False Claims Act proves difficult to fight

February 1, 2007

The federal False Claims Act (FCA) is the government's primary weapon to combat fraud. It empowers the federal government to file actions against those alleged to have knowingly submitted false or fraudulent claims to the government. Since 1986, the Department of Justice has recovered more than $15 billion under the law.

As a result of the government's power to extract substantial settlements, providers frequently elect to settle an FCA action rather than contest the government's claims.

Recently, one physician was determined to fight the government's allegations and won (United States v. Prabhu). In this case, the doctor's experiences with the government were similar to those that others in healthcare may confront. The government presented him with audit findings indicating that he billed for higher reimbursed services than his peers and, without any additional evidence of misconduct, demanded a substantial repayment. If the government had prevailed on the allegations in its complaint, it would have obtained a judgment of more than $22 million because of the FCA's treble damages and civil penalties provision.

The government, in its rush to file a complaint and increase its settlement leverage, failed to conduct an adequate pre-suit investigation prior to the lawsuit, which, if performed, would have disclosed that its case lacked merit. For example, if the government had studied the regulatory history regarding the treatment in question, it would have learned that for a substantial time period governing the complaint, the treatment was indeed a covered service.

Additionally, if the government had conducted interviews prior to the lawsuit, it would have learned that the doctor had consulted with the Medicare carrier on multiple occasions regarding how to bill for the component parts of a treatment in question and had followed instructions from the carrier.

While this doctor confronted alleged violation of the FCA based upon suspect evidence, the result he received-complete vindication-is uncommon. Frequently, the high costs associated with successfully rebutting the government's claims exceed the amount needed to settle the government's allegations, and thus providers are not prone to litigate.

To mount a successful defense, a defendant must be prepared to attack the government's central claim that defendant submitted "false" claims and that defendant "knew" the claims to be false. As to the "falsity" element, the judge in this case found that a claim is not false if it conforms to the rules and regulations governing the provision of the service. A claim also is not false if reasonable experts can disagree regarding whether the claim is true or false-that is, a claim must be "objectively" false.

As to the FCA's knowledge element, this judge found that the FCA does not extend to honest mistakes, but only to "lies." Thus, the FCA's knowledge element does not apply when a defendant in good faith follows or relies upon the government's instructions in submitting the claim or when a defendant's conduct is consistent with a reasonable interpretation of ambiguous regulatory guidance.

If a defendant pushes the government to prove its case, the government may confront difficulty articulating why any claim is "false" and identifying any evidence that demonstrates that the defendant "knew" the claim to be false.

Barry Senterfitt is a partner in the insurance industry practice of Akin Gump Strauss Hauer & Feld LLP in the firm's Austin, Texas, office.

Robert Salcido is a partner in Akin Gump's Healthcare practice and is based in Washington, D.C.

This column is written for informational purposes only and should not be construed as legal advice.