Outlook 2014: Feds could get more aggressive with False Claims Act in 2014

As the imperative to clamp down on hospital spending grows, government investigators are likely to start wielding the False Claims Act even more aggressively than in the past.

Federal officials already had frequently touted the law as the most effective tool to fight fraud and overbilling in Medicare and Medicaid because it financially rewards insiders for going public with information about how companies rip off federal programs. But experts say several simmering trends are set to escalate dramatically in 2014 and put the anti-fraud law at the fore. Among these: its increased use in Stark law cases and the new False Claims Act liability under a repayment rule known as the “60-day rule” in the Patient Protection and Affordable Care Act.

The False Claims Act is a federal law that says if an entity is found to have intentionally overbilled a federal program, the government can recoup three times the amount of actual damages, plus penalties of at least $5,500 per violation. In Medicare, each illegal claim for service is considered a violation, and the total value of the paid claims comprises the damages.

This March, a federal court in Orlando, Fla., is scheduled to consider the biggest fraud case ever brought against a hospital, based on the legal theory that a hospital violated the False Claims Act by paying a group of specialist doctors in ways that broke the Stark law, which bans payments to physicians intended to induce referrals of patients.

Prosecutors in the case, U.S. v. Halifax, allege that Halifax Health Medical Center in Daytona Beach, Fla., has total exposure topping $1 billion because more than 75,000 claims were allegedly tainted by the payments. The case follows the U.S. Justice Department's prosecution of South Carolina's Tuomey Healthcare System for similar violations that resulted in a $237 million verdict against the hospital last year.

Troy Barsky, a former CMS policy director who went into private practice last year at Crowell & Moring, said the Justice Department's willingness to pursue huge False Claims cases on physician compensation against hospitals is new. In fact, it has created a great deal of uncertainty among providers who also recognize various financial incentives from the CMS that favor doctor-integration.

The CMS may issue clarifying rules following the Justice Department's aggressive treatment of Halifax. “The question is whether they will say anything, or are they going to let DOJ basically make policy in this area?” Barsky said.

Meanwhile, the CMS is also likely in 2014 to finalize its controversial 60-day repayment rule, which applies False Claims Act liability when healthcare providers discover that they have received an overpayment and do not return the money to the federal treasury within two months. That means the False Claims Act could apply to cases of innocent billing mistakes going back 10 years.

Don Romano, another former CMS attorney who is now with Foley & Lardner in Washington, said CMS officials have predicted that only 10% of providers will comply with the 60-day rule.

“When the final regulations are issued, many providers may be caught unprepared,” he said. “The possible result: a significant uptick in False Claims Act liability and ample breeding ground for employees-turned-whistle-blower to file lawsuits against providers that failed to timely refund internally identified overpayments.”

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