Congress Quickly Passes Significant FCA Amendments as Part of a Bill Funding Federal Law Enforcement

21 May 2009 Publication
Author(s): Thomas F. Carlucci Pamela L. Johnston Lawrence M. Kraus Michael P. Matthews David W. Simon Michael J. Tuteur

Legal News Alert: White Collar Defense

Significant new amendments to the federal False Claims Act (FCA) were signed into law on May 20, 2009 as part of the Fraud Enforcement and Recovery Act of 2009 (FERA). FERA expands the scope of the FCA to permit the government, and whistleblowers acting on behalf of the government in qui tam actions, to more easily recover monies from subcontractors who work on contracts, grants, or projects funded by the federal government. Of particular interest to health care providers is the government's expanded ability to treat the retention by a health care provider of any overpayment of Medicare monies as a false claim actionable under the FCA if done knowingly and otherwise in violation of the FCA.

FERA is part of a larger piece of mortgage fraud legislation that expands the reach of the criminal mortgage fraud and money-laundering statutes and provides for up to $165 million in new funding for federal law enforcement, the U.S. Securities and Exchange Commission (SEC), and the U.S. Department of Justice to assist in the investigation and prosecution of cases involving financial institutions, mortgage fraud, and federal assistance programs. Tying together this new funding for law enforcement and the expansion of the FCA suggests that Congress intended to pay for the new law enforcement resources by increased collections from more vigorous enforcement of the FCA. FERA passed quickly through both houses of Congress (S. 386 was first introduced in the Senate on February 5, 2009), and with only minimal changes to the legislation along the way. This bipartisan measure was approved by the House on May 18, 2009 by a vote of 338-52 after first passing the Senate by a significant 92-4 affirmative vote on April 28, after which the president signed the bill on May 20, 2009. When signing the bill, President Barack H. Obama stated:

This bill nearly doubles the FBI's mortgage and financial fraud program, allowing it to better target fraud in hard-hit areas. That's why it provides the resources necessary for other law enforcement and federal agencies, from the Department of Justice to the SEC to the Secret Service, to pursue these criminals, bring them to justice, and protect hardworking Americans affected most by these crimes.

The speed and ease by which the law passed not only may signal an increased focus on white-collar enforcement on Capitol Hill and within the Obama administration, but is a telling indicator of what to expect in terms of the funding of fraud enforcement efforts over the next few years.

Changes to the FCA
Notably, Section 4 of FERA amends the False Claims Act, 31 U.S.C. § 3729 et seq., in response to several court decisions that scaled back the reach of the FCA over the past several years, including Allison Engine Co. v. U.S. ex rel Sanders, 128 S. Ct. 2123 (2008) and U.S. ex rel Totten v. Bombardier Corp., 380 F.3d 488 (D.C. Cir. 2004). S. Rep. No. 110-10 at 4 (2009).

The new amendments expand the reach of the FCA with regard to false statements that are not made directly to the government. See 31 U.S.C. § 3729(a)(1)(B) (as amended May 20, 2009). The government no longer need prove that a contractor created a false record “to get” a false claim paid or approved by the government.1 A subcontractor now need only knowingly make a false record material to a false or fraudulent claim, as long as (a) the subcontractor made a request or demand for money or property “whether or not the United States has title to the money or property [if that request is] made to a contractor, grantee, or other recipient [and] if the money or property is to be spent or used on the Government’s behalf or to advance a Government program or interest,” and (b) the government provided a portion of the money requested or reimbursed. As a result, the importance of an actual presentment of a claim to the government is diminished. This reduces health a care provider’s ability to argue in a credible manner that false claims submitted to Medicare contractors (formerly called fiscal intermediaries and carriers) are not actionable false claims. Congress indicated that one portion of the amendments that creates this change should be applied retroactively, but another portion of the amendments that creates this change is expressly to be applied only prospectively. The courts will need to address how to harmonize these conflicting provisions and whether the retroactive portions are constitutional.

New subsection (a)(1)(B) modifies three established aspects of FCA law. The first is the removal of the phrase “to get.” Courts will likely interpret this amendment as narrowing or entirely overruling the holding of Allison Engine, which held that the phrase “to get” denotes an additional intent to make a statement specifically to get something paid under former subsection (a)(2). The second is the express inclusion of the materiality requirement in the statute, thereby appearing to resolve a split in the circuits on the inclusion or wording of the materiality standard for false claims (i.e., “material” is now defined to mean having a natural tendency to influence, or be capable of influencing, the payment of monies); however, the new amendments only expressly insert the “materiality” standard into the portion of the statute aimed at subcontractors. 31 U.S.C. § 3729 (a)(1)(B) (as amended May 20, 2009). For the circuits where case law required the government to establish materiality for all false claims, this legislative change throws into doubt the issue of when a false claim that is directly presented to the government must be material to be an actionable false claim. The courts in those circuits will need to resolve this conflict. The third, as discussed above, is the removal of the phrase “paid or approved by the government” in favor of a broader definition of the word “claim,” including a claim made 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.”

Another aspect that applies prospectively broadens the definition of a false claim to include the situation where a person “knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the government,” which is sometimes called a “reverse” false claims case. The amendments now define the term “obligation,” and that definition includes the retention of any overpayment, which has significance for health care providers when they identify overpayments from Medicare.

1 Former section 3729(a)(2) provided liability for one who: “(1) 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.”

Legal News Alert is part of our ongoing commitment to providing up-to-the-minute information about pressing concerns or industry issues affecting our clients and our colleagues. This Legal News Alert is a joint effort between Foley’s Health Care Practice and its White Collar Defense Practice. If you have questions about this discussion, please contact any of the attorneys listed below.

Health Care

Maria Gonzalez Knavel
Milwaukee, Wisconsin

Richard K. Rifenbark
Los Angeles, California

Heidi A. Sorensen
Washington, D.C.

Cheryl L. Wagonhurst
Los Angeles, California

Judith A. Waltz
San Francisco, California

False Claims Litigation

Thomas F. Carlucci
San Francisco, California

Pamela L. Johnston
Los Angeles, California

Lawrence M. Kraus
Boston, Massachusetts

Michael P. Matthews
Tampa, Florida

David W. Simon
Milwaukee, Wisconsin

Michael J. Tuteur
Boston, Massachusetts