False claims can result in prison time, fines
By John R. Phillips, JD
Mary Louise Cohen, JD
Phillips & 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.)
A precedent-setting ruling by a federal appeals court last year has put health care providers on notice that the federal government will seek not only civil damages but also prison time for the filing of false Medicare claims.
In October 1996, the Eleventh Circuit Court of Appeals upheld the criminal conviction of a supervisor with Charter Medical Corporation, a national hospital chain based in Macon, GA, who had failed to disclose relevant informa- tion when the company filed questionable cost reports. The court ruled that John Calhoon, a former reimbursement manager for Charter Medical, had failed to disclose that the royalty fees Charter Medical sought reimbursement for were made to the hospitals’ parent company.
File cost reports under protest’
That information, the court said, was critical for Medicare intermediaries to determine whether the royalty fees were reimbursable, because in some cases, they’re not. "By concealing that the royalty fees were paid to a related company," the court said, "Calhoon made the claim for reimbursement false."
Calhoon also sought reimbursement for advertising costs that were labeled "outreach" in the cost reports. The court said he knew those costs were "at least presumptively, if not clearly, nonreimbursable." While there is nothing wrong with submitting claims for costs a health care provider knows to be presumptively nonreimbursable, the court said, "It must do so openly and honestly, describing them accurately while challenging the presumption and seeking reimbursement."
In other words, if a provider believes a cost that generally isn’t reimbursable should be reimbursed, then it should identify that cost in the cost report and file the cost report "under protest." This allows the intermediary, which reimburses the provider on behalf of the government, to determine whether the cost should be reimbursed based on federal regulations and policy guidelines.
"Nothing less is required if the Medicare reimbursement system is not to be turned into a cat-and-mouse game in which clever providers could, with impunity, practice fraud on the government," the court added.
Calhoon was sentenced to 15 months in prison and three years of probation, with 200 hours of community service. He is appealing the conviction.
Case is a warning to risk managers
Calhoon’s case has not received much publicity, but it serves as a warning to those responsible for filing Medicare payment claims to consult their attorneys if they have any questions about what should be disclosed or whether certain costs have been correctly characterized.
Criminal exposure for providers and employees is not limited to cost reporting. The U.S. Department of Justice has begun to rely on a provision of the 1977 amendments to the Social Security Act that makes concealing from the government or failing to report Medicare overpayments a felony. Under that provision, health care providers and others who conceal or fail to disclose that they have received larger payments than they are entitled to from the government are guilty of a felony and could be imprisoned for up to five years and fined up to $25,000. Their employees who conceal these overpayments may be guilty of a misdemeanor and subject to fines.
This means that Medicare overpayments that are not intentional might become a criminal matter if the provider becomes aware of them and does not report the overpayments. Anyone who has questions about what to do regarding Medicare overpayments should consult an attorney and bring the "duty to disclose" provision to the attorney’s provision.
Health care providers who file false Medicare claims also can be sued under the False Claims Act for as much as three times the government’s losses plus $5,000 to $10,000 for each false claim. Given that fraudulent practices by health care providers can involve thousands or even millions of individual patient claims, the total sum that most providers could be liable for is staggering.
The False Claims Act allows private individuals to sue companies, organizations, or individuals that are defrauding the government and recover damages and penalties on the government’s behalf. Anyone with spe-
cific knowledge of the fraud can file a lawsuit. That means that an employee, a patient, or even a competitor could blow the whistle. To encourage individuals, particularly insiders, to step forward and report fraud, the law grants those who file lawsuits 15% to 30% of whatever money the government recovers.
The government can file False Claims lawsuits on its own. False claims cases often are easier to win than criminal ones because the burden of proof is lower. As in any civil case, the court only needs to determine that the preponderance of evidence shows the defendant was liable. In criminal cases, there has to be proof beyond a reasonable doubt. And the government and whistle-blowers only have to prove that improper claims were submitted "with reckless disregard of the truth" not that they were submitted intentionally.
Criminal charges can follow lawsuit
False Claims Act cases often trigger criminal investigations by the Department of Justice. The department’s civil division will investigate the charges in false claims lawsuits to deter-mine whether the government will join the civil case. It also will pass the information on to the department’s criminal division for prosecution.
For instance, the government joined two False Claims Act cases against Damon Clinical Laboratories in Needham, MA, and at the same time pursued criminal prosecution of the company for fraudulent billing practices. Last October, the company paid $83.7 million to settle the whistle-blower lawsuits and $35.3 million for a criminal fine. It pleaded guilty to conspiracy to defraud the federal government and in particular the Health Care Financing Administration by submitting false Medicare claims.
Voluntary reporting wins leniency
If a provider voluntarily informs the government that it may have filed false claims, the False Claims Act stipulates that the provider pay at least two times the government’s losses.
To qualify for that more lenient penalty, the provider must:
• report its errors within 30 days of discovering them;
• cooperate with the ensuing government investigation;
• make the disclosure before any criminal prosecution, civil lawsuit, or administration action relating to the violations has begun and before the provider knows of any government investigation.
Thomas Jefferson University voluntarily participated in a government program looking into false Medicare billing practices by teaching hospitals. The PATH program (for Physicians at Teaching Hospitals) focuses particularly on the wide-spread hospital practice of billing for treatment by faculty physicians when residents and interns actually did the work.
Last year, Thomas Jefferson paid the federal government $12 million, which was roughly double the amount of damages for improper Medicare claims the university had filed from 1990 to 1994.
In criminal cases, federal sentencing guidelines allow for more lenient treatment of wrongdoers if they voluntarily report the violation, cooperate with the government in the ensuing investigations, and accept responsibility for their criminal conduct.
[For more information, contact: Phillips & Cohen, 2000 Massachusetts Ave. NW, First Floor, Washington, DC 20036. Telephone: (202) 833- 4567. Fax: (202) 833-1815. Web site: http://www. whistle-blowers.com.]
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