by WES LOEGERING
Under the False Claims Act, 31 U.S.C. §3729, individuals can act as "private attorneys general" and prosecute individuals or companies who have submitted false claims for payment to the government. As an incentive, attorneys and their clients get to keep a substantial percentage of the money recovered by the government. Individuals have filed hundreds of qui tam cases under the FCA since 1986 — recoveries to the United States from resolved cases totaled over $625 million in 1997 alone.
The FCA was originally enacted during the Civil War to stem the tide of double billing encountered by the Union Army. It was not until 1986, however, that Congress amended the statute and gave it teeth. The amendments grew out of the growing reports of rampant fraud in the defense industry — which was discovered to have paid hundreds of dollars each for mundane items such as toilet seats and coffeepots.
In 1987, before the plaintiffs bar had discovered the power of the 1986 amendments, only 37 cases were filed under the FCA. Ten years later more than 530 false claims cases were filed under the statute. The amount of money recovered in qui tam actions has also exploded. Little over $300,000 was collected under qui tam actions in 1988. Over $1.8 billion was collected between 1989 and 1998.
The health care industry has not been immune to qui tam fever. There are more than 700 FCA cases on file nationwide. A majority of those cases are still under seal as the government determines whether to intervene.
Any business that provides goods or services to the U.S. government is at risk of being sued under the FCA. It is not uncommon for businesses that contract with the government to be required to certify compliance with complex and often changing federal laws and regulations.
While the statute is aimed at fraudulent conduct, it may not be necessary to prove fraud. The requirement of a false claim may be satisfied where the company knowingly fails to test or perform work required by a contract, or certifies compliance with contractual, statutory or regulatory requirements when it knows it has not complied with all such requirements. Such claims may be "knowingly false" if a company has actual knowledge of falsity, is deliberately ignorant of its state of compliance or recklessly disregards indications that it may not be in compliance with the contract.
A person with knowledge of false claims against the government — a "relator" — may file suit in federal district court against the person or company on behalf of the U.S. government. Generally, such a suit is barred only if the government is already engaged in a specific investigation of the same matter and the investigation has been publicly disclosed.
The suit is filed under seal without service on the defendants so the government can investigate the facts without alerting the defendants. Most false claims cases filed today are under seal for over one year.
The defendant is liable for three times the amount of damages sustained by the government plus a penalty ranging from a minimum of $5,000 up to a maximum of $10,000 for each false claim submitted. In the event the government joins the case, the qui tam plaintiff is entitled to at least 15 percent and up to 25 percent of the recovery to the U.S. Treasury. If the government does not join, the qui tam plaintiff is entitled to between 25 percent and 30 percent of the recovery. In both instances, the qui tam plaintiff is also entitled to reasonable attorneys’ fees paid by the defendant.
Several aspects of the amendments to the FCA encourage individuals to file suits.
• Guaranteed Recovery. The old law allowed the qui tam plaintiff to recover "up to 10 percent" of the amount received by the government. Thus, even in a successful case, the plaintiff could receive nothing. The new law guarantees a minimum 15 percent recovery.
• Removal of Jurisdiction Bar. Under the old law, a case was barred if the government possessed the information alleged in a qui tam case, even if it had undertaken no investigation or prosecution. The amendments provide that a qui tam case is barred only when it is based on the public disclosure of an active government investigation and the qui tam plaintiff is not the original source of the government’s information.
• Party to the Action. Under the old law, if the government joined the case, the qui tam plaintiff had no right to play an active role in the litigation. Under the amendments, the qui tam plaintiff remains a party to the action and even has the right to object in court to a settlement proposed by the government.
• Attorneys’ Fees. In addition to whatever percentage of the recovery the attorney negotiates with a client, the new amendments also provide for attorneys’ fees paid by the defendant based upon hours reasonably spent. This is especially important in smaller cases such as Medicare fraud where a percentage of the plaintiff’s potential recovery may be insufficient to encourage attorneys to file meritorious cases.
• Whistle-Blower Protection. Prior to the amendments, protection of the employment status of a person involved in a false claims case depended upon the varying law of the state where the person resided. The new amendments provide a federal standard that strongly deters employers from taking any action against a qui tam plaintiff that negatively affects his or her employment status.
Medicare is the second largest program in the federal budget. In 1998, Medicare expenditures totaled over $212 billion. As recently reported by the Wall Street Journal and The Dallas Morning News, the health care industry is believed by the government to be rife with fraudulent claims. Given the tremendous volume of claims submitted on behalf of Medicare patients, the Department of Health and Human Services is unable to detect much of the fraud that occurs each year. Examples of practices that violate the FCA and support lucrative qui tam litigation include: "up charging" the nature of services rendered; double charging for procedures and tests; charging for procedures and tests not performed; delivering unsolicited equipment to elderly patients; and breaking one form of service into multiple forms to collect higher fees.
