Qui Tam Legal Theories Used in Litigation
Some of the more common theories used to prosecute False Claims Act cases are:
1.) Violations of Contract Provisions: “[P]arties that contract with the government are held to the letter of the contract – irrespective of whether the contract terms appear onerous from an ex post perspective, or whether the contract’s purpose could be effectuated in some other way – – under the maxim that ‘men must turn square corners when they deal with the Government.'” “[T]he mere fact that the item supplied under the contract is as good as the one contracted for does not relieve the defendants of liability” if the item does not in fact conform to the express contract terms. Failure to comply with: Military Specifications (MIL-SPECS): Specific Military Standards for processes and designs usually incorporated into military contracts for equipment. Failure to Test: Many government contracts call for items to be tested in a specific manner. Often items are tested in a less strenuous manner, the tests are manipulated so the item passes, or the item is not tested at all. Failure to Inspect: Contracts with the government often require specific inspections to be performed at certain intervals in the manufacturing process.
2.) Procurement: Any false certification that items furnished under a contract with the government are “of the quality specified and conform in all respects with contract requirements, including specifications . . . .” constitutes an FCA violation. Such certifications are often required on documents submitted to the government for payment.
3.) Engineering Changes and Pricing: When a government contractor wants to alter the design of a product it is manufacturing for the government, the contractor is often required to submit an Engineering Change Proposal (“ECP”). The ECP requires the contractor to affirmatively state whether the change results in an increase in cost, decrease in cost, or no change in cost to the contractor. In other words, contractor put your cards on the table before you negotiate with the government. A false certification about the change in cost can lead to false claims for every item produced, for which the defendant claims payment, subsequent to the false ECP.
4.) Health Care: In 2004, the percentage of FCA cases involving health care rose to 67%. “The General Accounting Office estimates 10 percent of Medicare dollars are lost to fraud. The latest Office of Inspector General (OIG) study indicates that nearly $13 billion of Medicare payments per year are inappropriate.
a) Claims for Services Not Actually Performed: Some medical providers perform one procedure and bill for other procedures and tests that could be related to the procedure performed, but were not actually performed. This is the “who’s gonna know” approach to billing Medicare.
b) Services Not Medically Necessary: Often medical providers are required to certify that procedures, therapies or tests are medically necessary and that the patient has met certain criteria that indicate the medical necessity. The forms are known as Certificates of Medical Necessity or “CMNs.” An example of such a certification is as follows: THE PATIENT HAS APPROPRIATELY TRIED OTHER TREATMENT MEASURES WITHOUT SUCCESS. OXYGEN THERAPY AND OXYGEN EQUIPMENT AS PRESCRIBED IS MEDICALLY INDICATED AND IS REASONABLE AND NECESSARY FOR THE TREATMENT OF THIS PATIENT. THIS FORM AND ANY STATEMENT ON MY LETTERHEAD ATTACHED HERETO HAS BEEN COMPLETED BY ME, OR BY MY EMPLOYEE AND REVIEWED BY ME. THE FOREGOING INFORMATION IS TRUE, ACCURATE, AND COMPLETE, AND I UNDERSTAND THAT ANY FALSIFICATION, OMISSION, OR CONCEALMENT OF MATERIAL FACT MAY SUBJECT ME TO CIVIL OR CRIMINAL LIABILITY. Defendants have attempted to abuse and circumvent the CMN in a variety of ways, including but not limited to the following: having physicians sign blank CMNs; completing sections of the CMN required to be filled out by the physician prior to the physician”s signature; filling in sections required to be completed by the physician or altering the CMN after the physician’s signature, but before submission to Medicare; forging the physician’s signature; and, providing unauthorized form CMNs for the physicians to follow when filling out CMNs. The use of electronic CMNs or e-CMNs has recently been approved by the government and may create more innovative ways for unscrupulous providers to commit fraud.
c) Upcoding: Billing for a service not furnished as billed.
d) Unbundling: Taking two drugs or services that are normally prescribed together and charged as one prescription or service, and prescribing or billing them as separate drugs or services with separate charges in order to increase the Medicare reimbursement.
