What is the False Claims Act in Healthcare?
The False Claims Act in healthcare is a law that can be used by government agencies to take enforcement action against contractors who knowingly submit false claims, cause another to submit false claims, or knowingly make a false record or statement to get a false claim paid by a federal healthcare program. False Claims Act healthcare complaints can also be filed against contractors who fail to return Medicare and Medicaid overpayments.
The False Claims Act was enacted in 1863 “to prevent and punish frauds upon the Government of the United States”. The Act was introduced with the intention of stopping dishonest contractors selling faulty supplies and equipment to Union troops during the Civil War. Significantly, the Act included a “qui tam” provision which permits private citizens to sue dishonest contractors on behalf of the government and retain a percentage of the proceeds.
Despite the availability of the Act, successive Attorneys General mostly ignored it – preferring instead to pursue criminal prosecutions against dishonest contractors rather than civil prosecutions. This led to an industry in which “enterprising” private citizens would wait for an Attorney General to file a criminal indictment against a government contractor, and would then file a civil qui tam False Claims Act lawsuit against the same contractor.
The practice continued until 1943 when Attorney General Francis Biddle raised concerns to Congress that the number of qui tam lawsuits against Department of War and Department of Navy contractors was damaging the war effort. Congress agreed, and effectively killed off the qui tam provisions of the False Claims Act by adding conditions to private civil actions and by making it less profitable for private citizens to file lawsuits against dishonest contractors.
Medicare, Anti-Kickback Legislation, and the HHS OIG Exclusion List
In 1965, President Lyndon Johnson signed the Social Security Amendments Act into law. This Act led to the creation of Medicare and Medicaid which provided health insurance for people aged 65 and older, and for qualifying adults and children with limited incomes. Unfortunately, the creation of the Medicare and Medicaid programs also created new opportunities for dishonest contractors to defraud the government by making false claims for payment.
In the late 1960s, there were several failed attempts to mitigate the volume of healthcare fraud. However, in 1972, Congress added an Anti-Kickback Statute to the Social Security Act. This statute – and the Stark Law of 1988 – helped mitigate fraud in federal healthcare programs by prohibiting the “knowing and willful receipt or payment of anything of value to influence the referral of federal health care program business [to a particular healthcare service or supplier]”.
Further amendments to the Social Security Act in 1972 permitted the Secretary for Health and Human Services (HHS) to withhold payments to contractors found guilty of fraud; while the introduction of the HHS OIG Exclusions List in 1977 authorized HHS’ Office of Inspector General to exclude contractors from all publicly funded healthcare programs (although this option was not effectively enforced until after the passage of HIPAA due to a lack of resources).
False Claims Act Given New Lease of Life to Tackle Fraud
Ironically, the False Claims Act was not given a new lease of life with the intention of tackling healthcare fraud, but rather to address fraud in defense spending. By 1985, four of the largest five defense contractors had been convicted of criminal fraud offenses, and forty-five of the one hundred largest defense contractors were under investigation for multiple fraud offenses. At the same time, HHS’ Office of Inspector General was overwhelmed with allegations of healthcare fraud.
To address the increasing volume of fraud against the government, Congress reversed many of the First Claims Act amendments introduced in 1943, increased the fines for violations and introduced whistleblower protections to encourage qui tam lawsuits. The impact was almost immediate. In 1985, the Depart of Justice recovered $54 million in False Claims actions. By 1991, recoveries amounted to $341 million – the majority attributable to qui tam lawsuits.
At the start of the 1990s, False Claims Act defense cases outnumbered False Claims Act healthcare cases by four to one. However, the ratio was reversed by the end of the century due to the establishment of the Health Care Fraud and Abuse Control (HCFAC) program in Title II of HIPAA. The program funded both the HHS’ Office of Inspector General and the Department of Justice to investigate allegations of healthcare fraud and prosecute dishonest contractors.
Subsequent Updates to the False Claims Act in Healthcare
Subsequent updates to the False Claims Act in healthcare were included in the Fraud Enforcement and Recovery Act of 2009 (FERA), the American Recovery and Reinvestment Act of 2009 (ARRA), and the Affordable Care Act 2010 (ACA). Between them, the updates expanded the scope of False Claims Act healthcare violations and made it easier to file a qui tam lawsuits if the federal government pays – or is asked to pay – any part of a fraudulent healthcare claim.
The FERA and ACA amendments also require contractors to report and return any overpayments received from a federal healthcare program within sixty days of identifying the overpayment. Contractors who conceal or avoid repaying an overpayment within the time limit are in violation of the “reverse false claims” provisions of ACA. A violation of this nature can incur penalties per claim plus the requirement to pay three times the original overpayment in damages.
For False Claims Act healthcare violations, the penalties for civil violations increase each year to account for inflation. In 2024, the minimum and maximum civil penalties per violation are set at $13,946 and $27,894 respectively. Prosecutors can also pursue criminal charges with fines of up to $500,000 per violation plus jail sentences of up to five years per violation – or more if a contractor is charged with conspiracy to defraud the U.S., wire fraud, or other federal crime.
The False Claims Act in Healthcare Post Escobar
The measures that made it easier to file qui tam lawsuits had the unintended consequences of opening a floodgate of lawsuits alleging violations of the False Claims Act based on the “implied false certification” theory. This theory argues that, when a contractor sends a claim for payment to a federal healthcare program, the contractor is falsely certifying by implication they comply with the necessary regulations for the contractor to participate in the federal healthcare program.
