The reach of the government in recovering payments under the False ClaimsAct (FCA) seems to be entering into a new era based on a number of seemingly disparate developments working their way through U.S. Attorney’s offices, the federal trial courts and courts of appeals as well as a currently pending case in front of the U.S. Supreme Court. The individual and collective implications of these developments amount to a greater likelihood of FCA actions being brought, particularly, against individuals or entities that might have gone unnoticed in the past, as well as the likelihood of obtaining larger fines.
While there are many broad medical related industries whose constituent members can be subject to the FCA (considering the fact that 17% of GDP lands in the medical arena), and thereare many millions of invoices that are submitted to Medicaid and Medicare on a monthly basis, I believe that in reading this post it is important to view the implications of the developments discussed with a particular eye towards the individual and collective medical billing that reaches Medicare and Medicaid.
By way of introduction, the FCA in very simplistic terms is a statute which allows the government to seek recourse against individuals or entities that billed the government improperly (hence the term “false claims”). The penalties under the statute can be extremely onerous because it allows for $5,500 – $11,000 per incident as well as treble (triple) damages for what the government paid. To be clear, to the extent that a series of false invoices are submitted to the government, each invoice would qualify as a separate claim which would require the defendant to pay a mandatory penalty for each false claim.
To illustrate the scope of how onerous FCA claims can be, I will list a few recent settlements and set forth the amounts for which they were settled:
- Pfizer and its subsidiary Wyeth agreed to pay $785 million to the federal government and state Medicaid programs to settle FCA claims that they failed to report to Medicaid certain drug rebates that were given to hospitals.
- Dignity Health, which operates hospitals and ancillary care facilities, agreed to pay $37 million to the government settle FCA claims that it submitted false claims to Medicare and Tricare by admitting patients who could have been treated on a less costly, outpatient basis.
- DaVita Healthcare Partners, Inc., the largest provider of dialysis services in the U.S., agreed to pay $450 million to settle FCA claims that itcreated unnecessary waste in administering the drugs Zemplar and Venofer to dialysis patients, and then billed the federal government for the avoidable waste.
Historically, FCA claims were primarily brought on behalf of the government by whistleblowers. The cases are commonly called qui tamactions, and the whistleblower is known as the “relator”. A thumbnail sketch of the qui tam action is that an individual can initiate a lawsuit against a person or entity who they suspect is violating the FCA. The case is initially filed under seal, and the government has a chance to intervene and take over the case. If the government declines to take over the case the individual has the ability to maintain the case (essentially in the name of the government). The whistleblower is rewarded by receiving a certain percentage of the government’s ultimate recovery. The percentage varies and depends on whether the government intervened and the extent to which the whistleblower contributed to the prosecution of the case. In more simple terms, the government has essentially deputized and incentivized anyone with knowledge of a false claim to come forward and blow the whistle.
Three New Developments
Moving past the introduction to the FCA (which many of you may have been aware of, and if so, I apologize for not starting at this point), there are a number of developments that have very far-reaching implications.
First Development: An Assistant U.S. Attorney for the District of Maryland, Thomas F. Corcoran, recently stated the government’s displeasure with the fact that to a large extent it is in the reactive position with respect to FCA claims, because the government is in large-part dependent on whistleblowers initiating a claim or otherwise relating false claims. Mr. Corcoran said the district was tired of having whistleblowers “determine the direction of our FCA cases”. In an effort to take a more proactive stance, the U.S. Attorney’s office in Maryland has begun to data mine various available public records using algorithms to flag anomalies with respect to various bills submitted to the government. While at first glance this may appear to be nothing more than a question of role reversal, and in-fact one might argue that the government itself might not even be more aggressive than the many individuals who can potentially obtain commissions for ultimate government recoveries, there is an additional facet through which this development can be viewed. Essentially, there may be numerous cases in which an individual or investigator might not otherwise be able to isolate any suspected or actual wrongdoing, but an algorithm can red-flag certain circumstances, which will lead to an investigation and a provider or entity facing the challenges and rigor of government scrutiny either because of their misdeeds or because they were flagged through an automated data mining process.
Let’s face it, data mining will unearth top billers of Medicare merely because in every category that can be reviewed someone has to be at the top. And, if we were to imagine billing and reimbursement as a bell curve, there are always going to be the outliers, irrespective of any wrongdoing. These top billers and outliers are likely to be flagged and investigated. The take away from this development is that the government’s reach can rise to a higher order of magnitude, and the potential burdens on providers will increase, irrespective of the accuracy of a “false claim” allegation.
