The False Claim Act (FCA) is the primary means to fight fraud perpetrated against the government. The FCA imposes civil and criminal liability for knowingly making a false or fraudulent claim to the United States for money or property; or to avoid an obligation to pay money (reverse false claim). 31 U.S.C. §§ 3279-3733.
Due to the emphasis on enforcement of the FCA, the U.S. Department of Justice (DOJ) reported that it recovered over $3.5 billion in settlements and judgments from claims arising under the FCA during fiscal year 2015. Since January 2009, the DOJ has recovered more than $26.4 billion. Whistleblowers alone filed 638 “qui tam” suits in 2015 and were awarded $597 million during the same period.).
FCA claims have been on the rise as the government, in collaboration with other governmental agencies such as the Centers for Medicare and Medicaid Services and Health Care Fraud Prevention & Enforcement Action Team, continues to crack down on fraud, waste and abuse in order to protect valuable taxpayers’ dollars. Thus, the key is to be proactive in managing the risk before an FCA claim is made against you.
Fraudulent activities against the government
Under the FCA, the government may bring its own action or may intervene in the existing qui tam complaint, a private right of action brought by a whistleblower (relator) against an individual or company accused of engaging in fraudulent activities against the government. A qui tam lawsuit is filed in camera and remains under seal for 60 days, giving the DOJ an opportunity to investigate the allegations and decide whether it will join in the case. 31 U.S.C. § 3730(b)(2). If after completing its investigation the government does not pursue the case, the relator with knowledge of the fraudulent activity, can proceed with the case on the government’s behalf.
Targeted companies and individuals, including but not limited to beneficiaries, hospitals, pharmacies, clinical laboratories, plan sponsors, employees, employer groups, and brokers and agents can be subject to both criminal and civil fraud investigations. More specifically, any person who knowingly submits a false claim to the government; causes another to submit a false claim to the government; or knowingly makes a false record or statement to get a false claim paid by the government is subject to FCA liability. In this context, “knowingly” means actual knowledge the information is false; deliberate ignorance of truth or falsity; reckless disregard of the truth or falsity; or no specific intent to defraud is required.
Inappropriately billing the government
Many civil and criminal fraud cases arise when inappropriately billing the government. Some schemes involve billing for a non-covered service as a covered item, providing medically unnecessary treatments or incorrect reporting of diagnosis or procedure.
Where a defendant is found liable under the FCA, treble damages (reducible to double for cooperating defendants) and penalties of $5,500 to $11,000 per false claim are generally awarded by the court. 31 U.S.C. § 3729(a).
Effective August 1, 2016, a fine per “false claim” submitted increases from $11,000 per claim to $21,563 (adjusted for inflation). These damages are intended to compensate the government for its investigation and litigation costs, as well as punish the defendant for its wrongdoing. The relator, in a qui tam action, receives a share of the recovery, ranging from 15% to 30%. 31 U.S.C. § 3730(d). However, only the “first-filed” relator is entitled to a share of the recovery.
Safeguard risk through insurance program
FCA investigations and actions can be very expensive to defend and even more costly when factoring in the potential for large settlements and judgments. To safeguard against any possible risk resulting from violation of the FCA, consider addressing through an insurance program. Insurance coverage, including but not limited to employment practices liability, directors and officers and errors and omissions may be available to pay for the defense of FCA claims and possibly pay for the settlement or judgment as well.
Know and re-evaluate all company insurance policies in their entirety with your broker with attention to some of these areas:
a. Notice provision.
b. Definition of a claim to include regulatory wrongful act and subpoena, as well as the definition of loss to encompass civil fines, multiple damages and penalties against an Insured for Regulatory Wrongful Acts to the maximum permissible under the law.
c. The conduct exclusions wording should specify that the adjudication must also be non-appealable. Otherwise the trial court judgment may be sufficient to bar coverage.
d. Ability to pick up prior acts by the removal of any pending or prior date(s).
e. Obtain pre-claim assistance for government inquiries, inclusive of interviews and meetings.
It would also be prudent to have third parties add the company as an additional insured on their policies.
Have a compliance program in place
Next, a compliance program should be in place in an effort to prevent fraud and mitigate risk. Per the OIG, an effective compliance program should include the following key components: (Federal Register, Vol. 65, No. 194. Thursday, October 5, 2000):
1. Formulate internal written policies, procedures, and standards of conduct that define the organization’s commitment to compliance with all applicable state and federal rules.
2. Launch a compliance committee with a designated compliance officer.
3. Provide proper education and training on FCA and other regulatory compliance measures.
4. Develop good lines of communication by encouraging internal reporting, including an anonymous hotline.
5. Promote an organizational culture that does not tolerate retaliatory actions against whistleblowing employees (i.e. harassment, discharge or other adverse employment action taken as prohibited by the FCA). 31 U.S.C. § 3730(h).
6. Set up procedures for effective internal monitoring and auditing to detect any fraud, waste and/or abuse.
7. Have a plan of action for responding to identified offenses.
8. Establish a disciplinary system.
Handling complex FCA claims
In sum, attempting to navigate through the usual insurance coverage issues in the face of allegations involving a false claims act violation can be very challenging. In conjunction with your broker, know and understand your insurance coverage, obtain the right insurance coverage and timely notify your insurance carrier. Additionally, you may want to think about instituting a compliance program and securing legal counsel experienced in handling complex and difficult FCA claims.
This article does not reflect the statements or views of OneBeacon Insurance Group, or any of its affiliates. OneBeacon is not responsible for its content.
Katherine C. Tower, JD, MBA, RPLU, is assistant vice president of the Management Liability Claims Unit with Bermuda-based OneBeacon Insurance Group. She was admitted to the State Bar of Illinois in 1994 and has litigated many cases, mainly in the area of insurance defense. Based in Chicago, Tower is a lecturer and author on professional liability topics, specifically management liability.