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When a Provider Should Anticipate Large False Claim Act Penalties for Disregarding Compliance and Licensure Matters

February 28, 2022

By: Wolfe Pincavage Team

In December 2021, the United States Court of Appeals for the Eleventh Circuit affirmed a civil penalty of nearly $1.2 million imposed on a hematology and oncology practice for violations of the Federal False Claims Act (“FCA”),[1] noting that the FCA violations were appropriate because the Florida-based medical practice submitted false information on claims to Medicare programs. Since the practice failed to comply with licensure requirements, the medical practice could not be reimbursed by Medicare without defrauding the federal government.

The purpose of the FCA is to grant the federal government the capability to recover its losses due to perpetrated fraud.[2] The Act discourages any person from knowingly presenting a false claim for payment or approval, or knowingly making or using a false record or statement material to a false claim, by mandating a penalty.[3] The penalty imposed for violating the FCA is treble damages and statutory civil penalties between $5,500 and $11,000 per false claim.[4] The purpose of the “substantial penalties” is to “dissuade” repeated FCA violations.[5]

A claim is false when it misrepresents the goods or services provided or when the person making the claim fails to comply with statutory, regulatory, or contractual requirements and yet certifies that it has complied with them.[6] False claims submitted to Medicare and Medicaid programs implicate the FCA.    

In this case, the Pinellas Hematology and Oncology’s billing manager filed a whistleblower action against the practice and its physician-owner. Pinellas purchased an oncology practice that had an in-house laboratory. Laboratories are required to have a proper CLIA certificate before it can conduct tests on materials derived from a patient.[7] Although the oncology laboratory had a valid CLIA certificate before Pinellas purchased it, the CLIA certificate was unique to the prior practice, thus it did not transfer to Pinellas through the sale. Pinellas began performing tests on patients at the oncology laboratory without obtaining its own CLIA certificate. Pinellas submitted 214 reimbursement claims for such tests to Medicare. After Medicare rejected those claims, Pinellas altered the relevant information by adding the CLIA certificate number of the practice’s other location. Pinellas then resubmitted the claims to Medicare for reimbursement. Even before Pinellas’ billing manager filed the whistleblower action against Pinellas, Florida’s Agency for Health Care Administration (ACHA) shut down the practice.

Why this is important?

This case highlights the potentially devastating consequences for medical practices that disregard their compliance and licensure obligations and sets a standard for determining whether a civil fine violated the Eighth Amendment’s Excessive Fines Clause.

Pinellas argued that the $1.2 million in damages and statutory penalties mandated by the FCA constituted an excessive fine in violation of the Eight Amendment, even though the penalty Pinellas faced what the minimum of the statutory requirement.[8] The Eighth Amendment provides that “[e]xcessive bail shall not be required, nor excessive fines imposed, nor cruel and unusual punishments inflicted.”[9] The Eleventh Circuit applied the test set forth by the Supreme Court in United States v. Bajakajian, a criminal proceeding regarding forfeitures of money that one fails to report when traveling out of the country,[10] the analysis and comparison of other penalties to determine if there is an Eighth Amendment issue. Here, the Eleventh Circuit compared the FCA penalty to other penalties authorized by Congress. The court noted that treble damages for FCA violations are not only authorized by Congress, they “compare favorably” to penalties authorized by Congress for RICO violations, antitrust violations, and patent infringements.[11]

Medical groups that do not have the proper licensure may be tempted to falsify claims to payors and other documents to ensure that they get paid. Even medical groups with proper licensure may be tempted to falsify claims, record, or statements to receive more funding from the federal government.  However, it is important to remember that the possible penalties under the False Claim Act are severe. It is illegal to submit claims for payment to Medicare or Medicaid that a group knows or should know is false or fraudulent. Each false or fraudulent claim is treated individually, so penalties can add up quickly. 

Therefore, it is essential providers and medical groups understand the various compliance program and policy options to enhance operations, reduce risk, and prevent fraud.

Wolfe Pincavage’s Approach

When a healthcare provider or medical group seeks to purchase a medical facility of any type, due diligence is one of the most important steps. Our team is experienced in assisting providers and medical groups through the various steps when purchasing facilities, ensuring competent and appropriate due diligence and creative structuring of purchase arrangements. Part of this process includes identification of the required federal, state, and local licenses and an analysis of how any current licenses may be transferred through the sale. Additionally, when structuring facility purchases, our team understands how to protect purchasers from licensure lapses and FCA penalties, ensuring operations commence promptly after purchases and allowing facilities to submit claims to various types of payors.

[1] Yates v. Pinellas Hematology & Oncology, P.A., 20-10276, 2021 WL 6133175 (11th Cir. Dec. 29, 2021). The federal False Claims Act is codified at 31 U.S.C. §3729 et seq.

[2] S. Rep. No. 99-345, at 1 (1986).

[3] 31 U.S.C. §3729(a)(1)(A)-(B).

[4] 31 U.S.C. § 3729(a); 28 C.F.R. §85.3(a)(9).

[5] Yates, P.A., 20-10276, 2021 WL 6133175 at 20, quoting U.S. ex rel. Drakeford v. Tuomey, 792 F.3d 364 (4th Cir. 2015).

[6] U.S. ex rel. Greenfield v. Medco Health Sols., Inc., 880 F.3d 89 (3d Cir. 2018) quoting U.S. ex rel. Wilkins v. United Health Grp., Inc., 659 F.3d 295, 305 (3d Cir 2011) (“A claim is factually false when the claimant misrepresents what goods or services … it provided to the Government…. It is legally false when the claimant lies about its compliance with a statutory, regulatory, or contractual requirement.”).

[7] Clinical Laboratory Improvement Amendments of 1988, 42 U.S.C. §263a(b).

[8] The district court jury found that the U.S. suffered $755.54 in damages. The Court imposed a total monetary award of $1,179,266.62, which consists of treble damages of $2,266.62 (3 x $755.54) and the lowest permissible statutory penalty of $1,177,000.00 (214 x $5,500). 

[9] U.S. Const., amdt. 8. 

[10] U.S. v. Bajakajian, 524 U.S. 321 (1998). In Bajakajian, the defendant pled guilty for failing to report $357,144 that he was planning to take overseas, in violation of a law that requires people to report if they seek to take more than $10,000 out of the country. Id. See Yates, 20-10276, 2021 WL 6133175 at 29 (dissent) (arguing that the Eleventh Circuit misinterpreted Bajakajian and that it should have looked “within the statutory scheme” in evaluating the penalty and instead, the Eleventh Circuit “compar[ed] apples and oranges”).

[11] Yates, 20-10276, 2021 WL 6133175 at 19.