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

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.

Our initial article concerning the False Claims Act (the “FCA”) titled “Physician’s Guide to the False Claims Act – Part I” addressed the FCA prohibition in detail.  As further explained therein, 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 Anti-Kickback Statute (the “AKS”), which we addressed in previous articles (see the Physician’s Guide to the Anti-Kickback Statute – Part I and Part II), automatically constitutes a false or fraudulent claim in violation of the FCA.  42 U.S.C. § 1320(a)-7b(g).  Because the monetary penalties that may be awarded against physicians under the FCA are so substantial—indeed, since the FCA was amended in 1986, recoveries under the FCA have exceeded $30 billion—it is critical that physicians have an understanding of certain possible defenses available to them in response to an FCA lawsuit.  These defenses, as well as the process for physicians to self-disclose FCA (and other health law) violations, are the focus of this article.  Consistent with our previous FCA prohibition article, this article is not intended to provide an exhaustive treatment of available FCA defenses, or the physician self-disclosure process, 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.

FCA Defenses.

So what defenses can a health care provider assert in response to an FCA suit initiated by the federal government or a private qui tam relator (in which the federal government can, but is not required to, intervene)?  Every situation is unique; however, defenses to FCA liability often focus on the plaintiff’s inability to establish the knowledge and/or materiality elements necessary to succeed on an FCA claim. 

i.  Mistakes or negligence

While, as explained in our previous FCA prohibition article, the FCA explicitly defines knowledge to include not only actual knowledge that a submitted claim is false, but also deliberate ignorance or reckless disregard of the falsity of a submitted claim, “Congress clearly had no intention to turn the FCA, a law designed to punish and deter fraud, into a vehicle for either punish[ing] honest mistakes or incorrect claims submitted through mere negligence’ or imposing ‘a burdensome obligation’ on government contractors rather than a ‘limited duty to inquire [about the truth or falsity of a submitted claim].’”  U.S. v. Sci. Apps. Int’l Corp., 626 F.3d 1275 (citing S. Rep. 99-345, at 6 and 19 (1986)).  Accordingly, as stated by the United States Ninth Circuit Court of Appeals, “innocent mistakes” and “negligence” remain defenses under the FCA.  Wang v. FMC Corp., 975 F.2d 1412, 1420 (9th Cir. 1992) (reversed on other grounds). 

ii.  Lack of materiality

As also explained in our previous FCA prohibition article, a false record or statement within a claim for payment or approval by the federal government cannot serve as a basis for FCA liability unless the false record or statement is also material to the federal government’s payment determination.  See, e.g., U.S. ex rel. A+ Homecare, Inc. v. Medshares Management Group, Inc., 400 F.3d 428, 444 n. 12 (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).  More significantly for purposes of defending an FCA suit, and, as recently made clear by the United States Supreme Court in Universal Health Services, Inc. v. United States ex rel. Escobar, 136 S.Ct. 1989, 1999 (U.S. June 16, 2016), this materiality standard is “demanding” and “rigorous.”  Id. at 2003 and 2004 n. 6.  Indeed, as the Escobar Court further explained: (1) even if the federal government has expressly designated a particular contractual, statutory, or regulatory provision as a condition of claim payment, such designation is “relevant” to, but “not automatically dispositive” of, whether a health care provider’s failure to disclose noncompliance with such provision is material to the federal government’s decision to pay the claim and (2) if, for example, “the Government pays a particular claim in full despite its actual knowledge that certain requirements [including requirements expressly designated as conditions of payment] were violated” or “the Government regularly pays a particular type of claim in full despite actual knowledge that certain requirements [including requirements expressly designated as conditions of payment] were violated, and has signaled no change in position,” this is strong evidence that such requirements (and, by extension, noncompliance with such requirements) are not material to the federal  government’s decision to pay a claim or claims.  Escobar, 136 at 2003-04 (Emphasis added.).  Further expounding on the materiality standard, the Escobar Court also explained that it is insufficient for a finding of materiality “that the Government would have the option to decline to pay [the claim] if it knew of the defendant’s noncompliance [with a particular contractual, statutory, or regulatory provision expressly designated by the Government as a condition of claim payment]” and “[m]ateriality cannot be found where [such] noncompliance is minor or insubstantial.” Id. Depending on the underlying facts, then, a health care provider may have multiple bases to assert that any record or statement within a claim or claims—even if false—were not material to the federal government’s decision to pay the claim or claims and thus cannot subject the health care provider to liability under the FCA. 

