Federal Enforcement and Recovery Act Affects Fraud and Abuse Liability

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On May 20th, President Obama signed the Federal Enforcement and Recovery Act of 2009 ("FERA"), expanding potential liability under the False Claims Act (“FCA”). In several ways, explained below, the Act expands the scope of the FCA and the ability of the government and qui tam relators to sue under it.

Reversal of Restrictions on FCA from the USC Allison Engine Decision

FERA overturns a United States Supreme Court decision, Allison Engine Co. v. United States ex rel. Sanders, which had clarified and narrowed key interpretations of the FCA. Prior to the passage of FERA, the FCA had a “presentment” requirement. A defendant must have presented the fraudulent claim directly to the government. In Allison Engine, the Supreme Court found that if the defendant submitted the false claim to a contractor and not directly to the government, then the government would have to prove that the defendant intended to defraud the government as well as the contractor. FERA removes the “presentment” requirement so that a defendant is liable for knowingly presenting to anyone a false or fraudulent claim for funds that at least partially come from the federal government.

In addition to removing the presentment requirement, FERA expands the definition of a “claim.” The operative language of the Act covers claims for money that “is to be spent or used on the Government’s behalf or to advance a Government program or interest.” As a result of this new and broader language, more types of government payments, including those indirectly paid by the federal government (e.g. Medicaid) will now be squarely within FCA liability under the expanded definition of “claim.”

FERA also removes from an FCA provision a requirement of “intent” that the Supreme Court relied upon in Allison Engine. Under FERA, the false statement only has to be "material" to the government’s decision to pay money. FERA broadly defines "material" as "having a natural tendency to influence, or be capable of influencing the payment," adopting the definition suggested by the U.S. Department of Justice (DOJ). Previously, under Allison Engine, the Supreme Court had found that "to get" required that the defendant have the purpose of “getting” the government to pay a false claim. FERA deletes the “to get” language and, as a result, the FCA no longer requires a showing that defendants have the purpose of getting the government to pay a false claim. Instead, the government or a qui tam relator bringing suit now only has to meet the “material” test and show that the defendant made a false statement capable of influencing payment on a claim.

Increased Authority for DOJ and Other Governmental Agencies

FERA also allows DOJ new flexibility in dealing with other governmental entities and qui tam relators. Overall, FERA provides for the DOJ to share information in a much broader and coordinated way.

FERA minimizes the restrictions on the Attorney General’s authority to issue Civil Investigative Demands (“CID”). The Attorney General may elect a designee to issue the CID and control the procedure. Moreover, if the Attorney General or designee determines that disclosure of the information from the CID is necessary to the qui tam action, then the designee or Attorney General may disclose the information to the relator. Before FERA, only the Attorney General had authority to issue CID, and disclosure of information provided in response to a CID was strictly limited and not shared with the qui tam relator. The new access to CID information could aid a relator in fulfilling the strict requirements for a complaint alleging fraud under existing FCA case law.

The Attorney General or designee also may disclose the information to a Department of Justice attorney for “official use.” Under FERA, sharing information for “official use” includes sharing the information with attorneys for other parties, with other governmental agencies (state or federal), as well as with government consultants, experts, auditors, and investigators. The government may also disclose the information to state law enforcement agencies when the state is a co-plaintiff. Just last week, the DOJ and the U.S. Department of Health and Human Services foreshadowed their coordinated efforts with the announcement of the Health Care Fraud Prevention and Enforcement Action Team ("HEAT"). The HEAT Team will coordinate and expand efforts to detect, prevent, and prosecute health care fraud and abuse.

Also under FERA, the government’s intervention in a qui tam action “relates back” to the date that the relator filed the qui tam complaint, for statute of limitations purposes. Consequently, this provision could allow the government a longer time to decide to intervene in a qui tam action. FERA’s relation back amendment therefore eliminates defenses previously available to such action by the government, including running of the statute of limitations and inadequate notice.

Other Changes

The Act includes a number of other important changes, including:

  • FERA changes liability for conspiracy under the FCA from “conspiracy to defraud the government” to conspiracy to violate any of the substantive provisions of the FCA.
  • FERA expands liability for reverse false claims. Previously, a reverse false claim occurred when a person made or used a false record to conceal or decrease an obligation to pay the government. FERA amends this provision to include liability for obligations directly owed to the government.
  • FERA also increases protection against retaliatory measures for persons reporting fraud by an institution subject to the FCA. Such protection now applies not only to employees, but also to agents and contractors. Since agents and contractors encompass many different types of relationships, FERA introduces greater liability for retaliatory measures.

DRA Implications

Health care entities may also have to update the education information they provide on the FCA as required by the Deficit Reduction Act of 2005 (the “DRA”). The DRA requires most health care providers participating in Medicare or Medicaid to educate their employees, contractors and agents about federal and state false claims acts and about the whistleblower protections under the acts. The changes implemented by FERA may need to be included in your organization’s FCA information.

Conclusion

The changes above, the $165 million appropriated to the Department of Justice under FERA, and the creation of the interagency HEAT team serve to demonstrate the government’s far-reaching approach to prosecuting fraud. We expect health care to increasingly be an active area of false claims enforcement. If you have questions about the impact of the Federal Enforcement and Recovery Act of 2009, please contact a member of Bradley Arant Boult Cummings LLP Health Care team.