Congress enacted the False Claims Act (FCA) during the Civil War to combat fraud by government defense contractors. Included in the FCA is what is known as the qui tam provision, which allows successful qui tam plaintiffs, or relators, to earn a share of the recovery. In simple terms, the Act was designed to encourage whistle-blowing.5 Following its adoption in 1863, the Act has been amended three times. 6 The 1943 Amendments to the FCA narrowed the application of the qui tam provisions, diminishing the incentives on private enforcement actions. In 1986, Congress amended the FCA again in recognition of increasing fraud in government programs and in response to conflicting court decisions that were felt to inhibit the detection of fraud. The amendments also corrected inequities in the application of the qui tam provisions. 7 The 1986 Amendments expressly defined the requirements for successful prosecution of a qui tam lawsuit, increased the damages and penalties under the FCA, and established stronger incentives to encourage relators to bring qui tam actions, including coverage of attorney fees and costs to be paid by the offender. Congress noted that the FCA's new amendments were intended to "deputize ready and able people who have knowledge of fraud against the government to play an active and constructive role through their counsel to bring to justice those contractors who overcharge the government." 8 Although other industries are also vulnerable to qui tam actions, the health care industry accounted for 61% of the qui tam suits brought in 1998. 9 The high volume of lawsuits in health care reflects not only claims traditionally considered to be the targets of FCA suits, but also a broad scope of claims that demonstrate an increase in the types of activities that may be susceptible to qui tam actions. 10 As a result, qui tam actions in health care are the subject of increased scrutiny and criticism where many see the balance between legitimate enforcement and relator opportunism (and/or government heavy-handedness) tipping toward the latter.
The False Claims Act Qui Tam Action The basis for a qui tam action has five elements:
Under the Act, a "claim" includes any request or demand, whether under a contract or otherwise, for money or property which is made to a contractor, grantee, or other recipient if the United States Government provides any portion of the money or property which is requested or demanded, or if the Government will reimburse such contractor, grantee, or other recipient for any portion of the money or property which is requested or demanded. 11 A defendant is liable for knowingly presenting any false or fraudulent claim for payment. The FCA also provides that false records or false statements, submitted to support a claim, are themselves false claims. Conspiracy to make such a false claim is forbidden, too, as is causing another person to present a false claim. 12 The 1986 Amendments expanded the vulnerability of potential qui tam defendants by expressly excluding from the mens rea intent to defraud and actual knowledge as requisites to a false claim. Rather, the definition uses the term "knowingly," elaborating that, with respect to information which forms the basis of a claim, a person acts knowingly if he or she: (1) has actual knowledge of the information; (2) acts in deliberate ignorance of the truth or falsity of the information; or (3) acts in reckless disregard of the truth or falsity of the information and no proof of specific intent to defraud is required. 13 Under the FCA, one who "knowingly makes, uses, or causes to be made or used, a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government, is liable to the United States Government[.]" 14
The Qui Tam Lawsuit With these bases for a claim, a qui tam plaintiff is sufficiently armed to initiate a lawsuit on behalf of the government. The relator first prepares a written complaint and serves it on the Attorney General, 15 not on the defendant, along with written documentation of substantially all material evidence. The evidence remains under seal for at least 60 days during which time the government reviews the case. 16 During this time, the defendant may be completely unaware of the filing of the action. The government decides whether to proceed with the lawsuit. If the government proceeds, then it takes over the handling of the case. If it declines the case, the qui tam plaintiff then has the right to handle the case individually. If the government proceeds with the action, the qui tam plaintiff is entitled to an award in an amount from 15% to 25% of the recovery, as determined by the government based on the extent of the relator's contribution to the prosecution. 17 If the case is handled by the individual, the relator is entitled to an award of between 25% to 30% of the recovery.18 In addition, in either case, the relator may receive reimbursement for reasonable expenses, costs, and attorney fees, chargeable to the defendant. 19 If the relator participated in the violation of the False Claims Act, the court may take that into account and reduce the award. If the relator is convicted of a crime relating to the FCA violation, then no share of the proceeds will be awarded to the plaintiff. 