Private FCA Actions: Practical Implications For Health Care Providers

Against this background, the Federal government is stepping up its enforcement of the Federal False Claims Act (FCA). In 2013, the U.S. Department of Justice (DOJ) announced that it had secured $3.8 billion in settlements and judgments from civil cases involving fraud against the government. U.S. Department of Justice, Office of Public Affairs, Justice Department Recovers $3.8 Billion from False Claims Act Cases in Fiscal Year 2013, Dec. 20, 2013 Press Release. (Available at http://1.usa.gov/1kWC66l.) Further, as in previous years, the largest recoveries in 2013 were related to “health care fraud,” which reached $2.6 billion. This marked the fourth straight year that the DOJ recovered more than $2 billion in cases involving health care fraud. Id. And most of these recoveries related to alleged fraud against Medicaid and Medicare. Id.

The federal FCA contains broad language and includes substantial civil penalties for billing fraud related to governmental benefits. Although Medicare and Medicaid are different programs with different rules, the FCA applies to both. Individual states have separate statutes, but generally the language and penalties are similar. For instance, in 2012, Georgia adopted the Taxpayer Protection False Claims Act (Georgia TPFCA). In Georgia, Medicaid Fraud and False Claims are still specifically covered under the 2007 Georgia State Medicaid Claims Act. See O.C.G.A. ' 49-4-168, et seq.; see also O.C.G.A. ' 23-3-127. Of course, this Act is also substantially similar to the federal FCA in all relevant aspects discussed in this article. See O.C.G.A. ' 49-4-168, et seq., which mirrors the federal FCA.

The fundamental foundation of these laws is to prevent fraud against the federal and state governments. The statutes are broadly written such that violations include any type of “fraudulent claim for payment or approval” or the use of any “false record or statement material to a false or fraudulent claim.” 31 U.S.C. ' 3729(a)(1)(A). The state statutes are often written such that the language directly mirrors the Federal FCA, so these laws, as well, are broad enough to cover all sorts of claims. Georgia's O.C.G.A. ' 23-3-121(a)(1)-(7), for example, broadly states that “a person, firm, corporation, or other legal entity that: knowingly presents or causes to be presented a false or fraudulent claim for payment or approval ' shall be liable to the state of Georgia” for civil penalties.

Deliberate and Inadvertent Violations Are Fair Game

As these laws are written, it appears that any claim related to improper billing of Medicare, Medicaid or any similar state or federal entitlement program will be covered by either the federal FCA or the relevant state FCA ' and possibly both. The language of both federal and state statutes suggest that minor technical violations could result in litigation, a prolonged investigation and substantial liability and penalties.

The government is using and analyzing audit data to identify “red flags” such as sharp increases in Medicare or Medicaid billing. In fact, the CMS acknowledges that “data analysis is a tool for identifying actual or potential errors and/or potential fraud by claim characteristics ' either individually or in the aggregate.” Center for Medicare & Medicaid Services, Medicare Program Integrity Manual (Pub 100-08), Chapter 2 ' “Data Analysis,” (Rev. 313, 11-20-2009; Effective/Implementation date:12-21-09); available at http://go.cms.gov/1mCREqX.

This can be problematic for health care providers. For example, a sharp increase in Medicare billing could arise simply because the providers' patient population simultaneously reached the Medicare eligible age, or a new group of patients has become Medicaid-eligible due to ACA expansions and/or increased enrollments at the state and federal exchanges. Sharp increases in Medicaid or Medicare billing numbers might raise a “red flag” that could, at least, expose a provider to an investigation or FCA claim. There is also the potential for a disgruntled former employee to blow the whistle in light of the private cause of action available in both federal and state court.

The Federal FCA provides that any entity or individual that “knowingly presents or causes to be presented a false or fraudulent claim for payment or approval” or “knowingly makes uses or causes to be made or used, a false record or statement material to a false or fraudulent claim” is liable for civil penalties. 31 U.S.C. ' 3729(a)(1)(A)(B). And there are several additional provisions of the Federal FCA that could conceivably encompass errors made in the billing process. See 31 U.S.C. ' 3729(1)(A)-(G). The state “FCAs” are similar. The Georgia False Claims Act, for example, uses the same language as the federal FCA, verbatim. O.C.G.A. ' 23-3-121(a)(1)-(7).

