The Role of Forensic Accounting in Qui Tam Matters

A qui tam lawsuit is litigation brought by an individual on behalf of the government. Loosely, the term means “in the name of the king.” In the healthcare arena, qui tam litigation is generally used to bring charges against a healthcare provider for alleged fraud and violations of the anti-kickback statute. The federal government, state governments and private citizens are bringing these actions with more frequency, and they are resulting in substantial penalties to healthcare providers. These lawsuits are generally brought through private attorneys and, in accordance with federal and most state laws, are filed under seal. Only after the government (the U.S. attorney or state attorney general) decides whether to take over the matter (intercede) might the legal filing become public. At that point it may be served to the defendant and the legal processes continue. Some level of investigation and forensic accounting may take place while the case is still under seal.

One of the areas that a relator (the term for the person bringing the litigation) can bring forth allegations is in regard to a provider’s failure to comply with fair market value (“FMV”) requirements in business relations involving Medicare and Medicaid patient referrals. FMV rules and regulations are often complex and require skills such as significant legal and financial experience to be administered properly.

Forensic accountants and related experts possess a variety of business, analytical, statistical, and accounting tools combined with a knowledge of legal issues and can contribute to the success of qui tam matters in several ways. When brought in early to a case, they can help attorneys prepare complaints and initial court filings that include clear statements about the key financial issues in the relator’s allegations. Forensics experts can also increase success in the discovery process by zeroing in on the most important discovery documents and financial records early in the process. Likewise, forensic experts can help prepare deposition and discovery questions by indicating the types of documents that would routinely be part of the defendant’s business processes and procedures.

Marcum has seen numerous situations where forensic analysis began after discovery and depositions commenced and court-ordered deadlines left important information missing that could have been better resolved with early retention of the forensic accounting team to help with discovery. As a result, the outcome of the case may have been less successful than might have been achieved with a more timely and thorough analysis that could have been completed with better defined discovery. Asking the right questions earlier in the discovery process often leads to a more efficient and successful outcome for clients.

For forensic accounting and other professional’s results to be admissible in most legal proceedings, the professional must attain “a reasonable degree of professional certainty.” In most jurisdictions the law requires an expert to use methodologies and theories that are professionally recognized and based on specific (rather than speculative) facts. A forensic account’s job, for example, is not to provide a theory in the law, but to apply specified (and assumed) facts and law to the issues. The goal is typically to determine what constitutes fair market value, economic damages, or other specialty subjects.

For purposes of the anti-kickback and Stark legislation and accompanying regulations, FMV is generally considered “the price at which a willing buyer and a willing seller would come to a financial transaction with both being reasonably well informed of all pertinent matters, neither being compelled to complete the transaction, and there being no consideration for the referral of any designated health services in either direction.” Understanding, in-depth, the financial transactions that are occurring often determines whether the allegation survives. Here are three examples of allegations of kickback.

1. An oncology practice provided a contract for a home health agency.

In exchange, the agency provided patient services for the practice below FMV. This arrangement could be subject to a qui tam or other government investigation. To fully understand whether the services were provided at or below FMV, a forensic accountant would likely review the underlying cost and risk of providing the services and the general cost of comparable services in the market. They would also assess a reasonable markup for profit. To further the example, say providing this service required one full-time employee whose annual salary was $70,000, plus any applicable benefits, taxes, etc. If the service was provided at a cost of $20,000 per year, that would appear, on the surface, clearly below FMV. If the same service was provided at a rate of $100,000 per year, the parties would at least be able to make a reasonable case that it was within range of FMV — $70,000 plus ancillary out-of-pocket costs and some reasonable profit margin.

2. A pharmaceutical manufacturer sold a specialized drug with ophthalmologists acting as the key prescriber of the medication.

In this case all of the arrangements revolving around referrals, prescriptions, or other activities would need to be reviewed for FMV. Those arrangements below FMV could potentially be deemed to create an opportunity for a kickback and create the potential risk that the designation of any billing for the prescription or the medical care by the ophthalmologist could be alleged to be categorized as a false claim.

3. If a hospital attempted to purchase a medical practice and an outpatient surgical facility owned by the same group of physicians, the question of FMV could come into play.

Any overpayment for either the practice or the outpatient surgical facility could potentially lead to a government allegation, directly or via a qui tam, for false claim act violations.

In all of these examples, forensic accounting and related business valuation professional capabilities are extremely helpful to the counsel handling the matter. Professionals with these skills can provide the court with an understanding of FMV and all of the economic underpinnings of the arrangement from the buyer’s and seller’s perspectives.

The details of forensic work vary from project to project, but overall, it includes a close analysis of underlying costs, alternative providers of goods and services, and pricing models. In some cases, establishing FMV is challenging, which makes professional forensic accounting and related skills an important part of the litigation process.