Group Practice Liability Under the False Claims Act

Under the False Claims Act (FCA), a healthcare facility or entity may be held liable for the conduct of its individual employees, or even the conduct of other entities with which the healthcare facility or entity contracts or associates. This is true even where the healthcare facility or group practice entity has no actual knowledge that its employee or contracted entity was engaged in the preparation or submission of false claims.

The FCA requires “knowing” presentment of a claim containing a material falsity, but expressly provides (in 31 U.S.C. §3729(b)) that “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 to be submitted, or for deliberately ignoring evidence that false claims were being submitted. Such allegations against the group are especially likely where the government or qui tam relator (i.e., “whistleblower”) 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.

The Ninth Circuit Court of Appeals has held that providers who bill Medicare have a duty to familiarize themselves with the requirements for payment (see 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.

Not only do hospitals and healthcare 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 the finding of 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.

Take Steps to Limit Liability

Healthcare providers 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. Additionally, 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: Physician groups can be held directly liable 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 and internal audit and compliance programs.

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John Verhovshek

John Verhovshek

John Verhovshek, MA, CPC, is Managing Editor at AAPC. He has covered medical coding and billing, healthcare policy, and the business of medicine since 1999. He is an alumnus of York College of Pennsylvania and Clemson University, and a member of the Asheville-Hendersonville AAPC Local Chapter.
John Verhovshek

About Has 406 Posts

John Verhovshek, MA, CPC, is Managing Editor at AAPC. He has covered medical coding and billing, healthcare policy, and the business of medicine since 1999. He is an alumnus of York College of Pennsylvania and Clemson University, and a member of the Asheville-Hendersonville AAPC Local Chapter.

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