American Journal of Law & Medicine

An economic model to analyze the impact of false claims act cases on access to healthcare for the elderly, disabled, rural and inner-city poor.


In 1964 President Lyndon B. Johnson declared a "War on Poverty." (1) By 1965 Congress had enacted several key weapons in that war, (2) including two massive revisions to the Social Security Act designed to provide broad access to healthcare for the elderly, the disabled and poor, uninsured pregnant women and infants. The current Medicare (3) and Medicaid (4) health insurance programs, along with the State Children's Health Insurance Program, (5) provide health insurance and thus, access to healthcare, for 60% of people living in poverty. (6) Medicaid alone pays for half of all nursing home care in this country. (7) Medicare pays for hospital care for over 32.4 million elderly Americans, and for 3.7 million disabled Americans. (8) Medicare and Medicaid have been called the "lynch pin" in the nation's strategy to assure access to healthcare for low income Americans. (9) In short, the War on Poverty is not effective without the access to healthcare Medicare and Medicaid afford to the poor, elderly and disabled. (10)

Soon after their enactments, the cost of administering Medicare and Medicaid programs increased (11) so dramatically that a new war gradually emerged. In the words of one commentator, "One of the U.S. Department of Justice's ... highest priorities for the past several years has been to conduct a `war on health care fraud.'" (12) Unfortunately, the methods used in this new war on healthcare fraud contradict and compromise the healthcare access goals central to the original War on Poverty.

Cost containment, not universal access, is the objective of the war on healthcare fraud. A key strategy in this fight is to eliminate the amount of money the government spends on Medicare and Medicaid fraud. As early as 1978 the Department of Justice (DOJ) announced that the prosecution of Medicare and Medicaid fraud was one of its top priorities. (13) This offensive was reaffirmed by the Reagan administration in 1986, (14) but the war against Medicare and Medicaid fraud began in earnest during the early 1990s.

First, state Medicare and Medicaid fraud control units initiated legislation to combat fraud, naming this objective a "top priority." (15) Then the Clinton Administration announced its strategy of "focusing ... unprecedented attention on the fight against fraud, abuse, and waste in the Medicare and Medicaid programs." (16) In 1993 the Department of Health and Human Services (DHHS), the Inspector General (OIG), the Health Care Financing Administration (HCFA), (17) the FBI and the DOJ all combined efforts to "focus on fraud and abuse" (18) "Operation Restore Trust," a partnership of federal and state agencies, was launched by the Clinton Administration in May 1995; this program was designed to guarantee funding for fraud and abuse enforcement efforts within DHHS and local fraud control units. (19) HCFA enlisted the help of Medicare and Medicaid beneficiaries, providers and contractors in the effort to combat fraud in addition to federal and state government efforts. (20) The government began to use citizen-based programs such as "Seniors Organized to Restore Trust" (21) to encourage patients to report fraud. The offensive also included programs aimed at encouraging Medicare and Medicaid providers to report fraud voluntarily in exchange for the possibility of reduced penalties. (22)

Congress' contribution to the anti-fraud war effort has been substantial. Between 1990 and 2000 Congress almost annually passed stricter laws to combat healthcare fraud. (23) Currently over thirty federal statutes address healthcare fraud. (24) However, the Civil False Claims Act (FCA) (25) is by far the most potent and frequently used weapon in the government's arsenal to combat fraud. (26) Under the FCA, a government contractor may not knowingly submit, or cause to be submitted, a false or fraudulent claim for payment to the U.S. Government. (27) If an FCA violation is proven, not only may the government recover penalties and damages from the defendant, but the qui tam (28) provision of the FCA creates a private cause of action so that a private plaintiff may also earn a substantial share of those funds. (29) This is especially appealing to government and qui tam plaintiffs in medical fraud cases where each and every reimbursement, for each and every patient visit, over a number of years, may represent a fine or penalty plus treble damages. (30) It is no wonder that the FCA has been aggressively used by both the government and private plaintiffs.

This article discusses "false certification claims," an aggressive and arguably abusive application of the FCA to medical fraud cases. (31) False certification claims differ from ordinary FCA actions because they do not allege that a defendant directly violated the FCA by filing a false or fraudulent claim for payment. Instead, a defendant can be held liable in these cases even if the claims filed were true and fair. FCA liability in false certification cases turns on a finding that the defendant expressly or impliedly certified compliance with all Medicare and Medicaid rules, regulations and requirements, but that certification turned out to be false.

