Expanding on an Interesting False Claims Act Proposal

This article popped up on one of my news feeds recently.  It discusses a proposal by a few Washington, D.C., law firms to drastically revise the federal False Claims Act.  Here is the proposal in its entirety.  As you can see, it’s a hodgepodge of proposed defendant-friendly fixes, most of which (1) reduce the amount that can be recovered under the FCA; (2) reduce the share of qui tam relators; or (3) make it more difficult to prove an FCA charge.  I’m not going to spend much time on those.  Instead, I want to focus on a really interesting suggestion involving whistleblowers and corporate compliance departments.

First, though, a bit of background.  Those who are familiar with the FCA can skip ahead.  The FCA is a Civil War-era statute initially designed to stop wartime fraud on the government.  (Incidentally, the linked article by Professor Krause is very short and – like virtually all of her stuff on health law, and especially the FCA – worth a read.  In fact, the background that follows is heavily based on her article.)  From the outset the FCA contained a unique qui tam provision that allowed private citizens, called “relators,” to bring suit on the government’s behalf and share in the proceeds.  In 1943, it was amended to bar so-called “parasitic” lawsuits based on information or knowledge already in the government’s possession.

Then came the rise of our labyrinthine administrative state.  In the face of massive allegations of fraud (especially in the defense industry), Congress significantly amended the FCA in 1986 to make it a more useful fraud-combatting tool.  It raised the statutory penalties from $2,000 to $11,000 plus treble damages per violation, increased whistleblower protection, and expanded the qui tam provision to include a bigger relator share and liberalize who may sue.

Given the emergence of Medicare and Medicaid as major – and growing – parts of the federal budget (for example, Medicare has gone from 8.5 percent to a projected 16.9 percent in 2020), it probably isn’t surprising that the FCA increasingly has been used to combat health care fraud.  By the late 1990s, the clear majority (61 percent) of FCA qui tam lawsuits involved those sorts of claims.  In 2008, for example, there were 228 qui tam lawsuits resulting in nearly $10 million in recoveries for the relators alone.  In 2009, total health care fraud recoveries by the government reached $1.6 billion.  Common theories of recovery under the FCA include:

• outright mischarges (where providers bill for services that were not provided – so basically quintessential fraud);
• medical necessity fraud (where providers submit bills for services provided but not medically necessary);
• certification fraud (where providers bill for services improperly certified as compliant, often because they violate the federal Anti Kickback Statute or Stark Law anti-referral provisions);
• substandard services fraud (where the provider bills the government for worthless or near-worthless services);
• reverse false claims fraud (where a provider lies to the government to reduce any amounts it would otherwise owe); and
• a host of other creative types of claims.

So what is the problem with an aggressive anti-fraud regime, particularly in the health care context?  Perhaps the most prominent criticism involves the lack of basic fairness inherent in a system where federal prosecutors can bring a “corporate death penalty” to the table by threatening the imposition of monetary penalties and (oftentimes) the exclusion altogether from the Medicare and Medicaid programs.  Put simply, when facing that sort of existential dilemma, many – if not most – health care providers decide to “roll over” and pay whatever the government is asking.  In that way, FCA claims become less of a deterrent against wrongful conduct, and more of an occasional but unpleasant cost of doing business.

That takes us back to the article and proposal linked at the top.  As I noted, the authors argue for a number of changes to narrow the FCA. They would make it harder for qui tam plaintiffs to bring FCA suits; make it harder for FCA plaintiffs to win the suits that are brought; and reduce the amount recoverable in successful suits, for the relators and the government.

I don’t think these proposals are very interesting.  Don’t get me wrong; some or even all of them probably are advisable as a policy matter.  I suspect that a lot of health care providers facing FCA claims would probably think so.  But are they really going to result in a productive discussion?  It’s going to be a purely political quagmire, in which we’ll see whether a motivated special interest group can overcome the inevitable demonization of what will be painted as a “pro-fraud” proposal.  I’ll just say that this sort of realpolitik analysis isn’t exactly in my bailiwick.

There is one aspect, however, that is more intriguing, at least to me.  The proposal’s authors include a recommendation to expand the qui tam provision to go beyond lawsuits brought in court.  Instead, they argue, qui tam recoveries (they suggest 10 percent) should be permitted when relators bring the alleged deficiency to the attention of internal compliance departments, and that deficiency results in a voluntary self-disclosure.  This is really clever.  One obvious impediment to whistleblowers is the fear that they will ruin their careers by running to law enforcement with allegations of wrongdoing on the part of their employers.  (Yes, there are legal protections against this.  They aren’t always effective, and maybe more importantly, they aren’t always perceived by whistleblowers to be effective.)  By incentivizing them to go to internal compliance departments, that barrier is largely removed.

But why stop at the FCA?  There are a number of (nonfraud) situations in which an overpayment has been received by a provider and it must pay back the money.  Why not expand the proposed qui tam internal reporting regime to those?  I understand that all of this is easier on paper than it is in real life.  The original FCA proposal, for example, contemplates what might happen if the compliance department refuses to take action (the relator would be able to bring an FCA lawsuit in that case).  In the broader overpayment context, there would need to be some safeguard against the relator becoming aware of overpayments and letting them rack up before informing the compliance department.  There also would need to be hypervigilance about a plan among two or more employees whereby one would permit the overpayment and the other (or others) would report it.

The bottom line remains the same, though.  The insight that everyone benefits from an internal reporting process – employees because they don’t risk alienating their employers (as much), providers because they can manage and disclose the conduct on their own terms, and even the government because it will encourage more reporting – is a valuable one.  It’s certainly worth pursuing further.

Image courtesy of Flickr by Andrew Michael Nathan