Implications of the Fraud Enforcement and Recovery Act of 2009

On May 20th, President Obama signed into law the Fraud Enforcement and Recovery Act of 2009 (FERA), and the law has since gone into effect. FERA makes significant changes to the False Claims Act (FCA), a statute often used to deter and sanction health care fraud. The FCA is already a source of distress for health care companies, which have paid hundreds of millions of dollars in FCA damages in the past year alone. FERA’s changes to the FCA will undoubtedly increase litigation and the number of damages awards against health care companies, and companies should take proactive measures to minimize the risk of litigation.

Changes to the False Claims Act

FERA makes several changes to the FCA, each of which will either increase a health care company’s risk of liability or incentivize plaintiffs to file suit.

Health Care Companies Have a Greater Risk of Liability Under the False Claims Act

Expanded FCA liability for health care companies is FERA’s most far-reaching implication. FERA extends FCA liability in three important ways:

More Attenuated Governmental Link Accepted: Under the old FCA, a health care company was only liable for fraudulent claims for money to which the government had title. Under the FCA as amended by FERA, however, a company is potentially liable for fraudulent claims for any money with even a slight connection to the government. Now health care companies, including downstream suppliers, face potential liability for claims made to private as well as public companies, even if the claim is only loosely related to government funding.
Plaintiffs No Longer Have to Establish Intent to Defraud: FERA overturns a recent Supreme Court decision requiring that a FCA plaintiff establish that the defendant intended to defraud the government. FERA changes the law, removing the statute’s intent requirement. Without the intent requirement, plaintiffs can more easily establish the required FCA elements for a health care fraud claim, thereby increasing a plaintiff’s incentive to sue.

In lieu of intent, FERA expressly adopts a judge-made rule requiring a defendant’s false statement to be material to a fraudulent claim. However, the materiality requirement is a weak standard and requires only that the statement have “a natural tendency to influence, or be capable of influencing, the payment or receipt of money.” This standard will likely fail to deter a potential plaintiff from filing suit against a health care company.

Liability Extended to Cover More Practices: FERA extends liability to three key activities not previously within the scope of the FCA. Health care companies now face liability for:
- Failing to return overpayments to the federal government or to any entity reimbursed with government funds, an omission that was not covered by the old FCA.
- Short-changing the government or any entity reimbursed with government funds.
- Conspiracy to commit any FCA offense including overpayment and short-changing, regardless of whether the company actually obtained payment under a fraudulent claim.

Amendments to the False Claims Act Make Plaintiffs More Likely to File Suit

Some aspects of the FERA amendments make plaintiffs more likely to file suit and make doing so easier than before. Health care companies should be aware of the following key changes:

Information Sharing: Prior to FERA, government investigators could not share evidence with a private plaintiff although private plaintiffs could share evidence with the government. Now, however, the transfer of information may go both ways, from private plaintiffs to the government and vice versa if the government deems such sharing necessary. This shared evidence is a potential danger for health care companies, as it gives private plaintiffs greater access to information and potentially an increased incentive to sue.
Expanded Opportunities for Government Claims: FERA adds a provision to the FCA allowing the government to become a co-plaintiff even after the applicable statute of limitations period – six years from the violation or three years from discovery of the violation – has run, so long as the private plaintiff originally filed a timely complaint. Allowing the government’s claims to relate back to the private plaintiff’s allegations could require a health care company to defend stale claims, a potentially serious problem for companies that undoubtedly wish to expend limited time and money in litigation.
Expanded Protection for Whistleblowers: Prior to the FERA amendments, the FCA provided that employees retaliated against for whistleblowing could file suit against the employer – but not against individual supervisors or co-workers – for reinstatement, back pay, and costs and attorney fees. After FERA, non-employees including contractors and agents may sue for retaliation, and there is no requirement that an “employer” be the retaliator. Thus, FERA broadens potential liability for health care companies because now an anti-retaliation action may be based on any number of relationships, whether employment or more attenuated.

The Bottom Line

It is clear that many of the changes FERA makes to the FCA have the potential to change the way health care companies do business and to alter the scope and scale of health care litigation. Since FERA increases the scope of FCA liability, health care companies are potentially liable for more practices than ever before. Private plaintiffs are now in a better position to sue because they can receive investigative information from the government and can bring questionable practices to light with less fear of retaliation from an employer or other individual with the capacity to retaliate. With the new relation-back provision, the government also has increased incentive to join pending lawsuits.

These changes will undoubtedly lead to an amplified risk of costly litigation. Health care companies can minimize this risk through proper planning and prevention. Clients should consult counsel regarding any activity that may come under the scope of these new provisions and should consider new screening mechanisms and employee training that might reduce the risk of a lawsuit.

For more information, please contact your SGR counsel or Dana Richens at 404-815-3659, drichens@sgrlaw.com.