What is the relationship between the healthcare industry and the False Claims Act? Turns out, it is pretty intimate!
In this Article …
- The False Claims Act – some background
- What is the purpose of the False Claims Act?
- Healthcare services and the False Claims Act
- What are the most frequent types of False Claims Act cases being prosecuted?
- Whistleblower Provision
- What are the penalties?
- The False Claims Act and other Laws
- Avoiding False Claims Allegations
- False Claims Act FAQs
The False Claims Act – some background
The U.S. False Claims Act (FCA) is a federal law, under which any entity or person who submits false or fraudulent claims for payment from government agencies can be prosecuted. The act prohibits knowingly submitting (or causing to be submitted) false claims for payment. It also prohibits making false statements that are material to a false claim.
This act also contains “whistleblower” or “qui tam” provisions. These allow for persons who have evidence of fraud against government programs to sue for recovery of payments made for false claims. Whistleblowers may receive between 15 and 25 percent of the funds recovered.
The importance of this federal law to organizations and employees of healthcare organizations cannot be overstated. This includes organizations that sell and distribute medical devices, technology, software, pharmaceuticals, and who provide healthcare services or medical products. Each organization and its employees must recognize the boundaries and implications of the FCA. It is important to prevent fraud and stay within the law while allowing the organization to be productive and profitable.
What is the purpose of the False Claims Act?
The U.S. False Claims Act was established in 1863 to deter fraudulent activity against the government. Many disreputable contractors sold defective guns and ammunition, sick working mules, and inadequate meals and provisions to the Union Army during the American Civil War.
President Abraham Lincoln stated, “Worse than traitors in arms are the men, who pretend loyalty to the flag, feast and fatten on the misfortunes of the nation while patriotic blood is crimsoning the plains of the South and their countrymen are moldering in the dust.”
In 1986, the Federal Government revitalized the law to encourage public scrutiny of transactions between private contractors and the United States government. This one act was the single most important document promoting:
- the deterrence of fraudulent activity,
- the discovery of false claims,
- the recovery of funds, and
- the prosecution of those committing fraud against the government.
The False Claims Act began as a fight against the sale of sick mules to the Union Army. It was designed to deter fraud from government contractors. It has now become the most powerful tool the government has for fighting Medicare and Medicaid fraud. In 2009, the Fraud Enforcement and Recovery Act of 2009 (FERA) was created, further increasing the power of the U.S. False Claims Act.
Healthcare services and the False Claims Act
The FCA makes it unlawful to knowingly submit or cause someone to submit false claims for payment of federal funds. There are many examples of healthcare services and operations that lend themselves to accusations of false claims.
- Submitting claims to a federal healthcare program for goods or services not provided.
- Knowingly submitting false records or statements material to a false claim.
- Making false claims about the quality or cost of goods sold to the government.
- Falsifying tests or information regarding products.
- Performing unnecessary medical services.
- “Upcoding” for procedures or health services.
- Presenting equipment as being operational or tested when it is not.
- Unbundling by using several codes to increase the charges.
- Bundling several charges together to gain a higher reimbursement.
- Double billing for services or products.
- Falsifying test results or other information in conjunction with a claim.
- Not reporting overpayments from the government.
- Billing for research that was not done.
- Failing to report product defects and continuing to sell and bill for the product.
What are the most frequent types of False Claims Act cases being prosecuted?
Probably the most frequent types of fraud committed by healthcare providers are the submission of claims for services or goods not provided, and the submission of a false record or statement material to a false claim. For instance, if a physician submits a claim for a patient visit but he has not seen the patient at all, he has made a false claim. If the organization to which the claim was submitted asks for the record of the visit and the physician falsifies and submits one, he has submitted a false claim.
Other false claims involve falsification of documentation regarding the quality or testing of the product. Suppose a hip replacement device is sold as tested and operational, and it is found to be defective after being put into use. If the organization does not report this and continues to sell the device, it would be making false claims. There are many more examples, but they all contain one quality: there is some type of falsification in the claim or record material to the claim.
The FCA also provides a vehicle for anyone in the general public who has evidence of fraud against federal programs to sue and receive incentives, if funds are recovered. This incentive provision is called the “Whistle Blower” provision. The formal name for this provision is “Qui Tam,” taken from a Latin phrase that means “he who sues for the king as well as himself.” The process begins when a person or group is able to gather evidence of potential fraud. If the government determines the fraud claim has merit, it may take over the claim on behalf of the government. If funds are recovered, the whistleblower may receive between 15 and 25 percent of the recovery. This amount could be and has been, quite substantial in some cases.
What are the Penalties?
