AHLA A. False Claims Act Primer Thomas A. Corcoran Assistant US Attorney US Attorney s Office District of Maryland Baltimore, MD Carol A. Poindexter Norton Rose Fulbright Washington, DC Fraud and Compliance Forum October 6-7, 2014
FALSE CLAIMS ACT PRIMER Thomas F. Corcoran Deputy Civil Chief U.S. Attorney s Office, District of Maryland Carol A. Poindexter Norton Rose Fulbright AHLA Fraud & Compliance Forum Baltimore October 6, 2014 10/6/2014 2 The views expressed in these materials and in the seminar presentation are the personal views of the presenters and do not represent the formal position of their respective government agencies, law firms, any other individual attorneys at those firms, or any of those firms respective clients. The presenters expressly reserve the right to advocate freely other positions on behalf of clients. 1
10/6/2014 3 Agenda The Basics of the Federal False Claims Act (FCA) What is it? What conduct is prohibited? Who can bring a FCA action? Important amendments. Common types of health care FCA cases. Compliance tips. 10/6/2014 4 The False Claims Act (FCA) 31 U.S.C. 3729-3733 The federal False Claims Act Lincoln s Law -- Passed in 1863 to punish contractors who defrauded the Union Army. Has become the Government s primary enforcement vehicle for combating fraud. The U.S. Attorney General & private whistleblowers may bring a FCA case. Substantial amendments in 1943, 1986, 2009 (FERA) and 2010 (PPACA). Principal federal civil enforcement statute for fraud. 2
10/6/2014 5 FCA Damages & Penalties 31 U.S.C. 3729(a) Violations punishable by: Treble damages of the amount of harm to the government. Statutory civil penalties of $5,500 - $11,000 per false claim. Approximately $3.8 Billion recovered by the federal government in 2013 alone. In FY 2013: $2.9 Billion in FCA qui tam recoveries. With 2013 totals, the government has recovered up to $17 Billion in the last five years. 10/6/2014 6 The FCA is Violated If: See 31 U.S.C. 3729 A person: Knowingly Presents or causes to be presented A false or fraudulent Claim to the government 3
10/5/2014 7 Qui Tam Provisions Qui tam actions are brought under the FCA by private individuals, called relators (a.k.a. whistleblowers) on behalf of the Government. Procedure: The Relator must file a complaint, under seal, in a U.S. District Court that has jurisdiction over the case. The Relator must also serve written disclosures on DOJ describing substantially all material evidence and information the person possesses. Can receive 15-30 % of the amount the government collects; Whistleblower protections -- may also file retaliation claims; Attorney s fees and costs in successful cases. 10/5/2014 8 Government s Role in Qui Tam Action The DOJ has 60 days to investigate and decide whether to intervene (but extensions are generally granted). DOJ may investigate with OIG subpoenas or Civil Investigative Demands, and conduct interviews prior to intervention. After the Government fully investigates, it can: Intervene in the case, taking over responsibility for the litigation (along with most of the work & costs); Formally decline to intervene, which allows the Relator to carry on without the Government; Move to dismiss the case (even if the Relator objects); Seek to settle the case. 4
10/6/2014 9 FCA Qui Tam Actions Bars to qui tam suits include: Public disclosure (anyone could have filed this suit); First-to-file rule (someone already filed); Previous Government action (US is already involved). 10/6/2014 10 The Public Disclosure Bar 42 U.S.C. 3730(e)(4)(A) The Court shall dismiss a qui tam action if substantially the same allegations or transactions as alleged in the action were publicly disclosed in: A Federal criminal, civil, or administrative hearing in which the Government or its agent is a party, In a congressional, Government Accountability Office, or other federal report, hearing, audit or investigation, or The news media, Unless the relator is the original source of the information. 5
