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If you are not part of a low-income family with small children, you may not have heard of the Child Care and Development Fund (CCDF).  Similar to the Medicaid program, CCDF is a joint program between the federal government and the states that provides child care subsidies to eligible low-income families so the parent(s) or legal guardian can work or attend school.

In 2015, under the CCDF program, the federal government paid $5.4 billion and the states contributed a combined $2.2 billion to provide child care to 1.5 million children per month.  Of those monies, Florida received nearly $274 million in federal funding and provided child care subsidies to 213,000 eligible children.

As with any government program, there is a potential for fraud.  A report recently issued by the Department of Health and Human Services, Office of Inspector General estimates that in 2015, $311 million in false claims were submitted to the CCDF program.   The potential for fraud includes false claims made by both clients receiving the subsidies and child care providers.

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The False Claims Act contains a provision commonly known as the public disclosure bar.  This provision, in certain circumstances, prevents whistleblowers from bringing qui tam cases if those cases are based upon facts or fraudulent schemes that have already been disclosed to the public in certain limited ways.  The underlying goal of the rule is to prevent a would-be whistleblower from claiming “credit” for information that the Government already knows or already had the opportunity to know.  A person cannot learn about a fraud from watching the local TV news, for example, and then claim a qui tam reward for reporting that same fraud to the Government.

Under the public disclosure rule, a whistleblower’s lawsuit might be barred if substantially the same allegations or transactions were publicly disclosed in the following places:  (1) in federal civil, criminal or administrative hearings where the Government was a party, (2) in Congressional or federal reports, hearings, audits or investigations, or (3) in the news media.

This rule has a number of exceptions.  Most importantly, the public disclosure bar does not apply if the whistleblower is an “original source” of the information.  An original source means a person who has voluntarily disclosed his or her information to the Government before the public disclosure took place, or a person who has knowledge that is independent of and materially adds to the publicly disclosed information.  An original source must voluntarily provide his or her information to the Government before filing an action under the False Claims Act.  This is spelled out in 31 U.S.C. 3730(e).

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On June 30, the Department of Justice announced that it is adjusting the civil monetary penalties imposed under the False Claims Act, effective August 1, 2016.  This follows a similar increase announced by the Railroad Retirement Board back in May of this year.

Currently, each false claim submitted for payment to the federal government subjects a defendant to a minimum monetary penalty of $5,500 to $11,000 per claim, in addition to an amount equal to three times the actual damages suffered by the government as a result of the claim.  As a result of this inflationary adjustment, the penalty range increases from a minimum of $10,781 to a maximum of $21,563 per claim – nearly double the prior range!

These changes could have a dramatic effect on the government’s recovery in some cases.  Often, False Claims Act cases involve small-dollar amounts of fraud.  For instance, if a doctor knowingly charges Medicare using the wrong billing code in order to get reimbursed at a higher rate, the difference in the amount the doctor was paid and should have been paid could be a matter of $10-20 dollars per claim.  That doctor would now also be facing a penalty of $10,781 to $21,563 per fraudulent claim.  This is a significant hammer with which to encourage both compliance with the law and pre-trial settlement.

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Ralph Nader is often credited with coining the modern term “whistleblower” to refer to an employee who reports illegal, unethical or wrongful conduct at his or her place of employment.   At our firm, we have had the privilege to represent many courageous whistleblowers who have had the integrity to stand up and report fraud and abuse against government programs when no one else at their workplaces would do so.  Here are a few of many reasons our country needs more such whistleblowers:

 1.     Fraud is Everywhere.

Politicians often differ on the amount of money that the government should spend.  But regardless of whether you believe in “big government” or “small government,” we all agree the government should not spend money on fraudulent goods and services.  The government loses billions each year to fraud and abuse against federal spending programs such as Medicare, Medicaid and defense contracting.  This hurts everyone (except for the fraudsters of course).

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Broadly speaking, “off-label” drug use occurs when a doctor prescribes a medication for a condition or ailment that is not specifically approved by the FDA.  When the FDA approves a drug, the manufacturer is required to submit studies showing that a drug works for a specific condition and that it is safe.  Sometimes, however, a drug is shown to have beneficial effects on a condition, but the FDA will not approve the drug for that specific use.  For instance, I take a drug for migraine headaches that has only officially been approved for treatment of clinical depression.  This is considered “off-label” use.

No law prevents a physician from writing a prescription for an off-label use, and private insurance companies (my own included) frequently pay for drugs even when used for an “off-label” purpose.  Nevertheless, “off-label” drug use presents the potential for fraud.  Drug companies are barred by the FDA from marketing a drug for off-label use – for obvious safety reasons.

This rule, however, has not stopped the deep-pocketed pharmaceutical companies from trying to find back door methods to promote their drugs for off-label uses, in order to increase their bottom line.  A few years ago, GlaxoSmithKline paid over $1 billion to settle False Claims Act allegations regarding its illicit marketing of drugs, including Paxil and Wellbutrin, for off-label uses.  Among other problems, the government found that GlaxoSmithKline had been paying kickbacks to doctors in exchange for prescribing the drugs for off-label purposes.  (The total settlement was over $3 billion, but only about one-third was related to off-label marketing.)

