What payers need to know about the False Claims Act

FierceHealthPayer:Anti-Fraud spoke to Sean McKenna, J.D., to learn how the False Claims Act--a federal law dating back to the Lincoln administration--helps combat today's healthcare fraud. McKenna (pictured) is a partner in the Dallas office of Haynes and Boone, LLP. His professional background includes 15 years in law enforcement, most of which he spent working for the federal government as an assistant U.S. attorney.

FierceHealthPayer:Anti-Fraud: Why has the False Claims Act become such an important tool for the federal government in fighting healthcare fraud?

Sean McKenna: The False Claims Act (FCA) is the signature anti-fraud weapon of the United States because of broad liability provisions that can lead to significant damage awards for any person or company doing business with the federal government.

The statute authorizes not only treble damages but a mandatory penalty of between $5,500 and $11,000 per false claim. The FCA's severe remedies, along with attendant costs of responding to FCA lawsuits, the loss of goodwill and employee morale, and the specter of exclusion or debarment push most defendants to settle allegations before trial.

That's why, since 1986, the United States has recovered almost $40 billion under the FCA, with $12 billion from healthcare cases since 2009 and sometimes more than $1 billion from a single company.

Defendants face dire economic consequences if they lose and receive an adverse judgment. In the recent Tuomey Healthcare case, for example, the hospital system went to trial and lost twice. Now the system is appealing a $238 million judgment.

Because of those dynamics, the FCA has grown more powerful in recent years. Its "qui tam" provisions allow private citizens to bring claims on behalf of the federal government and even pursue those allegations on their own and receive a share of the proceeds if successful.

Virtually every large settlement against healthcare defendants began with a sealed complaint by a whistleblower (or relator). In 2013, relators received nearly $350 million from more than $4 billion in FCA recoveries.

Recent legislation under the Fraud Enforcement and Recovery Act and the Affordable Care Act strengthened the ability of government and relators to bring these cases and contributed to a significant increase in FCA cases filed. This trend will only continue.

FierceHealthPayer: Anti-Fraud: What's required for citizens to bring a claim under the FCA, and what are the federal government's options for proceeding?

Sean McKenna: The process is simple. Relators file the FCA case under seal and provide the government with a written disclosure of substantially all material evidence and supporting information.

After receiving this information and conducting an investigation, the government has three options: Intervening, which means the government takes over the lawsuit; declining intervention, which means the relator can continue prosecuting the suit independently; or moving to dismiss the relator's suit, which rarely happens.

Relators must allege specifics about potential fraud and have direct, independent knowledge of alleged wrongdoing. The relator must have first-hand information and be the first to go to the government with the allegations.

But once the government takes over the case, chances of a favorable outcome for relators rise dramatically. And most settlements happen when the government signals interest or intention to intervene.

FHPAF: Some states have their own versions of the False Claims Act. What's the significance of these to insurers and providers?

McKenna: The answer depends on the state where insurers and providers do business.

In many states, the scope of these laws is similar to the federal FCA, so the same types of problems can give rise to both federal and state liability. Remember that in some states, FCA violations include certain conduct, not just filing false or fraudulent claims for payment. This expanded approach includes other conduct that doesn't necessarily violate the federal FCA, for instance, a pattern of providing medically unnecessary services or accepting improper remuneration. Because of these distinctions, insurers and providers must be aware of and comply with disparate [state FCA] provisions.

It's critical to remember that the federal government encourages states to have their own FCAs that mirror the federal version. If the state has such a law, it means the federal government pays more of each Medicaid claim per the Deficit Reduction Act of 2005 (DRA).

That's a significant carrot for states to enact their own FCAs. As a result, most federal "qui tam" FCA cases allege state claims. For a national company, that could mean plaintiffs include not only the relator and the United States, but all 50 states and the District of Columbia. Responding to that type of investigation gets expensive very quickly.

FHPAF: What can insurers who are government contractors do to reduce the likelihood of becoming defendants in False Claims lawsuits?

McKenna: Best practices include having a robust compliance program, assessing ongoing risks and promptly investigating and remediating potential FCA violations as they're found. Insurers should understand their contractual obligations and know under what circumstances contractors are expected to identify and deny suspicious claims. Payers should also invoke provisions of provider contracts to investigate and mitigate possible improper claims.

FCA liability may result if a contractor fails to act reasonably to discharge its gatekeeper role as a state or federal contractor.

Remember, the government or relator still must show the insurer knew or should have known the claims paid were false. That's essentially gross negligence plus deliberate ignorance or reckless disregard of the merits of the claim. Simply processing a claim for payment doesn't create liability; there's still a knowledge element to be proven.

FierceHealthPayer: Anti-Fraud: How do the anti-retaliation and employment protection provisions of the law apply to whistleblowers and their employers?

Sean McKenna: The FCA and most of its state equivalents have an anti-retaliation provision that create a private cause of action for any employee who is discriminated against in the terms and conditions of employment because of lawful acts done to stop or report FCA violations.

This doesn't require the employee to file suit under the FCA to trigger its protections; instead, the provision is broad enough to protect the employee's efforts to stop or report potential violations.

If it's proven that retaliation occurred, then the employee is entitled to reinstatement, two times the amount of back pay (with interest) and special damages. Relators also are entitled to attorney's fees.

Employers should ensure when dealing with a potential whistleblower that they don't discriminate or retaliate by, for example, diminishing the person's role in the company or cutting off access to information they would normally have.

FHPAF: An Affordable Care Act amendment to the FCA requires providers to return any identified Medicare or Medicaid program overpayments--even if they're accidental--within 60 days with an explanation of the overpayment(s). Failure to do this turns the overpayment into a false claim. Can you describe how this provision works?

McKenna: This is a new provision. Historically, whistleblowers and the U.S. Department of Justice had to do some legal gymnastics to prove that a knowing retention of an overpayment was an FCA violation.

Now there's an explicit statement in the False Claims Act that retention of a known overpayment--if not properly paid within 60 days upon identification--will become a false claim.

This is a tremendous boon for the government and whistleblowers. The provision essentially obligates providers to promptly refund within a 60-day window any known overpayment. That prompts a highly factual inquiry into what is meant by an obligation to repay and when the overpayment was identified.

Historically, most providers would do an investigation and at its conclusion take the position that the claim was identified then and became eligible for repayment. But the question becomes, how far do you go back?

There's a nonfiled, tentative rule issued by the Centers for Medicare & Medicaid Services that says the look back period should be 10 years. That met with criticism since the FCA statute of limitations is only six years and the traditional Medicare look back for reopening due to fraud is three years.

We expect a final rule in late summer or early fall.

Editor's Note: This interview has been edited and condensed for clarity.