False Claims Act looms for healthcare regulation

The False Claims Act (FCA), 31 U.S.C. 3729, et seq., is about to become the worst-kept secret of the healthcare industry. One of the nation's oldest statutes, the FCA has allowed the government to recover more than $3.1 billion in the first nine months of 2006, including a $900 million settlement with Tenet Healthcare-the largest FCA recovery ever. And, as if these staggering numbers were not enough to garner attention, as of January 1, 2006, entities that receive $5 million or more per year in Medicaid payments will be required to inform their employees about the FCA. Because employees are the most likely whistle-blowers in an FCA lawsuit, the FCA's prominence in the healthcare industry should increase over the next few years.

False Claims Act basics

The FCA prohibits those doing business with the government from submitting false claims for payment or making false statements in support of claims for payment. Civil lawsuits against violators can be brought directly by the United States through the Attorney General or by a whistle-blower (a "relator") on behalf of the government. Relators, who are frequently company employees with access to critical information that serves as the basis for their FCA claims, are rewarded handsomely with up to 30% of the total recovery if their case is successful. Relators also benefit from the FCA's retaliation provisions, which prohibit retaliation against employees for pursuing an FCA case and provides for reinstatement, damages and reasonable attorneys' fees.

The most striking feature of the FCA is its penalty provisions, which make it attractive to potential whistle-blowers and to the government as a regulatory enforcement vehicle. The FCA has dual damage provisions, providing for treble damages plus penalties of up to $11,000 per false claim. These penalties often work together to create massive damages. The per-claim penalty provision is particularly useful in high-volume healthcare practices, where, for example, submission of a large number of false patient invoices can result in millions in penalties, even if the government suffers only nominal damages. The treble-damages penalty can have a particularly nasty effect in healthcare cases involving false certifications of eligibility for reimbursement. Because healthcare providers are required to certify compliance with a number of regulations, including anti-kickback and Stark laws, before receiving reimbursement, a violation of any of those regulations can render false all the claims submitted. In one sense, the government suffers no damages in such cases because it and the patients received services for which they had paid. On the other hand, but for the false certification, the government would not have paid. Some courts have held that the false certification itself damages the government in the full amount of the claim, thus allowing the government to recover treble that amount.

History and trends

Originally known as the "Lincoln Law," the FCA was enacted at the urging of President Abraham Lincoln in 1863 in response to fraud perpetrated by Civil War contractors who sold defective weapons to the Union army. The FCA fell into disuse until it was revitalized by amendments passed in 1986. From 1986 to 1992, most cases targeted defense contractors in keeping with the statute's original purpose. This changed in 1992 when National Health Laboratories, one of the nation's premier clinical testing facilities, agreed to a $110 million FCA settlement. Since 1996, roughly half of all FCA cases filed and more than two-thirds of all FCA recoveries have involved healthcare fraud. In fact, the 10 highest FCA recoveries involve the healthcare industry, and yearly FCA awards against healthcare providers have increased from $700 million in 2000 to $1.8 billion in 2004.

The healthcare arena has become an inviting target for relators and their lawyers because of the complexity of regulations and the size of potential recoveries. Because entities must certify compliance with a labyrinth of Medicare and Medicaid regulations before receiving reimbursement from the government, a violation of just one of those regulations can render numerous claims false, and therefore actionable under the FCA. The number of FCA cases involving healthcare providers is only likely to increase because of recent developments.