The civil False Claims Act (FCA) imposes harsh penalties against parties who misappropriate federal funds. The statute's qui tam whistleblower provisions create strong financial incentives for private individuals to bring and pursue FCA cases against health providers on the government's behalf--even where government attorneys decline to intervene. FCA cases where the government declined to intervene account for less than 2 percent of all recoveries in health care FCA cases. Yet the costs of defending such cases may be very high, especially for rural providers with small operating margins. Federal provider self-referral and anti-kickback laws carve out various exceptions to support the financial viability of rural providers. The FCA, however, contains no such exceptions. Although Department of Justice (DOJ) policy directs officials to take into account community access to care in pursuing FCA cases against rural providers, the ability for private whistleblowers to pursue cases where the government declines to intervene undermines the DOJ's ability to achieve that aim. This Article highlights the liability risks rural providers commonly face under the FCA and argues for amending the FCA to allow a whistleblower claim to proceed against providers serving designated underserved areas only where government authorities intervene in the case.
CONTENTS INTRODUCTION I. THE FALSE CLAIMS ACT, WHISTLEBLOWER PROVISIONS, AND RURAL HEALTH CARE PROVIDERS A. Current Application of the FCA to the Health Care Industry B. FCA Cases Pursued Unilaterally by Whistleblowers II. RURAL HEALTH AND RURAL PROVIDERS A. Rural Health in the United States B. Designation as an Underserved Rural Area C. Programs, Laws, and Policies Intended to Support the Financial Viability of Rural Providers 1. Rural Health Clinics 2. Federally Qualified Health Centers and Their Look-A-likes 3. Critical Access Hospitals 4. National Health Service Corps Loan Repayment Programs 5. Stark and Anti-Kickback Provisions Impacting Rural Providers. a. The Stark Law b. The Anti-Kickback Statute III. PREVENTING UNILATERAL WHISTLEBLOWER CLAIMS AGAINST CERTAIN RURAL PROVIDERS INTRODUCTION
Over the years, the federal False Claims Act (FCA) has led to various highly publicized, billion-dollar settlements against large pharmaceutical companies and hospital systems. (1) Despite this apparent focus on larger entities by federal health care fraud enforcement authorities, small rural providers are not immune from becoming entangled in expensive and protracted civil FCA litigation. This is especially true in light of the fact that federal FCA claims can be initiated and pursued solely by private whistleblowers independent of action by a government agency.
Although lawmakers and agencies have created various legislative and regulatory exceptions aimed at easing administrative burdens and costs for rural providers working in underserved communities, lawmakers have not created similar exceptions for FCA whistleblower claims. Most problematic is the fact that a whistleblower may unilaterally pursue such a claim on the government's behalf even if governmental authorities do not see cause to pursue one--or are opposed to doing so. Such a situation arguably runs counter to various policy efforts to maintain the financial viability of critical access providers in underserved areas. This Article highlights the potential risks that rural providers face under the FCA and discusses whether, as a matter of public policy, Congress should reassess broad application of the FCA's whistleblower provisions to rural providers in underserved areas. Although this Article's primary focus is to show the need for a change in the FCA's whistleblower provisions to protect the financial viability of health practice in underserved rural areas, it will also assist rural providers seeking to understand potential liability under the FCA.
Part I provides a brief overview of the FCA and its whistleblower provisions as applied to the health care industry. It highlights how FCA claims may be brought and pursued solely by a private whistleblower even where government authorities choose not to intervene and explains why this practice is problematic for rural providers. Part II discusses rural health care and the various federal laws and programs designed to make practicing in underserved rural areas more financially viable. Part III argues that policymakers should consider amending the FCA to allow whistleblower claims to proceed against certain rural providers only if government authorities choose intervene in the case.
