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Report
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www.bakerdaniels.com
False Claims Act
Healthcare and Life Sciences Practice
Indiana │Chicago │Washington, D.C. │ Beijing
Overview
• The False Claims Act (“FCA”) is the
government’s primary litigation tool for
combating fraud.
• The FCA empowers both the U.S. Attorney
General and private persons to institute civil
actions to enforce the Act against anyone that
commits fraud by submitting false or fraudulent
claims to the federal government. 31 U.S.C. §
3730.
2
Background
•
Passed in 1863 during the Civil
War to address fraud in military
procurement contracts.
•
Also known as “Lincoln’s Law” or
Qui Tam Statute.
•
Has undergone two substantial
amendments by Congress, the
last one in 1986 in response to
Department of Defense scandals.
3
Powerful Weapon
In fiscal year 2003, the federal government
recouped a record $2.2 billion in fraud
lawsuits and investigations.
 75% increase over FY 2002.
 $1.7 billion recovered for health care fraud
 $1.48 billion collected from qui tam suits
Department of Justice, Nov. 10, 2003, Press Release.
4
Whistleblower Recoveries
Taxpayers Against Fraud Education Fund, 2004.
5
2004 FCA Recoveries
• Total recovery for FY 2004: $667,782,529
• Realtor's share: $108,571,026
• Decline from FY 2003: -$1.5 billion or -70%
• But 415 qui tam cases were filed (326 were filed in 2003)
Taxpayers Against Fraud, 2005
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Importance of DOJ Involvement
Qui tam cases with
DOJ
2000 $1.2 billion
2001 $1.2 billion
2002 $1.04 billion
2003 $1.48 billion
2004 $545 million
Qui tam cases w/out
DOJ
2000 $1.8 million
2001 $125.7 million
2002 $26.1 million
2003 $87.01 million
2004 $9.4 million 7
FCA and Health Care
Percentage of cases involving the Department of Health
and Human Services (“DHHS”):
1987
1988-1992
1993
1994
1995
1996
1997
1998
2003
12 percent
15 percent
30 percent
36 percent
34 percent
56 percent
54 percent
61 percent
52 percent
Taxpayers Against Fraud Education Fund, 2004.
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FCA and Health Care
• Total recoveries for qui tam by agency
– Department of Defense: $1.59 billion
– DHHS: $5.178 billion
Taxpayers Against Fraud Education Fund, 2004.
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Benefits and Costs Federal Government
Anti-Health Care Fraud Activities
$3,000
$2,500
$2,750
$2,000
$1,500
$1,000
$500
$315
$0
Benef its
Costs
(in millions)
“Fighting Medicare Fraud”; Jack Meyer;
June, 2003
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FCA and Health Care
Prominent Statutory Provisions
PROHIBITED ACTS
1)
Person knowingly presents, or causes to be presented, to the
U.S. Government a false or fraudulent claim for payment or
approval (31 USC § 3729(a)(1));
2)
Person knowingly makes, uses, or causes to be made or used, a
false record or statement to get a false or fraudulent claim paid or
approved by the Government (31 USC § 3729(a)(2)); and
3)
Person conspires to defraud the Government by getting a false or
fraudulent claim allowed or paid (31 USC § 3729(a)(3)).
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Cause of Action
ELEMENTS:
1)
A “claim” must be submitted to the Government for payment or
approval; and
2)
The claim must be “false or fraudulent”; and
3)
The person must “know” the claim is false.
(31 USC § 3729(a)(1))
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Elements
• Some courts have required a 4th element –
damages – to prove a violation of FCA.
• Majority of courts have held it is not necessary to
prove damages under Sections 3729(a)(1) and
(a)(2).
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Element #1 “Claim”
A “claim” includes:
any request or demand, whether under a contract or
otherwise, for money or property which is made to a
contractor, grantee, or other recipient if the United States
Government provides any portion of the money or
property which is requested or demanded, or if the
Government will reimburse such contractor, grantee, or
other recipient for any portion of the money or property
which is requested or demanded.
31 USC § 3729(c)
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Element #1 “Claim
• “Claim” includes any kind of document or other
communication that reasonably could be expected to
cause the government to make or approve a payment.
• “Claim” includes claims to third parties who are
paid/reimbursed by the government.
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Element #1 “Claim”
• Person who “causes” a false claim to be presented, even
if not the actual presenter of the claim, may be liable.
• Person actually presenting the claim need not know it is
false.
• Example: Physician may be liable for false claims
submitted to Medicare by a hospital even though the
physician did not submit the claim.
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Element #2 “False/Fraudulent”
Examples:
• Billing for services that were never delivered or rendered, either at
all, or in the manner documented.
• Performing inappropriate or unnecessary medical procedures.
• Unbundling – Using multiple billing codes instead of the correct
bundled code in order to increase payment.
• Bundling – Billing more for a panel of tests when a single test was
asked for.
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Element #2 “False/Fraudulent”
Examples:
• Double billing – Charging more than once for the same goods or
service.
• Upcoding – Inflating bills by using diagnosis billing codes that
suggest a more expensive illness or treatment.
• Billing for brand – Billing for brand-named drugs when generic drugs
are actually provided.
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Element #2 “False/Fraudulent”
Examples:
• Upcoding employee work: Billing at doctor rates for work that was
actually conducted by a nurse or resident intern.
• Billing for research that was never conducted; falsifying research
data that was paid for by the U.S. government.
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Element #2 “False/Fraudulent”
Examples:
• Prescribing a medicine or recommending a type of treatment or
diagnosis regimen in order to win kickbacks from hospitals, labs or
pharmaceutical companies.
• Billing for unlicensed or unapproved drugs.
• Forging physician signatures when such signatures are required for
reimbursement from Medicare or Medicaid.
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Element #3 “Knowing”
• “person knowingly makes, uses, or causes to be made
or used, a false record or statement to get a false or
fraudulent claim paid or approved by the Government”
• 31 USC § 3729(a)(2)
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Element #3 “Knowing”
“Knowing" and "knowingly" means a person
1)
has actual knowledge of the false information;
2)
acts in deliberate ignorance of the truth or falsity of the
information; or
3)
acts in reckless disregard of the truth or falsity of the information.
31 USC § 3729(b)
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“Knowing”
Under § 3729(a)(1):
• Specific intent to defraud?
– Not Necessary.
• Mere negligence in submission (e.g., typo)?
– Not Actionable.
23
“Knowing”
“False Certification” Theory - claim may be fraudulent
even if the claim does not contain false information.
– Government may allege that a violation of another federal
statute, regulation, or contract serves as the basis for liability
under the FCA.
– For example, falsely certify that you are in compliance with Stark
or Anti-Kickback Statute.
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False Certification Theory
EXAMPLE CASES:

