• Health care fraud
• Defense contractor fraud
• Failure to deliver (escheat) violation of State False Claim laws
• Yield-burning in Municipal bond market violates False Claims Act
• GSA contract term violations
• Public works projects and federal government construction
• Research programs
• Customs
• Hazardous and toxic waste clean-up fraud
• Loan guarantees
• Underpayment of royalties on government-leased land
• Agricultural subsidies and other agricultural programs

Health Care Fraud (Medicare and Medicaid)

Medicare and Medicaid fraud have cost the federal government billions of dollars. Qui tam (whistleblower) lawsuits filed under the False Claims Act have been responsible for some of the government’s biggest health care fraud recoveries.

There are many different ways companies and individuals can bilk Medicare and Medicaid. These examples of health care fraud give an idea of the types of fraud that have been or could be the basis of qui tam lawsuits:

• False claims involving pharmaceutical companies
• Kickbacks and off-label marketing of medical implants and medical devices
• Kickbacks and improper payments to group purchasing organizations (”GPOs”)
• Services not rendered/add-on services
• Upcoding and unbundling/Fragmentation
• Kickbacks
• False certifications and information
• Lack of medical necessity
• Fraudulent cost reports
• Grant or program fraud

Defense Contractor Fraud

Defense contractor fraud remains one of the biggest areas for False Claims Act litigation. Below are common ways defense contractors cheat the government. Many times a defense contractor may be guilty of a combination of fraudulent schemes.

• Cross-charging
• Product substitution
• Improper cost allocation
• Failure to comply with contract specifications
• Violations of the Truth in Negotiations Act (”TINA”)

Failure to Deliver (Escheat) Violation of State False Claims Laws

Most states have laws that obligate companies that hold “unclaimed property” to “escheat” or deliver that property to the state if it remains unclaimed for some period of time (generally three to five years). Private individuals who know of a company’s failure to escheat monies to a state may bring qui tam (whistleblower) cases under state false claims laws, and possibly receive rewards for a successful qui tam lawsuit.

There are an almost unlimited number of circumstances in which companies have an obligation to escheat unclaimed money to the state, including:

• Amounts owed to vendors who for any reason were never paid for the goods or services they delivered (”unbilled vendor payables”)
• Deposits for orders that were never delivered
• Funds deposited to an escrow account, but never spent, e.g. where a title company holds funds in escrow in connection with real estate transactions
• Gift cards or certificates issued, but never redeemed
• Credit balances on business accounts, credit cards, or other accounts
• Any other situation in which property has been unclaimed or forgotten by the person or company entitled to those funds

Yield-burning in Municipal Bond Market Violates False Claims Act

Yield-burning of municipal bonds is the practice whereby excessive prices are charged for U.S. Treasury securities sold to municipalities in connection with certain types of tax-exempt bond refinancing.

These refinancing transactions – known as “advance refundings” – permit municipalities to refinance their debt at lower interest rates when interest rates decline, and therefore lower their borrowing costs. Investment banks then improperly pocket the profits made by overpricing the securities, rather than returning those profits to the U.S. Treasury as required.

GSA Contract Term Violations

Companies that supply goods and services to the federal government may be liable under the False Claims Act if they falsely certify they are complying with government contract terms in their Multiple Award Schedule (”MAS”) contracts with the General Services Administration (”GSA”).

MAS contracts differ from commercial contracts in three major ways: they contain what are known as “defective pricing” and “price reduction” requirements, as well as a requirement to comply with the U.S. Trade Agreements Act.

Public Works Projects and Federal Government Construction

The federal government spends billions on public works projects and the construction of federal buildings. Fraudulent practices by contractors include bid-rigging, overcharging for contracts, and failing to follow project specifications. All of those practices could be the basis of a qui tam lawsuit brought under the False Claims Act.

Research Programs

The federal government provides grants for research on a wide variety of topics. Sometimes grant recipients use the funds to pay for salaries or expenses for another research project or other work unrelated to the project for which the grant money was intended, then charge those costs against the federal grant or otherwise inflate their costs for conducting research projects.

