Changes in Qui Tam Whistleblower Cases Under the False Claims Act – A Review For Lawyers & Attorneys

The Patient Protection and Affordable Care Act of 2010 (“PPACA”) and the Healthcare and Education Reconciliation Act of 2010 (“HERA”) (collectively, the PPACA and HERA are referenced as the “Legislation”), passed in the spring of 2010, enacted sweeping changes to health care, including important changes to the federal False Claims Act that will affect prosecution of qui tam cases by the federal government, relators and whistleblowers. Health care fraud lawyers, attorneys and law firms and their clients must be aware of these significant changes in cases involving fraudulent claims against federal government healthcare programs such as Medicare, Medicaid and Tricare. Health care fraud defense attorneys will be disheartened, and federal government prosecutors, whistleblower lawyers and qui tam plaintiffs will be pleased, because these changes have lowered the bar for prosecutors and qui tam whistleblowers with respect to False Claims Act cases.
The False Claims Act, 31 U.S.C. §§ 3729-3733 (the “FCA”), is an important tool used by the Department of Justice (“DOJ”), U.S. Attorney’s (“USAOs”) and private whistleblowers to bring civil prosecutions against those individuals and entities who perpetrate frauds upon the United States through false and fraudulent claims for payment. The FCA provides for treble damages and civil monetary penalties to be awarded to the federal government, and the qui tam whistleblower plaintiff, often called a “relator,” may recover up to 30% of the award, plus statutory attorney’s fees.
The recent FCA amendments make it easier for whistleblowers to bring qui tam suits on behalf of the federal government by lowering the “public disclosure” standard. Prior to the amendments, a qui tam plaintiff who was not an original source was jurisdictionally barred from bringing an FCA suit if the fraudulent conduct of the defendant had been previously disclosed in the public domain through the media, federal, state or local reports, audits and investigations, or criminal, civil and administrative hearings and proceedings. For instance, in Graham County Soil & Water Conservation Dist. v. United States ex rel. Wilson, 130 S.Ct. 1396 (2010), the United States Supreme Court recently upheld the dismissal of an FCA claim for lack of jurisdiction based on prior public disclosure of fraud in California county’s audit reports. See United States ex rel. Gonzalez v. Planned Parenthood of Los Angeles, et al., Case No. 09-55010 (9th Cir. July 1, 2010).
Under the amendments of the Legislation, publications deemed as public disclosures under the FCA are now more limited. They only include a federal criminal, civil and administrative hearing in which the government or its agent is a party, a congressional, Government Accounting Office (GAO) or other federal report, hearing, audit or investigation, or a disclosure in news media. See 31 U.S.C. § 3730(e)(4)(A). This means that state and local audits, reports, investigations and hearings, as well as litigation between private parties, can now be used as the sole source of information for an FCA suit for defrauding the federal government, and the Legislation has abrogated this part of the Graham County Soil & Water Conservation Dist. decision.
The Legislation’s amendments also changed the jurisdictional nature of the public disclosure provisions. Before the new law was enacted, a violation of the public disclosure requirements of the FCA was a jurisdictional defect which could be raised by a party at any time or sua sponte by the court. Now, a qui tam whistleblower complaint which violates the public disclosure provision can be dismissed pursuant to a Rule 12(b)(6) motion, unless such dismissal is “opposed by the Government.” Id.
The Legislation also amended the “original source” provisions of the FCA. Prior to the amendments, a whistleblowing relator who was an original source could bring an FCA suit regardless of whether there was a previous public disclosure. This meant that the whistleblower had to have “direct and independent knowledge” of the information on which the fraud allegations were based and had voluntarily provided the information to the Government before filing an FCA action which was based on the information. Under the Legislation, the “direct and independent knowledge” requirement has been eliminated, and an original source is an individual who voluntarily discloses the frauds to the government prior to a public disclosure or “has knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions.” 31 U.S.C. § 3730(e)(4)(B). Therefore, as long as the qui tam whistleblower has information about the government frauds which are independent of publicly disclosed information, even if the qui tam whistleblower did not have “direct” information usually derived from personally witnessing the fraudulent conduct, an FCA suit may be pursued.
By broadening the original source provisions and limiting the public disclosure provisions of the FCA, Congress has encouraged an increase in the filing of qui tam whistleblower lawsuits. While the change in the jurisdictional aspect of the public disclosure provisions ostensibly helps qui tam relators, it remains to be seen whether or not the government will develop a policy towards or against FCA suits in which Rule 12(b)(6) motions have been filed based upon prior public disclosures.
The Medicare enforcement Anti-Kickback Statute (“AKS”) was amended to make violations thereof subject to the civil enforcement provisions of the FCA. 42 U.S.C. § 1320a-7b(g). This amendment was made to address a line of whistleblower cases which have held that kickbacks involving federal health care programs were not covered by the FCA under an implied certification theory. In an implied certification case, the whistleblower alleges liability of the defendant based upon the very act of submitting a claim for reimbursement because the defendant has impliedly certified compliance with governing federal rules that were a precondition to payment. Several courts had held that no FCA liability could attach under an implied certification theory involving kickbacks because neither the AKS statute nor regulation expressly stated that compliance was a precondition to Medicare or Medicaid payments. See United States ex rel. Hutcheson v. Blackstone Med., Inc., No. 06-11771-WGY, 2010 WL 938361 (D. Mass. Mar. 12, 2010). With this new Legislation, implied certification FCA whistleblower cases will likely become more prevalent.
The Legislation also expanded the scope of “reverse false claims” under the FCA with respect to the retention of Medicare and Medicaid overpayments. In the 2009, Congress had previously eliminated the requirement of an affirmative false statement to the government for liability to attach in reverse false claims cases when it passed the Fraud Enforcement and Recovery Act (“FERA”). See 31 U.S.C. § 3729(a)(1)(G) (liability for a person who “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”). The amendments provide that Medicare and Medicaid overpayments become an actionable “obligation” under the FCA when the deadline for repayment expires. Such overpayments must be reported and returned to the federal government within 60 days of the later of the date the overpayment was identified or the date a corresponding cost report is due. This provision will likely lead to an explosion of reverse false claims actions.
The Legislation creates potential FCA liability for private exchange insurers. The amendments establish private insurer “Exchanges” to provide individuals with options for the purchase of health insurance. If the private insurer’s exchange plans include any federal funding, then the payments made by, through, or in connection with the plan are subject to the FCA. However, there will be a significant delay in the implementation of this change because the effective date of this provision is January 1, 2014.
In summary, the PPACA and the HERA made dramatic changes that will affect federal health care fraud whistleblower cases. The changes to the federal False Claims Act should result in easier prosecution of FCA qui tam whistleblower cases by the federal government, relators and whistleblowers. Health care fraud lawyers, attorneys and law firms and their clients should be aware of these significant changes in cases involving fraudulent claims against federal government healthcare programs such as Medicare, Medicaid and Tricare. By lowering the standards for prosecutors and qui tam whistleblowers with respect to False Claims Act cases, Congress has made the jobs of health care fraud defense attorneys more difficult. Federal government prosecutors, whistleblower lawyers and qui tam attorneys will have a few less hurdles to jump in prosecuting whistleblower allegations under the federal False Claims Act.
© 2010 Joseph P. Griffith, Jr.