The “Reverse” False Claim: A Cautionary Tale for Providers with Lax Compliance

With the onset of the pandemic and the flood of claims submitted by providers to government payors in connection with it – such as claims for COVID testing or upwardly (risk) adjusted PMPM capitation payments – comes substantial risk for the unwary: the so-called “reverse” false claim.

An increasingly common cause of action in False Claims Act suits, 31 U.S.C. 3729 et al. (“FCA”), against providers is predicated on a violation of 31 U.S.C. 3729(a)(1)(G), which prohibits a person from:

“knowingly mak[ing], us[ing], or caus[ing] to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money . . . to the Government.” Id. (emphasis added).

This provision pertains to the situation where a defendant uses a false record or statement to avoid making payment to the Government, which is the “reverse” of traditional FCA claims, which deals with situations where the provider submits a false record or statement to obtain improper payment from the Government.

This rule overlaps with the so-called “overpayment” rule, 42 U.S.C. 1320a-7k(d)(2), which provides that the “[d]eadline for reporting and returning [the aforementioned] overpayments” is “60 days after the date on which the overpayment was identified . . .” Id. (emphasis added). It is important to note that it is unclear just how “knowingly” a valid reverse false claim needs to be, or, more precisely, how “knowingly” the “indentifi[cation]” of an overpayment must be to sustain a claim under the FCA.

For example, if a medical practice’s loose internal billing protocols results in the systematic, though inadvertent, submission of claims for services not rendered, does retaining these funds for more than 60 days result in FCA liability?  What if the practice was unaware of the issue until the government sued the practice? The answer is far more nebulous than one might think.

In UnitedHealthcare Insurance Company v. Azar, 330 F.Supp.3d 173 (DDC 2018), the District for the District of Columbia addressed the question of whether the Centers for Medicare and Medicaid Services’ (“CMS”) agency rule implementing the statutory “overpayment rule”, see 42 C.F.R. 422.326, was constitutional, in that, per UnitedHealthcare, it impermissibly expanded the scope of the FCA’s “knowing” requirement to a lesser and much more easily violated “reasonable diligence” standard.

The Court agreed, noting that “Congress clearly had no intention to turn the FCA, a law designed to punish and deter fraud, into a vehicle for either ‘punish[ing] honest mistakes or incorrect claims submitted through mere negligence’ or imposing a ‘burdensome obligation’ . . . rather than a limited duty to inquire.” Id. (quoting U.S. v. Scit Applications Int’l Corp., 626 F.3d 1257, 1274-75 (D.C. Cir. 2010)).

Thus, under a D.C. Court analysis, a reverse false claim matter violation would require that the defendant have “actual” knowledge, the standard equivalent to that of a run-of-the-mill FCA action. As such, through this lens, the hypothetical medical practice with lax internal billing controls would likely not be found to be in violation of the FCA.

By way of contrast, in U.S. ex rel. Omsby v. Sutter Health, 444 F.Supp.3d 1010 (N.D.C. 2020), the Northern District of California held to the contrary. Sutter dealt with a large conglomerate of affiliated practice groups who had payor contracts with Medicare Advantage Organizations (“MAO”), based on a risk-adjusted capitation model, where practices are paid on a PMPM basis, which amount is adjusted upwardly or downwardly depending upon a patient’s risk score. The patient risk score is affected by the number and type of diagnosis codes submitted by the examining/treating physician to the MAO (which, in turn, submits these codes to CMS for payment).

Thus, “[b]roadly speaking, CMS pays higher rates for sicker beneficiaries[,]” and these increased rates would be passed on to Sutter in the form of enhanced capitation payments. Id. at 1020. Sutter retained an auditing and chart review vendor to review the patient charts corresponding to a sampling of diagnosis codes its affiliate practices had submitted to MAOs, and the vendor returned a report indicating there were substantial and widespread coding issues that needed to be addressed, as there were numerous instances where the codes submitted were not substantiated by the corresponding chart.

The Court found that “Sutter . . . knew that they were required to submit accurate diagnosis data to the MA Plans and delete erroneous, invalid, unsupported or otherwise false diagnoses . . . [y]et Sutter . . . knowingly disregarded that information and failed to investigate the prevalence of this miscoding or delete these codes. Instead, they knowingly retained the resulting overpayments.” Id. at 1045.

Here, although there were insufficient allegations of specific knowledge as to the falsity of the individual codes submitted, the Court nevertheless found that Sutter was at least “on notice” of the coding issues and that, as such, knew that they “might” have to return millions of dollars in overpayments. Id. at 1080-81 (emphasis supplied).

Through this analytical prism, our hypothetical medical practice would be very much out of luck and have substantial risk of federal civil prosecution under the FCA.

How Frier Levitt Can Help

Compliance and internal audits are necessary for practices of all sizes.   Frier Levitt has attorneys highly experienced in the defense of overpayment demands from federal and private payors defending direct, as well as defending civil false claims act suits within all spheres of the healthcare and life sciences spaces. Contact Frier Levitt today to discuss how we can bring your practice up to compliance to avoid exposure to overpayment demands and false claims act actions.  

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