Bad Debt Under the False Claims Act and the FTC’s New Policy Statement Banner Image

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Bad Debt Under the False Claims Act and the FTC’s New Policy Statement

November 30, 2022

For more information about this blog post, please contact Khaled J. KleleRyan M. MageeRyan L. O’NeillConnor BrezaWilliam R. Meiselas or Labinot Alexander Berlajolli.

Federal Case Highlights Medicare Bad Debt Regulatory Requirements

Recent federal case law highlights the regulatory requirements, and potential liabilities, imposed on Medicare providers seeking federal reimbursement for certain fees when Medicare beneficiaries fail to pay. Under 42 C.F.R. § 413.89, the United States Centers for Medicare & Medicaid Services (“CMS”) will reimburse Medicare providers if a Medicare beneficiary fails to make required deductible or coinsurance payments for covered services (“bad debts”). However, to be reimbursed for bad debt by CMS, Medicare providers must have first made reasonable efforts to collect those debts.

42 C.F.R. § 413.89 lists the criteria that Medicare providers must satisfy to establish the reasonableness of their collection efforts. For example, such collection efforts must be similar to those employed to collect bad debt from non-Medicare patients and must last at least 120 days after the issuance of the original bill before the bad debt is written off as uncollected. Significantly, the requirements vary based on whether or not the Medicare beneficiary is eligible for Medicaid or other financial assistance. If the provider takes the appropriate steps, it may seek reimbursement for bad debt from CMS.

A provider, however, may be subject to liability under the federal False Claims Act (“FCA”) if the provider failed to take reasonable steps to collect the bad debt before seeking reimbursement from CMS. In August 2022, for example, the Seventh Circuit partially reversed a district court’s dismissal of a qui tam complaint that had alleged that debt collection agencies and their hospital client were liable under the FCA for failing to comply with Medicare’s “bad debt” collection requirements. Significantly, the Seventh Circuit’s decision emphasizes both that reasonable collection efforts are material to the government’s decision to reimburse bad debt and that providers may be held liable under the FCA for the unreasonable collection efforts employed by contracted third-party collection agencies.

The takeaway from the Seventh Circuit’s recent decision is that Medicare providers seeking federal reimbursement of bad debt must ensure that their collection practices align with regulatory requirements. Development of comprehensive collection policies, internal auditing and monitoring of collections, and ensuing education can help mitigate potential FCA liability.

FTC Issues Policy Statement on Scope of Anti-Competitive Enforcement

The United States Federal Trade Commission (“FTC”) recently issued a Policy Statement regarding its interpretation of the scope of its ability to regulate unfair methods of competition under Section 5 of the FTC Act (15 U.S.C. § 45). Significantly, multiple elements of the Policy Statement highlight that the FTC will be liberally construing Section 5 of the FTC Act in reviewing and challenging anticompetitive practices.

Notably, the Policy Statement indicates the FTC’s shift towards more avid enforcement by (1) defending the FTC’s ability to define the term “unfair methods of competition” under Section 5 of the FTC Act and (2) arguing that the agency was designed by Congress to garner deference from the courts. Hence, the Policy Statement advances the current FTC’s understanding that it is both able to alter its definition of the concept on which it bases enforcement actions and is entitled to having its revised definition accepted by the courts in an enforcement proceeding. Further, the Policy Statement points out that the United States Supreme Court has affirmed the FTC’s broad interpretations of the scope of Section 5 of the FTC Act.

Importantly, the Policy Statement states that it supersedes “all prior FTC policy statements and advisory guidance on the scope and meaning of unfair methods of competition under Section 5 of the FTC Act.”

Our Team

Khaled John Klele

Khaled John Klele
Partner

​Ryan M. Magee

​Ryan M. Magee
Partner

Ryan Lee O'Neill

Ryan Lee O'Neill
Partner

Labinot Alexander Berlajolli

Labinot Alexander Berlajolli
Associate

Connor Bradford Breza

Connor Bradford Breza
Associate

William R. Meiselas

William R. Meiselas
Associate

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