Identifying trends in False Claims Act enforcement

With the government dedicating more resources to prosecuting violations of the False Claims Act and whistle-blowers receiving larger payouts from their cases, the future isn’t bright for hospitals and health systems, as there are forces from every angle targeting them.

Although the False Claims Act was enacted under President Abraham Lincoln, it wasn't until 1986 that Congress realized the statute could be a valuable enforcement tool in many areas, including the healthcare arena. That year, amendments to the FCA were enacted that allowed people who submit or cause another person to submit false claims for payment of government funds to be held liable for up to three times the government's damages. In addition, the amendments allowed civil penalties of $5,500 to $11,000 to be imposed on those submitting false claims for each claim submitted.

The spike in False Claims Act lawsuits

Since the 1986 amendments, there has been an explosion of FCA cases in the healthcare industry. In 2013, the government secured $3.8 billion in settlements and judgments from civil cases involving fraud against the government, and like in previous years, the largest recoveries in 2013 were related to healthcare fraud, which reached $2.6 billion.  

A significant number of healthcare FCA cases are brought under the qui tam, or whistle-blower, provisions of the Act, which allow people with evidence of fraud against the government to sue on behalf of the government. In the healthcare industry, many whistle-blowers are employed by or were previously employed by the organization they are exposing for fraud.

From 1986 to 1992, the first six years after the FCA amendments were enacted, 62 healthcare qui tam cases were filed. Over the next two decades there was a sizeable increase in FCA enforcement, with 412 cases filed in 2012.

What is causing the increase?

Financial incentives for whistle-blowers, attorneys and the government 

The financial incentives provided to whistle-blowers who file successful lawsuits under the FCA is one of the factors attributing to the spike in FCA cases. In 2012 alone, whistle-blowers received a total of $284.3 million from federal qui tam settlements and judgments.

In the past, whistle-blower cases were as the result of an employment lawsuit, but that isn't the case anymore.

"The bounties that whistle-blowers can collect in FCA cases number in the tens of millions of dollars, making qui tam lawsuits a much more lucrative option than employment lawsuits or medical malpractice cases, especially given the state-imposed damages caps in those cases," says Jennifer Weaver, a partner at the law firm of Waller Lansden Dortch & Davis in Nashville, Tenn.

She believes the plaintiffs' bar becoming more aggressive in recruiting "would-be whistle-blowers," has also led to more FCA cases being filed.

Many law firms are "chasing the pot of gold" and making FCA lawsuits one of their areas of expertise, says Brian Roark, a member of the Nashville, Tenn.-based law firm of Bass Berry & Sims, where he is head of the firm's Healthcare Fraud Task Force.

Whistle-blowers and their attorneys aren't the only ones that have financial incentives for filing FCA lawsuits, as the government's investment in these cases was estimated to be 20 to one in October 2013. With such large payouts for the government, "there's no reason for the enforcement trend not to continue to increase," says Shannon DeBra, of counsel at Bricker & Eckler in Columbus, Ohio.

The DOJ has received criticism for entering into some of its civil settlements with hospitals and health systems, some of which have been over a billion dollars, since the settlements have not had much influence on curbing the rate of healthcare fraud. "For some in the healthcare industry, civil settlements are treated more like a cost of doing business than a true deterrent to fraudulent conduct," says Ms. DeBra.

The Patient Protection and Affordable Care Act

The PPACA has contributed to the uptick in the number of FCA cases being filed, as it opened up new doors for FCA enforcement. For example, the PPACA made it a violation of the FCA for a healthcare organization to knowingly retain an overpayment for more than 60 days.

Although the 60-day repayment rule went into effect about three years ago, cases based on violations of the rule are just now beginning to work their way through the system. In June, the government intervened in an FCA lawsuit alleging Continuum Health Partners in New York City and several hospitals that were formerly part of Continuum's network had failed to return more than $1 million in Medicaid overpayments to the government within the 60-day period required by the PPACA. According to Lisa Rivera, a former federal prosecutor who is a member of the law firm of Bass Berry & Sims, government intervention in the more egregious and extensively delay action taken in 60-day repayment rule cases is a trend we're going to be seeing more of.

