Fundamentals Of The Civil False Claims Act And Qui Tam by jolinmilioncherie

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									                    False Claims Act Fundamentals and Compliance:
            New Requirements and New Challenges for the Health Care Industry

Robert T. Rhoad, Esq., Crowell & Moring LLP

I.     INTRODUCTION

       A.      Background

        The federal civil False Claims Act, 31 U.S.C. §§ 3729 – 3733 (2006) (“FCA” or the
“Act”) (attached as Appendix A), which is sometimes referred to as the “Lincoln Law” or
“Informer’s Act,” was enacted by Congress in 1863 to respond to allegations of fraud on the
government during the Civil War. At its core, the FCA prohibits the knowing submission of
false claims for payment, the knowing use of false records or statements to get such claims paid,
the knowing and improper retention of money where federal funds are involved, and conspiring
towards these ends. 1

        Use of the FCA fell into abeyance following the Civil War, but the Act regained
prominence after significant amendments in 1986, which increased incentives and lowered
burdens for enforcement. Federal programs have expanded exponentially since the original
enactment, and opportunities for perceived abuse of government funds have likewise increased.
This is particularly true as government funds are typically accompanied by many statutory and
regulatory requirements that expand exposure for potential abuse. FCA defendants are, in
addition to facing potential suspension and debarment from federal programs, subject to treble
damages, 2 penalties of between $5,500 and $11,000 per violation (above the damages subject to
the FCA’s trebling provision), 3 and attorneys’ fees and costs to successful plaintiffs who bring
suit under the FCA’s qui tam provisions. 4 These qui tam provisions permit private individual
plaintiffs – colloquially called “whistleblowers” and referred to under the FCA as “relators” – to
bring FCA lawsuits “for the person and for the United States Government,” in the name of the
United States. 5

       B.      Recent Amendments To The FCA

               1.     Patient Protection and Affordable Care Act

        On March 23, 2010, President Obama signed into law the Patient Protection and
Affordable Care Act (“PPACA”), 6 which significantly expands fraud and abuse exposure for
health care entities under the FCA. Media coverage of the PPACA generally centered around its
potential impact on the nation’s health care financing and delivery systems, but the PPACA also
contains language that expands the role of so-called “whistleblowers” to bring lawsuits under the
FCA’s qui tam provisions. Principally, the PPACA limits the FCA’s public disclosure
jurisdictional bar, which had been a key defense against parasitic whistleblower lawsuits.

               2.     Fraud Enforcement and Recovery Act of 2009




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         The PPACA’s FCA-related provisions came in the wake of and augmented sweeping
substantive and procedural amendments to the FCA through passage of the Fraud Enforcement
and Recovery Act of 2009 (“FERA”). 7 FERA’s amendments to the FCA were purportedly
designed to combat mortgage and financial frauds, but they apply to all industries including
government contracting and health care payment. The amendments affect any business,
institution, contractor, grantee, or individual who does business with the government or receives
government funds.

        Together, the FERA and the PPACA exponentially expand FCA liability exposure for
any health care entity that either directly or indirectly receives federal funds through
participation in federal programs such as Medicaid and Medicare. They also expand the
government’s power to investigate and prosecute FCA cases and increase opportunities and
incentives for whistleblowers to initiate such actions.

               3.     Impact and Effective Date of Amendments’ Application

         The effects of the FERA’s and the PPACA’s amendments on FCA enforcement have not
yet been fully realized. It is clear that these amendments will fuel attempts to broaden the FCA’s
liability provisions to cover more funds and potential defendants while, at the same time, limiting
defenses to FCA suits. It should be noted that, generally, the FERA’s amendments to the FCA’s
liability provisions became applicable upon the FERA’s date of enactment – May 20, 2009. 8
Also, importantly, because of the FCA’s long statute of limitations, the pre-FERA version of the
FCA will continue to be applied for the foreseeable future in litigation that is based on conduct
predating the 2009 amendments. 9

       C.      Important Features Of The FCA

               1.     Enormous Economic Liability

        Violations of the FCA give rise to enormous potential economic liability. Damages
under the FCA are subject to mandatory trebling. 10 In addition, each alleged false claim is
subject to an assessment of a $5,500 to $11,000 penalty in addition to trebled damages. 11
Whether an FCA suit is initiated by the government or by a qui tam relator, the liability, damages
and penalties provisions remain the same. Defendants are also liable for a relator’s attorneys’
fees and costs. 12

               2.     Qui Tam Enforcement

         The FCA can be enforced, not only through the federal government, but also through the
use of private plaintiff “whistleblowers” referred to as qui tam “relators” under the FCA. 13 The
1986 FCA amendments significantly strengthened the rights of relators and substantially
increased the bounties that a successful relator may receive. As discussed herein, a successful
relator is entitled to a share of up to 30% of any damages (as trebled under the FCA’s mandatory
provisions) and penalties awarded as well as attorneys’ fees and costs. Also, a relator who brings
an FCA retaliation claim can receive reinstatement, double back pay and interest, and additional




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remedies. The potential for such awards has dramatically increased the incentives for relators to
file suit under the FCA’s qui tam provisions.


               3.     State False Claims Law Enforcement

         In addition to potential liability under the federal FCA, a number of state and local
governments have adopted their own false claims laws, with qui tam enforcement provisions. In
the past, state false claims laws have varied considerably, but now, most such laws closely
follow the federal FCA due to incentives allowing states to be eligible for economic benefits
under the Deficit Reduction Act of 2005 (“DRA”). 14 In addition to the District of Columbia and
the cities of New York and Chicago, the following states have their own versions of the FCA,
with qui tam provisions, enabling them to recover government funds at the state and/or
municipal level: California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Illinois,
Indiana, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Montana, Nevada, New
Hampshire, New Jersey, New Mexico, New York, North Carolina, Oklahoma, Rhode Island,
Tennessee, Texas, Virginia, and Wisconsin. 15

               4.     What Is Not Covered By The FCA

        The FCA does not cover claims related to federal tax returns. 16 This FCA “tax bar” has
been held to apply broadly to situations whenever a false claim is made or a benefit is procured
under the Internal Revenue Code, and is not limited to false income tax claims. 17 It should be
noted, however, that some state false claims laws do not have such exemptions. 18

II.    LIABILITY UNDER THE CIVIL FCA

        Under the FERA amendments, the FCA’s primary liability provisions were revised and
renumbered. They are now in 31 U.S.C. §§ 3729(a)(1)(A) - (G). Previously, these liability
provisions were in 31 U.S. C. §§ 3729(a)(1) – (7). The four most commonly invoked sources of
FCA liability are discussed in the next sections, followed by a detailed discussion of the
individual elements of FCA liability (e.g., person, claim, falsity, knowledge, materiality,
obligation, damages, etc.).

       A.      “Direct” False Claims – Section 3729(a)(1)(A)

      Section 3729(a)(1)(A) of the FCA establishes liability for “direct” false claims for
payment or approval. Specifically, it provides that:

               Any person who –

               knowingly presents, or causes to be presented, a false or fraudulent
               claim for payment or approval … is liable to the United States
               Government.

       Thus, liability for direct false claims may be imposed upon:



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               any “person”
               who “presents,” or causes another person to present
               a “claim” for payment or approval
               that is “false or fraudulent”
               “knowing” that the claim is false.

       B.       False Records or Statements – Section 3729(a)(1)(B)

       Section 3729(a)(1)(B) of the FCA establishes liability for making false records or false
statements to support a false claim. Specifically, it provides that:

                Any person who –

                knowingly makes, uses, or causes to be made or used, a false
                record or statement material to a false or fraudulent claim … is
                liable to the United States Government.

       Thus, liability for claims related to false records or statements may be imposed upon:

               any “person”
               who “knowingly” makes or causes to be made
               a “false record” or statement
               “material” to a false or fraudulent claim.

        Because Section 3729(a)(1)(B) requires a false record or statement to be material to a
“false claim,” the predicate to a finding of liability under Section 3729(a)(1)(B) is a violation of
Section 3729(a)(1)(A) (i.e., the “direct” false claims provision). Accordingly, all of the elements
of Section 3729(a)(1)(A) are required in addition to the elements of Section 3729(a)(1)(B) to
establish liability under Section 3729(a)(1)(B). 19

       C.       “Reverse False Claims” – Section 3729(a)(1)(G)

        Section 3729(a)(1)(G) of the FCA, which is commonly referred to as the “reverse false
claims provision,” establishes liability for false records or statements material to an “obligation”
to pay or transmit money or property to the government, or for concealing, avoiding, or
decreasing an obligation to pay the government. As discussed herein, this section has broad
applicability to health care providers, plans, and payors. Specifically, it provides that:

                Any person who –

                Knowingly makes, uses or causes to be made or used, a false
                record or statement material to an obligation to pay or transmit
                money or property to the Government, or knowingly conceals or
                knowingly and improperly avoids or decreases an obligation to pay



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                or transmit money or property to the Government … is liable to the
                United States Government.

