In recent years, the federal government has been particularly aggressive in pursuing civil and criminal enforcement against healthcare entities. The way healthcare companies conduct internal investigations so may mean the difference between a manageable resolution and staggering civil or criminal liability.
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[REGISTER NOW] Healthcare How-To Instructional Webinar Series: How to Conduct an Effective Internal Investigation
Healthcare is one of the most highly regulated industries in the country and providers of all types will eventually be called to action, whether it be responding to an investigation, conducting a compliance review, or proceeding with a self-disclosure. Bass, Berry & Sims has designed the Healthcare How-To Instructional Webinar Series to provide simple step-by-step instructions and best practices for responding accurately and efficiently while avoiding bad tactics, questionable strategies, and unnecessary risk, which can create problems and less than ideal outcomes.
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False Claims Act Fundamentals: Elements of the False Claims Act
The False Claims Act, 31 U.S.C. § 3729, et seq. is the federal government’s primary and most effective tool for fighting fraud. This post provides an overview of the elements that plaintiffs must satisfy to establish liability under the False Claims Act and common defenses related to the elements.
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Seventh Circuit Holds FCA Requires Objective Scienter Standard
The U.S. Court of Appeals for the Seventh Circuit recently joined the ranks of every other circuit court of appeal to have considered the issue in holding that the False Claims Act (FCA) requires an objective scienter standard. Under this standard, defendants who act under an incorrect interpretation of the relevant statute or regulation do not act “knowingly” under the FCA if both of the following are true:
- The interpretation was objectively reasonable.
- “Authoritative guidance” did not warn the defendant away from their interpretation.
Background on Objective Scienter Standard
The FCA imposes liability on those who “knowingly” submit false claims to the government. The term “knowingly” is statutorily defined to cover defendants who act with “actual knowledge,” “deliberate ignorance,” or “reckless disregard.”
In construing the scienter requirement of the Fair Credit Reporting Act (FCRA) in Safeco Insurance Co. of Am. v. Burr, which punishes “willful” violations, the Supreme Court analyzed the common-law definition of that term and noted that willfulness as a statutory condition of civil liability has generally been understood to cover both knowing and reckless violations of a standard. The Court then held that a defendant interpreting an ambiguous statute or regulation did not act with “reckless disregard” where their interpretation was objectively reasonable and no authoritative guidance warned them away from their interpretation.
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Eighth Circuit Affirms Dismissal of Kickback Case
On June 25, the U.S. Court of Appeals for the Eighth Circuit affirmed the dismissal with prejudice of a qui tam False Claims Act (FCA) suit alleging certain physician compensation arrangements at Trinity Health violated the Anti-Kickback Statute (AKS) and Stark Law.
The relator, a former surgeon at one of Trinity’s hospitals, alleged the following:
- Trinity paid five of its highest-earning physicians above fair market value by compensating them in excess of 90th percentile compensation for their specialties at levels not justified by their personal productivity.
- The high compensation generated practice losses for Trinity absent taking into account the physicians’ downstream referrals to the health system.
- As a result of the physicians’ compensation methodology, they performed unnecessary surgeries to inflate their compensation.
- Trinity opted not to renew the relator’s contract because he complained about these allegedly-unnecessary surgeries.
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Courts Grapple with Causation Requirement in FCA Cases Based on Violations of Anti-Kickback Statute
Congress amended the Anti-Kickback Statute (AKS) in 2010 to confirm that a claim “resulting from” an AKS violation constitutes a false or fraudulent claim for purposes of the FCA. 42 U.S.C. 1320a-7b(g). However, Congress did not define the phrase “resulting from.” That question is immaterial in a criminal AKS case because the offer or receipt of the payment completes the crime. But in order to prevail in a civil FCA case, a relator or the government must prove the submission of a false claim to a federal healthcare program. In recent civil FCA cases, courts have struggled to articulate the precise link that is required in order to establish that a claim “result[s] from” an illegal kickback, often relying on traditional causal concepts to help articulate the required link. This developing area of the law is one to watch as courts continue to grapple with the interplay between the link required by the plain language of the AKS and the body of case law related to FCA causation.