Customs

Most goods imported into the U.S. are subject to customs duties (taxes). Companies that undervalue imports to lower the amount of customs duties, or who underpay customs duties through other fraudulent schemes, are liable under the False Claims Act.

Mislabeling or labeling in an ambigous manner in order to avoid proper import and custom duties are also subject to False Claims Act reporting.

Hazardous and Toxic Waste Clean-up Fraud

The federal government spends substantial sums on programs to clean up hazardous and toxic waste. It also requires contractors to follow all environmental laws and regulations, such as the Clean Water Act. Any contractor that deliberately overcharges the government for hazardous and toxic waste clean-up, gets paid by the government for work that it doesn’t perform, or whose service doesn’t meet government specifications, would be liable under the False Claims Act.

For instance, an environmental testing firm settled a qui tam lawsuit charging the firm had not properly tested the level of hazardous substances in soil and water samples as required under contracts with the Army Corps of Engineers.

Loan Guarantees

The federal government has many loan guarantee programs, including loans for education, housing, and small businesses. If the loan is not repaid and fraudulent misrepresentation was made to obtain these loan guarantees, there might be a sufficient basis for a False Claims Act lawsuit.

Underpayment of Royalties on Government-Leased Land

Oil and gas production on federal and Indian lands are governed by lease agreements between the Interior Department and private companies. By law, the companies must pay the federal government and Indian tribes a percentage of the value of the oil and gas as a royalty. Companies must also pay royalties on any timber harvested or minerals, such as coal, mined from federal and Indian lands.

Agricultural Subsidies and Other Agricultural Programs

The False Claims Act also applies to any fraudulent misrepresentation or scheme used to obtain agricultural subsidies or funds from other agricultural programs.

The False Claims Act, also known as the “Lincoln Law,” was enacted during the Civil War to combat the fraud perpetrated by companies that sold supplies to the Union Army.

War profiteers were shipping boxes of sawdust instead of guns, for instance, and swindling the Union Army into purchasing the same cavalry horses several times. “You can sell anything to the government at almost any price you’ve got the guts to ask,” boasted one profiteer who made millions unloading moth-eaten blankets to the military.

President Abraham Lincoln strongly advocated passage of the False Claims Act. It contained “qui tam” provisions that allowed private citizens to sue, on the government’s behalf, companies and individuals who were defrauding the government. “Qui tam” is short for a Latin phrase, “qui tam pro domino rege quam pro se ipso in hac parte sequitur,” which roughly means “he who brings an action for the king as well as for himself.” Congress passed the statute on March 2, 1863.

The original False Claims Act assessed wrongdoers double damages and a $2,000 civil fine for each false claim submitted. Those who filed lawsuits, known as “relators,” were entitled to receive 50 percent of the amount the government recovered as a result of their cases.

Amendments to the False Claims Act

1940s

The statute remained virtually unchanged until 1943 when Congress radically altered the qui tam provisions. The changes included a drastic cut in the relator’s reward, so there was less of an incentive for people to report fraud.

Another damaging change was a provision that prohibited qui tam lawsuits based on evidence or information already in the possession of the federal government. This provision effectively prevented whistleblowers from filing a qui tam lawsuit if any government employee had previously received a tip about the fraud or if any information about the fraud was contained in any government file, even if the government was not investigating the matter or trying to stop the fraud, and even if the whistleblower was the source of the government’s knowledge.

The 1943 amendments emasculated the False Claims Act, and it fell into almost complete disuse.

1980s

In the mid-1980s, Congress took another look at the law, spurred by reports of widespread fraud against the government. Defense contractor practices were receiving the greatest media attention. In part, this was due to the vastly increased defense spending spurred by the Reagan administration’s response to the Cold War.

The public was reading a steady stream of stories describing outrageous billing practices, such as the Navy paying $435 for an ordinary claw hammer and $640 for a toilet seat. In 1985, the Department of Defense reported that 45 of the largest 100 defense contractors — including nine of the top 10 — were under investigation for multiple fraud offenses.

Government enforcement agencies, meanwhile, complained that their efforts to investigate and stop fraud were hamstrung by insufficient resources, a lack of adequate legal tools, and the difficulty of getting individuals with knowledge of fraud to speak up for fear they would lose their jobs.