20 Generally, the relator must have direct and independent knowledge of the alleged violations, and must be the original source of the information used in the FCA action. 21 Where the government has already brought an action, a plaintiff suit is barred.22 Where relevant information has been publicly disclosed, no qui tam action may be brought unless the relator is the original source of the publicly disclosed information. "Public disclosure" is defined as "disclosure of allegations or transactions in a criminal, civil, or administrative hearing, in a congressional, administrative, or Government [General] Accounting Office report, hearing, audit, or investigation, or from the news media." 23 Most courts have held that the enumerated sources are exhaustive.24 A False Claims Act suit requires the relator to prove by a preponderance of the evidence all essential elements of the case.25 The action must be brought within six years of the alleged FCA violation or three years after the date "when facts material to the right of action are known or reasonably should have been known" by the government, which ever period is longer. 26 The Constitutional basis for a relator bringing the claim is generally supported by the argument that the government has standing to bring the suit, while the relator simply represents the government. 27 Although in recent years a number of defendants have challenged the qui tam provisions of the FCA on Constitutional grounds, the courts have largely turned back these attempts. 28 As a result of the 1986 Amendments to the FCA, the number of qui tam suits has increased significantly, and health care industry has been a frequent target, accounting for the majority of FCA cases. 29 "[T]he amendments have had their intended effect of expanding the use of FCA and its qui tam provisions. As the recent amendments have made it easier to pursue fraud actions, qui tam suits have increased and received greater publicity, leading to greater awareness of the law and, in turn, to the filing of more actions." 30
Qui Tam Actions in Health Care Health care qui tam lawsuits increased from a dozen in 1987 to more than 200 in1998. As of June 2001, of the total qui tam recoveries to date, 57 percent - or $2.3 billion - is attributed to health-related cases. Of the FY 2000 recoveries, $840 million stemmed from health care fraud cases. 31 Not only has the health care industry been the target of the majority of the qui tam actions over the past decade, it has also been the locus of some of the largest qui tam lawsuit recoveries under the FCA. Columbia-HCA, an investor-owned hospital chain, agreed to pay $840 million to settle allegations regarding the submission of false claims for laboratory tests, home health visits, management fees, and other charges to the government. The settlement is the largest government fraud settlement ever reached by the Justice Department and resolves seven of the 27 qui tam lawsuits filed in various jurisdictions across the country, but consolidated in Washington, D.C. 32 Other notable cases include a $385 million settlement with Fresenius Medical Care involving alleged fraud in its kidney dialysis centers, and $170 million from Beverly Enterprises for alleged false billings to Medicare involving several of its nursing homes in California. 33 SmithKline Beecham Clinical Laboratories ("SKB") paid $325 million for alleged overbilling for laboratory tests that were unnecessary, not ordered by a physician, or never performed. 34 In the latter case, SKB had adopted a marketing practice among providers of clinical laboratory testing, "bundling" laboratory tests and selling them as a package. In what had become known as the "automated chemistry scheme," SKB bundled a group of blood tests with some additional tests, and marketed them to physicians, leading them to believe that the added tests would be provided at no additional cost to the government. After the tests were ordered, the laboratories "unbundled" the tests for billing purposes, resulting in higher charges to the government payors. Because the tests were sold as part of a package, the additional tests in the "bundle" were often a part of the physician's order for which there was no determination of medical necessity. As a result, the laboratories received payment for tests that were medically unnecessary. An employee of SKB filed a qui tam action in 1993, followed by additional relators who also worked for the company. 35 In another health care qui tam case, $17.2 million was paid by the University of Texas Health Science Center/Medical School at San Antonio to settle allegations that inflated claims for physician services were submitted to Medicare, Medicaid, TRICARE and the State Legalization Alien Impact Assistance Grant program. The government alleged that the Medical Center submitted claims for services personally provided by faculty physicians when, in fact, the Center's records did not support the claim that the faculty member personally provided the service. 