False Claims Act penalties remained static for several years. They were a penalty of up to three times the value of the false claims and up to $11,000 per claim, set in 1999. In 2015, Congress updated the penalties and provided for annual updates for inflation in the amount per claim. In 2022, the Justice Department increased the penalty per claim amount to a range of $12,537 to $25,076 per claim. There can also be criminal penalties – fines and imprisonment – for individuals.
Each instance of billing for a medication, durable medical equipment, or other product or service can be considered a false claim, so settlements for high-volume products or services can easily reach significant sums. Some states have false claims laws as well, and individuals and organizations can receive significant fines under those state laws.
Healthcare organizations have become the most frequent source of False Claims Act judgments and settlements. For the fiscal year ending June 30, 2022, the U.S. Department of Justice reported $5.6 billion in settlements and judgments. Over $5 billion was related to matters related to healthcare services, products, and organizations. This was second only to the $5.7 billion recovered in 2014.
The False Claims Act and other Laws
It is becoming common for federal authorities to tie together violations of the Stark Law and the Federal False Claims Act. The Stark Law prohibits financial relationships between a Designated Health Service and a physician who refers patients to that service unless the arrangement meets one of several exceptions. The list of designated health services includes hospitals. Hospitals are not permitted to receive Medicare or Medicaid payments for services ordered by a physician with a financial relationship unless a permitted exception is in place. If the arrangement is defective, any payments for services ordered by the physician must be paid back to Medicare and/or Medicaid.
Each claim submitted to government payers contains a certification that the submitter is in compliance with all applicable Medicare or Medicaid laws and regulations, including the Stark Law. So if the arrangement with a physician who orders the services listed on the claim is defective, the claim can be considered a false claim.
This tying together of offenses has led to some enormous settlements in past years, such as the $267 million settlement with Toumey Hospital in 2015.
Avoiding False Claims Allegations
How can you manage the relationship between your healthcare organization and the False Claims Act? As the old adage goes, an ounce of prevention is worth a pound of cure. Government regulations do not require hospitals and most other healthcare provider organizations to have compliance programs. But guidance from the Office of Inspector General strongly encourages them for hospitals, laboratories, physicians and other providers. Where can you learn about compliance programs? See some of these links.
- Critical Access Hospital Compliance Plan
- Board Concerns about Compliance Plans
- Hospital Compliance Officers
- Compliance Policies and Procedures
- Outsourcing Your Compliance Program
Identifying your risks as a Designated Health Service is an important part of implementing an effective compliance program. Internal monitoring with a compliance program is a great way to avoid False Claims Act allegations!
False Claim Act FAQs
Under what circumstances can violations of the False Claims Act result in criminal penalties?
- Yes, violations of the False Claims Act can result in criminal penalties. If one knowingly presents or causes to be presented a false or fraudulent claim, conspires to defraud the government by getting a false or fraudulent claim allowed or paid, makes false statements material to a false or fraudulent claim, submits multiple requests for the same service with intent to commit fraud, etc., they may face criminal charges and potential imprisonment and/or fines.
Does intent to defraud need to be proven for a violation of the False Claims Act?
- Yes, intent to defraud must be proven in order for a violation of the False Claims Act. This means that the government or other party alleging healthcare fraud must prove that the defendant knowingly made false statements or engaged in other deceptive conduct with an intent to deceive. Intent may be inferred from facts such as a false statement or knowingly using false records.
Are there any special considerations regarding False Claims Act liability when providing telemedicine services?
- Yes, there are special considerations to keep in mind when providing telemedicine services with regard to False Claims Act liability. Telemedicine services can be subject to higher scrutiny due to the increased risk of fraud and abuse due to lack of physical presence for diagnosis. Providers should ensure that their services are billed according to the applicable laws and that proper documentation is maintained for all encounters. Additionally, providers should guard against the risks associated with inappropriate upcoding or other fraudulent activities.
Is it possible for individuals and entities accused of violating the False Claims Act to settle without going through litigation proceedings?
- Yes, it is possible for accused individuals and entities to settle without going through litigation proceedings. In some cases, the accused party can resolve False Claims Act violations by entering into a settlement agreement with the government rather than undergoing a lengthy and costly trial. The details of these settlements vary depending on the particular case. Additionally, there may be other resolutions available that do not involve litigation.
Can a whistleblower in a False Claims Act case be prosecuted?
- No, under the False Claims Act, a whistleblower cannot be prosecuted. The Act provides protection to whistleblowers who report healthcare fraud or misconduct by protecting them from employer retaliation and criminal prosecution. However, whistleblowers can face civil action if their disclosures are found to be false or maliciously motivated.