The False Claims Act is a federal law that dates back to the Lincoln Administration. The law was enacted and has been amended to encourage whistleblowers to disclose fraud involving the federal government. The False Claims Act includes many different types of fraud such as defense fraud and fraud involving any federal agency. Healthcare fraud is one of the biggest areas of fraud that the Act covers.
In the healthcare sector, most healthcare fraud involves payments by Medicare, Medicaid, and TRICARE (a military program designed to help retires and the families of active service members). Defendants, including doctors, medical practices, hospitals, laboratories, pharmacies, and many other health providers can be charged civilly and criminally – usually by the US Department of Justice.
The False Claims Act and types of healthcare fraud
There are numerous types of misconduct by health providers and health companies that can result in a False Claims Act case. Many of these various kinds of fraud include the submission of false or improper billing claims. Examples include submitting bills for services that are not reasonably medically necessary, submitting bills for services that were never rendered, billing under codes that pay higher amount instead of lower codes (called upcoding), redlining (the act of essentially accept only healthy patients when payments are made on a per-patient basis), and other improper billings. The False Claims Act also includes acts such as submitting grants based on false facts or changing the data of scientific tests to justify the reception of the grant.
The False Claims Act also includes many compliance law violations and regulatory violations. Doctors and other health entities who violate the Stark self-referral laws or the Anti-Kickback Statute can also be charged with a violation of the False Claims Act. Not every Anti-Kickback Statute or Stark Law violation qualifies as a violation of the False Claims Act. The Justice Department will prosecute False Claims Act cases for violations of these laws if the doctor, testing facility, or other healthcare provider who obtains a patient through an illegal referral then bills Medicare, Medicaid, or Tricare for the medical services or products provided to the patient. In short, there must be a claim made to a federal healthcare agency and the claim must be considered false or fraudulent. The claim part is the request for payment. The false or fraudulent part is the patient referral which violates Stark Law or the Anti-Kickback Statute.
A False Claims Act can also be filed if the physician, medical practice, or hospital filed a claim for payment based on services that were performed by unlicensed personnel or by people in the health provider’s office who did not have the proper authority to act. This means that bills submitted to Medicare and other healthcare agencies are considered false if the bill is based on the illegal practice of medicine.
How a False Claims Act is brought
A False Claims Act case can be brought in mostly one of two ways. If the US Department of Justice has information on its own that a false claim has been submitted or learns of the fraud through another agency (federal, state, or local), then the DOJ can file a direct claim against a physician or other health providers.
Many False Claims Act cases are brought because a whistleblower, called a relator, files a formal disclosure claim with the whistleblower’s local US Department of Justice office – usually with the help of a whistleblower lawyer. The claim is called a qui tam claim. In return for filing the qui tam action, the whistleblower may be awarded a percentage of any recovery (usually somewhere between 10 and 30%).
Cases brought by the US DOJ are usually brought the department’s civil division. The qui tam claim is filed confidentially under seal. Once the claim is filed, the US DOJ investigates the merits of the claim. If the Justice Department believe the disclosure shows that a health provider or company did commit fraud, the amount of the fraud is substantial, and other factors are met – then the US DOJ will agree to intervene in the case. Intervention means that the DOJ takes over the cases and prosecutes the case. The whistleblower may be called as a witness, if necessary.
If the US DOJ decides not to intervene, the whistleblower with the help of a whistleblower lawyer, can then file his/her own claim against the physician, hospital, or other medical entity.
In many cases that have been brought successfully, the whistleblower is a former employee (such as an accountant or a marketing rep) for the medical practice or Health Company. Whistleblowers can also include contractors, vendors, and anyone who has knowledge of the fraud and understands how to document the fraud.
The penalties for violating the False Claims Act
Violations of Stark Law, the Anti-Kickback Statute, the rules on the unauthorized medicine, or other compliance violations which result in a False Claims Act claim can result in broad and serious penalties. These penalties include the following:
- Repayment of any payments made by Medicare, Medicaid, Tricare, or any other federal agency.
- Treble damages. This means that if a health provider made illegal kickbacks or self-referrals and then billed Medicare $1 million dollars, the damages could be $3 million.
- Statutory penalties for each violation of the False Claims Act. The current penalty for each violation is as much as $11,000. This means, for example, that if a doctor submits 100 false Medicare reimbursement claims, the statutory penalties (in addition the treble damages) could be $110,000.
