On May 20, 2009, President Obama signed into law the Fraud Enforcement and Recovery Act of 2009 (FERA), which, among other things, amends the federal civil False Claims Act (FCA), applicable generally to conduct on or after that date. FERA is primarily aimed at reducing fraud by bringing mortgage lending businesses within the definition of "financial institutions" in the federal criminal code, and by increasing funding for enforcement agencies to pursue criminal, civil and administrative proceedings involving federal assistance programs and financial institutions by hundreds of millions of dollars. However, of primary interest to hospitals and health care providers are FERA’s amendments to the FCA, which expand liability for knowingly retaining Medicare or Medicaid overpayments and for presenting false or fraudulent claims for payment or approval.

Knowing Failure to Return Overpayments

First, Section 4 of FERA provides that a hospital or other entity violates the FCA if the entity "knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the government." The term "obligation" in this section includes "an established duty, whether or not fixed, arising... from the retention of any overpayment." Thus, "knowingly and improperly" failing to return an overpayment, if there is an "established duty" to do so, becomes the basis for an action under the FCA. The term "improperly" is intended to limit this duty to repay by presumably excluding overpayments such as those under Medicaid that undergo a reconciliation process or those that are being appealed pursuant to Medicare appeal procedures.

The FCA has generally, in the past, been applied only to persons who knowingly filed false or fraudulent claims, i.e., persons who at the time they submitted the claims either actually knew of the claims’ falsity, acted in deliberate ignorance of their truth or falsity, or acted in reckless disregard of their truth or falsity. Such is clearly no longer the case. Because of the interpretation and application of existing statutes, regulations and provider contracts regarding retention of overpayments, this involves an "established duty" or "obligation" that may now trigger the FCA. Although this provision is not expressly made retroactive, the government will likely argue that it should apply to overpayments made before the date of the legislation. These amendments also give the federal authorities a weapon in their arsenal to enforce the federal physician self-referral or Stark law in addition to civil monetary penalties.

Expanded Liability for Claims Affecting Government Funds

Second, FERA attempts to close certain loopholes created by recent court decisions that Congress viewed as undermining or limiting the scope of the FCA. Prior to FERA, the FCA provided that a person is liable if he "knowingly makes, uses, or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government." Recent decisions had interpreted the FCA as requiring the federal government to prove that a defendant intended the government itself to pay a claim, so that a subcontractor would have no liability unless it submitted its claims to the government, not to a general contractor, for payment, even if the claims had been paid by government funds. A Senate Report noted that defendants have argued that these decisions precluded liability under the FCA for Medicaid claims submitted to a state government. Accordingly, FERA deleted any requirement for liability that an entity directly present a claim to the government, so that an entity may now incur liability if it "knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval." In addition, an entity now may also be liable if it "knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim." This latter amendment applies to all claims under the FCA pending on or after June 7, 2008.

FERA now creates liability under the FCA for the knowing failure to return overpayments, and it makes the FCA clearly applicable to government funds distributed by states or intermediaries rather than directly from the federal government. The amendments also require violators to reimburse the federal government for the costs of a civil action to recover penalties or damages. With these increased liabilities and strengthened tools for enforcement, hospitals and providers are urged to review their self-audit and compliance policies and programs in these areas.