The Stakes Are High

The penalties under both the federal and state FCAs are potentially significant. The federal FCA provides that a violator is “liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000 ' plus 3 times the amount of damages which the government sustains because of the act of that person.” 31 U.S.C. ' 3729(a). In our Georgia legislation example, the penalties are higher ' “not less than $5,500 and not more than $11,000 for each false or fraudulent claim, plus three times the amount of damages which the state or local government sustains because of the act of such person.” O.C.G.A. ' 23-3-121(a).

One startling example of an FCA claim related to Medicare and Medicaid fraud allegations is a recent South Carolina case resulting in a nearly $237.5 million judgment against Tuomey Healthcare under the federal FCA. United States and Drakeford v. Tuomey Healthcare System Inc., 976 F.Supp.2d 776 (D.S.C.2013). In Tuomey, the DOJ alleged that Tuomey Healthcare physicians wrongfully submitted 21,730 Medicare and Medicaid claims for payment of facility fees generated as a result of outpatient procedures performed by its physicians. The violations were based on contracts Tuomey entered into with several part-time gastroenterologists, which set forth that a portion of the physician compensation would be derived from “facility fees.”

The government contended that contracts were in excess of fair market value, and that services were improperly billed to Medicare and Medicaid pursuant to those contracts. And the government specifically asserted that Tuomey presented claims for payment to the Medicaid and Medicare programs for designated health services provided on referral from the physicians with whom it had entered into prohibited financial relationships. Ultimately, the jury agreed that this billing practice violated federal “self-referral” laws (commonly known as the Stark Law) statutes and resulted in 21,730 false claims and improper reimbursements from Medicaid and Medicare. Based on the jury's verdict, the U.S. District Court for South Carolina entered a judgment in the amount of just under $237.5 million pursuant to a post-trial motion for damages under the FCA.

As Tuomey demonstrates, the courts will assess penalties per billing violation. If a particular billing practice applicable to many patients is the basis for FCA liability, there is obviously the potential for a large judgment. In addition, the civil monetary penalties can include exclusion from Medicare or Medicaid programs.

The Tuomey case is no outlier, however, and there are several similar examples of high verdicts and settlements for FCA claims. For example, recently, an Alabama hospital system, Infirmary Health System Inc. (IHS), agreed to pay the United States $24.5 million to resolve a lawsuit based on the False Claims Act. U.S. Department of Justice, Office of Public Affairs, Alabama Hospital System and Physician Group Agree to Pay $24.5 Million to Settle Lawsuit Alleging False Claims for Illegal Medicare Referrals, July 21, 2014 Press Release. (Available at http://usa.gov/1ynmKIv.)

The government alleged that two IHS-affiliated clinics had agreements with a physician group to pay the group a percentage of Medicare payments for tests and procedures referred by the physicians. The lawsuit was originally filed by a private physician previously employed by the group, under the whistleblower provisions of the False Claims Act. That private physician will receive $4.41 million as his share of the settlement. In its announcement about the settlement, the DOJ stated “this settlement illustrates the government's emphasis on combatting health care fraud and marks another achievement for the Health Care Fraud Prevention and Enforcement Team (HEAT) initiative, which was announced in May 2009.” Id . Fraud enforcement (and the accompanying large monetary penalties) will continue to be a focus of the government for the foreseeable future.

Whistleblower Claims

It is also clear that private actions will play a significant role in meeting federal and state governments' goals of combating health care fraud. The Federal FCA and many state FCAs allow private individuals to file lawsuits and conduct their own investigations through discovery. 31 U.S.C. ' 3730(b); see also O.C.G.A. 23-3-122(b)(1). The Federal or state government can intervene in a private action and take control over the litigation with respect to potential dismissal and settlement. 31 U.S.C. ' 3730(c)(2)(A)(B); see also O.C.G.A ' 23-3-.122(c). However, “if the government elects not to proceed with the action, the person who initiated the action shall have the right to conduct the action.” 31 U.S.C. 3730(c)(3); see also O.C.G.A. ' 23-3-122 (e). Even where the government does intervene, it will likely allow the private attorney to participate in the investigation, if not drive the litigation altogether.

