Download Know Group Practice Liability Under the FCA

Know Group Practice Liability Under the FCA
Thursday, February 25th, 2010
Budget cuts in education and compliance programs may be penny wise but
dollar foolish.
By Michael D. Miscoe, JD, CPC, CASCC, CUC, CHCC
Under the False Claims Act (FCA), a health care facility or entity may be held
liable for the conduct of its individual employees, or even the conduct of other
entities with which it contracts or associates. This holds true even where the
health care facility or group practice entity has no knowledge that its employee or
contracted entity engaged in the preparation or submission of false claims.
The FCA allows a private-party plaintiff (a qui tam relator or “whistleblower”) to
bring suit on behalf of the United States to recover monies paid to persons or
entities who submitted false claims to the government. Actions also may be
brought by the government directly.
If found guilty, the offending party can be held liable for a civil penalty from
$5,500 to $11,000 for each false claim submitted, as well as three times the
amount of actual damage to the federal government. Where the action is initiated
by a whistleblower/qui tam relator, the defendant also may be required to pay the
relator’s costs and attorney’s fees. The two primary statutes relevant to these
actions are 31 U.S.C. §3729, which provides the statutory basis for liability, as
well as the penalties for violation; and 31 U.S.C. §3730, which provides the
statutory requirements for filing of a private civil (qui tam) action, on behalf of the
government, against a person or entity who is alleged to have violated 31 U.S.C.
§3729.
Liability Doesn’t Require Intent
An action for making a false or fraudulent claim for Medicare or Medicaid
reimbursement may be brought when: 1) a false claim (or statement in support of
a claim), 2) was presented or caused to be presented to the United States, 3)
with the knowledge that the claim or statement was false, and 4) the false claim
caused damage to the government.
Although the FCA requires “knowing” presentment of a claim containing false
material, the statute (31 U.S.C. §3729(b)) expressly states, “No proof of specific
intent to defraud is required.” The statute broadly defines the terms “knowing”
and “knowingly” as including “actual knowledge,” “acts in deliberate ignorance of
the truth or falsity” of the information submitted on the claim, or “acts in reckless
disregard of the truth or falsity of the information” submitted on the claim form.
That is, knowledge is imputed (assumed) where it can be shown that the entity
acted with reckless indifference or deliberate ignorance.
For example, a single physician in a multi-physician practice group routinely upcodes claims. If the practice fails to take steps to ensure the validity of the claim
data, or assumes a “see no evil” approach to billing, the group could be liable
under the FCA for recklessly allowing false claims submissions, or for
deliberately ignoring evidence that false claims were submitted. Such allegations
against the group are especially likely where the government or qui tam relator is
confident that it has a better chance of obtaining payment of penalties and
damages from the facility. Even in cases where the group practice is not found to
have sufficient knowledge, it likely will incur legal expenses to defend itself or the
targeted party.
An implied false certification claim under the FCA is based on the principle that
the simple act of submitting a claim for reimbursement implies compliance with
all governing rules that are a precondition of payment (Mikes v. Straus, 274 F.3d
687, 699 (2nd Cir. 2001)). Although courts have reiterated consistently that
mistakes — and even negligence — are not fraud under the FCA (see Wang v.
FMC Corp., 975 F.2d. 1412, 1420 (9th Cir. 1992)), there is often a fine line
between what constitutes negligent conduct and what is considered reckless.
The Ninth Circuit Court of Appeals held that providers who bill Medicare have a
duty to familiarize themselves with the requirements for payment (U.S. v.
Mackby, 262 F.3d 821, 828 (9th Cir. 2001)). As a result, reporting in a manner
clearly contradicted by statutory or regulatory payment provisions could lead to
FCA liability. Where the violation pertains to a provision found in the Centers for
Medicare & Medicaid Services’ (CMS) interpretive guidance, liability becomes
less certain, and often turns upon whether the applicable provisions are found as
a condition of payment or a condition of participation (see Mikes at 699-702).
