Over the past several years, federal courts have taken a closer look at what both the government and private qui tam relators consider to be fraud. Recognition of the complexities of the regulatory framework, differing notions of criminal intent and plain weariness with the sheer number of filed cases have caused courts to recognize a smaller strike zone. The result has been a blunting of the prosecution's principal weapons of choice -- the False Claims Act, 31 U.S.C.S. Section 3729, and the Anti-Kickback Statute, 42 U.S.C.S. Section 1320a-7b(b) -- and a focus on the requisite intent necessary to convict or find liability under these statutes.
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.
The Anti-Kickback Statute
Under the federal Anti-Kickback Statute, anyone who knowingly or willfully solicits or receives, either directly or indirectly, any remuneration (including any kickback, bribe or rebate) in exchange for referring an individual for services under any federal health care program can be fined or imprisoned. Prosecutors and administrators alike must prove that the defendant engaged in the alleged conduct "knowingly and willfully."
The "one purpose test," reflexively cited by plaintiffs and prosecutors in Anti-Kickback cases, was first set forth in the seminal case of United States v. Greber. An independent laboratory that provided Holter monitoring testing services paid physician fees to allegedly compensate doctors for interpretation of the test results. The evidence was clear, however, that the laboratory was actually performing the requisite interpretation. The defendants argued that since the payments were for the physicians' professional services (the unnecessary interpretations), then those payments could not form the basis of the Anti-Kickback Statute. The 3rd Circuit correctly rejected this argument, but held that if "one purpose" of the payment was to induce referrals, then that was sufficient to sustain a conviction under the Anti-Kickback Statute.
Greber was applied and relied on in a series of related Anti-Kickback cases closely followed by health care lawyers and practitioners. The 10th Circuit in United States v. La Hue, upheld the convictions of physicians Robert and Donald La Hue in Kansas City, Missouri for anti-kickback violations after they entered into a contract to provide consulting services to Baptist Medical in return for financial payments of $75,000 per physician per year, for which they provided little to no services. As long as one purpose of payments from the hospital to the La Hues was to induce referrals back to Baptist Medical, the convictions would stand. The court's decision was viewed with alarm because the arrangement between the defendants was structured by their lawyers, signaling what at the time appeared to be a major change in direction from a trend toward a more flexible interpretation of the statute. The U.S. Supreme Court ended the Kansas City saga in 2002 when it denied certiorari on the issue of whether the defendants could be convicted of violating anti-kickback laws and the application of the one purpose test.
Specific Intent
Although continued application of the one purpose test may be perceived as a setback for defendants, federal case law nevertheless supports the view that specific intent must still be demonstrated. In a related case to La Hue, the 10th Circuit in United States v. McClatchey applied a heightened intent standard by adopting the trial court's jury instruction that in order to sustain a conviction under the action, it needed to prove beyond a reasonable doubt that the defendants knowingly and willfully joined a conspiracy with the specific intent to violate the act. McClatchey, the chief operating officer of Baptist Medical, had longstanding knowledge that the La Hues were not performing services pursuant to the contract and that some of the contractual services were not desired at the hospital.
Although McClatchey had learned of the La Hues' misconduct, he continued the relationship and participated in developing a new contract. In reversing the district court's entry of judgment of acquittal and reinstating the jury's guilty verdict, the court concluded that the jury could reasonably reject McClatchy's good faith reliance on counsel defense and find that he had specific intent to violate the act.
This decision was consistent with a 9th Circuit interpretation in Hanlester v. Shalala of the "knowingly and willfully requirement" of the Anti-Kickback Statute in which the court held that the government must demonstrate the defendants' knowledge that remuneration to induce referrals is prohibited conduct with the "specific intent to violate the law."
The government often takes the position that a disproportionately large contract, such as the one in La Hue, is in and of itself evidence of a kickback. Such superficial analysis ignores the stringent demands of the specific intent requirement. Despite remarks by the attorneys of "it's a clean-up deal," "I don't look good in stripes," and "I don't know what they do for their money," District Court Judge John W. Lundstrum, as cited in United States v. Anderson, concluded that the lawyers had good faith beliefs that it was possible to facilitate a business relationship between the hospitals and Baptist Medical. The court noted that phrases like the "one purpose rule" invite lawyers to "attempt to devise legal ways for parties to have a relationship which has as a component hoped-for and anticipated referrals," and that in this case, the undisputed evidence demonstrated that the lawyers "steadfastly maintained to their clients that if fair market value were paid for the doctors' practice or for legitimate consulting services, the relationship passed legal scrutiny."
Lundstom's analysis is significant. It recognizes that Greber cannot be seen as the last word on requisite intent. The Anti-Kickback Statute is applied at all levels of the health care industry. The government has issued extensive regulations seeking to define which relationships are lawful and which are criminal. It has become the health care lawyers' and providers' special chore to structure profitable business arrangements, which on the one hand recognize the practicalities of the business world where "blessed are the rainmakers," while steering clear of those prosecutors out to prohibit agreements based on the volume or value of referrals. Considering the most recent cases, it is the government's burden to prove that defendants entered the relationship with a specific intent to engage in criminal conduct -- an understanding and knowledge that the relationship was unlawful.
Conclusion
Health care fraud prosecution, both civil and criminal, is evolving as increased scrutiny is given to physician-hospital and self-referral arrangements, that while consistent with standards in the industry, may be interpreted as fraudulent or abusive practices. Under the False Claims Act and Anti-Kickback Statute, an alleged wrongdoer's specific intent and knowledge are always at issue. As it is admittedly difficult in many cases to discern whether the inaccurate medical claim is the result of intentional misrepresentation, a heedless error, or simply a mistake, lack of requisite intent is an available defense to over-reaching prosecution.
The decisions referred to in this article are consistent in holding that neither a hospital's finance officer nor even a corporate executive should be prosecuted for mere negligence or mistake. When health care providers have engaged in legitimate and good faith attempts to structure a business relationship that does not otherwise comply with federal law, the prohibited relationship must have been entered into with the requisite scienter. Nevertheless, physicians, hospitals and health care providers should consult with their counsel regularly to review financial arrangements and to ensure compliance with the emergent law in this area.
Michael M. Mustokoff is a partner with Duane Morris. He practices in the areas of white collar criminal defense and commercial litigation. Prior to entering private practice, he served as an assistant district attorney from 1972 to 1979, and for four years he was chief of the Philadelphia District Attorney's Economic Crime Unit. Mustokoff is a frequent speaker at white collar crime and health law institutes and seminars.
Charlene Keller Fullmer is a senior associate with the firm. She practices in the area of commercial litigation.
Reprinted with permission from The Legal Intelligencer, © ALM Media Properties LLC. All rights reserved.