By Lisa Miller

While all the headlines have focused on "Health Care Reform" legislation, a 2009 law may have much greater impact on all health care providers.  On May 20, 2009, President Obama signed the Fraud Enforcement and Recovery Act (FERA) into law. While FERA was primarily intended to give the government an opportunity to investigate and prosecute financial fraud, especially any misuse of government stimulus and Troubled Asset Relief Program (TARP) funds, it also has significant impact on the health care industry.

As we mentioned in our previous e-Alert, FERA amended the federal False Claims Act (FCA), which imposes liability on those who make false claims for reimbursement to the government.  Specifically, FERA now makes it a violation of the FCA to "improperly" avoid repaying money owed to the U.S. government, even if the overpayment was not based on a false claim.  The FCA states that any person who "knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the government" is liable to the government for a civil penalty.  FERA has expanded the definition of "obligation" to now include "retention of an overpayment."

Often referred to as "reverse false claims," this amendment will have a significant impact on health care providers who discover improper payments made by government programs.  It is now no longer enough to notify the government that an improper payment has been made, but a provider may be in violation of the FCA for retention of an overpayment if it is not actively repaid.  Because of the length of time it can sometimes take to get the attention of a Medicare or Medicaid contractor and to finally determine the amount of any overpayment, this creates a period of time where a health care provider may still be liable under the FCA even if steps are being taken to remedy the overpayment.  And it may not be only the government bringing these new FCA claims.  Whistle-blowers can bring allegations before federal courts and stand to receive 15 to 30 percent of the government's total recovery if the case is successful.

Additionally, FERA has overturned a significant 2008 Supreme Court decision, Allison Engine Co., Inc. v. Unites States ex rel. Sanders, which found that merely showing that a contractor used government money to pay a subcontractor's false claim was not sufficient to support a violation of the FCA.  Rather, to be a violation of the FCA, the claim must be presented to the federal government.  While the decision in Allison Engine did not specifically address health care cases, the decision affects FCA health care litigation because payments under government programs such as Medicare and Medicaid are often made by intermediaries. 

FERA has now overturned Allison Engine and is intended to specifically eliminate the requirement that a false claim must be made to "an officer or employee of the Government."  FERA has now expanded the scope of the FCA and creates potential liability under the FCA where a claim is presented to an agent or contractor acting on behalf of the government.  These changes mean that the FCA can now be used to find liability where claims are submitted to government contractors, including TrailBlazer, Medicare Advantage plans, Medicaid HMOs, and Texas Medicaid & Healthcare Partnership.

Health care providers should take steps to ensure that their billing and collection practices are sufficient to promptly identify any overpayments, and take prompt action to repay any such amounts to avoid liability under the expanded reach of the FCA. If you have any questions regarding this e-Alert, please contact Lisa Miller at 210.978.7781 or lsmiller@jw.com or Jed Morrison at 210.978.7780 or jmorrison@jw.com.