False Claims Act Amendments: Beware of Medicare/Medicaid Overpayments

On May 20, President Obama signed into law the Fraud Enforcement and Recovery Act ("FERA") of 2009. The FERA was primarily enacted to increase the federal government's ability to investigate and prosecute financial fraud, specifically fraud associated with government stimulus funds. Among other things, the FERA amends the False Claims Act ("FCA"), which imposes liability on those who make false claims for reimbursement from the government. These amendments are of particular importance for healthcare providers, and those associated with healthcare providers, when determining Medicare and Medicaid reimbursements.

One of the most noteworthy changes to the FCA is the liability attributed to government overpayments. To be liable under the former FCA, there needed to be a showing that a person took some kind of affirmative action to fraudulently obtain reimbursement funds from the government. The FCA amendments now expand liability to those who improperly avoid repaying overpaid money from the government, even if the overpayment was not based on a false claim. To be clear, this means healthcare recipients of government funds may be liable even when they receive money based on a legitimate claim. Therefore, FCA liability could attach to a person who simply receives an overpayment but fails to alert the government.

The FCA also extends liability to contractors and subcontractors of healthcare providers. The new language now imposes liability for fraud perpetrated against contractors or grantees of government funds. Thus, the fraud need not be committed directly against the government. Previously, courts were required to find that a defendant intended the government itself pay the claim, rather than simply showing that a false statement resulted in the use of government funds to pay a false claim. See, e.g. Allison Engine Co. v. United States ex rel. Sanders, 128 S.Ct. 2123 (2008). Under the FCA amendments, the scope of coverage is much broader and does not require that the funds be received directly from the government. The FCA now covers requests for funds to a contractor, grantee, or other recipient, if the funds requested are to be "spent or used on the government's behalf or to advance a government program or interest." Unfortunately, this broad language is not further defined in the FCA amendments. Rather, this language will have to be clarified by the courts.

There is no doubt that the FCA amendments will encourage more whistleblower and qui tam actions against individuals who improperly obtain government funds. The success of these actions will depend on how the courts interpret the language in the FCA amendments, as well as how meticulous healthcare providers are about the funds they receive from the government. Simply receiving an overpayment from the government may subject you to substantial liability. To demonstrate the seriousness of this new legislation, the FERA authorizes $50 million per year for the U.S. Attorneys' Offices financial fraud unit and another $40 million per year to the Department of Justice's criminal, civil and tax divisions.