On June 25, 2018, the Centers for Medicare and Medicaid Services (CMS) published a request for information, seeking input from the public on how to address any undue regulatory impact and burden of the physician self-referral law (Stark Law) on value-based and other coordinated care arrangements designed to improve quality and lower cost. While the overall focus of CMS’s request for information is on the Stark Law’s actual or perceived barriers to innovation, the request also gives the health care industry a unique opportunity to comment on and request revisions or clarifications for any significant Stark Law provision, including the provisions regarding fair market value, volume or value, and commercial reasonableness, as well as the Stark “group practice” definition.

As part of its focus to shift from a fee-for-service to a value-based health care delivery system, the US Department of Health and Human Services (HHS) launched a “Regulatory Sprint to Coordinated Care,” which is focused on identifying regulatory barriers to coordinated care. CMS identified aspects of the Stark Law that may create obstacles to participation in integrated delivery models, alternative payment models, and other arrangements incentivizing improvements in outcomes and reductions in costs, and is seeking input on revisions or additions to exceptions to the Stark Law.

The Stark Law is largely indifferent to the good faith intentions of health systems to integrate and enter into coordinated care arrangements with physicians, and continues to impose on health systems burdens of proof that the arrangements comply with ambiguous standards like fair market value, volume or value and commercial reasonableness. While financial transactions incident to CMS’s innovative care delivery and payment initiatives, such as accountable care organizations (ACOs), medical homes and bundled payment arrangements can be protected by certain fraud and abuse/Stark Law waivers, there are other common transactions and arrangements with physicians still operating in a fee-for-service environment (such as practice acquisitions, employment, “gainsharing,” service line co-management, pay-for-quality and non-ACO clinically integrated networks) that are not protected by the waivers. CMS’s request for information provides a welcome opportunity for the health care industry to educate CMS on the obstacles the Stark Law presents for innovative coordinated care arrangements with physicians.

In its request, CMS posed 20 specific requests for information on novel financial arrangements and alternative payment models, the applicability of current Stark Law exceptions to such arrangements, and what additional exceptions or revisions to the Stark Law are necessary to protect coordinated care arrangements from Stark Law liability. These requests, however, are so far ranging that they effectively invite comments on just about any Stark Law provision that a stakeholder believes warrants revision or clarification.

Comments are due by 5 pm EDT on August 24, 2018. If you would like assistance in preparing comments, please contact one of the authors or your regular McDermott lawyer.

Health Care Enforcement Q2 Roundup Webinar
Date: Tuesday, July 17, 2018
Time: 11:00 am PDT | 12:00 pm MDT | 1:00 pm CDT | 2:00 pm EDT

REGISTER NOW

How will recent developments and emerging trends related to health care fraud and abuse impact future investigation targets and litigants?

Our upcoming Health Care Enforcement Quarterly Roundup webinar will address this critical question and discuss trends related to:

  • Continued interpretations of landmark Escobar case
  • Recent guidance from DOJ leadership regarding enforcement priorities
  • Uptick in state and federal efforts to combat the opioid crisis
  • Court guidance on the use of statistical sampling in False Claims Act (FCA) cases
  • Growing Circuit split on key FCA provisions, including the public disclosure bar, statute of limitations and tolling of claims
  • Other trends that are critical to health care business operations and compliance with the ever-changing regulatory landscape

Attendees will also receive an advance copy of McDermott’s Health Care Enforcement Quarterly Roundup report on the day of the webinar and will have the opportunity to ask questions of the panel through the webinar platform.

On June 8, 2018, the US District Court for the Eastern District of Virginia granted in part a motion for summary judgement filed by a government contractor in an implied false certification case under the False Claims Act (FCA), holding that the relator failed to satisfy the Supreme Court’s materiality standard put forth in the historic Escobar case.

The defendant, Triple Canopy, is a government contractor that provides security services to government agencies overseas. As a result of its overseas services, Triple Canopy was the target of at least two qui tam complaints alleging FCA violations under an implied certification theory. As we previously reported, on May 16, 2017, after a years-long battle, the Fourth Circuit upheld FCA allegations against Triple Canopy, finding that that specific complaint met Escobar’s materiality standard (in part due to Triple Canopy’s attempts to conceal its wrongdoing and the government’s decision not to renew Triple Canopy’s contract once learning of the deficiencies).

