The False Claims Act
The False Claims Act, enacted by Congress in 1863 to protect the Union troops from profiteers providing shoddy goods and rotten food during the Civil War, prompted Abraham Lincoln's drive to empower private citizens with the ability to file suit on behalf of the government against corrupt contractors. The act was revitalized in 1986 to combat fraud in the defense contracting industry. Today, the False Claims Act is the government's principal weapon in the prosecution of health care fraud. One may be held either civilly or criminally responsible for knowingly or recklessly submitting a fraudulent claim to the government.
The statute permits private citizens, or relators, to file a civil action against any entity or individual violating its provisions. Violators are subject to treble damages plus civil fines of not less than $5,500 but not more than $11,000 per claim. Under the criminal statute, false claims are punishable by fine or imprisonment of up to five years, or both, for knowingly submitting a false statement for reimbursement.
To prevail under the False Claims Act, the government or its relator must establish that: the defendant presented or caused to be presented a claim to the government for payment or approval; the claim was false or fraudulent; and the defendant knew that the claim was false or fraudulent. "Knowing" means actual knowledge of false information, or acts in deliberate ignorance or reckless disregard of the truth or falsity of the information. Innocent mistakes and mere negligence are not actionable under the act.
The combined effect of aggressive False Claims enforcement, increased contractor sensitivity to billing obligations, and more conscientious adherence to corporate compliance programs has been to reduce the number of legitimate targets. Undaunted by a decrease in palpable misconduct, however, prosecutors and qui tam relators have sought to stretch the reach of the False Claims Act raising issues turning on mere negligence and reckless intent.
The issue of intent was recently addressed by the 3rd U.S. Circuit Court of Appeals in United States v. Gumbs, which held that the defendant did not "willfully" cause an intermediary to submit a false payment claim to the federal government where he was not aware that the party with whom he had contracted was to be compensated by the federal government. To willfully cause an intermediary to submit a false claim, one must know that the intermediary will also seek payment from the federal government.
The courts in this circuit have followed the recent trend of limiting the government's stretch and have reaffirmed the requisite specific intent required to prove violations of the False Claims Act. In United States ex rel. Hartman v. Allegheny Gen. Hosp., the District Court for the Western District of Pennsylvania granted summary judgment for Allegheny General on the issue of whether it had knowingly submitted fraudulent claims for reimbursement, determining that there was no evidence that the hospital acted intentionally, recklessly, or with deliberate disregard as to the truth of its billing statements submitted to Medicare. The court considered that Allegheny General promptly discovered the billing error, attempted to resolve the problem, and revisited the issue when it reappeared. At most, Allegheny General was sloppy and inexplicably unable to resolve the billing issue immediately.
Similarly, in United States ex rel. Nudelman v. Int'l Rehab. Assocs., the court, in its approval of a settlement between the parties, determined that the government entities and/or the relator would have difficulty in establishing liability under the False Claims Act against defendant Intracorp. The court stated that even though Intracorp was aware that the claims were not always in compliance with its utilization standards, the defendant was consistently trying to correct the known deficiencies and make system-wide improvements in its provision of services. For these reasons, the government entities and/or the relator would have significant difficulty in establishing defendant's liability under the False Claims Act.