       In essence, there are two separate bases for reverse false claims liability – one, which
involves the use or making of a false record or statement, and, a second (a result of FERA’s
amendments), which imposes FCA liability for simply “knowingly” concealing or “knowingly
and improperly” avoiding an obligation to pay the government funds.

         As to the former basis for reverse false claims liability, which requires an affirmative act
(e.g., a false record or statement), liability may be imposed upon:

               any “person”
               who “knowingly” makes, uses, or causes to be made or used
               a “false” record or statement
               “material” to
               an “obligation” to pay or transmit money or property to the federal government.

       As to the latter basis for reverse false claims liability, which does not require an
affirmative act, liability may be imposed upon:

               any “person”
               who “knowingly” conceals, or “knowingly and improperly” avoids or decreases
               an “obligation” to pay or transmit money or property to the federal government.

         In the health care industry, reverse false claims liability may be imposed, inter alia, upon
health care providers engaged in federal health programs such as Medicaid or Medicare. Under
these programs, federal funds are distributed to providers periodically throughout the fiscal year
and, at the end of the year, a cost reporting process is used through which a final reconciliation of
the accounts are made. In essence, if the government has overpaid a provider, the provider may
be required to remit the difference to the government under various scenarios. If a provider who
was overpaid by the government knowingly makes, uses, or causes to be made or used a false
record or statement indicating that it was not overpaid and does not owe any money to the
government, such a record or statement could constitute a “reverse false claim” assuming other
liability elements are proven. As discussed above, however, reverse false claims liability may
also attach even if no affirmative act is taken by the provider (e.g., a false record or statement)
where the provider knowingly conceals or knowingly and improperly avoids or decreases an
obligation to pay or transmit money or property to the government. As discussed below, reckless
disregard can constitute “knowingly,” so even a failure to have adequate compliance and
accounting systems in place could trigger reverse false claims liability if overpayments are not
promptly identified and returned.

       D.       Conspiracy – Section 3729(a)(1)(C)

        Section 3729(a)(1)(C) of the FCA establishes liability for conspiring to commit a
violation of Sections 3729(a)(1)(A) through (G). Specifically, it provides that liability may be
imposed upon:


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                Any person who –

                conspires to commit a violation of subparagraph (A), (B), (D), (E),
                (F) or (G).

       Thus, liability attaches to:

               any “person”
               who enters an “agreement” with another to do something that would violate
                Sections 3729(a)(1)(A) through (G)
               “acts in furtherance of” the agreement
               with the “specific intent to defraud.”

III.   KEY FCA TERMS

       A.       “Persons” Subject To Liability Under the False Claims Act

                1.     Real Persons and Corporate Entities

        The FCA, including Section 3729(a), which establishes liability, does not define the term
“person.” Thus, case law has defined this term. Most courts have interpreted the term “person”
to impose liability upon virtually any individual or corporate entity. 20 Also, with respect to
entities that contract with the government, it is important to note that subcontractors and vendors
– and not just prime contractors – may be subject to liability under the FCA.

        The FCA does not require privity of contract between the government and the defendant
in order for FCA liability to attach. A defendant (e.g., subcontractor or vendor) who causes
some third party (e.g., prime contractor) to submit direct false claims to the government may be
liable under the FCA. Recent changes to the FCA by the FERA expand this reach. For example,
the FERA amendments eliminate the FCA intent requirement – i.e., that an FCA defendant make
or use a false record or statement to get a false claim paid or approved by the government. As
discussed infra, FCA liability may attach if the defendant knowingly makes or uses a false record
or statement to support a false claim and that claim is paid with government funds.

                2.     Governmental Entities

                       a.      Federal Government Agencies and Employees

      Federal government agencies are not “persons” subject to the FCA. 21 Federal
government employees, however, may be subject to FCA liability under certain circumstances. 22

                       b.      States and State Entities

       The Supreme Court’s decision in Vermont Agency of Natural Res. v. United States ex rel.
Stevens 23 resolved a split among courts as to whether states and state entities were “persons”


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subject to qui tam liability under the FCA. Up until this decision, most courts held that states
and state entities were persons. In resolving the split, the Court held that “the False Claims Act
does not subject a State (or state agency) to liability in such actions.” 24

         The question of whether states and state agencies can be “persons” and subject to FCA
liability in actions brought by the federal government remains in dispute. In a concurring
opinion in Stevens, the Court’s decision was interpreted “to leave open the question whether the
word person encompasses States when the United States itself sues under the False Claims
Act.” 25 The question of whether states and state entities can qualify as “persons” who may bring
suit under the FCA also remains unanswered. 26

                       c.      Local Governments

        Following Stevens, the Supreme Court’s decision in Cook County, Illinois v. United
States ex rel. Chandler, 27 resolved a circuit court split regarding the issue of whether non-federal
or state agencies, such as local governments, municipalities, and county governments, are
“persons” subject to FCA liability. In Chandler, the Court drew upon its decision in Stevens,
wherein the Court had noted that the FCA’s treble damages are “essentially punitive in nature,” 28
and that subjecting state entities to qui tam FCA liability was contrary to the general presumption
against imposing punitive damages on state governmental entities. The Court in Chandler
concluded, however, that the Act has remedial qualities as well, and the presumption against
imposing punitive damages on governmental entities was not enough to overcome the
determinations that Congress originally intended to include municipalities within the reach of the
FCA. Further, it made this conclusion despite Congress’ 1986 amendments to the FCA, which
allowed for treble damages considered “punitive” in nature, by determining that those
amendments could not be construed to constitute an explicit or implied repeal of the FCA’s
inclusion of municipalities as “persons” subject to liability. 29 Accordingly, under current law,
local governments are and remain “persons” that may be sued under the FCA by either the
government itself or by qui tam relators.

                       d.      Official Immunities

        Federal and certain state government employees, 30 as well as even certain agents of the
federal government are protected by official immunities from FCA liability in some
circumstances. In the health care context, Medicare fiscal intermediaries (potential agents of the
federal government), have been granted official immunity from FCA liability in some cases, but
not in others. 31

       B.      “Claim”

        As amended by FERA, the FCA defines “claim” in Section 3729(b)(2) to include
requests for funds to a contractor, grantee, or other recipient, if the money or property requested
“is to be spent or used on the Government’s behalf or to advance a Government program or
interest.” The prior definition of “claim” covered claims to contractors, grantees, and other
recipients, but the amended definition of “claim” appears also to include claims submitted to
non-governmental entities such as Amtrak or international groups such as the Coalitional



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Provisional Authority. Also, the amended definition is much broader as it specifically includes
funds to which the government no longer holds title and funds provided by the government even
before a “claim” is submitted. The key limitation, however, is that the requested funds must be
spent on the government’s behalf or in furtherance of a government program or interest.

       C.      “Falsity”

        The sine qua non for FCA liability is, of course, a claim that is “false.” The question of
when a claim is “false” within the meaning of the FCA has engendered much litigation, many
judicial opinions, and an ongoing debate. Whether a claim is “false” typically depends on
interpretation of the statutes, regulations, and contract terms establishing the conditions for the
government’s payment to the defendant. Thus, “falsity” requires a case-specific analysis, but
some generalizations can be drawn from key cases.

        It should be made clear that technical violations of federal laws and regulations do not, in
and of themselves, render a claim “false.” Such violations must be “material” to the payment
decision and some courts require the payment to have been explicitly conditioned by the
government on the defendant’s compliance with the relevant laws or regulations and an explicit
and false certification/representation by the defendant that it has complied with those laws,
regulations, and/or other requirements. 32 Other courts have more relaxed requirements and
allow FCA liability to be imposed under theories of implicit (vs. explicit) and general (vs.
specific) certifications. 33

        Also, disputes or disagreements related to matters that are the subject of legitimate
scientific dispute are not “false” under the FCA, nor are estimates in most situations. There is
also a growing body of case law to support the argument that claims are not “false” where a
defendant reasonably interprets the relevant regulation, statute, or contract to allow the claim or
to support a certification.

