False claims act seeks to de-fraud healthcare system

Historically known as the “Lincoln Law,” the False Claims act is becoming a popular tool in battling healthcare fraud.

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The False Claims Act is one of the most effective tools U.S. taxpayers can utilize to recover the vast amount of funds appropriated through fraud every year.  But it will be wrong to think that the False Claims Act is only about money.  It is about a lot more than that.  The Act has been constituted to discourage fraud and change the face of the culture of corporate America.  The Act is codified as 31 U.S.C. § 3729 and is also called the “Lincoln Law.”  This is because President Abraham Lincoln first signed the law in 1863.  The Act was a response to defense contractors filing false claims with the government during the Civil War.  Lincoln Law originally allowed private citizens to report or “blow the whistle” on fraudulent federal contractors by filing a suit against them on behalf of taxpayers.  The law provided an enticement for taxpayers to report the defrauding of the federal government by paying them a share of recovered stolen funds.

The False Claims Act holds responsible those who knowingly submit…false claims for the reimbursement of government funds.

Today, the False Claims Act holds responsible those who knowingly submit or cause another person to submit false claims for the reimbursement of government funds.  Knowledge of the falsity of the submitted claims is the key requirement of the Act.  A person or company must possess an actual knowledge of the fraudulent claim.  In addition, deliberate ignorance or reckless disregard of the falsity of the submitted information or claim may satisfy the knowledge requirement of the Act.  Violators of the Act are liable for up to three times the government’s damages plus civil penalties of $5,500 to $11,000 for each false claim.

The False Claims Act contains qui tam provisions, which allow private citizens with evidence of fraud against the government to sue on behalf of the Government.  Citizens who file suits under the Act are named “relators” or “whistleblowers.”  If it is determined that a person qualifies as a relator or a whistleblower, that person is eligible for 15 to 25 percent of the amount recovered from the fraudulent activity.  To initiate a qui tam action, the relator must file a complaint under seal in a United States Federal District Court.  The complaint is then served on the U.S. Attorney for the judicial district where the original action was filed and on the Attorney General of the United States.

Twenty-seven states have followed suit, passing their own whistleblower statutes, designed to incentivize integrity.

The government has opportunity to investigate the fraud allegations without the defendant’s awareness of the existence of the lawsuit against him/her.  After investigating the claim, the government has an opportunity to join or “intervene” in the action.   At this phase of the litigation the defendant will be notified of the qui tam action against him/her.  The government and the defendant may engage in the negotiations regarding the resolution or settlement of the case.  If the negotiations are successful and the parties resolve the dispute, the case stays unsealed.  If the case does not get resolved in the negotiations stage, it will be unsealed and all the parties including the relator proceed to the discovery phase of the litigation.  The False Claims Act has been so successful at the federal level that twenty-seven states have followed suit, passing their own whistleblower statutes, designed to incentivize integrity.

The False Claims Act is particularly successful in the healthcare field.  The Act provides a powerful deterrent against healthcare fraud amidst skyrocketing healthcare spending and costs.  The Act is utilized as a tool for the federal government to recover the embezzled funds and punish the wrongdoer with a hefty fine.  Although many Americans are insured through privately funded health insurance plans, millions are insured by health insurance paid for with federal or state government funds.

Due to the sheer volume of health care claims that are submitted yearly, the government alone cannot effectively fight healthcare fraud.

The largest government funded healthcare plans are the Medicare and Medicaid programs.   Medicare and Medicaid Fraud contribute to a large degree to the rise of healthcare costs.  Due to the sheer volume of health care claims that are submitted yearly, the government alone cannot effectively fight healthcare fraud.  Whistleblowers acting under federal and state false claims acts have shown to be the Government’s best weapon in uncovering and pursuing healthcare fraud.  In addition, whistleblowers are usually in the best position to identify fraudulent activities and bring it to light by filing a qui tam lawsuit.

There are multiple ways in which an individual or business may commit healthcare fraud against the federal government.

There are multiple ways in which an individual or business may commit healthcare fraud against the federal government.  A healthcare facility may submit a claim for a health care treatment or a medication that has never been rendered or prescribed to a patient.  A healthcare provider may submit a claim for health care services or tests that represent a more serious and more expensive procedure than that which actually was performed.  The term for such practice is “up-coding.”  Another example of healthcare fraud is lack of medical necessity.  This type of fraud is not only financially damaging to the federal government but also poses a considerable health risk to a patient.  It occurs when a physician performs a procedure on a patient or prescribes medications that are not medically required or necessary to the patient.

Quit tam actions are extremely hard to pursue.  However, the claims that were pursued where the government joined the whistleblower in a suit enjoy hefty recoveries for the government and fines and sometimes prison sentences for the violators.  For example, a judge for the U.S. District Court for the District of Columbia sentenced a Maryland couple to over 7 years in prison for defrauding D.C. Medicaid of more than $80 million over the span of 5 years in March 2016.  The couple’s Medicaid scheme is the largest local health-care fraud scheme.  In U.S. v. Bikundi the federal judge found the couple guilty of multiple counts of money laundering, healthcare fraud, and conspiracy for operating a rogue home care agency where Medicaid recipients received kickback for submitting fraudulent claims.

The Government claimed the company violated the False Claims Act by using its speaker programs as a method to pay kickbacks to physicians…

Another example of a successful False Claims Act claim is the Salix settlement.  Judge Denise Cote of United States District Court for the Southern District of New York approved a settlement to resolve the Government’s claims against Salix Pharmaceuticals, a specialty pharmaceutical company headquartered in Raleigh, North Carolina on June 9, 2016.  The Government claimed the company violated the False Claims Act by using its “speaker programs” as a method to pay kickbacks to physicians to encourage them to prescribe Salix drugs and medical devices to be reimbursed by federal health care programs during the span of four years.  The Complaint-in-Intervention contends that Salix held bogus speaker programs at expensive restaurants, where physicians were paid considerable sums to “educate” other physicians about a Salix product, but in reality spent no time considering the company’s product.  The settlement agreement compels Salix to pay $54 million to the federal government and to the States to settle the civil charges against the company.

The Supreme Court of the United States issued an opinion on a highly contested False Claims Act case Universal Health Services Inc. v. United States ex rel. Escobar.  The Court stated that a healthcare provider can be responsible under the Act for submitting a false claim for reimbursement from the federal government, even if the claim was never specifically made but was merely implied.  This is called “implied false certification.”  In Universal Health, the Court accepted the idea that a claim can be regarded impliedly fraudulent and thus actionable even though there was nothing in the medical invoice that was expressly false.  Such an omission can give rise to liability if the statements in the invoice would cause a reasonable reader to deduce that the maker of the invoice is making supplementary claims that are not truthful.  The affirmation of implied false certification theory considerably broadens the Act’s scope of reach and may potentially make it easier to detect and pursue its violations.  Senate Judiciary Committee Chairman Chuck Grassley, who authored the modern-day False Claims Act responded to the decision, “The Supreme Court ruling in United Health Services makes clear that entities that knowingly mislead the government through half-truths and lies of omission when conducting business run afoul of the False Claims Act.  This unanimous ruling is a big victory for taxpayers and will help to better protect those who rely on quality government programs.”

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About Olga Ivanushko, Senior Staff Writer Emeritus (13 Articles)
Olga Ivanushko is a 2017 graduate of Campbell Law School and served as a Senior Staff Writer for the Campbell Law Observer. Olga is originally from Belarus, but has lived in Hollywood, Florida, then Raleigh, North Carolina for the past 13 years. She earned BA in Political Science from the University of North Carolina at Chapel Hill. Between undergrad and law school Olga worked as a paralegal at a plaintiffs’ medical malpractice and personal injury firm in Chapel Hill, North Carolina. After her first year in law school, Olga interned at the North Carolina Medical Board. Olga now interns with the Honorable John M. Tyson at the North Carolina Court of Appeals.