CARES Act Funding Will Lead to More Healthcare Fraud Accusations

Large stimulus packages passed in response to the COVID-19 pandemic will create an opportunity for more False Claims Act (FCA) enforcement, especially in the healthcare sector, lawyers from Hogan Lovells predict.

Hospitals, practices, and other provider organizations have received billions of dollars in federal aid through key COVID-19 legislation, including the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

Additionally, the federal government has supported provider organizations financially by advancing Medicare reimbursements during the start of the public health emergency and approving smaller organizations for Paycheck Protection Program (PPP) and other loans.

Now, the Biden administration is pushing for more financial relief as the pandemic rages on across the country.

But the amount of money distributed to providers could lead to more aggressive healthcare fraud activity this year, the lawyers stated in a new guide on FCA activity.

“The Department of Justice issued a directive to US Attorneys to prioritize the investigation of coronavirus-related fraud. This, combined with a new administration that is seeking .9 trillion in new federal spending to prop up the pandemic-hit economy, creates the potential for FCA enforcement activity at a time of extreme uncertainty for businesses,” said Maria Durant, office managing partner for Boston and an editor of the FCA Guide, said in an announcement.

Healthcare providers could be subject to payment recoupment and other legal actions, per compliance guidance published by HHS. This presumably means FCA claims if the government determines that an organization submitted false or inaccurate regarding how they used grants from the Provider Relief Fund.

HHS has provided reporting guidance in FAQs and other documents for providers who received more than $10,000 in Provider Relief Fund grants. These providers, for example, must report that the grants were spent to prevent, prepare for, and respond to coronavirus and reimburse healthcare-related expenses or lost revenues attributable to coronavirus.

The definition of lost revenues, however, has changed since the introduction of the reporting requirements in 2020, leading to confusion among providers.

This and other areas with lack of clarity could help providers fight FCA allegations, lawyers say.

“[T]he manner in which stimulus funding was disbursed may make successful suits more difficult. Vague certification requirements and ambiguous agency guidance promulgated in haste may create insuperable obstacles to demonstrating that beneficiaries of the various stimulus programs knowingly defrauded the government,” they wrote in the guide.

“While we should expect to see active FCA enforcement related to COVID-19 funding, the stimulus legislation and weak implementation guidance can be expected to offer several avenues of defense,” they continued.

For example, some defendants could succeed by advancing a public disclosure bar defense based on databases offering detailed information about CARES Act funding recipients, the lawyers suggested.

In addition to CARES Act funding concerns, healthcare providers should also be on the lookout for several other FCA enforcement changes that are likely to occur in 2021, such as the use of materiality in motions to dismiss and motions for summary judgment.

“Look for continued development of materiality case law in the lower courts, as they grapple with the Supreme Court’s instruction that the FCA ‘is not an all-purpose antifraud statute,’ or ‘a vehicle for punishing garden-variety breaches of contract or regulatory violations,’” the guide stated. 

Additionally, whether courts will still view inaction by the government after the filing of a qui tam complaint as demonstrating the absence of a materially false claim will be in the spotlight this year.

The lawyers also pointed to government motions to dismiss declined qui tam suits and the use of agency subregulatory guidance as a basis for enforcement as items to look forward to in 2021.

“Staying on top of these and other potential developments in FCA enforcement will be critical for businesses moving forward,” the guide concluded.