There is substantial financial incentive for a private attorney to initiate an FCA action. If the government does intervene, a private plaintiff is entitled to 15%-25% of the proceeds from the judgment or settlement in addition to recovery of attorneys' fees and costs of litigation. 31 U.S.C. 3730(d)(1); see also O.C.G.A. ' 23-3-122(h)(1). If the government does not intervene, then the private plaintiff is entitled to 25%-30% of the proceeds from the judgment or civil action in addition to recovery of attorneys' fees and costs of litigation. 31 U.S.C. ' 3730 (d)(2); see also O.C.G.A. ' 23-3-122(h)(2). Importantly, attorney fees and costs of litigation are essentially awarded as a matter of right upon the successful prosecution of an FCA claim. 31 U.S.C. 3730(d)(1); see also O.C.G.A. ' 23-3-122(h)(1(2).

Because of the substantial financial rewards and reimbursement of attorneys' fees and costs, FCA claims are an attractive option for private attorneys. The private physician's personal recovery of $4.1 million in the recent Alabama IHS settlement against his former physician group, discussed previously here, is a perfect example of this. One Georgia firm advertises on its website “a more recent trend in FCA cases involves the government electing not to intervene at this time because its own lack of resources or its inability to complete its investigation in the time allowed by the court” and claims it has recovered $160 million from a whistleblower client in a FCA prosecution. http://bit.ly/1pmZUQB. A Google search on “False Claims Act attorneys” reveals that many private law firms are now advertising a willingness to “lead the charge” when the government is unwilling or unable to prosecute potential violations.

Defending Against the FCA Claim

There are some protections available to health care providers included in state and federal false-claim statutes. For example, in the event of a frivolous action, providers can seek reimbursement of attorneys' fees and costs of litigation. 31 U.S.C. ' 3730(d)(4), see also O.C.G.A. ' 23-3-122(h)(4).

In addition, early reporting and cooperation may substantially reduce exposure to civil penalties. Under the Federal FCA and the Georgia TPFCA, an entity or individual can avoid treble damages, and the penalty will be reduced to only twice the actual damages, if: 1) they report the violation within 30 days; 2) they fully cooperate with the government; and 3) there is no investigation pending at the time that a potential violation is reported. 31 U.S.C. ' 3729(2); see also O.C.G.A. ' 23-3-121(b).

Finally, private claims cannot be brought if the violations have already been exposed in the media, a separate lawsuit, through some government or legislative process, or if another applicable bar to litigation applies. 31 U.S.C. ' 3730(e)(4); see also O.C.G.A. 23-3-122(j)(3).

Conclusion

The implications of the existence of the Federal FCA and its state counterparts are vast. Therefore, health care providers need to be aware of trends in FCA litigation and be prepared to make important decisions in light of this legislation when negotiating physician contracts, responding to government subpoenas and dealing with whistleblowers. In most cases, a health care provider must quickly determine whether allegations are serious or baseless, and/or are barred under the FCA. The health care provider must then analyze the costs and benefits of voluntarily revealing a potential violation, and devise a strategy for responding to potentially overwhelming investigations and document requests.

Experienced counsel can assist with these decisions by devising a preemptive plan of action, intervening in in the event of an investigation, and providing a traditional defense to full blown FCA litigation. The right counsel can be crucial to minimizing FCA civil penalties and other consequences so that responsible health care providers remain operational and continue to serve their patients and their communities.

Neil T. Edwards is an attorney practicing in the Atlanta office of Carlock Copeland.

The increase in the number of patients participating in government programs creates opportunities and challenges for health care providers and long-term care facilities, and as the number of such patients swells, it is essential that health care providers remain vigilant in order to avoid potential pitfalls inherent in dealing with these programs. Two important examples of this are federal and state “false-claims” acts.