United States ex. rel. Pogue v. American
Healthcorp., Inc., 914 F. Supp. 1507 (M.D. Tenn.
1996)

United States ex rel. Goodstein v. McLaren
Reg’l Med. Ctr., 202 F.Supp.2d 671, (E.D. Mich.
2001)

U.S. ex rel Perales v. St. Margaret’s Hosp., 243
F.Supp.2d 843 (C.D. Ill. 2003)
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“Knowing”
Conspiracy Claim – 31 USC § 3729(a)(3)

“Person conspires to defraud the Government by
getting a false or fraudulent claim allowed or paid.”

In this context, failing to prevent the submission of a
false claim may give rise to liability under the FCA if
the defendant had a duty to prevent a fraud on the
government
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Penalties

Civil penalties of $5,500 to $11,000 per claim,
plus treble damages (i.e., 3 times the amount
of the government’s damages).

Exclusion from Medicare/Medicaid.
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Additional Risk
• Significant costs to defend against
government investigation.
• Significant costs to defend against a lawsuit.
• Example: Columbia-HCA fraud case
went on for 13 years and just one
side’s lawyers billed 85,000 hours.
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Qui Tam/Whistleblower Provisions
• The FCA contains qui tam, or whistleblower,
provisions. Qui tam is a unique mechanism in the
law that allows citizens to sue, on behalf of the
government, in order to recover damages. 31 U.S.C.
§ 3730(b).
–
Disgruntled employees
–
Unhappy patients
–
Estranged spouses
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Qui Tam/Whistleblower Provisions
 A qui tam suit initially stays “under seal”
(confidential) with the Court for at least 60 days
during which the U.S. Department of Justice can
investigate and decide whether to join the action.
 Whistleblowers can recover:
– 15-25% of the settlement or judgment if DOJ participates;
or
– 30% if DOJ declines to intervene.
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Recoveries

Total FCA amount recovered by relators in
cases declined by DOJ, to date: $362
million.