Frustrated with the government’s inability to respond effectively to outrageous charges and other improper billing behavior by government contractors, Congress decided to revise the False Claims Act to encourage more whistleblowers to come forward and to create incentives for private attorneys to use their own resources to investigate fraud. Congress sought to create a partnership between public institutions and private citizens, in keeping with President Reagan’s promise of greater privatization of government functions and the use of market forces to enhance government services.

Senator Charles Grassley, a Republican from Iowa, and Representative Howard Berman, a Democrat from California, sponsored the amendments to the False Claims Act, which received wide bipartisan support. President Reagan signed the bill into law on Oct. 27, 1986.

The amended False Claims Act provided that whistleblowers who brought successful cases were entitled to 15 to 30 percent of the government’s recovery, and their attorneys were guaranteed payment of their regular hourly fees by the defendant. Companies and other entities that defraud the government are liable for treble damages, and a $5,000 to $10,000 penalty for each false claim.

When Congress amended the law, it also ensured that people who had provided information about fraud to the government could once again file a qui tam lawsuit.

As more people have become aware of the False Claims Act, the number of lawsuits has jumped tremendously. More than 3,000 qui tam cases have been filed since 1986.

Legislative History of the 1986 Amendments to the False Claims Act

Sept. 18, 1985 — False Claims Reform Act: Hearings before the Subcommittee on Administrative Practice and Procedure of the Senate Judiciary Committee, 99^th Congress, 1^st Session.

Feb. 5 and 6, 1986 — False Claims Act Amendments: Hearings before the Subcommittee on Administrative Law and Governmental Relations of the House Judiciary Committee, 99^th Congress, 2^nd session.

June 26, 1986 –House Report 99-660 on H.R. 4827, “False Claims Amendments Act of 1986.”

July 28, 1986 — Senate Report 99-345 on S. 1562, “False Claims Reform Act of 1985.”

Congressional Record

July 29, 1986 — Senate, S9805-9816. Statements by Grassley, Cohen and Hatch introducing amendments reached by a compromise between S.1562 and S.1134.

Aug. 11, 1986 — Senate, S11238-11249. Statement by Dole introducing S.1562 for consideration, followed by a statement by Grassley discussing the changes incorporated in the amendments, and passage of the bill.

Sept. 9, 1986 — House, H6475-6488. Statement by Glickman introducing H.R.4827 and commenting on changes in the language of the qui tam provisions, administrative remedies and contract disputes act. Fish discusses amendments dealing with the intent standard and burden of proof. Brown discusses consequential damages and civil investigative demands. Bedell makes general statement. Passage of bill.

Oct. 3, 1986 — Senate, S15018-15023. Introduction of Grassley amendment No. 3214 to S.1562. S15036-15064. General statement by Grassley introducing Senate-House compromise bill S.1562, a summary of agreed-upon changes and Senate concurrence in the compromise bill.

Oct. 7, 1986 — Senate, S15515. Introduction of omitted remarks of Oct. 3, 1986 concerning a summary of agreed-upon changes after negotiation of S.1562.

Oct. 7, 1986 — House, H9382-9389. Introduction by Glickman of the Senate amendments to the House amendments. Berman reads in legislative history. House concurrence in the compromise bill.

Nov. 3, 1987 — House, H9515. Colloquy between Berman and Glickman.

Oct. 18, 1988 — Senate, S16704-16706. Clarification of provision of False Claims Act Amendments between Grassley and DeConcini.

Oct. 18, 1988 — House, H10641. Statement by Berman regarding retroactivity application of False Claims Act.

The False Claims Act has proven to be one of the most effective tools in fighting Medicare and Medicaid fraud, defense contractor fraud, and other types of fraud perpetrated against the federal government. The qui tam provisions, which allow whistleblowers to file False Claims Act lawsuits against companies and individuals that defraud the government, have been key to the False Claims Act’s success. The government has recovered more than $8.4 billion as a result of qui tam lawsuits since the False Claims Act was amended in 1986. Whistleblowers’ rewards have totaled more than $1.4 billion.

