AHLA. The False Claims Act: A Powerful Enforcement Tool. Michael E. Paulhus King & Spalding LLP Atlanta, GA

Transcription

1 AHLA The False Claims Act: A Powerful Enforcement Tool Michael E. Paulhus King & Spalding LLP Atlanta, GA Fundamentals of Health Law November 12-14, 2014

2 The False Claims Act: A Powerful Enforcement Tool American Health Lawyers Association: Fundamentals of Health Law Chicago, IL November 13, 2014 Michael E. Paulhus, Esq. King & Spalding LLP AGENDA Overview of Civil FCA Practice Nuts & Bolts of Defending FCA Cases Healthcare-Specific FCA Issues Collateral Enforcement Authorities Striking Back: Counterclaims and Fee Shifting Top 10 Take Aways 2 1

3 Overview of Civil FCA Practice 3 Civil False Claims Act 31 U.S.C Origins in the Civil War Lincoln s Law Substantial amendments in 1943, 1986, 2009 (FERA) and 2010 (PPACA) 4 2

4 Damages/Penalties 31 U.S.C. 3729(a) Violations punishable by: Treble damages Statutory civil penalties of $5,500 - $11,000 per false claim 5 Current Trends In Healthcare Fraud Enforcement From January 2009 through FY 2013, the DOJ has recovered a total of $12.1 billion in federal health care dollars through the FCA DOJ recovered $2. 9 billion from qui tam (whistleblower) actions last year DOJ opened 1,083 new civil health care fraud investigations in FY 2013 A record 752 qui tam actions filed last year 6 3

5 Key Liability Provisions 31 U.S.C (a)(1)(a) false claims (a)(1)(b) false records material to false claims (a)(1)(c) conspiracy (a)(1)(g) reverse false claims 7 Qui Tam Suits Private citizens (relators) file qui tam complaints under seal alleging FCA violations Increase in corporate relators Sophisticated counsel taking FCA cases 8 4

6 Relator s Incentive 15-30% depending on intervention Retaliation claims Attorney s fees and costs 9 The Government s Role in Qui Tam Cases DOJ must decide whether to intervene (i.e., take over the suit) DOJ has by statute 60 days after service to investigate the claims and decide whether to intervene, although it often requests an extension of time 10 5

7 The Government s Role in Qui Tam Cases The government may seek the court s permission to partially lift the seal and share the complaint with the defendant Much advocacy takes place at this stage, such as presentations and document productions to convince the government not to intervene 11 The Government s Role in Qui Tam Cases DOJ may investigate with OIG subpoenas or Civil Investigative Demands, and conduct interviews States may be involved when Medicaid at issue DOJ can intervene to dismiss the case 12 6

8 Recent Legislative Changes Fraud Enforcement Recovery Act of 2009 (FERA) - (May 20, 2009) Patient Protection and Affordable Care Act (PPACA) - (March 23, 2010) Dodd-Frank Financial Reform Bill - (July 21, 2010) 13 Revision to Reverse FCA Provision 31 U.S.C (a)(1)(g): knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government 14 7

9 Retention of Overpayments Obligation, which previously was undefined, is defined by FERA as: [A]n established duty, whether or not fixed, arising from... the retention of any overpayment 31 U.S.C. 3729(b)(3) PPACA provides a 60-day deadline for reporting and returning overpayments. 15 Nuts & Bolts of Defending FCA Cases 16 8

10 Defense Checklist Falsity FRCP 9(b) Materiality Damages Analysis Intent Statute of Limitations Causation Constitutional Defenses Public Disclosure Bar First to File Bar Proper Parties Filed Under Seal Counterclaims / Fee Shifting 17 Key Elements Of A Viable FCA Claim false claim intent materiality causation 18 9

11 False Claim (A) knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval (B) knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim (G) knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government, False Claim Sine qua non of the FCA Ambiguous regulation or contract may preclude a finding of falsity Distinction between factual falsity and legal falsity 20 10

12 Materiality Materiality defined as whether the claim was capable of influencing or had a natural tendency to influence the government s payment decision. 31 U.S.C. 3729(b)(4) Consider the reimbursement context carefully 21 Intent Standard (1) actual knowledge, (2) deliberate ignorance, or (3) reckless disregard 22 11

13 Intent The Supreme Court held that recklessness is conduct violating an objective standard: action entailing an unjustifiably high risk of harm that is either known or so obvious that it should be known Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47 (2007) (emphasis added) Government knowledge as a Defense MSJ versus 12(b)(6) Motion to Dismiss 23 Causation Tort concepts (intervening cause, expected result of action) Difference between but for & proximate causation 24 12