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As we wrote back in April, the Supreme Court considered a case this term on a grey area in False Claims Act litigation – “implied certifications.”  A typical false claim would be “factually false” – in other words, the fraudster submits a claim to the government that is actually false.  For instance, if a government contractor submits an invoice to the government for 10 tons of potatoes but only supplies 5 tons, the invoice is “factually false.”

An “implied certification” involves a claim for payment where a defendant did not expressly certify a fact, but the act of submitting the claim “implies” that certain facts are true.  For instance, submitting a claim for payment to Medicare has been deemed an implied certification of compliance with the Anti-Kickback Statute and the Stark Law.  Thus, a claim that is submitted to Medicare for services that resulted from the payment of a kickback is “impliedly false.”  Likewise, if a contractor fulfills a contract to provide guns to the military, but the guns do not shoot, that could be an “impliedly false” claim – the guns were in fact provided, but the contractor did not comply with the terms of the contract that require the guns to work.

Prior to yesterday’s decision in United Health Services, Inc. v. United States and Massachusetts ex rel. Julio Escobar and Carmen Correa, the courts of appeals had split on several questions, including (a) whether impliedly false claims were actionable, and (b) whether the fraudster must violate a specific “condition of payment” to render a claim impliedly false.  In that case, a mental health facility was using unlicensed, unsupervised counselors to offer psychological counseling to patients.  Moreover, many of the counselors lied about their credentials and licensure in order to get Medicaid provider numbers, in order to bill the federal government.

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Many healthcare companies engage independent sales representatives or marketers to sell their goods and services.   These include pharmaceutical companies, diagnostic laboratories, home health agencies, imaging centers and many others.

Unfortunately, many of these companies violate the Anti-Kickback Statute (AKS) and the False Claims Act through the manner in which they pay these sales people.  In general, sales people can be engaged and paid in one of two ways:  (1) as W-2 employees, or (2) as 1099 independent contractors.  W-2 employees require greater supervision on the part of the employer, whereas independent contractors do not.  Also, employers must withhold taxes and pay payroll taxes for W-2 employees, which is not the case for 1099 independent contractors.

Many companies run afoul of the Anti-Kickback Statute because they engage 1099 sales people and pay them based on an “eat what you kill” formula tied to volume of sales.  Obviously, this encourages the sales people to sell as much as possible, posing a danger of over-utilization to the healthcare system.

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In the world of healthcare, federal law makes it illegal to offer or receive a kickback in exchange for referring or arranging for the furnishing of any item or service that will be covered by a federal healthcare program.   The Anti-kickback Statute can be found at 42 U.S.C. 1320a–7B.

But what is a kickback?  The statute makes it illegal to “solicit or receive any remuneration (including any kickback, bribe, or rebate) directly or indirectly, overtly or covertly, in cash or in-kind.”  This means a kickback can be any type of remuneration, benefit or compensation, whether direct or indirect, hidden or secret.

The anti-kickback statute has two overarching purposes.

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Unfortunately, many hospitals commit fraud against the federal government in the way they pay doctors and physicians.

To understand this type of fraud, you have to understand how hospitals bill the Medicare system.  Generally, bills can be divided into two categories.  First, the hospital bills Medicare for work personally performed by the doctor, for example, a patient visit.  Second, the hospital bills Medicare for all the tests and services the doctor orders, but does not personally perform.  These might include x-rays, MRI tests, laboratory tests, physical therapy, or radiation therapy.

Hospitals make way more money from tests and services ordered by the doctor than from work actually performed by the doctor.  Obviously, then, the hospital has a financial incentive to encourage the doctor to refer more of these tests and services.  More tests equals more money.

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The Government Accountability Office recently released a report finding that Medicare paid out $14.1 billion to private insurance companies for improper claims in 2013 alone.  The report, entitled “Medicare Advantage:  Fundamental Improvements Needed in CMS’s Effort to Recover Substantial Amounts of Improper Payments,” discusses audits conducted by the Centers for Medicare and Medicaid Services on payments to select “Medicare Advantage” plans.

Medicare Advantage plans are private health plans available to senior citizens who qualify for both Medicare Part A and Part B.  In lieu of “traditional” Medicare, one can enroll in a Medicare Advantage plan managed by a private insurance company.  CMS then pays the private insurer a fixed monthly sum per person enrolled to provide care, regardless of the actual healthcare expenses incurred by the patient.  Put another way, rather than pay health care expenses as they are incurred, CMS pays a fixed “premium” every month to the private insurers, who then fund a senior’s health care expenses as they come due.

Medicare Advantage plans are big business for private insurance companies.  In 2014 alone, CMS paid roughly $160 billion to private insurers offering Medicare Advantage plans to 15.8 million seniors.  In total, about 30% of Medicare recipients have elected to enroll in Medicare Advantage plans.