10/6/2014 11 Amendments to the FCA Since May, 2009, the FCA has been amended by three federal acts: Fraud Enforcement & Recovery Act of 2009 (FERA); Patient Protection & Affordable Act of 2010 (ACA); and Dodd-Frank Wall Street Reform & Consumer Protection Act of 2010 (Dodd-Frank). 10/6/2014 12 Key Changes to FCA from Amendments Weakened Public Disclosure Bar Before ACA, whistleblower could not maintain a lawsuit if the underlying facts were publically disclosed. Post ACA: Relator CAN bring an action even if the underlying facts were already public, if the Government approves. Public Disclosure means disclosure by news media or a federal source does not include disclosure by a state source. Court is not required to dismiss a whistleblower suit if the government opposes. Whistleblower no longer needs direct knowledge of the information underlying the allegations. Whistleblower need only materially add to public disclosures based on independent knowledge to be an original source. 6
10/6/2014 13 Key Changes to FCA from Amendments FERA increased Government s investigative ability to use Civil Investigative Demands (CIDs) Attorney General can delegate authority to issue CIDs; U.S. Attorneys have authority to issue CIDs. Effect? Increased use and impact of CIDs; Health care providers can be compelled to turn over requested documents, respond to interrogatories, and depositions can be taken of company personnel even before the Government intervenes; Information can be shared with whistleblowers. 10/6/2014 14 Key Changes to FCA from Amendments Reverse False Claims - Three grounds of liability relating to overpayments [31 U.S.C. 3729(a)(1)(G)] Two require affirmative false acts: Knowingly making, using (or causing) a false record or statement material to an obligation to pay or transmit money or property to the Government, or Knowingly concealing an obligation to pay or transmit money or property to the Government One does not require an affirmative false act: Knowingly and improperly avoiding or decreasing an obligation to pay or transmit money or property to the Government. 7
10/6/2014 15 Key Changes to FCA from Amendments Reverse False Claims, cont. Obligation FERA provides that an obligation is an established duty, whether or not fixed, arising... from the retention of an overpayment. 31 U.S.C. 3729(b)(3) (2011). Overpayment ACA provides that [a]n overpayment must be reported and returned... by... the date which is 60 days after the date on which the overpayment was identified. 42 U.S.C. 1320a-7k(d)(2). 10/6/2014 16 Key Changes to FCA from Amendments Reverse False Claims, cont. Keeping any overpayment past the stated deadlines (60 days after identifying the overpayment, or the due date of any corresponding cost report) will risk FCA liability & civil monetary penalties. With data-mining techniques, government agencies are now better equipped than ever to find overpayment. 8
10/6/2014 17 Key Changes to FCA from Amendments Kickback Violations Are Per Se False Claims ACA amended the Anti-Kickback Statute (AKS) 42 U.S.C. 1320-7b(g) to provide: A claim that includes items or services resulting from a violation of the AKS constitutes a false or fraudulent claim for the purposes of the FCA. In such circumstances, Plaintiffs must prove a violation of the AKS ( knowingly and willfully ). 10/6/2014 18 Key Changes to FCA from Amendments Kickback Violations Are Per Se False Claims, cont. United States ex rel. Jamison v. McKesson, 900 F. Supp. 2d 683 (N.D. Miss. 2012) This FCA matter involved two DME supply contracts between subsidiaries of McKesson and Beverly Enterprises. Government s theory: The prospect of another contract or other business with Beverly was successfully dangled in front of the McKesson sub in order to induce below FMV, below cost, or discounted bids from the McKesson Defendants. After 14 day bench trial, Court rendered a verdict for the defense. Holding: Government failed to carry its burden to prove that illegal remuneration had been offered or accepted or that any defendant had acted with the scienter required by the AKS. Court concluded that an alleged discount arrangement was not remuneration under the AKS, where the government could not prove that the seller offered services below cost or below fair market value. 9
