Targeted companies and individuals, including beneficiaries, hospitals, pharmacies, clinical laboratories, plan sponsors, employees, employer groups, and brokers and agents, can be subject to both criminal and civil fraud investigations. More specifically, any person who knowingly submits a false claim to the government; causes another to submit a false claim to the government; or knowingly makes a false record or statement to get a false claim paid by the government is subject to FCA liability. In this context, “knowingly” means actual knowledge that the information is false; deliberate ignorance of the truth or falsity; reckless disregard of the truth or falsity. No specific intent to defraud is required.

Many civil and criminal fraud cases arise when inappropriately billing the government. Some schemes involve billing for a non-covered service as a covered item, providing medically unnecessary treatments or incorrect reporting of diagnosis or procedure.

Directors & officers, errors & omissions and employment practices liability insurance may pay for the defense of an FCA lawsuit. (Photo: Shutterstock)

Insurance protection against FCA

FCA investigations and actions can be expensive to defend and even more costly when factoring in the potential for large settlements and judgments. Address any possible risks resulting from violation of the FCA through an insurance program. Insurance coverage, such as employment practices liability, directors & officers and errors & omissions, may pay for the defense of FCA claims and possibly pay for the settlement or judgment as well. Know and re-evaluate all company insurance policies in their entirety with attention to some of these areas:

• Notice provision.

• Definition of a claim to include regulatory wrongful act and subpoena, as well as the definition of loss to encompass civil fines, multiple damages and penalties against an Insured for Regulatory Wrongful Acts to the maximum permissible under the law.

• The conduct exclusions wording should specify that the adjudication must also be non-appealable. Otherwise the trial court judgment may be sufficient to bar coverage.

• Ability to pick up prior acts by the removal of any pending or prior date(s).

• Obtain pre-claim assistance for government inquiries, inclusive of interviews and meetings.

It would also be prudent to have third parties add the company as an additional insured on their policies.

Components of an effective compliance program

Next, a compliance program should be in place in an effort to prevent fraud and mitigate risk. Per the Office of Inspector General, an effective compliance program should include the following key components:

1. Formulate internal written policies, procedures, and standards of conduct that define the organization's commitment to compliance with all applicable state and federal rules.

2. Launch a compliance committee with a designated compliance officer.

3. Provide proper education and training on FCA and other regulatory compliance measures.

4. Develop good lines of communication by encouraging internal reporting, including an anonymous hotline.

5. Promote an organizational culture that does not tolerate retaliatory actions against whistleblowing employees (such as harassment, discharge or adverse employment action taken as prohibited by the FCA).

6. Set up procedures for effective internal monitoring and auditing to detect any fraud, waste or abuse.

7. Have a plan of action for responding to identified offenses.

8. Establish a disciplinary system.

Katherine C. Tower, JD, MBA, RPLU, is assistant vice president of the Management Liability Claims Unit with OneBeacon Insurance Group. This article does not reflect the statements or views of OneBeacon Insurance Group, or any of its affiliates. OneBeacon is not responsible for its content.