The Often Overlooked Codification of False Claims in 42 U.S.C. § 1320a-7b(g)

It has been widely discussed that the Affordable Care Act amended the Anti-Kickback Statute (42 U.S.C. § 1320a-7b(b)) (“AKS”) in order to ensure that all claims resulting from illegal kickbacks are subject to civil prosecution under the False Claims Act (31 U.S.C. §§ 3729 et seq.) (“FCA”). The amendment, set forth in 42 U.S.C. § 1320a-7b(g), states that: “In addition to the penalties provided for in this section or section 1320a-7a of this title, a claim that includes items or services resulting from a violation of this section constitutes a false or fraudulent claim for purposes of [the FCA].” Thus, anyone who knowingly submits a claim to Medicare arising from an AKS violation is also violating the FCA, as a matter of statutory law.

Court decisions discussing this provision invariably refer to the AKS in discussing how the amendment codifies claims submitted in violation of that law as “false or fraudulent” under the FCA. The legislative history is consistent with this focus. Former Senator Ted Kaufman of Delaware, in comments that he made when the amendment was introduced stated:

The Department of Justice has had success both prosecuting illegal kickbacks and pursuing False Claims Act matters based on underlying violations of the Anti-Kickback Statute. Nevertheless, defendants in such FCA cases continue to mount legal challenges that sometimes defeat legitimate enforcement efforts.

For example, a court recently held that, even though a device company may have paid a kickback to a doctor to use a particular medical device, the bill to the government for the procedure to implant the device was not false or fraudulent because the claim was submitted by the innocent hospital, and not by the guilty doctor. In other words, a claim that results from a kickback and that is fraudulent when submitted by a wrongdoer is laundered into a ‘‘clean’’ claim when an innocent third party finally submits the claim to the government for payment. This has the effect of insulating both the payor and the recipient of the kickback from False Claims Act liability. This obstacle to a successful action particularly limits the ability of the Department of Justice to recover from pharmaceutical and device manufacturers, because in such instances the claims arising from the illegal kickbacks typically are not submitted by the doctors who received the kickbacks, but by pharmacies and hospitals that had no knowledge of the underlying unlawful conduct.

This bill remedies the problem by amending the anti-kickback statute to ensure that all claims resulting from illegal kickbacks are ‘‘false or fraudulent,’’ even when the claims are not submitted directly by the wrongdoers themselves. I want to emphasize that in such circumstances, neither antikickback nor False Claims Act liability will lie against the innocent third party that submitted the claim.

155 Cong. Rec. S10854 (daily ed. Oct. 28, 2009) (emphasis added). Senator Kaufman was referencing the decision of the court in United States ex rel. Thomas v. Bailey, No. 06 Civ. 465, 2008 WL 4853630 (E.D. Ark. Nov. 6, 2008), in which a hospital had submitted claims for medical devices that resulted from a violation of the AKS by a surgeon and a device company, and the court held that the claims were not “false” under the FCA because the hospital and not known about the violation (and so had not falsely certified compliance either impliedly or expressly) and the devices had all been actually implanted in the patients (so the claims were not factually false). See Discussion in United States ex rel. Kester v. Novartis Pharmaceuticals Corp., 41 F. Supp. 3d 323, 332-335 (S.D.N.Y. 2014). The amendment to the law was designed to close this loophole by making it clear that any claim resulting from a kickback is false under the FCA even if the claim is submitted by an innocent party.

Less noticed, however, is the fact that the statutory language in § 1320a-7b(g) is not, by its terms, limited to the AKS, which is in subsection (b) of §1320a-7b. The amendment refers to any “claim that includes items or services resulting from a violation of this section” (emphasis added), which unmistakably refers to the entirety of §1320a-7b, and includes, but is not limited to the AKS provisions in subsection (b). The amendment thus is not limited to claims resulting solely from a violation of the AKS, which forms only part of that section of the law. See Kimbrell Colburn, DAB No. 2683 (Mar. 24, 2016) (H.H.S.) 2016 WL 2851176 at *5 n.3 (upholding exclusion from federal health care programs based on conviction under § 1320a-7b(a)(3)(B) and noting that § 1320a-7b(g) applies to § 1320a-7b, “which includes the anti-kickback provision in section 1320a-7b(b)”) (emphasis added).

This frequently overlooked fact is highly significant, since subsection (a) of § 1320a-7b criminalizes a wide range of conduct related to false statements or representations affecting federal health care programs, including:

(1) knowingly and willfully makes or causes to be made any false statement or representation of a material fact in any application for any benefit or payment under a Federal health care program . . .,

(2) at any time knowingly and willfully makes or causes to be made any false statement or representation of a material fact for use in determining rights to such benefit or payment,

(3) having knowledge of the occurrence of any event affecting (A) his initial or continued right to any such benefit or payment, or (B) the initial or continued right to any such benefit or payment of any other individual in whose behalf he has applied for or is receiving such benefit or payment, conceals or fails to disclose such event with an intent fraudulently to secure such benefit or payment either in a greater amount or quantity than is due or when no such benefit or payment is authorized,

(4) having made application to receive any such benefit or payment for the use and benefit of another and having received it, knowingly and willfully converts such benefit or payment or any part thereof to a use other than for the use and benefit of such other person,

(5) presents or causes to be presented a claim for a physician’s service for which payment may be made under a Federal health care program and knows that the individual who furnished the service was not licensed as a physician, or

(6) for a fee knowingly and willfully counsels or assists an individual to dispose of assets (including by any transfer in trust) in order for the individual to become eligible for medical assistance under a State plan under subchapter XIX, if disposing of the assets results in the imposition of a period of ineligibility for such assistance under section 1396p(c) of this title . . . .

A claim that includes any item or service resulting from violating any of the above provisions under § 1320a-7b(a) will, by operation of § 1320a-7b(g), also be a “false or fraudulent claim” under the FCA. On one level, this may not seem very consequential, since a claim that arises from a criminal false statement or misrepresentation would also be expected to satisfy the lesser requirements for FCA liability. However, just as with violations of the AKS, what happens if an innocent third party submits a claim that “results from” a violation of § 1320a-7b(a) without the claimant’s knowledge?

For example, one can imagine a hospital or other health care organization submitting a claim for reimbursement based on false representations made by others concerning the medical necessity of the underlying items or services. The items or services may have been provided just as described, and hence the claim may not be factually false. Nor would the innocent claimant have “knowingly” submitted a false certification (express or implied) regarding medical necessity. Similarly, what if a hospice or nursing home submitted claims in the names of residents, unaware that the resulting reimbursement amounts were criminally converted by others for self-interested purposes unrelated to the care of the patients in whose names the funding was obtained? How would such violations of § 1320a-7b(a)(3) or (4) result in FCA liability for those who are engaged in the criminal conversion of those proceeds, when the claimant itself was unaware of the underlying violations and thus could not have “knowingly” submitted false claims. Short of facts justifying a finding that the claimant had been reckless or willfully blind, or an argument that the claims were knowingly rendered factually false due to regular conversion of monies provided for maintenance of the hospice or nursing home residents, it might be difficult to establish liability under the FCA without the assistance of § 1320a-7b(g).

In summary, while § 1320a-7b(g) has been generally discussed in the context of its impact on FCA liability resulting from AKS violations, more attention should be paid to how this amendment arguably also closes a loophole in FCA liability resulting from violations of criminal provisions elsewhere in § 1320a-7b, specifically in subsection (a), when an individual or entity submitting a claim is unaware of the underlying violation making the claim “false.”

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The Often Overlooked Codification of False Claims in 42 U.S.C. § 1320a-7b(g)

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