Category: False Claims Act

SCOTUS Broadens False Claims Act Liability Based On “Implied False Certification” Theory

In a June 2016 decision, the United States Supreme has held, under the False Claims Act (FCA), that (1) the so-called “implied false certification theory” may create liability when the defendant fails to disclose noncompliance with a legal requirement when submitting payment claims that make definitive representations about the services provided; and (2) liability is not contingent upon the requirements being an express condition of payment.

Yarushka Rivera, received counseling at a mental health facility. Rivera suffered an adverse reaction to medication resulting in her death. After Rivera’s death, her parents learned that most employees at the facility were not licensed to provide mental health counseling. They later discovered that only one of the five professionals treating their daughter was licensed. Respondents filed a qai tam suit alleging violations under the FCA, based on an implied false certification theory of liability; that is, they claimed that the facility submitted false claims by submitting reimbursement requests without disclosing regulatory violations regarding the staff credentialing and licensing violations.

Implied False Certification Theory

The implied false certification theory suggests that a defendant implicitly verifies all payment requirements are satisfied when submitting a claim. However, if the claim fails to disclose violations of material legal provision then a misrepresentation has been made rendering the claim false or fraudulent under the FCA. Disputes among the Court of Appeals concerning the validity of this theory prompted the Supreme Court to grant review. In its decision, the Supreme Court held the implied certification theory may create liability when two conditions are met: first, the claim does not just demand payment but makes definitive representations about the products or services provided; and second, failure to disclose noncompliance with material statutory, regulatory, or contractual provisions makes those representation deceptive half-truths.

Liability Under the FCA

The FCA imposes civil liability on “any person who…knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval.” Defendants argued that liability should only be imposed when the violations of statutory, regulatory, or contractual requirements are an express condition of payment. The Supreme Court rejected this contention, stating liability is not contingent upon the violated legal provision being an express condition of payment. In so holding, the Court noted that the FCA does not impose such a restriction.

Instead, liability is determined by the extent of the material misrepresentation. The FCA defines material as having influence or capable of influencing the payment or receipt of money or property. However, misrepresentation is not material simply because the government compels compliance with statutory, regulatory, or contractual provisions as condition of payment. Nor is materiality found if noncompliance is trivial or insubstantial. Thus, when evaluating the materiality of a misrepresentation for possible FCA violation under the implied false certification theory, that an express condition of payment is relevant but not dispositive.

The Supreme Court’s ruling on the implied false certification theory now broadens healthcare providers’ liability because plaintiffs can now bring more expansive claims under the FCA. But liability is only actionable when the misrepresentation of a legal provision is material to the government’s decision to provide payment. While a healthcare provider’s liability is broadened, the bar to sustain such claims is slightly raised by demanding nature of the materiality standard articulated by the Court.

CMS Brings Clarity to ACA’s 60-Day Overpayment Rule

Part of the antifraud provisions of the Affordable Care Act (ACA) requires any person who receives an “overpayment” of Medicare or Medicaid funds to “report and return” said overpayment to HHS, the State, or another party if appropriate within sixty (60) days of the “date on which the overpayment was identified.” See, 42 U.S.C. § 1320a-7k(d)(1).  A violation of this so-called “Sixty-Day Rule” is a per se violation of the False Claims Act (FCA) which may lead to treble damages, fines of between $5,500 – $11,000 per claim, and possible imprisonment. Id. § 1320a-7k(d).   See, 31 U.S.C. § 3729(a).

Since the ACA’s enactment there have been serious questions raised by providers regarding when an “overpayment” is “identified” for purposes of starting the clock under the Sixty-Day Rule. Finally, on February 11, 2016, CMS released a final rule, effective March 14, 2016, (the “Final Rule”) which clarifies that : (1) the 60 day window for refunding overpayments is not triggered until both the fact and amount of an overpayment are known; (2) the standard for knowledge is not “actual knowledge,” but when the provider would have identified the overpayment had it exercised reasonable diligence; and (3) the manner in which the refund must be made.

