Coders must be wary of violating False Claims Act
By John R. Phillips
Mary Louise Cohen
Phillips and Cohen
Washington, DC
(Editor’s note: Phillips and Cohen specialize in representing whistle-blowers in False Claims Act cases. Their law firm has offices in Washington, DC, San Francisco, and San Diego. Their cases have resulted in about half of the $1.3 billion the government has collected through whistle-blower lawsuits.)
Health care providers are finding the risk is great and the price is high for filing false Medicare claims. Understanding the False Claims Act is the first step to keeping your hospital or ambulatory surgery center (ASC) out of serious trouble.
The risk for hospitals is high, largely for two reasons. Fighting health care fraud has become one of the top priorities of the U.S. Department of Justice, second only to violent crime. The Federal Bureau of Investigation now has specialized health care fraud units in every metropolitan area.
At the same time, an increasing number of health care employees and others are using a Civil War-era law, the False Claims Act, to blow the whistle on fraud against the government.
The False Claims Act has become an important weapon in the federal government’s fight against health care fraud. It allows private citizens, as well as the federal government, to sue individuals, companies, or institutions that are defrauding the government. In the health care field, any physician, hospital, or other health care provider that participates in Medicare, Medicaid, CHAMPUS or any other federally funded health care program is liable. (For information on creating internal safeguards, see Outpatient Reimbursement Management May 1997, p. 33.)
The government is entitled to recover three times its losses as well as $5,000 to $10,000 for each fraudulent claim. In the case of health care providers, the penalties can add up to an enormous sum since fraudulent practices often involve thousands and even millions of individual patient claims.
As a result of the False Claims Act the following results are expected:
• Hospitals are expected to pay $120 million to settle government charges claiming that they violated the "72-hour rule" by submitting separate bills to Medicare for outpatient treatment of patients later admitted.
• The Clinical Practices of the University of Pennsylvania paid $30 million in December 1995, and Thomas Jefferson University paid $12 million in August 1996 to settle charges that included billing the government and patients for treatment by faculty physicians that were actually done by residents and interns. Both facilities are in Philadelphia. After Penn settled the case, the U.S. Department of Health and Human Services initiated a program for Physicians at Teaching Hospitals (PATH) to review Medicare billing practices at other teaching hospitals.
• Independent laboratories have paid more than $350 million to settle charges that they billed Medicare and other federally funded insurance programs for unnecessary blood tests.
Some of these cases are the result of threats by the government to sue health care providers under the False Claims Act. Others were initiated by whistle-blowers who filed lawsuits. The motivation for whistle-blowers can be strong, since they are awarded 15% to 25% of whatever money the government recovers if the government joins the case and up to 30% if the government declines to intervene. The reward provision, which Congress strengthened in 1986, and the job protection provisions of the law are the primary reasons for the growing success and use of the False Claims Act.
A whistle-blower can be just about anyone involved with the health care provider. Anyone with knowledge of a health care provider submitting false claims to the government can file a lawsuit. This could be a doctor, a clerk, a patient, or even a competitor.
Whistle-blowers may file lawsuits even if they participated in the fraud. Congress realized that the best source of information about fraud would be insiders, and most times employees are forced to participate to keep their jobs. However, if the courts find that the whistle-blowers planned or initiated the fraud, then judges may reduce their rewards. And if the whistle-blowers are convicted of criminal actions in connection with the fraud, then they will not be awarded any money at all.
Lawsuits initiated by whistle-blowers are called qui tam cases. (Qui tam is short for a longer Latin phrase meaning "he who brings the action for the King as well as for himself.") The lawsuits are filed under seal and are not available to the public for 60 days or longer while the government investigates to decide whether it wants to join the lawsuit.
The law specifies seven types of fraud that are violations as follows:
• presenting a false claim for payment;
• using a false statement to get a claim paid, such as using the wrong diagnosis code;
• reversing false claims, i.e. avoiding an obligation to pay the government;
• conspiring to get a false claim paid;
• delivering fewer services or goods than what the government is entitled to receive;
• falsifying that the government has received property and is fraudulently buying or receiving public property.
In the health care field, there have been False Claims Act lawsuits and investigations for practices such as upcoding and unbundling, billing for services not provided, billing for services that aren’t medically necessary, substandard services, improper cost reporting, and grant or program fraud.
Lawsuits also have been filed for kickbacks, but the courts are divided on whether this is a False Claims Act violation or whether it is only a violation of the federal anti-kickback statute.
The False Claims Act is especially troubling to health care providers because it has a tremendous reach. The law has a 10-year statute of limitations. And an important point that may keep you awake at night: Government and private attorneys do not have to prove the fraud was intentional. They only have to prove that improper claims were submitted "with reckless disregard of the truth."
Those who can be held responsible for the fraud include not only the individuals or companies that committed the act but also those who actually receive the government funds even if they were unaware of the specific false claims made on their behalf. For instance, the law would hold a health care provider accountable for fraudulent claims submitted by its billing company because it must properly supervise those who submitted claims on its behalf.
Congress passed the original False Claims Act in 1863 to prosecute manufacturers that sold the Union army defective supplies. It amended the statute in 1986 to provide harsher penalties for wrongdoers and greater rewards for whistle-blowers.
In the early years of the amended law, most cases involved defense contractors. But in the past year, only one-fourth have been related to the defense industry. About 40% of the lawsuits were against health care providers.
Tips for staying out of trouble
To avoid or minimize liability under the False Claims Act, health care providers should do the following:
• Carefully choose outside companies to perform functions such as billing. Be wary of any that promise to maximize recoveries far beyond the norm. You will be held liable for any fraudulent claims contractors make on your behalf.
• Closely supervise contractors and employees to ensure they are aware of and are following all government regulations regarding filing Medicare claims.
• Create a corporate culture that rewards whistle-blowers for reporting wrongdoing. Many, if not most, whistle-blowers who have filed lawsuits have done so only after being harassed, ostracized, or punished when they reported the problem to their managers.
• Respond rapidly and appropriately once wrongdoing is reported, and act to prevent further problems.
• Do not offer or accept any freebies (e.g., free rent, free products) or other benefits (such as a research grant) that could be characterized as incentives or rewards for patient referrals.
• Consider reporting false claims yourself.
This is a matter of trying to cut your losses. Hospitals and other health care providers that voluntarily disclose to the government that they may have made false Medicare claims could have to pay at least double the government’s losses. But that can be far less than the triple damages and the $5,000 to $10,000 per claim that the government is entitled to if someone else reports the fraud.
[Editor’s note: For more information, contact Phillips and Cohen, 2000 Massachusetts Ave. NW, First Floor, Washington, DC 20036. Telephone: (202) 833-4567. Fax: (202) 833-1815.]
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