Applying lessons learned when conducting FCA investigations after Escobar

The Supreme Court opinion in Universal Health Services v. U.S. ex rel Escobar established that the implied certification theory may be a basis for False Claims Act (FCA) (31 U.S.C. §3729) liability if allegations satisfy both the FCA’s materiality and scienter (knowledge) requirements, Joan W. Feldman, partner at Shipman & Goodwin LLP explained during a Health Care Compliance Association webinar on June 26, 2017. She noted that the focus in FCA cases going forward will be whether the government would have refused to pay the allegedly false claim if it had known of the information allegedly omitted or misrepresented.

The Supreme Court’s opinion and remand

The Supreme Court granted certiorari in Escobar to answer whether the implied certification theory was viable and if it could only apply when a provider violated a legal requirement that the government explicitly designated as a condition of payment. Although the Court determined that implied certification is a valid theory, it stated that the FCA should not be considered a vehicle for “punishing garden-variety breaches of contract or regulatory violations…” The Court further concluded that “a misrepresentation about legal compliance does not become material simply because the Government labeled the legal requirement as a ‘condition of payment,’ but whether the defendant knowingly violated a requirement the defendant knows is material to the Government’s payment decision.” The Court remanded the case to the First Circuit (see Implied certification liability confirmed, limited to material compliance violations, Health Law Daily, June 16, 2016).

Feldman pointed out that upon remand, the First Circuit identified three factors that had to be considered when evaluating materiality and knowledge: (1) was compliance a condition of payment, (2) was compliance with a specific regulation the essence of the agreement; and (3) did the government pay the claim even though it was aware of the issue?

The First Circuit concluded, if Medicaid’s decision to reimburse Universal Health Service would have been unaffected by knowledge of the regulatory violations, the violations would not be material, and the implied false certification lawsuit could not proceed. In this case, however, the complaint stated that regulatory compliance was a condition of payment, licensing and supervision requirements were central to the regulation of mental health treatment facilities generally, and the factual allegations were limited to reimbursement claims filed during treatment (see Implied false certification lawsuit under the FCA stated a valid cause of action, Health Law Daily, November 29, 2016).

Lessons from Escobar

The Escobar case illustrates that the FCA is nuanced and complex, Feldman said. She noted that courts will closely scrutinize and evaluate materiality on a fact specific, case-by-case basis to determine whether the alleged violations are sufficient to constitute a false claim. Although she said it is not clear how the Supreme Court’s opinion will play out in the courts, she stressed the importance of claimants clearly stating their materiality and knowledge claims under the implied certification theory. She also emphasized the importance of reacting appropriately and promptly to FCA complaints or concerns.

Investigations

Feldman provided the details of several steps in conducting an FCA investigation, including where to start, maintaining attorney client-privilege, working with the government, planning and conducting an investigation, and mitigating the risk of a FCA qui tam action. She emphasized the importance of maintaining confidentiality throughout the investigation. In addition, she

  • Where to start. When confronted with a false claim allegation, providers must respond promptly. The date and time that the allegation was made must be documented and the allegation must be communicated to leadership. Legal counsel experienced with false claims should be engaged and the Medicare administrative contractor or Medicaid agency must be notified. The compliance officer must assign responsibility for the investigation but must limit the number of individuals in the sphere of knowledge and communication. Accountability and follow-up are essential as well as the preservation of documents.
  • Maintaining attorney client privilege. Consult with counsel to protect the attorney-client privilege. Ensure document production is done with counsel who creates a privilege log for documents that will not be turned over to the government. Interview witnesses separately to protect communications.
  • Working with the government. When working with the government compliance officers must be cooperative, responsive, and timely; yet maintain an advocate position for the organization. They must understand the issue, facts, and relevant law as well as the settlement if there is one. Feldman encouraged compliance officers not to be intimated by the government or assume its position is correct. She explained that the government only knows the case from the qui tam relator. She told compliance officers to “push back” and advocate the organization’s position with facts and laws when presented with the government’s case.
  • Planning the investigation. An investigative plan must be developed, a timeline created, and records of the investigation must be maintained, including the process, interview notes, and witness log. Witnesses must be identified and interviews must be scheduled.
  • Conducting the investigation. The attorney should conduct the investigation and may have deputized staff to assist. When a complaint of subpoena is received, litigation hold must be communicated throughout the organization. Documents are reviewed and interviews conducted. When appropriate, engage auditors or experts. Leadership should be kept informed throughout the process.

Additional tips

Other advice Feldman provided included circling back to complainant, avoiding whistleblower retaliation, and being mindful of the collateral effect of an investigation on employees. In addition, she emphasized that concerns raised by an individual must be taken seriously. Compliance officers should give them full attention and document the concern and how it was addressed. If the individual is not satisfied with the findings, the compliance officer should document why no further action will be taken and notify counsel. If attention is not given when a concern is raised, the individual may pursue an action.

Health care organizations team up to fight implied certification theory

A number of interested health care organizations have filed briefs before the U.S. Supreme Court in Universal Health Services v. U.S. ex rel. Escobar, in which the court will consider the theory of implied certification under the False Claims Act (FCA) (31 U.S.C. §3729). Under this theory, claims submitted to the government for reimbursement are tainted by failure to conform to statute, regulations, or provisions that are not considered a condition of payment (see Does fraud go without saying? Supreme Court to examine ‘implied certification’ in FCA, Health Law Daily, December 8, 2015).

Factual background

The case was brought by the parents of a patient who died at a mental health clinic following a seizure. The parents alleged that the caregivers were not supervised as required and that the clinic did not have psychiatrists and psychologists on staff with the credentials required by the state Medicaid program. They claimed that this noncompliance caused claims for payment to be false claims, even though payment was not conditioned upon meeting these particular regulations (see Appeals court takes practical approach to False Claims Act, Health Law Daily,  March 19, 2015).

Whistleblower suits

The health care organizations filing briefs in support of Universal Health Services, like the American Hospital Association, argue that the implied certification theory broadens the reach of the FCA beyond addressing truly fraudulent claims. The American Medical Association’s (AMA) brief notes the sharp increase in qui tam actions filed by relators hoping to obtain “life-changing wealth” by bringing fraud claims based on noncompliance with an underlying regulation, even when the government is satisfied with the original transaction. The organizations believe that the FCA should be used to fight fraud, and the AMA asserts that “imperfect compliance is not equivalent to fraud.”