36 As these high profile cases illustrate, typical qui tam actions in the health care industry are related to billing infractions for services under the federal and state Medicare and Medicaid programs. However, the range of applications of the qui tam provisions of the FCA have increased as the scope of claims prosecuted under the Act has expanded. FCA defendants in health care are vulnerable not only to alleged acts related to specific false claims such ordering unnecessary tests, seeking payment for services not rendered or using false billing codes. Qui tam actions have also been brought for alleged problems in coordination of benefits between health insurers, 37 for problems related to the quality of care provided,38 and for violations of the Medicare and Medicaid anti-kickback statute.39 In United States ex rel. Woodard v. Country View Care Center,40 the government alleged that the defendant submitted false claims when they filed Medicaid cost reports that included amounts paid to consultants who, the court found, performed no services and whose payment amounted to kickbacks. 41 The fees paid for consulting services were part of a management agreement, established when the defendants purchased the facility, in which the defendants were to be paid as consultants to the management company. Since the defendant's reimbursement was based on the cost reports, submission of the cost reports constituted false claims. Of the 282 health care whistleblower suits filed in 1998, 44 of those contained kickback allegations. A key factor accounting for this number is that kickback allegations filed under the FCA are simpler to prosecute than those filed under anti-kickback statutes and have a lower standard of proof. 42 The whistleblower suits concerning kickbacks reflect a significant development in which the basis for a qui tam action need not necessarily depend upon a straightforward false claim; rather, failure to abide by other applicable regulations, such as the anti-kickback statute, may be sufficient to "taint" any claim against the federal government. 43 Under a "tainted" claim theory, the government does not need to show any actual damages. Thus, the amount received from the government, even if fixed and therefore not increased by the disputed claim, is irrelevant. The plaintiff needs only to establish that the alleged kickbacks (or other failure to meet federal regulations required as a condition for payment) somehow taint the claims for government reimbursement; those tainted transactions may be enough to establish a false claim. In United States ex rel. v. Aranda, the allegations pointed to quality of care considerations where the hospital did not take adequate precautions to avoid harm to patients, including physical injury and sexual abuse. "This allegation was based on 'inadequate conditions' at the hospital, 'such as understaffed shifts, lack of monitoring equipment' over the patients, 'and inappropriate housing assignments.' The district court in Oklahoma declined to hold that 'these allegations, if proved, cannot form the basis of an FCA claim.'" 44 "[T]he expansion of the False Claims Act into new areas can be expected to further discourage health care fraud . . . Certainly the imaginations of the United States attorneys and qui tam plaintiffs have not been exhausted, and even more creative uses of the False Claims Act can be anticipated." 45 "D. McCarty 'Mac' Thornton, chief counsel to the inspector general, says whistleblowers serve a valuable role because 'they bring our attention to unlawful practices that we would not have otherwise found out about.'" 46
Who are qui tam plaintiffs? Under the FCA, virtually anyone except a member of the armed forces may bring a qui tam lawsuit. 47 Plaintiffs have included a Medicare beneficiary who sued his supplemental carrier,48 physicians,49 advocacy organizations,50 and professional associations,51 among others. Because the plaintiff generally requires direct knowledge of the alleged violation, they are usually insiders - someone employed by or associated with the defendant. 52 In a provision designed to encourage individuals to disclose known occurrences of fraud, the FCA prohibits employers from retaliating against employees who participate in a qui tam action. 53 "Because many relators are high-level employees of the [companies against whom the suit is filed], they have access to information and the decision-making process that other employees (and certainly the government) do not have." 54 Whistleblowers' knowledge of a company's operations and practices are often critical to the settlement or judgment in FCA cases. "[M]any of these individuals place their jobs (and careers) on the line and their personal lives in upheaval for several years while cooperating with (or in some cases waiting out) government investigations." 55 "'Healthcare defense lawyer Neil Caesar, president of the Health Law Center in Greenville, S.C., says whistleblowers must have a well of anger that fuels the passion needed to withstand the arduous legal process, which can drag on for years.'" 56