THE FALSE CLAIMS ACT, WHISTLEBLOWER PROVISIONS, AND RURAL HEALTH CARE PROVIDERS
The FCA and its whistleblower provisions were enacted in the wake of the Civil War to address concerns of rampant fraud perpetrated by government contractors during Reconstruction. (2) The policy behind the FCA is to create strict penalties for those who misappropriate government funds. (3) To encourage those with "insider information" of fraudulent activities to come forward, the FCA contains whistleblower provisions allowing a private citizen to bring an FCA claim on the government's behalf and receive a portion of the money recovered through that action. (4)
After significant amendments to the FCA in 1986, federal authorities and private whistleblowers began applying the statute to the health care industry. (5) One commentator notes that after these 1986 amendments, "the FCA now lies at the heart of the federal government's war on healthcare fraud." (6) Between 1987 and 2011, settlements and judgments in health care-related FCA actions totaled approximately $21 billion. (7) The FCA's scope and its whistleblower provisions were further broadened as part of the Fraud Enforcement and Recovery Act (FERA) of 2009 (8) and the Patient Protection and Affordable Care Act of 2010. (9)
Current Application of the FCA to the Health Care Industry
As amended, an individual or organization violates the FCA by "knowingly present[ing], or caus[ing] to be presented, a false or fraudulent claim for payment" with federal funds. (10) A violator can be held liable for up to three times the actual monetary damages incurred by the government and $5000 to $10,000 per false claim. (11) Additionally, the defendant is required to pay a prevailing whistleblower's attorney's fees. (12) Defendants in civil FCA cases may be named as defendants in parallel administrative and criminal proceedings, and any health care provider found liable under the FCA faces potential exclusion from all federal health programs (namely Medicare and Medicaid). (13)
The FCA casts a broad net as to the types of conduct potentially in violation of the statute. It expansively defines the term "knowingly" to include not only "actual knowledge" of the false statements but also acts made in "deliberate ignorance" or in "reckless disregard" of the information's truth or falsity. (14) The statute's definition of "knowingly" clarifies that the FCA is violated even where there is "no proof of specific intent to defraud" the government. (15) As one court explained, Congress defined knowledge broadly "to reach what has become known as the ostrich type situation where an individual has buried his head in the sand and failed to make simple inquiries which would alert him that false claims are being submitted." (16)
Under this broad definition of knowledge, Medicaid and Medicare providers can be held liable under the FCA for not only willful fraudulent billing but also for sloppy billing or a failure to supervise and train billing staff if such conduct rises to the level of "reckless disregard." Additionally, under FERA, a failure to timely return to the government any overpayments may also give rise to FCA liability. (17)
From the perspective of a provider seeking to avoid potential FCA issues, these consequences point to the need to have and implement an effective compliance program and to have properly qualified health information management and compliance professionals overseeing the billing process. (18) Such preventative measures minimize the occurrence of erroneous overpayments, better assure that overpayments are promptly returned, and help prove that the provider was not acting with "reckless disregard" in the event of an FCA claim. Because of the importance of employing well-trained compliance and billing individuals to avoid FCA liability, the shortage of technically qualified professionals in many rural areas may pose a problem for providers in those areas. (19)
If an FCA claim is brought against a provider, the statute's broad definition of "knowingly" makes defending and resolving the case complicated and expensive for the defendant provider. In a traditional common law fraud claim, a defendant could have the case dismissed in the pretrial phase unless the plaintiff offers evidence that the defendant had a knowing and willful intent to defraud. (20) Under the FCA, however, there is room for a fact-intensive inquiry into the gray area between what constitutes negligent billing mistakes and errors arising out of "willful ignorance" or "reckless disregard." As such, it is more difficult for a defendant in an FCA case--even one who would probably not be found liable at trial--to convince a court to dismiss the case in the pretrial phase. Moreover, considering the high penalties and damages associated with liability under the FCA, the potential for exclusion from Medicare and Medicaid, and the high litigation costs involved in pursuing a complex claim, often the only realistic option for an FCA defendant is to settle. (21) Thus, even if a defendant has a strong defense and plausible odds of prevailing at trial, the potential consequences of losing may be too great to risk. Some commentators suggest that the fact that such defenses are never presented at trial emboldens whistleblowers' attorneys and government authorities to seek unreasonably high settlements in cases with...