June 2011 Volume 7 Number 10

False Claims Act Damages in Anti-Kickback and Self-Referral Cases

By Rachel L. Grier, Sarah M. Frazier and Joel M. Androphy1, Berg & Androphy, Houston, TX

AuthorAuthorAuthorThe False Claims Act (“FCA”) was enacted to provide restitution to the Government for losses sustained as a result of fraud.2 The FCA authorizes the award of actual damages and civil penalties to ensure that the Government is made whole for losses caused by fraudulent acts.3 Any fraud intended to cause the Government to unlawfully pay money falls within the scope of the FCA.4 Because the FCA covers a wide range of fraudulent acts, there is no “one size fits all” measure of damages for every false claim.5 This article nevertheless describes a pattern that has begun to emerge in FCA cases that are premised on violations of Medicare and Medicaid anti-kickback and self-referral laws.

The number of FCA cases predicated on violations of healthcare laws has grown in recent years. One area of growth has been FCA cases based on violations of Medicare and Medicaid anti-kickback and self-referral laws.6 These laws prohibit payment of money, or anything of value, in exchange for the referral of patients to a specific physician.7 In addition, the Anti-Kickback statute prohibits soliciting or receiving any remuneration in exchange for the purchase or lease of federally funded goods or services.8 Medicare and Medicaid Anti-Kickback and self-referral cases have generally been examined in the context of cases pled under or otherwise premised on a “false certification” theory.9

From the early 1990s to around 2003, courts examining the issue of damages in FCA kickback cases generally calculated damages based on the Government’s “actual loss”—the amount of money the Government paid by reason of the false statement in excess of what it would have paid absent the false statement.10 These courts, particularly the Fourth and Eleventh Circuits, reasoned that, because the defendant actually provided valuable services, the defendant should not be required to disgorge all amounts received from the Government, but only the amounts attributable to the illegal kickbacks.11 The majority of these cases involved contractor kickback fraud, rather than Medicare or Medicaid kickback schemes.

More recently, the majority of courts, including the Fifth, Seventh, Ninth, and District of Columbia Circuits, have held that a defendant who violates anti-kickback or self-referral laws is ineligible for reimbursement and must therefore repay all amounts received from the Government, regardless of whether the defendant actually provided valuable services.12 These courts reason that, because the Government would not have paid anything to the defendant had it known of the illegal kickbacks or self-referrals, the defendant must disgorge the entire amount the Government paid for the false claims.13 This is the same damage theory as found in fraud-in-the-inducement cases,14 which reject any defense compensation for fraudulent behavior and reward the Government beyond actual losses.

The shift in these courts’ view of damages in kickback cases has most likely occurred because of courts’ increased familiarity with kickbacks as they arise in the specific contexts of healthcare and fraud on Medicaid and Medicare, which, because they involve regulated pricing and greatly implicate public policy, do not lend themselves to the more contract-based damages analysis commonly applied in past years to kickback cases arising in the context of general government contracting. The courts are increasingly focused more on discouraging criminal behavior than with actual economic loss to the Government. Otherwise, as one court has noted, the government would be “in the position of funding illegal kickbacks after the fact.”15

Conclusion

The issue of determining damages in Medicare and Medicaid Anti-Kickback and self-referral cases will continue to be a hotbed of contention, particularly in light of the passage of the Fraud Enforcement and Recovery Act, which made kickbacks per se violations of the FCA.


1 Author of treatise, Federal False Claims Act and Qui Tam Litigation, Law Journal Press (2010), research source of the issues discussed in this article.
2 United Statesex rel. Marcus v. Hess, 317 U.S. 537, 551-552, 63 S.Ct. 379, 87 L.Ed. 443 (1943).
3 Id. 317 U.S. at 552.
4 Id. 317 U.S. at 543-544.
5

Because a multitude of different fraudulent acts may cause the Government to suffer actual loss, calculation of damages under the FCA is inherently difficult. Damage calculations are generally tailored to the specific facts of each case. Thus, similar conduct in two or more cases may result in the application of different damage calculations for each case based on subtle factual differences.

