American Journal of Law & Medicine

Medical error as false claim.

[I]n appropriate instances, the U.S. Attorney's Office will act to investigate and pursue systemic substandard care issues, notwithstanding a provider's representation of compliance with administrative requirements.(1)

I. INTRODUCTION

Medical error and health care fraud are hot topics these days. Since the Fall 1999 publication of the Institute of Medicine ("IOM") Report, To Err is Human,(2) medical errors have received a great deal of attention in the popular and academic press.(3) Error reporting bills have been introduced at both the state and federal levels, and industry and government representatives have undertaken a variety of cooperative error-reduction efforts.(4)

Similar attention has focused on the issue of health care fraud, especially after former Attorney General Janet Reno designated such fraud as the Department of Justice's ("DOJ") "number two initiative, behind violent crime" in the early 1990's.(5) Recent legislation significantly increased anti-fraud enforcement resources and facilitated coordination among the government agencies with jurisdiction over health care fraud, particularly the DOJ and the Department of Health & Human Services ("HHS") Office of the Inspector General ("OIG").(6) The new enforcement efforts have paid off: in 1999, federal prosecutors won civil judgments and negotiated settlements of more than $524 million.(7)

The centerpiece of the health care anti-fraud effort is the Civil False Claims Act ("FCA" or "the Act"), a Civil War-era statute that prohibits the knowing submission of false or fraudulent claims to the federal government.(8) Violators are subject to statutory penalties of up to $11,000 per claim, plus treble damages,(9) making the FCA a powerful component of the federal anti-fraud arsenal. The FCA also contains a qui tam provision, which permits a private "whistleblower" who sues on the government's behalf to retain a portion of the money recovered,(10) Well-publicized settlements in the hundreds of millions of dollars attest to the FCA's powerful influence on the health care industry.(11) Recent enforcement activity has resulted in application of this basic anti-fraud provision to factual situations that are increasingly far removed from traditional types of government fraud. Most recently, this general anti-fraud provision has been extended to encompass alleged violations of Medicare and Medicaid quality of care requirements.

Given the current focus on quality issues in health care fraud, it is logical to ask whether the FCA can (and should) be used to address medical errors in care provided to beneficiaries of federal health care programs. Using the FCA to address medical errors is more than a theoretical possibility. The Act's severe penalties, combined with its applicability to virtually any entity doing business with the federal government, offer a great deal of flexibility to federal prosecutors. Similarly, the plaintiff's bar has zealously embraced the qui tam provision, using the FCA not only to attack improper practices in the health care industry, but also to achieve significant monetary recoveries for relators.(12) Recent attention to the problem of medical errors may serve as a catalyst to further expand the FCA's focus on quality of care issues -- a possibility already acknowledged by federal prosecutors.(13)

As this Article describes, using the FCA to address medical errors, particularly in hospitals, would indeed be a logical extension of the government's current focus on quality of care. Medical errors present an attractive target for anti-fraud efforts because they involve, inter alia, harm to identifiable patients and identifiable claims for payment, potential violations of federal program regulations, systemic problems rather than individual instances of negligence, a wide pool of potential qui tam relators, and intense pressure on institutional providers to settle fraud allegations. Yet ultimately the balance may weigh against applying the FCA to medical errors, for reasons that include the effect of clinical uncertainty on the promotion of quality care, the difficult proof such cases would entail, the importance of developing a coherent body of FCA case law, and the question of how to use the recovered funds. If these cases are inevitable--as recent comments by government prosecutors and plaintiffs' counsel suggest--we may need to explore creative ways to link such FCA recoveries more closely to the goal of promoting quality care.

II. THE CIVIL FALSE CLAIMS ACT

A. BACKGROUND

Congress enacted the FCA in 1863 in response to reports of "rampant fraud" perpetrated on the United States military during the Civil War.(14) Although the statute prohibits a wide range of fraudulent activities, the most commonly used provision imposes liability on a defendant who: (1) presents (or causes to be presented(15)) a claim for payment or approval; (2) the claim is false or fraudulent; and (3) the defendant's acts are undertaken "knowingly."(16) "Knowingly" is defined broadly to include not only actual knowledge, but also deliberate ignorance and reckless disregard of truth or falsity.(17) An actionable "claim" includes "any request or demand ... for money or property" if any portion thereof comes from the U.S. government.(18) Violators are liable for a civil penalty of $5,500 to $11,000 per claim, plus three times the amount of damages sustained by the government.(19) While the scope of FCA liability generally depends on the extent of the defendant's false or fraudulent activities, rather than on how the government processes the information it receives,(20) the reach of the law is extensive.

The FCA qui tam provisions permit private "whistleblowers" who sue on the government's behalf to retain fifteen to thirty percent of the proceeds of the suit, creating a powerful incentive for private parties to police their neighbors in the health care market.(21) Since amendments in 1986 modernized the Act and made it more lucrative to pursue qui tam actions, the number of health care-related FCA suits has grown exponentially, eclipsing other industries.(22) This powerful law can be invoked not only by federal prosecutors, but also by competitors, disgruntled employees and even patients and their families--thus making the FCA a significant threat to health care providers who receive payment from federal health care programs.