Second Development: The second development relates to the government’s or a whistleblower’s ability to assemble a randomand relatively small but statistically relevantdata sample of all of the claims raised in a pending FCA case, and prove liabilitywith respect to all of the claims based on thatrandom and small statistical sampling.
In June of 2015 afederal district court in South Carolina held, in the case of United States ex rel. Michaels v. Agape Senior Community, Inc., et al., No. 15-238 (L) (0:12-cv-03466-JFA), that establishing liability under the FCA cannot be made by proving the falsity of a relatively small portion of the claims through statistical sampling. Instead, the whistleblower must provide an analysis of all individual claims. The net effect is that the cost of bringing the case is increased as every single false claim alleged in the FCAcase must be documented and prosecuted with the proofs that the random small sample would require. The whistleblower estimated that the cost of an expert review of all of the claims alone would be between $16.2 million – $36.5 million.
The Court of Appeals for the Fourth Circuit (which covers South Carolina, North Carolina, Maryland, Virginia and West Virginia) will be addressing this case and use of sampling in FCA cases. Several federal district courts have ruled both ways on the issue of sampling; however, the pending Court of Appeals case could result in the first federal appeals court decision directly addressing the issue.
If sampling is ultimately allowed, obviously this can reasonably lead to very large settlements if the potential downside is either not worth the fight or the potential loss is too great for the organization to bear.
Third Development: The third development relates to one of the elements of an FCA claim. Essentially, the FCA requires that the claim being submitted be “false” or “fraudulent”. The question that has arisen is what makes a claim actually “false” or “fraudulent”.Obviously, if someone works 100 hours and bills for 200 hours, or submits an invoice for goods or services that were never provided, the majority of people would concur that the claim was false or fraudulent.
However, the question becomes much more nuanced when claims are submitted that could be the result of oversight, accident, miscommunication, or a long list of other situations that result in a mistake but would not necessarily reach the level of “false” or “fraudulent” within the meaning of the FCA.
The question of the falsity of claims arose in Universal Health Services, Inc. v. United States ex rel. Escobar, a case that was brought in the federal district court inMassachusetts. The district court’s decision was appealed to the Court of Appeals for the First Circuit(which covers the states of Massachusetts, Rhode Island, New Hampshire, and Maine). The basic holding of the Court of Appeals was that if and to the extent a claim for payment is submitted to the government, it inherently means that the providerhas impliedlycertified that it is in compliance with all rules and regulations that are a condition of payment. Accordingly, the provider has violated the FCA if it has not actually complied with those rules and regulations which are a condition of payment
There is a split in the Circuit Courts of Appeal regarding thevalidity of the implied certification theory, and the U.S. Supreme Court granted certiorari to review the decision of the First Circuitin Universal Health Services, Inc. v. United States ex rel. Escobar. Oral argument before the Supreme Court was held on April 19, 2016.
In addition to the First Circuit, the Second, Third, Fourth, Sixth, Ninth, Tenth, Eleventh, and D.C. circuits have accepted the implied certification theory in some fashion.The Fifth and Seventh circuits have found that implied certification is not a valid theory.
Because of the unfortunate passing of Supreme Court Justice Antonin Scalia there are three possibilities. The first is that the Court of Appeals’ decision will be upheld by a majority of the sitting justices in which case the implied certification theory will become the law of the land (thus expanding the reach of the FCA). The second possibility is that a majority of the justices will overturn the Court of Appeals in which case, subject to the particulars of the Supreme Court’s written opinion, the implied certification will be partially or totally limited. The third possibility is that there will be a four – four tie decision in which case the circuits will remain split until another case reaches the Supreme Court. If the third scenario plays out,the location of where the FCA cases are initiated might be outcome determinative. The First, Second, Third, Fourth, Sixth, Ninth, Tenth, Eleventh, and D.C. circuits, which have accepted the implied certification theory in some fashion may permit a broader scope of liability by recognizing that claims may be false when a party impliedly represents compliance with a precondition to payment. The Fifth and Seventhmay limit the scope of the FCAby finding liability only when the party submitting a claim for payment expressly certifies compliance with a precondition of payment. For a list of which states fall under which circuits please see http://www.uscourts.gov/file/document/us-federal-courts-circuit-map
In conclusion, as many of the readers of this post may be directly or indirectly involved in the vast medical world, it is self-evident that every time a doctor sees a Medicare or Medicaid patient there is a bill being submitted to the government. Over time, because of the quantum of incidents of billing as well as the aggregate amount being billed to Medicare or Medicaid, the FCA becomes a real issue.
This issue is particularly relevant if and to the extent that medical providers or similarly situated entities rely on office managers, frontline employees, or billing companies.