On December 4, 2020, the Department of Health and Human Services (HHS), in partnership with the Department of Justice (DOJ) and the HHS Office of Inspector General (OIG), formed a False Claims Act (FCA) Working Group to “combat fraud and abuse by identifying and focusing resources on those who seek to defraud the American taxpayers.” This working group is an important oversight initiative as HHS, the largest civilian agency, manages a $2.4 trillion portfolio and accounts for approximately 22 percent of federal spending. HHS is also the largest grant-making and second-largest contracting agency with $244.7 billion issued in grants and $160.7 billion in contracts in FY20.
The Working Group is, according to HHS, an important element of oversight of “unprecedented levels of taxpayer support” that the Agency has administered to private organizations and individuals in response to the COVID-19 pandemic. As of October 2020, the total HHS COVID-19 appropriation was $251 billion. As part of Operation Warp Speed, for example, HHS has provided billions of dollars to life sciences companies to support their efforts to research, develop, and distribute COVID-19 vaccines. HHS also provided over $100 billion to healthcare providers via the Provider Relief Fund. The Department notes in its press release that the “vast majority” of these companies have used government grants “in good faith to combat the pandemic.” The focus of the working group will be on bad actors who seek to defraud HHS’ programs. Close coordination between the agencies is always important but is even more crucial now given the significance of supplemental funds to combat the pandemic. Efficient and effective management and administration will be essential to ensuring that COVID-19 response programs achieve their intended purposes and provide relief to intended beneficiaries.
In the press release announcing the Working Group, HHS Secretary Alex Azar explained it has a dual purpose: (1) ensuring the government’s resources are “focused on bad actors” to deter would-be fraudsters, and (2) not “burdening those working in good faith to comply with the law.” This formulation of the Working Group’s mission is considered by some as the latest example of the Executive Branch attempting to limit qui tam complaints, continuing the trend started by the DOJ’s “Granston Memo.” The 2018 memo encouraged federal prosecutors to exercise their discretion more frequently to recommend dismissals of “meritless” qui tam complaints, including, among others, those that conflict with the policy priorities of federal agencies. Prior to the Granston memo, DOJ rarely sought such dismissals, allowing relators to pursue the FCA on their own. Even without DOJ’s help, whistleblowers were able to recover $1.65 billion in the past five years. If the focus of the Working Group is to strictly adhere to the Granston memo, however, then it is highly likely that some meritorious FCA cases will also be dismissed.
The FCA holds accountable those who knowingly present false or fraudulent claims for payment to the government by allowing the government to recover treble damages. The Act’s qui tam provision empowers whistleblowers who have firsthand knowledge of frauds/violations to report them to the appropriate government officials. FCA was substantially weakened by the 2016 Supreme Court’s Escobar decision that interpreted the Act’s “materiality” standard. To prevail under the FCA, the violation has to be “material,” that is, the fraud must have “a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property” by the United States. One of the Escobar factors, whether the government knew of the fraud, has frequently led to dismissals of FCA cases.
Because of the COVID-19 emergency, there will be instances where the government pays a claim despite its knowledge of a potential billing fraud. For example, if government has no other means of securing vital COVID-10 vaccines, equipment, or treatment, it will continue paying a fraudulent contractor who violated the FCA simply because there are lives at stake. Based on the Escobar decision and the Granston memo, a contractor will escape FCA liability because the “government knowledge of the fraud” element is satisfied.
As the largest civilian agency that oversees one third of federal spending, it is critical that HHS trains its staff on how to better detect fraud and when to refer potential false claims to DOJ and OIG. The False Claims Act Working Group should provide targeted training to the staff of HHS programs that are most vulnerable to fraud and abuse. Based on the strong composition of the Working Group that includes “former DOJ False Claims Act and healthcare fraud prosecutors, former private counsel for healthcare and life sciences companies, and HHS attorneys with extensive experience with HHS’ most vulnerable payment programs,” it could have a meaningful impact on minimizing fraud among HHS contractors and increasing FCA claims receivables. In its latest semi-annual report to Congress, HHS OIG reported 624 criminal and 791 civil actions against individuals or entities that engaged in offenses related to health care with $3.14 billion in investigative receivables (most of which are FCA related), e.g., Novartis Pharmaceuticals, Suboxone, Universal Health Services.
With billions of dollars spent not only on direct COVID-19 authorizations, but also as part of Medicare and Medicaid, the creation of the Working Group is a timely action that will ensure rigorous oversight to expose fraudulent actions and make sure that those responsible are punished accordingly.