The claims in this FCA complaint arose from a different government contract to provide security services at the US Embassy in Baghdad. While employed at Triple Canopy in 2015, the relator Bachert raised concerns about one employee’s routine weapons inspections and records related to those inspections, alleging they were falsified. An internal investigation and a State Department investigation did not substantiate all of Bachert’s claims, but Triple Canopy nevertheless cooperated in the investigation and took corrective actions in response to the allegations. The State Department did not withhold any payment or seek any repayment in connection with the relator’s allegations.

The relator then filed this qui tam action under the FCA on April 22, 2016, in which the government declined to intervene.  The relator asserted that Triple Canopy was liable under the FCA because it submitted claims for payment to federal agencies without disclosing its alleged inspection irregularities and records issues. In moving for summary judgment, Triple Canopy argued that the relator had not demonstrated these alleged issues were material to its payment under the State Department contract. The court agreed with Triple Canopy, finding that it “strains credulity to believe that those inspection reports were a factor in the government’s decision to make payment on the contract.” The court then squarely addressed the materiality standard under Escobar, holding that the “alleged falsehoods at issue . . . are the kind of ‘minor or insubstantial’ noncompliance that Escobar advises are not material.” The court went on to emphasize that the allegations were “insubstantial in relation to the overall size of the [contract],” pointing out that even if the allegations were true, the records involved accounted for only 0.3 percent of the total labor invoice to the government. Finally, the court noted that the State Department had considered the allegations raised by the relator, found them to be immaterial, and continued payment under the contract, which it described as “important factor(s)” in assessing materiality under Escobar and as “uniformly recognized” by circuit courts post-Escobar to substantially increase the relator’s burden in establishing materiality.

This court’s decision joins the litany of other cases holding, based on Escobar, that the government’s actions after learning of alleged violations are critical to the materiality analysis and the relator’s burden in establishing materiality. It is distinct from the pack, however, in that it also considered the nature and value of the breach in proportion to the total value of the contract. This additional factor in the materiality analysis may prove helpful for future litigants.

The case is United States ex rel. Bachert v. Triple Canopy, Inc., Case No. 1:16-cv-456, before the U.S. District Court for the Eastern District of Virginia.

On April 2, 2018, the magistrate judge for the US District Court for the Southern District of Indiana issued an order refusing qui tam relators’ request to conduct discovery related to claims submitted to Medicare on a nationwide basis in an ongoing False Claims Act (FCA) case.  Importantly, the judge considered whether statistical sampling could be used to establish liability under the FCA for multiple entities affiliated with the defendant when the alleged false claims in the relators’ complaint originated from a single location. The US Department of Justice (DOJ) subsequently submitted a statement of interest defending relators’ discovery request and the use of statistical sampling to establish liability for false claims, which the court has not yet addressed.

In the underlying qui tam case, the relators alleged that Evansville Hospital, a long-term acute care hospital in Indiana, and a physician violated the FCA by submitting claims to Medicare for medically unnecessary lengths of stay in order to maximize Medicare reimbursement. Continue Reading Courts Weigh Appropriateness of Statistical Sampling in Ongoing Case

On April 30, 2018, the U.S. District Court for the District of Massachusetts dismissed the last remaining state False Claims Act (FCA) claims against long-term care pharmacy provider PharMerica, Inc. on the grounds that neither relator qualified as an “original source” under the applicable pre-2010 version of the FCA, thereby precluding their claims under the public disclosure bar. Critically, neither relator had firsthand, “direct” knowledge of the alleged fraud scheme.

In 2007, two relators (employees of a pharmaceutical company) filed suit alleging that their employer had offered financial incentives to two long-term care pharmacy providers (LTCPs) in exchange for the pharmacy providers’ promotion of prescriptions of a specific antidepressant. Specifically, the relators alleged that their employer offered significant discounts and rebates to LTCP customers in exchange for increased promotion of the antidepressant, and that market-tier discounts were offered in exchange for the performance level of each LTCP. The relators alleged that further kickbacks in the form of research and educational grants, gifts, and payment for advertising initiatives were offered to the LTCPs in exchange for purchase and recommendation of the antidepressant. Relators’ knowledge, however, was sourced from two other co-workers; neither relator was directly involved in the alleged scheme.

In 2010, the United States declined to intervene and the case was unsealed. Two years later, in 2012, the Court dismissed all federal claims and 18 state law based claims. Subsequently the other defendants (including the relators’ former employer) entered into settlement agreements, leaving PharMerica facing state FCA claims under Louisiana, Michigan, and Texas law.

