This article provides an overview of the False Claims Act (FCA), 31 U.S.C. §3729 et seq. Generally, the FCA imposes civil liability on entities or persons who make (or cause to be made) false claims or statements to the federal government for payment. FCA cases are most commonly brought against those in the health care industry as well as against government contractors, as these types of entities are the greatest private recipients of government dollars. Many states and even some cities have local corollaries of the FCA for state and local funds.
Specifically, the FCA imposes civil liability on any entity or person who knowingly presents, or causes to be presented, a false or fraudulent claim for payment by the federal government; makes a false statement material to a fraudulent claim; makes a false statement material to money owed to the government or knowingly conceals or decreases an obligation to pay the government (known as a reverse false claim); or conspires to do any of the above. 31 U.S.C. § 3729(a)(1). To meet the FCA’s “knowingly” standard, the defendant must have acted with knowledge, deliberate ignorance, or reckless disregard as to the falsity of the claim or statement. 31 U.S.C. § 3729(b)(1). Moreover, for liability to attach, the false claim or statement must have been material to the government’s payment decision (i.e., the government would not have paid the claim had it known of the falsity).
Types of FCA Cases in Health Care
A variety of circumstances may implicate the FCA in the health care context. For instance, many health care entities have potential FCA exposure as to their arrangements with other entities and with physicians. FCA exposure that arises in this context frequently relates to the Anti-Kickback Statute (AKS) or the Stark Law. When a provider submits a claim to the government that may have been “tainted” by an AKS or Stark Law violation, the claim (or the provider’s representations to the government about the claim) could be considered false within the meaning of the FCA.
The AKS prohibits paying or offering to pay, or receiving or soliciting, remuneration (money or other things of value) in whole or in part, overtly or covertly, in exchange for business or referrals to be paid in whole or in part by a federal health care program. 42 U.S.C. § 1320a-7b(b). For example, under the AKS, a laboratory cannot pay physicians to refer patients to the laboratory for services, and a DME manufacturer cannot pay hospitals to choose its products. AKS analyses get complicated because the government will look “behind” the stated purpose of an arrangement to look for a hidden intent to induce referrals. Moreover, there are statutory and regulatory safe harbors, advisory opinions, and government bulletins that contour what may or may not be considered an AKS violation.
The Stark Law prohibits (1) physicians from referring Medicare beneficiaries for certain services (“designated health services,” or “DHS”) to an entity with which the physician has a financial relationship and (2) the entity from presenting a claim to Medicare or billing any individual, third party payor or other entity for DHS furnished pursuant to a prohibited referral. 42 U.S.C. § 1395(nn). Under the Stark Law, a physician cannot refer DHS to an entity with which s/he has a financial relationship unless one of several multi-factor Stark Law exceptions is met.
Other circumstances that may give rise to FCA exposure include billing the government for medically unnecessary goods or services, defective goods or services, or goods and services not actually furnished to patients. Moreover, failure to follow proper coding, billing, or documentation procedures may create FCA exposure. In addition, failure to properly use federal grant money for health care research within the parameters of the grant can create exposure. However, each of these circumstances is not necessarily a violation of the FCA. To be a violation of the FCA, the conduct must have been knowing (as defined in the above section) and must have resulted in a false statement or claim submitted to the government that was material to the government’s payment decision. To be sure, failure to follow non-binding agency guidance cannot form the basis for an FCA action. See U.S. Department of Justice’s 2018 Brand Memo.
The Reverse False Claims Provision
As noted above, there is a reverse false claim provision of the FCA that imposes liability on one who “knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government.” 31 U.S.C. § 3729(a)(1)(G). Because a defendant cannot conceal or avoid an obligation to pay the government before any such obligation existed, the “obligation to pay” the government must have been a present, existing obligation at the time of the alleged false statement, concealment, or improper avoidance. It is important to note that, under the Affordable Care Act’s “60-day Rule,” an overpayment retained after the deadline for reporting and returning overpayments is considered an obligation for the purposes of the reverse false claim provision. See 42 C.F.R. § 401.305(e).
Damages and Penalties under the FCA
Violators of the FCA are subject to substantial damages and penalties. Entities found to have violated the FCA must pay treble damages, plus penalties as high as about $23,000 per false claim (based on current adjustments for inflation). 31 U.S.C. §3729(a)(1)(G). However, self-disclosure to the government, as well as cooperation with the government during any FCA investigation, can be significant in reducing damages and penalties.
Violators also risk exclusion from federal programs, including from participation in the Medicare program. Because many states have corollary FCA statutes that relate to local funds, separate state causes of action may further increase exposure and liability.
Qui Tam Provisions
While the United States government (through the Department of Justice) can bring its own lawsuit under the FCA, the FCA permits private parties to bring FCA actions in the name of the government. 31 U.S.C. § 3730(b). Under the FCA, a private party who brings an FCA action is referred to as a “relator” and the private party’s lawsuit is called a “qui tam.” Qui tam is short for the Latin phrase that translates to “[he] who sues in this matter for the king as well as for himself.”
