State And Federal False Claims Act

Spring 2008Newsletters Staying Well within the Law

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As seen in Staying Well within the Law, a newsletter on the current legal issues facing today’s health care industry.

The Federal False Claims Act (Federal FCA) was enacted in 1863 during the presidency of Abraham Lincoln and at the height of the Civil War. Deceptive military contractors were defrauding the Union Army out of hundreds of thousands of dollars by supplying troops with defective products and faulty equipment. In response, the Federal FCA was established in an effort to prevent such fraudulent acts against the government. Under the Federal FCA’s original provisions, a private citizen was able to file a civil action, also known as a “qui tam” action, on behalf of the government, against persons engaged in fraudulent acts. As an added incentive, these qui tam plaintiffs were also entitled to share in any money the government eventually recovered.

Since then, the Federal FCA has changed significantly, but its ultimate goal is still the same – to prevent fraud against the government. Today, the Federal FCA imposes civil liability against any person or entity that knowingly submits, or causes the submission of, a false or fraudulent claim for payment to any federally funded program. A person or entity that is found liable under the Federal FCA is subject to a civil penalty between $5,500 and $11,000 plus three times the amount of damages sustained because of the fraudulent act, plus the costs of any civil action brought to recover such penalties or damages. The Federal FCA still allows qui tam actions, which allow a private citizen – now also known as a “whistleblower” or a “relator” – to file an action on behalf of the government against persons engaged in fraud and to share in any recovered funds.

The focus of the Federal FCA has also changed through the years. While the Federal FCA generally applies to any false claim submitted for payment to any federally funded program, recently it has been primarily used as a tool for combating health care fraud and abuse, most notably, Medicare and Medicaid billing fraud. The health care industry now consistently accounts for the vast majority of settlements and judgments obtained by the federal government under the Federal FCA. The Centers for Medicare and Medicaid Services (CMS) recognizes that the best way to cut Medicare and Medicaid spending and maintain the integrity of the programs is to actively enforce anti-fraud compliance laws, like the Federal FCA, to reduce Medicare and Medicaid fraud and abuse.

To further combat health care fraud and abuse, Congress enacted the Deficit Reduction Act of 2005 (DRA). The DRA contains, among other things, provisions to slow spending in Medicare and Medicaid and creates financial incentives for states to enact anti-fraud legislation. Section 6031 of the DRA, which became effective January 1, 2007, encourages states to enact their own false claim act (State FCA) to establish liability for the submission of false or fraudulent claims to state Medicaid programs. Those states that enact a qualifying State FCA will receive an additional 10 percent of the damages recovered in Medicaid fraud cases. For example, typical recoveries of damages that are shared with a state are in direct proportion to the state’s share of the costs to its Medicaid program. Thus, if a state’s share of the costs to its Medicaid program is 40 percent, then the state would be entitled to receive 40 percent of the damages recovered. But under the DRA’s new incentive program, if the state has a qualifying State FCA, that state would now be entitled to receive 50 percent of the damages recovered.

In order for a state to qualify for this incentive, the State FCA must meet certain requirements, as determined by the Office of the Inspector General (the OIG) of the Department of Health and Human Services. First, the State FCA must establish liability to the state for false or fraudulent claims, as described in the Federal FCA, with respect to any expenditures related to the state Medicaid plan. Second, the State FCA must contain provisions that are at least as effective in rewarding and facilitating qui tam actions for false or fraudulent claims as those described in the Federal FCA. Third, the State FCA must contain a requirement for filing an action under seal for 60 days with review by the State Attorney General. Finally, the State FCA must contain a civil penalty that is not less than the amount of the civil penalty authorized under the Federal FCA.

On January 7, 2008, New Jersey’s Assembly unanimously passed a State FCA, which was then signed into law by Governor Jon Corzine on January 14, 2008. New Jersey’s FCA is based upon the Federal FCA and similarly imposes civil liability against any person or entity that knowingly submits, or causes the submission of, a false or fraudulent claim for payment to any state funded program. It also provides financial incentives to whistleblowers and relators to expose fraud affecting state funds, much like the Federal FCA.

The enactment of New Jersey’s FCA follows the trend of new State FCAs as it joins 22 other states – Arkansas, California, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana, Louisiana, Massachusetts, Michigan, Missouri, Montana, Nevada, New Hampshire, New Mexico, New York, Oklahoma, Rhode Island, Tennessee, Texas, and Virginia – as well as the District of Columbia, that have enacted their own State FCA.

Just as the Federal FCA is not limited to health care fraud, the majority of State FCAs protect the state’s funds generally, rather than protecting only state Medicaid funds. In fact, only seven of the 23 states have State FCAs that apply only to fraud involving Medicaid or other state health care funds: Arkansas, Georgia, Louisiana, Michigan, Missouri, New Hampshire, and Texas. The remaining states and the District of Columbia have State FCAs that apply to fraud involving a broad range of state-funded programs.

While most of the State FCAs are based upon the Federal FCA, there are some differences. For example, in Arkansas and Missouri, a whistleblower or a relator may receive a reward for providing information that leads to the recovery of state funds, but these states do not allow private citizens to file qui tam actions. Additionally, several states – Hawaii, Massachusetts, Nevada, and Tennessee – have expanded on the Federal FCA’s commonly-used theories of liability and create a new legal theory for holding liable a person or entity who is the “beneficiary” of the “inadvertent submission” of a false or fraudulent claim, if that person or entity fails to disclose (and presumably correct) the false claim after discovering it. Tennessee’s FCA also reaches beyond false or fraudulent “claims” and imposes liability for false or fraudulent “conduct” that apparently does not necessarily involve “claims” submitted to the state and adds a new category of liability for “any false or fraudulent conduct, representation, or practice in order to procure anything of value directly or indirectly from the state or any political subdivision.”

With the ever-expanding field of anti-fraud legislation targeted to health care fraud and abuse, it is more important than ever to ensure compliance in medical practices. By way of example, the following list includes examples of the various types of health care/medical fraud:

  • “phantom billing” or billing for tests not performed
  • performing inappropriate or unnecessary procedures
  • charging for equipment and/or supplies never ordered or used
  • billing Medicare or Medicaid for new and expensive equipment but providing the patient with used and cheap equipment
  • “reflex testing” or automatically running a test whenever the results of some other test fall within a certain range, even though the reflex test was not requested by a physician
  • “defective testing” or when a test or part of a test was not performed because of technical trouble (i.e. insufficient or destroyed sample, machine malfunction) but is billed for anyway
  • “unbundling” or using two or more Current Procedural Terminology (CPT) billing codes instead of one inclusive code for a defined panel where rules and regulations require “bundling” of such claims
  • submitting multiple bills, in order to obtain a higher reimbursement for tests and services that were performed within a specified time period and which should have been submitted as a single bill
  • “double billing” or charging more than once for the same service (i.e. billing using an individual code and again as part of an automated or bundled set of tests)
  • “up coding” or inflating bills by using diagnosis billing codes that indicate the patient experienced medical complications and/or needed more expensive treatments (i.e. billing for complex services when only simple services were performed, billing for brand-named drugs when generic drugs were provided, listing treatment as having been for a more complicated diagnosis than was actually the case)
  • routinely waiving patient co-payments

If you have any questions or concerns please feel free to contact the author at 609.895.6737 or [email protected] , or any other member of the Health Law Group.