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Health Care Providers Beware: Congress Expands The False Claims Act

Health Law Update Sarah E. Coyne, Kevin J. Eldridge, Susan B. Trujillo

On May 20, 2009, President Obama signed the Fraud Enforcement and Recovery Act of 2009 ("FERA"), which significantly expanded the federal False Claims Act. When the Senate considered FERA, its stated purpose for the legislation was to combat financial fraud that helped trigger the recent economic downturn, but FERA applies well beyond the financial services sector. Health care providers especially should be aware of several amendments to the False Claims Act, some of which are discussed in this update.

Liability for Retained Overpayments

Perhaps most importantly for health care providers, Congress amended the False Claims Act to provide for liability for the knowing and improper retention of overpayments. Providers now may be subject to False Claims liability if they avoid or decrease an obligation to pay the government, and FERA defined "obligation" to mean "an established duty, whether or not fixed, arising . . . from the retention of any overpayment." One of the alarming aspects of this development is that this liability can attach whether or not there was a "false claim" or in fact any affirmative representation to the government. However, the "knowing and improper" requirement and the "established duty" language seem to give providers some room to defend an inadvertent failure to refund monies.

The obligation to repay any known overpayment does not necessarily mean that a health care provider will risk False Claims Act liability if the facility fails to return overpayments immediately upon discovery. The Senate implied (in legislative history) that a provider would not risk False Claims liability if, upon discovering an overpayment, the provider notified the government and sought to return the money through the cost reporting process. The Senate interpreted the new provision of the False Claims Act to mean that the "retention of an overpayment beyond or following the final submission of payment as required by statute or regulation - including relevant statutory or regulatory periods designated to reconcile cost reports" - could subject a provider to liability.

Lowering the Intent Hurdle

In passing FERA, Congress eliminated provisions of the False Claims Act that required the government to prove defendants had the specific intent to defraud the government. Previously, persons who knowingly made, used or caused to be made or used a false record or statement would be subject to False Claims liability only if the false record or statement was made "to get a false or fraudulent claim paid or approved by the government." Now, such persons may violate the False Claims Act if the false record or statement is "material to" a false or fraudulent claim, regardless of whether they intended to obtain payment from the government.

In making this change, Congress's explicit purpose was to annul the unanimous U.S. Supreme Court decision in Allison Engine v. United States ex rel. Sanders, a case in which the Court held that a person violated the prior version of the False Claims Act only if the person intended the false or fraudulent claim to be paid by the government itself.

Materiality

Although courts had previously read a materiality requirement into the False Claims Act, Congress has now made that requirement explicit. In very general terms, the materiality requirement meant that a false claim or statement had to have some effect - in theory or in reality - on the government's decision to pay. Congress enacted a subjective definition of material: "Material" means "having a natural tendency to influence, or be[ing] capable of influencing, the payment or receipt of money or property." Thus, the government needs to prove only that a false record or statement could have influenced the government to approve payment, not that a government decision maker actually relied on the false record or statement in approving payment. It remains to be seen how broadly courts will interpret this materiality standard and whether, for example, statements certifying compliance with the Medicare Conditions of Participation "hav[e] a natural tendency to influence" payment by Medicare so that violation of a single Condition could lead to liability.

Government Contractors and Grantees

Under the pre-FERA version of the False Claims Act, providers could be subject to liability for knowingly presenting or causing to be presented a false or fraudulent claim "to an officer or employee" of the federal government. In United States ex rel. Totten v. Bombardier Corp., the D.C. Circuit Court of Appeals interpreted this "presentment clause" to provide for liability only if a claim was presented directly to a government officer or employee but not if a claim was presented to a non-governmental entity receiving government funds.

In FERA, Congress expressly abrogated Totten by removing the above-quoted language from the False Claims Act and by defining "claim" to clearly include claims made to federal government contractors, grantees or other recipients of government funds who are further spending those funds on the government's behalf or to advance a governmental interest. For health care providers, this amendment means that any federal health care dollars, regardless of which entity paid the dollars, could be the basis for False Claims liability.

Strengthened Investigative Authority

Since 1986, the U.S. Attorney General has been authorized to issue civil investigative demands (CIDs) prior to commencing a suit or joining a qui tam action under the False Claims Act. CIDs permitted the Attorney General to require production of documents, responses to interrogatories or furnishing of testimony. Before FERA, CIDs were infrequently issued because the Attorney General had to approve the issuance of a CID.

However, FERA has significantly increased the power of CIDs by permitting a designee of the Attorney General to issue them and by permitting the Attorney General to share any information received pursuant to a CID with a qui tam relator. Both provisions are likely to increase the use and usefulness of CIDs in False Claims investigations.

A Changing Landscape?

With the passage of FERA, health care providers may be entering an era of increased False Claims investigations and liability. Unfortunately, the FERA amendments generate as many questions as they do answers, and the full import of the FERA amendments will be determined by courts as they interpret the amended False Claims Act.

For more details, or if you have any questions, please contact Sarah Coyne at 608-283-2435 / sarah.coyne@quarles.com, Kevin Eldridge at 608-283-2452 / kevin.eldridge@quarles.com, Susan Brichler Trujillo at 602-229-5318 / susan.trujillo@quarles.com or your Quarles & Brady LLP attorney.