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The Evolution of Fraud Liability

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  • July 7, 2021
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The Evolution of Fraud Liability

Nothing stays the same, including the way the feds interpret the law.

The False Claims Act (FCA) has become the government’s fraud enforcement vehicle of choice, and the changes to the FCA under the Fraud Enforcement Recovery Act of 2009 (FERA) and the Affordable Care Act (ACA) have enhanced the Department of Justice’s (DOJ’s) enforcement authority, according to AAPC National Advisory Board President and Legal Advisory Board member Michael D. Miscoe, JD, CPC, CPCO, CPMA, CASCC, CCPC, CUC, CEMA, AAPC Fellow.

In February, AAPC teamed up with the American Health Law Association (AHLA) to deliver a two-day virtual conference focused solely on healthcare compliance. The conference covered a range of topics from coding to law. In the session “FCA, FERA, ACA: Understanding the Evolution of Fraud Liability,” Miscoe explained what the current fraud standard is, how voluntary disclosure is not so voluntary anymore, how to identify and handle overpayments, and the knowledge and mechanisms organizations should have in place to mitigate fraudulent intent.

Fraud Is Big Business

In 2019, 146 non-qui tam cases (cases brought directly by the DOJ) and 636 qui tam cases (cases where an individual who meets certain requirements can file a false claims act case in the name of the government) were filed. The DOJ has recovered more than $64 billion since the launch of FERA in 1997 and more than $2.2 billion from FCA cases in fiscal year 2020 alone.

“FCA prosecutions are probably the only money-making gig the government has,” Miscoe said. While the stats vary, cases return four to seven dollars for every dollar spent on fraud enforcement.

Potential penalties of $5,000-$22,000 can incentivize physician offices and hospitals to settle their cases quickly. “When you’re looking at $22,000 per claim form in penalties plus treble damages, it doesn’t take an enormous amount of conduct; a hundred-thousand-dollar case could end up with millions in damages and penalties,” said Miscoe. That kind of threat provides an extremely strong incentive for people on the adverse side of a false claims act case to settle.

FERA Changes

In 2009, FERA authorized substantial new funding to the DOJ for investigating and prosecuting fraud offenses, including significant changes to existing federal fraud laws. FERA resulted in the following changes:

  • Clarified the applicability of the FCA to claims that are either directly or indirectly paid with government money
  • Codified the materiality requirement
  • Expanded the definition of “claim”
  • Expanded conspiracy liability
  • Added procedural amendments that strengthen DOJ authority
  • Expanded FCA liability for retention of overpayments
  • Modified the retaliation provision applicable to qui tam relators

The objective standard of materiality was recognized by the majority of the U.S. Court of Appeals. A misrepresentation is material where it is “capable of influencing” or “has the natural tendency to influence the government’s payment decision.” Liability exists even where the government was not actually influenced and didn’t even pay the claim.

Before FERA, conspiracy liability was limited to only one liability prong of the FCA — an agreement or common purpose associated with getting the claim paid. Post-FERA, you can have conspiracy liability with any prong of the FCA. Any agreement or common purpose to violate any of the FCA liability provisions is enough to meet conspiracy liability.

FERA extended liability for retaliation against employees only to include retaliation against contractors and agents, as well.

Intent Is Everything

To violate the FCA you have to have a legally false claim, as well as knowledge of the falsity. Actual damage need not be shown except for purposes of calculating damages. There is an intent requirement under the FCA.

The three levels of intent are:

  • Mistake
  • Negligence
  • Reckless disregard

Mistakes and negligence are not fraud. The lowest required intent standard to justify a false claim is reckless disregard, which, according to Miscoe, “is something more than a mistake, more than negligence, but something less than actual knowledge.” Getting a rule wrong can happen, especially when a rule is complex or ambiguous. There can also be good faith disagreements on issues such as commonly occur when evaluating the level of service (evaluation and management).

In Wang v. FMC Corp (9th Cir. 1992), it was decided that recklessness is required to violate the FCA. Because of this, fraud does not exist in very many cases, let alone in every case simply because there is an error leading to an overpayment. On the other side of the coin, as established in U.S. v. Mackby, it is a provider’s duty to be familiar with payment rules; however, “If there is a bona fide objective error that led to an overpayment,” said Miscoe, “the provider has a duty to refund that money, and, if they don’t, what may not have been fraudulent to begin with could become fraudulent” due to the failure to return the government’s money.

