Know Group Practice Liability Under the FCA

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 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 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.”


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