Twenty-four states – Arkansas, California, Delaware, Florida, Georgia, Hawaii, Illinois, Indiana, Louisiana, Massachusetts, Michigan, Missouri, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, Oklahoma, Rhode Island, Tennessee, Texas, Virginia, and Wisconsin, as well as the District of Columbia, have their own versions of the False Claims Act. In these states, whistleblowers can recover money from defendants who commit fraud against state and/or local governments.

How the Law Works

The False Claims Act allows people to file “qui tam” lawsuits against individuals or companies that have directly or indirectly defrauded the federal government. Through qui tam lawsuits, whistleblowers may recover the government’s losses on the government’s behalf. Tax fraud cases are handled differently and covered under a separate law.

Many people who file qui tam lawsuits (called the “relators”) are employees or former employees of companies that commit fraud, but anyone who knows of an instance where the government has paid false claims can file a qui tam lawsuit. That could be, for example, a competitor, a customer, a subcontractor, or even a patient.

Whistleblowers’ Rewards

The False Claims Act stipulates that whistleblowers (known as “relators”) be rewarded with a percentage of the money that the government recovers as a result of their qui tam lawsuits. The amount varies, depending on whether the government intervenes in the qui tam case and other factors. Under the False Claims Act, the relator is entitled to a reward of 15 to 25 percent of what the government recovers, if the government joins the qui tam case.

If the government declines to join the qui tam lawsuit and the whistleblower proceeds against the defendant anyway, the relator is entitled to a reward of 25 to 30 percent. Congress decided to give whistleblowers a share of the recoveries that result from qui tam lawsuits in order to give a strong incentive to people to step forward and take the personal and professional risks involved in reporting fraud. It also aimed to encourage private law firms to risk their resources in litigating cases on the public’s behalf.

To date, whistleblowers’ rewards for bringing successful qui tam lawsuits total more than $1.4 billion. Under the False Claims Act, the government may recover up to three times the amount of money it lost as a result of the defendant’s fraud. In cases that settle before trial, the settlement is typically less than three times the loss. The reward for the relator, or whistleblower, is calculated based upon the amount the government recovers, not the actual gains or losses. Whistleblowers’ rewards are determined by the contributions to the qui tam case made by the whistleblowers and their attorneys.

Filing a False Claims Act Lawsuit

False Claims Act cases and procedures are unique, and a specialized knowledge of the law can be very helpful in getting a successful outcome for a qui tam lawsuit. The relator files the lawsuit in federal court “under seal,” meaning it is not available to the public and cannot be discussed with anyone except the government officials investigating the case. Even the defendants – the individual or organization charged with committing fraud – are not told about the lawsuit. This gives the government time to investigate the fraud allegations without alerting the defendant.

The seal initially lasts for 60 days. But seals on qui tam cases are routinely extended for one or two years or even longer while the government investigates. At the end of the sealed investigative period, the government decides whether to join, or intervene, in the qui tam lawsuit. If the government joins the case, the litigation is conducted jointly by the government and the whistleblower’s attorney, with the government as lead counsel. If the government declines to intervene, the relator may go forward with the lawsuit and assumes primary responsibility for running the case.

The timing of a lawsuit can be critical. The first person to file a case under the False Claims Act for a particular fraud preempts all other cases. So if you plan to bring a case, it is important to do so before another whistleblower beats you to the courthouse. Potential whistleblowers also should keep in mind that the False Claims Act has a statute of limitations that may be as short as six years.

Damages and Fines

The law stipulates that a liable defendant pay three times the government’s losses plus a fine for each false claim. When settling a case, the government often agrees to forego the civil penalties and accepts two to three times the amount of damages suffered by the government. The defendant also must pay the fees and the case-related expenses of the whistleblower’s attorney.

A major U.S. grain company paid $25 million to resolve a False Claims Act case that involved sales of agricultural products to Iraq through a foreign company participating in a Department of Agriculture program for exporters of agricultural products.

Cross Charging

This is one of the most common types of defense procurement fraud. A company may have one contract that is a “fixed price” contract, i.e. where the company receives a fixed price for a certain number of weapons no matter how much it costs to produce them. The company also may have another contract that is a “cost plus” contract, i.e. where the government pays the company for the cost of making the weapons, plus a percentage of its costs as a profit.

