Overview

by Paul D.Scott
Fall 1999

If a Medicare patient in need of kidney dialysis treatment requests ambulance service to a dialysis center, you provide it, right? Wrong. Not if the patient is ambulatory. Not unless you are prepared to pay multiple damages and penalties to the United States government and a substantial reward to a private citizen who has reported your conduct.

The United States Department of Justice, and bounty hunting “whistle-blowers” acting on its behalf, is in the midst of a campaign against ambulance services that stray from the government’s rigorous billing regulations. Companies caught providing medically unnecessary services, such as nonessential outpatient dialysis transport, have been hit with lawsuits costing them millions of dollars, and more suits are on their way.

Civil False Claims Act

The statutory weapon for this assault on ambulance companies is the civil False Claims Act. The Act permits the Department of Justice, or whistle-blowers in its stead, to file suit against any person or business that submits false statements or claims to the federal government. Virtually any type of claim that is submitted for reimbursement directly or indirectly to Medicare, Medicaid or any other federal government program is covered.

And proving the case is not difficult. At trial, the False Claims Act requires proof that the defendant knowingly submitted the false statement or claim. This standard can easily be met, since “knowingly” is defined in the Act to include even reckless disregard or deliberate ignorance of the truth.

If the trier of fact concludes the defendant submitted false claims, the Act mandates payment by the defendant of three times the government’s damages plus penalties of between $5,000 and $10,000 for each false statement or claim. Of course, in the ambulance business, where hundreds and thousands of claims are submitted by companies to Medicare intermediaries, even if the damages are small, penalties can quickly mount into the millions of dollars.

Recent Cases

A recent case involving a New Orleans based ambulance service provides a prime example of how the False Claims Act can operate in combination with other government regulations to devastating effect. The government’s complaint alleged that the company improperly sought reimbursement from Medicare for transporting dialysis patients by ambulance from their places of residence to dialysis treatment facilities when doing so was not medically necessary.

Under Medicare regulations, a patient receiving maintenance dialysis on an outpatient basis is not ordinarily considered ill enough to require ambulance transportation to a dialysis treatment facility. Transportation is only medically necessary, and therefore reimbursable under Medicare regulations, when the patient can be moved only by stretcher or is bed-ridden both before and after the ambulance trip.

According to the complaint, over a span of approximately six years, the firm transported numerous dialysis patients at the government’s expense, despite the fact that the patients were ambulatory. The company subsequently submitted claims to the government’s fiscal intermediary, falsely representing that the patients had been bed-ridden, and the government ultimately paid the claims.

The complaint cited 501 claims in particular for which it had ready proof. These claims — which generally ran well under $200 per claim — led to only minor damages, but the threat of paying 501 separate $10,000 penalties gave the firm pause. It paid $1.8 million to settle the case.

Other ambulance enterprises have paid out similarly large sums for the provision of medically unnecessary services. A Minnesota based service recently paid $3 million dollars to settle allegations that it had defrauded the government by billing for advanced life support care when only basic life support care was actually provided. A case involving similar allegations was settled earlier this year for $120,000 by a service based in Massachusetts.

Yet additional cases are underway. For instance, in November 1997, an action was filed against a firm in Oklahoma, alleging the medically unnecessary transport of dialysis patients. Criminal charges were also filed. Two of the individuals involved entered pleas to the criminal charges and a third was convicted at trial. The two who pleaded guilty have now settled the civil False Claims Act cases against them. The third person, who was convicted at trial, is litigating against the government from jail.

Qui Tam Provisions

One of the key factors in this upsurge in cases involving the ambulance industry has been whistle-blower actions. These cases are filed in federal court under the qui tam provisions of the False Claims Act by individuals called “relators” who have information about fraud against the government.

Most anyone is permitted to file a qui tam. This includes wrongdoers, unless they have been convicted of or initiated the fraud. When the Act was first passed in 1863, Congress expressed no compunction about “setting a rogue to catch a rogue.”

The key limitation concerns whether the information has previously been publicly disclosed in a public hearing, report or investigation, or in the news media. If so, then the relator can only continue with the action if the relator was the “original source” of the information, meaning they supplied the information to the government or the media prior to its being made public.

Complaints must be filed under seal and are only initially served on the government. The relator provides the government with a copy of the complaint and a disclosure statement describing the evidentiary basis for the allegations in the complaint. The purpose of this procedure is to provide the government an opportunity to conduct an undercover investigation of the allegations in the complaint and determine whether it should intervene in and take over the action.

If the Government does take over the action, the relator is normally relegated to a secondary role. If a judgment or settlement is obtained, the relator is generally entitled to 15 to 25 percent of the recovery, depending on, among other things, the degree of assistance the individual lends to the government’s prosecution of the case. Alternatively, if the government does not intervene in the case, the relator may still pursue the case on the government’s behalf. If the relator is successful in this effort, the relator’s share jumps to between 25 and 30 percent of the recovery.

Historically, the government has only intervened in a small number of cases — less than one quarter of the qui tams filed since 1986 — and it is those cases that have been by far the most successful. Over $2.189 billion has been recovered in cases where the government intervened (as of August 1998). By contrast, only $60,000,000 has been recovered in the same period in cases where the government declined to intervene.

Good and bad alike, qui tam cases have exploded in recent years since the passage of liberalizing amendments to the False Claims Act in 1986. In 1987, only 32 qui tams were filed. In 1997, a decade later, 530 cases were filed. In 1998, the number of cases filed was at 417 by the end of August, and there is no reason to expect the pace to slow down.

The challenge for the ambulance industry in this dangerous climate will be to avoid the practices that lead to the catastrophic consequences of a False Claims Act case, for it is highly likely that such conduct will ultimately be detected by some individual, and it is equally likely that the same individual will file suit on the government’s behalf, so that they might share in the resultant recovery.

Paul D. Scott is a litigator practicing in San Francisco specializing in qui tam and government contracts cases. Between 1989 and early 1995, he served in the Civil Fraud Section of the Department of Justice where he was responsible for prosecuting cases under the False Claims Act. He can be contacted by phone at (415) 981-1212 or by mail at the Law Offices of Paul D. Scott, 1105 Battery Street, San Francisco, California 94111. For more information about the False Claims Act and whistle-blower actions, visit www.fraudhotline.com.