       D.      “Knowingly”

        “Knowingly” is now defined under Section 3729(b) of the FCA to include “actual
knowledge of the information,” actions taken “in deliberate ignorance of the truth or falsity of
the information,” and actions taken “in reckless disregard of the truth or falsity of the
information.” In defining “knowingly,” the FCA now makes clear that “no proof of specific
intent to defraud” is required. 34

        While “actual knowledge” can be easily understood, the terms “deliberate ignorance” and
“reckless disregard” are subjective concepts and are not easily defined. Nonetheless, the fact
remains that the government’s FCA enforcement efforts will be targeted at all who “knowingly”
violate the FCA. The Government will likely attempt to expand “deliberate ignorance” and
“reckless disregard” to encompass many circumstances. In the health care industry, it will likely
look closely at companies that are alleged to have made false submissions to the government or
improperly retained funds and, even if the government cannot demonstrate actual knowledge of
falsity of the submissions or the knowingly improper retention of funds, it may seek to show that
compliance, accounting and other processes in place are so infirm as to constitute deliberate



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ignorance or reckless disregard. In essence, that a company knew or should have known that its
compliance and accounting systems are outdated and/or ineffective and has done nothing to
correct the situation.

         It is safe to say that “reckless disregard” is more than mere negligence, or even “gross
negligence.” The Supreme Court has held that the reckless disregard standard is an objective
one. In Safeco Insurance Co. v. Burr 35 the Court found that a defendant’s incorrect
interpretation of an ambiguous provision, if reasonable, does not provide a basis for liability
unless there was an unjustifiably high risk of violating the statute. 36 And, in following Safeco,
the D.C. Circuit, in United States ex rel. K & R Ltd. Partnership v. Massachusetts Housing
Finance Agency, applied the definition of reckless disregard from the Safeco decision to an FCA
case. 37

       E.      “Materiality”

        “Material” is now defined as “having a natural tendency to influence, or be capable of
influencing, the payment or receipt of money or property.”38 Although being “capable of
influencing” is broadly applicable, many courts have held that the materiality requirement
strongly limits FCA liability to false statements that directly affect the government’s payment
decision. Moreover, many courts have held that violations of conditions of participation in
federal health care programs do not, themselves, result in FCA violations.

        In United States ex rel. Conner v. Salina Regional Health Center, 39 the Tenth Circuit
held that sweeping, general certifications made with an annual cost report, were not specific
conditions of payment, but could affect program participation. Likewise, in United States ex rel.
Landers v. Baptist Memorial health Care Corp., 40 the court found that there was no evidence
showing that noncompliance with Medicare’s conditions of participation would make the
defendants ineligible for payment or lead to the nonpayment the Medicare claims at issue.

       F.      “Obligation”

       “Obligation” is now defined in Section 3729(b)(3) as:

               an established duty, whether or not fixed, arising form 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.

        From this definition, it is understood that reverse false claims liability under Section
3729(a)(1)(G) may be based on an established duty arising from a contractual, grant, or license
relationship. What is more difficult to understand is how a duty arises from the retention of an
overpayment and when it becomes an “established” duty. This definition and related
amendments are of great cause for concern for those in the health care industry in part, because
of the payment and reconciliation process involved with state-administered Medicaid programs.
Some effort was made to put health care entities at ease, however, in the Senate Report related to
the amended language. It explained that the statutory language was not intended “to create



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liability for a simple retention of an overpayment that is permitted by a statutory or regulatory
process for reconciliation.” 41

IV.    FCA DAMAGES AND PENALTIES

       A.      Damages

        The FCA expressly states that damages are an “essential element[] of the cause of
action.” 42 Regardless, most courts have held that liability may arise even in the absence of
actual damages. In some such cases, the courts focus on intangible injuries and note that FCA
penalties may be imposed even in the absence of damages.

      The measure of damages in an FCA case is simple: the difference between what the
government actually paid and what it should have paid absent the alleged FCA violation. FCA
damages must be proven by the preponderance of the evidence. 43

       B.      Penalties

        Generally, the FCA provides for penalties of $5,500 to $11,000 per claim. 44 Most courts
view the penalty provisions to be mandatory once liability is established, although some courts
have exercised discretion. In United States v. Mackby, 45 a panel of the Ninth Circuit concluded
that FCA penalties – along with damages – are punitive and subject to Eighth Amendment
limitations. Under the Supreme Court precedent addressing the Eight Amendment, a court
imposing damages and penalties under the FCA should consider the proportionality of the
forfeiture relative to actual damages, if any, sustained by the government.

V.     FCA QUI TAM PROVISIONS

       A.      Qui Tam Procedures

        The FCA’s qui tam provisions require a relator to file the complaint under seal, and give
the government 60 days to investigate the relator’s allegations and determine whether to
intervene in and take over the action. 46 Extensions of the government’s investigatory period are
routinely granted by courts and, after the government fully investigates the allegations – which
may take years – it has several options. The government may: (1) notify the court that it will
intervene in the suit and take over responsibility for the litigation; 47 (2) formally decline
intervention, thus allowing the relator to conduct the litigation on his or her own; 48 (3) move to
dismiss the litigation, even over the relator’s objection; 49 or (4) seek to settle the case. 50

         If the government elects to intervene in the suit, it then takes over control and,
importantly for the relator and his or her counsel, the bulk of the work and costs attendant to the
litigation. If the government declines intervention, then the FCA allows the relator to continue
the litigation without the active participation and financial support of the government. Once the
government makes its decision and determines whether to intervene in the case, the case is
unsealed and the litigation – regardless of the government’s election – proceeds very much like
any other case under the Federal Rules of Civil Procedure.



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       B.      “Public Disclosure”

        The public disclosure bar originally removed a court’s jurisdiction to hear an FCA
lawsuit in which a whistleblower based it on “the public disclosure of allegations or transactions
in a criminal, civil, or administrative hearing, in a congressional, administrative, or Government
Accounting Office report, hearing, audit or investigation, or from the news media.” 51 The only
redemption for a relator bringing a suit based on such publicly-disclosed allegations was to
demonstrate that he or she was an “original source” of the information that had been made public
– “an individual who has direct and independent knowledge of the information on which the
allegations are based” 52 – and it was the relator’s burden to demonstrate that subject-matter
jurisdiction existed in a FCA suit with any doubts to be resolved against federal jurisdiction. 53

       The public disclosure bar, which was enacted as part of the 1986 amendments to the FCA
provided in relevant part:

               Certain actions barred:

               (4)(A) No court shall have jurisdiction over an action under this
               section based upon the public disclosure of allegations or
               transactions in a criminal, civil, or administrative hearing, in a
               congressional, administrative, or Government Accounting Office
               report, hearing, audit or investigation, or from the news media,
               unless the action is brought by the Attorney General or the person
               brining the action is an original source of the information.

               (B) For purposes of this paragraph, “original source” means an
               individual who has direct and independent knowledge of the
               information on which the allegations are based and has voluntarily
               provided the information to the Government before filing an action
               under this section, which is based on this information. 54

       In essence, the PPACA converts the public disclosure bar from an absolute jurisdictional
prohibition to a more flexible standard, which directs that:

               (4)(A) The court shall dismiss an action or claim under this
               section, unless opposed by the Government, if substantially the
               same allegations or transactions as alleged in the action or claim
               were publicly disclosed –

               (i)    in a Federal criminal, civil or administrative hearing in
               which the government or its agent is a party;

               (ii)   in a Congressional, Government Accountability Office, or
               other Federal report, hearing, audit or investigation; or




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               (iii)   from the news media,

               unless the action is brought by the Attorney General or the person
               bringing the action is an original source of the information. 55

        While the fundamentals of the prior version of the public disclosure bar remain intact as
the new provisions under the PPACA require a court to dismiss a whistleblower’s qui tam suit if
the allegations were “publicly disclosed,” unless the relator is an “original source” of the
allegations, the grounds for dismissal under the new provisions are significantly curtailed. This
is because: dismissal is not required if the government opposes it; only federal hearings in which
the government “or its agent” is a party are considered public disclosures of qui tam allegations;
and only a federal report, hearing, audit, or investigation qualifies as a public disclosure. The
PPACA’s amendment to the FCA makes clear that public disclosure resulting from a
government report, hearing, audit or investigation, must be from a federal government source in
order to trigger the public disclosure bar. State and local governmental reports, hearings, audits
or investigations no longer qualify as they did under the FCA prior to amendment by the
PPACA.