To date these false certifications fall into two distinct categories. The first and larger category includes cases in which the defendant either expressly or impliedly certified compliance with all Medicare and Medicaid regulations, and then requested payment from the government while the defendant was in fact in violation of a separate and unrelated statute or regulation. This article refers to this first group of false certification claims as "statutory false certification cases." The second and smaller category of FCA cases base liability on a finding that the defendant provided medical care that somehow fell below the standard of care. This second category of false certification cases is less well defined because the breach of the standard of care may be due to providing medically unnecessary care, inferior care or even overpriced care. Because these cases generally involve an alleged breach of a professional standard of due care, this article designates these cases as "tort false certification claims." Both categories of false certification cases involve post hoc determinations that the provider's express or implied certification of compliance, and not the submitted claim itself, was false and thus satisfied the FCA's "false and fraudulent" element. This article explores the substantive problems with these two types of false certification claims, and analyzes these claims' effects upon the ability of the elderly, disabled and poor to access healthcare.

Part II analyzes false certification claim case law. Part III summarizes two doctrinal flaws in applying the false certification theory to medical fraud cases. This article argues that private enforcement of statutory false certification claims is preempted, while tort false certification actions exceed the courts' federal common law making authority. Part IV of the article examines the key role of Medicare and Medicaid in providing access to healthcare for this country's poor and underserved. This section suggests an economic model that may be used to analyze the potentially damaging effect of false certification cases on the nation's healthcare safety net. The article concludes that as long as false certification cases continue to proliferate, the healthcare access goals of the War on Poverty may be the greatest casualty of the war against medical fraud.


Medical fraud is an expensive waste of public funds. The government has sought increasingly aggressive methods of attacking dishonest providers as healthcare costs have escalated. (32) There is no shortage of federal statutes to address the problem of medical fraud. (33) For example, criminal provisions recently enacted in the Health Insurance Portability and Accountability Act (HIPAA) (34) increase the number of criminal law provisions targeting healthcare fraud. These new laws, in addition to the Criminal False Claims Act, (35) mail fraud and wire fraud statutes, (36) money laundering statutes, (37) the Racketeering Influence and Corrupt Organizations Statute (38) and the Criminal Anti-Kickback and False Claims Statutes, (39) all provide criminal sanctions for fraudulently billing the government for Medicare or Medicaid services. Yet these statutes have fallen into relative disuse as the more attractive FCA option enjoys increasing success in the courts. (40)


The FCA is an attractive anti-fraud weapon for several doctrinal reasons. First, it provides plaintiffs with an evidentiary advantage over proving claims based upon underlying criminal or civil fraud statutes. A prima facie case under the FCA requires no showing that the government incurred loss due to the defendant's violation of the statute. (41) Second, the civil burden of proof relieves plaintiffs of the burden of proving criminal fraud beyond a reasonable doubt as required, for example, under the Medicare and Medicaid Anti-Kickback Act. (42) Third, some jurisdictions require no causal link between the defendant's alleged violation of the FCA and any alleged injuries. (43) Fourth, even the smallest financial overpayments are actionable under the FCA because the statute contains no materiality element. (44) Finally, the FCA requires no showing of a specific intent to defraud, unlike criminal statutes. (45)

The FCA also offers several pragmatic advantages over other statutes. It is a useful prosecutorial tool because its terms are relatively simple and straightforward. It can be applied generally to all types of healthcare providers, and to a wide variety of fraudulent billing practices. False certification claims have succeeded in cases against providers ranging from individual physicians, (46) nursing homes, (47) hospitals (48) and medical equipment manufacturers. (49)

The magnitude of defendants' potential exposure in false certification cases serves as a powerful incentive to compromise claims. (50) Moreover, the potential for private qui tam plaintiffs to share in sizeable recoveries provides financial incentive to government and private prosecutors to work together to use the FCA. (51)