The FCA does not punish honest mistakes or incorrect claims submitted through negligence. This includes entities that have a compliance plan in place. U.S. ex rel Heffner v. Hackensack University Medical Center (3rd Cir. 2007) ruled that no reckless disregard of the billing rules existed where the billing department had a compliance plan in effect, but the plan did not catch the error. Stated another way, a compliance plan does not have to absolutely ensure that no mistakes are made. Just because a mistake occurred despite formal compliance efforts, that does not mean the provider recklessly disregarded the billing rules and is subject to FCA liability. Mere failure of a billing system or a compliance plan to catch an error does not establish reckless disregard. It is important to note, however, that where the overpayment was caused by a failure to follow the requirements of the compliance plan, a court’s conclusion might differ greatly.

Be Cautious With Compliance Plans

If you have a compliance plan, implement and follow it in good faith, Miscoe advises. Constantly re-evaluate your efforts and revise them to address changing requirements. If you don’t have a formal compliance plan, a compliance program should be implemented where you document what you’re doing relative to internal auditing and training. Hiring consultants to assist with compliance is another positive step you can take to show you are trying to follow the rules.

“Audit programs, efforts to get clarification on rules, setting up internal policies as to how you’re going to deal with the ambiguities — these are all positive things that you can do to demonstrate what I like to call good citizenship and mitigate or minimize any potential False Claims Act liability,” said Miscoe. “Such conduct is likely to convince the government that any conduct resulting in an error and overpayment is the product of nothing more than a mistake or negligence, thereby rendering it unactionable under the FCA.”

The Evolution of Voluntary Disclosure

Another way of mitigating intent is to voluntarily disclose errors resulting in inappropriate payments after identifying a problem. Voluntary disclosure used to be truly voluntary but is now required by law. To avoid FCA liability, however, the disclosure cannot be in response to an investigation.

Based on changes under FERA and the ACA, “I call it the mandatory voluntary disclosure rule,” joked Miscoe. The revised rules have put a lot of burden on the provider. If any person in the organization knows of anything that might have caused an overpayment, an investigation must be conducted. For that reason, practices must encourage people who have compliance concerns to bring them forward. Once it’s known by any person, the clock starts ticking, which can lead to unfortunate consequences if the situation is ignored. Because of this requirement, practices should avoid dismissing concerns, even if the concerns are not founded in the end.

ACA Time Requirement for Voluntary Disclosures

The ACA significantly increased resources that the government has and was willing to dedicate to identify fraud, waste, and abuse, which makes it more likely that errant conduct will be identified. It also added to the fraud enforcement recovery act provisions relative to voluntary disclosures by creating a 60-day refund clock for overpayments. With FERA, you had an obligation, but there was no time requirement to it. Unrefunded overpayments are considered false claims by lack of action, and violation of the Anti-kickback Statute was made an explicit basis for FCA liability. A violation of the Statute is automatically an FCA violation.

Reverse False Claims

The reverse false claim provision essentially addresses passive conduct. “With the reverse false claims, the way it works is, if you know or should know that you have money that doesn’t belong to you, and you avoid giving it back to the government, that’s what triggers the liability,” said Miscoe. An FCA violation traditionally required an affirmative act; either an express or implied false certification. You had to do something to violate the FCA. Under the Reverse False Claims Act, purely passive conduct — knowing that you have money that doesn’t belong to you, or you should have known and you didn’t do anything about it — is also now grounds to trigger liability.

“Knowing” (or knowingly) is defined by the FCA as:

  • Having actual knowledge of the information,
  • acting in deliberate ignorance of the truth or falsity of the information, and
  • acting in reckless disregard of the truth or falsity of the information.

Deliberate ignorance is purposely trying to avoid learning about false claims, Miscoe explained. To meet reckless disregard, it’s about perception based on the facts of the case. The conduct of the provider will be the deciding factor between negligence and reckless disregard.

“Obligation,” previously undefined, was defined under FERA as “[A]n established duty, whether or not fixed, arising from an express or implied contractual, grantor-grantee, or licensor-licensee relationship, from a fee-based or similar relationship, from statute or regulation, or from the retention of any overpayment.”

Some offices take an equity approach when looking at payments. If they receive a double payment for one service but don’t get paid for another service, oftentimes offices call that a wash. Such an approach will trigger liability under the FCA. Under the voluntary disclosure and refund rule, you must return the overpayment of the double paid claim and appeal the lack of payment for the unpaid claim.