In this circumstance the company has a strong incentive to charge time it spends working on the fixed price contract (where it gets paid the same no matter how much time it takes) to the cost plus contract (where it gets paid for its costs plus profit). This may be accomplished by instructing employees to write down on their time cards that they worked on the cost plus contract when they actually worked on the fixed price contract.

Product Substitution

The government frequently specifies that its defense contractors build products using a certain grade or quality of parts. There often is a further requirement that the parts be purchased from American companies. Sometimes companies are tempted to provide substitute (and often inferior) parts that they can get more cheaply from an unauthorized source. If they do this without getting permission from the government contracting officer, it can form the basis for a False Claims case.

Improper Cost Allocation

Improper cost allocation is a more subtle version of the cross charging scheme. If a company has both government contracts and private commercial contracts (like most large aircraft companies), they are supposed to spread (or “allocate”) their costs fairly among the different jobs. With direct costs, such as time a worker spends building an engine or other part for the aircraft, this is a simple matter. If the part will go into a plane for the government, the cost of building it is charged to the government job.

When the costs are less directly tied to a particular project, such as supervisors’ time, the correct allocation is a little trickier. The temptation is to shift more costs to the government, which may pay on a cost plus basis, and away from private customers, who simply pay the market price for the aircraft. Such cost shifting allows the companies to quote lower prices to their commercial customers (gaining a competitive advantage) without having to absorb the losses for such price cuts.

Companies that deliberately allocate a disproportionate share of “indirect” or “overhead” costs to the government are committing fraud.

Failure to Comply with Contract Specifications

Because reliability is critical with expensive and lethal weapons systems, the Defense Department requires its contractors to build those systems in accordance with very detailed product specifications. These specifications dictate not only the type of materials to be used for the contract, but other requirements such as the appropriate quality assurance steps that the company must follow to ensure the quality of the product. Although the burdens imposed by the specifications are costly, the government covers those costs as part of the contractor’s payment.

If a company starts to overrun its budget on a contract, particularly a fixed price contract, or falls behind in its delivery schedule, it may be tempted to cut corners by omitting required testing, quality procedures or other steps in the production process.

Violations of the Truth-in-Negotiations Act (”TINA”)

When the government needs to procure highly specialized weapons systems, it frequently chooses to use a company that already makes them, known as a “sole source supplier.” This ensures a company with expertise will be the one making the weapons.

The problem for the government is to ensure that it pays a fair price since it cannot put out the contract for competitive bids. TINA requires the contractor to truthfully disclose all relevant information about its costs to the government in sole-source contract negotiations. That way, the government can make an informed decision about what price is fair to pay for the product.

Companies sometimes are tempted, however, to hold back relevant information, or to deliberately inflate their projected costs to get a higher price. Such conduct can form the basis for a False Claims Act case.

The federal government provides grants for research on a wide variety of topics. Sometimes grant recipients use grant funds to pay salaries or expenses for another research project, and then write those costs off as part of the federal grant, or they inflate their cost projections for conducting research projects in order to receive more money.

At academic medical centers, federal payments for research overhead, called indirect payments, total tens of millions of dollars per year. The government and the medical center determine a reasonable overhead rate for the hospital, then the government agrees to mark up each research grant by a fixed rate for the next year to cover incidental expenses. This usually includes items like heat and electricity bills and housekeeping for the part of the hospital used for the research, and sometimes even mortgage payments for lab buildings.

One of the largest qui tam settlements involving a research grant was against New York University Medical Center, which paid $15.5 million to the federal government. The government said the medical center provided a “false, inaccurate and incomplete picture” of its overhead costs for research projects. The center allegedly submitted to the government previously-paid waste disposal bills, inflated housekeeping bills, and bills for unrelated items counted as overhead for the project, such as food for the medical school commencement dinner.

Companies that violate the terms of their contracts and fail to properly oversee the safe and proper construction of the contracted project are subject to qui tam ( whistleblowing) reporting. As many federal contracts are also linked to state contract awards, whistleblowers receive reward benefits at both the federal and state levels.

Medicare fraud and Medicaid fraud have cost the federal government billions of dollars. Qui tam (whistleblower) lawsuits filed under the False Claims Act have been responsible for some of the government’s biggest health care fraud recoveries.