On September 29, 2017, PharMerica moved to dismiss the remaining three claims on several grounds, including that each claim was precluded by each applicable state’s public disclosure bar. This argument was based, in part, on the fact that it was undisputed that the fraud allegations at issue had been publicly disclosed in a 2002 case before the Eastern District of Louisiana. Therefore, to avoid dismissal, relators needed to establish that they met the standards of the pre-2010 original source exception to the public disclosure bar in order for their claims to survive. This exception required, in relevant part, that the relator have direct and independent knowledge of the publicly-disclosed information.

The Court rejected the relators’ arguments that they qualified for the original source exception. First, the Court noted that Louisiana, Michigan and Texas each have public disclosure bars and original source exceptions that are substantively identical to the corresponding provisions of the federal FCA. The Court further noted that the “first-to-file” bar did not block relator’s claims, as the 2002 lawsuit that publicly disclosed the alleged fraud scheme was dismissed in 2006, a year before the relators filed their complaint. It was further found to be undisputed that relators’ knowledge of the alleged scheme was independent of the 2002 lawsuit, thereby establishing that the relators had “independent” knowledge of the scheme.

The fatal flaw in relators’ argument was that neither had direct knowledge of the information on which the allegations are based,” as required by the pre-2010 FCA. Neither relator had a direct role in the alleged scheme, and both had learned of the scheme in a second-hand fashion from colleagues with direct knowledge. Furthermore, neither relator saw any corroborating documents until over a year after the alleged scheme had concluded, and those documents were viewed as part of “collateral research and investigation,” not in the regular course of their job duties. In dismissing the remaining claims, the Court cited precedent requiring that, under the pre-2010 FCA, an individual must be a “close observer” of the alleged fraud in order to qualify as having “direct” knowledge for the original source exception.

This ruling highlights the long reach of changes to statutory language. Revisions to the FCA’s statutory language in 2010 removed the requirement of “direct” knowledge of the information for the original source exception, thereby broadening the pool of potential relators. While this revision occurred roughly eight years ago, legacy cases subject to the pre-2010 statutory language are still working their way through the Courts. Had the relators in this case been subject to the current version of the FCA, it appears unlikely that the Court would have dismissed their claims on the basis of the public disclosure bar.

The case is United States ex rel. Banigan and Templin v. PharMerica, Case No. 07-cv-12153, before the U.S. District Court for the District of Massachusetts.

On April 24, 2018, the District Court of Maryland dismissed with prejudice a relator’s qui tam suit against Johns Hopkins Health System Corporation (Johns Hopkins) for failure to state a claim. The court’s decision rested on two rationales, the second of which is generally applicable to FCA claims in the Fourth Circuit and serves as strong deterrent against relator “fishing expeditions.”

The facts of the case revolve around an agreement that Johns Hopkins entered into with Maryland’s Health Services Cost Review Commission (HSCRC), the agency tasked with setting hospital rates for services throughout Maryland. This agreement set a reimbursement “budget cap” that relied on Johns Hopkins’ history of patient volumes, costs and patterns of services in its setting.

The agreement between Johns Hopkins and the HSCRC focused on care provided to Maryland residents. Importantly, the “budget cap” assigned to Johns Hopkins under the agreement applied only to services provided to Maryland residents. Revenue for services provided to out-of-state residents was not counted towards the cap, thereby creating, according to the relator, an incentive for Johns Hopkins to inappropriately recruit and prioritize out-of-state patients in contravention to the focus of the agreement. The relator claimed that senior management sought to increase revenue by treating out-of-state patients at the expense of Maryland patients, leading to false claims each time Johns Hopkins submitted claims and impliedly represented that it was compliant with the agreement’s focus on Maryland patients. Both the United States and the State of Maryland declined to intervene in the relator’s case.

Relying heavily on Rule 9(b)’s particularity requirement, the court dismissed the relator’s complaint due to his failure to identify, with the requisite specificity, claims for payment from Johns Hopkins to the government. The court noted that one of Rule 9(b)’s purposes is “to eliminate fraud actions in which all the facts are learned after discovery,” an especially important purpose in qui tam actions in which a relator has suffered no injury and “may be particularly likely to file suit as a pretext to uncover unknown wrongs.”

The court concluded that the relator alleged a scheme that “need not necessarily have led to the submission of false claims” and failed to identify any particular false claims for payment actually submitted to the government. The court strongly confirmed that Rule 9(b) requires substantial evidence of fraudulent activity before discovery and that courts in the Fourth Circuit will not allow relators to attempt “fishing expeditions” into a defendant’s conduct.

