The FCA also provides that false records
or false statements, submitted to support a claim, are themselves false
claims. Conspiracy to make such a false claim is forbidden, too, as is
causing another person to present a false claim.
The 1986 Amendments expanded the
vulnerability of potential qui tam defendants by expressly excluding from
the mens rea intent to defraud and actual knowledge as requisites to a false
claim. Rather, the definition uses the term "knowingly," elaborating that,
with respect to information which forms the basis of a claim, a person acts
knowingly if he or she:
(1) has actual knowledge of the
(2) acts in deliberate ignorance of
the truth or falsity of the information; or
(3) acts in reckless disregard of the
truth or falsity of the information
and no proof
of specific intent to defraud is required.
Under the FCA, one who "knowingly makes,
uses, or causes to be made or used, a false record or statement to conceal,
avoid, or decrease an obligation to pay or transmit money or property to the
Government, is liable to the United States Government[.]"
The Qui Tam Lawsuit
these bases for a claim, a qui tam plaintiff is sufficiently armed to
initiate a lawsuit on behalf of the government. The relator first prepares a
written complaint and serves it on the Attorney General,
not on the defendant, along with written documentation of substantially all
material evidence. The evidence remains under seal for at least 60 days
during which time the government reviews the case.
16 During this
time, the defendant may be completely unaware of the filing of the action.
government decides whether to proceed with the lawsuit. If the government
proceeds, then it takes over the handling of the case. If it declines the
case, the qui tam plaintiff then has the right to handle the case
the government proceeds with the action, the qui tam plaintiff is entitled
to an award in an amount from 15% to 25% of the recovery, as determined by
the government based on the extent of the relator's contribution to the
17 If the case is handled by the individual, the
relator is entitled to an award of between 25% to 30% of the recovery.18
In addition, in either case, the relator may receive reimbursement for
reasonable expenses, costs, and attorney fees, chargeable to the defendant.
the relator participated in the violation of the False Claims Act, the court
may take that into account and reduce the award. If the relator is convicted
of a crime relating to the FCA violation, then no share of the proceeds will
be awarded to the plaintiff.
Generally, the relator must have direct and independent knowledge of the
alleged violations, and must be the original source of the information used
in the FCA action.
the government has already brought an action, a plaintiff suit is barred.22
Where relevant information has been publicly disclosed, no qui tam action
may be brought unless the relator is the original source of the publicly
disclosed information. "Public disclosure" is defined as "disclosure of
allegations or transactions in a criminal, civil, or administrative hearing,
in a congressional, administrative, or Government [General] Accounting
Office report, hearing, audit, or investigation, or from the news media."
Most courts have held that the enumerated sources are exhaustive.24
False Claims Act suit requires the relator to prove by a preponderance of
the evidence all essential elements of the case.25 The action must be brought within six years of the alleged FCA
violation or three years after the date "when facts material to the right of
action are known or reasonably should have been known" by the government,
which ever period is longer.
Constitutional basis for a relator bringing the claim is generally supported
by the argument that the government has standing to bring the suit, while
the relator simply represents the government.
27 Although in recent years a number of defendants have challenged the
qui tam provisions of the FCA on Constitutional grounds, the courts have
largely turned back these attempts.
result of the 1986 Amendments to the FCA, the number of qui tam suits has
increased significantly, and health care industry has been a frequent
target, accounting for the majority of FCA cases.
"[T]he amendments have had their intended effect of expanding the use of FCA
and its qui tam provisions. As the recent amendments have made it easier to
pursue fraud actions, qui tam suits have increased and received greater
publicity, leading to greater awareness of the law and, in turn, to the
filing of more actions."
Qui Tam Actions in Health Care
Health care qui tam lawsuits increased from a dozen in 1987 to more than 200
in1998. As of June 2001, of the total qui tam recoveries to date, 57 percent
- or $2.3 billion - is attributed to health-related cases. Of the FY 2000
recoveries, $840 million stemmed from health care fraud cases.
only has the health care industry been the target of the majority of the qui
tam actions over the past decade, it has also been the locus of some of the
largest qui tam lawsuit recoveries under the FCA. Columbia-HCA, an
investor-owned hospital chain, agreed to pay $840 million to settle
allegations regarding the submission of false claims for laboratory tests,
home health visits, management fees, and other charges to the government.
The settlement is the largest government fraud settlement ever reached by
the Justice Department and resolves seven of the 27 qui tam lawsuits filed
in various jurisdictions across the country, but consolidated in Washington,
notable cases include a $385 million settlement with Fresenius Medical Care
involving alleged fraud in its kidney dialysis centers, and $170 million
from Beverly Enterprises for alleged false billings to Medicare involving
several of its nursing homes in California.