U.S. ex rel. Greenfield v. Medco Health Sys., Inc.
In U.S. ex rel. Greenfield v. Medco Health Sys., Inc., the relator alleged that the defendants illegally donated to certain charities in order to receive patient referrals and then allegedly falsely certified compliance with the AKS when seeking reimbursement. The U.S. District Court for the District of New Jersey granted summary judgment for the defendants, reasoning that the relator had not shown a causal link between the defendants’ donations and any claims for payment. Although discovery revealed that the defendants submitted claims for 24 federally insured patients during the relevant time period, the district court concluded that this evidence alone did not provide “the link between defendants’ 24 federally insured customers and defendants’ donations to [the charities].” Instead, it explained that the relator was required to show that the federally insured patients were referred to the defendants as a result of the defendants’ donations to the charities. “Absent some evidence … that those patients chose Accredo because of its donations,” the relator could not carry his burden on his claim.
Fourth Circuit Interprets Meaning of “Protected Activity” Under 2010 FCA Whistleblower Amendments
The U.S. Court of Appeals for the Fourth Circuit recently affirmed dismissal of an FCA complaint for failure to state a claim under the FCA’s anti-retaliation provision, 31 U.S.C. § 3730(h). In U.S. ex rel. Carlson v. Dyncorp Int’l, LLC, the Fourth Circuit held that the relator failed to establish that he had engaged in protected activity, a required element for a prima facie retaliation case under the FCA. In reaching that conclusion, the Fourth Circuit provided useful guidance on the standards used to assess whether a relator engaged in protected activity.
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Failure to Establish Objective Falsity Dooms Government’s Hospice Case
On March 31, 2016, the district court granted summary judgment for hospice provider AseraCare in a case alleging that it had submitted false claims to Medicare by certifying patients as eligible for service who did not have a prognosis of six months or less to live if their terminal illness ran its normal course. U.S. ex rel. Paradies v. AseraCare Inc., 2106 WL 1270521 (N.D. Ala. Mar. 31, 2016). In its opinion, the district court reiterated that “the submission of a false claim is the sine qua non of a False Claims Act violation,” and held a “contradiction based on clinical judgment or opinion alone cannot constitute falsity under the FCA as a matter of law.” The district court further explained that when hospice certifying physicians and medical experts “look at the very same medical records and disagree about whether the medical records support hospice eligibility, the opinion of one medical expert alone cannot prove falsity without further evidence of an objective falsehood.”
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FCA Deeper Dive: Materiality and the Government’s Decision To Pay
The FCA continues to be the federal government’s primary civil enforcement tool for investigating allegations that healthcare providers or government contractors defrauded the federal government. In the coming weeks, we will take a closer look at recent legal developments involving the FCA. This week, we examine the requirement that the conduct alleged to have resulted in a false claim must be material to the government’s decision to pay that claim and how courts have evaluated this issue in recent cases.
FCA claims should fail when the regulations allegedly violated are immaterial to the government’s decision to pay a claim. Where the theory of FCA liability turns on compliance with statutes and regulations in the healthcare context, courts continue to distinguish between regulations that are conditions of participation in the federal healthcare program and regulations that are conditions of payment, holding only violations of the latter can underpin FCA liability. As the Sixth Circuit has explained, violations of condition of participation are best addressed through administrative sanctions, not the “extraordinary remedies” of the FCA. See U.S. ex rel. Hobbs v. MedQuest Assocs., 711 F.3d 707 (6th Cir. 2013).
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FCA Deeper Dive: Meeting the FCA’s Intent Requirement
The FCA continues to be the federal government’s primary civil enforcement tool for investigating allegations that healthcare providers or government contractors defrauded the federal government. In the coming weeks, we will take a closer look at recent legal developments involving the FCA. This week, we examine the requirement that a relator plead and prove that a defendant acted with the requisite level of knowledge to establish an FCA claim and evaluate how courts have evaluated this issue in recent cases.
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