This decision affirms that, in the Fourth Circuit, a relator must provide specific, particularized allegations that point to identifiable claims actually presented to the government for payment.  This affirmation serves as a strong defense against relators who have not conducted sufficient diligence and expect the discovery process to offer the evidence required to satisfy Rule 9(b) after the filing of a complaint.

On April 11, 2018, the Eleventh Circuit split from several other circuits on the question whether False Claims Act (FCA) relators can rely on the three-year statute of limitations extension in 31 U.S.C. § 3731(b)(2) in cases where the United States declines to intervene.

Under § 3731(b), an FCA case must be filed within the later of:

  1. 6 years after the date on which the violation…is committed, or
  2. 3 years after the date when facts material to the right of action are known or reasonably should have been known by the official of the United States charged with responsibility to act in the circumstances, but in no event more than 10 years after the date on which the violation is committed.

In United States of America, ex rel. Billy Joe Hunt v. Cochise Consultancy Inc. et al., No. 16-12836, the relator filed his claim more than six years after the alleged violations, but within three years of when he first informed the government of the facts giving rise to the claim. (He may have been delayed in filing his claim owing to the fact he was in federal prison for his role in a separate kickback scheme involving the same company.) Thus, the case turned on whether the three-year extension in § 3731(b)(2) applies to cases where the government has declined to intervene.

The district court’s answer was ‘no.’ It dismissed the case based on the statute of limitations. This approach was consistent with published decisions from the Fourth Circuit and Tenth Circuit—both of which emphasized that applying § 3731(b)(2) to cases where the Government did not intervene could lead to “bizarre scenarios” in which the statute of limitations period for a relator’s claim is dependent on a nonparty to the action. See United States ex rel. Sanders v. N. Am. Bus Indus., Inc., 546 F. 3d 288, 293 (4th Cir. 2008) and United States ex rel. Sikkenga v. Regence BlueCross BlueShield of Utah, 472 F.3d 702, 726 (10th Cir. 2006) (“Surely, Congress could not have intended to base a statute of limitations on the knowledge of a non-party.”).

But, reviewing the district court’s decision on appeal, the Eleventh Circuit split from its sister circuits and reversed the decision below, resurrecting the relator’s claims. The court asserted that the Fourth Circuit and Tenth Circuit erred because they “reflexively applied the general rule that a limitations period is triggered by knowledge of a party. They failed to consider the unique role that the United States plays even in a non-intervened qui tam case.”

Instead, the court adopted a textual analysis, concluding that nothing in § 3731(b) suggests that the three-year extension applies only to intervened cases. Likewise, it rejected the defendants’ arguments that applying § 3731(b)(2) to non-intervened cases would render § 3731(b)(1) superfluous, and would encourage relators to wait to bring a secreted fraud to the government’s attention. The court emphasized that under its reading, § 3731(b)(1) would not be redundant in all circumstances, and that despite the three-year extension in paragraph (2), relators nonetheless face considerable structural pressure to bring their claims as soon as possible, at risk of losing the right to recover.

The defendants in Hunt also argued that § 3731(b) is ambiguous and asked the court to consult legislative history for guidance. The court disagreed that the statute is ambiguous, and added that even if it were appropriate to consult the legislative history of § 3731(b), the court would conclude that Congress intended § 3731(b)(2) to apply even where the government has not intervened.

After determining that § 3731(b)(2) is available to a relator in a non-intervened case, the Eleventh Circuit turned to the question whether the three-year extension is triggered by knowledge of the relator or knowledge of a government official. The Ninth Circuit held previously that while § 3731(b)(2) is available in a non-intervened case, the three-year period turns on the relator’s knowledge, not the government’s knowledge. United States ex rel. Hyatt v. Northrop Corp., 91 F.3d 1211, 1217 (9th Cir. 1996). Here again, the Eleventh Circuit reached the opposite conclusion, splitting from the decision in Hyatt:

Because the text unambiguously identifies a particular official of the United States as the relevant person whose knowledge causes the limitations period to begin to run, we must reject the Ninth Circuit’s interpretation as inconsistent with that text.

The Bottom Line: The Eleventh Circuit’s decision that the three-year tolling provision is available to qui tam relators is an outlier, and it creates a significant split among the circuits with regard to a key application of the statute of limitations in non-intervened FCA cases. Practitioners in the Eleventh Circuit (and elsewhere) should be careful to preserve arguments on this issue for further review, as this issue appears ripe for resolution in the Supreme Court.