10/6/2014 19 States with False Claims Statutes California, Colorado *, Connecticut *, Delaware, District of Columbia, Florida, Georgia, Hawaii, Illinois, Indiana, Iowa *, Louisiana *, Maryland *, Massachusetts, Michigan *, Minnesota, Montana, Nevada, New Hampshire *, New Jersey, New Mexico, New York, North Carolina, Oklahoma, Rhode Island, Tennessee, Texas *, Virginia, Washington *, Wisconsin *. * States that have Medicaid only False Claims Acts. States that have False Claims Acts deemed by HHS to be at least as strong as the Federal FCA with respect to recovering Medicaid money. 10/6/2014 20 Collateral Issues in FCA Cases OIG Remedies Corporate Integrity Agreements; Follow-on FCA Suits (later periods or conduct); Securities/Derivative Actions; Commercial Insurance / Co-Pay Refunds; Personal Exposure FCA Liability; Exclusion, Criminal Prosecution. 10
10/6/2014 21 Key Liability Provisions 31 U.S.C. 3729 (a)(1)(a) false claims; (a)(1)(b) false records material to false claims; (a)(1)(c) conspiracy; (a)(1)(g) reverse false claims. 10/6/2014 22 Key Health Care FCA Liability Areas Upcoding/Billing for Services Not Rendered; False Certification of Compliance with Regs; Quality of Care/Worthless Services; Improper Retention of Overpayments; Anti-Kickback Statute/Stark Law. 11
10/6/2014 23 Potential FCA Liability Upcoding/Services Not Rendered (A) knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval; (B) knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim; or (G) 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,... 10/6/2014 24 Potential FCA Liability -- Quality of Care Potential quality of care FCA theories may include: Inadequate facilities, equipment and/or care; Improper calibration of laboratory/testing equipment; Negligent credentialing resulting in improper care; Unnecessary procedures (e.g. stents); High rates of readmissions/hospital-acquired conditions; Reporting inaccurate quality data linked to payment. Worthless Services the performance of the service is so deficient that for all practical purposes it is the equivalent of no performance at all. Mikes v. Straus, 274 F.3d 687, 703 (2d Cir. 2001). 12
10/6/2014 25 Common Theories of FCA Liability Traditional Case; Express Certification Case; Implied Certification Case; Reverse False Claims Case. 10/6/2014 26 The Traditional FCA Case In the traditional FCA case, a claim is factually false because it: Involves an incorrect description of the goods or services provided, or Requests reimbursement for goods or services never provided. 13
10/6/2014 27 The Certification FCA Theory Cases where claims are false because the defendant falsely certifies (expressly or impliedly) that it has complied with an applicable statute, regulation or contractual term. 10/6/2014 28 The Express Certification FCA Case An express false claim is... a claim that falsely certifies compliance with a particular statute, regulation, or contractual term, where compliance is a prerequisite to payment. Mikes v. Straus, 274 F.3d 687, 698 (2d Cir. 2001). 14
10/6/2014 29 The Implied Certification FCA Case An implied false certification claim is based on the notion that the act of submitting a claim for reimbursement itself implies compliance with governing federal rules that are a precondition to payment. Mikes v. Straus, 274 F.3d 687, 699 (2d Cir. 2001). 10/6/2014 30 Mikes v. Straus, 274 F.3d 687 (2d Cir. 2001) Establishes analytical framework for False Certification Theory in the Medicare context. Framework has been adopted in several circuits (but was rejected in the 1st Circuit in U.S. ex rel. Hutcheson v Blackstone Medical, Inc. 647 F. 3d 327 (1st Cir. 2011)). 15
10/6/2014 31 Mikes v. Straus (cont.) Physician alleged that her former partners billed the Medicare program for spirometry tests that were not consistent with the standard of care in violation of: 42 U.S.C. 1395y(a)(1)(A) (not reasonable & necessary for diagnosis or treatment), and 42 U.S.C. 1320c-5(a) (assurances regarding services & items ordered or provided by practitioner or provider). Alleged that the act of submitting claims for payment impliedly certified compliance with the Medicare Statute. 10/6/2014 32 Mikes v. Straus (cont.) Holding: In the Medicare context, implied false certification is appropriate only when the underlying statute or regulation upon which the plaintiff relies expressly states the provider must comply in order to be paid. (emphasis added) A claim is legally false only where a party certifies compliance with a statute or regulation as a condition to government payment. (emphasis added) Draws distinction between conditions of payment and conditions of participation. 16