Prior to this Final Rule, it was unclear when the 60-day period began to run, leaving courts to interpose their own interpretation of the ACA in this regard. As we have previously discussed on this blog, U.S. ex rel. Kane v. Continuum Health Partners, No. 11 Civ. 2325, 2015 WL 4619686 (S.D.N.Y. Aug. 3, 2015), addressed that very issue.  In Kane, three hospitals received payment for Medicaid claims that should never have been submitted.  In September 2010, auditors from the New York State Comptroller’s office raised the potential overpayments and determined that these claims were caused by a third-party’s software glitch. The glitch was fixed in December 2010.  The hospitals’ management asked relator Robert Kane to identify claims potentially implicated by the glitch. On February 4, 2011, Kane wrote an email to management attaching a spreadsheet of approximately 900 claims totaling over $1 million that had potentially been affected by the glitch.  Four days later, Kane was terminated, allegedly in retaliation.

Kane filed an FCA and wrongful termination suit on April 5, 2011, which is exactly 60 days after he provided his spreadsheet. In June 2014, the United States government and New York Attorney General intervened on Kane’s behalf, alleging that by failing to further investigate the potential overpayments identified by Kane and delaying repayment for over two years, the hospitals improperly withheld “overpayments” in violation of the Sixty-Day Rule.

The hospitals moved to dismiss, stating that Kane’s spreadsheet had not identified any overpayment for purposes of the ACA, but was merely preliminary. Further, they claimed that because the overpayments had not been definitively ascertained, the sixty-day clock did not start and that they had no obligation to begin repayment for claims until they determined with certainty that those claims had, in fact, been overpaid, and to what extent.

The District Court rejected this argument, and held that the 60-day period begins to run when a provider is put “on notice of a potential overpayment, rather than the moment when an overpayment is conclusively ascertained.” If left as precedent, this would have dramatically lowered the knowledge requirement to sustain a violation of the Sixty-Day Rule, potentially exposing Medicaid providers and suppliers to a myriad of liability under the FCA for “overpayments” not repaid within sixty days.  CMS’s Final Rule changes this, clarifying that the 60-day period for refunding overpayments is not triggered until both the fact and amount of an overpayment are known. The CMS final rule also stated that the standard for knowledge is not “actual knowledge,” but when the provider would have identified the overpayment had it exercised reasonable diligence.  While providers must act with due alacrity to investigate possible overpayments, they need not fear that mere possibility of an overpayment will lead to liability under the FCA unless it is repaid within sixty days.

Although it remains to be seen how the court will apply the Final Rule under the facts and circumstances of Kane, it seems likely that the defendants will renew their motion to dismiss armed with CMS’s new interpretation set forth in the Final Rule.

U.S. District Court Finds the Use of Extrapolation Evidence to Establish Liability Permissible in False Claims Act Litigation

The use of statistical sampling and extrapolation evidence has long been used to determine overpayment amounts in administrative agency decisions.  Such techniques have also been permitted to establish the quantum of damages in False Claims Act (“FCA”) cases once liability has been established.  However, courts have only permitted extrapolation evidence to prove liability in FCA cases under rare circumstances such as when a default judgment has been entered, U.S. v. Cabrera-Diaz, 106 F.Supp. 2d 234 (D. P.R. 2000) or where evidence presented to the jury provided a reasonable basis to find the defendants had a “policy and practice” of submitting false claims. U.S. ex. Rel. Loughren v. Unum Provident Corp., 604 F.Supp.2d 258 (D. Mass. 2009).

On September 29, 2014 the United States District Court for the Eastern District of Tennessee was asked to determine whether the Government could establish liability under the FCA based on extrapolation evidence.  The court answered in the affirmative.

