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The False Claims Act

An Overview: False Claims Act Enforcement and Penalties

1. What is the federal False Claims Act?

The federal False Claims Act makes it illegal for any individual or facility to submit claims to the federal government for payment when the submitting individual/entity knows, or should know, that the claims are false or fraudulent. Although the False Claims Act is targeted at “fraud,” violations are often subtle and nuanced, thereby creating exposure for many healthcare providers who do not view themselves as violating these laws or acting “fraudulently.” As any healthcare provider knows, in the context of the healthcare industry the overwhelming majority of False Claims Act investigations and prosecutions are against individuals and facilities who the federal government believes have submitted false or fraudulent claims for Medicare reimbursements.

Representative Matter: DBS attorneys defended a healthcare facility through CMS Office of Inspector General investigations of allegations that it had violated the False Claims Act by engaging in up-coding and providing medically unnecessary services.

2. False Claims Act Violations in the Healthcare Industry

Federal and state prosecutors often use the False Claims Act to combat healthcare fraud and abuse. The False Claims Act is often used to combat violations by healthcare providers and can take many forms, but the most common are when an individual or facility submits claims for reimbursement by Medicare for:

  • Services that were never actually rendered;
  • Services allegedly performed on patients who never actually existed (a.k.a., “ghost patients”);
  • Procedures that were more expensive than those that were actually performed (a.k.a., “up-coding”);
  • Individual services when some or all of those services should be bundled per Medicare regulations (a.k.a., “unbundling”); and
  • Services that were performed but which were not medically necessary.

In addition, healthcare providers who violate the federal Anti-Kickback Statute and/or the Stark Law may also be prosecuted and penalized under the False Claims Act.

3. False Claims Act Enforcement and Penalties

The False Claims Act is a punitive statute. For civil violations, its penalties provisions authorize fines of three times the amount the government paid for each false claim, plus an additional penalty of up to $11,000 per false claim. In the healthcare context, due to the number of Medicare claims that a facility can submit in any given period of time, and the cumulative monetary value of those claims, some of the largest penalties imposed on healthcare providers are the result of False Claims Act prosecutions. For example, in 2014 a provider of home health services agreed to pay $150 million to resolve allegations brought under the federal False Claims Act, the Stark Law, and federal Anti-Kickback Statute that it falsely submitted claims to Medicare for services that were not medically necessary, were not provided to patients who were homebound, or were otherwise misrepresented to increase Medicare reimbursement. Similarly, in 2014 a provider of pharmaceuticals and pharmaceutical services to nursing homes agreed to pay $124 million to settle False Claims Act and federal Anti-Kickback Statute violations based on allegations that it offered improper financial incentives to nursing homes in return for the facilities’ continued selection of it to supply medication to the facilities’ elderly Medicare and Medicaid beneficiaries.

This latter example is particularly noteworthy because the federal investigation that resulted in the $124 million fine was initiated by a whistleblower pursuant to the False Claims Act’s qui tam provision. The qui tam provision in the federal False Claims Act contributes greatly the statutes widespread prevalence because it allows any individual who possesses knowledge of a false claim to bring a civil action on behalf of the United States against a violator. Whenever someone brings such a qui tam case the federal government has the opportunity to intervene in the lawsuit and assume primary responsibility for prosecuting, dismissing, or settling the action. Whether the federal government intervenes or not, if the qui tam suit is ultimately successful the whistleblower, or “relator,” who initially brought the suit may be awarded a percentage of the funds recovered. Given the size of potential False Claims Act settlements and damages awards, these qui tam suits can be very lucrative and, therefore, lead to increased reporting of alleged wrongdoing by private individuals.

Representative Matter: DBS attorneys counseled and advised a national healthcare client in responding to multiple subpoenas issued by the federal government in several jurisdictions, including identifying and coordinating the production of responsive documents and a vast array of electronic records.

4. False Claims Act Criminal Prosecutions

Individuals can also be prosecuted criminally for violating the False Claims Act. The federal government, primarily through the Department of Justice (DOJ), has demonstrated a strong commitment to investigating and targeting fraud in federal programs and government contracts, and prosecuting violators criminally where they believe the conduct warrants it. The criminal penalties for violating the False Claims Act include significant fines and jail time. Because corporations cannot be put in prison, the government will frequently begin an investigation into a company but end up pursuing criminal charges against the individuals that control such as the President, CEO, CFO, or medical director in the case of a healthcare facility.

5. State False Claims Acts

In addition to the federal False Claims Act, many states have enacted similar state False Claims Acts. State False Claims Acts generally operate in the same manner as the federal False Claims Act, except they are enforced by the state (usually by the state’s attorney general’s office) and are aimed at preventing and punishing the submission of fraudulent claims to state governments for payment. In the healthcare context, this often refers to the submission of false claims to state-run and state-sponsored health insurance (or dental insurance) programs such as MassHealth (in Massachusetts), as opposed to Medicare.

The damage a False Claims Act investigation, let alone a civil enforcement action or a criminal prosecution of individuals, can cause to a healthcare provider’s operations and reputation is obvious, not to mention the detriment defending against a lengthy False Claims Act prosecution can have on that provider’s bottom-line. Given the magnitude of monetary and reputational damages that are usually at stake, healthcare providers are wise to engage legal counsel who not only understand the healthcare industry but who also has experience defending white collar criminal fraud cases under the False Claims Act and other federal anti-fraud statutes. Even more importantly, healthcare providers must engage counsel at the very first sign of an investigation. This usually takes the form of a relatively benign looking subpoena, civil investigative demand, or some other governmental demand for records that likely will not state, or even suggest, the potentially significant civil or criminal exposure the recipient may ultimately be facing. Regardless of what the notice says, healthcare providers should always remember that it is being sent by a law enforcement agency. The earlier in the process the recipient of such a notice engages experienced healthcare litigation counsel, the better the chances of successfully navigating the investigation and preventing the recipient from becoming the subject of an enforcement action, or at the very least minimizing any potential liability.

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