There are many different ways companies and individuals can bilk Medicare and Medicaid. The examples of health care fraud that are discussed give an idea of the types of fraud that have been or could be the basis of qui tam lawsuits.

False Claims Involving Pharmaceutical Companies

Pharmaceutical companies may be liable under the False Claims Act for Medicare and Medicaid fraud in any case where the government loses money directly or indirectly. This would include practices such as:

• Paying kickbacks and inducements to physicians, hospitals, and pharmacists to prescribe or otherwise favor their drugs
• Engaging in off-label marketing
• Misreporting the “best price,” the “federal ceiling price,” or other benchmark prices that pharmaceutical companies report to the Medicare and Medicaid programs
• Overcharging for “340B” program drugs
• Manufacturing or diverting substandard or tainted drugs
• Providing false data to the Food and Drug Administration or withholding negative data from the FDA about the efficacy of a pharmaceutical drug or medical device in clinical research trials to get FDA approval to sell and market the pharmaceutical drug or medical device.

Kickbacks and Off-label Marketing of Implants and Medical Devices

Sales and marketing tactics used by medical device companies, such as lucrative consulting agreements with doctors and off-label marketing, could violate the False Claims Act and could be the basis for a qui tam (whistleblower) lawsuit.

Both the pharmaceutical and medical device industries follow some of the same sales and marketing practices that have been found in the case of pharmaceutical companies to be violations of the False Claims Act and other federal and state statutes. As a result of qui tam lawsuits and federal and state investigations, drug companies have paid more than $2 billion to settle allegations of Medicare and Medicaid fraud.

A medical device company could be liable under the False Claims Act for Medicare and Medicaid fraud if it:

• Has financial arrangements with doctors that essentially serve as kickbacks for using a company’s implant or other medical device. Some financial arrangements that are coming under federal scrutiny include royalty payments on new devices, paying the cost of educational conferences, sponsoring fellowships, and providing unrestricted grants.
• Markets the implant or other medical device for uses that haven’t been approved by the U.S. Food and Drug Administration. A division of Serono pleaded guilty in 2005 to charges it conspired to market Serostim by supplying doctors with diagnostic software that was not fully approved by the Food and Drug Administration. Serono paid $704 million to settle qui tam lawsuits and related federal charges. Prosecutors said the software led to an increase in demand for Serono’s drug, Serostim, used to treat wasting in AIDS patients.
• Sells implants or other medical devices that are defective, or that the company has reason to believe are defective. In a qui tam case, Hewlett Packard Co. and Agilent Technologies Inc. paid $7 million to settle a whistleblower lawsuit alleging that the companies knowingly sold defective monitoring equipment to federal agencies.

Kickbacks and Improper Payments to Group Purchasing Organizations (”GPO”)

The basis of GPO fraud is improper payments or fees that vendors, manufacturers, distributors, and suppliers make to GPOs to influence the hospital purchasing companies’ contracting decisions. The GPO contractors might make straight kickbacks to the GPO or pay kickbacks in another form, such as paying higher administrative fees to the GPO than are permissible under the “safe harbor” provisions of the Anti-Kickback Statute. GPO contractors also might pay a “marketing fee” to the hospital purchasing companies, as another form of kickback.

Services Not Rendered/Add-On Services

Probably the clearest example of fraud by health care providers involves billing for services that were never delivered to patients. The basic scheme can involve as many variations as there are treatments.

For example, some physicians bill Medicare or Medicaid for diagnostic procedures they never performed, or physical therapy sessions that never took place, and nursing homes might bill for supplies that were never actually purchased or used. There is often some falsification of records to support improper billings.

Another type of false claim involves adding unnecessary procedures and services to a legitimate bill in order to inflate the total. The government has also held clinical laboratories liable when they induced physicians to order unnecessary add-on tests by including the extra test in a standard blood chemistry panel at minimal or no extra charge to the physician or patient. The lab then bills Medicare for the additional test without the doctor’s knowledge. When the physician doesn’t have the option of ordering the standard panel without the extra test, the lab may be liable for claims submitted for the extra test.

