Overview of False Claims Act Litigation

Wednesday, September 30, 2015

Presented By the IADC Medical Defense and Health Law Committee

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Presenter

Jane W. Duke Mitchell, Williams, Selig, Gates & Woodyard PLLC

Little Rock, AR

jduke@mwlaw.com

Overview

• The False Claims Act (“FCA”) is the government’s primary litigation tool for combating fraud.

• The FCA empowers both the U.S. Attorney General and private persons to institute civil actions to enforce the Act against anyone that commits fraud by submitting false or fraudulent claims to the federal government.

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False Claims Act

• 31 U.S.C. §§ 3729-3731

– Civil War vintage (1863) – known as “informer’s Act” or “Lincoln Laws”

– Initially directed at procurement fraud and price gouging

– Became popular tool for combating fraud in 1986 when its scope greatly increased via statutory amendments

False Claims Act

• Amended Several Times

1986 – FCA Amendments

2009 – Fraud Enforcement Recovery Act (FERA)

2010 – Affordable Care Act (ACA)

False Claims Act

1986 – FCA Amendments

Intent – Clarified that proof of a specific intent to defraud is not required.

Reverse False Claims – Created a provision to address a party’s liability under the FCA when the person makes statements to reduce his obligation to pay money to the government.

Filing Procedures – Qui tam provisions were amended to require plaintiffs to file their complaints in camera and under seal.

Jurisdiction – Public disclosure jurisdiction bar strips a district court from jurisdiction over the relator’s action when the action is based on allegations which have been publicly disclosed, unless the qui tam plaintiff could show they were an original source of the information.

False Claims Act1986 – FCA Amendments (cont’d)

Relator’s Fees – Qui tam plaintiff guaranteed under most circumstances 15% of the recover and may collect up to 25%. If no intervention, guaranteed 25% and may recover up to 30 %. Per violation and now treble instead of doubled.

Damages – Civil forfeiture provision was raised from $2,000 to $5,000 to $10,000 per violation and now treble instead of doubled.

Proof Required – Preponderance of the evidence standard

Statute of limitations – Increased the statute of limitations from 6 years after a violation occurs to the longer of six years after a violation or 3 years after the government should have learned of the facts underlying the claim, but in no event longer than 10 years

Voluntary disclosure program

False Claims Act

2009 – FERA Amendments

Revisions to subsections (a)(1) and (a)(2)

False Claims

Statements

Definition of Claim

Broadened the conspiracy provision

False Claims Act

2010 – ACA Amendments

The Public Disclosure Bar

“Obligation” defined to include retention of

payments beyond 60 days after identification.

$435 million paid out to relators !

HEALTH CARE FRAUD RECOVERIES

• FY 2014 - $2.3 billion in recoveries in health care

• More than 67% of qui tam cases in the last decade have been health care fraud qui tam cases.

• Typical health care defendants: pharmaceutical companies; medical device companies; hospitals; durable medical equipment; physicians; medical suppliers.

• Johnson & Johnson (Risperdal, Invega and Natrecor) – $1.1 billion

• Omnicare (skilled nursing facilities /kickbacks)– $116 million

• Community Health Systems, Inc. (hospital inpatient care)– $98.15 million

• Halifax Hospital (Stark)– $85 million

• Amedisys Inc. (home health unnecessary services and AKS)– $150 million

False Claims Act

• Most potent of weapons against health care fraud and abuse:

– Severe penalties

– Bounty-hunter rewards (qui tam provisions)

• $435 million paid out to relators last year!

– Broad scope

Federal False Claims Act-Prohibitions

• Prohibits the knowing submission of false claims or the use of a false record or statement for payment with government funds

• Covers claims presented to any health care program funded in whole or in part by federal funds

• “Knowing” includes actual knowledge, deliberate ignorance and reckless disregard for the truth or falsity of the information

• Applies to individuals and corporate entities

Federal False Claims Act – Penalties/Consequences

• Monetary penalties of between $5,500 and $11,000 per claim, plus 3 times the damages sustained by the government

– Possible exclusion of violators from participation in federal health care programs and from employment by entities receiving federal health care funds

– Professional license sanctions

– Loss of entity accreditation/certification

Breakdown

In order to incur liability under the FCA, a“person” mustPresent or “cause[ ] to be presented”“A false or fraudulent”“claim,” “record or statement”“knowingly”To “the united States government”Materiality

The Meaning of “Person”

Vermont Agency – Relators cannot sue states under the FCA

Municipalities?Yes

Corporations?Yes

Partnerships?Yes

Meaning of “cause” to present a false or fraudulent claim

Passive knowledge

Active involvement

Policy

“False” or “Fraudulent”

Factually false

Legally falseExpressImplied

Quality of Care casesKickback and Stark

Reverse False Claims

A person is subject to FCA liability if he “knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government. 31 U.S.C. § 3729(a)(1)(G)

Hot Topics: 60-Day Repayment Rule

• Affordable Care Act – amendments to the False Claims Act

– 60-day deadline to report/return “identified” overpayments

– Failure to do so – false claim liability

• “Identified”– knows or acts in “reckless disregard”

• Inquiries with “all deliberate speed”

An Obligation

“An established duty, whether or not fixed, arising . . . from the retention of

an overpayment.” 3729(b)(3)

Adopted as part of FERA in 2009

An Overpayment

“An overpayment must be reported and returned . . . By . . . The date which is 60 days after the date on

which the overpayment was identified.” 42 U.S.C. § 1320a-7k(d)(2)

Adopted as part of ACA in 2010

United States ex rel. Matheny v. Medco Health Solutions, 671 F.3d 1217 (11th Cir. 2012)

Court held that FCA liability existed when provider failed to remit payments to government required under corporate integrity agreement

Kane v. Healthfirst, Inc., No. 1:11-cv-02325-ER (S.D.N.Y. Aug. 3, 2015)

On August 3, the Southern District of New York issued the first judicial opinion in a False Claims Act (FCA) case brought under CMS’ “60-day rule.” The Government’s position was that the hospitals’ retention of the overpayments for up to two years violated the FCA under the 60-day rule, which requires health care providers to report and return “identified” overpayments within 60 days or face liability under the FCA. The law was enacted in 2010, but a proposed CMS rule on the topic issued in February 2012 has not been finalized.