In U.S. ex. Rel. Martin and Taylor v. Life Care Centers of America, Inc., Case No. 1:08-cv-251 a qui tam FCA claim was asserted against Life Care Centers of America (“Life Care”), a corporation headquartered in Cleveland, Tennessee which owns over 200 skilled nursing facilities. The allegations against Life Care were that (1) it pressured its therapists to target Ultra High Resource Utilization Groups (“RUG”) levels and longer average length of stay period for patients in order to maximize its Medicare revenue; (2) it billed Medicare for services that were “medically unreasonable, unnecessary, and unskilled”; and (3) it knew it was billing for medically unreasonable, unnecessary and unskilled services based on numerous complaints by its employees to Life Care’s compliance officer and corporate Rehabilitation Services offices which were either ignored, minimized or retaliated against.

When the Government indicated that it would not undertake a claim-by-claim review but rather use a random sample and extrapolate it to the universe of claims, Life Care moved for partial summary judgment claiming liability could not be determined in such a manner.  In a detailed decision, the court denied Life Care’s motion finding that such evidence could be presented by the Government but that the weight accorded to that evidence would be left to the fact finder.  The court believed that categorically “limiting FCA enforcement to individual claim-by-claim review would open the door to more fraudulent activity because the deterrent effect of the threat of prosecution would be circumscribed.”

The court reviewed each element of an FCA claim and determined that the Government would be able to rely on statistical sampling and extrapolation to establish each.  However, there was one notable exception.  As to the element of knowledge, the Government indicated that it would not be using statistical sampling as proof. Rather the Government would proffer “evidence of [Life Care’s] corporate practice and pressure, and that Life Care knew those practices likely caused the submission of false claims given the complaints it received nationwide from its employees.”  Because such evidence would establish that Life Care acted “in reckless disregard of the truth or falsity of the information” it could potentially establish the knowledge required under the statute. 31 U.S.C. 3729(b)(1).

Ultimately, the case falls within the same category as United States ex. rel. Loughren v. Unum Provident Corp., 604 F.Supp.2d 259 (D. Mass. 2009) which allows liability to be established through evidence that a defendant’s “policy and practice” was to submit false claims.  The court specifically held that based on the Government’s representation as to the type of evidence it would present (no evidence was actually presented to the trial court) it was not attempting to use the “collective knowledge” theory to establish scienter; a theory which has never been successfully applied to an FCA case before.

Nevertheless, the limited instances where extrapolation evidence has been permitted to be used to establish FCA liability makes this a significant development in FCA case law.  It will be interesting to see what weight the jury places on this evidence should the matter proceed to trial and what weight other courts will give to this decision.

DOJ Intervenes In False Claims Act Case and Alleges Violation for Failure to Return Medicaid Overpayment Within 60 Days of “Identification”

The need to investigate and “identify” potential Medicare and Medicaid overpayments promptly and diligently after they have come to the attention of hospitals and health care providers was underscored by recent action of the Department of Justice (DOJ). On June 27, 2014, DOJ intervened in a qui tam whistleblower lawsuit pending in the United States District Court for the Southern District of New York. It joined in claims under the federal False Claims Act against New York City’s Continuum Health Partners and its constituent hospitals based on the defendants’ failure to return Medicaid overpayments within sixty (60) days of identifying them, as required by § 6402(d) of the Affordable Care Act (ACA). United States ex rel. Kane v. Continuum Health Partners, Inc., et al, (Civil Action No. 11-2325 (ER)) (Complaint in Intervention filed June 27, 2014). These allegations are based solely on the fact that repayment did not occur within the 60-day timeframe required by the ACA and were brought despite defendants’ repayment of all amounts in dispute.

