Checklist of Potential FCA Risks for Healthcare Providers Receiving CARES Act Funds

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The Coronavirus Aid, Relief, and Economic Security (CARES) Act created a number of stimulus programs that provided aid to healthcare providers, including a fund entitled the Public Health and Social Services Emergency Fund, which was specifically designated for the healthcare industry, and the Paycheck Protection Program (PPP), a program for which some healthcare providers have qualified as small businesses. Under both programs, recipients (either those who applied for the funds directly or those who received the funds automatically and retained those funds) are deemed to have agreed to the terms and conditions associated with these funds. These terms and conditions include requirements that recipients, among other things, (i) certify the truthfulness of statements made as part of their request for funds, (ii) certify to the lawful use of the funds, (iii) comply with government audits, (iv) provide documentation to the government upon request, and (v) establish measures to prevent fraud and abuse of funds.

Given the conditions attached to the funds, it is important for healthcare providers to be wary of the risk of exposure under the False Claims Act (FCA), 31 U.S.C. §§ 3729–33. The FCA imposes significant civil and criminal monetary penalties from those who knowingly present, or cause to be presented, a false or fraudulent claim for payment of government money. Healthcare providers receiving these funds therefore should take some simple, practical steps to best protect themselves.

• Document all decisions regarding applying for and retaining funds. Misrepresentations or statements not made in good faith may be an FCA violation. Documenting one’s reasons behind the decision to apply for or retain funds may provide valuable evidence on the scienter and materiality elements in defending against an FCA claim.
• Monitor developments. The government frequently issues additional guidance and information regarding CARES Act funds. These should be carefully monitored so that the government cannot later claim that one has acted with “deliberate ignorance” or “reckless disregard.”
• Seek clarification from the government and/or consult counsel. The fluid nature of the COVID-19 pandemic has resulted in confusion and inconsistencies surrounding the legal requirements of CARES Act relief. Thus, seeking confirmation of rules and requirements—and documenting such requests—can be a useful tool to ensure clarity in the immediate and can also be a retroactive defense for the future. Consulting with counsel on certain questions also may permit one to use the reliance-on-advice-of-counsel defense.
• Implement an effective internal employee reporting system. Most whistleblowers are current or former employees who first report issues internally before reporting externally to the government. Implementing a robust and effective reporting system may help ensure that any issues can be addressed without intervention by the government.
• Document criteria for observing requirements laid out in the relief fund. The relief fund imposes industry-specific requirements as well. For example, the terms and conditions for healthcare relief fund recipients require that providers agree not to seek collection of out-of-pocket payments from a “presumptive or actual” COVID-19 patient that are greater than what the patient otherwise would have been required to pay if the care had been provided by an in-network provider. As such, providers must establish criteria for finding and applying the discount on copays for such patients, including procedures for identifying “presumptive” COVID-19 patients. Out-of-network providers will need to establish new methods for determining what a patient’s in-network benefit and copay levels would have been.
• Verify financial data underlying relief fund distributions. For healthcare providers who received funds from the relief fund general distribution, providers should review historical cost reports to make sure that their Centers for Medicare & Medicaid Services (CMS) cost reports are accurate. To demonstrate good faith with respect to FCA compliance, providers who automatically received funds should submit tax forms or financial statements on HHS’s online portal, a step HHS has deemed mandatory for providers who automatically received funds on or before April 24, 2020.
• Ensure that the procedures for tracking expenditures are accurate. Businesses applying for PPP loan forgiveness and all healthcare providers receiving relief fund distributions will need to submit accountings of how they spent their money. Businesses should ensure that the procedures for tracking relevant expenses are accurate and should review such information with reference to government guidance before it is submitted.

Mark Mermelstein and Ellen Murphy are partners and Rachelle Navarro is a senior associate with Orrick, Herrington & Sutcliffe LLP.

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