Previous False Claims Act (FCA) Fundamentals posts have examined how violations of certain federal laws can potentially expose entities to FCA liability when they receive money from the government.

This post focuses on how liability can also attach when entities withhold money owed to the government—commonly known as a “reverse false claim.”

Under the reverse false claims provision, 31 U.S.C. § 3729(a)(1)(G), liability can attach for either:

• Knowingly concealing, avoiding or decreasing an obligation to pay the government; or
• Knowingly creating or using (or causing another to create or use) a false record material to an obligation to pay the government.

The crux of a reverse false claim is whether the defendant owed an “obligation” to the government. “Obligation” is defined as “an established duty, whether or not fixed, arising from an express or implied contractual, grantor-grantee, or licensor-licensee relationship, from a fee-based or similar relationship, from statute or regulation, or from the retention of any overpayment.”

Examples of “obligations” courts have found could lead to reverse false claims include:

• A medical device manufacturer concealing substantial product defects from physicians who ultimately (and unknowingly) billed fraudulent claims to Medicare.
• A government contractor entering into a settlement agreement where it agrees to repay certain funds from the settlement to the government but then does not do so.
• A manufacturer importing materials with improper markings leading to the manufacturer paying fewer taxes on the materials than it actually owed the government.
• A corporation misrepresenting the nature of its employees’ work in visa applications, thereby paying lower visa application fees.
• A grantee certifying to the government that it would return any unspent or unobligated funds to the government when its grants expired but failing to do so.
• A healthcare provider receiving more reimbursements from Medicare than what it billed. Because Medicare requires healthcare providers to report and return overpayments within 60 days of identification, an obligation can arise as soon as a healthcare provider identifies an overpayment. To learn more about how to respond to a potential overpayment, click here.

An evolving area of litigation focuses on whether a healthcare provider can be liable under the reverse false claims provision if the conduct that caused the alleged overpayment might otherwise subject the provider to liability under the FCA for affirmatively submitting false claims. Recently, the U.S. Court of Appeals for the Second Circuit reiterated that a defendant could not be liable for a reverse false claim based on the same factual allegations as a traditional FCA claim. In affirming in part and reversing in part the dismissal of an FCA complaint, the Second Circuit described such reverse false claims as “duplicative” and “redundant.” Since then, numerous district courts have dismissed duplicative reverse false claims allegations on similar grounds. That said, relators often pursue liability under both traditional FCA and reverse false claims theories and, especially at the motion to dismiss stage, some courts may allow relators to plead both theories of fraud in the alternative.

A healthcare provider or government contractor can be liable for any damages allowed under the FCA if found liable for a reverse false claim. This can include treble (3x) damages based on the amount of the reverse false claim, as well as per claim civil penalties. To learn more about damages under the FCA, click here.

For more information about the False Claims Act and related case law developments, please subscribe to this blog or contact a member of the Bass, Berry & Sims Healthcare Fraud & Abuse Task Force.