Editor: Do the amendments to the False Claims Act (FCA), in the Fraud Enforcement and Recovery Act of 2009 (FERA), signed into law on May 20, 2009 by President Obama, have serious cost implications for hospitals that run counter to the stated goal of reducing healthcare costs?
Sepaniak: I'm always concerned about not only what a law says but how it will be applied. There's an agenda behind the changes, and I know the agenda involves stepped-up enforcement. I know the enforcements generate cash for the government, and I find myself ill at ease with a government that is in the revenue-producing business when it comes to enforcement for revenue versus enforcement for a greater societal purpose. It's a laudable goal for the government to go after people who are abusing Medicare and Medicaid. I want those people to be held accountable. I don't want the government to pursue those who are doing their best to comply just to generate revenue. Every good idea has the potential to be abused.
I'm surprised at the current expansive application of the FCA. The FCA was enacted during the Civil War to prevent people from overcharging the government, and now it's one of the principal tools of the U.S. Attorney's office. They realize what an effective tool it is. It has been expanded, and FERA expands it even further. The qui tam aspect of this for hospitals is always problematic. The reported cases that I see on a daily basis indicate that pursuing hospitals is a growing area.
The most noteworthy aspect of FERA, aside from elimination of the protections the Supreme Court provided in Allison Engine Co. v. United States ex rel. Sanders , 128 S.Ct. 2123 (2008) from remote, downstream transactions, is that it would appear to noticeably reduce the requirements for "intent" to defraud the government. For instance, under a 31 USC 3729(a)(2) claim, the language was "knowingly makes a false record or statement to get a false or fraudulent claim paid" and now is "knowingly makes a false record or statement material to a false or fraudulent claim." Coupled with the elimination of the Allison protections, this will vastly increase the number of individuals who are potential defendants in, and the activities which can be the subject matter of, a false claims action.
My understanding of the False Claims Correction Act [H.R.1788 now pending in Congress] is that it would greatly expand the FCA, not only to bar retaliation against employees but also retaliatory actions against contractors or agents. That's a whole downstream group of people. It would provide whistleblower protection for those people and an opportunity to be qui tam relators. So it broadens the field.
And what constitutes retaliation? For example, a contractor or an agent can include physicians. I think it ties into Stark enforcement, so there's a tier of people who ordinarily wouldn't be involved in a false claim action who now are. Those same people may become disgruntled for a number of reasons. If we stop dealing with them altogether, they're potentially people who could claim retaliation, so it's very troublesome.
Editor: The qui tam provisions of H.R.1788 nullify any contractual requirement that consultants, agents or employees are required to notify corporate compliance departments of any suspected irregularities that might be violations of the FCA.
Sepaniak: One problem some hospitals have had is when they call in consultants. That consultant will spend months in the hospital, working side by side with hospital people. They come to the conclusion that there is something amiss and then become whistleblowers. We try to ensure that our consultants and agents have an obligation to raise issues through our compliance office. Our position is, if you see something that you don't like, you have an obligation to tell us first and allow our processes to address it. The problem with qui tam and the whistleblower protections in H.R. 1788 is they would broaden the field to people we never contemplated would be in that category. They increase the cost of litigation.
Editor: H.R. 1788 and S. 458 are currently being considered by Congress. We understand that H.R. 1788 eliminates the need for qui tam relators to satisfy Rule 9(b).
Sepaniak: FRCP 9(b) requires that allegations of fraud be pled with particularity. The circuits have differed in their application of this requirement. In its most stringent application this has meant that plaintiffs must identify the specific false claims that were submitted to the government. Elimination of that requirement will make it far easier for potential relators to bring an action, as they would be able to pursue discovery and survive a motion to dismiss by general allegations of wrongdoing.
Bear in mind that the defendant in a qui tam action isn't likely to know about it until the government has done at least some investigation. By the time a motion raising 9(b) could be made, it may be too late, and the plaintiff may have sufficient information to amend his or her complaint even in the face of a successful 9(b) defense. The additional discovery burden that would result from eliminating the requirements of 9(b) would be substantial.
Editor: We also understand that both H.R. 1788 and S. 458 allow some government employees to bring qui tam cases based on information they learned as government employees.
Sepaniak: Government employees regularly get access to our confidential information. We cooperate with them because we feel that it is in our interest and theirs to get to the bottom of any issue and, if we made a mistake, to correct it and to address any failures in our compliance system. If we knew that a government employee could use confidential information to file a qui tam case and profit personally, it would make the relationship far more adversarial . Changing the relationship in that way would be counterproductive since it would create an atmosphere of distrust which inevitably would increase costs.
Editor: Both H.R. 1788 and S. 458 eliminate a defendant's ability to raise the jurisdictional defense of public disclosure/original source.
Sepaniak: There's no question that, because of the greater access people have to information, there's a greater opportunity for relators to initiate these actions. Under current practice, the defense was really more of a deterrent than a bar. Even before FERA, the defendant in a qui tam action isn't likely to know about it until the government has done at least some investigation. By the time a motion could have been made, it may be too late, and the plaintiff may have sufficient information to amend the complaint. Also, the government would still retain this defense for purposes of dismissing the relator. The Department of Justice has not typically liked to share money with relators when given the opportunity. Prior to FERA, if we got a subpoena from the OIG/U.S. attorney, and he or she wanted to see all our records on a certain type of treatment or transfers for six years prior, I was already disadvantaged. I'd have to assign people to go through every record we have for that time period. Now, with electronic discovery, we have to capture all the e-mails and electronic communications. That's a full-time job for several people for a year just to respond to the subpoena. So that only adds to the problem.
Editor: I noticed that the period of repose is lengthened by FERA.
Sepaniak: Since any amended complaint the government files relates back to the date the relator filed, it could be on their desk for years. We wouldn't even know about it. The practices being reviewed could easily cover a decade. Most hospitals have an e-mail retention policy. The rules on e-discovery state that if you have a reasonable policy and you enforce the policy uniformly, you can't be held accountable for destroying e-mails that someone might later demand. However, there have been some substantial fines against companies that have destroyed e-mails that could have been discovered in litigation. Part of an effective e-mail retention policy is called "litigation hold." Once a claim is suspected, a "hold" is placed on the destruction of all e-mail and other documents that relate to that claim. However, the government could have claims in their drawer right now that relate to any hospital. They could be investigating them internally. A year from now they could ask to see all your e-mails, documents, and electronic backup. If you followed your policy and destroyed them, you may still have an upset U.S. Attorney, so it almost makes your e-mail retention policy ineffective.
Editor: Steve, do you have any closing comments?
Sepaniak: I am convinced that the cumulative effect of all the changes effected by FERA and contemplated by H.R. 1788 and S. 458 will cause a great increase in FCA actions brought against hospitals. The cost of e-discovery alone could be crippling. It is important to let policy makers in Washington know about the unintended consequences for hospitals. It seems strange that while Congress is so concerned about the rising cost of healthcare, it is proceeding down a path that will materially add to those costs.