Penalties in Medicare FCA cases can far exceed actual damages. For example, if an oncologist routinely submits three separate claims for intravenous cancer therapy at $140 per treatment for a total of $420, when the correct charge should be $140, the overcharge is $280 per patient. Under §3729(a), depending on the method of claims submission, each separate charge of $140 may be subject to a penalty of $10,000. Penalties can quickly add up to millions of dollars for a high-volume practice.
In the last two years, several significant settlements have been achieved in FCA cases filed against health care providers in Texas. For example, a large home health care company in Texas recently paid $10 million to settle two FCA cases unsealed in the Northern District of Texas. The suit, filed by a former home health aide, alleged that the company falsified Medicare reports for services not rendered and billed for unallowable services.
During the first six months of 1999, approximately 25 FCA health care cases were settled in an aggregate amount of nearly $230 million. More than $150 million was paid in settlement of one case alone. Excluding that enormous case, the average health care FCA settlement in the first half of this year exceeded $3 million.
On Nov. 15, 1999, a three-judge panel of the 5th Circuit struck down the qui tam provisions of the False Claims Act, finding that they violate the separation of powers doctrine and the take care clause of the U.S. Constitution. This holding applies to those cases where the Justice Department declines to intervene — which is approximately 70 percent of all cases brought under the statute. By separate order the case is now headed to the entire court for en banc review.
This holding will have an immediate impact on practitioners. Cases on file with the 5th Circuit, where the government has declined to intervene, should be resolved at a lower cost to the defendants. Uncertainty in litigation often drives settlements — now the mix favors defendants.
Further, plaintiffs will work much harder to obtain government intervention in cases under seal. Conversely, where a business has reason to believe that it is the target of a "sealed" case under review by the government, creative defense counsel will consider contacting the government prior to the "unsealing date" to resolve the case early and avoid government intervention.
Filing Suit
While substantial financial incentives exist that promote the creative pursuit of qui tam actions against health care providers, litigants and their counsel must be warned that pursuit of a case is not risk-free. Pursuant to 31 U.S.C. §3730(d)(4), when the government does not proceed with a qui tam action, and the defendant prevails, the court may award to the defendant its reasonable attorneys’ fees and expenses if the court finds that the claim was "clearly frivolous, clearly vexatious or brought primarily for purposes of harassment."
Given the technical nature of health care practice, it is generally salutary to hire an expert to help review the medical records, if available, and/or to de-brief the medical employees who wish to pursue the case, in order to evaluate more fully the merits of the case before filing.
As part of the background evaluation, the qui tam private attorney must evaluate his client’s potential criminal exposure. If the client is centrally involved in the alleged fraudulent scheme, pursuing the qui tam action is likely disastrous for the client’s interest. If the client has marginal exposure to criminal prosecution, that does not necessarily bar participation in a qui tam action as a plaintiff. Section 3730(d)(3) provides that if the qui tam action is brought by the person who planned and initiated the false claims violation then the court may reduce the proceeds that the qui tam plaintiff would otherwise receive.
If the qui tam plaintiff is ultimately convicted in a criminal proceeding, then the convicted qui tam plaintiff will be dismissed from the action and will not receive any portion of the proceeds.
In many instances, filing a qui tam action triggers a criminal investigation. The government may ask the qui tam plaintiff to wear a concealed microphone, tape-record phone conversations to gather evidence to support issuance of a search warrant, or preserve evidence of criminal activity that the government believes will be destroyed or difficult to obtain after the qui tam action is unsealed. The government may ask the court to keep the qui tam action under seal while the criminal investigation is pursued.
If a criminal case is first pursued by the government, any judgment in favor of the United States in a criminal proceeding — either a guilty plea, nolo contendere or verdict after trial — estops the defendant from denying the essential elements of a civil FCA claim.
If there is no criminal investigation or the investigation does yield indictments, the government may still participate in the civil case. If the government participates, it has the right to take a lead role or work cooperatively with a private litigant’s counsel to share the responsibilities of pursuing discovery and preparing the case for trial.
Simply because the government does not participate in the civil case is not an indication that the case does not have merit. Given the substantial number of cases under investigation in Texas and the limited number of prosecutors and investigators available to the government, it is likely the government will be required to decline to participate in many qui tam actions. Presently, the government declines to intervene in more that 70 percent of all FCA cases.
Qui tam litigation represents an important part of our government’s efforts to deter fraud. While it is a powerful tool if properly used, it is also an obvious candidate for abuse by disgruntled employees seeking to protect their employment or seeking an exorbitant recovery.
All businesses that provide any goods or services to the federal government must recognize the False Claims Act — coupled with the qui tam provisions — places the equivalent of paid government investigators in their offices and facilities. Careful management of business practices, coupled with careful employee training and discipline, will help reduce all businesses’ exposure to qui tam litigation.
Copyright 1999, Texas Lawyer. All rights reserved.