For example, a qui tam FCA claim was brought against a physician’s group,
Heart Doctors, based on the allegedly fraudulent billing of one of the Heart
Doctors’ employed physicians. The facts of that case were revealed in
subsequent litigation between the physician group, Heart Doctors, and the
employed physician, Dr. Lane (Heart Doctors v. Lane, 2006 WL 2692694
(E.D.Ky. Sept. 13, 2006)). Dr. Lane allegedly was instructing nurses to provide
chemotherapy procedures without the supervision of a physician, and then
directing to bill Medicare as if the procedure had been performed in the presence
of the physician. Heart Doctor’s apparently had no actual knowledge that this
conduct had occurred; however, the qui tam relator brought the FCA case
against Heart Doctors alleging that it recklessly permitted false claims to be
submitted. Heart Doctors settled the FCA case for $434,180, and incurred over
$100,000 in attorney fees.
Not only do hospitals and health care provider groups face substantial FCA
liability as a result of the conduct of those that it employs, or with whom it
contracts/associates, but a number of federal courts have held that there is no
right to indemnification or contribution for FCA liability from either a co-defendant
or from a third party where the indemnification claim is dependent on finding FCA
liability by the party seeking indemnification. In other words, even if a single
individual within the group is responsible for false claims, the group cannot
recover the cost of defending itself and/or penalties from that individual.
As an example, Heart Doctors attempted to obtain indemnification from Dr. Lane
because it was Dr. Lane’s conduct that led to Heart Doctors’ FCA liability. Citing
a line of cases, the court in Heart Doctors found that a qui tam defendant cannot
seek to offset their liability under the FCA through suits seeking indemnification
or contribution from a third party. (See Mortgages Inc. v. U.S. District Court of the
District of Nevada, 934 F.2d 209 (9th Cir. 1991); U.S. ex. Rel Madden v. General
Dynamics Corp., 4 F.3d 827 (9th Cir. 1993)).
Prepare for the Perfect Storm of FCA Liability
Current and possible future conditions favor increased FCA liability for all health
care providers.
As the economy worsens, physician payments are diminished, and patients —
due to escalating co-payments and deductibles — avoid seeking physician
services. These occurrences generally create a motive for physicians/groups to
code services more aggressively.
Proposals in Congress may change provisions of the FCA to favor the qui tam
relator and the government. See FCA Correction Act of 2007, S.2041 and
Substitution S.2041, 110th Cong. (2007); FCA Correction Act of 2007, H.R. 4854,
110th Cong. (2007). These proposals include changes to the way that FCA
damages are calculated, the addition of separate liability for the government’s
costs of pursuing an FCA case, and elimination of the public disclosure original
source rule that bars an FCA qui tam action where the qui tam plaintiff is not the
original source of the information that leads to the filing of an FCA case. If these
changes are enacted, it is anticipated that many more qui tam cases will be filed.
The Recovery Audit Contractor (RAC) program incents private contractors to find
overpayments.
When combined, increased post-payment scrutiny, diminished barriers to filing
an FCA case and potentially increased damages, and an incentive for more
aggressive coding practices make a near perfect setting for substantially
heightened FCA liability for any physician group, hospital, or other entity.
Take Steps to Limit Liability
Hospitals and physician groups make much better targets for qui tam relators
(because they tend to have more money). As such, these entities must take
deliberate steps to reduce FCA exposure due to the improper employee or
contractor conduct. Specifically, employee and sub-contractor education in
proper coding and documentation, as well as the relevant rules establishing
conditions of payment, is critical. An effective internal audit program will not only
identify errors before they get out of hand, but will demonstrate the entity’s efforts
at compliance, thereby mitigating the potential that recklessness or deliberate
ignorance can be shown.
The bottom line is this: Physician groups can be held liable directly for their own
failure to prevent submission of false claims, as well as indirectly where the costs
of defending such an action fall to the entity. Moreover, because indemnification
is not permitted, hospitals and physician groups should consider stepping up
efforts at minimizing FCA liability to preclude the possibility of such an action
ever occurring. This may include reconsidering any budget reductions in the area
of staff (physicians/coders) education and training, internal auditing, and
compliance programs. Given the substantial amounts that can be recovered
under the FCA, budget cuts in these areas may end up being “penny wise and
dollar foolish.”