Using the False Claims Act to Combat Healthcare Fraud
Every year the federal government is defrauded of billions of taxpayer dollars through the unscrupulous actions of healthcare corporations. In 2010 alone, the healthcare industry constituted $2.5 billion of the total $3 billion in overall government recovery for fraud. And this trend continues. As of the beginning of 2011, 66% of all pending federal whistleblower, or “qui tam,” cases were for healthcare fraud. Considering that healthcare in the United States is a $2.2 trillion industry, and its costs continue to rise, the False Claims Act (“FCA”) proves to be a powerful tool for combating healthcare fraud and returning taxpayer money to the government fisc.
A. Overview of the False Claims Act
The FCA allows private individuals, or “relators,” to bring a civil suit to recover damages incurred by fraud against the government. The relator brings the action on behalf of the government, and is then entitled to a share in any damage award. An actionable FCA complaint must show that the defendant knowingly, or with deliberate indifference or reckless regard, obtained or retained property or money rightfully belonging to the government. If such fraud can be successfully proven, the defendant is liable to the government for a penalty of “not less than $5,000 and not more than $10,000” per occurrence, in addition to treble damages and costs. In a healthcare context, such as medical over-billing, these penalties may lead to judgments of hundreds of thousands, if not millions, of dollars.
Courts interpret the FCA broadly. Additionally, recent Amendments have strengthened the Act to make it even easier for relators to bring claims. For example, the Fraud Enforcement Recovery Act of 2009 expanded the definition of “claim” to include “any request or demand for money or property, whether made directly to the federal government, or to a middle man,” confirmed that added claims to the complaint relate back to the initial filing, expanded the ability to authorize “civil investigative demands,” including requests for documents, interrogatories, and depositions, to “any designee” of the Attorney General, and gave the Department of Justice the ability to share information with relators and other government agencies.
Recently, the federal government has issued an incentive for states to pass their own versions of the FCA. When a state passes its own false claim statute that is at least as effective as the federal government’s, it is entitled to a 10% increase in the state’s share of federal Medicaid fraud recoveries. State statutes must include the minimum protections under the FCA, but may be more expansive than their federal counterpart. For example, the California False Claims Act (”CFCA”) closely mirrors the federal FCA, but contains additional incentives for relators to file suit. For example, the CFCA permits claims against “inadvertent beneficiaries” who receive the benefits of a false claim and fail to report it, and the CFCA rewards successful relators a more generous portion of a recovered claim. Additionally, California courts have repeatedly held that the statute should be construed broadly in order to provide the “widest possible coverage” for potential relators.
B. Overview of False Claims Act Procedures
Procedurally, the FCA has many unique aspects. First, a relator’s complaint must be immediately served on the Attorney General along with a “relator’s statement” – a statement disclosing the relevant information supporting the relator’s claims. The relator’s evidence must be gleaned independently, and not through a “public source,” such as a federal criminal, civil or administrative hearing, a federal report, audit or investigation, or the news media. However, recent amendments allow the government to override the “public disclosure bar” if it so chooses.
Unlike most lawsuits, a relator’s FCA complaint is not immediately served on the defendants, but is filed with the Court under seal. The government then reviews the compliant and investigates the action to determine whether it wants to intervene, a period that can last anywhere from 60 days to several years.
Next, the government may decide to intervene in the action. Although the government assumes primary prosecutorial responsibilities when it intervenes, the relator maintains “the right to continue as a party to the action.” If the government decides not to intervene, the relator may choose to continue the case alone. A relator who continues without the government’s intervention is entitled to 24-30% of any proceeds, compared to 15-25% if the Government does intervene.
C. Types of Healthcare Fraud
Almost half of all healthcare spending in the United States originates from the government, usually in the form of Medicare or Medicaid payments to healthcare companies who provide products and services. Thus, it is no surprise that healthcare companies have found a myriad of ways to defraud the government of these funds. Below are some of the most common types of healthcare fraud that have led to successful FCA cases in recent years.
