False Claims Act Relator Awards

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 claim are more common than others. Below we discuss some of the most common types of false claims. For more information on expectations, you should contact a DC false claims act lawyer, click here.

Contract Violations (Express and Implied Certifications)

A contractor who materially fails to perform the requirements of a government contract, and presents the government with a claim for full payment without disclosing anything about this lack of performance, is in violation of the False Claims Act. This type of violation is quite common, especially in the areas of construction and defense-contracting. When a contractor presents a claim for payment, he or she represents to the government that they have complied with all of the conditions for receiving payment. So, for example, if the contract has specific requirements like using materials of a certain quality or performing quality assurance testing, then a request for payment is a statement to the government that the contractor has complied with every requirement. These statements can be either explicit or implicit.

Often, particularly in contracts involving certain goods and services, the government requires contractors to sign certifications stating that they have complied with the contract terms in order to receive payment. These are explicit certifications and usually say something along the lines of, “By submitting this claim, I hereby certify that I have complied with all contract terms… .” Many contracts, however, do not contain such express certifications.

If a contract does not require an express certification, a person presenting a claim for payment instead makes an implicit certification, which is an unwritten assurance that, by presenting the claim, the contractor has done every material thing the contract required. If a contract requires a contractor to conduct safety testing before delivering a product, then presenting a claim for payment for a delivered product is an implicit certification that the appropriate testing was done. If a contract requires a contractor to use only small or minority-owned subcontractors, then presenting a claim for payment is an implicit certification that only such subcontractors were used. Therefore, a contractor who presents a claim for a good or service that he or she knows does not comply with the material terms of the contract has committed a false claims act violation.

This is true even if the good or service is just as good, or better, than what the contract required.

Implicit certifications are not limited just to compliance with the terms of the contract. When a contractor presents a claim for payment, he or she also implicitly certifies that they have complied with all relevant laws, and regulations. A construction contract may not expressly state that a contractor is required to follow all applicable building codes or use only licensed professionals, but they are nevertheless required to comply with these rules. For example, a contract may not specify that a contractor cannot use asbestos insulation, but because asbestos insulation is banned by law it cannot be used. Since it is banned by law, by presenting a claim for payment, a contractor has implicitly certified that he or she has not used asbestos insulation.

Finally, a contractor who presents a claim for payment also implicitly certifies that they have not knowingly withheld any information material to the government’s decision to pay the claim. A contractor who has violated a contract term or a relevant law or regulation is required to disclose that information to the government. Failure to do so is a violation of the FCA. If you have more questions about contract violations, ask a False Claims Act lawyer in DC.

It’s important to note that some federal circuit courts have held that, in order to be material to the government’s decision to pay a claim, a violated law or regulation must condition payment on compliance. So, under this reasoning, if the law doesn’t say that a person who breaks it will not get paid, then compliance with that law is not material to the government’s decision to pay.

Federal Healthcare Fraud

By far the most successful type of False Claims Act cases are those involving fraud in Medicare, Medicaid, Tri- Care (healthcare for active U.S. military personnel), 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 health care 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 it all of the charges are for care that was actually provided and that such care was “medically necessary.” Finally, numerous 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 false certification. If that false certification is material to the government’s decision to pay a claim, then the claim is false and they have violated both sections 3729(a)(1)(A), regarding false claims, and  (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 material false statement and presented a false claim.

Cases filed under the Act have exposed many situations where providers have knowingly used the wrong codes. For example, Medicare and Medicaid only cover procedures that are “medically necessary,” (i.e. necessary for the health and wellbeing of the patient). As such, the Medicare regulations explicitly do not cover procedures that are purely cosmetic. Therefore, a doctor who performs a procedure which is not deemed 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) procedure than what he or she 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 material false certification of compliance within Medicare regulations and has presented a false claim.

Substandard Care

All federal healthcare programs require participating providers of health care 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 (e.g. amputating the wrong leg) which are typically isolated and more appropriately litigated as medical malpractice.

If it can be shown that a health care 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 health care situation which has created the most successful False Claims Act cases involving 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, for example either due to dilapidation of the facility or indeed if there is a pattern of abusive behavior, then all claims presented by these facilities to federal healthcare programs have been 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. 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 can order whatever 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 strictly 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 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 the 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 (e.g. for members of the same practice), prohibits doctors from referring people enrolled in federal healthcare programs to other physicians or medical facilities with which they have a financial relationship. This means 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, he or she has committed what is known as “fraud in the inducement” (i.e. using fraud to convince the government to award a contract).

If a contract is only available to small, minority, or female-owned businesses, then a contractor who lies about being that sort of business and obtains the contract has committed fraud in the inducement. 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 will 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 differ strongly on 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 of 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 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 a 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 presented to state agencies but the states 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, he or she may also be liable for the portion of the claim paid by the state.