Defendant hospitals moved to dismiss the FCA case for failure to state a claim upon which relief could be granted. The court denied the hospitals’ motion to dismiss, finding that the government stated a claim under the FCA even though the hospitals had repaid the overpayments at issue. Underlying the overpayments was a software glitch that caused the hospitals to submit erroneous claims to the New York Medicaid program. Kane, a former hospital employee, was tasked with assisting in an internal investigation to determine the extent of the problem. As a part of his investigation, Kane sent a spreadsheet via e-mail to hospital executives that included 900 claims that Kane believed were improperly billed. The resulting potential overpayments totaled more than $1 million.

Repayment of some of the monies was made to Medicaid. Repayment was made in a series of payments, with the lions share not being made until well after 60 days from Kane’s spreadsheet being e-mailed. By that point, a CID had been served on the hospitals. The government contended that the hospitals should have repaid the funds within 60 days of Kane’s e-mail, even though the parties acknowledged that Kane’s e-mail was over-inclusive of claims. The hospitals argued that Kane’s report did not “identify” any overpayments. The defense took the position that the spreadsheet was simply a list of claims that were potentially erroneous, and that notice of potential overpayments is distinct from “identification.”

This case provides important meaning of to “Identified” under the ACA and FCA. The court acknowledged that Congress did not define the word “identified” in the statute, and that because no other court has weighed in, the Kane case was one of first impression. The hospitals argued that the definition of “identified” was essentially “classified with certainty.” The government disagreed, and contended that there was “identification” of an overpayment if the defendant was “put on notice that a certain claim may have been overpaid.” Ultimately, the court agreed with the government, stating that “[t]o define ‘identified’ such that the sixty day clock begins ticking when a provider is put on notice of a potential overpayment, rather than the moment when an overpayment is conclusively ascertained, is compatible with the legislative history of the FCA and the FERA highlighted by the Government.”

Interestingly, the Kane court acknowledged that the ruling imposes “a demanding standard of compliance,” but found support in the ACA for its strict interpretation and the resulting “unforgiving rule." At the end of the day, the court remained convinced that “prosecutorial discretion” would dictate that “well-intentioned healthcare providers working with reasonable haste to address erroneous overpayments” are not subjected to enforcement actions.

Settlement talks are underway the Department of Justice told a New York federal judge earlier this month.

The DOJ made the disclosure in a letter to U.S. District Judge Edgardo Ramos on behalf of itself and Continuum Health Partners, Inc., which is accused of improperly retaining Medicaid overpayments before it became part of New York's Mount Sinai Health System.

After a recent pretrial conference, the parties “discussed further and believe that it is in their best interests to explore settlement before engaging in discovery,” according to the letter.

The letter provided few other details, saying only that the parties will report back later with an update on whether a settlement is ultimately reached.

The Public Disclosure Bar42 U.S.C. 3730(e)(4)(A)

The court “shall dismiss” [unless opposed by the government] a qui tam action if “substantially the same allegations or transactions as alleged in the action” were “publicly disclosed in:A federal criminal, civil, or administrative hearing in which the government or its agent is a partyIn a congressional, GAO, or other federal report, hearing, audit or investigationThe news mediaUnless the relator is the original source of the information.

Now government has discretion to allow the relator to stay in a case even if the allegations were publicly disclosed and the relator was not the original source

Before 2010, the public disclosure bar was jurisdictional and courts had no discretion to keep relators in a case if it applied.

Rule 12(b)(6) and 9(b) – Dismissal for Failure to Plead Fraud with Particularity

Representative Example Requirement

Thayer v. Planned Parenthood

Exception for HIPAA breach based on whistleblower status45 CFR 164.502. . .

(j) Standard: Disclosures by whistleblowers and workforce member crime victims—

1) Disclosures by whistleblowers. A covered entity is not considered to have violated the requirements of this subpart if a member of its workforce or a business associate discloses protected health information, provided that:

(i) The workforce member or business associate believes in good faith that the covered entity has engaged in conduct that is unlawful or otherwise violates professional or clinical standards, or that the care, services, or conditions provided by the covered entity potentially endangers one or more patients,workers, or the public; and

Exception for HIPAA Breach (Cont’d.)

(ii) The disclosure is to:

(A) A health oversight agency or public health authority authorized by law to investigate or otherwise oversee the relevant conduct or conditions of the covered entity or to an appropriate health care accreditation organization for the purpose of reporting the allegationof failure to meet professional standards or misconduct by the coveredentity; or

(B) An attorney retained by or on behalf of the workforce member or business associate for the purpose of determining the legal options of the workforce member or business associate with regard to the conduct described in paragraph (j)(1)(i) of this section.

Questions for Presenter?

Jane W. Duke Mitchell, Williams, Selig, Gates & Woodyard PLLC

Little Rock, AR

jduke@mwlaw.com

Overview of False Claims Act

Litigation

Wednesday, September 30, 2015

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