Increased Regulatory Interest

In the coming years, the population of people eligible for Medicare is expected to grow exponentially, with the baby boomer generation living longer than people of past generations. The Center for Medicaid and Medicare Services (CMS) projects that the Medicare-eligible population (age 65 and over) will reach 54.7 million in 2020, up from 40.4 million in 2010 and 37 million in 2006. Center for Medicare & Medicaid Services, National Health Expenditure Projections 2012-2022, Table 1: National Health Expenditures and Selected Economic Indicators, Levels and Annual Percent Change: Calendar Years 2006-2022. (Available at http://go.cms.gov/1r5gvuR.) In addition, there is the potential for the Medicaid population to grow due to the Affordable Care Act (ACA) expansions, as well as other social and economic factors such as high unemployment and stagnant wage growth. Thus, there is an undeniable upward trend projected for both the Medicare and Medicaid-eligible population.

Against this background, the Federal government is stepping up its enforcement of the Federal False Claims Act (FCA). In 2013, the U.S. Department of Justice (DOJ) announced that it had secured $3.8 billion in settlements and judgments from civil cases involving fraud against the government. U.S. Department of Justice, Office of Public Affairs, Justice Department Recovers $3.8 Billion from False Claims Act Cases in Fiscal Year 2013, Dec. 20, 2013 Press Release. (Available at http://1.usa.gov/1kWC66l.) Further, as in previous years, the largest recoveries in 2013 were related to “health care fraud,” which reached $2.6 billion. This marked the fourth straight year that the DOJ recovered more than $2 billion in cases involving health care fraud. Id. And most of these recoveries related to alleged fraud against Medicaid and Medicare. Id.

The federal FCA contains broad language and includes substantial civil penalties for billing fraud related to governmental benefits. Although Medicare and Medicaid are different programs with different rules, the FCA applies to both. Individual states have separate statutes, but generally the language and penalties are similar. For instance, in 2012, Georgia adopted the Taxpayer Protection False Claims Act (Georgia TPFCA). In Georgia, Medicaid Fraud and False Claims are still specifically covered under the 2007 Georgia State Medicaid Claims Act. See O.C.G.A. ' 49-4-168, et seq.; see also O.C.G.A. ' 23-3-127. Of course, this Act is also substantially similar to the federal FCA in all relevant aspects discussed in this article. See O.C.G.A. ' 49-4-168, et seq., which mirrors the federal FCA.

The fundamental foundation of these laws is to prevent fraud against the federal and state governments. The statutes are broadly written such that violations include any type of “fraudulent claim for payment or approval” or the use of any “false record or statement material to a false or fraudulent claim.” 31 U.S.C. ' 3729(a)(1)(A). The state statutes are often written such that the language directly mirrors the Federal FCA, so these laws, as well, are broad enough to cover all sorts of claims. Georgia's O.C.G.A. ' 23-3-121(a)(1)-(7), for example, broadly states that “a person, firm, corporation, or other legal entity that: knowingly presents or causes to be presented a false or fraudulent claim for payment or approval ' shall be liable to the state of Georgia” for civil penalties.

Deliberate and Inadvertent Violations Are Fair Game

As these laws are written, it appears that any claim related to improper billing of Medicare, Medicaid or any similar state or federal entitlement program will be covered by either the federal FCA or the relevant state FCA ' and possibly both. The language of both federal and state statutes suggest that minor technical violations could result in litigation, a prolonged investigation and substantial liability and penalties.

The government is using and analyzing audit data to identify “red flags” such as sharp increases in Medicare or Medicaid billing. In fact, the CMS acknowledges that “data analysis is a tool for identifying actual or potential errors and/or potential fraud by claim characteristics ' either individually or in the aggregate.” Center for Medicare & Medicaid Services, Medicare Program Integrity Manual (Pub 100-08), Chapter 2 ' “Data Analysis,” (Rev. 313, 11-20-2009; Effective/Implementation date:12-21-09); available at http://go.cms.gov/1mCREqX.

This can be problematic for health care providers. For example, a sharp increase in Medicare billing could arise simply because the providers' patient population simultaneously reached the Medicare eligible age, or a new group of patients has become Medicaid-eligible due to ACA expansions and/or increased enrollments at the state and federal exchanges. Sharp increases in Medicaid or Medicare billing numbers might raise a “red flag” that could, at least, expose a provider to an investigation or FCA claim. There is also the potential for a disgruntled former employee to blow the whistle in light of the private cause of action available in both federal and state court.