Other financial considerations exist that make the FCA a weapon of choice in what one commentator has called an "uphill battle against healthcare fraud." (52) Providers who face increasing costs and declining utilization and reimbursement rates also face pressure to compete in increasingly more creative and complex ventures. Fraudulent schemes may become attractive to more desperate providers and are more difficult to discern, (53) Even with enhanced financial and personnel resources such as those provided under HIPAA, (54) medical fraud is difficult to detect. (55) Therefore, the FCA's qui tam provision enhances the enforcement effort by allowing the government to enlist the assistance of private plaintiffs as qui tam relators, (56) thereby expanding the government's ability to prosecute fraud. For example, of the nearly 2,300 civil claims pending against healthcare providers in 1999, 21% were filed by qui tam plaintiffs. (57) In addition, between 1986 and September of 2000, qui tam plaintiffs had filed over 3,300 FCA cases. (58)

In light of its strengths the FCA does have a place in combating fraud. Its usefulness is in cases of "true" fraud and falsity, in which the facts of a

given case directly satisfy the elements of the statute. These may include cases in which providers (1) billed for services never rendered; (59) (2) altered certificate of need documents to misrepresent their qualifications to participate in Medicare and Medicaid programs; (60) and (3) "upcoded" or "unbundled" fees. (61) However, the exact features that can make the FCA an attractive prosecutorial weapon in such cases of actual fraud are also the features that have allowed unchecked government prosecutors and qui tam plaintiffs to overuse and abuse the FCA.

The DOJ's overzealous use of the FCA to prosecute health fraud is well documented. One troublesome example is the DOJ's practice of mounting nationwide "initiatives," which prompted Congress to consider revising the FCA. (62) The initiatives, massive investigations targeting Medicare and Medicaid providers, are not based on evidence of actual fraudulent or suspicious activity by a particular institution, but rather upon the probability of fraud based on the size and number of Medicare or Medicaid billings submitted. (63) By 1997 the DOJ had developed an intense program of issuing blanket threats of FCA litigation against hospitals without supporting evidence of fraud, armed only with the powerful threat of prolonged and expensive litigation in federal court. (64) In this way the government could invest relatively few resources in investigation efforts. This practice created incentives for these providers to pay large settlements by "inviting" them to prove their innocence. The payoff was huge. In July 1998, the GAO reported that 2,400 hospitals had settled in the 72 Hour-Window initiative project alone. (65)

In response to evidence of the government's abuse of the FCA, congressional representatives introduced legislation to revise the statute in a manner that would raise the government's burden of proof. (66) Fearing a change in the statute, the DOJ issued guidelines in June 1998 to control the government's misuse of the FCA in healthcare fraud cases. (67) Rather than amend the FCA, Congress passed a statute in 1998 requiring the GAO to monitor the DOJ's compliance with the guidelines. (68) As of August 1999, however, the evidence suggested that compliance is still spotty. While improvements have been made, the government continues to overreach and misuse the FCA in the fight against healthcare fraud. (69) Moreover, while the GAO will continue to monitor the government's procedural misuses of the FCA, current case law suggests that substantive applications of the statute provide another example of FCA overuse.

1. False Certification Cases Alleging Statutory Violations

Statutory false certification claims assert liability under the FCA based on evidence that the defendant submitted a claim for payment to the government while violating a separate and possibly unrelated underlying federal or state statute. While the plaintiff must prove the elements of the underlying statute, this theory does not require the plaintiff to satisfy the elements of the FCA itself. (70) For example, the plaintiff need not show that the claim for payment itself was false or fraudulent in order to make out a prima facie false certification case. Rather, the plaintiff may meet the burden to prove the fraud or falsity element of the FCA merely by showing that the defendant violated another requirement. The defendant is assumed to have certified that no underlying violation existed at the time the defendant filed a claim for payment and, in light of the proven violation, that certification is allegedly false. The defendant's certification may be found either in an express promise to comply with certain laws, or in more general annual cost report or claim forms. Courts may even imply certifications merely by a provider's participation in the Medicare or Medicaid program. Perhaps the most difficult concern raised by statutory false certification cases is the use of a private cause of action under the FCA, where the underlying statute allegedly violated may have expressly excluded or failed to provide such relief. This occurs when false certification cases are based upon violations of the Medicare and Medicaid Anti-Kickback statute, (71) or the Stark anti-self-referral laws. (72)

The Fifth, Sixth and Ninth Circuits, as well as state courts in Tennessee, Maryland, Louisiana, Massachusetts and Pennsylvania (73) have approved such statutory false certification claims. In these cases the FCA became a tool for private parties to bring Anti-Kickback and Stark I and II claims where none could be brought under those statutes directly. For example, in United States ex rel. Pogue v. American Healthcorp, lnc. …

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