Succeeding in a Qui Tam Action Fortunately for many plaintiffs, health care qui tam defendants often prefer settlement to judgment. Moreover, providers are motivated to settle quickly. "A lawsuit involving fraudulent claims by a health care provider that were paid for by the Government and taxpayers can be highly detrimental to the industry. The general public may lose confidence in the particular provider involved, thereby harming the provider's business. Thus, there is a strong incentive for a health care provider to settle any false claims actions to minimize such damage." 57 The substantial penalties, damages and costs to which violators are at risk are other factors that motivate settlement.58 The burden on health care providers can be significant; "qui tam lawsuits dwarf medical malpractice recoveries by comparison." 59 In the course of business, health care providers may routinely submit claims for each patient encounter or transaction; thus, even small dollar amounts may be quickly transformed into enormous, high dollar potential for economic damages for which they may be liable under the FCA's penalty structure. However, the motivation to settle may leave unchallenged many allegations that may, in fact, not be violations of the FCA. "While settlement is an efficient way to dispose of FCA allegations, it also removes crucial legal issues from judicial scrutiny[.]" 60 On the other hand, because the stakes are often significant in terms of the size of the total potential outlay, providers' vigorous and protracted opposition is not uncommon. Moreover, the requirements for bringing a successful suit under the FCA include detailed documentation and fact-intensive information to prove actual fraud. It is not unusual to see charges dismissed under Rule 9(b) of the Federal Rules of Civil Procedure. 61 Thus, despite the motivation of many health care providers to quickly settle suits, health care qui tam plaintiffs are not automatic winners. Perhaps the most critical element to - and the best predictor of - the success of qui tam recoveries, and relator reward, is government intervention in the law suit. Although the Federal Government has primary responsibility for prosecuting FCA cases, it may decline to intervene in a qui tam action. While the plaintiff may proceed without the government's assistance, it is likely to be significantly more challenging and less rewarding. In those cases in which it intervenes, the government "provide[s] the clout and the staff resources that often are necessary to win." 62 As of September 30, 2000, the government had intervened in only about 22 percent of qui tam cases; recoveries in those cases represent about 95 percent of the total recoveries. 63 The majority of cases in which the government does not intervene are dismissed.64
Legitimate Enforcement and Relator Realities While the health care industry has proven to be fertile ground for some qui tam plaintiffs, it is, by no means, a sure bet. Prosecuting health care fraud, given the complexity of the regulations that govern the industry, is no easy task. Nor, despite the apparent simplicity of the FCA, is satisfying the elements of a successful prosecution. Because an essential element of a false claim is knowledge of its falsity, proving that knowledge is probably the most difficult challenge. In 1998, the Department of Justice issued a memorandum to guide prosecutors in health care FCA cases. The memorandum identifies several factors that must be considered in determining whether a provider has the requisite knowledge. These include:
The memorandum also directs prosecutors to consider a number of other factors that may be relevant to the resolution of the action, or deciding to bring an action:
Government prosecutors are required to use these factors to determine the basis and merits of an FCA lawsuit under the "knowledge requirement," and the government's role, if any, in the action. Few private relators are likely to have either the knowledge or resources to conduct this type of analysis to measure the merits of their case. Failure to have the benefit of this analysis is likely to be a substantial weakness in the plaintiff's case. Moreover, without the decided advantages of government intervention to a successful outcome for the plaintiff, pursuing an action as a private plaintiff may, indeed, be a boondoggle. Nevertheless, the number of health care qui tam cases has risen steadily over the past decade. While qui tam plaintiffs are often characterized in the popular media as individuals with a desire to "right wrongs," 67 clearly, the potential for large rewards is, by design, an incentive for many. "One key to the effectiveness of the FCA is the financial incentive for whistleblowers to file qui tam actions and provide the government with information of fraudulent practices." 68 The motivation of relators is, in terms of enforcement, irrelevant. Whether motivated by greed, a desire to seek justice, vengeance, or personal loss, actual incidents of fraud revealed and prosecuted - with or without the government's intervention - by qui tam plaintiffs does serve to stimulate and heighten provider compliance. It also alerts the government to existing and potential fraud in the industry. Thus, regardless of whether relators are seen as opportunists or righteous, it is clear that they are an essential element of the arsenal the Federal Government devotes to health care fraud. Accordingly, they are entitled, by law, to their reward.