The Federal FCA provides that any entity or individual that “knowingly presents or causes to be presented a false or fraudulent claim for payment or approval” or “knowingly makes uses or causes to be made or used, a false record or statement material to a false or fraudulent claim” is liable for civil penalties. 31 U.S.C. ' 3729(a)(1)(A)(B). And there are several additional provisions of the Federal FCA that could conceivably encompass errors made in the billing process. See 31 U.S.C. ' 3729(1)(A)-(G). The state “FCAs” are similar. The Georgia False Claims Act, for example, uses the same language as the federal FCA, verbatim. O.C.G.A. ' 23-3-121(a)(1)-(7).

The Stakes Are High

The penalties under both the federal and state FCAs are potentially significant. The federal FCA provides that a violator is “liable to the United States Government for a civil penalty of not less than $5,000 and not more than $10,000 ' plus 3 times the amount of damages which the government sustains because of the act of that person.” 31 U.S.C. ' 3729(a). In our Georgia legislation example, the penalties are higher ' “not less than $5,500 and not more than $11,000 for each false or fraudulent claim, plus three times the amount of damages which the state or local government sustains because of the act of such person.” O.C.G.A. ' 23-3-121(a).

One startling example of an FCA claim related to Medicare and Medicaid fraud allegations is a recent South Carolina case resulting in a nearly $237.5 million judgment against Tuomey Healthcare under the federal FCA. United States and Drakeford v. Tuomey Healthcare System Inc. , 976 F.Supp.2d 776 (D.S.C.2013). In Tuomey, the DOJ alleged that Tuomey Healthcare physicians wrongfully submitted 21,730 Medicare and Medicaid claims for payment of facility fees generated as a result of outpatient procedures performed by its physicians. The violations were based on contracts Tuomey entered into with several part-time gastroenterologists, which set forth that a portion of the physician compensation would be derived from “facility fees.”

The government contended that contracts were in excess of fair market value, and that services were improperly billed to Medicare and Medicaid pursuant to those contracts. And the government specifically asserted that Tuomey presented claims for payment to the Medicaid and Medicare programs for designated health services provided on referral from the physicians with whom it had entered into prohibited financial relationships. Ultimately, the jury agreed that this billing practice violated federal “self-referral” laws (commonly known as the Stark Law) statutes and resulted in 21,730 false claims and improper reimbursements from Medicaid and Medicare. Based on the jury's verdict, the U.S. District Court for South Carolina entered a judgment in the amount of just under $237.5 million pursuant to a post-trial motion for damages under the FCA.

As Tuomey demonstrates, the courts will assess penalties per billing violation. If a particular billing practice applicable to many patients is the basis for FCA liability, there is obviously the potential for a large judgment. In addition, the civil monetary penalties can include exclusion from Medicare or Medicaid programs.

The Tuomey case is no outlier, however, and there are several similar examples of high verdicts and settlements for FCA claims. For example, recently, an Alabama hospital system, Infirmary Health System Inc. (IHS), agreed to pay the United States $24.5 million to resolve a lawsuit based on the False Claims Act. U.S. Department of Justice, Office of Public Affairs, Alabama Hospital System and Physician Group Agree to Pay $24.5 Million to Settle Lawsuit Alleging False Claims for Illegal Medicare Referrals, July 21, 2014 Press Release. (Available at http://usa.gov/1ynmKIv.)

The government alleged that two IHS-affiliated clinics had agreements with a physician group to pay the group a percentage of Medicare payments for tests and procedures referred by the physicians. The lawsuit was originally filed by a private physician previously employed by the group, under the whistleblower provisions of the False Claims Act. That private physician will receive $4.41 million as his share of the settlement. In its announcement about the settlement, the DOJ stated “this settlement illustrates the government's emphasis on combatting health care fraud and marks another achievement for the Health Care Fraud Prevention and Enforcement Team (HEAT) initiative, which was announced in May 2009.” Id . Fraud enforcement (and the accompanying large monetary penalties) will continue to be a focus of the government for the foreseeable future.

