Physician's Guide to the False Claims Act - Part I

This article was originally published by the Louisiana State Medical Society, which has partnered with KSWB to feature guest articles concerning common legal issues facing the medical profession.

As we noted in our recent articles concerning the Stark law (the Physician’s Guide to the Stark Law – Part I and Part II) and the Anti-Kickback Statute (the “AKS”) (the Physician’s Guide to the Anti-Kickback Statute – Part I and Part II), physicians are under increasing scrutiny by federal and state enforcement agencies with respect to their financial relationships both within their medical practices and outside their medical practices. As we further explained, violations of either of these statutes may result in, among other sanctions, significant monetary penalties.  However, perhaps the greatest exposure that physicians face in terms of potential monetary penalties is scrutiny under the False Claims Act (the “FCA”), which (1) prohibits the submission of false or fraudulent claims for payment or approval to the federal government and (2) permits not only the government but private persons (often referred to as qui tam relators) to file suit thereunder.  Indeed, since the FCA was amended in 1986, recoveries under this statute have exceeded $30 billion. This article is not intended to provide an exhaustive treatment of the FCA, but rather, to serve as a general reference and educational guide. Physicians and medical practices are encouraged to seek advice from their own counsel to address specific legal issues that arise in their individual practices.

This initial article will address the FCA prohibition in detail.  In a follow up article, we will discuss the general defenses a physician may assert in response to a suit under the FCA, the FCA provider self-disclosure protocol, and Louisiana’s state-law iteration of the FCA.

The False Claims Act Prohibition.

The FCA, as amended, prohibits anyone from knowingly presenting, or causing to be presented, a false or fraudulent claim for payment or approval by the federal government.  31 U.S.C. § 3729(a)(1)(A).  The FCA, as amended, also contains a similar prohibition against making, using or causing to be made or used, a false record or statement material to such a false or fraudulent claim.  31 U.S.C. § 3729(a)(1)(B).  In addition, the 2010 Patient Protection and Affordable Care Act clarified that any claim submitted in violation of the AKS automatically constitutes a false or fraudulent claim in violation of the FCA.  42 U.S.C. § 1320(a)-7b(g).  Again, monetary penalties for violation of the FCA can be substantial and may include a civil penalty of between $10,957.00 and $21,916.00 for each “false claim” plus treble damages equal to three times the amount of damages the government sustains as a result of the false claim(s) at issue.  Further, a prevailing defendant, whether the government or a private qui tam relator, can recover the attorney’s fees incurred in bringing a successful FCA action.  31 U.S.C. § 3730(d).  Finally, there is also a criminal FCA statute that provides for imprisonment up to five (5) years as well as additional fines.  18 U.S.C. § 287.  In an effort to avoid these substantial dangers, let’s take a closer look at each element of the FCA prohibition.

The FCA prohibits:

i.  a person

Comment:  The FCA, like the AKS, applies to physicians and non-physicians alike.  Indeed, the FCA is not limited to the health care industry or health care claims for payment or approval.

ii.  from knowingly

Comment:  Violation of the FCA requires that some degree of intent exist.  That is, a person cannot violate the FCA unless he or she “knowingly” engages in the conduct proscribed by the statute.  The FCA defines the terms “knowing” and “knowingly” to mean that a person “(i) has actual knowledge of the information; (ii) acts in deliberate ignorance of the truth or falsity of the information; or (iii) acts in reckless disregard of the truth or falsity of the information.” 31 U.S.C. § 3729(b)(1).  The existence of any one of these elements establishes the intent necessary to find an FCA violation. Thus, a person can violate the FCA when he or she knows—or, in certain circumstances, even if he or she should have known—that the claim for payment or approval submitted to the government is false.  Indeed, to make clear that a “knowing” FCA violation includes more than “actual knowledge,” the FCA’s definition of “knowing” and “knowingly” specifically provides that “proof of specific intent to defraud” is not required for a person to knowingly violate the FCA.  Id.  The only exception to this precept is set forth in 31 U.S.C. § 3729(a)(1)(E), which only imposes liability in connection with documents certifying receipt of property used, or to be used, by the federal government when a specific intent to defraud the government is established.  The legislative purpose underlying the 1986 expansion of the FCA knowledge requirement to include “deliberate ignorance” and “reckless disregard” was to permit the imposition of FCA liability not only on those who know that a submitted claim is false or fraudulent, but also on those who “play ostrich” by, for example, refusing to learn information relevant to a submitted claim which a prudent individual has reason to know or ignoring “red flags” that a submitted claim may be inaccurate.  See H.R. Rep. No. 99-660, pt. 5, at 20-21 (1986) and S. Rep. 99-345, pt. 3, at 14-15 (1986). Although the FCA does not further define the terms “deliberate ignorance” and “reckless disregard,” various courts have likened “deliberate ignorance” to “willful blindness” which requires the defendant to (1) subjectively believe that there is a high probability that a fact exists and (2) take deliberate action to avoid learning that fact.  See, e.g., United States ex rel Orgnon v. Chang, No. 3:13-CV-144-JAG, 2016 WL 715746, at *3 (E.D. Va. Feb. 19, 2016), appeal dismissed (Aug. 15, 2016) (quoting Global-Tech Appliances, Inc. v. SEB S.A., 131 S. Ct. 2060, 2070 (2011)).  Likewise, various courts have likened “reckless disregard” to an aggravated form of gross negligence. See, e.g., Siebert v. Gene Sec. Network, Inc., 75 F. Supp. 3d 1108, 1116–17 (N.D. Cal. 2014).  In any event, the key takeaway is that an individual who acts with “deliberate ignorance” or “reckless disregard” in submitting a claim need not consciously know that the submitted claim is false or fraudulent, but only (1) deliberately close his or her eyes to what otherwise would have been obviously relevant to whether the submitted claim was false or fraudulent (deliberate ignorance) or (2) act with extreme carelessness (reckless disregard) concerning whether the submitted claim was true or false.

