On March 28, 2013, in United States ex rel. Keltner v. Lakeshore Medical Clinic, Ltd., a federal district judge denied the Defendant medical clinic’s Rule 9(b) motion to dismiss the False Claims Act complaint for failing to plead fraud with particularity. The Relator in Keltner was a former billing department employee who alleged that the clinic discovered, through internal auditing, regular instances of Evaluation and Management (E/M) upcoding, including the fact that two of its physicians had E/M upcoding error rates greater than 10%. She further alleged that although the clinic corrected the specific claims identified during the audit, it failed to attempt to identify any other problematic claims and at one point stopped auditing completely. The Relator’s theory was that this conduct created the plausible inference that the Defendant submitted false claims to the government for payment, which the Defendant had not timely refunded. The court agreed and found that the Relator’s allegations supported the theory that the Defendant had acted with “reckless disregard for the truth” and had submitted false claims. The court further held that the allegations supported a claim under the less-utilized “reverse” false claims act provisions of the False Claims Act, which allow a relator to sue if a defendant intentionally avoids an obligation to pay the government, such as an “unrefunded overpayment.” Here, because the medical group had been put on notice of the billing errors but had failed to take corrective action regarding possible overpayments, the court found that the clinic “may have unlawfully avoided an obligation to pay money to the government.”

This case presents a good example of the potential interplay between the civil exposure created by “unrefunded overpayments” (pursuant to passage of FERA in 2009) and the False Claims Act. The other key takeaway is that the “head in the sand” defense is not viable under the False Claims Act, and a provider’s failure to investigate audit findings and refund overpayments can support a “reverse” false claims suit.