AMARILLO, TX – The National Defense Authorization Act for Fiscal Year 2025 contains within it an alteration to a federal law that could cause a civil fraud enforcement tool to be more widely utilized by administrative agencies. The tool in question, previously known as the Program Fraud Civil Remedies Act (PFCRA), is now known as the Administrative False Claims Act (AFCA).

The PFCRA, passed in 1986, provides federal agencies with an administrative remedy in addressing false claims and statements. It allows the agencies to impose civil penalties and assessments against individuals or entities making false claims to the government. It was designed to initially handle smaller claims, or amounts involving $150,000 or less, which the Department of Justice would not pursue under the False Claims Act (FCA). The PFCRA complements the FCA because it covers smaller claims and false statements the Department of Justice might not otherwise select for criminal or civil enforcement. The PFCRA’s liability provisions are like those in the FCA, except the PFCRA extends to false statements even in the absence of a claim.

As a general reminder, the FCA protects the government from being overcharged for goods or services. It is also illegal under the FCA to submit claims for payment to Medicare or Medicaid that are known or should be known to be false or fraudulent.

The PFCRA allows individuals or entities to be penalized up to $5,000 per false claim or statement and can also be assessed up to double the amount falsely claimed. Again, it is an administrative remedy, so agencies initiate administrative proceedings on these claims.

The PFCRA was not used as much previously because many agencies found the administrative process tedious and determined that going after low-dollar false claims was not worth expending the time and resources necessary.

With the rebranded AFCA, the administrative process could become more widely used due to the changes. The AFCA now allows claims of up to $1,000,000 in fraud claims to be settled. The AFCA also allows administrative agencies to recoup costs they expended in support of the investigation or prosecution of the action that falls within the confines of the statute. The AFCA also allows more employees to preside over cases as a Hearing Official.

With the AFCA powered up, DME suppliers should keep the following in mind:

• A Kickback Results in a False Claim – Most DME suppliers understand that if they bill for a product not delivered—or deliver one type of product and deliver another type of product—then a “false claim” arises. Equally as important, however, is that if a DME supplier is engaged in a kickback arrangement, then claims that ultimately arise out of that arrangement are also “false claims.”
• Products and Services That Are Not Medically Necessary – Let’s talk about back braces. For decades, Medicare beneficiaries got along just fine without back braces. Beginning about five years ago, many beneficiaries received back braces. Was this spike in demand driven by the beneficiaries’ medical needs—or was this spike driven by lead generation companies (LGCs), the DME suppliers that paid the LGCs, sham telehealth companies, and telehealth physicians? The answer is obvious. Let us sound a word of caution. Over the past five years, DME suppliers (with LGCs and sham telehealth companies) marketed back braces and other orthotics. While this scheme is ending, there is now a push in the marketplace to sell continuous glucose monitors (CGMs). As CMS witnesses a spike in claims submissions for CGMs, the spotlight is now shining on this arena … the same way that the spotlight shown on the back brace arena. Therefore, if DME suppliers aggressively enter the CGM market, their business model must be legally compliant. In particular, (i) the supplier’s documentation must establish medical necessity for the CGM and (ii) the sale to the patient cannot arise out of a kickback arrangement. The bottom line is that if a DME supplier finds itself submitting many claims for products and/or services that the supplier did not submit (in a large way) in the past, the DME supplier will likely be subjected to scrutiny. Such scrutiny may take the form of an FCA investigation…or take the form of an action under the AFCA.
• 1099 Independent Contractor Marketing Reps – The federal anti-kickback statute (AKS) prohibits a DME supplier from giving anything of value (e.g., commissions) to persons/entities in exchange for (i) referring patients covered by a federal health care program (FHCP), (ii) arranging for the referral of FHCP patients, or (iii) recommending the purchase of a product or service covered by an FHCP. The AKS is violated if a supplier commissions 1099 independent contractor marketing reps for generating FHCP patients. The safest course of action is for marketing reps to be bona fide employees of the DME supplier. A supplier can pay a W2 employee marketing rep (i) a base salary plus (ii) discretionary bonuses based on several factors, including the generation of business. Another option is for (i) the marketing rep to be a 1099 independent contractor of the DME supplier and (ii) for the arrangement to comply with the Personal Services and Management Contracts safe harbor to the AKS.  Among other requirements, (i) parties must sign a written agreement with a term of at least one year, (ii) the methodology for compensating the rep must be fixed one year in advance, (iii) the compensation must be the fair market value equivalent of the rep’s services, and (iv) the compensation cannot take into consideration the anticipated number of referrals from the rep.  If the DME supplier enters into an arrangement with a marketing rep that violates the AKS, then the FHCP claims arising out of the arrangement become false claims…and the supplier faces potential liability under the FCA or AFCA.

The increased threshold on the monetary amount of claims that can be pursued could potentially increase the pursuit of false claims instances. Engaging in a strong compliance program is the best way to avoid these pitfalls.

Jeffrey S. Baird, JD is chairman of the Health Care Group at Brown & Fortunato, PC, a law firm based in Texas with a national healthcare practice. He represents pharmacies, infusion companies, HME companies, manufacturers, and other healthcare providers throughout the United States. Baird is Board Certified in Health Law by the Texas Board of Legal Specialization and can be reached at (806) 345-6320 or [email protected].

Jacque K. Steelman, JD is a member of the Health Care Group at Brown & Fortunato, PC, a law firm with a national healthcare practice based in Texas. She represents pharmacies, infusion companies, HME companies, manufacturers, and other healthcare providers throughout the United States. Steelman can be reached at (972) 684-5789 or [email protected].