 iii.  presenting or causing to be presented

Comment:  In 2008, the United States Supreme Court held that the FCA requires a defendant’s direct presentment of the false claim to an officer or employee of the federal government.  Allison Engine Co. v. United States ex rel. Sanders, 553 U.S. 662, 668 (2008).  Congress responded the next year by enacting the Fraud Enforcement and Recovery Act of 2009 (“FERA”).  FERA excised the language from the FCA requiring that the claim be presented to “an officer or employee of the United States government or a member of the Armed Forces of the United States.”  FERA also “clarified” the statutory definition of claim to include requests or demands to certain third parties who are not government officials.  The United States Seventh Circuit Court of Appeals in United States ex rel. Garbe v. Kmart Corporation recently noted that “[t]he new language underscored Congress’s intent that FCA liability attach to any false claim made to an entity implementing a program with government funds, regardless of whether that entity was public or private.”  824 F.3d 632, 638 (9th Cir. 2016).  The Garbe court then held that “as amended, the FCA contains no presentment requirement,” i.e., the FCA does not require that a false claim be submitted directly to an officer or employee of the federal government.  Id.  (Emphasis added).  Significantly, the United States Supreme Court decided on January 9, 2017 not to review the Garbe court’s decision, leaving the Garbe court’s holding undisturbed.  Kmart Corp. v. U.S. ex. rel. Garbe, 137 S.Ct. 627, 196 L. Ed. 2d 517 (2017).

iv.  a false or fraudulent

Comment:  Surprisingly, the FCA does not contain a definition of the term “false or fraudulent.” However, when considering whether claims are “false or fraudulent” for purposes of the FCA, courts typically recognize a distinction between factually false claims and legally false claims. Factually false claims are easily identified and generally involve either “an incorrect description of goods or services provided or a request for reimbursement for goods or services never provided.” United States v. Sci. Apps. Int’l Corp., 626 F.3d 1257, 1266 (D.C. Cir. 2010). In contrast, legally false claims, which involve false certifications of compliance with a federal statute or regulation that is a condition of government payment, are more difficult to identify.  The difficulty often lies in the fact that legally false claims may accurately describe the treatment or service rendered (i.e., be factually accurate) but still falsely certify compliance with some statutory, regulatory or contractual condition of government payment (and therefore be legally false). Further complicating matters, legally false claims can be additionally characterized as either express false certification claims, where a claimant expressly (but falsely) certifies compliance with a particular statute or regulation that is a precondition to government payment, United States ex rel. Conner v. Salina Reg’l Health Ctr., Inc., 543 F.3d 1211, 1217 (10th Cir. 2008), or implied false certification claims, where a claimant, simply by submitting a claim for payment, is deemed to have impliedly (but falsely) certified compliance with any governing statute or regulation that is a precondition to payment. Mikes v. Straus,
274 F.3d 687, 699 (2d Cir. 2001).  Significantly, the viability of the implied false certification theory in the FCA context was recently confirmed by the United States Supreme Court thereby resolving a circuit split among several federal courts. See Universal Health Services, Inc. v. United States ex rel. Escobar, 136 S.Ct. 1989, 1999 (U.S. June 16, 2016) (“[w]e first hold that the implied false certification theory can, at least in some circumstances, provide a basis for [FCA] liability.”).  While this holding arguably expanded the scope of liability under the FCA to unequivocally include implied false certification claims, the Supreme Court also (1) limited the application of the implied false certification theory to only those instances where the implied false certification concerned a statutory, regulatory or contractual requirement that was material to the government’s payment decision and (2) made clear that this materiality standard, which courts have historically read into the FCA, is “demanding,” i.e., difficult to satisfy, as further discussed below.  Id. at 2003-04 (“The standard for materiality that we have outlined is a familiar and rigorous one.”).

