Health reform law expands False Claims Act

The changes could expose physicians to additional liability while empowering whistle-blowers to play a greater role in rooting out fraud.

By Amy Lynn Sorrel — Posted April 26, 2010

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The new health system overhaul law includes significant expansions of the government's reach under the federal False Claims Act, and experts warn that doctors need to be ready.

Although the changes largely enhance prosecutors' fraud-fighting tools, often with the help of whistle-blowers, they also put physicians in line for additional liability exposure, experts say.

"This is another link in the chain of events that has expanded the scope of liability under the False Claims Act, and physicians have got to be aware of these changes and ensure they have effective compliance measures in place," said Roderick L. Thomas, a partner and false claims expert with the law firm Wiley Rein LLP in Washington, D.C.

In one of its more significant false claims provisions, the health reform law imposes an explicit duty on physicians to return known overpayments to the government within 60 days of discovering an error, according to health care fraud defense lawyer Gadi Weinreich. Retaining an overpayment beyond that deadline could constitute a false claim.

"Now we have a law that says, if you've been paid in error, don't write us a letter. Write us a letter and include your check," said Weinreich, a partner in Sonnenschein Nath & Rosenthal LLP's Washington, D.C., office. Because the 60-day window is a short one, he recommended that for each line of service, doctors analyze their claims on a regular basis, possibly with the help of a coding specialist.

In addition, the reform law makes clear that anti-kickback violations also can give rise to false claims liability, creating a double risk for doctors, Thomas said. And when it comes to anti-kickback claims, the government is no longer required to prove that a physician or another claimant had a specific intent to violate the law, making it easier for the federal government to prosecute.

The danger, Thomas said, is that "now with the lower standard and the broader reach of the False Claims Act, you could have a situation in which investigators take a more aggressive view as to what is considered fraud," when the situation actually might involve true billing errors or inadvertent omissions.

Because a wide range of activities could be considered kickbacks -- from discounts to referral fees to marketing practices -- doctors should scrutinize their arrangements with other health care entities, Thomas suggested.

But other self-disclosure protocols outlined in the law give doctors a way of limiting their risks for false claims liability that could stem from financial relationships, said Seattle-based Robert G. Homchick, chair of Davis Wright Tremaine LLP's health law practice. The reform statute directs the Centers for Medicare & Medicaid Services to develop formal regulations for disclosing potential or actual violations of federal Stark laws, while giving the agency the authority to reduce any repayments owed in connection with improper arrangements.

"This is one of the most positive things in the legislation, and I think it would be hard [for the plaintiff] to take the position you are wrongfully retaining overpayments if you are going through the disclosure process and talking to CMS about the underlying problem," Homchick said.

Whistle-blowers empowered

Under the reform overhaul, whistle-blowers -- a role doctors sometimes can play -- are given more opportunities to help root out fraud, said Joel M. Androphy, a partner at Houston-based Berg & Androphy who specializes in whistle-blower litigation. The health reform law now allows them to initiate false claims actions based on information already publicly disclosed through state or local administrative reports or proceedings, such as a state Medicaid audit.

A whistle-blower no longer has to be the original source of the information to be able to use those additional facts to help build a case, Androphy said.

"What Congress is trying to say is, you may not be the person with the most direct and independent knowledge [of fraud], but better you go forward than nobody go forward," he said. "The purpose of the [whistle-blower] statute was to deputize everybody to report fraud. The more Congress does to make it easier for whistle-blowers to bring cases, the better our economy and the health care system will be overall."

The amendments effectively nullified a March 30 Supreme Court decision in Graham County Soil v. U.S. that said the so-called public disclosure bar was intended to limit whistle-blowers' ability to use secondhand information to generate false claims cases.

Some legal observers said Congress' repudiation of that stance could lead to more lawsuits.

"It also means suits may not be meritorious and could potentially expand the number of [plaintiffs] who view themselves as whistle-blowers, whether or not they have sufficient information," Wiley Rein's Thomas said.

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New fraud landscape

The health system overhaul includes changes to the federal False Claims Act and other anti-fraud statutes that:

  • Require physicians to return overpayments within 60 days of discovering a payment error.
  • Make it easier for the government to use anti-kickback violations as the basis for a false claims suit.
  • Allow whistle-blowers to initiate lawsuits based on certain publicly disclosed information.
  • Permit physicians to self-disclose potential Stark violations.
  • Give the Centers for Medicare & Medicaid Services the discretion to reduce repayment amounts for Stark violations.

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