iii.  Ambiguity or reliance on legal advice

As a corollary to any applicable lack of materiality defense, a targeted health care provider might also assert, when germane, that any contractual, statutory, or regulatory provision expressly designated by the federal government as a condition of claim payment was either ambiguous or that the health care provider relied in good faith on credible legal advice and/or a reasonable interpretation of the law in interpreting, and attempting to comply with, the condition when submitting a claim or claims. But see, e.g., U.S. ex rel. Drakeford v. Toumey Healthcare System, 792 F.3d 364 (4th Cir. 2015) (holding that a defendant cannot successfully assert an advice-of-counsel defense by shopping around until it finds legal advice that supports the legality of its claims submissions).

iv.  Invalid or unreliable statistical sampling 

Finally, a brief word on statistical sampling, which the federal government and qui tam relators are using with increasing frequency to (1) identify allegedly false claims in a subset, i.e., sample, of a much larger batch of claims submitted to the federal government for payment or approval and (2) extrapolate the percentage of allegedly false claims identified in the sample to the larger batch of claims to arrive at an estimation of the total number of allegedly false claims and/or the total alleged FCA liability. While some courts continue to grapple with whether statistical sampling should be permitted to identify allegedly false claims and/or estimate alleged FCA damages in the first instance, many courts have determined that statistical sampling is generally permissible to support FCA claims and/or damages and, instead, focus on whether such sampling should be admitted or excluded from evidence in a particular FCA suit.  In making this determination, courts typically analyze whether the sampling methodology at issue is sound and appropriately tailored to the underlying facts and claims that form the basis of the suit in order to determine whether the sampling results, and attendant extrapolation, are sufficiently valid and reliable to be presented to the factfinder.  Accordingly, a health care provider defending an FCA suit involving statistical sampling should likely retain an appropriate expert to review such sampling to determine whether it can be shown to be invalid or unreliable based on error, improper manipulation of data, or some other bases. 

Provider Self-Disclosure Protocol.

On April 17, 2013, the Office of Inspector General (“OIG”) of the United States Department of Health and Human Services updated its Provider Self-Disclosure Protocol (the “SDP”), which establishes “a process for health care providers to voluntarily identify, disclose, and resolve instances of potential fraud involving the Federal health care programs,” including potential fraud actionable under the FCA (but excluding potential fraud actionable exclusively under the Stark law, which can only be disclosed in accordance with the Self-Referral Disclosure Protocol established by the Centers for Medicare and Medicaid Services).  See SDP at 1.  While recognizing that whether to self-disclose under the SDP is a “significant decision,” the OIG maintains that health care providers that do so are, among other things, “presumed” not to warrant exclusion from participation in federal health care programs or the imposition of additional integrity measures and “deserve” to pay a lower multiplier of damages.  Id. at 2.  Indeed, the FCA specifically provides that a court may reduce the damages awarded against a self-disclosing party (who fully cooperates with the federal government’s investigation of the reported FCA violation and does not have actual knowledge of the existence of an investigation into such violation at the time of disclosure) to double, rather than triple, the amount of damages the federal government sustains as a result of the false claim or claims at issue. 31 U.S.C. § 3729(a)(2).  However, health care providers should not mistake the federal government’s stated intention to treat self-disclosing parties more favorably for a guarantee that the federal government will do so or that the potential “double” rather than “triple” damage calculation will result in insubstantial damages. While self-disclosure certainly may lessen—at least to some degree—a health care provider’s FCA civil and/or criminal exposure, it does not prevent the federal government from proceeding with a formal action against the health care provider, seeking full damages, or otherwise proceeding in an adversarial manner, particularly if the federal government does not believe, following the self-disclosure, that the health care provider is fully cooperating or truly acknowledging that the disclosed conduct is a potential violation.  See SDP at 3-4. Further, what constitutes full cooperation, sufficient to entitle a health care provider to potentially receive more favorable treatment for self-disclosing violations, is not always clear and, of particular concern, voluntary disclosure of materials to the federal government in an effort to fully cooperate may be deemed, in some instances, to constitute a waiver of any attorney-client privilege or work product protection otherwise shielding such materials from discovery by the federal government or other third parties.  In short, the decision to self-disclose should not be made lightly or without thoughtful consideration of the pros and cons of doing so.