v.  claim (or record or statement)

Comment:  The FCA defines the term “claim” to mean “any request or demand, whether under a contract or otherwise, for money or property and whether or not the United States has title to the money or property that (i) is presented to an officer, employee, or agent of the United States; or (ii) is made to a contractor, grantee, or other recipient, if the money or property is to be spent or used on the Government’s behalf or to advance a Government program or interest, and if the United States Government (a) provides or has provided any portion of the money or property requested or demanded;  or (b) will reimburse such contractor, grantee, or other recipient for any portion of the money or property which is requested or demanded.”  The FCA also makes clear that a “claim” “does not include requests or demands for money or property that the Government has paid to an individual as compensation for Federal employment or as an income subsidy with no restrictions on that individual’s use of the money or property.”  31 U.S.C. § 3729(b)(2).

vi.  that was material to the government’s determination to pay.

Comment:  In 2009, the FCA was amended to, among other things, explicitly (1) add the term “material” to the FCA’s false statement and reverse false claims provisions and (2) define the term “material” to mean “having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property.” See 31 U.S.C. § 3729(a)(1)(B) and (G) and 31 U.S.C. § 3729(b)(4), respectively.  These additions codified what the vast majority of courts had historically recognized, specifically, that FCA liability cannot exist unless a claim (or record or statement) is not only false but also material to the government’s payment determination.  See, e.g., U.S. ex rel. A+ Homecare, Inc. v. Medshares Management Group, Inc., 400 F.3d 428, 445 (6th Cir. 2005) (“As we stated above, a false statement within a claim can only serve to make the entire claim itself fraudulent if that statement is material to causing the Government to pay the fraudulent claim.”) (reversed on other grounds). As noted above, in its recent Escobar decision, the United States Supreme Court made clear that this materiality standard is difficult to satisfy.  Indeed, in Escobar, the Supreme Court specifically indicated that, depending on the circumstances, it is possible that a false claim (or record or statement) may not be material to the government’s payment decision even when (1) a claimant fails to comply with a particular statutory, regulatory or contractual requirement that the government expressly designates as a condition of payment or (2) the government would have the option to decline to pay if it knew of the claimant’s noncompliance.  Escobar, 136 S.Ct. at 2003.  The Supreme Court further explained that proof of materiality can include, but is not necessarily limited to, evidence that the claimant knows that the government consistently refuses to pay claims based on noncompliance with a particular statutory, regulatory or contractual requirement; however, if the government regularly pays a particular claim, or type of claim in full despite its actual knowledge that certain requirements were violated, and has not signaled a change in its policy, this is very strong evidence that those requirements are not material.  Id. at 2003-04.

Reverse False Claim:  The FCA also specifically prohibits a person from knowingly making, using, or causing to be made or used, a false record or statement material to, or knowingly concealing or knowingly and improperly avoiding or decreasing, an obligation to pay or transmit money or property to the federal government.  31 U.S.C. § 3729(a)(1)(G).  This prohibited conduct is often referred to as a “reverse false claim” because the person is not knowingly engaging in the prohibited conduct to obtain money or property from the federal government, but rather to avoid transmitting money or property due to the federal government.

Additional False Claims Act Information.

In our next article we will address, among other things, the general defenses a physician may assert in response to a suit under the FCA, the process for health care providers to “voluntarily identify, disclose, and resolve instances of potential fraud involving the Federal health care programs,” as well as Louisiana’s state-law iteration of the FCA.

If you have any questions regarding the FCA or broader health care law issues, please do not hesitate to contact our firm.

          Author:   W. Scott Keaty and  Joshua G. McDiarmid
          Practice Area:   Health Care Law
          Date:   June 26, 2017

Disclaimer: The information provided herein (1) is for general information only; (2) does not create an attorney-client relationship between the author or the author’s firm and the reader; (3) does not constitute the provision of legal advice, tax advice, or professional consulting of any kind; and (4) does not substitute for consultation with professional legal, tax or other competent advisors. Before making any decision or taking any action in connection with the matters discussed herein, you should consult with a professional legal, tax and/or other advisor who should be provided with all pertinent facts relevant to your particular situation. The information provided herein is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information.