Education Fraud at the Margins: Using the Federal False Claims Act to Curb Enrollment Abuses in Online, For-Profit K-12 Schools.

• Author: Chapman, Erin R.

America's online schools have some things to account for. In recent years, an increase in the number of for-profit K-12 schools has coincided with the rise of online education. Meanwhile, funding models that award money for each additional student incentivize for-profit schools to overenroll students in online programs that were once reserved for specialized subsets of students. Although, to date, reported incidents of enrollment fraud have been rare, there are many reasons to think that the problem has gone largely undetected. As education reformers on both sides of the political spectrum continue to push privatization and charter schools, figuring out how to avoid waste and minimize fraud will only become more important. This Note argues that the federal False Claims Act (FCA) is the best short-term option for curbing this kind of enrollment-reporting abuse. By drawing an analogy to health-care fraud, this Note makes the case that prosecutors and individuals can and should use expanded theories of false claiming to hold accountable online charter schools that exaggerate their enrollment.

TABLE OF CONTENTS Introduction I. K-12 Online Charter Schools and the Potential for Enrollment Abuses II. Expanded Notions of What Constitutes a "False Claim" Under the FCA Have Helped Curb Other Kinds of Waste A. The FCA Allows Prosecutors and Plaintiffs to Hold Accountable People Who Make "False Claims" for Federal Funds B. Notions of What Is an Actionable "False Claim" Under the FCA Have Recently Expanded 1. The False Certification Theory 2. The Implied Certification Theory 3. The Worthless Services Theory III. The Expanded Theories of False Claiming Should Be Applied in the Enrollment Context A. Minnesota Transitions: Submitting Exaggerated Enrollment Data Could Constitute a "False Claim" B. Under the Expanded Theories, Exaggerating Enrollment Should Be Considered a "False Claim" C. Treating Exaggerated Enrollments as False Claims Is the Best Short-Term Way to Deter Enrollment Abuses Conclusion INTRODUCTION

In online charter schools across the country, enrollment numbers are not adding up. The situation looks something like this: A well-established education management organization (EMO) partners with a state or local school district to open a new online charter school. The school aggressively recruits students away from traditional, brick-and-mortar schools by highlighting the flexibility online learning provides. Students and families who are dissatisfied with their current schools sign up. These students include a few high achievers and athletes but are mostly students who were overlooked by or pushed out of traditional schools--among them, students with behavior records and students on the verge of dropping out.

School starts and classes begin. Most students log in and complete all their classes, but some do not. Others log in only occasionally. On the one day a year that the state requires the school report its enrollment, the new school reports that all the students it recruited are enrolled in its program, including the ones who have only completed a couple of class sessions. Based on the numbers the school reported, it receives state and federal funding proportional to the number of qualifying students on the rolls.

A little while later, some of the students who struggled in their physical school find themselves struggling with their new online school as well--a few of them even stop logging in all together. Without daily attendance or teachers to note the absence, the students fall increasingly behind. And without a system in place to track enrollment, the online charter does nothing either to get the students to log back in or to adjust its reported enrollment numbers.

That means that a portion of the school's students have stopped receiving any educational benefits from the school. But, because the state funding associated with that student was already disbursed, the online provider continues to be able to use--and profit from--the funds the state allocated for the students' education.

This scenario has played out in varying degrees in schools across the country. School district officials in Stockton, California, for example, closed Renew Virtual Academy in May 2015 after they received information that the school was overreporting the number of students enrolled in the school by "roughly double." (1) Two years earlier, a whistleblower at a Pennsylvania school alleged that an online charter kept one special education student enrolled in order to continue receiving state special education funds, despite the fact that the student missed 140 consecutive days of school. (2) Another whistleblower in Ohio revealed that an online charter school kept 400 truant students enrolled. (3) The recent growth in online schools (4) combined with current count practices and funding levels make such schools particularly susceptible to abuse. Despite these concerns, regulators are not currently using any consistent strategy to deal with enrollment fraud in K-12 online charter schools. (5)

This Note explores options to regulate enrollment fraud at online charter schools to ensure that public money spent on online education supports students and not for-profit providers. This Note begins by providing context on online charter school enrollment and funding. Part I describes the unique potential for enrollment fraud in online charter schools and why such fraud is a problem that deserves the attention of plaintiffs and prosecutors. Part II surveys the federal False Claims Act (FCA) and chronicles the emergence of expanded theories of FCA liability in the health-care context that have made the statute a more potent waste-fighting tool. Part III analyzes the only FCA case to date brought against an online charter for enrollment issues and suggests that courts are open to hearing similar cases. Additionally, Part III argues that plaintiffs and prosecutors could use the expanded theories of false claiming pioneered in health-care cases to curb enrollment abuse. After considering and rejecting available alternatives, this Note concludes that FCA suits represent the best short-term approach to regulating online charter schools and their for-profit providers.

1. K--12 ONLINE CHARTER SCHOOLS AND THE POTENTIAL FOR ENROLLMENT ABUSES

   Because online charter schools are a relatively recent innovation, this Part begins by providing some background on how they operate and why their funding structure makes them particularly vulnerable to abuse. After that, it explains why the K--12 education context makes it particularly important that enrollment fraud at online schools be stopped as soon as possible.

   Online charter schools allow K--12 students enrolled in public school districts to take classes online. (6) As public charter schools, these schools receive funding from local, state, and federal governments (7) but operate under a "charter," or contract, from an authorizing board, which allows the schools to exist for a specified amount of time provided they meet certain predetermined benchmarks. (8) Even though their futures are inherently uncertain, charter schools offer founders and school districts an attractive tradeoff: the school district does not have to commit to funding the school indefinitely in exchange for providing the school leaders more control over the direction of the school. (9) Since charters do not have to comply with all of the regulations that plague traditional public schools, they theoretically have more opportunities to innovate. (10)

   Generally, schools are funded on a per-pupil basis according to a funding formula set by the state or local government. (11) That means that each additional student who enrolls increases the school's revenue and, depending on the formula used, certain groups of students--often low-income and special education students--bring more revenue for the school. (12) Although schools are funded in the United States primarily on a local basis, K-12 schools also receive funding from the federal government, generally in the form of money for special education or Title I funds. (13)

   Online charters allow their students to access the curriculum over the internet, sometimes through synchronous instruction--instruction happening in real time--and other times through prerecorded lessons. (14) Occasionally, students complete lessons at a school building, but most often they do so in their own homes, interacting with instructors only online or over the phone. Much of the draw of online learning is flexibility. (15) This flexibility makes online learning a natural fit for certain categories of students: elite athletes with demanding training schedules, rural students seeking a wider variety of courses, and high achievers wanting access to more rigorous material. (16)

   Since 2000, the number of online schools operating in the United States has ballooned. (17) These schools now enroll many different kinds of students. (18) Today, it is much more common for online schools to target struggling students on the verge of dropping out (19)--a demographic that research shows is often not at all well served by the self-driven model of online learning. (20)

   Beyond serving a more diverse pool of students, online schools now also serve many more students. In fact, in 2011, nine for-profit companies ran online K-12 schools that collectively enrolled almost 200,000 full-time students. (21) One study estimated that there were 311 full-time virtual schools enrolling students during the 2011-2012 school year. (22) To date, thirty states and the District of Columbia permit full-time virtual schools to enroll and educate students. (23)

   Online charter schools cost significantly less to run than their brickand-mortar counterparts because they generally do not incur the costs associated with a physical building, and one instructor can deliver a lesson to a virtually unlimited number of students. (24) Even so, most states...