        This change in the law effectively undercuts what would have been important precedent
for FCA defendants in a case decided by the United States Supreme Court just one week after the
PPACA’s enactment. In Graham County Soil and Water Conservation District v. U.S. ex rel.
Wilson, 56 the Court, in a 7-2 decision, resolved a circuit-split by holding that whistleblowers
cannot file qui tam actions under the FCA based on information that is publicly available in state
and local administrative reports, audits, and investigations. The Court recognized that its
decision would have little impact going forward in light of the PPACA, but also made clear that
its decision will still apply to cases pending at the time the PPACA was enacted. 57 Therefore,
current FCA defendants facing qui tam allegations derived from state or local administrative
sources still can invoke the public disclosure bar to contest such allegations in an effort to
dismiss the action. Of course, this provides only a modicum of solace as it is likely that, going
forward, there will be a rise in parasitic whistleblower suits based on state or local government
disclosures that would otherwise have been barred.

       C.      Relator Recoveries (General)

        The financial incentives for bringing a whistleblower action are enormous for relators. If
a settlement or judgment is obtained, the relator is entitled up to 25% of the government’s
recovery (typically comprised of treble damages and penalties) if the government intervenes, and
up to 30% if the government declines to intervene and the relator proceeds alone. 58 In addition,
a relator may recover attorneys’ fees and costs 59 and, if the action includes a retaliation count, a
successful relator may also be entitled to double back pay with interest, reinstatement of
employment at the same status, and other relief. 60 Relators’ counsel often reap their own
rewards – typically, a contingent fee in the 30% range of the relator’s share of the government’s
recovery, plus attorneys’ fees and costs.

               1.      Relator’s Share




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        Assuming the relator has not participated in the alleged fraud, if successful, he or she is
entitled to be awarded between 15 and 25% of the proceeds of their qui tam suit if the
government intervenes and between 25 and 30% in cases where the government declines
intervention and the relator pursues litigation alone. Relators who participated in the fraud, if not
actually convicted of criminal charges related to the fraud, may still recover a bounty with the
court having discretion to reduce the relator’s award under such circumstances.

                2.     Attorneys’ Fees And Costs

        Under the FCA, a successful relator is entitled to the award of reasonable attorneys’ fees
and costs. 61 Importantly, these amounts are in addition to the 15 to 30% of damages and
penalties that the relator is eligible to receive. And many relators’ counsel enter into contingency
fee agreements with their clients, which permits both a percentage recovery for attorneys’ fees in
addition to a recovery of actual fees.

         A FCA defendant, however, is only eligible for recovery of attorneys’ fees and costs
under limited circumstances. If the government intervened and litigated the case, some
defendants with relatively small net worth may seek fees and costs from the government under
28 U.S.C. § 2412(d). If the government declines to intervene in a case and it is litigated by a
relator, a prevailing defendant may pursue recovery of attorneys’ fees and costs only where the
claim was “clearly frivolous, clearly vexatious, or brought primarily for purposes of
harassment.” 62

       D.       Relator Recoveries (“Whistleblower” Retaliation)

       Section 3730(h) of the FCA was enacted with the 1986 amendments, which provided
remedies for persons wrongfully discharged or otherwise discriminated against in their
employment because of “lawful acts done in furtherance of” an FCA action.

       Thus, under the 1986 retaliation provision, in order to establish a cause of action, one had
to demonstrate that:

               the “employee” was engaged in “protected conduct” (i.e., conduct protected
                under the FCA):
               the “employer” was aware of the protected conduct; and
               the “employee” was discriminated against “because of” that conduct. 63

       FERA amended the cause of action for retaliation in Section 3730(h), which provides:

                Any employee, contractor, or agent shall be entitled to all relief
                necessary to make that employee, contractor, or agent whole, if
                that employee, contractor, or agent is discharged, demoted,
                suspended, threatened, harassed, or in any other manner
                discriminated against in the terms and conditions of employment
                because of lawful acts done by the employee, contractor, or agent
                on behalf of the employee, contractor, or agent or associated


                                                 13
               others in furtherance of other efforts to stop 1 or more violations
               of this subchapter. 64

         As before, under the FCA’s whistleblower retaliation provisions, a prevailing plaintiff
can recover up to two times any lost wages, “special damages,” costs of the litigation, and
reinstatement. 65 What the FERA amendments have done, however, to change the FCA’s
retaliation provisions is to (1) substantially enlarge the protected group from any “employee” to
any “employee, contractor, or agent,” (2) expand the definition and scope of protected conduct
from “lawful acts done in furtherance of” an action under the FCA to “efforts to stop a
violation,” and (3) remove the reference to discrimination by an “employer.”

VI.    BRINGING IT TO YOUR WORLD: FCA ENFORCEMENT IN THE HEALTH
       CARE INDUSTRY

       A.      FCA Enforcement Trends

        Since the early 1990s, the FCA has become the primary enforcement tool used by the
federal government to combat fraud, waste, and abuse in federal health care programs, including
Medicaid and Medicare. FCA cases have been brought against virtually every segment of the
health care industry, and the large settlements and judgments in those cases make up a huge
portion of the government’s total FCA recoveries.

         In November of 2010, following the annual release of its “Fraud Statistics” reports
(attached as Appendix B), the Department of Justice (“DOJ”) issued a press release,
“Department of Justice Recovers $3 Billion in False Claims Cases in Fiscal year 2010: $2.5
Billion Health Care Fraud Recovery Largest in History – More Than $27 Billion since 1986”
(attached as Appendix C), which announced $3 billion in civil settlements and judgments in FCA
cases for the fiscal year ending September 30, 2010, including $2.5 billion involving health care
cases. 66 The $2.5 billion in health care fraud recoveries under the FCA represents the largest
yearly recovery and brings the total of federal FCA recoveries since the 1986 FCA amendments
to more than $27 billion. 67 Over $2.4 billion or 80% of the $3 billion FY 2010 settlements and
judgments was the result of cases initiated by whistleblowers under the FCA’s qui tam
provisions. 68 The whistleblowers’ share of these recoveries in FY 2010 amounted to more than
$385 million. 69

               The Department of Justice secured $3 billion in civil settlements
               and judgments in cases involving fraud against the government in
               the fiscal year ending Sept. 30, 2010 …. This includes $2.5 billion
               in health care fraud recoveries – the largest in history – and
               represents the second largest annual recovery of civil fraud claims.
               Moreover, amounts recovered under the False Claims Act since
               January 2009 have eclipsed any previous two-year period with
               $5.4 billion in taxpayer dollars returned to federal programs and
               the Treasury. Recoveries since 1986, when Congress substantially
               strengthened the civil False Claims Act, now total more than $27
               billion. 70



                                                14
         As with all previous years for which statistics are available, the great majority of FCA
recoveries in FY 2010 – nearly $2.5 billion or 83% of the $3 billion total FCA recoveries –
involved the health care industry. 71 This is the largest amount ever recovered in health care
fraud cases under the FCA since the 1986 amendments, when FCA statistics were first
compiled. 72 From 1987 through 2010, of the 11,359 FCA cases initiated, 7,202 or 63% of these
were initiated and filed by whistleblowers. 73 Through settlements and judgments, the
government has recovered over $27 billion in FCA cases during this time, and over $18 billion
of that total has come from cases brought under the Act’s qui tam provisions. 74 Moreover, of the
11,359 FCA cases brought between 1987 and 2010, 4,668 or nearly 41% have involved the
health care industry. 75 And, among these 4,668 FCA cases involving the health care industry,
3,968 or 85% have been brought by whistleblowers under the FCA’s qui tam provisions. 76 The
total recovery for these health care cases is over $18.5 billion – roughly 69% or well over two-
thirds of the entire $27 billion recovered by the government in all FCA cases from 1987 through
2010. 77 Of the nearly $18.5 billion recovered in health care cases, the relators’ share has totaled
over $2.1 billion. 78 The following charts illustrate these trends:




                                                15
16
        With the tremendous amount of federal funds spent on health care, these statistics are not
surprising and represent a trend, which is sure to continue with ever-increasing federal health
care expenditures. This is particularly true as the government has indicated a renewed vigor in
fighting health care fraud. The DOJ and U.S. Department of Health and Human Services
(“HHS”) have announced a joint task force – the Health Care Fraud Prevention & Enforcement
Action Team (“HEAT”) – comprised of law-enforcement agents and prosecutors responsible for
preventing fraud and enforcing fraud and abuse laws, which it now credits for its recent
significant health care recoveries. Furthermore, with the recent amendments of the FCA through
the FERA and the PPACA that have strengthened whistleblower protections and increased
incentives and the government’s reliance upon private qui tam enforcement, an enormous rise in
FCA cases initiated by whistleblowers is sure to ensue.