B. THEORIES OF FCA LIABILITY

Health care false claims traditionally have involved misrepresentations of the facts surrounding the services for which payment is requested. Liability has been imposed, for example, on health care providers who submitted claims for services that were not rendered, such as where the doctor never saw the patient for whom payment was requested.(23) Similarly, liability has attached for bills for services that were not provided as claimed, such as where a more expensive service was billed in place of the cheaper service actually rendered.(24)

Recent cases have sought to style regulatory noncompliance, rather than billing for services not rendered, as actionable falsity or fraud. In these cases, health care services are rendered to patients as claimed, but the provider allegedly violates some underlying legal requirement in connection with the care. For example, in United States ex rel. Pogue v. American Healthcorp, Inc.(25) a relator alleged that the defendant hospitals and physicians had submitted claims for services furnished pursuant to referrals that violated the Medicare & Medicaid Anti-Kickback Statute and the Stark Law.(26) Plaintiff argued that because compliance with the anti-referral laws was a prerequisite for participation in Medicare and Medicaid, claims submitted in violation of the provisions were, by definition, false and fraudulent.(27) In other words, the regulatory noncompliance was actionable because the government would not have paid the defendants for their services had it known of the violations.

The health care industry has fought against efforts to expand FCA liability to such facially valid claims.(28) Providers argue that because the government was billed only for legitimately rendered services, and would have paid the same amount to an "innocent" health care provider for identical care, the claims are not false and do not fall within the scope of the FCA.(29) In addressing such arguments, courts generally have adopted either the "tainted claims" or "false certification" approach.

1. Tainted Claims

When a defendant provides false information or violates a legal requirement in the course of negotiating a government contract, courts have held that all claims submitted under that contract may be considered false, even when they accurately reflect the goods and services provided. Although variously described as "false negotiation" or "fraud in the inducement" cases, perhaps a more apt description would be that the initial falsity "taints" subsequent, otherwise legitimate claims.(30) As one court recently noted, "although the work contracted for is actually performed to specification at the agreed price, liability attaches.., because of fraud surrounding representations made to obtain a contract or to obtain payment under a contract.(31)

The tainted claims theory has its roots in traditional bid-rigging cases, where artificially high or low bids on government contracts (usually accomplished through collusion among competing bidders) fraudulently entitled the winning bidder to receive a subsequent stream of revenue from the government.(32) As the Supreme Court explained:

 
   This fraud did not spend itself with the execution of the contract. Its 
   taint entered into every swollen estimate which was the basic cause for 
   payment of every dollar paid .... The initial fraudulent action and every 
   step thereafter taken pressed ever to the ultimate goal--payment of 
   government money to persons who had caused it to be defrauded.(33) 

A variant of this theory has been used in cases involving misrepresentations of contractors' eligibility to participate in restricted government-funded programs, which have held that "each and every claim submitted under a contract, loan guarantee, or other agreement which was originally obtained by means of false statements or other corrupt or fraudulent conduct, or in violation of any statute or applicable regulation, constitutes a false claim."(34)

In the health care context, the traditional tainted claims theory clearly could apply to providers who use false information to obtain approval to participate in government health care programs, such as by falsifying their medical education or licensure credentials.(35) Substantially more controversial, however, is the extension of the tainted claims theory to any and all regulatory violations that arise in the course of the provider's participation in the program, regardless of whether they relate to initial misrepresentations. Rather than linking the regulatory violation to falsity or fraud in obtaining the initial contract, this approach--illustrated by Pogue--suggests that a violation of the myriad regulations governing the federal health care programs can render all subsequent claims false per se.

Courts have recognized that extending this theory to per se tainted is a dubious proposition. As the Seventh Circuit recently noted, "the FCA is not an appropriate vehicle for policing technical compliance with administrative regulations."(36) The Fifth Circuit, the only circuit to directly address this theory in the health care fraud context, has rejected the per se argument by holding "that claims for services rendered in violation of a statute do not necessarily constitute false or fraudulent claims under the FCA."(37) Nonetheless, the theory remains alive in district courts in other circuits and is popular with qui tam relators.

2. False Certifications

Rather than focusing on the regulatory violation per se, other courts hinge FCA liability on the defendant's false certification of compliance with relevant laws as a condition of receiving government payment. Once again, the roots of this approach are found in more traditional government contracting cases. In Ab-Tech Construction v. United States,(38) for example, the government recovered statutory penalties against a minority-owned small business that failed to obtain approval for its dealings with a non-minority owned subcontractor.(39) In holding the claims to be false, the court found that "[t]he payment vouchers represented an implied certification by Ab-Tech of its continuing adherence to the requirements for" participating in the program.(40) By using the certification on the claim form to link regulatory compliance to the defendant's continued program eligibility, the court grounded its decision squarely in the FCA tradition.

Similar to the per se tainted claims cases, both the government and qui tam relators have argued that continued participation in Medicare and Medicaid entails an implied certification that the claimant will abide by all relevant program requirements. In Pogue, the relator argued that the defendants had impliedly certified their compliance with the federal anti-referral statutes; thus, by requesting payment for medical services rendered in violation of these statutes, the defendants allegedly submitted false and fraudulent claims. …

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