This theory led to qui tam lawsuits being filed for violations of regulations unrelated to the claims for payments – for example, violations of the conditions for participation in Medicare. The question of whether a minor violation of an unrelated regulation triggered False Claims liability divided many courts until the Supreme Court’s 2016 opinion in the implied false certification case of Universal Health Services v. United States, ex rel. Escobar (“Escobar”).
Finding in favor of whistleblowers Julio Escobar and Carmen Correa, the Supreme Court stated that, in order to demonstrate False Claims liability, a qui tam lawsuit must demonstrate a misrepresentation “material to the government’s payment decision”. This will make it easier for courts to dismiss False Claims Act healthcare lawsuits when the alleged reason for a claim being fraudulent is unrelated to the goods or services provided to the healthcare program.
What is a False Claim in Healthcare?
A false claim in healthcare that triggers False Claims liability is generally regarded to be any claim submitted to a federal healthcare program that the person responsible for submitting the claim “knows” is false or fraudulent. However, a false claim in healthcare can also be attributable to a person making another person submit a false or fraudulent claim, or making a false record or statement in support of a false or fraudulent claim in healthcare.
In addition to the “overpayment” violation introduced by FERA and ACA, a false claim in healthcare can be triggered by a person failing to repay the full amount owed to the government, a person falsely certifying that funds provided by a federal healthcare program have been used for their intended purpose, and/or evidence of a conspiracy to violate the False Claims Act. These triggers are all subject to proof that the person(s) “knew” they were violating the law.
Importantly the definition of “know” (or “knowingly”) in the False Claims Act does not only mean “has actual knowledge of [i.e., a claim being false]”. It can also be interpreted as “acts in deliberate ignorance of [the False Claims Act in healthcare]” or “acts in reckless disregard of [the False Claims Act in healthcare]”. This means that a qui tam lawsuit or federal investigation into a false claim in healthcare does not have to demonstrate proof of specific intent to defraud.
Examples of False Claims Act Healthcare Complaints
Enforcement actions against False Claims Act healthcare complaints can be taken by HHS’ Office of Inspector General, the Department of Justice, State enforcement agencies, or by private citizens in qui tam lawsuits not supported or otherwise pursued by a federal agency. Consequently, there are many sources from which it is possible to find examples of False Claims Act healthcare complaints.
The best source of examples is the Enforcement Actions page of the HHS OIG website. Although this source lists all HHS OIG enforcement actions (i.e., not just those for violations of the False Claims Act in healthcare), the examples of False Claims Act healthcare complaints most often show the outcomes of the complaints as well. Further information about each of the examples listed below can be found by clicking on the appropriate link.
$26 Million Judgement for Fake and Unnecessary COVID Tests
In July 2024, the Maryland District Court entered default judgments totaling more than $26 million against Patrick Britton-Harr. The False Claims Act healthcare complaint alleged Britton-Harr had billed Medicare for medically unnecessary COVID tests and tests that had been conducted on deceased beneficiaries. Further information.
4 Years for Medically Unnecessary Foot Bath Medications
In June 2024, a Tennessee podiatrist – Nathan Lucas – was sentenced to four years in prison for prescribing and dispensing medically unnecessary foot bath medications and obtaining more than $3 million in reimbursements from Medicare and TennCare – a Medicaid program administered by the State of Tennessee. Further information.
$27 Million Settlement for Unnecessary Cancer Tests
In May 2024, Daniel Hurt – the owner of multiple health service providers – agreed to pay more than $27 million to resolve False Claims Act healthcare complaints that he and his companies conspired to submit false claims to Medicare for unnecessary cancer tests. The companies were also added to the HHS OIG Exclusions List. Further information.
Settlement for Writing Prescriptions that Lacked a Legitimate Purpose
In April 2024, a family doctor from Pocatello, Idaho, agreed to pay $96,000 to resolve allegations that he wrote prescriptions for controlled substances that lacked a legitimate medical purpose and billed Medicare and Medicaid for services that were not performed. The doctor’s DEA registration was also restricted for five years. Further information.
9 Years for Orchestrating Massive Medicare Fraud
In March 2024, Andrew Chmiel was sentenced to nine years in prison for orchestrating a massive Medicare Fraud scheme related to the payment of kickbacks and bribes in exchange for unnecessary durable medical equipment orders. The scheme cost Medicare more than $95 million – which Chmiel has been ordered to repay. Further Information.
Guidance for Healthcare Compliance Programs
In November 2023, HHS OIG published Guidance for Healthcare Compliance Programs (PDF) which includes information about the False Claims Act in healthcare and other measures introduced to mitigate fraud, waste, and abuse. The publication also includes information about HIPAA compliance, the “Seven Elements of a Compliance Program”, and how smaller organizations can adapt the guidelines to suit their own healthcare compliance program.
It is important to be aware that HHS OIG acknowledges the guidance is not a one-size-fits-all model compliance program and does not take into account industry-specific cybersecurity performance goals due to be announced later this year. Individuals and organizations in the healthcare sector who require assistance applying the HHS OIG’s guidance to their existing compliance efforts are advised to seek independent advice from a compliance professional.
