omm National Association of Criminal DeFense lawyers

September/October 201.0

The Rise of EnvironmentaL Crime Prosecution

ALSO IN THIS ISSUE

• l-IeaLthcare Reform

• FCPA

• FDA

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14th AnnuaL DUI Seminar

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Defendin~ Sexual Assault Cases

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Defending Dru~ Cases Seminar

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Midwinter Meetin~ 2i Seminar

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AnnuaL forensic Sdence Seminar

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l-tere Come the Feds:

The Significant Impact of

l-ieaLthcare Reform on

Government Investigations

And Enforcement

For the heavily regulated and already embattled

• healthcare industry, the recent changes in the healthcare arena by the Fraud Enforcement and

Recovery and the Patient Protection and Affordable Care Act (P.L. 111-148) as amended by the Health Care and Education Reconciliation Act of 2010 (together, the Healthcare Reform Law) are largely unwelcome news. The expansion of potential liability

. and the Department of Justice's authority and ability to investigate fraud makes investigations into and challenges of providers' practices by both the govern­ment and individual whistleblowers considerably more likely. While health care is a highly specialized practice area, all white collar practitioners could ben­efit from a general understanding of the recent changes in this area and the likely practical effect of these changes.

BY \-lOllY

I. Increased Emphasis Upon, and Funding for, Fraud Investigations

In May 2009, the Fraud Enforcement and Recovery Act (FERA) allocated significant additional resources to various federal agencies to assist in combating fraud, including specifically healthcare fraud. FERA allocated $165 million to the DOJ in fiscal years 2010 and 2011 to hire fraud prosecutors and 'investigators. The law also dedicated $140 million to the FBI, $50 million to the U.S. Attorney's Offices, and over $80 million to other federal agencies for the specific purpose of investigating fraud. In his 2011 budget, President Obama proposes approxi­mately $1.7 billion, and the Healthcare Reform Law sets aside an additional $250 million over the next 10 years, to fund the DOl, the Department of Health and Human Services (DHHS), and a number of enforcement agen­cies tasked with fighting healthcare fraud. In short, there is no shortage of funds for, or emphasis upon, investigat­ing and prosecuting healthcare fraud .

II. FERA and Healthcare Reform Law Make Material Changes to Statutes Impacting Healthcare Industry The Healthcare Reform Law amends the False

Claims Act (FCA), the Stark Law (Stark), the Anti­Kickback Statute, and the criminal Healthcare Statute in ways that are likely to negatively impact investigations and whistleblower lawsuits against providers.

A. Significant Changes to the False Claims Act While the False Claims Act (FCA) applies only in

the civil investigation context, white collar practitioners nonetheless need to be aware of its provisions. First,

PIERSON

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federal health care investigations are often parallel, with both a civil and criminal investigation proceeding simultaneously. As such, the tools avail­able to whistleblowers and the govern­ment for purposes of the civil investiga­tion can have a tremendous impact on the criminal investigation.

The recent amendments by FERA and the Healthcare Reform Law to the FCA combine to dramatically expand potential FCA liability - to a vast and unprecedented degree. Under the FCA as amended, the class of persons who can serve as whistleblowers and the types of transactions that can be subjected to FCA liability are ,;irtually unlimited. When this expansion of the FCA is viewed in combination with rampant federal government spending and the current emphasis on recovering funds from fraud and abuse to pay for new fed­eral entitlement programs, the healthcare industry faces uncertain and perilous times ahead. While practitioners in the healthcare arena have been preaching compliance for years, the need for vigi­lant, rigorous, up-to-date, and effective compliance programs has never been more at the forefront or more critical.

Before a robust compliance plan can be implemented, however, providers and suppliers must under­stand the changes to the relevant healthcare laws, including the FCA, and modifications and adjustments that these new provisions will require. The purpose of this article is to highlight the key changes made to the FCA in 2009 and 2010 and their practical impact on the healthcare industry.