The Louisiana FCA.

Finally, a few comments on Louisiana’s version of the federal FCA.  Louisiana’s prohibition against the submission of false claims is set forth in La. R.S. § 46:438.3, titled “[f]alse or fraudulent claim; misrepresentation,” and is sometimes referred to as the Louisiana FCA (either individually or in conjunction with other applicable provisions of the Louisiana Medical Assistance Programs Integrity Law found at La. R.S. 46:437.1, et seq.).  The Louisiana FCA is largely similar to the federal FCA in that both statutes prohibit anyone from knowingly presenting, or causing to be presented, a false or fraudulent claim or knowingly making, using or causing to be made or used, a false record or statement material to such a false or fraudulent claim. La. R.S. § 46:438.3(A) and (B).  However, unlike the federal FCA, which prohibits false claims seeking payment or approval from the federal government in any context, the Louisiana FCA only prohibits false claims seeking payment from “medical assistance programs,” specifically, Medicaid or any other program operated by the Louisiana Department of Health that provides payment to health care providers, and thus only applies in in the health care context.  See La. R.S. § 46:437.3(14).  The Louisiana FCA, unlike the federal FCA, also has a de minimus exception to its application that specifically prohibits an action to be brought thereunder “unless the amount of alleged damages is one thousand dollars or more.”  La. R.S. § 46:438.3(G).

Significantly, the Louisiana FCA, like the federal FCA, permits not only Louisiana state government (specifically the secretary of the Louisiana Department of Health or the Louisiana Attorney General), but also private persons (designated as qui tam plaintiffs), to file suit thereunder and thereby conscript such private persons to act as “agents of [Louisiana] with the ability, authority, and resources to pursue civil monetary penalties, liquidated damages, or other remedies to protect the fiscal and programmatic integrity of the medical assistance programs[.]”  La. R.S. § 46:437.2; see also La. R.S. § 46:439.1. Also, similar to the federal FCA, penalties under the Louisiana FCA can be substantial, including a civil penalty of between $5,500.00 and $11,000.00 for each false claim plus treble damages equal to three times the amount of actual damages sustained by the Louisiana medical assistance programs as a result of the false claim violation(s) at issue.  La. R.S. § 46:438.6.  Finally, (1) the Louisiana FCA also specifically prohibits a “reverse false claim,” i.e., 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 Louisiana medical assistance programs (see La. R.S. § 46:438.3(C)) and (2) there also exists a Louisiana criminal statute that provides for imprisonment of up to five (5) years as well as additional fines for Medicaid fraud—requiring an intent to defraud the Louisiana Medicaid Program—which, among other things, includes “[p]resent[ing] for allowance or payment any false or fraudulent claim for furnishing services or merchandise.”  La. R.S. § 14:70.1.

The primary takeaway for Louisiana health care providers, then, is that they face possible false claims liability not only under federal law but also under Louisiana state law, where applicable, i.e., in connection with allegedly false claims seeking payment from federal health care programs as well as allegedly false claims seeking payment from Louisiana state health care programs.

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:   January 9, 2018

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.