 The qui tam lawsuit that had been filed under seal in the Federal Court for the Southern District of New York included claims against the Healthfirst MCO, its affiliate entities, a large number of New York hospitals and also 20 New Jersey hospitals.  On June 26, 2014 the United States Attorney for the Southern District of New York and the New York Attorney General intervened in part of the case involving New York hospitals.  That same day, the qui tam Amended Complaint was unsealed.  It includes allegations that the 20 New Jersey hospitals had also erroneously billed Medicaid and attempted to unlawfully retain the overpayments in an aggregate amount of approximately $125 million.  In the Third Count, the qui tam Plaintiff asserts claims against the New Jersey hospitals under the New Jersey False Claims Act, N.J.S.A. 2A:32C(g), based on the hospitals’ alleged knowing failure to report and return the overpayments.  The State of New Jersey has not yet indicated whether it will intervene or not.

 Section 6402(d) of the ACA requires any “overpayment” to be reported, explained and returned within 60 days after the date on which it is identified or any corresponding cost report was due, as applicable. 42 U.S.C. § 1320a-7k(d). An “overpayment” is defined as “any funds that a person receives or retains under… [Medicare or Medicaid] to which the person, after applicable reconciliation, is not entitled under such title.” 42 U.S.C. § 1320a-7k(d)(4)(B).  Although to date CMS has not issued expected final regulatory guidance, the statutory text indicates that any overpayment retained past this deadline can lead to liability under the False Claims Act (FCA) in the form of treble damages, civil monetary penalties between $5,000 to $11,000 per violation, attorney’s fees and/or exclusion from Medicare participation. 31 U.S.C. § 3729; 42 U.S.C. § 1320a-7.

 In Kane, the overpayments were not the fault of any of the providers involved, but rather the result of coding errors by Healthfirst, the MCO which contracted with the Continuum providers for services to New York Medicaid managed care enrollees. Starting around early 2009, these errors caused Healthfirst to erroneously authorize the hospitals to seek additional payments from secondary payers. As a result, Continuum impermissibly submitted claims to New York Medicaid on behalf of its constituent providers

 The complaint alleges that in September 2010, the State of New York identified a small number of claims submitted by Continuum on behalf of its hospitals as having been wrongly submitted to Medicaid as secondary payer. Less than six months later, according to the DOJ, an internal investigation at Continuum revealed that approximately 900 specific claims totaling over $1 million may have been submitted to, and paid by Medicaid as a secondary payer, in error. While Continuum eventually made final repayment of all amounts in issue, that process was not completed until March 2013 and only after the Government issued a Civil Investigative Demand concerning these payments in June 2012.

 The DOJ is seeking treble damages in an amount to be determined, penalties of $11,000 for each overpayment retained beyond the 60-day deadline created by the ACA, and costs of suit. This is believed to be the first instance where damages under the FCA are sought solely as a result of failing to comply with the ACA’s requirement that overpayments be returned within 60 days.

 When exactly each alleged overpayment was “identified” by the defendants will be a crucial issue in Kane. This ambiguity concerning the “identification” of overpayments under § 6402(d) has been the source of industry concern since the ACA’s enactment. In February 2012, the Centers for Medicare and Medicaid Services (CMS) issued a proposed rule addressing this, at least in part. See 77 Fed. Reg. 32, 9179-9187 (Feb. 16, 2012) (the “Proposed Rule”). In speaking to Medicare, (leaving “[o]ther stakeholders, including, without limitation… Medicaid MCOs … [to] be addressed at a later date”), CMS advocated a knowledge requirement similar to that which exists under the FCA, stating that an overpayment has been identified for purposes of the ACA when “the person has actual knowledge of the existence of the overpayment or acts in reckless disregard or deliberate indifference of the overpayment.” Id. at 9180, 9187 (proposed 42 C.F.R. § 401.305(a)(2)).

Concerning “identification,” of overpayments, the Proposed Rule states that a provider “may receive information concerning a potential overpayment that creates an obligation to make a reasonable inquiry to determine whether an overpayment exists.” Id. at 9182. Failure to make such a “reasonable inquiry” with “all deliberate speed after obtaining the information could result in the provider knowingly retaining an overpayment because it acted in reckless disregard or deliberate ignorance of whether or not it received such an overpayment.” Ibid.