1. Changes Made to the FCAby FERA

The FCA was already a powerful weapon in the hands of government prosecutors and counsel for whistle­blowers, with its treble damages and punitive per-occurrence penalties. The 2009 amendments to the FCA, made as part of the Fraud Enforcement and Recovery Act', vastly expanded FCA liability to include "downstream" claims made not just to the govern­ment itself but also to all recipients of federal funds. The amendments also materially expanded "reverse false claims" liability under the FCA and eliminated the specific intent require­ment that some courts had read into the statutory scheme, while increasing whistleblower protections and giving the government additional procedural advantages. At the end of the day, the 2009 amendments added significant

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weapons to the whistleblowers' and government's arsenal.

a. New Definition of 'Claim' and Elimination Of Presentment Clause

As amended by FERA, the new defi­nition of claim for purposes of the FCA is no longer limited to requests or demands for money or property made directly to the government. Instead, claims now include demands made to "a contractor, grantee, or other recipient [of federal funds]" if the money or property provid­ed to the recipient will be (1) spent or used on the government's behalf or (2) used on behalf of the government to advance a government program or inter­est, as long as the government has pro­vided or will reimburse the recipient for any portion of the money or property requested.' The elimination of the pre­sentment requirement in the amend­ments demonstrated that Congress rejected judicial decisions, such as United States ex reI. Totten v. Bombardier Corp.,' which had determined that FCA liability could only attach if the claim was pre­sented to an officer or employee of the government. In effect, FCA liability after the 2009 amendments can attach to demands for money or property made not just to the government itself, but to any recipient of government funds (i.e., contractor, grantee, etc.).

b. Elimination of Specific Intent Requirement

Prior to the 2009 amendments, FCA liability could only attach if a person "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."4 Based upon this statutory language, the Supreme Court, in Allison Engine,s determined that a plaintiff in an FCA case must establish that the defendant specifically intended to get the govern­ment itself to pay the claim.

Legislatively reversing Allison Engine, the 2009 amendments removed the "to get" and "by the government" language from the FCA. The amended statute required only that a false state­ment be "material to" a government pay­ment of the claim, i.e., that the false claim or statement had "a natural ten­dency to influence" or was "capable of influencing" the payment of the c1aim.6

In essence, this amendment eliminated any specific intent requirement and relieved FCA plaintiffs from their prior burden of having to establish a direct connection between the allegedly false

claim and the payment of the claim by the government.

c. Liability for Reverse False Claims

Before the 2009 amendments in FERA, the "reverse false claims" provi­sion in the FCA prohibited an individ­ual from "knowingly mak[ing], us[ing], or caus[ing] to be made or used, a false record or statement to conceal, avoid, or decrease an obligation to payor trans­mit money or property to the govern­ment."] As amended by FERA, the reverse false claims provision prohibits "knowingly mak[ing], us ling], or caus[ing] to be made or used, a false record or statement material to an obli­gation to payor transmit money or prop­erty to the government, or knowingly concea1[ing] or knowingly and improper­ly avoid[ing] or decreas[ing] an obliga­tion to payor transmit money or proper­ty to the government.'" By adding this section to the definition of reverse false claims, Congress removed the previous requirement that FCA plaintiffs establish an affirmative act (making/using/causing a false record or statement) for a defen­dant to be subject to FCA liability for avoiding or decreasing an obligation to pay. Nor does the alleged misconduct have to involve a false or fraudulent state­ment or record; conscious disregard or recklessly improper conduct is now suffi­cient for FCA liability to attach under the reverse false claims provision.'

Liability for reverse false claims was also expanded by the FERA amend­ments' new definition for the term obli­gation: "an established duty, whether or not fixed, arising from an express or implied contractual, grantor-grantee, or licensor-licensee relationship, from a fee-based or similar relationship, from statute or regulation, or from the reten­tion of any overpayment."10 Prior to the codification of this broad definition of obligation, several courts had declined to interpret obligation to include poten­tial or contingent obligations, requiring instead that the obligation be fixed at the time of the allegedly false claim."

FERA's definition of the term obliga­tion seemed to raise more questions than it answered. Providers and suppliers were left to ponder several questions. What is an obligation? What is an overpayment? When are they triggered? What duty are providers and suppliers under to identify overpayments? When is an overpayment officially identified for purposes of this statute? In the absence of guidance on these issues, how are providers and sup­pliers to conduct themselves?

