Fourth Quarter 2009
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Qui Tam and False Claims

by Leona Egeland Siadek, Vice President, Government Relations

Abraham Lincoln championed the first federal False Claims Act. Passed on March 2, 1863, the legislation was an effort to counteract unscrupulous contractors providing the Union Army decrepit horses and mules, rancid rations, and faulty rifles and submitting supposedly valid claims. Because the fraud was entrenched even within the Justice Department, a reward was offered to citizens that sued on behalf of the government. They were paid a percentage of the recovery.

Individuals acting as private attorneys general are known as qui tam, short for a Latin phrase meaning “he who brings a case on behalf of our lord the King, as well as for himself.” A private citizen filing a suit in a qui tam action is called a “relator” or, more informally, a “whistleblower.”

The federal False Claims Act established seven prohibitions, but the most frequently cited provisions are the presentation of false claims to the government and making false records to get a claim paid.

In 1943, the act was amended to reduce the relator’s share of the recovery. It was amended again in 1986 to strengthen the act by imposing treble damages per false claim, increasing the relator’s share, and giving protection to whistleblowers. By 2000, a majority of cases were related to health care fraud. In 2007, health care fraud cases resulted in $1.1 billion in settlements and judgments, according to two industry trade groups.

In May, S.386, the Fraud Enforcement and Recovery Act of 2009 (Senator Patrick Leahy, D-VT) was signed into law by President Barack Obama. Among many other provisions, the measure expands the ability of individuals to act as qui tam plaintiffs even without government involvement or oversight. Opponents argued that the measure needlessly entices plaintiffs’ lawyers to file False Claims Act lawsuits and is an example of the influence of the trial lawyer lobby.

Directly or indirectly, doctors have been involved in False Claims Act cases for prescribing off-label drugs and devices after accepting price discounts and/or not disclosing the discounts to Medicare and Medicaid, for accepting payment from specific treatment centers for referrals, and for complying with a medical center’s request to add secondary diagnoses to patient records, thereby increasing federal reimbursements. In July, six large medical device companies were accused of promoting off-label use of microwave cardiac ablation products and receiving erroneous payments from Medicare.

In this case, the whistleblower, a former sales producer for 16 years, alleged that the companies coached hospitals to bill Medicare using codes for open-heart procedures rather than the minimally invasive technique actually used. The whistleblower also alleged that the hospitals or doctors were given free marketing and advertising or loans that they would never be asked to repay.

Qui tam plaintiffs have received millions in fees in the last decade. In one $140 million civil settlement with Health Care Service Corporation, the private plaintiff was paid more than $21 million.

Qui tam or private attorney general rights of action provide law enforcement with more resources to uncover and prosecute violations of law. They do this by giving private citizens with knowledge of violations an incentive to expose and punish those violations and by shifting the cost of the prosecution to the violators if the qui tam action succeeds. However, these laws can also be abused by plaintiffs or law firms that view them as an underexploited niche market.

An infamous example was perpetrated by the Trevor Law Group, three Beverly Hills attorneys who formed a phony consumer organization that they used as a plaintiff to sue thousands of small businesses, alleging minor violations of a California consumer protection statute. They wrote to the defendants offering to dismiss the suits in exchange for quick settlements. Eventually the suits were dismissed, after significant anxiety and expense for thousands of defendants. The lawyers were sued by the state’s attorney general, and they resigned from the bar during disbarment proceedings. The California statute was amended to limit further abuse.

Twenty-one states and the District of Columbia have created False Claims Act statutes that include qui tam provisions. Other states have legislation pending.

Federal Activities 
Congressional efforts to create a health care reform program have been the major focus of your Government Relations Department since the spring. Staff and lobbyists remain involved in discussions of policy and politics with allies and consultants alike. Efforts to amend both the house and the senate bills to include meaningful tort reform have evaded us to date. Concessions of adding less meaningful tort reforms are still in discussion.

Our primary goals have been to prevent the destruction of current state reforms, to amend the final bill to prevent an assumption of negligence if doctors adhere to less than 100 percent of any suggested practice guidelines, and to educate congressional members and staff about our legislative concerns.

If and when a bill is passed by both houses, the process of debate will continue in the conference committee. A full report will be given to you in the first quarter 2010 issue of The Doctor’s Advocate.

State Issues
California’s appeals court in Van Buren v. Evans upheld the MICRA limit and rejected claims that MICRA violated the separation of powers and conflicted with public policy that encourages prompt settlement of valid claims. The state supreme court refused the plaintiff’s request to review the case.

Colorado once again experienced heated debate on dismantling the state’s limit on noneconomic damages. H.B.1344 (Scanlan and Boyd, D) would have, in addition to raising damages, instituted several onerous requirements for medical liability companies. The bill eventually failed after rancorous hearings and protracted negotiations that included the governor’s staff.

Georgia’s Supreme Court, in Blotner v. Doreika, 285 Ga. 481 (2009), decided not to recognize the common law doctrine of informed consent in favor of reliance on statutory informed consent.

Maryland had two bills that would have doubled the state’s $665,000 cap on noneconomic damages in cases arising from wrongful death. H.B.237 (Waldstreicher, D) and S.B.505 (Gladden, D) both failed passage this session. Similar bills had been introduced in previous sessions and will most likely appear next year. Maryland’s physician shortage continues unabated.

Montana almost had a setback when a trial lawyer–sponsored bill, H.B.345 (Ken Peterson, R), was introduced to overturn a court decision and allow attorneys’ fees as damages in third-party bad-faith claims. The bill gained support primarily as an attack on auto insurers but would have negatively affected physicians and The Doctors Company. Efforts by the company and our Montana lobbyist contributed to the bill’s defeat.

Ohio’s Supreme Court issued two favorable decisions this year. In Roe v. Planned Parenthood Southwest Ohio Region (Ohio 2973), the court upheld the physician-patient privilege forbidding disclosure of non-party records without patient consent.

In Hodesh v. Korelitz (Ohio 4220), the court decided that “high-low agreements” need not be disclosed to a jury. A high-low agreement is a settlement that, contingent on a jury’s award of damages, sets a minimum amount to be paid to the plaintiff if the award is below that amount and a maximum to be paid if the award is above that amount.

Oklahoma Governor Brad Henry (D) signed H.B.1603 (Sullivan, R) effective November 1. The new law caps noneconomic damages at $400,000 with some exceptions. The law also includes joint and several liability reform, expert testimony standards, limited immunity for volunteers, and a requirement that a medical liability claim be filed with a certificate of merit.

Oregon’s H.B.2802 (Judiciary Committee) would have raised the limit on noneconomic damages in wrongful death cases to $1.5 million. Concerted efforts by The Doctors Company and allies from the business community killed the measure. S.B.284, which lengthened the statute of repose from eight to 10 years, was signed into law by Governor Ted Kulongoski (D).

Washington enacted SS.B.5531 (Senate Labor, Commerce, and Consumer Protection Committee) over opposition by The Doctors Company and other advocates for physicians. The bill expands damages under the state’s Consumer Protection Act, and it eliminates the requirement that an action impact the public interest. The bill was signed into law by Governor Chris Gregoire (D) effective July 26.