10/6/2014 33 Mikes v. Straus (cont.) Implied certification is the idea that the act of submitting a claim for reimbursement implies compliance with rules that are preconditions to payment. Section 1395y(a)(1)(A) Can be basis for implied certification because Medicare will not pay for services that are not reasonable and necessary CONDITION OF PAYMENT. Section 1320c-5(a) Cannot be basis for implied certification because the Medicare Statute does not explicitly condition payment upon the qualitative quality of care CONDITION OF PARTICIPATION. 10/6/2014 34 Conditions of Participation v. Conditions of Payment Conditions of Participation: Enforced through administrative mechanisms; Ultimate sanction for violation of such conditions is removal from the Medicare or Medicaid program. Conditions of Payment: Those which, if the government knew such conditions were not being followed, may cause the government to actually refuse payment. 17
10/6/2014 35 Key Elements of Proof in A Viable FCA Claim False Claim Sine qua non of the FCA; Ambiguous regulation or contract may preclude a finding of falsity; Distinction between factual falsity and legal falsity. Intent Actual knowledge; Deliberate ignorance; Reckless disregard; No specific intent to defraud is required. Materiality Whether the claim was capable of influencing or had a natural tendency to influence the government s payment decision. 31 U.S.C. 3729(b)(4). Causation Tort Concepts: intervening cause, expected result of action; Difference between but for & proximate causation. 10/6/2014 36 Legal & Practical Defenses 8th Amendment Excessive Penalties Fourth Circuit instructed the E.D. Va. to enter a judgment of $24 million in FCA civil penalties in a bid-rigging case. United States ex rel. Bunk v. Gosselin World Wide Moving, N.V., No. 12-1369, 2013 WL 6671270, at *10-15 (4th Cir. Dec. 19, 2013). Government s total expenditure on the relevant portion of the contract equaled only $3.3 million. District Court had awarded ZERO penalties Found that the required minimum civil penalties in the case of $50.248 million 9,136 false claims times $5,500 would be grossly out of proportion to the defendant s misconduct, and thus would be an unconstitutionally excessive fine under the Eighth Amendment. United States ex rel. Bunk v. Birkart Globistics GmbH & Co., No. 1:02CV1168 AJT/TRJ, 2012 WL 488256, at *13 (E.D. Va. Feb. 14, 2012). 18
10/6/2014 37 Additional Defenses Statute of Limitations; But see Wartime Suspension of Limitations Act, US ex rel. Carter v. Halliburton, 710 F.3d 171 (4 th Cir. 2013) Filed Under Seal; Damages Analysis; Public Disclosure/First to File Bar 31 U.S.C. 3730(e)(4) Allegations publicly disclosed? Is relator an original source? 31 U.S.C. 3730(e)(3) Have the key allegations been disclosed in a prior proceeding? Federal Rule of Civil Procedure 9(b) requires plaintiffs to plead the circumstances constituting fraud with particularity Circuit split regarding whether FCA relator must plead details of an actual false claim. 10/6/2014 38 Compliance Tips Identify Potential Sources of Obligations to Repay the Government Claims Submissions; Enrollment Forms; Contracts; Certifications. Receivables Monitoring, Auditing, Disclosure: The heightened risk for overpayment-based FCA liability mandates a robust analysis of a healthcare providers receivables monitoring, auditing, policies and procedures, including disclosure strategies. 19
10/6/2014 39 Compliance Tips Read the OIG s Annual Work Plan. Healthcare entities are not the only potential targets. Example: Health insurers, third-party payers, and managed care plans may face FCA risks. Fail to repay an overpayment; False certifying data in rate proposals, loss ratios, etc. Evaluate current compliance policies and programs. New measures may be needed to address new risks; Train, train, and train again! 10/6/2014 40 Compliance Tips LISTEN & investigate when an employee, contractor, agent, or ANYONE tells you that there is a problem at the company. Investigate the alleged problem; Remediate the identified problem promptly; Consider self-disclosure, repayment strategies, and obligations. 20