Criminal enforcement under the False Claims Act
Criminal prosecutors in the DOJ Criminal Division's Fraud Section are now required to more actively investigate qui tam complaints filed under the FCA. Although the Fraud Division prosecutors have been reviewing whistle-blower complaints since 2007, there has been an uptick in criminal healthcare fraud prosecutions in recent years, and the number is only expected to increase.

In 2011, federal prosecutors filed criminal charges against 1,430 defendants for healthcare fraud-related crimes, which was the highest number of defendants charged in a single year. Since then, criminal prosecutions have remained high, with 2,144 new criminal healthcare fraud investigations opened by the DOJ in the following two years.

The DOJ's focus on bringing criminal charges in FCA cases has serious ramifications for healthcare executives and physicians because, according to Ms. Weaver, there is a chance the government will go after executives and practitioners to rebut the criticism the DOJ has received over the ineffectiveness of the civil settlements it has entered into.

To help avoid criminal charges and engaging in conduct that could be made an example out of, being proactive is key. "The healthcare industry is going to have to beef up its internal, proactive oversight, and make sure that the ultimate decision makers and management -wherever the buck stops- know about how things such as physician compensation and physician agreement are being determined at the outset, instead of delegating that down the chain of command or simply continuing with prior, unchecked physician arrangements," says Ms. Rivera.

Is increased FCA enforcement going to be a continuing trend?

All of the factors that have caused FCA enforcement to increase in recent years aren't going anywhere, and the increase is likely to continue. In addition, a ruling from the U.S. District Court of the Eastern District of Tennessee and a U.S. Supreme Court case could have a significant impact on the future of FCA cases.

The Supreme Court case concerns the Wartime Suspension of Limitations Act, which was enacted in 1942 to lengthen the time allowed to prosecute fraud offenses against the U.S. and its agencies during times of war "until five years after termination of hostilities as proclaimed by presidential proclamation, with notice to Congress, or by a concurrent resolution to Congress."

The Fourth Circuit Court of Appeals applied the WSLA to a civil FCA case. The court held the FCA statute of limitations had been suspended since the beginning of the war in Iraq, and the statute of limitations would not begin to run until five years after the president or Congress proclaims the hostilities are terminated.

The FCA statute of limitations is six years, meaning a case alleging violations of the Act could be pursued if the alleged illegal conduct occurred before the current month and day in 2008. However, if the WSLA is applied, cases could be brought for conduct that occurred as early as 2001, when the armed conflict in Afghanistan began.

The Fourth Circuit case has been appealed all the way to the Supreme Court, and if the decision is upheld, it could provide whistle-blowers and the government a means to revive decades-old claims that would otherwise be barred by the statute of limitations and repose, which could lead to significant costs for hospitals and health systems.

Another issue that could potentially have a negative effect on the healthcare sector is the case of United States ex rel. Martin v. Life Care Centers of America, Inc. In that case, the government alleges Life Care, which is a skilled nursing facility, submitted fraudulent claims to Medicare as part of a nationwide scheme to defraud the system by providing unnecessary services. The government sought to present a sample of 400 patient admissions and extrapolate liability and damages for an additional 54,396 unidentified patient admissions from the sample.

Over Life Care's objection, the court sided with the government, and noted Life Care’s arguments against the use of statistical sampling should be made in front of a jury.

“This potentially makes it easier for the government and whistle-blowers to bring system-wide cases,” says Mr. Roark, since the court has said the government can choose a sample of claims and those results can be extrapolated across multiple locations.

The case is likely to be appealed, and it should have the attention of those in the healthcare industry due to the far-reaching nature of the decision.

Conclusion

The FCA has become common character in the healthcare arena, and due to a number of factors, including increased incentives for whistle-blowers and their attorneys, and the government increasing its focus on criminal prosecutions for FCA violations, hospital and health system executives and physicians need to be proactive to help ensure they do not become the target of an FCA investigation or prosecution. 

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