Make sure you have a mechanism in place to identify overpayments so you can return them promptly. Be aware of state FCA requirements, as well. A number of states have enacted a model of the FCA with false claims provisions of their own. They model them so they can get a share in any Medicaid recoveries.

What to Do When You Identify an Overpayment

When you have identified actual overpayments, you must identify:

  • What caused the overpayment
  • How it was discovered
  • The means used to identify the entirety of the overpayment

You must explain all of this information to the Medicare Administrative Contractor (MAC) in your disclosure. Remember that once an actual overpayment is identified, the ACA amendments to the FCA and implementing regulations requires disclosure and repayment within 60 days. The lookback period for disclosure of overpayments is six years. While circumstances associated with the error may not require you to go back that far, when they do, you must disclose and refund any errors causing an overpayment over the prior six-year period.

Medical Necessity and Recent Case Law

Miscoe referenced case law throughout and ended his presentation by citing recent cases concerning medical necessity fraud.

U.S. v. AseraCare (11th Cir. 2019)

This case established that objective falsity must be proven in order to violate the FCA. Where there is only a reasonable disagreement or difference of opinion between medical experts as to the medical necessity of services ordered or rendered, with no other evidence to prove falsity of the assessment, objective falsity is not proven. A reasonable difference of opinion among physicians reviewing medical documentation after the fact is not sufficient on its own to suggest that those judgments — or any claims based on them — are false under the FCA. A properly formed and sincerely held clinical judgment is not untrue even if a different physician later contends that the judgment is wrong. Although the U.S. Court of Appeals sent the case back for additional consideration by the trial court, the foregoing analysis and holding provides hope for a reasonable approach to allegations of medical necessity fraud asserted by the federal government and the whistleblowers.

Subjective assessment about medical judgments by two different auditors is not objective falsity. This theory can extend easily into the coding realm where you have code selection and reimbursement rules that are open to differing interpretations.

U.S. ex rel. Druding v. Care Alternatives (3rd Cir. 2020)

In a ruling contrary to AseraCare, the district court held that physicians are required to make certain that their clinical judgment can be supported by clinical information and other documentation that provides the basis for any treatment certification and recommendations (hospice care, in this case) even though making a medical prognosis is not an exact science. The district court held that a “mere difference of opinion” is insufficient to show the FCA falsity is at odds with the meaning of “false” under the FCA. On appeal, the circuit court reversed the holding that objective falsity improperly conflates the elements of falsity and intent. On Feb. 22, 2021, the U.S. Supreme Court denied a petition to review the court’s decision.

How This Affects Providers

Under the requirement that a claim be “legally false” and submitted with requisite intent to establish an FCA violation, physicians need to ensure that their clinical information and other documentation not only support their diagnosis and medical treatment decisions but are also consistent with the standards of medical care. FCA liability is not premised on factual falsity alone, but a certification is false simply if the service or procedure was knowingly not reasonable and necessary under the clinical circumstances and standards of care. The bright-line rule that a physician’s clinical judgment cannot ever be false was rejected. An understanding of the varying facts in AseraCare and Druding will help you understand the apparent divergence in these opinions.

The bottom line is that medical opinions are not insulated from fraud scrutiny; however, well-justified medical opinions and decisions likely are. Medical judgment can be the basis for fraud liability when the basis for that judgment is either not honestly held or significantly diverges from the standard of care. A good faith medical opinion is not punishable under the FCA, but it is clear that a physician who saw one thing on a test and consciously wrote down another, then used that misinformation to perform and bill unnecessary services and procedures, will likely face FCA liability. “I think we’d all agree that purposely misreading a diagnostic study to justify performance and coverage of a procedure is not a legitimately held medical opinion,” said Miscoe.

Whether a physician was acting in good faith or committing fraud is a question for the jury. Physicians must be vigilant to understand coverage rules and document findings honestly. The objective is to treat the patient appropriately and honestly report the services performed and the reasons for them so that an accurate coverage determination can be made; even if that determination is that the service is not covered. Documenting falsely for purposes of obtaining coverage where it is not appropriate will always be problematic.




Lee Fifield
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Lee Fifield has a Bachelor of Science in communications from Ithaca College, Ithaca, New York, and has worked as a writer and editor for 17 years.

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