States get new False Claims Act authority


Historically, the federal government has taken the lead in pursuing fraud claims against healthcare providers. Section 6031 of the recently enacted Deficit Reduction Act of 2005 (DRA), which provides a financial incentive for states to enact their own false claims legislation, is changing that.

Historically, the federal government has taken the lead in pursuing fraud claims against healthcare providers. Section 6031 of the recently enacted Deficit Reduction Act of 2005 (DRA), which provides a financial incentive for states to enact their own false claims legislation, is changing that. These acts establish liability to the state for the submission of false or fraudulent claims to the state's healthcare programs just as the False Claims Act protects the Centers for Medicare and Medicaid Services from such claims against Medicare.

Providers are increasingly at risk, now that both state governments, under their own laws, and the federal government, under the FCA, can prosecute improper billings.

The DRA encourages states to enact laws similar to the federal statutes. If a state FCA is determined by the federal government to meet certain requirements, the state is entitled to a 10% increase in its share of any monies recovered through a state action brought under such a law. When a state recovers money for the Medicaid program under a state law, it is obligated to return the federal portion of that money to the federal government. Under the DRA, a state with a compliant FCA law is allowed to keep a larger percentage of the recovery-up to 10% additional-in such actions.

On Aug. 21, 2006, the Department of Health and Human Services' Office of Inspector General published a notice in the Federal Register that set forth guidelines for reviewing a state FCA. The guidelines invited states to request the OIG's review of their laws to determine whether the laws met the requirements of the act.

So far, the OIG has reviewed laws from California, Florida, Illinois, Indiana, Louisiana, Massachusetts, Michigan, Nevada, Tennessee, and Texas. The OIG concluded that the laws enacted in Illinois, Massachusetts, and Tennessee qualified for the DRA's increased recovery incentives, but the others did not.

The common characteristic of the three state laws that the OIG approved is the substantial similarity between the federal FCA and the state law. All three state laws use the federal FCA as a template, then add stricter controls and penalties for certain violations. The OIG rejected state laws that contained penalties for violators that were less stringent than those of the federal FCA. For example, if the state law did not provide adequate minimum penalties for each false claim submitted or did not provide a per-violation penalty, it was rejected.

At least 23 states have enacted their own civil false claims laws. In addition to the 10 listed above, Arkansas, Colorado, Delaware, Hawaii, Montana, Nebraska, New Hampshire, New Mexico, North Carolina, Utah, Virginia, and Washington all have FCAs, as does the District of Columbia. Laws have also been introduced in the 2007 legislative session in many of the remaining states, and it is fully expected that most states will enact similar laws to capture the financial incentives of the DRA.

The FCA was originally enacted by President Abraham Lincoln in response to fraud by Civil War contractors who sold defective weapons to the Union Army. The FCA empowers the federal government and private citizens (known as relators) to file actions against those alleged to have knowingly submitted false or fraudulent claims to the government. The relator aspect of the law is a unique mechanism that allows citizens with evidence of fraud against government contractors and programs to sue, on behalf of the government, in order to recover the stolen funds. The government, under the statute, can obtain treble damages and civil penalties of up to $11,000 per claim; relators can obtain up to 30% of the government's recovery.

In 1986, Congress liberalized the FCA to make it easier for both the government and relators to file actions to enforce the statute. From 1986 through 1991, most FCA actions targeted defense contractors. Congress's 1986 amendments have resulted in an avalanche of FCA actions and recoveries. In 1988, cases brought under the FCA returned $350,000 to the federal government; through the first nine months of 2006, they returned more than $3.1 billion. These powerful remedies and impressive returns get noticed.

The FCA's penalty provisions can make defendants liable for devastating amounts, even if the government has not sustained any actual damages. The surge in federal enforcement shows no sign of letting up, and, based on federal success, state action will increase dramatically over the coming years.

Accordingly, compliance has become a pertinent issue for radiology practices. Today, every radiology practice should have a working compliance plan. Although, traditionally, healthcare compliance plans resulted from government settlements with noncompliant entities, today's compliance plans are usually voluntary programs geared toward prevention rather than correction. A compliance plan is designed to formalize, clarify, and stress the practice's commitment to comply with Medicare and Medicaid rules and regulations and to further the practice's mission to provide quality care to patients. The plan should apply not only to a practice's physicians, but to everyone involved with the practice, including office personnel, independent contractors, and business managers.

Most, if not all, compliance cases against radiology practices have been focused on overcoding, or, put another way, underdocumentation. Your billing company/department plays a crucial role in complying with the law and protecting the group. In addition to the feedback needed to monitor the accuracy of documentation for coding and billing, the billing company and the practice should have a compliance plan that covers the seven basic elements promulgated by the OIG (see table).

Compliance Guidance

The OIG issued its Compliance program guidance for individual and small group physician practices in October of 2000 to assist physicians in developing and monitoring compliance programs for their practices to prevent fraud and abuse against government healthcare programs. Its regulations continue to be a great guide to preventing the submission of fraudulent and erroneous claims to the federal government. CMS compares compliance programs to immunization; both are a form of preventive medicine. One promotes monitoring of internal controls and adherence to federal healthcare requirements, one protects against disease.

If an organization is found guilty of violating federal criminal laws but has in place a compliance program in accordance with the guidelines and can demonstrate periodic maintenance of the plan, assessed penalties may be reduced by up to 70%. The best way to protect your practice is to consider the OIG's guidance during regular monitoring of your compliance plan. The OIG model identifies what it considers the seven components of an effective compliance plan. These components provide a benchmark by which a physician practice can monitor its compliance plan. The OIG guidelines emphasize a step-by-step approach that considers staffing and other resource constraints faced by physician practices. All seven steps should be monitored for a plan to be comprehensive. Keep the components in mind as you reassess your compliance efforts.

CMS assumes that all healthcare providers have a duty to ensure that the claims submitted to federal healthcare programs are true and accurate. An annual review of your plan will take a relatively small amount of time and money and will result in an up-to-date and coordinated compliance strategy. If the unthinkable happens and you are confronted with a government action, a well-maintained and well-documented compliance effort may reduce assessed penalties. Any way you look at it, an annual compliance checkup is good medicine for your practice.

Mr. Reinitz is president of Advocate Radiology Billing & Reimbursement Specialists, based in Powell, OH. He can be reached at


  • Standards and procedures

  • Oversight and structure of plan

  • Education and training

  • Auditing and monitoring

  • Reporting and communications

  • Discipline guidelines

  • Response and prevention
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