The three-headed monster of healthcare fraud prevention and enforcement is the False Claims Act (FCA), Stark Law (Stark), and the Anti-Kickback Statute (AKS). These rigid enforcement laws are enough to scare any owner/operator of a business providing healthcare services in the United States. Even scarier is that under the qui tam provisions of the FCA, private individuals may file enforcement actions on behalf of the government if they learn of fraudulently submitted claims that are otherwise undetected. Known as “relators” (and colloquially referenced as whistleblowers), these individuals may receive up to 30 percent of any successful recovery. In 2015, the broadened statutory bases of FCA recovery established by the Patient Protection and Affordable Care Act (ACA) have become more apparent, resulting in continued proliferation of healthcare fraud recovery actions.
The False Claims Act
The FCA permits the recovery of funds from anyone who knowingly presents or causes to be presented a fraudulent claim for payment to the government. To establish FCA liability, it must be proven that a defendant knowingly submitted or caused to be submitted a false claim for reimbursement of services. The claim need not be entirely fraudulent to violate the FCA. Rather, the FCA prohibits using any false statement or document in support of a claim for government funds. Apart from traditional claims, liability under the FCA also attaches to anyone who acts improperly to avoid paying money to the government (known as “reverse” false claims).
Financial recovery under the FCA can be devastating, with penalties of $5,500 to $11,000 per claim plus three times the government’s damages. In the context of Medicare billing, the potential exists for a catastrophic judgment based on the number of claims at issue. Individuals may be held responsible if found to have acted willfully, recklessly, or with deliberate ignorance in making or causing the submission of false claims. Those responsible may even face criminal charges in extreme cases. The potential for imposition of individual liability and criminal sanctions allows the government to aggressively and effectively leverage settlements when armed with FCA allegations. Further, liability under the FCA is allowable for violations of the Stark Law and the AKS.
Stark—named for US Congressman Pete Stark, who sponsored the initial bill—refers to the prohibition of the practice of physician self-referral under circumstances where a patient is referred to a medical facility in which the referring physician maintains a pecuniary interest. Financial relationships that violate Stark may be direct or indirect. Violations are subject to a strict liability standard, and enforcement extends to most remuneration within the Medicare system for patient referrals. Like the FCA, penalties under Stark can be crippling, including recovery of payments made in violation, imposition of a $15,000 per service civil monetary penalty for knowing violations, and a monetary fine of $100,000 for each arrangement found to have willfully circumvented the statutory scheme.
Similar to Stark but broader, the AKS prohibits anyone from offering, paying, soliciting, or receiving remuneration (monetary or otherwise) to induce or reward referrals or generate business for any program that participates in any federal program. Civil monetary penalties of up to three times each kickback and $50,000 per violation may be awarded. Although neither actual knowledge of the AKS nor intent to commit a violation is required, the proof required under the AKS, unlike Stark, is knowing and willful misconduct. As a result, those found in violation face criminal penalties in the form of a five-year prison term for each violation. Further, recent amendments to the AKS now establish that a violation of the AKS constitutes a false or fraudulent claim under the FCA, even if the service was medically necessary and properly provided.
Additional Consequences: Private Inurements for Nonprofits
Closely related, conduct that violates the FCA, Stark, or the AKS can also constitute a private inurement in violation of Section 501(c)(3) of the Internal Revenue Code, subjecting a nonprofit to exposure. Nonprofit status confers several benefits to healthcare providers, including tax-exempt status and the ability to apply for special grants and tax-exempt bond financing under certain circumstances. To qualify for a 501(c)(3) exemption, no part of an organization’s net earnings shall “inure” to the benefit of private individuals. If a nonprofit pays more than what is reasonable as compensation for a service it purchases, for instance, the transaction may be characterized as private inurement. IRS guidance provides that only individuals having a private interest in the organization are subject to this rule. Violations are subject to sanctions, which ultimately include revocation of 501(c)(3) status.
With the recent enactment of the Affordable Care Act, the government’s three-headed monster of healthcare fraud prevention and enforcement (the FCA, Stark, and AKS) has been strengthened and expanded. As a result, government healthcare recovery actions continue to escalate. And because violations of Stark and the AKS are now statutorily grafted into the FCA, those found in violation of any of the three automatically face the severe civil penalties established by the FCA.