Endnotes 1 False Claims Act, 31 U.S.C. §§ 3729 - 3732 (2001). 2 David J. Ryan, The False Claims Act: An Old Weapon With New Firepower Is Aimed At Health Care Fraud, 4 Annals Health L. 127 (1995). 3 Supra note 1 at §3729(c). 4 The Department of Health and Human Services estimates that more than $11.9 billion in improper Medicare payments were made in fiscal year 2000 alone. See Joan H. Krause, Health Care Providers and the Public Fisc: Paradigms of Government Harm under the Civil False Claims Act, 36 Ga. L. Rev. 121 (2001) citing Office of the Inspector General, Department of Health and Human Services data, available at http://www.dhhs.gov/progorg/oas/reports/afma/a0002000.htm 5 United States ex rel. Springfield Terminal Ry. Co. v. Quinn, 14 F.3d 645, 651 (D.C. Cir 1994). 6 The 1988 Amendment to the FCA, the most recent, reduced the share of the proceeds of a relator who played a role in the fraudulent activity. 31 U.S.C. §3730(d)(3). 7 Patrick A. Scheiderer, Medical Malpractice As A Basis For a False Claims Action? 33 Ind. L. Rev. 1077 (2000). 8 132 Cong. Rec. H9382-83 (Oct. 7, 1986). 9 http://ffhsj.com/quitam/fcastats.htm citing statistics from the Department of Justice compiled and posted by the law firm of Fried, Frank, Harris, Shriver & Jacobson. 10 Joan H. Krause, Health Care Providers and the Public Fisc: Paradigms of Government Harm under the Civil False Claims Act, 36 Ga. L. Rev. 121, 125 (2001). 12 31 U.S.C. §3729(a) (2001). 13 31 U.S.C. §3729(b) (2001). 14 31 U.S.C. §3729(a)(7) (2001). 15 31 U.S.C. §3730(a) (2001). 16 31 U.S.C. §3730(b)(2) (2001). 17 31 U.S.C. §3730(d)(1) (2001). 18 31 U.S.C. §3730(d)(2) (2001). 19 Id 20 31 U.S.C. §3730(d)(3) (2001). 21 31 U.S.C. §3730(e)(4)(a) (2001). 22 31 U.S.C. §3730(e)(3) (2001). 23 31 U.S.C. §3730(e)(4)(a) (2001). 24 Margaret L. Hutchinson and Marc Raspanti, Recent Developments in Qui Tam/Relator Law, American Health Lawyers Association, Fraud and Compliance Forum, September 30 - October 2, 2001. 26 31 U.S.C. §3731(b) (2001). 27 Ryan, supra note 2 at 139. 28 See Riley v. St. Luke's Episcopal Hospital, 196 F.3d 514 (5th Cir. 1999) (holding that an uninjured qui tam relator does have standing to bring a lawsuit); see also, United States v. Pani, 717 F.Supp. 1013 (S.D.N.Y. 1989) (stating that FCA penalties are not so excessive as to constitute double jeopardy). 29 Jack A. Meyer and Stephanie E. Anthony, Reducing Health Care Fraud: An Assessment of the Impact of the False Claims Act, New Directions for Policy For Taxpayers Against Fraud, (September 2001) available at www.taf.org (last visited March 17, 2002).30 Ryan, supra note 2 at 129. 31 Meyer and Anthony, supra note 29 at page 35. 32 HCA Agrees To Pay $840 Million in Government's Largest Fraud Settlement Ever, at http://www.taf.org/press/HCAagrees.html (last visited on March 15, 2002). 33 Meyer and Anthony, supra note 29. 34 Hutchinson and Raspanti, supra note 24. 35 United States ex rel. Merena v. SmithKline Beecham Corporation, 205 F.3d 97, 98-99 (3rd Cir. 2000). 