Whistleblower Claims

It is also clear that private actions will play a significant role in meeting federal and state governments' goals of combating health care fraud. The Federal FCA and many state FCAs allow private individuals to file lawsuits and conduct their own investigations through discovery. 31 U.S.C. ' 3730(b); see also O.C.G.A. 23-3-122(b)(1). The Federal or state government can intervene in a private action and take control over the litigation with respect to potential dismissal and settlement. 31 U.S.C. ' 3730(c)(2)(A)(B); see also O.C.G.A ' 23-3-.122(c). However, “if the government elects not to proceed with the action, the person who initiated the action shall have the right to conduct the action.” 31 U.S.C. 3730(c)(3); see also O.C.G.A. ' 23-3-122 (e). Even where the government does intervene, it will likely allow the private attorney to participate in the investigation, if not drive the litigation altogether.

There is substantial financial incentive for a private attorney to initiate an FCA action. If the government does intervene, a private plaintiff is entitled to 15%-25% of the proceeds from the judgment or settlement in addition to recovery of attorneys' fees and costs of litigation. 31 U.S.C. 3730(d)(1); see also O.C.G.A. ' 23-3-122(h)(1). If the government does not intervene, then the private plaintiff is entitled to 25%-30% of the proceeds from the judgment or civil action in addition to recovery of attorneys' fees and costs of litigation. 31 U.S.C. ' 3730 (d)(2); see also O.C.G.A. ' 23-3-122(h)(2). Importantly, attorney fees and costs of litigation are essentially awarded as a matter of right upon the successful prosecution of an FCA claim. 31 U.S.C. 3730(d)(1); see also O.C.G.A. ' 23-3-122(h)(1(2).

Because of the substantial financial rewards and reimbursement of attorneys' fees and costs, FCA claims are an attractive option for private attorneys. The private physician's personal recovery of $4.1 million in the recent Alabama IHS settlement against his former physician group, discussed previously here, is a perfect example of this. One Georgia firm advertises on its website “a more recent trend in FCA cases involves the government electing not to intervene at this time because its own lack of resources or its inability to complete its investigation in the time allowed by the court” and claims it has recovered $160 million from a whistleblower client in a FCA prosecution. http://bit.ly/1pmZUQB. A Google search on “False Claims Act attorneys” reveals that many private law firms are now advertising a willingness to “lead the charge” when the government is unwilling or unable to prosecute potential violations.

Defending Against the FCA Claim

There are some protections available to health care providers included in state and federal false-claim statutes. For example, in the event of a frivolous action, providers can seek reimbursement of attorneys' fees and costs of litigation. 31 U.S.C. ' 3730(d)(4), see also O.C.G.A. ' 23-3-122(h)(4).

In addition, early reporting and cooperation may substantially reduce exposure to civil penalties. Under the Federal FCA and the Georgia TPFCA, an entity or individual can avoid treble damages, and the penalty will be reduced to only twice the actual damages, if: 1) they report the violation within 30 days; 2) they fully cooperate with the government; and 3) there is no investigation pending at the time that a potential violation is reported. 31 U.S.C. ' 3729(2); see also O.C.G.A. ' 23-3-121(b).

Finally, private claims cannot be brought if the violations have already been exposed in the media, a separate lawsuit, through some government or legislative process, or if another applicable bar to litigation applies. 31 U.S.C. ' 3730(e)(4); see also O.C.G.A. 23-3-122(j)(3).

Conclusion

The implications of the existence of the Federal FCA and its state counterparts are vast. Therefore, health care providers need to be aware of trends in FCA litigation and be prepared to make important decisions in light of this legislation when negotiating physician contracts, responding to government subpoenas and dealing with whistleblowers. In most cases, a health care provider must quickly determine whether allegations are serious or baseless, and/or are barred under the FCA. The health care provider must then analyze the costs and benefits of voluntarily revealing a potential violation, and devise a strategy for responding to potentially overwhelming investigations and document requests.

Experienced counsel can assist with these decisions by devising a preemptive plan of action, intervening in in the event of an investigation, and providing a traditional defense to full blown FCA litigation. The right counsel can be crucial to minimizing FCA civil penalties and other consequences so that responsible health care providers remain operational and continue to serve their patients and their communities.

Neil T. Edwards is an attorney practicing in the Atlanta office of Carlock Copeland.