EXECUTIVE SUMMARY
The False Claims Act (FCA) poses significant risks to healthcare organizations. Claims can arise from many different sources.
- Violations do not have to be intentional to violate the FCA.
- The response to the government must be professional and diligent.
- Settlements can be presented to the public in a positive way.
Understanding the ins and outs of the False Claims Act (FCA) can prevent violations and improve the outcome if the government or a whistleblower does allege fraud and abuse. FCA investigations are almost impossible to avoid for large companies, so risk managers must thoroughly understand the law.
The issue is more important because the government is starting to look closely at the novel ways in which entities are delivering care post-pandemic, says Jaime L.M. Jones, JD, partner with Sidley Austin in Chicago.
“We will see enforcement against hospitals and health systems for providing telehealth services in ways that are inconsistent with the federal program. To date, all the enforcement around the delivery of telehealth has really been about Anti-Kickback Statute issues,” Jones explains. “There have been problems with financial arrangements between providers and other referral sources, but I think what you’re going to start to see is enforcement based on the way that telehealth services themselves were delivered.”
The government will look for care that was delivered inconsistently with the waivers that were put in place to facilitate telehealth since the pandemic began. They will focus on whether the services were necessary, Jones says. A related issue is remote patient monitoring, the use of which is expanding for cardiac monitoring and other kinds of patient monitoring.
“We see the government starting to bring cases saying those services were not medically necessary and/or they were not being provided in full compliance with Medicare billing rules regarding how you provide and get paid for remote patient monitoring,” Jones says.
Healthcare organizations should create tight policies and procedures regarding how they engage with anybody in a position to refer patients for services, Jones recommends. Training is important. While there are regulatory and statutory safe harbors to kickback and self-referral laws, they often are misunderstood. People can become too comfortable with assuming a certain type of referral is safe.
“Safe harbors are super technical, and you have to comply with every single element, or you don’t get the protection. I would say, in almost every instance, where a healthcare entity is in the crosshairs with DOJ [Department of Justice] over one of these sorts of arrangements, they tried to comply with the safe harbor, or they thought they were complying with the safe harbor, but they didn’t nail it,” Jones says. “If you don’t nail it, then it is very hard to talk DOJ down.”
For the past 20 years, whistleblowers drove 99.9% of the FCA enforcement. That is changing now that DOJ has access to more healthcare data, Jones says. DOJ is performing more of its own analytics research now instead of waiting for violation reports.
“I have had numerous enforcement matters that I’m handling and have handled over the last few years where DOJ has acknowledged to me that there is no whistleblower. ‘We found them on our own. We looked at the data and we found it and we now have a bunch of questions for your clients,’” Jones reports. “Knowing that you have the government looking at your data on the other end, you need to be making sure you’re looking at your own data.”
Medical Record Must Support Claim
It is important to ensure a valid medical record supports the claim, says Bob Wade, JD, partner with Nelson Mullins in Nashville, TN. If a claim is submitted before the medical record is completed, then it must be reviewed to ensure the claim can be validated.
Medical necessity is another concern. “You may have doctors who, especially because of the electronic medical records, are copy-pasting and bringing documentation forward in order to populate the medical record. But somebody needs to go through and validate that what is being input into the electronic medical record was actually happening on that day,” Wade cautions. “I’m seeing a lot of issues out there on that very point — the copying and pasting.”
Fraud and abuse issues under the Anti-Kickback Statute and Stark Law also can create false claims, Wade says. Once a Stark Law violation is discovered, it becomes a false claim if the organization continues to bill or does not self-report.
Fair market value for physician compensation is a big issue under the Stark law and the Anti-Kickback Statute. “If you have an inappropriate financial arrangement with a referral source, whether it’s the physician or otherwise, and you have knowledge of that, then that can create a false claim if you’re continuing to bill for the service without correcting the issue,” Wade says.
Look Beyond First Overpayment
Healthcare organizations can wander into FCA territory by not sufficiently following up when an overpayment is discovered, says Jordan Kearney, JD, partner with Hooper, Lundy & Bookman in San Francisco.
