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December 12, 2006

Deficit Reduction Act of 2005: Hospital Policies for Detecting Fraud, Waste and Abuse

• a specific discussion of the relevant laws;
• the rights of employees to be protected as whistleblowers; and
• the hospital's policies and procedures for detecting and preventing fraud, waste, and abuse.

Hospitals may use the contents of this memo for the first two dot points above but will need to develop the procedures that employees can use to report fraud, waste or abuse along with appropriate follow-through measures for dealing with reports or complaints.

Federal False Claims Act (FCA) 31 USC § 3729 - 3733
The FCA prohibits any person from submitting a false claim for payment or approval from the federal government. False claims can include overcharges, underpayments, or charging for one product or service, but providing another. False claims do not include innocent mistakes or mere negligence in billing.

Any person who becomes aware of an entity filing false claims with the government may bring an action in court under this law for up to six years after the false claim. That person becomes known as a qui tam relator or "whistleblower." The government may or may not become a party to the lawsuit depending upon its own investigation, and the government can receive up to three times the amount of damages which it sustains as a result of the false claim, plus penalties. A qui tam relator can receive between 15 and 30 percent of any damages, depending on whether the government proceeds with the case.

Under the FCA, employers cannot retaliate or punish an employee who initiates a qui tam lawsuit. If an employee is discharged, demoted, suspended, threatened, harassed, or discriminated against because he or she brought a legal action under the FCA, the employee may bring a civil action against the employer. Damages can include back pay, interest, attorney’s fees, and possible reinstatement to the same seniority status.

Program Fraud Civil Remedies Act (PFCRA) 31 USC § 3801
In addition to the judicial remedy available under the FCA, the PFCRA also provides an administrative remedy for submitting improper claims or written statements to a federal agency. The PFCRA is designed to act in tandem with the FCA, but is limited to claims amounting to $150,000 or less. Each agency is required to promulgate regulations necessary to implement the PFCRA.

Whistleblower Act, 740 ILCS 174/1, et. seq.
Under this law, an employer may not make or enforce any rule or policy preventing an employee from disclosing information to a government or law enforcement agency if the employee has reasonable cause to believe that the information discloses a violation of a state or federal law, rule, or regulation. Retaliation for any disclosures made, even by contractual workers, is prohibited. Likewise, an employer may not retaliate against an employee for his or her refusal to participate in an activity that would result in a violation of a state or federal law, rule, or regulation. Employees may bring a civil action against the employer "for all relief necessary to make the employee whole," including reinstatement, back pay with interest, and litigation costs.

Whistleblower Reward and Protection Act (WRPA), 740 ILCS 175/1, et. seq.
In 1992, Illinois enacted the WRPA, which closely tracks the federal False Claims Act. The WRPA imposes civil liability upon "any person" who "knowingly presents, or causes to be presented, to an officer or employee of the State ··· a false or fraudulent claim for payment or approval." A person who violates the WRPA is liable to the state for a civil penalty of not less than $5,000 and not more than $10,000, plus treble damages.

An employee "whistleblower" may receive a portion of that award plus attorney fees and expenses. There are some restrictions on the eligibility of whistleblowers. For example, information obtained from other publicly available sources cannot be the basis for the lawsuit. The whistleblower must be the original source of the information.

Like the federal False Claims Act, employers cannot discharge, demote, suspend, threaten, harass, or in any other way, discriminate against the employee in the terms and conditions of employment. If terminated for engaging in the activity protected by this law, an employee could be entitled to reinstatement with seniority status and double the amount of back pay with interest, and litigation costs.

Public Assistance Fraud Act, 305 ILCS 5/8A-1, et. seq.
Actions under this law may be initiated by the Attorney General or by the State’s Attorney when a unit of local government is involved. This law makes it a Class A misdemeanor to make false statements "relating to health care delivery." Obtaining any payment by means of a false statement or representation, or by concealment of any material fact, requires the repayment of any excess payments along with interest and other penalties. Violations may also result in a hospital being prohibited from future participation in any state health plans.

For more comprehensive information about the Deficit Reduction Act, click here.

Staff Contact: Kathleen Pankau: 630-276-5598