Settlements and judgments under the False Claims Act (FCA) exceeded $2.2 billion in the fiscal year ending Sept. 30, 2022. Of the approximately $2.2 billion, over $1.7 billion involved the health care industry. This included recoveries from drug and medical device manufacturers, durable medical equipment, home health and managed care providers, hospitals, pharmacies, hospice organizations, and physicians. The $1.7 billion only includes federal funds and, in many cases, there were additional amounts for state Medicaid programs.
False Claims Act Basics
The False Claims Act (31 U.S.C. §§3729-3733) imposes liability on persons and companies who defraud the government. It is the federal government’s primary tool in combating fraud against the government. There are also similar provisions under most states’ laws. Because of changes in the law, which make it easier to file these actions, there has been a significant increase in these actions in the last decade.
The FCA imposes liability on a defendant who “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval” using federal funds. 31 U.S.C. § 3729(a)(1)(A). To establish a violation under §3729(a)(1)(A), courts require (1) a false or fraudulent claim, (2) made or carried out with requisite scienter, (3) that was material, and (4) that caused the government to pay or forfeit money. There are other provisions under the FCA, including making a false record or statement material to a false or fraudulent claim, conspiring to violate the FCA, or a reverse false claim. The other §3729(a) subsections generally require a false claim, with the elements listed in this paragraph and sometimes others.
The knowledge element of the FCA is usually broadly interpreted by courts and means that a person (1) has actual knowledge of the 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. The FCA requires no proof of a specific intent to defraud.
The whistleblower provisions of the FCA allows individuals who are not affiliated with the government, called “relators” to file actions on behalf of the government and obtain a portion of the recovery. Relators are frequently disgruntled former employees, competitors and even estranged spouses. Relators file FCA cases under seal.
During the time a case is under seal, the government conducts its own investigation using civil investigative demands (CIDs) to obtain testimony and documents to decide whether it wants to intervene, or participate, in the case. A criminal referral can also be made based on the FCA investigation.
Penalties under the FCA are steep. A person found to violate the FCA can be liable for three times the damages and civil penalties for each claim, among other consequences such as exclusion from federal healthcare programs. The long statute of limitations under the FCA also contributes to large damages. Specifically, §3730 provides for a ten-year statute of limitation in certain circumstances, but usually there is a six-year statue.
Healthcare Fraud FCA Recoveries
Healthcare fraud remained the leading source of FCA settlements and judgments in 2022. The government priorities included: (1) fraud and abuse in the Medicaid program, (2) unnecessary services and substandard care, (3) Medicare Advantage matters, (4) drug pricing, and (5) unlawful kickbacks. Other government focuses included: (1) protecting service members and first responders, (2) covid-related fraud, (3) cybersecurity and others. There are several cases noted in the Department of Justice’s (DOJ) press release, and below is a summary of a few of the more notable healthcare settlements. (https://www.justice.gov/opa/pr/false-claims-act-settlements-and-judgments-exceed-2-billion-fiscal-year-2022).
Unnecessary Services. Providence Health & Services Washington (health care and hospital system) paid $22.7 million to resolve allegations that it billed federal health care programs for medically unnecessary neurosurgeries. At one hospital, neurosurgeons were paid based on a productivity metric that provided a financial incentive to perform more surgeries of greater complexity. As part of the settlement agreement, Providence admitted that its medical personnel expressed concerns that two neurosurgeons were endangering patient safety, creating an excessive level of complications and negative outcomes, performing surgery on candidates who were not appropriate for surgery, and failing to properly document their procedures and outcomes. Similarly, Eargo Inc. (hearing aid devices direct seller) paid $34.37 million to resolve FCA and common law allegations for submitting claims containing unsupported hearing loss-related diagnosis codes to the government.
Unnecessary Testing. Physician Partners of America LLC, its founder, its former chief medical officer, and its affiliated entities paid $24.5 million to resolve allegations that they billed federal health care programs for unnecessary urine drug, psychological, and genetic testing. This settlement resolved allegations under the FCA, the Stark Law, and FIRREA. Similarly, MD Spine Solutions and two of its owners agreed to pay up to $16 million to resolve allegations that MD Labs submitted claims for medically unnecessary urine drug tests. Finally, Radeas LLC paid $11.6 million to resolve allegations that it billed Medicare for medically unnecessary urine drug testing by performing presumptive and confirmatory tests on the same urine sample at the same time.
Kickbacks. In a case pursued by a whistleblower, pharmaceutical company Biogen Inc. paid $843.8 million to resolve allegations that the company paid kickbacks, including in the form of speaker honoraria, speaker training fees, consulting fees, and meals, to physicians who spoke at or attended Biogen programs in connection with Biogen’s multiple sclerosis drugs. Similarly, durable medical equipment manufacturer Philips RS North America, LLC paid $24.75 million to resolve allegations that it knowingly provided unlawful kickbacks to DME suppliers to induce them to select its respiratory equipment. The inducements allegedly came in the form of physician prescribing data that Respironics provided free of charge yet knew was valuable in assisting DME suppliers’ marketing efforts to physicians. Finally, the United States obtained settlements from 32 Texas doctors totaling more than $5 million to resolve allegations that these doctors violated the AKS and the Stark Law in a scheme to receive improper remuneration from management service organizations (MSOs) in exchange for ordering laboratory tests.
Individual Accountability. The DOJ reiterated its commitment in holding individuals accountable and provided two examples in which doctors paid significant amounts to resolve FCA allegations. Dr. Minas Kochumian, paid $9.5 million to resolve allegations that he submitted false claims to Medicare and Medi-Cal for procedures and tests never performed, including injections of medication designed to treat osteoarthritis and osteoporosis, drainage of cysts, and removal and destruction of various growths. Similarly, Dr. Harry Doyle and his wife and office assistant Sonya Doyle paid $3 million to resolve allegations of submitting false claims for psychiatric services that were not provided, as well as upcoding and double-billing patient claims. Dr. Doyle also agreed to voluntary exclusion from federal health care programs for 25 years. Many of the cases discussed above also include recoveries from individuals as well as entities.
While FCA recoveries fell from the prior year, recoveries were still substantial and the FCA will undoubtedly continue to be a powerful tool to combat government fraud. It is possible that the decline in recoveries was due to the pandemic and both cases and recoveries will be closer to pre-pandemic levels in 2023.
An interesting development was an increase in whistleblowers pursuing cases without government involvement. Thus, not surprisingly, whistleblower awards increased significantly and whistleblower recoveries in government declined cases were the highest ever.
Those who do business with the government, and particularly in the health care sector, should be more vigilant that ever. That means prioritizing compliance to avoid a potential FCA matter.