       B.      Providers, Payors, Plans, And Managed Care Organizations As Targets

        The new changes to the FCA ushered in by the FERA and the PPACA apply the FCA to
myriad transactions that place all health care entities (including providers, payors, plans, and
managed care organizations) at risk whenever they receive government funds or submit a
certification to the government or one of its subcontractors when not in compliance with
regulatory or contractual requirements. Examples of risk areas for providers, payors, plans, and
managed care organizations are provided below.

               1.     Providers – Examples of Risk Areas

        There are many different areas of health care fraud that have provided the bases for FCA
actions against providers and payors, plans, and managed care organizations. Examples of
fraudulent conduct that has been and continues to be pursued through FCA enforcement against
providers, includes, but is not limited to the following:

      Services Not Rendered: The submission of a claim for health care services, treatments,
       diagnostic tests, medical devices or pharmaceuticals that were never rendered.

      “Ghost” Patients: The submission of a claim for health care services, treatments,
       diagnostic tests, medical devices or pharmaceuticals provided to a patient who either does
       not exist or who never received the service or item billed for in the claim.

      Kickbacks: The federal Anti-Kickback Statute, 42 U.S.C. §1328-7b(b), prohibits any
       offer, payment, solicitation or receipt of money, property or remuneration to induce or
       reward the referral of patients or health care services payable by a government health care
       program, including Medicare or Medicaid. These improper payments can come in many
       different forms, including, but not limited to: referral fees; finder’s fees; productivity
       bonuses; discounted leases; discounted equipment rentals; research grants; speaker’s fees;
       excessive compensation; and free or discounted travel or entertainment. The offer,
       payment, solicitation or receipt of any such moneys or remuneration can be a violation of
       the Federal Anti-Kickback statute, the FCA, as well as various other federal and state
       laws and regulations.



                                                17
   “Up-Coding” Services: Up-coding occurs when a health care provider submits of a
    claim for health care services, treatments, diagnostic tests or items which represent a
    more serious and more expensive procedure than that which actually was performed.
    Code sets can include: the American Medical Association’s Current Procedural
    Terminology (“CPT”) codes; Evaluation and Management (“E&M”) codes; Healthcare
    Common Procedure Coding System (“HCPCS”) codes; and International Classification
    of Disease (“ICD-9”) codes.
   “Unbundling”: Government health care programs have special reimbursement rates for
    groups of procedures that are typically performed together, such as laboratory tests. One
    common type of fraud has been to “unbundle” these procedures or tests and bill each one
    separately, which results in greater reimbursement than the group reimbursement rate.
   Lack of Medical Necessity: Health care providers are required by law to document the
    medical necessity of the treatment or services for which they are seeking reimbursement.
    The submission of claims for services, treatments, diagnostic tests, and medical devices
    that are not medically necessary can constitute a violation of the FCA.
   False Certifications
   Research Grant Fraud: Some of the common forms of research grant fraud include:
    falsifying a grant application in order to secure a grant; falsifying research data and
    results; over-billing costs and other expenses associated with the grant; using grant
    money for other unrelated research; and improper conflicts of interest by the principal
    investigators.
   Improper Financial Interest: The Federal Stark Law, 42 U.S.C. § 1395nn and § 1396b,
    as well as other federal and state laws, generally prohibits physician investment interests
    and compensation arrangements with entities that perform certain designated health
    services to which they refer patients or from which they order goods and services paid for
    by Medicare or Medicaid. The Stark law covers not only investments and compensation
    paid to the physician, but to any member of the physician’s immediate family. Violations
    of the Stark Law or another federal or state “anti self-referral law” can also result in a
    violation of the FCA.
   Inflating Cost Reports: Hospitals are required to file Cost Reports with Medicare that
    specify, among other things, information on the hospital’s charges, revenue, profits, and
    charge to cost ratios. Medicare then uses the information it obtains from these reports to
    determine how much it will pay for this overhead and other costs. One common type of
    fraud has been for hospitals to inflate the costs on their Medicare Cost Reports, or to
    otherwise falsify the information on these reports to affect its reimbursement.
   Medicare Part D Fraud: It is widely expected that the Part D program will be the target
    of substantial fraud in the coming years, including potential for claims of: duplicate
    billing; overcharging; enrollment fraud; red-lining; and improper rebates from
    pharmaceutical manufacturers and wholesalers.

           2.      Payors, Plans, And Managed Care Organizations Risk – Examples of
                   Areas


                                            18
        The compliance risk areas for providers are well known. For payors, plans, and managed
care organizations, the recent amendments, which effectively expand FCA liability to anyone
engaged in activities involving federal funds, also expand compliance risk areas. Examples of
fraudulent conduct that may be pursued through FCA enforcement against plans, payors, and
managed care organizations include, but are not limited to, the following:

      Federal Employees Health Benefits Program (e.g., certification of community rate);
      Medicare Advantage (e.g., plan rate bid certifications);
      Contractor Performance (e.g., regarding timeliness of claims payments, notices of
       claim denials, reconsiderations, and appeals, and regarding marketing,
       enrollment/disenrollment, underutilization, accessibility of services);
      Falsification of Reports/Certifications (e.g., regarding encounter data, quality-of-care
       review, enrollee health status reports, or data required to be submitted to the
       government);
      “Red-Lining” (e.g., insurance companies that provide supplemental Medicare insurance
       coverage and paid on a per patient basis, improperly discourage enrollment by persons
       they deem to be sicker or at higher risk for serious illness, to decrease risk and enhance
       revenue); and,
      Medicare Part D Fraud.
(A “Health Plan Fraud and Abuse Enforcement Case List,” summarizing FCA cases involving
health plans, is provided as Appendix D).

VII.   FCA RISK MITIGATION STRATEGIES FOR HEALTH CARE ENTITIES

       A.      Overall Compliance

        As always, the best defense against FCA liability is a good “offense” – i.e., an effective
overall compliance program. It has been held that the failure to maintain an effective corporate
compliance program was sufficient to allege that the company submitted false claims under the
FCA with “reckless disregard of their falsity.” 79

       The changes to the FCA brought about by the FERA and the PPACA reiterates the
importance of adopting and implementing effective corporate compliance programs and now,
more than ever, it is essential that health care providers, payors, plans, and managed care
organizations ensure that they have robust corporate compliance programs. Generally, the seven
elements of an effective corporate compliance plan as outlined in the U.S. Sentencing Guidelines
for Organizations (“Guidelines”) should be followed. The Guidelines are:

   1. the development and distribution of written standards of conduct, including policies and
      procedures that address specific areas of potential fraud;

   2. designation of a chief compliance officer and other appropriate bodies;



                                                19
   3. development and implementation of education and training;

   4. maintenance of a process for reporting exceptions;

   5. development of a system to respond to allegations of improper activities, accompanied by
      appropriate discipline;

   6. development of an audit and monitoring system; and

   7. the investigation and remediation of identified systemic problems, and the development
      of policies addressing the non-employment or retention of sanctioned individuals. 80

         Of course, having a compliance program alone is insufficient. To make sure the program
is effective, a health care entity should determine whether or not a compliance program is
functional by regularly monitoring and auditing the health care entity to determine whether or
not it actually prevents and detects violations of applicable laws.

       B.      FCA-Focused Compliance

       To manage FCA specific risks in conjunction with overall compliance efforts, providers,
payors, plans, and managed care organizations should consider the following:

           Risk assessments of the FERA’s and the PPACA’s impact on operations, including
            review of all contractual arrangements that involve government funds.

           Assessment and revisions to billing and compliance policies and procedures.

           Systems to prevent, detect, and track overpayments.

           Establishment of new education and training that include the FERA and the PPACA
            and their changes to the FCA.

           Aggressive auditing and monitoring programs – preferably through an outside
            independent entity.

           Evaluation of and, if necessary, revisions to anti-retaliation policies and procedures to
            ensure that they apply to non-employees such as subcontractors, vendors, and
            independent contractors.