e) Violating the “incident to” billing laws: These violations occur when a nurse practitioner or medical assistant provide the patient care under the “direct supervision” of the physicians, but then the physician bills Medicare or Medicaid as if the physician provided the services personally. Reimbursement for care provided by the nurse practitioner or medical assistant is 85% of the physician rate. By fraudulently indicating that the physician personally provided the service, the provider receives reimbursement at the 100% rate. The incident to billing laws are also violated if the physician fails to provide the required supervision.
f) Kickbacks: The Anti-Kickback Statute: 42 U.S.C. § 1320a-7b(b) provides: Whoever knowing and willfully solicits or receives any remuneration (including any kickbacks, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind –
(1) in return for referring an individual to a person for the furnishing or arranging of any item or service for which payment may be made in whole or in part under a Federal health care program, or
(2) in return for purchasing, leasing, ordering, or arranging for or recommending purchasing, leasing, or ordering any good, facility, service, or item for which payment may be made in whole or in part under a Federal health care program shall be guilty of a felony and upon conviction thereof, shall be fined not more than $25,000 or imprisoned for not more than five years, or both. Whoever knowing and willfully solicits or receives any remuneration (including any kickbacks, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in kind to any person to induce such person-
(1) to refer an individual to a person for the furnishing or arranging of any item or service for which payment may be made in whole or in part under a Federal health care program, or
(2) to purchase, lease, order, or arrange for or recommend purchasing, leasing, or ordering any good, facility, service, or item for which payment may be made in who or in part under a Federal health care program, shall be guilty of a felony and upon conviction thereof, shall be fined not more than $25,000 or imprisoned for not more than five years, or both.
The Federal Courts have held, and the Justice Department agrees, that violations of the Anti-Kickback statute gives rise to a FCA violation because, as a condition of participation in the Medicare program, the defendant has agreed to abide by all Medicare Statutes and Regulations (one of which is the Anti-Kickback statute). Section 1877 of the Social Security Act, codified at 42 U.S.C. § I 395nn and commonly referred to as the “Stark Statute,” prohibits a physician from referring Medicare patients for certain “designated health services (“DHS”) to an entity with which he has a “financial relationship” unless an exception applies.
When originally enacted in 1989 (“Stark I”), the prohibitions applied only to physicians’ referrals for clinical laboratories. Omnibus Budget Reconciliation Act of 1989, P.L. 103-66, § 13562, Social Security Act Amendments of 1994, P.L. 103-432, § 152. In addition to prohibiting certain physician referrals, the Stark Statute prohibits health care entities from presenting or causing to be presented any Medicare claim for DHS provided as a result of a prohibited referral. 42 U.S.C. § I 395(a)(1)(B).
Any entity that collects a Medicare payment for DHS rendered pursuant to a prohibited referral must refund all collected amounts. 42 U.S.C. § 1395nn(g)(2); 42 C.F.R. § 411.353(g). Under the Stark Statute, the United States will not pay for certain items or services prescribed or ordered by physicians who have improper financial relationships with the entities that furnish those items or services. Stated conversely, compliance with the Stark Statute is a condition of payment imposed by the Federal Healthcare Programs.
One of the major purposes of the statute was to reduce losses suffered by the Medicare program due to over utilization of services. The Stark Statute broadly defines “financial relationship” to include ownership and investment interest and compensation agreements that involve any direct or indirect remuneration between a physician and an entity providing DHS.
A variety of regulatory and statutory exceptions identify specific types of investments and compensation agreements that will not violate its referral and billing prohibitions. Financial relationships between a physician and an entity providing DHS that do not meet a regulatory or statutory exception violate the statute. For example, compensation paid to a referring physician serving as a consultant to a hospital will fall within an exception to the statute if the contract
(1) is in writing and signed by the parties;
(2) is for a term of at least a year;
(3) specifies the services covered, covers all the services to be provided by the physician, and the aggregate of such services is reasonable and necessary for the legitimate business purposes of the hospital; and
(4) sets the payment for contract services in advance, consistent with fair market value for services actually rendered, not taking into account the volume or value of the referrals or other business generated between the parties. 42 U.S.C. § 1395nn(e)(3). Thus, compensation paid to a physician (directly or indirectly) under a personal services arrangement that exceeds fair market value, or for which no actual services are required, triggers the referral and payment prohibitions of Stark II with respect to DHS referred by that physician.
