The FCA's “Knowing” Standard Explained: What Every Small Practice Owner Must Know to Avoid Liability (31 U.S.C. § 3729(b)(1))

The False Claims Act (FCA) is a powerful federal law aimed at combating fraud against government programs, including Medicare and Medicaid. For small healthcare practices, understanding the FCA’s “knowing” standard under 31 U.S.C. § 3729(b)(1) is crucial. This standard defines the mental state required for liability, actual knowledge, deliberate ignorance, or reckless disregard, and applies even when there is no specific intent to defraud. Noncompliance, even if unintentional, can result in severe financial penalties, reputational damage, and exclusion from federal healthcare programs. This guide explains the "knowing" standard, its implications for small practice owners, and steps to reduce risk.

Small healthcare providers may assume that only intentional fraud triggers FCA liability. However, under the “knowing” standard, even billing errors, improper coding, or submission of incomplete documentation can result in substantial penalties if the provider should have known about the issue. For practices with limited administrative resources, this presents a significant risk, especially when billing Medicare, Medicaid, or other government healthcare programs.

This article breaks down the FCA’s “knowing” standard, explores real-world examples, and provides a proactive compliance roadmap designed for small practices.

Understanding the FCA’s “Knowing” Standard

The FCA’s “knowing” standard is outlined in 31 U.S.C. § 3729(b)(1). It establishes liability when a person:

• Has actual knowledge of the information’s falsity.

• Acts in deliberate ignorance of the truth or falsity of the information.

• Acts in reckless disregard of the truth or falsity of the information.

Importantly, no specific intent to defraud is required, meaning that even unintentional submission of false claims can be actionable if due diligence was not exercised.

Key Definitions

• Actual Knowledge: The provider knew the claim was false. Example: Submitting claims for services not performed.

• Deliberate Ignorance: Intentionally avoiding learning the truth. Example: Failing to verify if a biller is following Medicare rules despite clear warning signs.

• Reckless Disregard: Acting with gross negligence toward the truth. Example: Not implementing any compliance program despite repeated billing errors.

How the Standard Applies to Small Practices

For small practices, the “knowing” standard can be triggered by:

• Billing for services not rendered.

• Up coding or misusing billing codes.

• Failing to return identified overpayments within 60 days (per the Affordable Care Act).

• Submitting claims with missing or inaccurate patient information.

• Using outdated coding guidelines.

Small healthcare practices often operate without a dedicated compliance department, relying instead on administrators, office managers, or providers to handle compliance responsibilities alongside their primary duties. This lack of specialized oversight increases the risk of inadvertent violations that can still meet the False Claims Act (FCA) threshold for liability, particularly under its “knowing” standard, which includes reckless disregard and deliberate ignorance. Even unintentional errors in billing, coding, or documentation can trigger significant penalties if proper safeguards are not in place. To mitigate this risk, small practices must adopt a structured compliance program that includes regular billing audits, clear written policies, ongoing staff training, and a documented process for promptly correcting identified issues. By integrating these safeguards into daily operations, practices can demonstrate good faith efforts to prevent and detect errors, which is critical for reducing liability exposure and protecting both financial stability and professional reputation.

HITECH introduced several important changes to the HIPAA Accounting of Disclosures requirements, significantly expanding the scope and detail of reporting obligations for covered entities. One major change is the inclusion of certain EHR disclosures for treatment, payment, and healthcare operations (TPO) purposes. These disclosures, which were previously excluded, must now be reported if they occurred within the three years prior to the patient’s request. Additionally, HITECH shortened the response window, requiring covered entities to respond to accounting requests within 60 days, reinforcing the importance of prompt record keeping and audit readiness. Another key update is the mandate for EHR systems to have the technical capability to generate an accounting report that includes all required disclosure categories. For small practices, this means ensuring both staff awareness of the expanded rules and EHR configurations that support compliance. By proactively updating policies, training, and system capabilities, practices can avoid penalties, enhance patient trust, and meet the heightened transparency expectations set by HITECH.

Small practices should be alert to common risk triggers:

• Unexplained revenue spikes after hiring new billing staff.

• Frequent payer denials citing documentation errors.

• Ignoring coding updates or policy changes from CMS.
  
  

• Lack of claim audits for accuracy and compliance.

• Over-reliance on vendors without oversight.
  

Building a Compliance Framework to Avoid FCA Liability

A proactive approach is essential. Recommended steps include:

1. Implement Written Compliance Policies

Establish written standards covering documentation, coding, billing, and claim submission. Policies should reflect current CMS guidance and industry best practices.

2. Conduct Regular Internal Audits

Review a random sample of claims quarterly to ensure coding accuracy and documentation compliance.

3. Train All Staff Annually

Ensure providers, billers, and administrative staff receive ongoing FCA and HIPAA compliance training.

4. Monitor Vendor Activities

If outsourcing billing, include FCA compliance obligations in the service agreement and conduct periodic vendor audits.

5. Establish a Reporting Mechanism

Allow staff to report suspected billing errors or compliance issues confidentially.

The FCA’s “knowing” standard places a heightened obligation on small practice owners to take proactive measures in preventing false claims. Compliance is not solely about avoiding intentional fraud; it also encompasses situations involving reckless disregard or deliberate ignorance of billing accuracy. To minimize liability, practice owners must implement and maintain consistent, well-documented procedures that ensure claims are accurate, medically necessary, and fully compliant with applicable regulations. This means conducting regular audits, providing staff training, promptly correcting identified errors, and keeping thorough records of all compliance activities to demonstrate a sustained good faith effort.

Action steps moving forward:

1. Review and update compliance policies immediately.

2. Implement quarterly audits for all billing activities.

3. Train all staff annually on FCA requirements.

4. Audit vendors regularly to ensure contract compliance.

5. Act quickly on any identified errors to mitigate potential penalties.

By embedding these practices into daily operations, small practice owners can reduce the risk of FCA liability, protect their financial stability, and maintain the trust of their patients and payers.

Strengthening your compliance posture goes beyond policies and paperwork. Using a compliance regulatory platform can simplify requirement tracking, support ongoing risk assessments, and help you stay audit-ready by spotting vulnerabilities early, showing regulators, payers, and patients that your practice takes compliance seriously.

• U.S. Department of Justice – False Claims Act Overview

• Centers for Medicare & Medicaid Services – Medicare Program Integrity Manual

• Office of Inspector General – Compliance Program Guidance for Individual and Small Group Physician Practices