           Conducting internal investigations into all fraud allegations – most whistleblower
            actions may be prevented by assuring concerned employees that compliance and
            reports of noncompliance will be addressed.

       C.      Employee Whistleblower Risk Mitigation




                                                 20
        Because most whistleblower actions brought under the qui tam provisions of the FCA are
initiated by current or former employees, there are some important risk mitigation steps that
should be followed by all health care entities that can serve to minimize exposure.

               1.      Mandatory Arbitration Provisions

         Where qui tam actions brought by former employees involve a retaliation claim under the
FCA, many courts have enforced mandatory arbitration provisions if contained in the
employment agreement. 81 This is important because such arbitration provisions can result in
dismissal of the retaliation claim pursuant to such arbitration provisions and force that claim to
be arbitrated. Without the ability to assert an arbitration provision, the case – even if the
retaliation claim is the sole remaining count – will continue and force protracted and costly
litigation.

         It is important to note that the “Franken Amendment,” which was contained in Section
8116 of the Department of Defense Appropriations Act enacted in December of 2009, 82 prohibits
the use of appropriated or other funds made available under the Act, on any federal contract for
an amount in excess of $1 million unless the contractor agrees not to: enter into any agreement
with any of its employees or independent contractors that requires arbitration of any claim under
title VII of the Civil Rights Act of 1964 or any tort related to or arising out of sexual assault or
harassment, including assault and battery, intentional infliction of emotional distress, false
imprisonment, or negligent hiring, supervision, or retention and take any action to enforce any
such provision of an existing agreement. The Franken Amendment, however, only applies to
health care entities that are actual government contractors or subcontractors. 83 They would now
be faced with the prospect of litigating certain types of employee claims, which would
previously have been arbitrated, including sexual harassment claims and gender or racial
discrimination claims. Regardless, other claims, such as whistleblower retaliation claims, may
still properly be within the scope of arbitration clauses. 84 Therefore, health care entities should
include arbitration provisions in their employment agreements and, if necessary, include Franken
Amendment “carve-outs.”

               2.      Employee Releases

        In addition to the use of arbitration provisions in employment agreements to mitigate
risks associated with potential employee whistleblowers, health care entities should also consider
using severance agreements including broad releases with an employee who is terminated or who
resigns. Due to the threat of employment litigation, employers who are terminating an employee
sometimes offer severance packages, which include monetary compensation to the employee in
exchange for the employee’s agreement to release claims he or she may have against the
employer. This tactic – while generally very useful – has previously had only limited
effectiveness with respect to qui tam actions brought by former employees under the FCA. 85
Recent court decisions, however, signal a possible shift in the law that suggests courts are more
likely to enforce such releases to bar FCA qui tam actions by former employees.

        For example, in U.S. ex rel. Radcliffe v. Purdue Pharma, 86 the Fourth Circuit recently
relied on a Ninth Circuit decision, 87 which utilized a balancing test to evaluate the enforceability



                                                 21
of employment releases in FCA qui tam actions where the government has knowledge of the
allegations prior to the time the qui tam suit is filed. 88 Essentially, the approach used by the
Ninth Circuit, and adopted by the Fourth Circuit, asks whether the government had knowledge of
the fraud prior to the institution of the qui tam action. If it did have such knowledge, then the qui
tam case is less significant, and public policy weighs in favor of upholding the employer-
employee private release. But where the government does not have knowledge of the fraud prior
the filing of the qui tam lawsuit, public policy weighs in favor of eradicating fraud, and therefore
the use of the qui tam suit becomes important to the government and the public at large.

        The Fourth Circuit’s ruling in Purdue Pharma stemmed from a qui tam lawsuit filed by a
former employee of Purdue, which was initiated only after the DOJ had already begun a criminal
investigation of alleged unlawful marketing practices surrounding Purdue’s sale of the drug
OxyContin. Indeed, the responsible United States Attorney supported Purdue with an affidavit
confirming that the government had begun its criminal investigation independent of anything
alleged in the qui tam lawsuit. After negotiating a generous severance package from Purdue, the
employee executed a release that forever discharged the employer from all liability of any kind.
As a result, Purdue sought and received a ruling from the Fourth Circuit upholding the pre-suit
employment release barring the relator’s action due to the fact that the government already had
knowledge of the fraud prior to the relator’s filing.

       Although the future of the enforcement of releases to prevent former employees from
bringing qui tam actions is uncertain, releases should be included in any severance agreement as
a potential defense to a qui tam action by the employee. Employers who wish to use releases
should consider the following information when crafting the language of the release:

          A departing employee should be required to represent in writing that he/she is not
           aware of any violations of the law by the employer, or to specifically state in writing
           any possible violations of which he/she is aware.

          The language of a release should expressly articulate that it covers FCA actions.

          The release language should also require the employee to state whether he or she has
           already filed an FCA action against the employer.

          The release should contain a provision that nothing contained therein shall prohibit
           the employee from reporting misconduct to the appropriate governmental authorities.

         Although qui tam litigation is always a risk for employers and arbitration provisions in
employment agreements and well-written releases in severance agreements may help mitigate
this risk, employers, including health care entities, may also mitigate this risk by thoughtfully
and carefully handling employees’ complaints or warnings. When dealing with disgruntled
employees who may be or become qui tam relators, employers are well-advised to bear in mind
that some qui tam relators are not driven by personal financial interests; they are motivated by
moral outrage at a perceived wrong and/or being personally slighted. Potential whistleblowers
are sometimes very loyal to their employer, and may likely respond favorably if they believe that
their employer takes their complaints or warnings seriously and is committed to addressing them.


                                                 22
Of course, in the case of a departing employee, such an approach will also enhance the likelihood
that the he or she will execute a release. In sum, responding in a meaningful way to employees’
reported concerns can aid in ensuring a company’s protection from unwanted whistleblower
lawsuits.

VIII. CONCLUSION

       For the past quarter century, the FCA has been the government’s primary weapon in
combating health care fraud. The FERA’s and the PPACA’s amendments to the FCA constitute
sweeping changes in health care fraud enforcement and compliance. The new qui tam provisions
have heightened the prospect of more whistleblower actions.

        The increased risks for health care entities compel more stringent compliance and risk
management to reduce FCA exposure. Health care entities must remain vigilant and ensure that
robust compliance programs are in place – and effective – to minimize FCA liability and that
prophylactic measures are used to prevent whistleblower actions under the FCA’s qui tam
provisions. As discussed herein, the stakes – e.g., treble damages, penalties of up to $11,000 per
claim, whistleblower attorneys’ fees and costs, and suspension and debarment – are simply too
great to ignore. The guidance of counsel well-versed in health care and FCA law should be
sought to assist in identifying new FCA risks, clarifying practical questions and issues that
remain unclear, and developing effective compliance programs and risk mitigation strategies.




