The False Claims Act: A Powerful Tool to Fight Medicare and Medicaid Fraud

The False Claims Act: A Powerful Tool to Fight Medicare and Medicaid Fraud

The False Claims Act (FCA) is an important law used by the government, whistleblowers, and others to combat fraud against the United States. It imposes liability on persons and companies who defraud governmental programs. The FCA has become the government;s primary civil tool to fight Medicare and Medicaid fraud, which costs taxpayers tens of billions of dollars each year.

The FCA makes it illegal to knowingly submit false claims to the government. For instance, a healthcare provider cannot bill Medicare for services that were never performed. A company cannot falsify test results to obtain a lucrative government contract. These acts expose the wrongdoer to liability under the False Claims Act. The law imposes steep fines and treble damages to compensate the government for losses due to fraud.

The FCA allows private citizens with evidence of fraud, known as “relators,” to sue on behalf of the government through qui tam lawsuits. Relators receive a share of the recovery as a reward. This whistleblower provision is a powerful tool for exposing complex and hidden schemes that defraud Medicare, Medicaid, and other government programs.

History of the False Claims Act

The FCA was enacted in 1863 to combat fraud by defense contractors during the Civil War. Back then, crooked contractors were selling the Union Army decrepit horses, faulty rifles, and rancid rations and provisions. Lawmakers adopted the FCA to crack down on these unscrupulous war profiteers.

Though first enacted over 150 years ago, the FCA remains a vital anti-fraud law today. In 1986, Congress substantially strengthened the FCA through amendments. This modernized version of the law allows relators to share up to 30% of the recovery for blowing the whistle on fraud. It also strengthened protections for whistleblowers against employer retaliation. As a result of these 1986 amendments, FCA enforcement has increased dramatically in the ensuing years.

Scope of the False Claims Act

The FCA broadly applies to fraud involving federal government funds and property. Some key areas include:

• Medicare and Medicaid fraud
• Defense and military procurement fraud
• Small Business Administration loan fraud
• Disaster relief fraud
• Department of Agriculture fraud

Essentially any person or entity that receives, spends or benefits from federal monies or property may be liable. As a result, the universe of potential FCA defendants is vast. Healthcare providers, drug and device makers, government contractors, lenders, universities, and many more may find themselves accused of defrauding the government under the FCA.

Prohibited Acts Under the False Claims Act

The FCA imposes liability for “knowingly” presenting false claims to the government. It also prohibits other fraudulent conduct that could cause the submission of false claims. The law defines “knowing” broadly. No proof of specific intent to defraud is required. A person acts knowingly if he or she:

• Has actual knowledge of falsity
• Acts in deliberate ignorance of truth or falsity
• Acts in reckless disregard of truth or falsity

This definition of “knowingly” captures those who purposefully seek to defraud the government. It also exposes those who remain deliberately ignorant or bury their heads in the sand. Gross negligence can be enough to trigger FCA liability.

Some key prohibited acts under the FCA include:

• Knowingly presenting a false claim for payment
• Knowingly making or using a false record to get a false claim paid
• Conspiring to violate the FCA
• Knowingly concealing or improperly avoiding an obligation to pay the government

Violations carry stiff penalties. The law imposes civil penalties ranging from $11,803 to $23,607 per false claim. In addition, the defendant must pay three times the amount of damages sustained by the government. These multiple damages often far exceed the penalties.

Medicare and Medicaid Fraud

The FCA is the government’s primary weapon against healthcare fraud. The Department of Justice (DOJ) has recovered over $62 billion in settlements and judgments from healthcare fraud cases between 1987 and 2018. Most of these cases were filed under the FCA.

Some common types of FCA cases involving Medicare and Medicaid include:

• Billing for services not provided
• Upcoding services for higher reimbursement
• Billing for unnecessary medical care
• Inflating costs on cost reports
• Paying kickbacks for patient referrals

Healthcare providers can be liable under the FCA for a wide range of fraudulent conduct. Common targets include hospitals, medical practices, nursing homes, pharmacies, drug and device makers, and testing labs. However, any person or entity that receives funds from Medicare or Medicaid is at risk under the statute.

Qui Tam Lawsuits

A unique aspect of the FCA is that it allows private citizens to sue on behalf of the government through qui tam actions. These whistleblower suits help expose fraud that might otherwise remain hidden.

Here is how it works. A whistleblower (called a “relator”) files a qui tam lawsuit under seal in federal court. This filing triggers a criminal investigation by the Department of Justice (DOJ). DOJ typically investigates for anywhere from several months to several years. If it finds the allegations credible, it may intervene and take over the litigation. Either way, the relator can recover 15 to 30% of the proceeds for bringing the misconduct to light.

In a qui tam lawsuit, the relator essentially stands in the shoes of the government. But the government remains the real party in interest. Qui tam suits pursue recovery on behalf of taxpayers. Relators are simply allowed to share in the recovery as a reward.

Over 80% of FCA recoveries arise from qui tam lawsuits filed by relators. These actions have proven to be a powerful tool for exposing complex fraud schemes. Insiders bring information and evidence unavailable to the government. This supplements public enforcement efforts and helps recover billions for taxpayers.

Recoveries Under the False Claims Act

The FCA allows the government to recover large sums lost to fraud. DOJ often announces massive settlements and judgments in FCA cases. Here are some notable recent recoveries:

• Pfizer and a subsidiary agreed to pay $2.3 billion to resolve FCA allegations involving off-label marketing of drugs and payments to doctors.
• DaVita paid $270 million to settle claims it provided unnecessary dialysis services and used improper billing codes.
• A hospital chain agreed to pay $260 million to settle claims it defrauded Medicare through improper admissions and billing for inpatient services.
• A drug maker paid $225 million to resolve claims it paid kickbacks to doctors to induce prescriptions.

These large recoveries not only compensate taxpayers but also deter fraud. FCA enforcement makes clear that cheating the government carries severe consequences. The threat of massive liability under the FCA prompts companies to self-police and reform their practices.

Whistleblower Protections

To encourage whistleblowing, the FCA prohibits retaliating against employees for lawful acts in furtherance of an FCA case. Examples of protected conduct include investigating suspected fraud, filing a qui tam suit, and providing testimony or assistance with FCA litigation.

Employees who suffer retaliation can sue for reinstatement, double back pay, and other remedies. Many FCA retaliation cases settle for sizable sums. Providing robust anti-retaliation protections helps incentivize insiders to come forward and expose fraud.

Takeaways

The False Claims Act is a powerful anti-fraud law used to recover billions lost annually to Medicare/Medicaid fraud and other schemes against the government. Key takeaways about the FCA include:

• Imposes treble damages and steep penalties for defrauding the government
• Used extensively to combat Medicare and Medicaid fraud
• Allows whistleblowers to sue through qui tam lawsuits and share in the recovery
• Broadly prohibits submitting false claims and making false statements
• Does not require proof of intent to defraud
• Provides robust protections for whistleblowers

The FCA will continue to serve as the government’s primary civil tool for recovering losses due to fraud for the foreseeable future. Understanding this law is crucial for any individual or company that receives federal funds or property.

References

[1] The False Claims Act, U.S. Department of Justice.

[2] 31 U.S. Code § 3729 – False claims, Legal Information Institute.

[3] A Primer on the False Claims Act, U.S. Department of Justice.

[4] False Claims Act FAQ, Taxpayers Against Fraud Education Fund.