President Obama Signs into Law the Fraud Enforcement and Recovery Act of 2009

On May 20, 2009, President Obama signed into law the Fraud Enforcement and Recovery Act of 2009, S. 386 (the “FERA”), enacting significant changes to the Federal False Claims Act (“FCA”)

As I have indicated in previous issues of this newsletter¹, the FCA is a federal statute that prohibits, among other things, anyone from presenting a false or fraudulent claim for payment to the Federal Government, or causing the use of a false record to get a claim paid by the Federal Government. In the health care context, this would include billing for work not performed, upcoding, billing for unnecessary services, and even billing for services that were obtained in violation of other regulations (such as the anti-kickback statute).

The FCA provides a financial incentive for people with knowledge of false claims against the Federal Government to come forward. It does so by awarding a successful relator (the plaintiff in a FCA case) with between 15-30% of any recovery from a defendant.

One of the sections of the FERA amends the FCA and provides protection for federal government funds paid to subcontractors to the same extent that the FCA protects funds paid to the general contractors.

A Senate Judiciary Committee report that accompanies the FERA² indicates that these changes “clarify and correct erroneous interpretations of the law,” citing the Supreme Court's decision in Allison Engine3 and the D.C. Circuit Court decision in Trotten.⁴ In Allison Engine, the Supreme Court held that the FCA requires the Government to prove that a defendant must intend that the Government itself pay the claim,?? for there to be a violation. In Trotten, the Circuit Court, in an opinion authored by now Chief Justice Roberts, held that liability under the FCA can only attach if the claim is "presented to an officer or employee of the Government."

The report indicates that ‚[T]he effectiveness of the False Claims Act has recently been undermined by [these] court decisions which limit the scope of the law and, in some cases, allow subcontractors paid with Government money to escape responsibility for proven frauds.” The FERA clarifies that FCA liability “attaches whenever a person knowingly makes a false claim to obtain money or property, any part of which is provided by the Government without regard to whether the wrongdoer deals directly with the Federal Government; with an agent acting on the Government?s behalf; or with a third party contractor, grantee, or other recipient of such money or property.” This provision essentially eliminates the requirement that a claim be presented to a representative of the federal government. Now any false claim that involves government funds is covered by the FCA.

In the past, the attorney general had to personally approve civil investigative demands for testimony, documents and interrogatory answers in FCA investigations. The FERA now allows attorney general to delegate to Department of Justice attorneys the power to issue these civil investigative demands and provides that information obtained through the use of the civil investigative demands can be used in a range of federal investigations and prosecutions.

The FERA also expands the bar on retaliation against “employees.” The FCA now includes retaliatory actions taken against any “contractor, or agent.” It will be interesting to see if the courts interpret this provision to include physicians on a hospital?s medical staff.

Finally, the FERA provides that organizations receiving overpayments from federal programs are only liable for knowing and improper “retention” of those overpayments. According the the American Hospital Association, “[G]iven that the words “knowingly and improperly” have a fixed meaning that, at the very least, requires either improper motives or inherently improper means, the bill cannot be read to make overpayments subject to the FCA when a recipient is pursuing in good faith a reconciliation process with the government,” quoting Sen. Jon Kyl (R-AZ), sponsor of this amendment.