                                                23
                                           ENDNOTES
1
  31 U.S.C. § 3729 (a)(1)(A), (B), (C) and (G) (The FCA’s primary liability provisions were
revised and renumbered by the Fraud Enforcement and Recovery Act of 2009, and are now in 31
U.S.C. §§ 3729(a)(1)(A) – (G). Formerly, these seven liability provisions were in 31 U.S.C. §§
3729(a)(1) – (7). The prior version of the FCA is noted with an asterisk (*) when cited herein,
and all other citations are to the current version of the FCA as amended by the FERA and the
Patient Protection and Affordable Care act of 2010.)
2
  31 U.S.C. § 3729(a)(1).
3
  Id.; 28 U.S.C.A. § 2461 note (2002); 28 C.F.R. § 85.3(9) (2000). The FCA previously
provided for the imposition of a civil penalty “of not less than $5,000 and not more than $10,000
for each false claim.” 31 U.S.C. § 3729(a). This penalty range was adjusted for inflation under
the Federal Civil Monetary Penalties Inflation Act of 1990, Pub. L. No. 101-410, Title III, §
31001, and the Debt Collection Improvement Act of 1996, Pub. L. No. 104-134, to between
$5,500 and $11,000 for conduct occurring after September 29, 1999. 28 U.S.C.A. § 2461 note
(2002); 28 C.F.R. § 85.3(9) (2000). The next inflationary increase that could have been
implemented under the Inflation Adjustment Act was due, according to the analysis of a General
Accounting Office (renamed in 2004 as the Government Accountability Office) report, on
August 30, 2003, Gen. Acct. Off., GAO-030409, Agencies Unable to Fully Adjust Penalties for
Inflation Under Current Law, at 13 (Mar. 2003), but no additional penalty increase was
announced by the Department of Justice by that date.
4
  31 U.S.C. § 3730(d)(1). The FCA also provides, on a very limited basis, for the possibility for
the recovery of fees and expenses by defendants who prevail. Id. at § 3730(d)(4) (2009)
(permitting prevailing defendants to recover fees and expenses if the government does not
intervene, and if the court finds that the relator’s claim was “clearly frivolous, clearly vexatious,
or brought primarily for purposes of harassment.”).
5
  Id. at § 3730(b)(1).
6
  Pub. L. 111-148, 124 Stat. 119. Amendments to PPACA were subsequently enacted shortly
thereafter through the Health Care and Education Reconciliation Act of 2010, Pub. L. 111-152
(“HERA”).
7
  Pub. L. No. 111-21, 123 Stat. 1617.
8
  The one exception is that the FERA provides that Section 3729(a)(1)(B) liability (relating to the
use of false records or statements) “shall take effect as if enacted on June 7, 2008, and apply to
all claims … pending on or after that date.” (emphasis added). Litigation over the retroactive
application of the FERA’s amendment to FCA liability has achieved varied results with regard to
the interpretation of the term “claims.” E.g. United States ex rel. Sanders v. Allison Engine Co.,
667 F. Supp. 2d 747, 751-52 (S.D. Ohio 2009)(defining “claims” as payment); United States v.
Sci. Apps. Int’l Corp., 653 F. Supp. 2d 87, 106-07 (D.D.C. 2009)(same); United States v.
Aguillon, 628 F. Supp. 2d 542, 549-51 (D. Del. 2009)(same); United States ex rel. Westrick v.
Second Chance Body Armor, Inc., No. 04-280, 2010 WL 623466, at *7 (D.D.C. Feb. 23,
2010)(applying Section 3729(a)(1)(B) to suit pending on June 7, 2008); United States ex rel.
Stephens v. Tissue Sci. Labs., 664 F. Supp. 2d 1310, 1315 n.2 (N.D. Ga. 2009)(same).
9
  Because qui tam complaints are filed under seal and remain under seal until the government
conducts its investigation and determines whether to intervene in the action (discussed in detail
herein), the FCA’s pre-FERA liability requirements apply to most pending complaints, including




                                                 24
those under seal if the allegations are based on conduct that pre-dates FERA’s May 20, 2009
enactment.
10
   31 U.S.C. § 3729(a)(1).
11
   See 28 U.S.C. § 2461 note (2002); 28 C.F.R. § 85.3(9) (2000).
12
   31 U.S.C. § 3730(d)(1).
13
   The term “qui tam” is derived from a Latin phrase, “qui tam pro domino rege quam pro se
ipso,” or “who pursues this action on our Lord the King’s behalf as well as his own.” Vermont
Agency of Natural Res. v. United States ex re. .Stevens, 529 U.S. 765, 769 n. 1 (2000).
14
   Pub. L. No. 109-171, §§ 6031-6033, 120 Stat. 4, 72-74 (3006) (to be codified at 42 U.S.C. §§
1396a(a), 1396b(i), 1396h(a)).
15
   Among the following jurisdictions with their own versions of the FCA, with qui tam
provisions, those noted with an asterisk (*) have laws that cover Medicaid only and those noted
with a plus sign (+) have false claims laws that qualify them for an increased recovery share
under the DRA: California+, Colorado*, Connecticut*, Delaware, Florida, Georgia*+, Hawaii+,
Illinois+, Indiana+, Louisiana*, Maryland*, Massachusetts+, Michigan*, Minnesota, Montana,
Nevada+, New Hampshire, New Jersey, New Mexico, New York+, North Carolina, Oklahoma,
Rhode Island, Tennessee+, Texas*+, Virginia+, and Wisconsin*+.
16
   31 U.S.C. § 3729(d) (“This section does not apply to claims, records, or statements made
under the Internal Revenue Code of 1954.”)
17
   E.g., United States ex re. Lissack v. Sakura Global Capital Mkts., Inc., 377 F.3d 145 (2d Cir.
2004).
18
   E.g., Fla. Sta. Ann. §§ 68.081-68.092 (West 2002).
19
   Some courts have held that the plaintiff in an FCA case (i.e., the government alone or with a
relator) may not recover under both the direct and false records/statements liability sections of
the FCA for the same false claim, while allowing for allegations supporting violations of both to
be pled in the alternative. E.g. United States ex rel. Harris v. Bernad, 275 F. Supp. 2d 1, 6
(D.D.C. 2003).
20
   E.g., Vermont Agency of Natural Res. v. United States ex re. .Stevens, 529 U.S. 765 (2000)
(discussing history and precedent); But cf. United States v. Kansas Pac. Ry., 26 Fed. Cas. 680
(No. 15,506) (D. Kan. 1877) (holding that a corporation is not a “person”).
21
   E.g., United States ex rel. Galvan v. Federal Prison Indus., Inc., 199 F.3d 461, 468 (D.C. Cir.
1999).
22
   E.g., United States v. Cheng, 184 F.R.D. 399 (D.N.M. 1998) (physician employed by the U.S.
Indian Health Service accused of various forms of leave abuse); United States v. Bouchey, 860 F.
supp. 890, 892 (D.D.C. 1994) (U.S. Department of Transportation employee who participated in
conspiracy to charge the government inflated rates for consulting services); United States v.
Voss, No. 89-1155 (D.D.C. Apr. 6, 1992) (government employee who falsified travel vouchers);
United States v. Cripps, 460 F. Supp. 969, 976 (E.D. Mich. 1978) (government employee who
receives a bribe to facilitate the submission of a false claim establishes liability as a co-
conspirator); United States ex rel. Hollander v. Clay, 420 F. Supp. 853 (D.D.C. 1976) (holding
that a member of Congress could be a defendant in an FCA suit);
23
   529 U.S. 765 (2000).
24
   Stevens, 529 U.S. at 787-88.




                                               25
25
   Id. at 789. See also United States v. University Hospital at Sony Brook, 97-CV-3463, 2001
WL 1548797, at *3 (E.D.N.Y. Oct. 26, 2001) (agreeing with Stevens, holding that states are
subject to FCA suits litigated by the United States).
26
   Although states or state agencies are not “persons” subject to qui tam liability under the FCA,
some states have pursued actions as FCA plaintiffs. E.g., United States ex rel. Woodard v.
Country View Care Ctr., Inc., 797 F.2d 888 (10th Cir. 1986); United States ex rel. Wisconsin v.
Dean, 729 F.2d 1100 (7th Cir. 1984).
27
   538 U.S. 119 (2003).
28
   Stevens, 529 U.S. at 784.
29
   Chandler, 538 U.S. 119, 132-34.
30
   E.g., Untied States ex rel. Gaudineer & Comito v. Iowa, 269 F.3d 932 (8th Cir. 2001) (a state
employee sued for money damages for actions taken in an official capacity stands in the shoes of
the sovereign and is not a person under the FCA); Bly-Magee v. California, 236 F.3d 1014 (9th
Cir. 2001) (state official has absolute official immunity for conduct performed in the course of
official duties); United States ex rel. Adrian v. Regents of Univ. of Cal., No. C 99-2864 THE,
2002 U.S. Dist. LEXIS 3321 (N.D. Cal. Feb. 25, 2002). But see United States ex rel. Stoner v.
Santa Clara County Office of Educ., 502 F.3d 116, 1125 (9th Cir. 2007) (declining to extend
absolute immunity to state office of education employees for actions taken in official capacities).
31
   E.g., United States ex rel. Body v. Blue Cross and Blue Shield of Ala. Inc., 156 F.3d 1098 (11th
Cir. 1998) (fiscal intermediary is immune from liability to the Untied States for payments its
officers certify and disburse to Medicare beneficiaries in the normal course of business under 42
U.S.C. § 1295h(i)(3)(1994)). But see United States ex rel. Sarasola v. Aetna Life Ins. Co., 319
F.3d 1292 (11th Cir. 2003) (holding that this immunity does not preclude FCA liability based on
the failure of a fiscal intermediary to fulfill its contractual obligations to the government); United
States ex rel. Drescher v. Highmark, Inc., 305 F. Supp. 2d 451 (E.D. Pa. 2004) (holding that
certain intermediary actions subject to FCA liability).
32
   E.g., United States ex rel. Mikes v. Straus, 274 F.3d 687, 697 (2d Cir. 2001) (“a claim under
the Act is legally false only where a part certifies compliance with a statute or regulation as a
condition to government payment.”); United States ex rel. Siewick v. Jemieson Sci. & Eng’g,
Inc., 214 F.3d 1372, 1376 (D.C. Cir. 2000) (implied certification theory was “doomed by the
rule, adopted by all courts of appeals to have addressed the matter, that a false certification of
compliance with as statute or regulation cannot serve as the basis for a qui tam action under the
FCA unless payment is conditioned on that certification.”); United States ex rel. Lamers v. City
of Green Bay, 168 F.3d 1013, 1019 (7th Cir. 1999); United States ex rel. Luckey v. Baxter
Healthcare Corp., 183 F.3d 730 (7th Cir. 1999); United States ex rel. Thompson v.
Columbia/HCA healthcare Corp., 125 F.3d 899 (5th Cir. 1997); United States ex rel. Berge v.
Board of Trustees of the Univ. of Ala., 104 F.3d 1453 (4th Cir. 1997); United States ex rel.
Hopper v. Anton, 91 F.3d 1261 (9th Cir. 1996).
33
   E.g., United States ex rel. Augustine v. Century health Servs., Inc., 289 F.3d 409, 414-16 (6th
Cir. 2002), petition for reh’g en banc denied, No. 01-5019, 2002 U.S. App. LEXIS 16358 (6th
Cir. July 26, 2002) (affirming the imposition of liability where defendants failed to file amended
cost reports reflecting fact that defendants did not comply with certain Medicare regulations);
Shaw v. AAA Eng’g & Drafting, Inc., 213 F.3d 519 (10th Cir. 2000) (affirming liability for
alleged false implied certifications of contractual compliance).
34
   31 U.S.C. § 3729(b)(1)(B).