SmithKline Beecham Clinical Laboratories ("SKB") paid $325 million for
alleged overbilling for laboratory tests that were unnecessary, not ordered
by a physician, or never performed.
the latter case, SKB had adopted a marketing practice among providers of
clinical laboratory testing, "bundling" laboratory tests and selling them as
a package. In what had become known as the "automated chemistry scheme," SKB
bundled a group of blood tests with some additional tests, and marketed them
to physicians, leading them to believe that the added tests would be
provided at no additional cost to the government. After the tests were
ordered, the laboratories "unbundled" the tests for billing purposes,
resulting in higher charges to the government payors. Because the tests were
sold as part of a package, the additional tests in the "bundle" were often a
part of the physician's order for which there was no determination of
medical necessity. As a result, the laboratories received payment for tests
that were medically unnecessary. An employee of SKB filed a qui tam action
in 1993, followed by additional relators who also worked for the company.
another health care qui tam case, $17.2 million was paid by the University
of Texas Health Science Center/Medical School at San Antonio to settle
allegations that inflated claims for physician services were submitted to
Medicare, Medicaid, TRICARE and the State Legalization Alien Impact
Assistance Grant program. The government alleged that the Medical Center
submitted claims for services personally provided by faculty physicians
when, in fact, the Center's records did not support the claim that the
faculty member personally provided the service.
these high profile cases illustrate, typical qui tam actions in the health
care industry are related to billing infractions for services under the
federal and state Medicare and Medicaid programs. However, the range of
applications of the qui tam provisions of the FCA have increased as the
scope of claims prosecuted under the Act has expanded.
defendants in health care are vulnerable not only to alleged acts related to
specific false claims such ordering unnecessary tests, seeking payment for
services not rendered or using false billing codes. Qui tam actions have
also been brought for alleged problems in coordination of benefits between
for problems related to the quality of care provided,38
and for violations of the Medicare and Medicaid anti-kickback statute.39
United States ex rel. Woodard v. Country View Care Center,40
the government alleged that the defendant submitted false claims when they
filed Medicaid cost reports that included amounts paid to consultants who,
the court found, performed no services and whose payment amounted to
41 The fees paid for consulting services were part of a
management agreement, established when the defendants purchased the
facility, in which the defendants were to be paid as consultants to the
management company. Since the defendant's reimbursement was based on the
cost reports, submission of the cost reports constituted false claims.
the 282 health care whistleblower suits filed in 1998, 44 of those contained
kickback allegations. A key factor accounting for this number is that
kickback allegations filed under the FCA are simpler to prosecute than those
filed under anti-kickback statutes and have a lower standard of proof.
whistleblower suits concerning kickbacks reflect a significant development
in which the basis for a qui tam action need not necessarily depend upon a
straightforward false claim; rather, failure to abide by other applicable
regulations, such as the anti-kickback statute, may be sufficient to "taint"
any claim against the federal government.
a "tainted" claim theory, the government does not need to show any actual
damages. Thus, the amount received from the government, even if fixed and
therefore not increased by the disputed claim, is irrelevant. The plaintiff
needs only to establish that the alleged kickbacks (or other failure to meet
federal regulations required as a condition for payment) somehow taint the
claims for government reimbursement; those tainted transactions may be
enough to establish a false claim.
United States ex rel. v. Aranda, the allegations pointed to quality of
care considerations where the hospital did not take adequate precautions to
avoid harm to patients, including physical injury and sexual abuse. "This
allegation was based on 'inadequate conditions' at the hospital, 'such as
understaffed shifts, lack of monitoring equipment' over the patients, 'and
inappropriate housing assignments.' The district court in Oklahoma declined
to hold that 'these allegations, if proved, cannot form the basis of an FCA
expansion of the False Claims Act into new areas can be expected to further
discourage health care fraud . . . Certainly the imaginations of the United
States attorneys and qui tam plaintiffs have not been exhausted, and even
more creative uses of the False Claims Act can be anticipated."
McCarty 'Mac' Thornton, chief counsel to the inspector general, says
whistleblowers serve a valuable role because 'they bring our attention to
unlawful practices that we would not have otherwise found out about.'"
Who are qui tam plaintiffs?
the FCA, virtually anyone except a member of the armed forces may bring a
qui tam lawsuit.
Plaintiffs have included a Medicare beneficiary who sued his supplemental
advocacy organizations,50 and professional associations,51 among others. Because the plaintiff generally requires direct
knowledge of the alleged violation, they are usually insiders - someone
employed by or associated with the defendant.