“A common pitfall that people encounter is they know that if they identify an overpayment, they need to report and return the overpayment. What they don’t know is that if this overpayment gives them some information suggesting that the problem is systemic or impacts more claims, they have an obligation to go find the other overpayments,” Kearney says.
For example, a hospital may audit records on a high-risk procedure and find a 40% error rate on billing, Kearney explains. With the best intentions, they self-report and return the overpayment on the claims in the audit sample. But the look-back period for Medicare fee for services is six years.
“Now they’ve reported and returned a handful of claims from the sample, but they didn’t go look for all the other claims that would be impacted by the same issue,” Kearney says. “It’s well-meaning but opens the door to a false claims investigation.”
Work with Human Resources
Often, FCA cases are filed by current or former employees. Many companies have limited resources to review all compliance concerns raised by their employees that implicate claims submitted to government payers, says Selina P. Coleman, JD, partner with Reed Smith in Washington, DC.
“Not having or committing the time and resources to address these compliance concerns, or not taking seriously those who raise those concerns, may lead to a current or former employee electing to bring a claim under the FCA,” Coleman notes. “Whether a company has taken these concerns seriously and as needed, taken corrective action may also affect the government’s intervention decision.”
Almost any time companies submit claims to the government, it runs the risk of billing practice scrutiny under the FCA, which carries the risk of treble damages and per-claim penalties, Coleman says. Even if a company thinks it is billing claims correctly and consistently with the law, it may still face challenges when a whistleblower or a regulator disagrees, particularly where billing requirements are ambiguous.
Beyond providing information or training on the federal FCA and state false claims acts, companies can monitor government initiatives such as those described in the Office of Inspector General’s annual work plan and claims pursued in FCA cases within their industry to identify and prioritize risks for potential review, Coleman suggests.
Because employees are a common source of FCA reports, risk management must work closely with human resources, says Mark J. Silberman, JD, chair of the white collar, government investigations, and regulatory compliance practice group with Benesch in Chicago.
“I would love to see every exiting employee be asked the question of whether or not they know or are aware of anything that needs to be improved or needs to be done that wasn’t being done. Then, obviously, something needs to be done with that information,” Silberman says.
When defending against FCA allegations from a former employee, it will be helpful to collect evidence the organization inquired about any potential problems, and none were reported.
“Three months later, he puts forth an allegation of rampant fraud that is designed in part to enrich him. Your exit interview undermines the credibility of that in the eyes of anyone and everyone who is looking at it,” Silberman explains. “The purpose and the goal of the hospital system is to avoid the problem, so if you ask and this person does raise issues, you have to evaluate them. They’re not all going to be legitimate, but if someone raises an issue, you need to have that environment where it is assessed, and if necessary, you take the next steps.”
Employee Concerns
Allegations a healthcare entity submitted false claims can come in the form of an employee concern, a Civil Investigative Demand through which the government may be reviewing a qui tam under seal, or through the unsealing of a qui tam lawsuit, Coleman notes. In any case, the company must take the issue seriously and determine if any corrective action is needed, such as changing billing practices or refunding overpayments.
“If defending against a qui tam action, we explore a number of legal defenses, such as bars to a whistleblower bringing the claim, as well as pleading deficiencies, such as the allegations failing to satisfy the requisite elements under the FCA,” Coleman says. “If a case proceeds, we typically seek discovery from the government to explore whether the whistleblower cannot satisfy the requirement of proving that the alleged misconduct was material to the government’s payment decision.”
Although settlement tactics will depend on the facts of the case, the weaknesses of the alleged claims, and the strengths of the company’s defenses, defendants need to be prepared to challenge the alleged damages, Coleman says. This may include a credible alternative methodology that reveals the overstatement of alleged damages.
“Any settlement strategy should also leverage any data and documents that support the company’s compliant practices, show the company did not have the requisite intent to submit false claims, or show that the company’s practices were not material to the government’s payment decision,” Coleman says.
Some companies might not know they can take discovery from the government to determine whether the government knew of the alleged misconduct, and whether the government continued to pay the claims with full knowledge of this conduct.
“Although companies typically know they will be scrutinized for their action or inaction, they may not know they can turn the tables when confronting these claims and seek to defeat the claims — or achieve a more favorable settlement — by showing alleged misconduct was not material to the government’s payment decision,” Coleman says.