                                                 26
35
   127 S.Ct. 2201 (U.S. 2007).
36
   Id. at 2215.
37
   530 F.3d 980 (D.C. Cir. 2008). See also United States ex rel. Walker v. R & F. Props., Inc.,
433 F.3d 1349 (11th Cir. 2005), cert. denied, 549 U.S. 1027 (2006) (finding that the regulation
was ambiguous, but ruling that the question of falsity was improperly decided on summary
judgment by the court below).
38
   31 U.S.C. § 3729(b)(4).
39
   543 F.3d 1211 (10th Cir. 2008).
40
   525 F. Supp. 2d 972 (W.D. Tenn. 2007).
41
   S. REP. NO. 111-10, AT 54 (2009).
42
   31 U.S.C. § 3731(d).
43
   Id. at § 3731(d).
44
   Id. at § 3729(a)(1); 28 U.S.C. § 2461 note (2002); 28 C.F.R. § 85.3(9) (2000).
45
   339 F.3d 1013 (9th Cir. 2003).
46
   31 U.S.C. § 3730(b)(2) (2009). In addition to serving the federal government with a copy of
the complaint, a relator is required to file with the federal government before filing suit a
“written disclosure of substantially all material evidence and information the [relator] possesses.”
Id.
47
   Id. at § 3730(b)(4)(A).
48
   Id. at § 3730(b)(4)(B).
49
   Id. at § 3730(c)(2)(A). See also United States ex rel. Sequoia Orange Co. v. Baird-Neece
Packing Corp., 151 F. 3d 1139 (9th Cir. 1998).
50
   Id. at § 3730(c)(2)(B).
51
   Id. at § 3730(e)(4).*
52
   Id.
53
   U.S. ex rel. Precision Co. v. Koch Indus., Inc., 971 F.2d 548, 552 (10th Cir. 1992), cert. denied,
507 U.S. 951 (1993).
54
   31 U.S.C. § 3730(e)(4).*
55
   Pub. L. 111-148, 124 Stat. 119 § 10104(j)(2)(4)(A) (emphasis added).
56
   No. 08-304, slip op. (March 30, 2010).
57
   Id. at n. 1.
58
   31 U.S.C. § 3730(d)(1)-(2).
59
   Id.
60
   Id. at § 3730(h)(2).
61
   Id. at § 3730(d)(1).
62
   Id. at § 3730(d)(4).
63
   E.g., Norbeck v. Basin Elec. Power Coop., 215 F.3d 848 (8th Cir. 2000); United States ex rel.
Eberhardt v. Integrated Design & Construction, Inc., 167 F.3d 861 (4th Cir. 1999).
64
   31 U.S.C. § 3730(h) (emphasis added).
65
   Id.
66
   Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, Department of Justice Recovers $3
Billion in False Claims Cases in Fiscal Year 2010: $2.5 Billion Health Care Fraud Recovery
Largest in History – More than $27 Billion Since 1986 (Nov. 22, 2010), available at
http://www.justice.gov/opa/pr/2010/November/10-civ-1335.html. The DOJ figures include civil




                                                 27
FCA settlements only and do not include substantial criminal penalties or amounts awarded to
the states under their false claims laws.
67
   Id.; Civil Division, U.S. Dep't of Justice, Fraud Statistics - Overview October 1, 1987 -
September 30, 2010, available at http://www.crowell.com/pdf/FalseClaimStat.pdf.
68
   Civil Division, U.S. Dep't of Justice, Fraud Statistics - Overview October 1, 1987 - September
30, 2010, available at http://www.crowell.com/pdf/FalseClaimStat.pdf.
69
   Id.
70 Press Release, Office of Pub. Affairs, U.S. Dep't of Justice, Department of Justice Recovers $3

Billion in False Claims Cases in Fiscal Year 2010: $2.5 Billion Health Care Fraud Recovery
Largest in History – More than $27 Billion Since 1986 (Nov. 22, 2010), available at
http://www.justice.gov/opa/pr/2010/November/10-civ-1335.html.
71
   Id.; Civil Division, U.S. Dep't of Justice, Fraud Statistics – Health and Human Services
October 1, 1987 - September 30, 2010, available at
http://www.crowell.com/pdf/FalseClaimStat.pdf. These figures represent federal FCA civil
recoveries only.
72
   Id.
73
   Civil Division, U.S. Dep't of Justice, Fraud Statistics - Overview October 1, 1987 - September
30, 2010, available at http://www.crowell.com/pdf/FalseClaimStat.pdf.
74
   Id.
75
   Civil Division, U.S. Dep't of Justice, Fraud Statistics – Health and Human Services October 1,
1987 - September 30, 2010, available at http://www.crowell.com/pdf/FalseClaimStat.pdf.
76
   Id.
77
   Id.
78
   Id.
79
   U.S. v. Merck-Medco Managed Care, LLC, 336 F.Supp. 2d 430, 440-441 (E.D. Pa. 2004).
80
   While the law does not require an organization to meet the Guidelines’ seven elements of a
compliance program, they provide a well-designed foundation. Moreover, an organization that is
found guilty of violating federal criminal laws, but has a compliance program in place in accord
with the Guidelines may benefit from a reduction in the assessment in penalties by up to 70%
against legally-required fines.
81
   E.g., United States ex rel. Wilson v. Kellogg Brown & Root, Inc., 525 F.3d 370, 380-83 (4th
Cir. 2008) (holding that retaliation claims under 31 U.S.C. §3730(h) must be arbitrated if the
relator's employment contract and applicable state law require arbitration of employment claims
and rejecting the relator's argument that the FCA prohibits waiver of a relator's right to assert
retaliation claims in federal court based on the finding that, although Section 3730(h) authorizes
retaliation actions to be brought “in the appropriate district court of the United States,” it does
not impose a requirement to do so when the relator's employment contract and applicable state
law require arbitration.).
82
   Pub. L. 111-118
83
   Mere participation in federal healthcare programs does not subject an entity to the Franken
Amendment’s provisions.
84
   Other examples of claims likely still covered by arbitration clauses include wage and hour
claims and “routine” wrongful termination claims.
85
   E.g. United States ex rel. Green v. Northrop Co., 59 F.3d 953, 962-69 (9th Cir. 1994).
86
   No. 09-1202, ___ F.3d ___ (4th Cir. 2010).



                                                28
87
     United States ex rel. Hall v. Teledyne Wah Chang Albany, 104 F.3d 230 (9th Cir. 1997).
88
     Purdue Pharma, No. 09-1202, ___ F.3d ___ (4th Cir. 2010).




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