In a provision designed to encourage individuals to disclose known
occurrences of fraud, the FCA prohibits employers from retaliating against
employees who participate in a qui tam action.
"Because many relators are high-level employees of the [companies against
whom the suit is filed], they have access to information and the
decision-making process that other employees (and certainly the government)
do not have."
54 Whistleblowers' knowledge of a company's
operations and practices are often critical to the settlement or judgment in
FCA cases. "[M]any of these individuals place their jobs (and careers) on
the line and their personal lives in upheaval for several years while
cooperating with (or in some cases waiting out) government investigations."
"'Healthcare defense lawyer Neil Caesar, president of the Health Law Center
in Greenville, S.C., says whistleblowers must have a well of anger that
fuels the passion needed to withstand the arduous legal process, which can
drag on for years.'"
Succeeding in a Qui Tam Action
Fortunately for many plaintiffs, health care qui tam defendants often prefer
settlement to judgment. Moreover, providers are motivated to settle quickly.
"A lawsuit involving fraudulent claims by a health care provider that were
paid for by the Government and taxpayers can be highly detrimental to the
industry. The general public may lose confidence in the particular provider
involved, thereby harming the provider's business. Thus, there is a strong
incentive for a health care provider to settle any false claims actions to
minimize such damage."
substantial penalties, damages and costs to which violators are at risk are
other factors that motivate settlement.58
The burden on health care providers can be significant; "qui tam lawsuits
dwarf medical malpractice recoveries by comparison."
In the course of business, health care providers may routinely submit claims
for each patient encounter or transaction; thus, even small dollar
amounts may be quickly transformed into enormous, high dollar potential for
economic damages for which they may be liable under the FCA's penalty
structure. However, the motivation to settle may leave unchallenged many
allegations that may, in fact, not be violations of the FCA. "While
settlement is an efficient way to dispose of FCA allegations, it also
removes crucial legal issues from judicial scrutiny[.]"
the other hand, because the stakes are often significant in terms of the
size of the total potential outlay, providers' vigorous and protracted
opposition is not uncommon. Moreover, the requirements for bringing a
successful suit under the FCA include detailed documentation and
fact-intensive information to prove actual fraud. It is not unusual to see
charges dismissed under Rule 9(b) of the Federal Rules of Civil Procedure.
Thus, despite the motivation of many health care providers to quickly
settle suits, health care qui tam plaintiffs are not automatic winners.
Perhaps the most critical element to - and the best predictor of - the
success of qui tam recoveries, and relator reward, is government
intervention in the law suit. Although the Federal Government has primary
responsibility for prosecuting FCA cases, it may decline to intervene in a
qui tam action. While the plaintiff may proceed without the government's
assistance, it is likely to be significantly more challenging and less
rewarding. In those cases in which it intervenes, the government "provide[s]
the clout and the staff resources that often are necessary to win."
As of September 30, 2000, the government had intervened in only about 22
percent of qui tam cases; recoveries in those cases represent about 95
percent of the total recoveries.
The majority of cases in which the government does not intervene are
Legitimate Enforcement and Relator Realities
the health care industry has proven to be fertile ground for some qui tam
plaintiffs, it is, by no means, a sure bet. Prosecuting health care fraud,
given the complexity of the regulations that govern the industry, is no easy
task. Nor, despite the apparent simplicity of the FCA, is satisfying the
elements of a successful prosecution. Because an essential element of a
false claim is knowledge of its falsity, proving that knowledge is probably
the most difficult challenge.
1998, the Department of Justice issued a memorandum to guide prosecutors in
health care FCA cases. The memorandum identifies several factors that must
be considered in determining whether a provider has the requisite knowledge.
- Notice to the Provider. Was the provider
on actual or constructive notice, as appropriate, of the rule or policy
upon which a potential case would be based?
- The Clarity of the Rule or Policy. Under
the circumstances, is it reasonable to conclude that the provider
understood the rule or policy?
- The Pervasiveness and Magnitude of the False
Claims. Is the pervasiveness or magnitude of the false claims
sufficient to support an inference that they resulted from deliberate
ignorance or intentional or reckless conduct rather than mere mistakes?
- Compliance Plans and Other Steps to Comply
with Billing Rules. Does the health care provider have a compliance
plan in place? Is the provider adhering to the compliance plan? What
relationship exists between the compliance plan and the conduct at issue?
What other steps, if any, has the provider taken to comply with billing
rules in general, or the billing rule at issue in particular?
- Past Remedial Efforts. Has the provider
previously on its own identified the wrongful conduct currently under
examination and taken steps to remedy the problem? Did the provider report
the wrongful conduct to a government agency?
- Guidance by the Program Agency or its Agents.
