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Avoiding the Pitfalls of the False Claims Act

December 04, 2012

Arnold I. Menchel, Partner
Halloran & Sage LLP

The federal False Claims Act (“FCA”) dates from the Civil War and until recent times was used against defense contractors who falsely billed the federal government for goods or services. Since the 1980’s, the FCA has predominately come to be used against health care providers. The FCA makes anyone who “knowingly” submits or causes to be submitted a false claim potentially liable for treble damages, costs of investigation and civil penalties of thousands of dollars. “Knowing” is defined to include (a) actual knowledge, (b) deliberate ignorance, or (c) reckless disregard.

In 2009, Connecticut passed its own state version of the False Claims Act limited to programs administered by the Department of Social Services, such as Medicaid.

Before the Affordable Care Act, traditionally an affirmative act triggered potential liability for knowingly submitting or causing to be submitted a false claim. Now, doing nothing may be what puts you on the wrong end of the FCA. Following an amendment contained in Section 6402(a) of the Affordable Care Act, any person (provider or supplier) that receives Medicare or Medicaid payments in excess of the allowed amount must report and refund the overpaid monies within 60 days from the date on which the person identified the overpayment. Failure to do so, makes the person liable under the FCA. “Overpayments” or “reverse false claims” are funds received or retained to which the person is not entitled including, but not limited to, excess payments, payments for noncovered services, duplicate payments, errors and nonreimbursable expenditures.

Under the Affordable Care Act, a person has identified an overpayment if he or she has actual knowledge of the existence of the overpayment, or acts in reckless disregard or deliberate ignorance of the overpayment.

Specifically, if a person receives an overpayment, the person must report and return the overpayment to the Federal government, the State, an intermediary, a carrier or a contractor, as appropriate, at the correct address; and notify such party to whom the overpayment was returned in writing of the reason for the overpayment. Moreover, the overpayment must be returned by the later of the date which is 60 days after the date on which the overpayment was identified or the date any corresponding cost report is due.

The look back period for overpayments is ten years, which is consistent with the ten year maximum time period allowed in the statute of limitations of the FCA.

Given that the Affordable Care Act and the comparable changes in the Connecticut FCA make the amount retained a “false claim,” the potential liabilities listed above apply, e.g., treble damages, cost of investigation, etc.

Another part of the Affordable Care Act may help nursing and skilled nursing facilities identify potential overpayments. Section 6102 requires that within 36 months of the effective date of the Affordable Care Act (March, 2013) nursing and skilled nursing facilities have in operation a compliance program that is effective in preventing and detecting criminal, civil and administrative violations, including overpayments. In satisfying the eight components required to be in the program, the plan should develop monitoring and auditing procedures to detect violations by employees and agents of the facility. The Secretary was supposed to issue regulations by March, 2012 to implement this section, but has not done so, as of the date this article was written. However, facilities would be well advised to begin developing a compliance program that meets the broad outlines of the Act, particularly in light of the Supreme Court’s decision upholding the Affordable Care Act.

All providers should be aware of potential overpayments and will need to act quickly with the assistance of legal counsel and accounting advisors if an overpayment is discovered. Nursing and skilled nursing facilities should also consult legal counsel and their accounting advisors concerning developing and maintaining a compliance program in accordance with Section 6102.

Avoiding the pitfalls of the FCA is a complex task with potentially millions of dollars hanging in the balance. The federal and state governments are not solely looking at the big pharmaceutical manufacturing companies. In September 2012, the United States Department of Justice settled an FCA matter with an oncology group in Georgia for $4.1 million. The State of Connecticut brought its first case under the Connecticut False Claims Act against dental providers not long ago. No one is exempt and every provider should be looking for ways to avoid becoming a respondent in a False Claims matter.

Arnold I. Menchel is the Partner in charge of Halloran & Sage’s Health Care Practice Group with a special emphasis on long term care reimbursement, audits and fraud and abuse issues. For the fifteen years prior to joining Halloran & Sage, Mr. Menchel was the head of the Health Care Fraud/Whistleblower/Health Care Advocacy Department at the Connecticut Attorney General’s Office.


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