Total FCA amount recovered in cases that
DOJ entered or otherwise pursued: $7.5
billion.
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Retaliatory Provision
(h)
Any employee who is discharged, demoted, suspended,
threatened, harassed, or in any other manner discriminated
against in the terms and conditions of employment by his or her
employer because of lawful acts done by the employee on behalf
of the employee or others in furtherance of an action under this
section, including investigation for, initiation of, testimony for, or
assistance in an action filed or to be filed under this section, shall
be entitled to all relief necessary to make the employee whole. . . .

(31 USC §3730(h))
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Retaliatory Provision cont…
Relief:
(h) . . . Such relief shall include reinstatement with the same
seniority status such employee would have had but for the
discrimination, 2 times the amount of back pay, interest on the
back pay, and compensation for any special damages
sustained as a result of the discrimination, including litigation
costs and reasonable attorneys’ fees. (31 USC §3730(h))
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Statute of Limitations
Must bring the civil action by
(1) 6 years after the date the alleged FCA
violation was committed, or
(2) 3 years after the date when the material
facts of the claim are known or reasonably
should have been known "but in no event
more than 10 years after the date on which
the violations [was] committed.”
31 USC § 3731(b)
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Indiana FCA
• In 2005, Indiana State legislature enacted Indiana’s own
False Claims Act. (I.C. § 5-11-5.5-1 et seq.)
• Enacted in conjunction with the creation of the Office of
the Inspector General.
• Very similar to the federal law.
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Indiana FCA – I.C. § 5-11-5.5-2
A person is liable for a civil penalty if he/she knowingly or
intentionally:
(1) Presents a false claim to the state for payment or
approval;
(2) Makes or uses a false record or statement to obtain
payment or approval of a false claim from the state; etc.
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Indiana FCA – Civil Penalty
•Violation of Indiana FCA (I.C. § 5-11-5.5-2):
o Penalty of at least $5,000 and up to 3 times the amount
of damages sustained by the State.
o Plus liable for the costs of the civil litigation by the State
to recover penalty and damages.*
* Penalty is reduced to 2X damages if you gave State all the
information you had within 30 days, fully cooperated with the
investigation, and did not know of investigation/action when you
reported yourself.
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Indiana FCA – Other details

Attorney General & Inspector General have concurrent jurisdiction to
investigate these claims. (I.C. § 5-11-5.5-3(a))

Qui tam/Whistleblower: Complaint by individual is filed under seal
and a copy must go to both AG & IG. (I.C. § 5-11-5.5-4(c))

AG or IG may choose to intervene in the qui tam action or let
individual go it alone.
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Indiana FCA – Other details
• Person who filed initial complaint gets:
– 15-25% of recovered funds if AG or IG
intervened in the action;
– Not more than 10% if AG or IG intervened
and the evidence in the action was primarily
public record;
– 25-30% if AG and IG do not intervene in the
action.
I.C. § 5-11-5.5-6
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Indiana FCA – Retaliatory
Provisions
• Employee who has been discharged, demoted, etc., by
the employer because employee objected to actions at
issue or helped with the false claims investigation is
entitled to be made whole, including:
– Reinstatement to previous position;
– 2 times amount of back pay owed;
– Interest on the back pay; and
– Special damages (e.g., atty’s fees).
I.C. § 5-11-5.5-8
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Other Indiana Statutes
I.C. § § 35-43-5-4.5 and 34-24-3-1:
– A person who knowingly and with intent to defraud,
presents a false, incomplete or misleading claim to an
insurer can be held liable for civil damages caused by the
actions.
– Under Indiana law, the insurer is entitled to recover an
amount equal to three (3) times the amount of actual
damages suffered as a result of the false or misleading
actions, the costs of the litigation and attorney fees.
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Indiana Medicaid Fraud

The Office of Medicaid Policy and Planning can assess a fine in
the amount of 3 times the claim amount against a provider who
submits, or causes to be submitted, any false or fraudulent
claims for Medicaid services.