Over-Billing and “Upcoding”: Healthcare providers may defraud the government by billing for products or services that were never provided to patients, or by arbitrarily inflating the actual cost of the products and services. Additionally, the government may be over-billed when a provider bills for a procedure that is actually more complex or expensive than what was actually received, commonly known as “upcoding.”
Discriminatory Billing: A healthcare entity may be liable under the FCA when it charges some patients more for products or services than it charges others. A common example is charging Medicaid or Medicare patients more for the same services it provides privately insured patients.
Medically Unnecessary Services: A healthcare provider may commit fraud by charging Medicare or Medicaid for services or procedures that a patient does not actually need.
Inadequate Services and Products: Healthcare entities may provide inadequate services or products to a Medicare or Medicaid patient to save money even though adequate services or products are available. This may give rise to an FCA claim.
“Reverse” False Claims: A healthcare entity may be liable under the FCA when it underpays or avoids paying an obligation to the government, or when it is overpaid by the government, is aware of the overpayment, and takes no action to return the payment. Known as a “reverse” false claim, this type of fraud is applicable whether the entity affirmatively conceals the overpayment or not.
Kickbacks: A healthcare provider may accept gifts or money in exchange for a purchase or influence over future purchases. This type of exchange is known as a “kickback.” In a healthcare context, this often occurs when a doctor accepts money from pharmaceutical or medical device manufacturers in exchange for using the company’s drug or device. In 2010, Congress specifically amended the FCA to provide that a violation of the federal Anti-Kickback Staute causes the claim to be false under the FCA.
With skyrocketing healthcare costs and ever increasing government expenditures into healthcare, there is no doubt that healthcare fraud will continue to siphon money from the government into the hands of healthcare corporations. Thankfully, the FCA, with its broad language and unique litigious devices, will continue to stand as a powerful tool for preventing and combating healthcare fraud.
 Department of Justice, “Department of Justice Recovers $3 Billion in False Claims Cases in Fiscal Year 2010, (2010). http://www.justice.gov/opa/pr/2010/Nove … -1335.html
 Niall P. McCarthy and Justin T. Berger, “False Claims Act Trends 2011”, 3 (2011)
 Id. at 5
 31 U.S.C. §§ 3729 et seq.
 31 U.S.C. §3729(a)-(d)
 U.S. v Neifert-White Co., 390 U.S. 228, 232 (1968) [“the Court has consistently refused to accept a rigid, restrictive reading” of the FCA]
 Pub. L. No. 111-21; §§ 3729(b)(2)(A), 3731(c), 3733(a)(1) and 3733(i)(2)(1)
 Deficit Reduction Act of 2005, Pub. L. No. 109-171, 120 Stat. 4
 Gov. Code §§12650-55
 San Francisco Unified School Dist. v Laidlaw Trans., Inc., 182 Cal.App. 4 438, 446 (2010). See also: City of Pomona v Superior Court, 107 Cal.Rptr.2d 710, 716 (2001)[confirming that the CFCA should be construed broadly]
 31 U.S.C. § 3730(b)
 31 U.S.C. § 3730(e)(4)
 McCarthy, supra note 2 at 2
 31 U.S.C. § 3730(b)(2)
 31 U.S.C. §3730(c)(1)
 31 U.S.C. § 3730(d)
 Niall, supra note 2 at 5.
 31 U.S.C. § 3729(a)(1)(G)
 Reuben Guttman and Oderah Nwaeze, “Missing an Opportunity to Protect Patients and Save Dollars,” (2011). http://www.acslaw.org/acsblog/all/ppaca
 2010 Patient Protection and Affordable Care Act (“PPACA”). Pub. L. No. 111-148, 124 Stat. 119. For discussion on possible future limitations of PPACA, seeGuttman, supra note 24 and Matthew Zandi, “Amgen goes to the US Supreme Court to redefine kickbacks,” Los Angeles Daily Journal, Vol. 124 no. 200 (2011).