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d. Expanded Whistleblower Protections From Retaliation

Consistent with other changes to the FCA in the FERA amendments, whistleblower protections in the statute were expanded to cover not only employees, but also contractors and agents." Additionally, actions taken by whistleblowers to stop violations of the FCA are now covered by the retaliation protections. 1l Prior to the 2009 amend­ments, whistleblowers were protected only when (J) the whistleblower engaged in conduct that was directly in furtherance of an actual action under the FCA; (2) the employer knew about the investigation or action; and (3) the employer retaliated against the whistle­blower as a result.!' The amended retali­ation provision expanded both the potential pool of whistleblowers who could invoke protection under the FCA and the array of protected conduct to which the retaliation provision applies.

e. Relation Back of Government's Complaint

Prior to the 2009 FCA amendments, the state of the law with regard to when the statute of limitations on FCA cases began to run was unsettled. Defendants argued, and many courts agreed, that the statute of limitations began to run at the filing of the whistleblower's complaint and that the government's complaint-in­intervention did not relate back to the date of the relator's complaint. FERA amended the FCA to explicitly state that the government's complaint did relate back to the whistleblower's complaint." This explicit change means that the whistleblower's complaint now serves as a placeholder or backstop that essential­ly allows the governmen t more leeway to investigate and engage in discovery without the time pressure of having to file its own complaint-in-intervention. As a result, investigations are likely to be lengthier and more expensive.

f. Civil Investigative Demands Another important change brought

about by the 2009 amendments was the expansion of the DOl's authority to use Civil Investigative Demands (CIDs). \Vhile civil and criminal prosecutors pre­viously ran parallel investigations and shared documentary information obtained from Administrative Investigative Demands (AIDs), the CIDs permit the civil prosecutors to compel both documents and sworn testimony, and then to share this information with criminal prosecutors and counsel for whistleblowers.!6 Before FERA, CIDs were

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not widely used in FCA investigations because they were required by statute to be issued by the u.s. Attorney General. FERA, however, amended the statute to permit the Attorney General to delegate the authority to issue CIDs, and the Attorney General has delegated this authority to, inter alia, the individual United States Attorneys.!? As with any new weapon in the prosecutor's arsenal, the delegation of this authority to the local enforcement level is certain to result in a significant increase in its utilization.

The increased authority through CIDs to gather and share evidence at this early stage in an investigation will adversely impact providers and suppliers both in fending off a whistleblower suit and in attem pting to negotiate the already treacherous waters of a parallel civil and criminal investigation.

2. Changes Made to the FCA by The Healthcare Reform Law

While the healthcare industry was still trying to get its arms around the import and meaning of the 2009 amendments to the FCA, Congress went back to the well and made even more significant changes to the law. Like their 2009 predecessors, the 2010 amendments, enacted as part of the Healthcare Reform Law, further broad­ened potential exposure for providers and suppliers, increased yet again the potential pool of whistleblowers and eliminated previously available defens­es to FCA claims.

a. Permitting More Whistleblowers to Qualify As the Original Source

Under the FCA, a whistleblower must be the "original source" of the information that forms the basis of the alleged fraud.!S Prior to the 2010 amendments, the FCA defined original source as "an individual who has direct and independent knowledge of the information on which the allegations are based and has voluntarily provided the information to the government before filing an action under this sec­tion which is based on the informa­tion."!' The Healthcare Reform Law expanded that definition of original source to include individuals who either (l) voluntarily disclosed to the govern­ment the information on which allega­tions or transactions in a claim are based prior to a public disclosure, or (2) have knowledge that is independent of and materially adds to the publicly dis­closed allegations or transactions, and who voluntarily provided the informa­

tion to the government before filing an action under this section.20

This new definition of "original source" eliminates the requirement for direct knowledge by the whistleblower, and allows individuals to still be consid­ered whistleblowers after the public dis­closure of allegations or transactions if the whistleblower's information is inde­pendent of and materiaJly adds to the already-disclosed information. In short, the 2010 amendments to the original source definition permit individuals who previously could not have been whistleblowers because they were not the original source to now qualify as whistleblowers in some instances.

b. Narrowing of Defense Based Upon 'Public Disclosure'

Before the 2010 amendments to the FCA through the Healthcare Reform Law, one defense that providers could raise was a jurisdictional bar that prevented an FCA suit by a whistleblower when the allegations had been publicly disclosed to the news media or in a criminal, civil, administrative or congressional investiga­tion, proceeding, hearing, audi t, or report.'! The Healthcare Reform Law eliminates the jurisdictional nature of the public disclosure provision, and instead gives the government the right to oppose dismissal even if there has been a public disclOsure. The Healthcare Reform Law also specifically limits the public disclo­sure definition as applying only to disclo­sures in the news media and in federal, not state or local, proceedings."

Lower courts previously interpreted the language of the prior version of the "public disclosure" bar to include disclo­sures made in state, local, and federal proceedings. Ironically, the Supreme Court clarified on March 30, 2010, in Graham County Soil and Water Conservation District v. U.S. ex rei. Wilson 23 that the defmition of "public disclosure" under the prior version of the FCA specifically included disclosures made in state and county reports. In light of the Graham County decision, the pub­lic disclosure provision of the FCA for suits prior to the effective date of the Healthcare Reform Law will bar whistle­blowers who base their claims on infor­mation in state and local reports, while FCA claims brought on the same infor­mation after the effective date will expe­rience no such prohibition.

c. Definition of Overpayment Where the 2009 amendments made

under FERA left open the definition of overpayment, the 2010 amendments to

THE CHAMPION

the FCA attempted to fill that void. The Healthcare Reform Law defines the term overpayment as "any funds that a person receives or retains [from a federal payor] to which the person, after applicable rec­onciliation is not entitled. . .. "24 The Healthcare Reform Law then provides that all overpayments must be reported and refunded within 60 days after the identification of the overpayment or the date any corresponding report is due. Finally, the 2010 amendments clarify that a repayment retained after the deadline for reporting and repaying it is an "oblig­ation" for FCA purposes.2S

\-\'hether this definition of overpay­ment provides any assistance to providers and suppliers in the context of a reverse false claim is up for debate. Many of the same questions surrounding the 2009 reverse false claims act amendments are left unresolved, and new levels of unan­swered questions are added by these 2010 provisions. When, for example, is an overpayment "identified" for purposes of the statute such that the 60-day reportlrefund window is triggered? And in the absence of guidance on these types of issues from the government, how is a provider or supplier to gauge how to gov­ern itself? In this environment, with increased focus on enforcemen t and unprecedented expansion of potential FCA liability, the industry should err sig­nificantly on the side of caution.

III. Expansion of the Anti­Kickback Statute The Healthcare Reform Law also

changes the Anti-Kickback Statute (AKS). Specifically, it clarifies that a showing of "specific intent" to violate the AKS is not required. 26 This change results in an easier standard for the gov­ernment to show there is a violation of the AKS. The Healthcare Reform Law also makes expl icit what several federal courts had already determined - that claims resulting from kickback arrange­ments constitute "false or fraudulent claims" under the FCA.

One potentially positive change for providers is the Healthcare Reform Law's amendment to the definition of remuner­ation in the beneficiary inducement pro­visions of the Civil Monetary Penalties. Remuneration, which is the key to the application of the AKS, now excludes from its definition any remuneration that both promotes access to care and does not pose a significant risk of harm to pa tients or the federal payors. Many provider activities would ostensibly fall within this seemingly broad exclusion.

IV. Changes to the Healthcare Criminal Fraud Statute Another important change under

the Healthcare Reform Law is the lower­ing of the intent requirement contained in the healthcare fraud criminal statute, 18 U.s.c. § 1347. Proof of actual knowl­edge of the healthcare fraud statute or of specific intent to violate the statute is no longer required. The definition of healthcare offense under 18 U.s.c. § 24(a) was also amended to include violations of the AKS and the Food, Drug, and Cosmetic Act.

Conclusion

From a healthcare provider and practitioner perspective, the recent changes are not good news. The increased funding for fraud investiga­tions and the significant loosening of the whistleblower lawsuit constraints virtu­aBy ensure that the current high level of scrutiny on providers will increase. White collar practitioners are more like­ly than ever to be called upon to navigate the perilous waters of the healthcare reg­ulatory arena, and they should not delve too deeply into these substantive waters without bringing in a healthcare special­ist. A basic understanding of the mean­ingful way this landscape has changed, however, is a valuable tool for a]] white co]]ar practitioners.

© Holly Pierson, 2010. All rights reserved.

Notes 1. P.L. 111-21. 2.31 U.s.C § 3729(b)(2) (2009). 3.380 F.3d 488,490 (D.C. Cir. 2004). 4.31 U.S.c. § 3729(a)(2) (1986) (empha­

sis added). 5.128 S. Ct. at 2129. 6.31 U.S.c. §§ 3729(a)(1)(B) and (b)(4)

(2009). 7.31 U.S.C § 3729(a)(7) (2006). 8.31 U.s.c.§ 3729(a)(7) (2009) (empha­

sis added). 9.31 U.S.c. § 3729(b)(1) (2009) (defin­

ing "knowingly" as actual knowledge, delib­erate ignorance, or reckless disregard).

10.31 U.S.c. § 3729(b)(3) (2009). 11. See, e.g,. United States ex rei. Marcy v.

Rowan Companies, Inc., 520 F.3d 384, 391 (5th Cir. 2008); United States ex rei. Bain v. Georgia Gulf Corp., 386 F.3d 648, 657 (5th Cir. 2004); United States v. Bourseau, 531 F.3d 1159, 1169-170 (9th Cir. 2008).

12.31 U.s.c. § 3730(h)(1) (2009). 13.ld. 14.31 U.S.c. § 3730(h)(1) (2006).

15.31 U.s.C § 3131 (c) (2009). 16.31 U.S.C§3133(a)(1) (2009). 17.31 U.S.C § 3133(a)(1) (2009). 18.31 U.S.c. § 3730(e)(4) (2009). 19. 31 U.S.c. § 3730(e)(4)(B) (2009)

(emphasis added). 20.31 U.S.c. § 3730(e)(4)(B) (2010). 21.31 U.S.c. § 3730(e)(4)(A) (2009). 22.31 U.s.c. § 3730(e)(4)(A) (2010). 23.130 S.Ct. 1396 (2010). 24.42 U.s.c. § 1320a-7k (2010). 25.ld.

26. Prior to this clarification, several courts required the government to demonstrate a heightened knowledge requirement to satisfy the elements of the Anti-Kickback Statute. In Hanlester Network v. Shalala, 51 F.3d 1390, 1400 (9th Cir. 1995), the court determined that the "knowingly and willfully" language in the Anti-Kickback Statute required that the defendant (1) know that the statute pro­hibits offering or paying remuneration to induce referrals, and (2) engage in prohib­ited conduct with the specific intent to disobey the law. The Fifth, Eighth, and Eleventh Circuits declined to go as far as the Ninth Circuit in Hanlester, but nonetheless imposed a heightened knowledge requirement that the defen­dant know his conduct was wrongful but not necessarily that it violated a legal duty. See United States v. Davis, 132 F.3d 1092, 1094 (5th Cir. 1998); United States v. Jain, 93

F.3d 436,441 (8th Cir. 1996); United States v.

Starks, 157 F.3d 883 (11th Cir. 1998).

About the Author Holly Pierson is Of Counsel at Morris

Manning & Martin LLP in the firm's Healthcare, Fraud & Abuse Defense, and Commercial Litigation Practices. She concentrates on internal investi­gations, white col­

lar defense and special litigation, includ­ing healthcare fraud, whistleblower actions, identity theft, mortgage and banking fraud, environmental issues, and public corruption.

liolly Pierson Morris, Manning & Martin LLP 1600 Atlanta Financial Center 3343 Peachtree Road NE Atlanta, GA 30326 404-504-7665 Fax 404-365-95321 -14M!- hpierson@mmmlaw.com

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