6

See, e.g.;

Second Circuit: United States v. Incorporated Village of Island Park, 888 F. Supp. 419 (E.D.N.Y. 1995).

Sixth Circuit: United Statesex rel. Pogue v. American Healthcare Corp., Inc., 914 F. Supp. 1507, 1509 (M.D. Tenn. 1996); United Statesex rel. Roy v. Anthony, 914 F. Supp. 1504 (S.D. Ohio 1994).

Federal Circuit: Ab-Tech Construction, Inc. v. United States, 31 Fed. Cl. 429 (Fed. Cl. 1994).

7

42 U.S.C. § 1320a-7b.

8

42 U.S.C. § 1320a-7b(b).

9

Under the “false certification” theory, FCA liability can attach to claims where a government payee falsely certifies compliance with a condition—usually a statute, regulation, or contract term—that is a prerequisite to government payment.

More recently, in cases brought before the 2009 FCA amendments under the Fraud and Enforcement and Recovery Act (“FERA”), courts have begun examining the issue of whether kickbacks are “inherently false,” removing the necessity to rely on a false certification. See, e.g., Brief for Amicus Curiae the United States in Support of Plaintiffs-Appellants, U.S. ex rel. Westmoreland v. Amgen, Inc. (“Westmoreland U.S. Brief”), No. 10-1629, at 13-21 (1st Cir. Oct. 29, 2010); U.S. Statement of Interest Regarding Defendants’ Motion to Dismiss, U.S. ex rel. Piacentile v. Novartis AG, No. 1:04-cv-04265, at 2-10 (E.D.N.Y. July 21, 2010). Whether this will alter the measure of damages remains uncertain.

10

Fourth Circuit: United Statesex rel. Harrison v. Westinghouse Savannah River Co., 352 F. 3d 908, 922–23 (4th Cir. 2003).

Eleventh Circuit: United States v. Vaghela, 169 F.3d 729, 736 (11th Cir. 1999); United States v. Killough, 848 F.2d 1523, 1531–32 (11th Cir. 1988).

11

Fourth Circuit: United States ex rel. Harrison v. Westinghouse Savannah River Co., 352 F. 3d 908, 922–23 (4th Cir. 2003) (“Although Westinghouse ran afoul of the fair bidding requirements, there was no evidence adduced at trial suggesting that GPC failed to perform the work that it was required to perform under the subcontract or that the government did not receive the benefit of the work performed . . . As such, the district court correctly disallowed Harrison from recovering disgorgement of all $9 million that the government paid for the subcontracted work.”).

Eleventh Circuit: United States v. Vaghela, 169 F.3d 729, 736 (11th Cir. 1999) (“[U]nless we are to believe that DHHS received no value at all for Extendicare’s work . . . we must assume that the loss suffered by DHHS is an amount equivalent to the amount it paid [] in excess of the value of services rendered . . . it is not unreasonable to assume that DHHS was overcharged in the amount of the kickbacks, and that the loss DHHS suffered was equivalent to that amount.”).

12

Fifth Circuit: Peterson v. Weinberger, 508 F.2d 45, 54 (5th Cir. 1975).

Seventh Circuit: United States v. Rogan, 517 F.3d 449, 453 (7th Cir. 2008).

Ninth Circuit: United States v. Mackby, 261 F.3d 821 (9th Cir. 2001).

D.C. Circuit: United States v. Science Applications International Corp., 653 F. Supp. 2d 87, 107–09 (D.D.C. 2009), aff’d, 626 F.3d 1257 (D.C. Cir. 2010).

13

Seventh Circuit: United States v. Rogan, 517 F.3d 449, 453 (7th Cir. 2008) (“The government offers a subsidy (from the patients’ perspective, a form of insurance), with conditions. When the conditions are not satisfied, nothing is due. Thus, the entire amount that Edgewater received on these 1,812 claims must be paid back.”).

14

The “fraud-in-the-inducement” theory holds that liability will attach to each claim submitted to the Government under a contract when the contract or extension of Government benefit was originally obtained through false statements or fraudulent conduct.

15 United States ex rel. Bidani v. v. Lewis , 264 F. Supp. 2d 612, 616 (N.D. Ill. 2003).

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