Illustrative examples of wrongfully retained overpayments, apropos of Kane, provided in the Proposed Rule include instances where a provider “is informed by a government agency of an audit that discovered a potential overpayment, and… fails to make a reasonable inquiry.” Ibid. In CMS’s view, “[w]hen government agency informs a provider or supplier of a potential overpayment, the provider or supplier has an obligation to accept the finding or make a reasonable inquiry. If the provider’s or supplier’s inquiry verifies the audit results, then it has identified an overpayment and, assuming there is no applicable cost report, has 60 days to report and return the overpayment.” Ibid.

Though the Proposed Rule was never enacted, that is not of any significance in light of the plain language of the statute. Confirming this, CMS warned “all stakeholders that even without a final regulation they are subject to the statutory requirements found in… [Section  6402(d) of the ACA] and could face potential False Claims Act liability, Civil Monetary  Penalties Law liability, and exclusion from Federal health care programs for failure to report and return an overpayment.” Id. at 9180-81.

 By intervening in Kane, the DOJ has signaled its expansive view of what constitutes “identification” of these overpayments and its willingness to seek the draconian remedies permitted by the FCA.

Department of Justice Reaches $15.5 million Settlement With Diagnostic Testing Facility for Alleged False Claims and Illegal Kickbacks

On February 25, 2014 the Department of Justice (DOJ) issued a press release  announcing a false claims settlement with Diagnostic Imagine Group (DIG).  Operating a chain of diagnostic testing facilities through its subsidiary, Doshi Diagnostic Imaging Services,  DIG agreed to pay a total of $15.5 million to resolve allegations that it had falsely billed federal and state health care programs for tests not performed or not medically necessary. The company, which is headquartered in Hicksville New York, was also alleged to have paid improper kickbacks to physicians for referrals.  The settlement was coordinated with the office of New York Attorney General Eric Schneiderman.  DIG will pay $2.9 million of the total settlement for the resolution of New York claims with $190,384 being repaid to the New Jersey Medicaid program.

DIG was facing allegations that it submitted claims to Medicare and the New York and New Jersey Medicaid programs for 3D reconstruction of CT scans that were never performed or interpreted along with allegedly bundling certain tests on its order forms so that physicians could not order other tests without ordering additional bundled tests, which were not medically necessary. Additionally, the settlement resolved allegations of kickbacks to physicians in the form of payments to ostensibly supervise patients who underwent nuclear stress testing, which allegedly exceeded fair market value and were effectively intended to reward physicians for referrals.

The settlement resolves three qui tam, or whistleblower, lawsuits that had been filed pursuant to the provisions of the False Claims Act. The qui tam plaintiffs will receive $1.5 million, $1.07 million and $209,250 respectively from the settlement proceeds for their involvement.  Two of the relators were physicians, including one who had served as an Assistant Medical Director for DIG.

This settlement illustrates the push by the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative, which was announced in May 2009 by Attorney General Eric Holder and Secretary of Health and Human Services (HHS) Kathleen Sebelius to help focus efforts to reduce and prevent Medicare and Medicaid fraud. In FY 2013 alone the government reported recovery of $4.3 billion in health care fraud, which was up $100 million from FY 2012. This brings the grand total recovery over the past five years to $19.2 billion. According to HHS, for every dollar spent on health care-related fraud and abuse investigations through this and other programs in the last three years, the government recovered $8.10.

Comments by Attorney General Eric Holder evidence that the government will only be reinforcing and strengthening its efforts to continue to root out fraud. “With these extraordinary recoveries, and the record-high rate of return on investment we’ve achieved on our comprehensive health care fraud enforcement efforts, we’re sending a strong message to those who would take advantage of their fellow citizens, target vulnerable populations and commit fraud on federal health care programs. Thanks to initiatives like HEAT, our work to combat fraud has never been more cooperative or more effective.” Providers should anticipate enforcement and investigation efforts to only increase in the future.

Copies of the DOJ, HHS and the NY AG press releases can be found at: