U.S. Supreme Court Decision Limits False Claims Act
East Tennessee Medical News – August 2008
By Ian P. Hennessey and Diana L. Gustin

Over the past few decades, the federal False Claims Act* has emerged as one of the federal government’s most potent weapons against Medicare/Medicaid fraud and abuse.  Recently, the United States Supreme Court announced its decision in Allison Engine Co. v. United States**, in which the Court clarified portions of the federal False Claims Act.  Many people in the health care community were naturally interested to see how and in what ways the decision might affect Medicare/Medicaid fraud and abuse lawsuits brought under the False Claims Act.

What is the False Claims Act and how does it apply to health care providers?

The False Claims Act was initially passed in 1863 to combat fraud by government contractors against the Union government during the Civil War.  Today, the False Claims Act is used to combat fraud against the federal government in general and a finding of liability can result in civil fines up to $10,000 in addition to treble damages.  Furthermore, the Act permits individuals to bring action on behalf of the government against a fraudulent contractor and the qui tam relator may receive a percentage of the final award or settlement amount. 

While traditionally used against defense contractors, the False Claims Act has been increasingly utilized to combat fraud and abuse in federal health care programs such as Medicare/Medicaid.  Under such cases, civil liability may be imposed against a health care provider who “knowingly presents, or causes to be presented to an officer or employee of the United States Government…a false or fraudulent claim for payment or approval,” or “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,” or “conspires to defraud the Government by getting a false or fraudulent claim allowed or paid” within the context of health care reimbursements. 

What did the recent United States Supreme Court case say about the False Claims Act?

On June 9, 2008, the Supreme Court decided the case of Allison Engine Co. v. United States in which former employees acting as whistleblowers brought qui tam actions against subcontractors under the False Claims Act, alleging fraud in negotiation and execution of subcontracts for components of electrical systems in Navy destroyers.  At trial, there was evidence that the subcontractors submitted false claims to the general contractor for payment, but there was no evidence that the subcontractors submitted false claims directly to the government.

On appeal, the Supreme Court held that a person must have the purpose of getting a false or fraudulent claim “paid or approved by the Government” in order to be liable under the False Claims Act.  Therefore, if a defendant makes a false statement to a private entity and does not intend the Government to rely on that false statement as a condition of payment, the direct link between the statement and the Government’s decision to pay or approve a false claim is too attenuated to establish liability. 

How will the Allison Engine ruling affect health care providers?

While at first glance the Allison Engine case may appear to limit the application of the False Claims Act to some extent, the actual effect of the decision on health care providers is unclear.  One of the key features of the Allison Engine case was the presence of a general contractor-subcontractor relationship in which the subcontractor submitted invoices to the general contractor, who in turn submitted claims to the federal government.  While analogous general contractor-subcontractor relationships are certainly present within the health care field, these relationships are often far more complex.  For example, providers may sometimes subcontract for billing services or with physician assistants and nurse practitioners to provide certain services.  In addition, providers send Part A cost report information to Medicare intermediaries or submit Part B claims to Medicare carriers.  Nevertheless, providers and suppliers are certainly aware of the fact that the ultimate payor is Medicare, and indeed, the Medicare intermediary and Medicare carrier are clearly acting pursuant to administrative contracts.  In any event, there must be evidence of a specific intention to defraud the federal government before the False Claims Act will come into play.  It is yet to be seen how and in what ways the Allison Engine case will impact health care providers.

* 31 U.S.C. § 3729-3733.

** 128 S.Ct. 2123 (2008).

Disclaimer: The information contained herein is strictly informational; it is not to be construed as legal advice.