- The healthcare practice, testing facility, pharmacy, or other healthcare provider or entity can also be required to enter into a Corporate Integrity Agreement which means the health entity must meet specific compliance criteria before the entity can submit bills to any federal agency.
In some cases, health practices are prohibited from submitting Medicare or other healthcare claims for a specific period of time such as 25 years.
If a whistleblower is part of the claim process, the health entities may also be required to pay the legal fees for the lawyer for the whistleblower.
In Anti-Kickback Statute and Stark Law cases that are the basis of a False Claims Act case, the False Claims Act penalties are just the first half of the penalty phase. Doctors, medical practices, and medical companies can also be penalized again for violation of the Anti-Kickback Statute or Stark Law. The Anti-Kickback Statute and Stark each have additional penalties.
Anti-Kickback Statute violations
The Anti-Kickback Statute prohibits the offering, solicitation, and receipt of remuneration (basically, anything of value) in order to induce a doctor or health provider to refer patients. Both the entity making the kickback and the party receiving the kickback can be charged with an Anti-Kickback Statute violation and a False Claims Act violation. The Anti-Kickback Statute also includes criminal penalties for anyone convicted.
Examples of Anti-Kickback Statute violations include payments by labs, pharmacies, medical supply companies, and hospitals to entice a physician to refer patients to the referrer. Forms of improper payments include:
- Sham medical directorships where the doctor receives a sizable fee for doing little or no work
- Expensive lunches, vacations, and other benefits
- Cash payments
Doctors can also violate the Anti-Kickback Statute if the doctors give patients discounts or waive co-pays in order to get the patient’s business – unless the patient is not able to make the payments due to his/her low income.
Some kickbacks that violate the Anti-Kickback Statute and the False Claims Act may also violate Stark Law. A few examples include arranging for the doctor or a medical practice to rent/buy equipment, office space, or other medical office essentials – at below market value – in return for the doctor referring patients.
The government prosecutes Anti-Kickback Statute claims, as well as Stark claims, when doctors and health providers are placing the health provider’s financial well-being before the well-being of the patient.
Medical doctors and health care companies who participate in kickbacks for referrals can face severe enforcement penalties.
Stark Law violations
Stark Law is also called the Physician Self-Referral Law. Stark Law is a body of law is directed at doctors (and the immediate family members of the physician) who have a financial interest (such as through ownership or compensation) with a healthcare entity that provides a specific/designated health care series. Stark requires that the doctor refer the patient to independent entities so that the doctor is doing what is best for the patient and not for his/own financial interest. Stark Law actively applies to the physician or medical practice making the referral when the healthcare entity submits a bill to Medicare or Medicaid for payment for services treatments, medical products, testing, or other medical items.
The Anti-Kickback Statute does have safe harbors and Stark Law does have formal exceptions that an experienced healthcare lawyer can explain. If these safe harbors and exceptions are properly created, implemented, and observed then the medical practice should reduce the risk of an Anti-Kickback Statute, Stark Law or False Claims Act complaint.
Unlike the Anti-Kickback Statute, Stark Law is a strict liability statute. This means that there is no requirement to show the physician or referrer had knowledge or intended to improperly profit from the referral
Examples of Stark Law violations include:
- Excessive payments for medical directorships
- Illegal recruitment arrangements
- Forgiving debts or providing interest free loans
- Providing office space, equipment, supplies, utility services, computer equipment, and other medical products and services at below fair market value
California has its own False Claims Act that applies to false billing to state agencies for Medicaid patients.
Physicians, medical practice, and ancillary practices such as testing facilities can all be charged with violation of the False Claims Act if their incentive for referring patients to any medical provider or company – is based on their financial interest and not the patient’s health and wellbeing. Even through there are separate laws for kickbacks and for self-referrals, the False Claims Act does generally include violations of the Anti-Kickback Statute and of Stark Law. Companies should review their options and the available safe harbors and exceptions to the Anti-Kickback Statute and Stark Law with an experienced healthcare attorney.
Contact Cohen Healthcare Law Group, PC for legal counsel on healthcare transactions, regulatory compliance, and FDA and FTC law. Our experienced healthcare & FDA attorneys advise healthcare companies and healthcare providers ranging from medical centers, to integrative and functional medicine practices, cosmetics and supplement companies, and medical device manufacturers.