Did the provider directly contact either the program agency (e.g., the
Health Care Financing Administration) or its agents regarding the billing
rule at issue? If so, was the provider forthcoming and accurate and did
the provider disclose all material facts regarding the billing issue for
which the provider sought guidance? Did the program agency or its agents,
with disclosure of all relevant, material facts, provide clear guidance?
Did the provider reasonably rely on such guidance in submitting the false
- Have There Been Prior Audits or other Notice
to the Provider of the Same or Similar Billing Practices?
- Any Other Information That Bears on the
Provider's State of Mind in Submitting the False Claims.65
The memorandum also directs prosecutors to consider
a number of other factors that may be relevant to the resolution of the
action, or deciding to bring an action:
- Alternative Remedies.
- Ability to Pay Issues.
- Rural and Community Health Care Provider
Concerns -- Impact on Availability of Medical Services.
- Hospitals and Other Health Care Providers Not
Represented by Counsel.
- Minimizing Burdens Imposed on Providers During
- Provider Assistance with the Investigation.66
Government prosecutors are required to use these factors to determine the
basis and merits of an FCA lawsuit under the "knowledge requirement," and
the government's role, if any, in the action. Few private relators are
likely to have either the knowledge or resources to conduct this type of
analysis to measure the merits of their case. Failure to have the benefit of
this analysis is likely to be a substantial weakness in the plaintiff's
case. Moreover, without the decided advantages of government intervention to
a successful outcome for the plaintiff, pursuing an action as a private
plaintiff may, indeed, be a boondoggle. Nevertheless, the number of health
care qui tam cases has risen steadily over the past decade.
qui tam plaintiffs are often characterized in the popular media as
individuals with a desire to "right wrongs,"
67 clearly, the
potential for large rewards is, by design, an incentive for many. "One key
to the effectiveness of the FCA is the financial incentive for
whistleblowers to file qui tam actions and provide the government with
information of fraudulent practices."
motivation of relators is, in terms of enforcement, irrelevant. Whether
motivated by greed, a desire to seek justice, vengeance, or personal loss,
actual incidents of fraud revealed and prosecuted - with or without the
government's intervention - by qui tam plaintiffs does serve to stimulate
and heighten provider compliance. It also alerts the government to existing
and potential fraud in the industry. Thus, regardless of whether relators
are seen as opportunists or righteous, it is clear that they are an
essential element of the arsenal the Federal Government devotes to health
care fraud. Accordingly, they are entitled, by law, to their reward.
False Claims Act, 31 U.S.C. §§ 3729 - 3732 (2001).
J. Ryan, The False Claims Act: An Old Weapon With New Firepower Is
Aimed At Health Care Fraud, 4 Annals Health L. 127 (1995).
Supra note 1 at §3729(c).
Department of Health and Human Services estimates that more than $11.9
billion in improper Medicare payments were made in fiscal year 2000 alone.
See Joan H. Krause, Health Care Providers and the Public Fisc:
Paradigms of Government Harm under the Civil False Claims Act, 36 Ga.
L. Rev. 121 (2001) citing Office of the Inspector General, Department of
Health and Human Services data, available at
States ex rel. Springfield Terminal Ry. Co. v. Quinn, 14 F.3d 645,
651 (D.C. Cir 1994).
6 The 1988 Amendment to the FCA, the
most recent, reduced the share of the proceeds of a relator who played a
role in the fraudulent activity. 31 U.S.C. §3730(d)(3).
7 Patrick A. Scheiderer, Medical
Malpractice As A Basis For a False Claims Action? 33 Ind. L. Rev. 1077
8 132 Cong. Rec. H9382-83 (Oct. 7,
citing statistics from the Department of Justice compiled and posted by
the law firm of Fried, Frank, Harris, Shriver & Jacobson.
H. Krause, Health Care Providers and the Public Fisc: Paradigms of
Government Harm under the Civil False Claims Act, 36 Ga. L. Rev. 121,
11 31 U.S.C. §3729(c) (2001).
12 31 U.S.C. §3729(a) (2001).
13 31 U.S.C. §3729(b) (2001).
14 31 U.S.C. §3729(a)(7) (2001).
15 31 U.S.C. §3730(a) (2001).
16 31 U.S.C. §3730(b)(2) (2001).
17 31 U.S.C. §3730(d)(1) (2001).
18 31 U.S.C. §3730(d)(2) (2001).
20 31 U.S.C. §3730(d)(3) (2001).
21 31 U.S.C. §3730(e)(4)(a) (2001).
U.S.C. §3730(e)(3) (2001).
23 31 U.S.C. §3730(e)(4)(a) (2001).
