5 False Claims Act trends, cases that will fuel recoveries in 2016

Major court case rulings and a change in enforcement focus made 2015 a significant year in the False Claims Act arena, and this year is poised to be a significant one as well.

The Department of Justice obtained more than $3.5 billion in settlements and judgments from civil cases involving fraud and false claims against the government in the fiscal year that ended Sept. 30, 2015, with $1.9 billion recovered from companies and individuals in the healthcare industry.

For several years, growth in False Claims Act recoveries has been fueled by the healthcare industry, and it appears that trend is going to continue through this year.

In a recent interview with Becker's Hospital Review, Brian Roark, head of Bass, Berry & Sims' Healthcare Fraud Task Force, highlighted some of the major issues surrounding the False Claims Act that emerged last year and will continue in 2016.

1. Use of extrapolation. This allows the government to analyze a statistically significant sample of claims and apply the results across all similar claims for payment filed by a healthcare organization. "Fraud enforcers are using this technique as a shortcut to alleging wide-scale fraud," says Mr. Roark. For example, if a lawsuit claims there was fraud going on at a national healthcare company that was causing false billings all over the country, the government can draw a sample, make its case as to the small number of sampled claims and apply those results across the board. "While this makes sense from the enforcement agency's point of view, it raises questions of fairness from the provider's perspective," says Mr. Roark.

The use of extrapolation has been challenged in the courts, and there have been a number of rulings in the government's favor in recent years. Mr. Roark says the outcomes in those cases are "very disturbing" from a healthcare provider's standpoint because they have essentially lowered the government's burden in proving wide-scale fraud in a nationwide case. Due to those rulings, it is likely the enforcement agencies will continue using extrapolation to prove damages and False Claims Act liability in 2016 and for years to come.

2. Focus on physician compensation. There was a continued focus on the relationships between hospitals and physicians in 2015, specifically the role of referrals in driving physician compensation.

Physician compensation was at the center of several high-profile False Claims Act cases settled in 2015. One notable settlement involved Fort Lauderdale, Fla.-based Broward Health, formerly North Broward Hospital District. The health system agreed to pay the federal government $69.5 million to settle allegations it violated the False Claims Act by engaging in improper financial relationships with nine physicians. Michael Reilly, MD, the whistle-blower in the case, alleged the health system carefully tracked the value of physician referrals and pressured physicians to increase referral volume when they lagged.  

Just one week after the Broward Health settlement was announced, Altamonte Springs, Fla.-based Adventist Health System inked a $118.7 million agreement with the federal government and four states to settle similar allegations. The settlement resolved claims that the nonprofit health system paid bonuses to employed physicians based on a formula that improperly took into account the value of the physicians' referrals to Adventist hospitals.

The big settlements in 2015 are not going to be the zenith of physician compensation cases, according to Mr. Roark. He says it could just be the beginning. "The significant publicity around those cases could lead to additional cases being filed, and even if not public, there are likely other cases of this type that are already in the pipeline."

3. Spotlight on individual liability. More and more, the government is holding individuals — not just the organizations they work for — responsible for fraud. In a memo issued in September, the U.S. Department of Justice showed it is taking a strong stance on pursuing healthcare executives involved in fraud allegations.

The memo, which was distributed to federal prosecutors, provides guidance on steps the DOJ is taking to strengthen its pursuit of individual corporate wrongdoing. One key change is that to be eligible for any cooperation credit, companies must give up the individuals involved in the fraud, no matter where they sit within the company.

The repercussions of the memo — which has been dubbed the "Yates memo" after Deputy Attorney General Sally Yates — are significant. These investigations were complicated when healthcare companies only had to provide information about the underlying factual situation, and now the government won't resolve the matter unless a company provides names of those involved, according to Mr. Roark.

An unfortunate consequence of the changes could be less cooperation in fraud investigations. "Why would an individual agree to talk to company counsel if the company may have to turn them over to the government?" says Mr. Roark.

4. Disclosure of overpayments. Mandated by the Affordable Care Act, the 60-day repayment rule requires an entity that receives an overpayment from the state or federal government to report the overpayment within 60 days of the date on which the overpayment was identified. In 2015, a major case showed providers that the 60-day clock starts ticking when they simply learn of the potential that an overpayment exists.

Robert P. Kane, a former employee of Continuum Health Partners — now part of New York's Mount Sinai Health System — served as the whistle-blower in the case. The Department of Justice also joined the lawsuit. In February 2011, Mr. Kane sent his superiors a list of 900 billing claims that were possibly submitted in error, and it took two years for Continuum to return the excess pay.

In his decision, U.S. District Judge Edgardo Ramos said an overpayment is identified when a healthcare provider is put on notice of a possible overpayment.

"After Kane put defendants on notice of a set of claims likely to contain numerous overpayments, defendants had an established duty to report and return wrongly collected money," Judge Ramos wrote in his decision.

That ruling is the opposite of what the defendant hospitals had hoped for. They argued that the 60 days should begin running when a specific overpayment is pinpointed conclusively.

5. Recognition of implied certification. Under this theory, the government or a whistle-blower can allege a claim submitted by a healthcare provider is false if they can show the provider billed for services in violation of some Medicare rule or regulation. This applies even when the healthcare provider never directly certified its compliance to the government when submitting the claim. The implied certification theory allows whistle-blowers to base their qui tam actions on statutes and regulations outside of the False Claims Act.

In December, the U.S. Supreme Court agreed to review a case that should decide whether the implied certification theory is valid. "This will be one of the most-watched cases in 2016," says Mr. Roark. If the high court upholds the theory, lawsuits can be brought under the False Claims Act against healthcare providers for violations of some rule or regulation that might be a technical violation, according to Mr. Roark.

More articles on the False Claims Act:

32 hospitals to pay $28M to settle false claims allegations related to kyphoplasty
6 striking statistics on False Claims Act enforcement in healthcare
DOJ rakes in $1.9B in healthcare fraud recoveries: 7 takeaways

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