Self-Disclosure Under the False Claims Act

By Jessica Luna, J.D. candidate

The False Claims Act (FCA) (31 U.S.C. §§3729-3733) is a federal statute that imposes penalties on entities that improperly bill the government.  In the health care arena, this means knowingly submitting false claims to the Medicare or Medicaid programs for reimbursement.  Examples of false claims include: upcoding, misrepresenting the services that were rendered, submitting claims for services that were not performed, unbundling, and submitting claims for unreasonable costs.

In order to encourage individuals with the knowledge of wrongdoing to come forward, the FCA allows those individuals, called “relators,” to file a civil suit, a qui tam action, against the wrongdoer in the name of the government.   See 31 U.S.C. §3730(b).  In return for reporting the wrongdoing and for being a party to the suit, the relator receives between 15% and 30% of the award.  31 U.S.C. §3730(d)(1)&(2).

In the past, the government relied almost exclusively on relators for information about improper billing and possible FCA violations.  In 1997, the Office of the Inspector General (OIG) began a campaign to reduce fraud and abuse in federal health care programs.  (See “An Open Letter to Health Care Providers,” http://www.oig.hhs.gov/modcomp/openletter/htm for an update on the campaign’s progress.)  A large part of the campaign is devoted to encouraging health care providers to self-disclose possible violations to the OIG when they are discovered.  In 1998, the OIG released the Provider Self-Disclosure Protocol, a guide for making self-disclosures.  The Protocol goals are to allow providers to work cooperatively with the OIG and to “promote a higher level of ethical and lawful conduct throughout the health care industry.”   63 F.R. 58,399 (1998).

The OIG has created an incentive for providers to self-disclose in the form of reduced penalties.  Although OIG determinations are done on a case-by-case basis, as a general practice, providers that self-disclose under the Protocol are treated more leniently than providers that do not self-disclose.  See “An Open Letter to Health Care Providers,” http://www.oig.hhs.gov/modcomp/openletter/htm.  Often, providers that self-disclose also have comprehensive compliance programs in place.  Favorable treatment is most often given in cases where a provider self-discloses and has a comprehensive compliance program in place.   For example, the OIG may not require a Corporate Integrity Agreement (CIA), a form of penalty imposed upon providers that violate the FCA.  In the event that a CIA is deemed necessary, the term of the CIA is often reduced from the usual five-year term to a three-year term.  Often, the OIG will also reduce the independent review organization’s (IRO) role in the process in cases where the provider demonstrates the existence of an internal audit system.  “Self-Disclosure of Provider Misconduct:  Assessment of CIA Modifications,” http://www.oig.hhs.gov/cia/assessment.htm.

Although self-disclosure is now more prevalent than it was just a few years ago, providers have been slow to comply.  The OIG must still rely on relators for most of its information.  There is a large monetary incentive for relators to bring qui tam claims (15-30% of the award can be theirs).  Unfortunately, this monetary incentive, which often equals millions of dollars, could give rise to abuse and may result in claims that are aptly termed “parasitic.”

To guard against possible parasitic claims, the FCA contains a jurisdictional bar to qui tam actions that are based upon allegations or transactions that have been publicly disclosed, unless the relator bringing the action is the original source of the information (or the Attorney General brings the action).   31 U.S.C. § 3730(e)(4)(A).

Most federal courts consider three questions when determining whether the jurisdictional bar applies to a case.  First, the court asks whether the allegations made by the relator have been “publicly disclosed.”  If they have, the court then asks whether the claim was “based upon” the disclosure.  If so, then the third question the court must ask is whether the relator is the “original source” of the information.  If all three questions are answered in the affirmative the claim is barred.  United States ex. rel. Mathews v. Bank of Farmington, 166 F.3d 853, 859 (7th Cir. 1999).  In 1998, the 7th Circuit changed its criteria for answering these questions.  First, the court held that disclosing information to a public official with managerial responsibility for the information was sufficient to constitute public disclosure.  Second, the court held that “based upon” means “derived from,” rather than “similar or identical to,” as most courts interpret it.  United States ex. rel. Mathews v. Bank of Farmington, 166 F.3d 853, 863 (7th Cir. 1999).

What happens when a provider self-discloses but is still sued by a relator?  A recent U.S. District Court for the Northern District of Illinois case was the first to hold that a provider’s self-disclosure to local officials was sufficient to bar a relator from bringing a qui tam action against the provider.  In United States ex. rel. Grant  v. Rush-Presbyterian/St. Luke’s Medical Center, the medical center voluntarily reported billing Medicare and Medicaid for physician services, when the services had in fact been provided by nurses.  2000 U.S. Dist. LEXIS 19249 (N.D. Ill. Aug. 24, 2000).  After the disclosure, the medical center met with the nurses and informed them of the improper billing problems and the impending investigation.  Id.  One of the nurses in that meeting later brought a qui tam action against the medical center.  Id.  The court considered the three questions asked when determining whether the jurisdictional bar applies to a case. Id.   The court found that the allegations made by the relator had been publicly disclosed.  The court relied on Farmington in determining that the disclosure to the local U.S. attorney’s office was sufficient to constitute public disclosure, and that the claim was “derived from” that public disclosure and, therefore, was “based upon” the disclosure. Id.    The court found that the relator in this case was not the “original source” of the information.  Id.   Since all three questions were answered in the affirmative, the court held that the action was barred under the FCA’s jurisdictional bar provision.  Id.

So far no other courts have held that self-disclosure can bar a qui tam action.  If courts begin to follow the line of reasoning in Rush and apply the same holding, the result may be an increase in self-disclosures.  Providers will have an even greater incentive for adopting comprehensive compliance programs and initiating internal audits to catch problems early.  Catching problems early and promptly reporting them would bar any claims a relator may bring against the provider (if the relator’s claim is “based upon” the same problem that was disclosed).  Self-disclosing about problems, rather than being sued in a case brought by a relator, is less costly and almost guarentees a more favorable outcome for the provider.

07/25/01