24 Margaret L. Hutchinson and Marc
Raspanti, Recent Developments in Qui Tam/Relator Law, American
Health Lawyers Association, Fraud and Compliance Forum, September 30 -
October 2, 2001.
25 31 U.S.C. §3731(c) (2001).
26 31 U.S.C. §3731(b) (2001).
27 Ryan, supra note 2 at 139.
28 See Riley v. St. Luke's
Episcopal Hospital, 196 F.3d 514 (5th Cir. 1999) (holding that
an uninjured qui tam relator does have standing to bring a lawsuit);
see also, United States v. Pani, 717 F.Supp. 1013 (S.D.N.Y. 1989)
(stating that FCA penalties are not so excessive as to constitute double
29 Jack A. Meyer and Stephanie E.
Anthony, Reducing Health Care Fraud: An Assessment of the Impact
of the False Claims Act, New Directions for Policy For Taxpayers
Against Fraud, (September 2001) available at
visited March 17, 2002).
supra note 2 at 129.
31 Meyer and Anthony, supra
note 29 at page 35.
32 HCA Agrees To Pay $840 Million
in Government's Largest Fraud Settlement Ever, at
(last visited on March 15, 2002).
33 Meyer and Anthony, supra
34 Hutchinson and Raspanti, supra
35 United States ex rel. Merena
v. SmithKline Beecham Corporation, 205 F.3d 97, 98-99 (3rd Cir.
36 The Department of Health and Human
Services and The Department of Justice Health Care Fraud and Abuse Control
Program, Annual Report For FY 1998, at
(last visited March 16, 2002).
37 Cooper v. Blue Cross and Blue
Shield of Florida, 19 F.3d 562 (11th Cir. 1994).
38 United States ex rel. v.
Aranda v. Community Psychiatric Centers of Oklahoma, Inc., 945 F.Supp.
1485 (Okla. 1996) (denying hospital's motion to dismiss suit brought on
allegations of an unsafe patient environment).
39 E.g., United States el rel.
Woodard v. Country View Care Center, Inc., 797 F.2d 888 (10th
40 Woodard, 797 F.2d 888.
42 Mark Taylor, On The Ropes:
Beefed-Up Anti-Kickback Laws, Growing Cohort of Whistleblowers Pound Away
at Healthcare Fraud, Modern Healthcare (June 28, 1999).
43 See Ryan, supra note
2 at 144 -146.
44 Scheiderer, supra note 7
45 Ryan , supra note 2 at 150.
46 Supra note 37.
47 31 U.S.C. §3730(e) (2001).
48 Cooper, 19 F.3d 562.
49 E.g., United States ex
rel. Aflatooni v. Kitsap Physician Services, 19 F.3d 562 (9th
Cir. 1998) (holding that the physician-relator could bring a qui tam suit
against a medical group for actions that were not publicly disclosed in
50 United States ex rel.
Foundation Aiding the Elderly v. Horizon West, Inc., 2001 U.S. App. LEXIS
27363 (Cal. 2001).
51 United States ex. rel.
Minnesota Association of Nurse Anesthetists v. Allina health System Corp.
(8th Cir. 2002) (holding that the Association had standing to
bring a qui tam lawsuit). The Association accuses the doctors and
hospitals of defrauding Medicare by billing for the doctors' time at the
more expensive "personally performed" rate instead of the "medically
supervised" rate that covers the time anesthesiologists spend supervising
E.g., United States ex rel. McCarthy v. Straub Clinic and
Hospital, Inc., 140 F.Supp. 2d 1062 (Haw. 2001).
53 31 U.S.C. §3730(h) (2001).
54 Meyer and Anthony, supra
note 29at page 59.
News, Modern Healthcare, November 22, 1999.
57 Scheiderer, supra note 7
See 31 U.S.C. §3731(a)(7) (2001).
Boese, When Angry Patients Become Angry Prosecutors: Medical Necessity
Determinations, Quality of Care and Qui Tam Law, 43 St. Louis U. L.J.
60 Krause, supra note 10
See United States ex rel. Obert-Hong v. Advocate Health Care,
2001 U.S. Dist LEXIS 3767 (N.D. Ill. 2001).
62 Meyer and Anthony, supra
note 29at page 36.
citing DOJ statistics.
65 Eric H. Holder, Jr., Deputy
Attorney General, Guidance on the Use of the False Claims Act in Civil
Health Care Matters, Memorandum dated June 3, 1998, available at www.usdoj.gov/04foia/readingrooms/chcm.htm
(last visited on March 17, 2002).
67 See supra note 56.
68 Meyer and Anthony, supra
note 29at page 37.