Three Categories of Risk
In healthcare settings, leadership can analyze or search for FCA risk in one of three categories: how patients got there, how patients are cared for, and how services are billed, says Alissa D. Fleming, JD, shareholder with Baker Donelson in Charleston, SC. For instance, common pitfalls may include inappropriate financial relationships resulting in referrals (category 1); inappropriate financial incentives or relationships with outside vendors or entities resulting in unnecessary procedures or testing (category 2); or improper coding or “upcoding” that increases revenue (category 3).
In many cases, conduct might have started as an innocent mistake or inadvertent, but when the company discovers it, the failure to appropriately respond can turn it into a false claim.
“Innocent mistakes not correctly addressed or overlooked can turn into false claims. However, being investigated for false claims is almost part of being in the healthcare industry,” Fleming says. “Misperception by employees, complicated federal regulations, and the interplay of business and clinical judgment are all otherwise innocent activity that will have to be explained and discussed in response to an investigation. At the end of the day, a health system may be able to explain all of its actions as lawful, but still have to go through the expense and effort of responding.”
It is critical to remember the FCA does not require intent to violate the act, Fleming cautions. Acting recklessly on the accuracy of what an employee enters in a record or approves for billing can be the basis for a claim.
“Check, recheck, and double check the accuracy of claims,” Fleming stresses. “Also, never enter into any financial or beneficial relationship with any other party as a hospital without getting a legal review by someone knowledgeable of relevant regulations — the Anti-Kickback Statute and Stark.”
Respond Carefully
The response to an FCA claim must be professional and diligent, says Thomas H. Barnard, JD, shareholder with Baker Donelson in Washington, DC. The company should maintain open lines of communication with the government.
“As a healthcare entity, the last thing you want is to be perceived as being nonresponsive, hiding something, or having a lack of concern for patient safety,” Barnard says. “Get assistance from a lawyer who has experience with the False Claims Act. Don’t simply rely on your go-to outside counsel for other litigation, as the issues are very different.”
Also, never try to hide mistakes. Resolve the mistakes, then explain how they were discovered and solved, Barnard says. Always take the inquiry seriously. Remember you are dealing with the government, not just a commercial dispute.
Another common error is acting overly defensive about every issue. “In a large organization, mistakes are bound to happen. Remember, let the facts speak for themselves, and do good legal research to show how the conduct was lawful or explainable without a bad motive,” Barnard explains. “It is a mistake to not be prepared to address issues and learn from them. Being ready to ‘do things better’ is always a winning attitude.”
If the organization is settling, it should be treated as a positive sign of leadership taking accountability and doing the right thing.
“You want to be able to show it’s not just paying money, but also taking steps to make sure something does not happen again through reviewing policies, improving education and training, and best practices,” Barnard says. “Be prepared for the press release from the government and how to manage the reputational impact of the public nature of the settlement. Remember that the most important fact for the future is not what happened, but how you responded.”
SOURCES
- Thomas H. Barnard, JD, Shareholder, Baker Donelson, Washington, DC. Phone: (202) 508-3400. Email: [email protected].
- Selina P. Coleman, JD, Partner, Reed Smith, Washington, DC. Phone: (202) 414-9220. Email: [email protected].
- Alissa D. Fleming, JD, Shareholder, Baker Donelson, Charleston, SC. Phone: (854) 214-5913. Email: [email protected].
- Jaime L.M. Jones, JD, Partner, Sidley, Chicago. Phone: (312) 853-0751. Email: [email protected].
- Jordan Kearney, JD, Partner, Hooper Lundy Bookman, San Francisco. Phone: (415) 875-8497. Email: [email protected].
- Mark J. Silberman, JD, Benesch, Chicago. Phone: (312) 212-4952. Email: [email protected].
- Bob Wade, JD, Partner, Nelson Mullins, Nashville, TN. Phone: (615) 664-5326. Email: [email protected].
Understanding the ins and outs of the False Claims Act can prevent violations and improve the outcome if the government or a whistleblower does allege fraud and abuse. False Claims Act investigations are almost impossible to avoid for large companies, so risk managers must thoroughly understand the law.
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