from any of these payors, could be grounds for liability under the FCA.

    These Section 4 amendments take effect retroactively as if enacted on June 7, 2008, and apply “to all claims under the [FCA] that are pending on or after that date.”
    Investigative authority

    FERA also expands the authority of the attorney general to investigate false claims. FERA increases the attorney general’s ability to issue Civil Investigative Demands pursuant to the FCA and allows designees of the attorney general to issue them. FERA further amends the FCA to allow greater sharing of information retrieved in FCA investigations with qui tam relators and others.


    These changes to the FCA became effective May 20, 2009; however certain amendments, as discussed, are retroactive. The new law creates substantially more risk for providers, and enables the government and whistleblowers to pursue enforcement in situations that historically would not have been the subject of the FCA’s draconian remedies.