Perhaps most frequently, FCA actions are filed by disgruntled former employees, but relators also may be current employees, competitors, or anyone else who believe he or she has knowledge of a potential violation. A relator’s financial incentive is considerable, as relators can recover a bounty of up to 30% of any government recovery. Additionally, the FCA contains a provision protecting employees from retaliatory employment action taken against them for their efforts to stop a violation of the FCA or for their actions in connection with bringing an FCA suit. 31 U.S.C. § 3730(h). Relief for retaliatory action includes reinstatement, double back pay with interest, and attorneys’ fees, and extends not only to traditional employees, but also to contractors and agents.
When a relator files an FCA case, the case is filed under court seal. That means the case is not publicly accessible, nor are the defendants notified of the lawsuit at the time of filing. The government then has time to investigate the relator’s case while the case is under seal. By statute, the government has sixty days to investigate the relator’s case, but courts typically extend the investigation period to one or two years.
When a relator brings an action, the government, after investigation, must choose whether to intervene in the suit. 31 U.S.C. § 3730(b)(4). If the government elects to intervene, the government controls the litigation and will file its own, operative complaint-in-intervention in the case (which supersedes the relator’s complaint to the extent intervened). If the government declines to intervene, the relator may proceed with the action on behalf of the government. DOJ continues to monitor cases it declines. In addition, DOJ has the authority to move for dismissal of the relator’s case, such as when the case is facially lacking in merit or in order to preserve government resources. The Director of the DOJ Section that is responsible for enforcing the FCA issued a Memorandum (the “Granston Memo”) in 2018 listing factors for DOJ to consider in evaluating whether to move to dismiss a relator’s qui tam case.
Government Investigation
A case under the FCA begins either through government initiation or through a relator filing a qui tam action. The government’s investigation (which occurs while any qui tam action is still sealed) typically involves DOJ issuing Civil Investigative Demands (CIDs are specifically authorized by the FCA and are subpoena-like requests for documents, interrogatory responses, or testimony) or another government agency issuing subpoenas. Frequently, the receipt of a government CID or subpoena is the first indication to a company that it may be under investigation.
In addition to the government seeking information from persons and entities under investigation, the government also typically seeks information from witnesses, frequently third party entities and former employees. It is not uncommon for an entity to first learn of the possible existence of a government investigation by learning a government agent contacted a third party or former employee for interview.
An FCA investigation, once revealed to the company, is ideally a collaborative, cooperative process between the government and defense counsel. Collaboration and cooperation can help reduce company expenditures on the investigation and can help earn the company cooperation credit and credibility with the government, both of which can reduce ultimate damages in case resolution. Typically near the end of the government’s investigation (which usually draws to a close either because the government has finished investigating to its satisfaction or because the court-ordered intervention deadline is approaching), the government or defense counsel may exchange presentations, letters, or white papers assessing the case. If the government believes there was a violation of the FCA, the parties may engage in settlement discussions before any litigation occurs. Given the threat of treble damages, penalties, and the risk of suspension or expulsion from government programs, many FCA cases are resolved before litigation, and the vast majority are resolved before trial.
Cooperation
The government greatly values the cooperation of entities under investigation. DOJ’s official policy is that a company that cooperates qualifies for reduced penalties or damage multiples in an FCA resolution. The general categories of cooperation are self-disclosures, cooperation with the government’s investigation, and remedial measures. According to DOJ, companies seeking “maximum” cooperation credit (which is not a defined term) should (1) undertake a timely self-disclosure that includes identifying all individuals substantially involved in or responsible for the misconduct, (2) provide full cooperation with the government’s investigation, and (3) take remedial steps designed to prevent and detect similar wrongdoing in the future. See DOJ’s press release regarding cooperation credit and its corresponding manual provisions. DOJ also had issued memos describing what it means to cooperate, including the 2008 Filip Memo and the 2015 Yates Memo.
Importantly, DOJ’s position is that merely responding to a compulsory process for information (like a CID or subpoena) does not in itself warrant cooperation credit. In addition, no matter what other cooperation is present, DOJ’s policy is that it will not award any cooperation credit to a defendant that conceals involvement in the misconduct by senior personnel or that otherwise acts in bad faith. Note that cooperation does not require a waiver of attorney-client privilege or work product protection, and rightfully so.
結論
Although avoiding FCA violations by not submitting fraudulent claims may seem straightforward, hidden FCA exposure can be lurking in unlawful compensation arrangements that were not sufficiently vetted or in a material failure to implement appropriate oversight and training processes that resulted in the submission of false claims. The qui tam provisions of the FCA make potential lawsuits more likely. Because of the significant damages and penalties associated with the FCA and the possibility of suspension or expulsion from federal programs, cooperation with any government investigation is frequently appropriate. However, before any FCA allegation arises, companies should take a prophylactic approach, such as by ensuring appropriate training and audit/oversight processes are in place and by vetting financial arrangements.
Foley & Lardner LLP summer associate Matt Turk contributed to this article.
This article was originally published by the Association of Corporate Counsel at acc.com.