Upcoding and Unbundling / Fragmentation

Billing Medicare and Medicaid for medical services is done using a complex system of numerical codes that designate various diagnoses and procedures. Reimbursements are based on those codes. The coded, computerized bills submitted by providers are processed by large insurance companies (known as “intermediaries” or “carriers”), which contract with the government to pay claims using government funds.

Because different codes or code combinations may produce dramatically different reimbursements from government programs, there is a financial incentive to “upcode,” or bill for a more serious (and more expensive) diagnosis or procedure.

Another common example of improper coding is called “unbundling,” also known as “fragmentation.” Medicare and Medicaid often have special reimbursement rates for a group of procedures commonly done together, such as typical blood test panels by clinical laboratories. Some health care providers seeking to increase profits will “unbundle” the tests and bill separately for each component of the group, which totals more than the special reimbursement rates.

Kickbacks

One of the most complicated and troubling aspects of the health care system involves hidden financial arrangements between various health care providers. There are a variety of improper arrangements in which providers offer some material benefit in return for other providers prescribing or using their products or services.

In most instances, such arrangements are illegal. Doctors are supposed to decide on the most appropriate treatment for their patients without consideration of their own financial interests. Kickbacks often result in medically unnecessary treatment.

False Certifications and Information

Health care providers who submit Medicare and Medicaid claims containing false statements also may be liable under the False Claims Act.

In Florida, five people were involved in a scheme in which Medicare was fraudulently billed about $5.2 million for oxygen concentrators, nebulizers, medications, and tests. Three men were ordered to pay $2.3 million in restitution, and were sentenced to 41, 46, and 51 months in jail, for paying physicians for prescriptions that they sold to two medical supply companies and a laboratory to use in billing Medicare. One of the company owners and one of the physicians, who also had billed for house calls he did not make, also received prison sentences.

Lack of Medical Necessity

Another practice that may render health care providers liable under the False Claims Act is billing Medicare and Medicaid for services or procedures that are not medically necessary.

A Florida chiropractor who owned several clinics required doctors whom he hired to order X rays, diagnostic tests, and other therapies regardless of the needs of the patients. He also billed for tests never given, such as pelvic X rays, and submitted duplicate claims for the same services. He was sentenced to five years in prison and ordered to pay $1.6 million for defrauding Medicare, the Railroad Retirement Board, and private insurers.

Fraudulent Cost Reports

Medicare reimburses health care institutions for a portion of their other overhead costs, in addition to paying for individual procedures and treatments. Virtually every hospital and many other providers submit cost reports to Medicare, which are used to calculate how much the government will reimburse the provider for expenses related to patient care. This includes the costs of capital improvements like new medical equipment and bigger wards. Over the years, cost reports can represent billions of dollars in payments for some providers.

Providers who knowingly inflate their cost reports, mischaracterize the nature of those costs, or give the wrong percentage of their services dedicated to Medicare patients are liable under the False Claims Act.

Grant or Program Fraud

The federal and state governments fund a variety of research and other specialized projects in the health care area. Typically, government funds are targeted for a specific and narrow purpose, a specialized research project, or medical care for a specific group. Sometimes the recipients of grant or program funds commit fraud by mischaracterizing their qualifications, the basis of their research, or the quality and extent of services they provide.

A cosmetology school and its owners paid $2 million to settle a qui tam case alleging that the vocational school had falsely reported that it met all statutory and regulatory requirements to participate in the Guaranteed Student Loan and Pell Grant programs. According to the lawsuit, the school used falsified time cards, attendance records, and academic records to make it appear as though students were attending classes and maintaining satisfactory progress, all in order to fraudulently qualify for the federal financial assistance.

The federal government spends substantial sums on programs to clean up hazardous and toxic waste. It also requires contractors to follow all environmental laws and regulations, such as the Clean Water Act.

Any contractor that deliberately overcharges the government for hazardous and toxic waste clean-up, gets paid by the government for work that it doesn’t perform, or whose service doesn’t meet government specifications, would be liable under the False Claims Act.

For instance, an environmental testing firm settled a qui tam lawsuit that charged the firm had failed to properly test the level of hazardous substances in soil and water samples as required under contracts with the Army Corps of Engineers.