405 IAC 1-1-6.
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Four Common FCA Cases
1)
“Mischarge” Case – services are not provided in manner set
forth in claim.
2)
“Fraud-in-the Inducement” Case – kickbacks.
3)
“False Certification” Case – false certification of statutory or
regulatory compliance.
4)
“Substandard Service” Case – failure to meet quality of care
standards.
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Civil False Claims and Qui Tam Actions; John Boese, 2003 Supplement
Emerging Issues

Abuse of “under seal” time period.

Discovery as fishing expedition.

Extensive litigation on whether “government knowledge” of a
false claim precludes liability – emerging consensus that
government knowledge does not negate falsity.

Abuse of process in health care market.
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High Profile Cases
HCA - $731,400,000
December 2000, HCA the Healthcare Company (formerly
known as Columbia HCA), the largest for-profit hospital
chain in the United States, pled guilty to criminal conduct
and agreed to pay $731,400,000 under the False Claims
Act.

Charges included: billing for lab tests that were not
medically necessary and not ordered by physicians, and
“upcoding” medical problems in order to get higher
reimbursements for more serious medical issues.

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High Profile Cases
TAP Pharmaceutical Products Inc. - $559,483,560
 In October 2001, TAP Pharmaceutical Products Inc.
agreed to pay $875 million to resolve criminal charges and
civil liabilities in connection with fraudulent drug pricing
and marketing of Lupron, a drug sold for the treatment of
prostate cancer.
TAP gave doctors kickbacks by providing free samples
with the knowledge that the physicians would bill Medicare
and Medicaid $500 per dose.
46
High Profile Cases
Schering-Plough - $292,969,482
 In July 2004, Schering-Plough, a major pharmaceutical
manufacturer, agreed to plead guilty to fraud in the pricing
of Claritin sold to Medicaid programs.
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High Profile Cases
Beverly Enterprises Inc. - $170,000,000
 In February 2000, Beverly Enterprises Inc., the nation’s largest
nursing home chain, agreed to pay $175 million to resolve civil
and criminal charges that it defrauded Medicare.
 The fraud allegations involved nursing home workers charging
Medicare for time not spent on Medicare patients.
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High Profile Cases
Vencor, Inc./Ventas Inc. - $104,500,000
 In March 2001, Vencor Inc., one of the nation’s largest nursing
home chains agreed to pay $104.5 million to resolve civil
claims that Vencor knowingly submitted false claims for failure
to deliver promised quality of care to nursing home patients
due to inadequate staffing, improper care of bedsores, and
failure to meet resident’s basic dietary needs.
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Not Just the Big Guys…
August 18, 2004
• Pennsylvania U.S. Attorney reached a $1.5 million
settlement with an ophthalmologist and the former
operators of two hospitals.
• There were allegations of improper financial arrangements
and referral inducements in violation of the Stark and AntiKickback laws.
• The qui tam relator alleged that Mercy Community Hospital
and Brandywine Hospital provided free space, equipment,
personnel, supplies, excessive medical director fees, and
other services to the ophthalmologist.
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Not Just the Big Guys…
September 15, 2004
• The U.S. Government and a physician, who pursued litigation
against a hospital and his fellow physicians settled case for a total of
$2.5 million.
• The case involved Dr. Brooks, who was a physician on the medical
staff at Pineville Community Hospital in Pineville, KY., and was a
member of the hospital’s quality assurance committee. While
carrying out his committee duties, Brooks discovered what he
determined to be numerous billing improprieties by Pineville
Community Hospital and two physicians. Rather than correcting the
improprieties, the hospital rebuffed Brook’s efforts and subjected
him to a variety of retaliatory abuses.
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Indiana Not Immune
October 29, 2003 – Chomer v. Logansport Mem’l Hosp.
• Plaintiff filed suit against Logansport Memorial Hospital
(Hospital) and the Logan Emergency Physicians (LEP),
asserting a retaliation claim under the False Claims Act (FCA)
whistleblower provisions, 31 U.S.C. §3730(h).
• LEP removed plaintiff from the emergency room schedule at
the Hospital after he informed patients that “it was
inappropriate for them to come to the emergency room for
colds and non-emergency medical conditions.” Plaintiff had
filed a report about the alleged Medicare/Medicaid fraud and
abuse before being terminated.
• Court refused to dismiss the physician’s FCA complaint. Case
is apparently still pending.
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