Avoiding health care qui tam actions.

• Author: Degnan, John M.

In recent years, the federal government has made abundantly clear its intention to use the False Claims Act ("FCA") (1) to protect the government against fraudulent claims for payment. In health care, this has meant multi-million dollar penalties for many of our nation's hospitals, clinics, nursing homes, managed care providers, medical device manufacturers, and pharmaceutical companies, who have been accused of submitting false claims for payment under the Medicare and Medicaid programs.

The FCA, in effect since the Civil War era, creates liability for anyone who knowingly submits a false or fraudulent claim for payment to the government. The qui tam provisions of the FCA remain a powerful aid in enforcing the Act. Under the qui tam provisions, a private person (called a "relator") may initiate a civil action on behalf of the U.S. government alleging violations of the FCA. The government may then decide to intervene and essentially take over the action, but even if the government elects not to intervene, the relator may proceed with the action. Depending on several factors, including whether or not the government intervenes, the relator can be awarded between 15 to 30 percent of the proceeds of any award or settlement of the claim, plus attorneys' fees, costs and expenses of the action. (2) An employee who is retaliated against because he or she assists in the pursuit of an action or investigation is entitled to additional relief and penalties. (3)

These are clearly powerful incentives for employees and others to become whistleblowers. The Deficit Reduction Act of 2005 ("DRA") introduced additional financial incentives for states to crack down on health care fraud by giving them an increased share of proceeds from actions brought under a state's own false claims act if its act meets certain federal requirements. To date, this has prompted states to step up Medicaid enforcement efforts. (4)

Increased enforcement and publicity have contributed to a rise in the filing of qui tam actions, which has, in turn, strengthened enforcement efforts.

Today's Health Care Fraud Claims

According to one report, by August 2006, more than 450 hospitals across the country were the subject of Medicare fraud investigations. (5) Whether or not Medicare violations are found, the costs of responding to an investigation can be significant. Westchester Medical Center of New York, being investigated for possible health care fraud and violations of anti-kickback laws, (6) received a subpoena for extensive records in some thirty-seven categories going back to 1997. Millions of dollars may be spent in legal fees and other costs associated with the investigation (e.g., hiring or reassigning staff to assist with compiling requested data). (7)

Where violations are found, the liability can be staggering. Where an FCA violation occurs, the federal government can recover treble damages plus civil penalties, which range from $5,500 to $11,000 per violation. (8) Since there are sometimes hundreds, if not thousands, of transactions involved, the penalties alone can be enormous. In addition to damages and penalties, individuals and institutions found to have undermined the integrity of the Medicare or Medicaid programs also risk being excluded from participating in those programs. (9)

One report estimates that the government currently recovers $15 for every $1 invested in FCA health care investigations and prosecutions. (10) On the criminal side, according to a 2006 FBI report, (11) "health care fraud investigations are among the highest priority investigations within the FBI's White Collar Crime Program." (12) The same report states that "through FY 2006, 2,423 cases investigated by the FBI...