14 Public Disclosure/First to File Bar 31 U.S.C. 3730(e)(4) Allegations publicly disclosed? Is relator an original source? 31 U.S.C. 3730(e)(3) Have the key allegations been disclosed in a prior proceeding? 25 Rule 9(b) Federal Rule of Civil Procedure 9(b) requires plaintiffs to plead the circumstances constituting fraud with particularity Circuit split regarding whether FCA relator must plead details of an actual false claim Earlier this year, SCOTUS denied certiorari in United States ex rel. Nathan v. Takeda Pharmaceuticals North America, Inc., et al., No , so the circuit split remains in place

15 Additional Defenses Statute of Limitations Proper Parties (Defendant & Plaintiff) Filed Under Seal Damages Analysis 27 Constitutional Defenses Ex Post Facto Clause Excessive Fines Clause Due Process Clause Separation of Powers 28 14

16 Proactive Defense Tip--Employment Issues Often Drive FCA Liability Listen to employee concerns to diffuse them before they become qui tam whistleblowers Documentation of how complaints are addressed Conduct detailed employee exit interviews Have departing employees execute releases 29 Healthcare-Specific FCA Issues 30 15

17 Key Healthcare FCA Theories Upcoding/Billing for Services Not Rendered False Certification of Compliance with Regs Quality of Care/Worthless Services Improper Retention of Overpayments Anti-Kickback Statute/Stark Law Causing Submission of False Claims Upcoding/Services Not Rendered (A) knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval (B) knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim (G) knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government,

18 2. False Certifications Identify false claim or record Difference between factual falsity and legal falsity Express certification Implied certification Ambiguous regulation or contract may preclude a finding of falsity Quality of Care Worthless Services the performance of the service is so deficient that for all practical purposes it is the equivalent of no performance at all. Mikes v. Straus, 274 F.3d 687, 703 (2d Cir. 2001) 34 17

19 3. Quality of Care Potential quality of care FCA theories may include: Inadequate facilities, equipment and/or care; Negligent credentialing resulting in improper care; Unnecessary procedures (e.g. stents); High rates of readmissions/hospital-acquired conditions; Reporting inaccurate quality data linked to payment Quality of Care The Seventh Circuit recently cast doubt on the worthless services theory of FCA liability in U.S. ex rel. Absher v. Momence Meadows Nursing Ctr., Inc., 764 F.3d 699 (7th Cir. 2014). It is not enough to offer evidence that the defendant provided services that are worth some amount less than the services paid for. Services that are worth less are not worthless

20 4. Revision to Reverse FCA Provision 31 U.S.C (a)(1)(g): knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government Retention of Overpayments Obligation, which previously was undefined, is defined by FERA as: [A]n established duty, whether or not fixed, arising from... the retention of any overpayment 31 U.S.C. 3729(b)(3) 38 19

21 4. Retention of Overpayments State of New York Ex Rel. Kane v. Healthfirst (S.D.N.Y 2014) Hospital allegedly erroneously billed New York Medicaid as a secondary payor after they had already been paid in full by Healthfirst, the patients Medicaid managed care plan. The billing errors were allegedly caused by a coding error in the remittances produced by Healthfirst. Although the hospitals supposedly learned of the computer coding error in February 2011, they did not make the final refund payments to New York Medicaid until March DOJ and New York State Attorney General's Office intervened in Stark/Anti-Kickback Statute Violations PPACA specifies that a claim that includes item or service resulting from an AKS violation constitutes a false claim under the FCA Potential for more qui tam cases based on Stark following Tuomey judgment and Halifax settlement

22 6. Causing Submission of False Claim (A) knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval (B) knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim 41 Collateral Enforcement Authorties... The Rest of the Story Exclusion Civil Monetary Penalties (CMPs) Corporate Integrity Agreements (CIAs) Criminal Exposure 42 21

23 Exclusion 43 OIG Exclusion HHS OIG has authority to exclude individuals and entities from federal healthcare program participation Types of Exclusions: Mandatory (SSA 1128(a)(1)-(3)) Permissive (SSA 1128(b)(1)-(15)) Duration: Minimum of 1 year to permanent exclusion 44 22

24 Effect of Exclusion The Bottom Line Excluded from Medicare, Medicaid, and all federal healthcare programs No federal healthcare program payments for items or services furnished, ordered, or prescribed directly or indirectly OIG List of Excluded Individuals / Entities 45 (b)(15) Exclusion Exclusion of individuals typically requires affirmative conduct. Exception: OIG permitted to exclude owners of a sanctioned entity if they knew or should have known of the conduct that led to the sanction (SSA 1128(b)(15)) Exception: OIG is also permitted to exclude officers or managing employees solely based on their positions with the sanctioned entity. (Id.) Higher standard of proof for owners than officers and managers (no knowledge required) 46 23

25 Civil Monetary Penalties (CMPs) 47 CMPs OIG may seek CMPs for, among other things: False claims Kickbacks Stark violations Retention of overpayments Sanctions CMPs of $10,000 per claim and $50,000 per kickback Exclusion from federal healthcare programs 48 24

