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Group Practice Liability Under the FCA

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  • In Audit
  • January 1, 2010
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Budget cuts in education and compliance programs may be penny wise but dollar foolish.
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 up-codes 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 them 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 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. This coupled with the potential of a costly government run insurance option will cause all carriers (including the government plans) to tighten their belts. As they do so, providers can expect more aggressive post payment recovery efforts.
The Fraud Enforcement Recovery Act (FERA), which was recently signed into law, changes the FCA in a number of ways to favor the qui tam relator (individuals who file claims on behalf of the government) and the government. FERA, while not creating any new obligations to return overpayments, now expressly includes the failure to return an overpayment as the basis for an FCA action. Prior to FERA, FCA liability existed only for claims presented directly to the government. Now, FCA liability exists for claims where government money or property is even indirectly involved.  FERA also expands the anti-retaliation provisions of the FCA to agents and contractors, extends the statute of limitations period for bringing an FCA action where the government intervenes, and grants the government additional investigative authority.
The Recovery Audit Contractor (RAC) program provides incentives for private contractors to find overpayments.
When increased post-payment scrutiny, diminished barriers to filing an FCA case, potentially increased damages, and incentives for more aggressive coding practices are combined, there is 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.”
Michael Miscoe has a bachelor’s of science degree from the U.S. Military Academy and a juris doctorate degree from Concord Law School. He is the president of Practice Masters, Inc., a current member of the AAPC Legal Advisory Board, and is admitted to the Bar in the state of California as well as to the practice of law before the U.S. District Courts in the Southern District of California and the Western District of Pennsylvania. Michael has nearly 20 years of experience in health care coding and over 13 years as a compliance expert testifying in civil and criminal cases.

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