Government Leverages Three-Year Tolling Provision to Reach Actions from the 1990s

In 2009, after two decades of divergent readings of the False Claims Act’s statute of limitations provision, Congress considered adopting a straightforward 10-year statute of limitations period for all False Claims Act actions. Unfortunately, this amendment was removed from the legislation before it reached President Obama’s desk. Thus, courts continue to wrestle with the application of this convoluted language.

Under 31 U.S.C. 3731(b), the statute of limitations for the False Claims Act provides that a civil action may not be brought more than six years after the date on which the violation is committed or more than three years after the date when facts material to the right of action are known or reasonably should be known by a Department of Justice official charged with responsibility to act, whichever occurs last.

Most of the confusion surrounding this statute of limitations language involves the application of the three-year tolling provision. This uncertainty recently played out in a Middle District of Tennessee courthouse, where the government attempted to use the tolling provision to reach actions from the late 1990s.

In this case, United States v. Carrell, No. 3:09-cv-00445 (M.D. Tenn. Dec. 19, 2011), the court denied a defendant’s summary judgment motion, for there were genuine issues of material fact as to when the government knew or should have known that eight cost reports from a home health management company were false or fraudulent.

Medicare reimburses the total amounts that a home health management company charges in cases involving unrelated parties, but for related parties Medicare reimburses only the management company’s actual costs, without profits. Here, the government alleged that the defendants submitted false and fraudulent claims in their 1999, 2000, and 2002 cost reports to Medicare because it failed to disclose the related party status of their home health agencies and the management company that provided services to those agencies.

The defendants maintained that the government’s related party allegations were known to it as far back as 1989 and were repeatedly investigated and pursued by government agents. For example, the defendants alleged, the fiscal intermediary received an anonymous letter in 1989 that raised the possibility of Medicare fraud with regard to the ownership and operation of their home health care agencies.

The court, in rejecting this argument, found that the material fact of which the government needs to be aware prior to taking any action was not simply the alleged related party relationship, but the filing of fraudulent and falsified cost reports that failed to disclose the relationship. According to the court, this information was not fully revealed to the government until the government’s fiscal intermediary conducted a comprehensive final audit of the cost reports and issued a written notice of program reimbursement (NPR). Here, the first NPR was not issued until 2004 and the remaining cost reports were not suspended until 2009. Thus, the court concluded that genuine issues of fact remained as to when the government knew or reasonably should have known that they were false and/or fraudulent.

For more information about qui tam law and healthcare fraud, contact Nolan & Auerbach, P.A.