On May 20, 2009, President Obama signed into law the Fraud Enforcement and Recovery Act of 2009 (FERA). The FERA makes significant changes to the False Claims Act (FCA) and may thereby cause Medicare providers who retain Medicare reimbursement overpayments to face civil or criminal consequences.

The FCA has not traditionally been applied to Medicare providers. Instead, it has been generally understood to concern contractors who make fraudulent claims to the government with regard to goods or services which they supply directly to the government. In 2008, the U.S. Supreme Court narrowed the application of the FCA, holding that the mere involvement of federal money is insufficient to bring a fraudulent claim or invoice within the scope of the Act. However, the FERA effectively reverses this decision, broadening the FCA’s application to include “a false record or statement material to a false or fraudulent claim,” where a claim includes “any request or demand” related to a government program and which will be paid from government funds. This broader application more clearly covers the receipt of Medicare payments by health care providers.

The FERA also makes it clear that the FCA imposes liability for knowing and improper retention of a Medicare overpayment. Consequently, a health care provider may now violate the FCA if it conceals, improperly avoids or decreases an “obligation” to pay money to the government. The FERA has effectuated this change by defining an “obligation” in the FCA to include the knowing “retention of an overpayment.” The FCA defines “knowing” to mean that a person: “(1) has actual knowledge of the information; (2) acts in deliberated ignorance of the truth or falsity of the information; or (3) acts in reckless disregard of the truth or falsity of the information.” Therefore a health care provider which knowingly retains a Medicare overpayment may violate the FCA, regardless of whether the initial acts that caused the overpayment were done knowingly.

It should further be noted that in December 2008, the Federal Acquisition Regulation (FAR) was amended to require mandatory self disclosure to the Inspector General and to the Contracting Officer whenever a contractor has credible evidence of a civil or criminal fraud related to the award or performance of a federal government contract. Although the FAR does not directly apply to Medicare providers, its recent amendment, coupled with the recent changes to the FCA, provide a good indication of the federal government’s increasingly strict approach to dealing with fraud.

These recent changes in federal law make effective compliance programs even more vital. Overpayments of Medicare reimbursements or other government funds should be monitored carefully, and health care providers should address policies of self-reporting internally.

For further information, please contact Daniel M. Purdom, Lora L. Zimmer or your regular Hinshaw attorney.

This alert has been prepared by Hinshaw & Culbertson LLP to provide information on recent legal developments of interest to our readers. It is not intended to provide legal advice for a specific situation or to create an attorney-client relationship.