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False Claims Act – Applying the Lincoln Law To Modern Health Care

The False Claims Act – Application of the Lincoln Law to the Health Care Industry

 When Congress originally passed the False Claims Act (31 USC §§ 3729-3733), no one had the health care system in mind.  The False Claims Act was also commonly referred to as the “Lincoln Law”.  The original law was focused on unscrupulous vendors who provided overpriced and often faulty supplies to the military during the Civil War.

The law was unique in several ways; not least of which was the creation of “qui tam” rights.  Qui tam provisions permit individuals to bring suit alleging false claims and to retain a portion of the award.  The amount of potential award available to a qui tam claimant depends on whether the government chooses to take over the case after it is brought.

The False Claims Act was strengthened in 1986 in response to some of the much publicized $1,000 toilet seats and other abuses with respect to companies supplying the United States military.  The 1986 amendments to the False Claims Act provided for treble damages plus civil penalties of between $5,000 and $11,000 per claim.  These legislative changes were intended to add real incentive for “qui tam” litigants to bring fraud claims.

The health care industry was never the real target of the False Claims Act.  In fact, when the original “Lincoln Law” was passed in the 1860’s, there was no federal health care program in existence.  From the inception of the False Claims Act through the 1986 amendments, the primary target had been the suppliers to the defense industry.  The defense industry generally makes claims on a monthly or other periodic basis for large amounts of supplies.  Although the 1986 amendments added substantial penalties for making false claims, the impact on the defense industry does not come close to matching the impact on health care providers.

In health care, a single hospital may make hundreds of claims to the federal government per day.  False claim allegations can cover a number of years, greatly increasing the number and value of claims that may be at issue.  When treble damages plus $5,000 to $11,000 per claim are applied on top of the actual amount of a “fraudulent” claim, the obligation amount can become staggering.

The extension of the False Claims Act liability to areas such as Stark Law and Anti-Kickback Statute liability indicate how extreme the sanctions can be.  By way of example, take one physician who is determined to have been compensated at significantly over fair market value.  Assume that the excessive compensation creates a violation of the Anti-Kickback Statute and the Stark Law.  The Affordable Care Act clarified that claims made in violation of these laws create a cause of action under the False Claims Act.  Potential damages would be three times the total value of claims attributable to services of the overpaid physician, plus between $5,000 and $11,000 per claim.  You can see that the potential damages would cause grave financial impact on the hospital.  This is the type of thing that keeps compliance officers awake at night.

Even though the False Claims Act was not originally designed to target the health care industry, there does not seem to be any momentum toward making legislative.  To the contrary, the government is quite content to leave these disproportionate penalties in place as part of its effort to reduce cost of health care (and to generate additional revenues) by assessing astronomical fines against health care providers and to hold these penalties over their heads to force health care providers to take extreme actions to prevent compliance problems.  The government is taking a “return on investment” approach to health care fraud enforcement.  The False Claims Act allows the government to put its thumb on the scale in the “return on investment” game.  The qui tam provisions provide the government with “quasi agents” who may be disgruntled employees or others who can scout out potential claims, bring them to the governments attention, and take a piece of the financial reward.

Providers have only one real way to reduce the disproportionate impact of the False Claims Act on their operations.  This is to create an effective compliance program that proactively detects problems so they can be addressed and corrected before they create excessive risk.  Compliance programs are an outgrowth of the federal sentencing guidelines that permit reduced corporate penalties for fraud if an “effective” compliance program will actually reduce the risk of a violation occurring or depending because it forces the organization to proactively look for compliance problems and correct them before they become insurmountable.  An effective compliance program will also include regular training to staff which also reduces the risk of compliance problems.

The Affordable Care Act made compliance programs mandatory for most health care providers.  Nursing homes are the first to be effected in 2013.  Other types of providers will subject to mandatory compliance programs as regulations are rolled out over the next few years.  Providers will be required to maintain an effective compliance program as a condition of participation in the Medicare program.  It is strongly recommended that all providers begin development of compliance programs now.  It will take time to tailor compliance programs to fit the specific risk areas associated with your business.  You will be required to certify not only that you have established a compliance program, but that the program is effective.

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John H. Fisher

Health Care Counsel
Ruder Ware, L.L.S.C.
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P.O. Box 8050
Wausau, WI 54402-8050

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