How the False Claims Act Addresses Fraud

According to the Supreme Court of the United States, the False Claims Act extends to “all types of fraud, without qualification, that might result in financial loss to the government.” That being said, some types of false claims are more common than others. For more information on expectations, you should contact a DC false claims act lawyer.

Federal Healthcare Fraud

By far the most commonly successful type of False Claims Act case involves fraud in Medicare, Medicaid, Tri-Care (healthcare for U.S. military personnel and dependents), and other federally-funded health care programs. The stringent record-keeping and certifications that these programs require for payment to be made make it comparatively easy to prove healthcare fraud when it has occurred.

For example, in order to participate in the Medicare and Medicaid programs, a doctor or hospital must periodically certify that it will comply with all applicable statutes and regulations. Moreover, each time a Medicare/Medicaid provider presents a claim for payment, it must expressly certify that all the charges are for care that was actually provided, and that such care was “medically necessary.”

Finally, federal courts have held that presenting a claim for payment for Medicare/Medicaid services is an implied certification of compliance with all applicable Medicare/Medicaid laws and regulations. As such, each time a provider presents a claim that is related to or based upon a violation of these laws, they have made a certification. If that includes  a false certification that is material to the government’s decision to pay a claim, then they likely have violated both 31 U.S.C. 3729(a)(1)(A) regarding false claims and 31 U.S.C. 3729(a)(1)(B) regarding false statements.

Common types of federal healthcare fraud which have been exposed by successful suits under the False Claims Act include charging for services that are not provided or not covered, substandard care, up-coding/unbundling, off-label marketing of prescription drugs, and violations of the Anti-Kickback Act of 1986. See 41 U.S.C. Sections 8701 to 8707, 48 CFR 3.502-2 et seq.

Wrong Diagnosis and Procedure Codes, Up-Coding, and Unbundling

When a provider presents a claim to Medicare or Medicaid, they must identify the specific diagnoses and procedures that were performed, each of which has a corresponding numerical code. A claim containing incorrect diagnosis or procedure codes is a claim for services that the provider did not actually provide. As such, if a provider knowingly presents a claim that contains incorrect codes, they have made a materially false statement and presented a false claim.

Cases filed under the FCA have exposed many situations where providers have knowingly used the wrong codes. For example, Medicare and Medicaid only cover procedures that are “medically necessary,” that is necessary for the health and wellbeing of the patient.

Therefore, a doctor who performs an unneeded procedure, likely would provide false documentation of it being medically necessary might submit a code for a similar procedure that is covered. Similarly, a provider might use a code for a more complex, and thus more expensive, service than what they actually performed. This particular type of case is often called “up-coding.”

Another situation in which a provider may knowingly use incorrect codes is called “unbundling.” Many procedures include several related services that are “bundled” into a single code. For example, most codes for inpatient surgeries bundle together post-operation checkups and care. If a provider separately bills procedures that are supposed to be bundled together, the provider has made a materially false certification of compliance within Medicare regulations and has presented a false claim.

Substandard Care

All federal healthcare programs require participating providers of healthcare services to provide adequate care to their patients. However, cases alleging that a doctor provided substandard care are particularly difficult to prove, as they require demonstrating that the care was so poor that it was effectively worthless. Such a demonstration is all but impossible to prove except in the most egregious cases.  Generally substandard care is more appropriately litigated as medical malpractice.

If it can be shown that a healthcare provider’s care was effectively worthless, then proving a False Claims Act case may be possible. Courts have found that worthless services are not services at all, and thus any claims for such services are explicitly false. Some courts have also applied an implied certification theory, finding that presenting a claim for worthless care is a false certification of compliance with the laws requiring care to be adequate, and held the provider liable under the Act.

The kind of healthcare situation which has created the most successful False Claims Act cases centered around an allegation of substandard care involves nursing homes or long-term care facilities that neglected or abused their patients. In these cases, rather than focusing on medical procedures, it is possible to focus on the conditions endured by the patients. If the living conditions are sufficiently poor as to be worthless, either due to dilapidation of the facility or a pattern of abusive behavior, then all claims presented by these facilities to federal healthcare program could be held to be explicitly or implicitly false.

Off-Label Marketing of Prescription Drugs

This particular area of FCA litigation has involved some of the largest damages and, therefore, the largest rewards to successful whistleblowers, as it involves specific violations of how prescription drugs are supposed to be marketed and sold. When the FDA approves a new drug for sale, its approval is limited to certain specified uses of the drug. One drug may be approved to treat acute pain but not chronic pain, while another drug is approved as a general muscle relaxant, but not to treat high blood pressure. Prescribing a drug for a use not approved by the FDA is known as “off-label” use.

Doctors are generally permitted to prescribe patients any drug they think will most effectively treat their conditions, including off-label drug uses. Drug companies, however, are only permitted to market or promote their drugs for approved uses, off-label marketing or promotion is forbidden. Courts have held that if a company promotes a particular off-label use for one of its drugs, then any claims presented to the government for prescriptions for such use may be false claims. If a company is found to have improperly promoted an off-label use of a particular drug, then it could be liable for every claim submitted to a federal healthcare program for such use.

In these cases, “marketing” or “promotion” can mean many things and is very fact-dependent. Any communication by a drug company to a doctor intended to induce the doctor to prescribe their product for off-label use is potentially sufficient to prove a violation of the False Claims Act.

