DOJ, OIG ease up on False Claims Act procedures

But don't expect a warm, fuzzy regulator

The federal government is easing up on some ways it has been using the False Claims Act to pursue health care fraud, eliminating some of the methods that some health care administrators have said amounted to bullying. But don't relax too much. Some of the procedural aspects may be easier to swallow, but the government still is using the False Claims Act to pursue fraud aggressively.

The federal Department of Justice (DOJ) and the Health and Human Services Office of the Inspector General (OIG) recently issued new standards governing how they will refer and prosecute false claims cases, with the effect being that health care providers shouldn't feel quite so ambushed and bullied by the government demanding a huge payment and not offering to discuss the matter. Health care providers had been lobbying Congress for major changes to the False Claims Act because they felt the DOJ had been abusing it, but that effort appears to have failed. The procedural changes, however, may address most of the providers' concerns.

The policy changes should make the government's false claim efforts more consistent and reasonable, says John Phillips, JD, an attorney with the law firm of Phillips & Cohen in Washington, DC. Phillips & Cohen specializes in representing whistle-blowers in False Claims Act cases. Their cases are responsible for about two-thirds of the $1.3 billion the government has collected through whistle-blower lawsuits in the last five years.

"This is an approach that will allow everyone to be fully heard before any demands for payment are made," Phillips says. "But it doesn't change what is considered fraud or the government's willingness to go after fraud. Providers should feel more confident that they will be given a full opportunity to be heard before any demands are made, and that's always good."

Phillips explains that the changes address what may have been "overreaching" by government officials in an effort to speed up the process of recovering overpayments from thousands of providers. In earlier years, a hospital-by-hospital analysis produced more concrete prosecutions that were more difficult to argue with, but then the government decided there was so much fraud that looking at hospitals one at a time was too slow. So prosecutors started using databases to detect patterns of fraud and the False Claims Act to pursue them promptly and with little discussion. The government just sent letters demanding payment.

"It was more efficient, but there may have been some overreaching, and I think some hospitals felt mistreated," Phillips says. "That's understandable. They were being told to pay back a certain sum of money without any review."

In perhaps its most significant move, the government will now allow health care providers to discuss the allegations made against them before issuing a demand for payment. In other changes, the government promised to establish working groups that will oversee the development and implementation of national initiatives such as the 72-hour window project. The government also established guidelines for how DOJ attorneys must pursue False Claims Act cases. Again, many observers say those guidelines were intended to blunt charges that the department was recklessly using the False Claims Act against hospitals guilty of nothing more than innocent billing mistakes. The new guidelines require government attorneys to establish "legal and factual predicates" before even alleging a False Claims Act violation, further specifying that there must be evidence the provider submitted false claims "with knowledge of falsity."

The new guidelines require government attorneys to take these steps in determining whether false claims were submitted knowingly:

· Examine statutory and regulatory provisions, along with interpretive guidance, to determine whether the claims are false.

· Verify the accuracy of the evidence, either independently or with the assistance of other agencies such as the Federal Bureau of Investigation, or fiscal intermediaries of the Health Care Financing Administration.

· Conduct "necessary investigative steps," which may include subpoenaing documents and interviewing witnesses.

What is 'knowingly'?

Once those steps are complete, the government attorneys still must establish that the false claims were submitted knowingly. But "knowingly" can mean the provider acted with "deliberate ignorance or reckless disregard" to the falsity of the claims. The guidance goes on to list the following criteria attorneys may use in determining whether the provider knew the claims were false:

· notice to the provider;

· clarity of the rule or policy;

· guidance by the program agency or its agents;

· pervasiveness and magnitude of the false claims;

· compliance plans and other steps to comply with billing rules;

· past remedial efforts;

· prior audits;

· any other information that bears on the provider's "state of mind" in submitting the claims.

The guidance also states that the DOJ may consider mitigating factors when pursuing False Claims Act settlements, such as the impact an enforcement action may have on the availability of medical services in small communities, "as well as the resulting financial and practical burdens on a health care provider."

To address criticism that the government was harassing providers for minor, insignificant billing errors, the OIG also has announced plans to set "an appropriate minimum monetary threshold and/or percentage error rate" that will serve as the cutoff below which providers will not be put through the False Claims Act machinery. That threshold will vary from one project to another.

"To the extent that hospitals were crying foul and wanted a fairer process, they certainly have achieved that," the attorney says. "Just remember that there's no change in what the government is seeking to uncover. This may slow the government down some, but they're still going after fraud."