Avoiding "Lotto-Sized" Anti-Fraud Fines

by Michael Volkov · October 1, 2012

A. Neil Hartzell, a shareholder at LeClairRyan, is our guest commentator today, and offers some good advice on False Claim enforcement and compliance strategies. His profile can be read here.

If you learned of a way to cash in on a lotto-sized jackpot that offered better odds than any Powerball ticket, would you be interested? Given our society’s materialistic bent, you can bet most Americans would quickly say “tell me more!” And this is precisely why medical practices of all types and sizes should pay close attention to some little-discussed changes to the federal False Claims Act (FCA) that make it far easier for individuals to try to “win the lotto” by blowing the whistle on wrongdoing at healthcare or other organizations.

The FCA prohibits those who do business with the federal government, including through Medicare and Medicaid, from submitting false claims—that is, claims for money to which they are not entitled—and these cases are on the rise. After all, the torrents of cash that flow through the U.S. medical industry are an ever-present temptation for the ethically challenged. Nearly every day, the headlines announce new suits or settlements involving Medicare or Medicaid overbilling or other fraudulent billing schemes; a recent headline announced that a whistleblower would recover $25 million as part of an FCA settlement.

Easier than ever to be a whistleblower

The new FCA amendments make it easier than ever to be a whistleblower. As a result, those who operate just about any type of healthcare practice need to be vigilant about compliance. It is also prudent to be increasingly mindful of that disgruntled or financially troubled employee who might be in a position to report billing or payment issues.

From the time of the Civil War, the federal government has used the FCA to ferret out fraud committed by contractors. The FCA has become not just the U.S. government’s most potent deterrent to fraud, but also one of its biggest moneymakers.

According to the Department of Justice, the government has raked in more than $8.7 billion in FCA penalties since January 2009, and more than $3 billion in such fines since 2011. All told, FCA cases rose by about 11% last year. The key point is that so-called “relators”—an employee, researcher or other whistleblower who successfully files an FCA claim—can receive up to 30 percent of the recovery. Violators are liable for three times the government’s loss, along with penalties for each claim submitted, and so the fines can run to $150 million or more.

If a provider is charging for unnecessary or nonexistent services, anyone who finds out has strong incentive to hire a lawyer and file an FCA claim. These hefty incentives might also prompt claimants to exaggerate supposed fraud at a company, or perhaps file claims about violations that were already disclosed in a public hearing, civil proceeding or news report.

Enforcing FCA

Passed as part of the 2010 healthcare reform bill, the new changes to FCA amount to a huge, pro-enforcement shift. In years prior, if the newspaper reported that XYZ Healthcare Corp. was being investigated for overbilling on Medicare claims, a claimant would have had a tough time maintaining the case. In all likelihood, the public disclosure itself would have nullified that filer’s whistleblower status. Thanks to the amendments, however, the government can now prevent courts from dismissing cases based on public disclosure. In effect, the U.S. attorney’s office can say “We want to pursue this case, so keep it open.”

The prior version of FCA also provided that plaintiffs could overcome the public disclosure bar only if they qualified as original sources—i.e. if they had “direct and independent knowledge of the information.” But the 2010 amendments watered this provision down, such that original sources need only have “knowledge that is independent of and materially adds to the publicly disclosed allegations and transactions”. Thus an accountant might, say, read a press report about a kickback or overbilling scheme that went on at her company, use her insider access to dig up a bit more information on it, and then claim to be an “original source” for an FCA claim.

And in a potential nightmare for healthcare, the amendments provide that firms can now be held liable under FCA even for accidental retention of Medicare or Medicaid overpayments, which must be reported and returned within 60 days of their receipt (or of the due date of a corresponding hospital report). Given the periods of time involved in the reimbursement process, this means the passage of time alone could expose healthcare companies to FCA liability—even in the absence of any wrongdoing.

Reducing exposure

The good news here is that healthcare providers can do a lot to reduce their exposure. After thoroughly familiarizing themselves with the FCA amendments, they should develop or enhance compliance programs that identify and address risk areas. Among other things, billing systems need to be able to promptly identify and report any overpayments from any federal nprograms, and systems need to be in place to ensure prompt repayment. Those who document their efforts and, depending on the circumstances, self-report violations can also earn some good faith with regulators.

Employers should also pay close attention to workplace culture and employee morale. As the saying goes, “sunshine is the best disinfectant.” Steps such as publicizing a code of conduct for your practice and setting up employee “hotlines” for potential fraud and other workplace issues can be helpful because they create transparency. Such efforts are well worth the investment. Ultimately, those medical providers who “get ahead of the curve” by implementing strong compliance programs stand a much better chance of avoiding altogether the costly–and oftentimes catastrophic—consequences of being on the wrong side of an FCA claim.