Kickbacks

Medicare and Medicaid providers are also forbidden from taking kickbacks in exchange for referring patients, performing certain procedures, or prescribing certain drugs. Specifically, the Anti-Kickback statute (42 U.S.C. §1320a-7b[b]) prohibits anyone from offering, soliciting, paying, or receiving anything of value, including  other referrals, in exchange for referring patients, performing procedures, or using/prescribing products that will in any way be paid for by any federal health care program such as Medicare or Medicaid.

Thus, a drug company could not pay a doctor to preferentially prescribe its products to Medicare patients. “Payment” in this context could be virtually anything, including referring patients, providing free samples, paying for travel to conferences, or almost anything else that has some monetary value. This does not mean that drug companies cannot provide free samples or refer patients, merely that it cannot do so in exchange for prescribing its product. In practice, this means that a drug company that gives out free samples or refers patients must do so equally to all doctors or specialists, without regard to how much of their product the doctor actually prescribes.

As soon as a company gives preference to doctors that prescribe more of their product, they have given a kickback and violated the Anti-Kickback statute. Anyone who presents claims to a federal healthcare program for prescriptions or services from doctors who received such kickbacks have made implicit false certifications of compliance with the Anti-Kickback statute. The company giving the kickback would also be liable under the False Claims Act, since by giving the kickback it caused the false certification to be made.

Similarly, the Stark Law (42 U.S.C. Section 1395nn), with certain exceptions, prohibits doctors from referring people enrolled in federal healthcare programs to other physicians or medical facilities with which they have a financial relationship for what is called designated health services. This can mean that a doctor who is part owner of a hospital cannot refer Medicare patients to that hospital for care. Similarly, a cardiologist could not form a relationship with a pulmonologist to refer Medicare patients only to each other, unless they are members of the same practice.

Procurement Fraud

When contractors bid for a government contract, they are usually required to disclose all information material to their bids, including all cost data and a rigorous explanation of how they arrived at any estimates. These requirements are codified primarily in the Truth in Negotiations Act of 1962. Despite these disclosure requirements, the federal procurement process remains rife with fraud, which commonly occurs in several forms.

Fraud in the Inducement

When a contractor knowingly submits materially false information in a bid or knowingly makes some other material misrepresentation to the government in order to win a contract, they have committed what is known as “fraud in the inducement.” If a contract is only available to small, minority, or female-owned businesses, for instance, then a contractor who lies about being that sort of business and obtains the contract has committed this type of fraud. Similarly, a contractor who falsifies bid estimates in order to be the lowest bidder has also committed fraud in the inducement, though in these cases, the contractor would typically either cut corners to reduce costs or attempt to increase the contract price by creating “unexpected” cost overruns.

When the government awards a contract as the result of fraud, each and every claim for payment presented by the contractor under that contract becomes false. This is true even if the contractor otherwise faithfully performs the contract and delivers goods or services that fully comply with every requirement,  the initial fraud still taints everything. Because the contractor should not have been awarded the contract in the first place, it was never eligible to receive any of the money it subsequently earned and was paid.

However, while all courts agree that a contract obtained by fraud is invalid, they often differ strongly on the value of the damages resulting from that fraud, particularly with respect to offsets for the value of any work performed. Some courts have held that the contractor must return all the money paid by the government, without taking into account whether the government received anything of value. Most courts, however, reduce damages by some amount proportionate to the value of what the government received. For example, through fraud must return all of the money paid by the government, the difference between the value of the goods and services received and the total amount paid, or the profits made by the contractor.

Bid Inflation

Rather than using false statements to convince the government to award a contract, contractors may also or alternatively use false information to inflate their bids. This type of fraud is most common during bidding for fixed-price contracts, where a contractor negotiates a specific price for performance and is then allowed to keep any savings.

Fraud of this sort comes in many forms. The most direct type is for a contractor to increase the estimated cost of labor and materials. A contractor who estimates that it will cost $200,000 a month to provide meals for soldiers on a U.S. Army base but submits a bid for $225,000 per month by over-estimating the cost of food and labor has made a material false statement and violated the False Claims Act.

A more subtle example occurs when the contractor submits a bid using accurate information, but conceals the existence of cost savings. A contractor who submits a bid to provide fuel for the U.S. Air Force using the current market rate for fuel but conceals the fact that it had negotiated a lower price from a particular supplier has also made a material false statement and violated the False Claims Act.

A contractor who commits these types of violations would be liable for the difference between the non-disclosed price and the price reported in their bid.

Environmental Certifications

While this is not a commonly litigated area of False Claims Act law, it is still the case that nearly all government contracts include a provision requiring compliance with the Clean Air and Clean Water acts, both of which were passed in the 1970s. A contractor who presents an environmental claim after violating either of these statutes could be liable for a False Claims Act violation.

False Claims to State Agencies

While the federal False Claims Act applies only to false claims that are presented to the federal government or otherwise involve federal funds, under certain circumstances a false claim presented to a state government agency may also violate the federal Act. This occurs when the false claim is presented to the state as part of a program that is partially funded with federal money.

This happens most frequently with Medicaid claims, which are initially presented to state agencies which are then partially reimbursed by the federal government. A person who presents a false claim for Medicaid services to a state government violates the federal False Claims Act by causing the state to present a false claim for reimbursement. That individual is liable for the amount of federal money received by the state for that claim. Of course, if this occurs in a state that has its own false claims statute, they may also be liable for the portion of the claim paid by the state.

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