Further, a referring physician may lease office space to or from the provider of DHS if certain requirements are met, including the following: The space rented or leased does not exceed that which is reasonable and necessary for the legitimate purposes of the lease or rental. The rental charges are consistent with fair market value. The charges are not determined in a manner that takes into account the volume or value of any referrals. The agreement would be commercially reasonable even if no referrals were made between lessor and lessee.
Although Stark II anticipated that HHS would issue regulations interpreting the statute, Stark II is self-implementing. Congress did not require that regulations be promulgated before the statute became enforceable. See 42 U.S.C. § 1395nn(e)(1)(A). When final Stark I regulations were issued in August 1995, their preamble Specifically recognized the applicability of much of those regulations to interpret Stark II. See 60 Fed. Reg. 41914, 41916, 41978 (1995); 42 C.F.R. § 411.350-361 (1996).
On January 4, 2001, when HHS issued Phase I of final regulations interpreting Stark II, which further clarified that statute and its exceptions, the agency noted in its preamble that the regulations afforded providers until January 4, 2002 to bring certain arrangements into compliance “where [the regulations] proscribe[] conduct not previously prohibited,” and that “[i]n the meantime, the statute in its entirety remains in full force and effect ….” See 66 Fed. Reg. 856, 861 (2001).
Violation of the statute may subject the physician and the billing entity to exclusion from participation in federal health care programs and various financial penalties, including (a) a civil money penalty of $15,000 for each service included in a claim for which the entity knew or should have known that payment should not be made under Section 1395nn(g)(1); and (b) an assessment of three times the amount claimed for a service rendered pursuant to a referral the entity knew or should have known was prohibited. See 42 U.S.C. § 1395nn(g)(3), 1320a-7a(a). Compliance with the Stark Statute is and has been, since January 1, 1995, a condition of payment under the Medicare program .
Many different arrangements may implicate the Anti-Kickback and Stark laws. Some of the most common are:
a. Cash for patients
b. Marketing Agreements
c. Employee Service Agreements
d. Waivers of co-payments and deductibles
e. Medical Director Agreements
f. Below Fair Market Value Agreements Between Providers and Suppliers
g. Sporting Event Tickets
h. Hospital, Nursing Home and Other Facilities Cost Report Certifications: Many of the cost reports submitted by health care facilities to the Medicare financial intermediary require a certification that the hospital is in compliance with all federal laws required for reimbursement. If the health care provider is not in compliance, the cost report is a false claim for payment and an argument can be made that the entire cost report is subject to treble damages.
i. Drug companies failure to report their true best price for drugs to federal and state payors j. Pharmacies dispensing partial prescriptions and charging for the full amount k. Off-label promotion of drugs: under the provisions of the Food, Drug and Cosmetics Act, a company must specify the intended uses of a product in its new drug application to the FDA. Once approved, the drug may not be marketed or promoted for so-called “off-label” uses – any use not specified in an application and approved by the FDA.
5.) Transportation: Courts have held that falsely certifying compliance with federal safety standards in order to obtain federal funds for the busing of school children constitutes a false claim.
6.) Insurance: Making a false or fraudulent claim for payment under a federal insurance program, such as flood insurance.
7.) Minerals: The government has royalty interests in oil, gas, coal and other minerals taken off of federal lands. Knowing underpayment of these royalties results in a reverse false claim under 31 U.S.C. § 3729 (a)(7).
8.) False inflation of labor charges on cost plus contracts: These false claims can take the form of either falsification of the number of hours worked or falsification of the employees classification to a higher level of compensation.
From the website of: Hare, Wynn, Newell & Newton, 2025 Third Avenue North, The Historic Massey Building, Birmingham, Alabama 35203, Scott Powell, Don McKenna, and James R. Moncus III attorneys. http://www.falseclaimscase.com/