36 The Department of Health and Human Services and The Department of Justice Health Care Fraud and Abuse Control Program, Annual Report For FY 1998, at http://www.usdoj.gov/dag/pubdoc/98hipaa_ar.htm#f (last visited March 16, 2002).37 Cooper v. Blue Cross and Blue Shield of Florida, 19 F.3d 562 (11th Cir. 1994). 38 United States ex rel. v. Aranda v. Community Psychiatric Centers of Oklahoma, Inc., 945 F.Supp. 1485 (Okla. 1996) (denying hospital's motion to dismiss suit brought on allegations of an unsafe patient environment). 39 E.g., United States el rel. Woodard v. Country View Care Center, Inc., 797 F.2d 888 (10th Cir. 1986). 40 Woodard, 797 F.2d 888. 41 Id 42 Mark Taylor, On The Ropes: Beefed-Up Anti-Kickback Laws, Growing Cohort of Whistleblowers Pound Away at Healthcare Fraud, Modern Healthcare (June 28, 1999). 43 See Ryan, supra note 2 at 144 -146. 44 Scheiderer, supra note 7 1097, 1098. 45 Ryan , supra note 2 at 150. 46 Supra note 37. 47 31 U.S.C. §3730(e) (2001). 48 Cooper, 19 F.3d 562. 49 E.g., United States ex rel. Aflatooni v. Kitsap Physician Services, 19 F.3d 562 (9th Cir. 1998) (holding that the physician-relator could bring a qui tam suit against a medical group for actions that were not publicly disclosed in the media). 50 United States ex rel. Foundation Aiding the Elderly v. Horizon West, Inc., 2001 U.S. App. LEXIS 27363 (Cal. 2001). 51 United States ex. rel. Minnesota Association of Nurse Anesthetists v. Allina health System Corp. (8th Cir. 2002) (holding that the Association had standing to bring a qui tam lawsuit). The Association accuses the doctors and hospitals of defrauding Medicare by billing for the doctors' time at the more expensive "personally performed" rate instead of the "medically supervised" rate that covers the time anesthesiologists spend supervising nurse anesthetists.'" 52 E.g., United States ex rel. McCarthy v. Straub Clinic and Hospital, Inc., 140 F.Supp. 2d 1062 (Haw. 2001). 53 31 U.S.C. §3730(h) (2001). 54 Meyer and Anthony, supra note 29at page 59. 55 Id 56 News, Modern Healthcare, November 22, 1999. 57 Scheiderer, supra note 7 1083. 58 See 31 U.S.C. §3731(a)(7) (2001). 59 John Boese, When Angry Patients Become Angry Prosecutors: Medical Necessity Determinations, Quality of Care and Qui Tam Law, 43 St. Louis U. L.J. 53 (1999). 60 Krause, supra note 10 at 127. 61 See United States ex rel. Obert-Hong v. Advocate Health Care, 2001 U.S. Dist LEXIS 3767 (N.D. Ill. 2001). 62 Meyer and Anthony, supra note 29at page 36. 63 Id 64 http://www.taf.org/statistics.html citing DOJ statistics. 65 Eric H. Holder, Jr., Deputy Attorney General, Guidance on the Use of the False Claims Act in Civil Health Care Matters, Memorandum dated June 3, 1998, available at www.usdoj.gov/04foia/readingrooms/chcm.htm (last visited on March 17, 2002). 67 See supra note 56. 68 Meyer and Anthony, supra note 29at page 37.
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Under a 19th century law
known as the False Claims Act,