26 Corporate Integrity Agreements (CIAs) CIAs are designed to put the entity at the frontline of promoting compliance. Gregory E. Demske, Chief Counsel to the IG, OIG Outlook 2013 audio podcast 49 Common CIA Requirements Hire a compliance officer/appoint a compliance committee Develop written standards and policies Implement a comprehensive employee training program Retain an independent review organization to conduct reviews Establish a confidential disclosure program Restrict employment of ineligible persons Report overpayments, reportable events, and ongoing investigations/legal proceedings to OIG Provide an implementation report and annual reports to OIG on the status of the entity s compliance activities 50 25

27 Criminal Exposure 51 Criminal Exposure Health Care Fraud (18 U.S.C. 1347) (a) Whoever knowingly and willfully executes, or attempts to execute, a scheme or artifice: (1) To defraud any health care benefit program*; or (2) To obtain, by means of false or fraudulent pretenses, representations, or promises, any of the money or property owned by, or under the custody or control of, any health care benefit program in connection with the delivery of or payment for health care benefits, items, or services, shall be fined... or imprisoned not more than 10 years, or both... * health care benefit program includes public and private plans or contracts 52 26

28 Criminal Exposure False Statements (18 U.S.C. 1001) (a) Except as other provided in this section, whoever, in any matter within the jurisdiction of the executive, legislative, or judicial branch of the Government of the United States, knowingly and willfully: (1) falsifies, conceals, or covers up by any trick, scheme, or device a material fact; (2) makes any materially false, fictitious, or fraudulent statement or representation; or (3) makes or uses any false writing or document knowing the same to contain any materially false, fictitious, or fraudulent statement or entry; Shall be fined under this title, imprisoned not more than 5 years Criminal Exposure Mail Fraud (18 U.S.C. 1341) Whoever, having devised or intending to devise any scheme... to defraud, or for obtaining money... by means of false or fraudulent pretenses, representations, or promises... places in any post office or authorized depository for mail matter, any matter or thing whatever to be sent or delivered by the Postal Service, or deposits or causes to be deposited any matter or thing whatever to be sent or delivered by any private or commercial interstate carrier, or takes or receives therefrom, any such matter or thing... shall be fined under this title or imprisoned not more than 20 years, or both. Wire Fraud (18 U.S.C. 1343) Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, transmits or causes to be transmitted by means of wire, radio, or television communication in interstate or foreign commerce, any writings, signs, signals, pictures, or sounds for the purpose of executing such scheme or artifice, shall be fined under this title or imprisoned not more than 20 years, or both

29 Striking Back: Counterclaims and Fee Shifting 55 Fee Shifting False Claims Act, 31 U.S.C. 3730(d)(4) Provides for recovery of reasonable attorneys fees and expenses from qui tam relator where Government has not proceeded and defendant prevails. Requires a finding by court that relator s claim was clearly frivolous, clearly vexatious, or brought primarily for purposes of harassment. 28

30 Fee Shifting Inherent Power of Court Provides for certain sanctions on counsel, as deemed appropriate by court. 28 U.S.C Provides for recovery against opposing attorney(s). Applies where attorney multiplies the proceedings... unreasonably and vexatiously. FRCP 11 Requires counsel to make a reasonable inquiry that the case is not being brought for an improper purpose, is nonfrivolous, is warranted by existing law, and is not lacking in evidentiary support. Counterclaim: Breach of Contract Non-Compete Non-Solicitation Non-Disclosure of Confidential Information 58 29

31 Counterclaim: Stored Communications Act Defendant must have either: (1) Intentionally accessed without authorization a facility through which an electronic communication service was provided; or (2) intentionally exceeded an authorization to access that facility; and Thereby obtained, altered, or prevented authorized access to a wire or electronic communication while it was in electronic storage in such system; and The defendant s unauthorized access or access in excess of authorization caused actual harm to the plaintiff. 59 Counterclaim: Trover/Conversion To establish a claim for conversion, a plaintiff must show: 1. title to the property or the right of possession; 2. actual possession in the other party; 3. demand for return of the property; and 4. refusal by the other party to return the property

32 Top 10 Takeaways 61 Top 10 Takeaways 1. In healthcare, penalty exposure often drives resolution 2. The volume of FCA suits and recoveries is on the rise, enhanced by recent amendments 3. Relators come in many shapes and sizes (disgruntled employees, competitors, consultants) 4. There are more federal dollars than simply Medicare 5. Identification of overpayment triggers a 60-day clock 62 31

33 Top 10 Takeaways 6. Pay attention to potential collateral issues 7. Falsity is the sine qua non of an FCA claim 8. FCA exposure can be mitigated by thoughtful employment practices 9. Be mindful of affirmative defenses and counterclaims 10. Successful FCA counsel in the future will have government investigation experience and civil litigation skills 63 32