The table below summarizes the current law on this question:

State of the Law on § 3731(b)(2)
Jurisdiction Position
First Circuit No circuit decisions, but some district courts have held that Section 3731(b)(2) is available to a relator in a non-intervened case, and that an official of the United States is the relevant person whose knowledge triggers the limitations period. See e.g., U.S. ex rel. Ven-A-Care v. Actavis Mid Atlantic LLC, 659 F. Supp. 2d 262 (1st Cir. 2009) )
Second Circuit No circuit decisions, and caselaw in the district courts is split. Compare United States ex rel. Wood v. Allergan, Inc., 246 F.Supp.3d 772 (S.D.N.Y. 2017) (relators may avail themselves of Section 3731(b)(2)) with United States ex rel. Finney v. Nextwave Telecom, Inc., 337 B.R. 479 (S.D.N.Y. 2006) (Section 3731(b)(2) applies only in cases in which the government intervenes).
Third Circuit Section 3731(b)(2) applies when the government is not a party, but that the relator is the “official of the United States”—so the limitations period begins to run based on the relator’s knowledge. United States ex rel. Malloy v. Telephonics Corp., 68 F. App’x 270, 272-73 (3d Cir. 2003) (unpublished).
Fourth Circuit Section 3731(b)(2) extends the FCA’s default six-year period only if the government is a party. United States ex rel. Sanders v. N. Am. Bus Indus., Inc., 546 F. 3d 288 (4th Cir. 2008).
Fifth Circuit No circuit decisions, but caselaw in the district courts has held that tolling is available to relators, but relators’ knowledge is trigger.. See e.g., U.S. ex rel. Gonzalez v. Fresenius Medical Care N. Am., 2008 WL 4277150 (W.D. Tex. 2008) (Section 3731(b)(2) applies when the government is not a party, but that the relator is the “official of the United States”—so the limitations period begins to run based on the relator’s knowledge).
Sixth Circuit No circuit decisions, but caselaw in the district courts has held that Section 3731(b)(2) extends the FCA’s default six-year period only if the government is a party . See e.g., United States ex rel. Griffith v. Conn, 117 F. Supp. 3d 961 (E.D. Ky. 2015).
Seventh Circuit No circuit decisions, but district courts have found tolling available to relators, but relators’ knowledge is trigger.. See e.g., See United States ex rel. Bidani v. Lewis, No. 97-CV-6502, 1999 WL 163053 (N.D. Ill. 1999) (Section 3731(b)(2) applies when the government is not a party, but that the relator is the “official of the United States”—so the limitations period begins to run based on the relator’s knowledge).
Eighth Circuit No circuit decisions, but caselaw in the district courts has held that Section 3731(b)(2) extends the FCA’s default six-year period only if the government is a party. See e.g., United States ex rel. Dicken v. N.W. Eye Ctr., 2017 WL 2345579 (D. Minn., 2017) ().
Ninth Circuit Section 3731(b)(2) applies when the government is not a party, but the relator is the “official of the United States”—so the limitations period begins to run based on the relator’s knowledge. United States ex rel. Hyatt v. Northrop Corp., 91 F.3d 1211, 1217 (9th Cir. 1996).
Tenth Circuit

Section 3731(b)(2) extends the FCA’s default six-year period only if the government is a party. United States ex rel. Sikkenga v. Regence

BlueCross BlueShield of Utah, 472 F.3d 702 (10th Cir. 2006).

Eleventh Circuit Section 3731(b)(2) is available to a relator in a non-intervened case. An official of the United States is the relevant person whose knowledge triggers the limitations period. See discussion above.
D.C. Circuit No circuit decisions, but caselaw in the district courts has held Section 3731(b)(2) extends the FCA’s default six-year period only if the government is a party. See e.g., United States ex rel. Landis v. Tailwind Sports Corp., No. 1:10CV00976 (CRC), 2016 WL 3197550 (D.D.C. June 8, 2016).

 

A key area of dispute in False Claims Act (FCA) cases based on Anti-Kickback Statute (AKS) violations is what degree of connection plaintiffs must allege between alleged kickbacks and “false claims.” The AKS states that “a claim that includes items or services resulting from a violation of this section constitutes a false or fraudulent claim for purposes of [the FCA].”

The government and relators typically argue that the mere fact that claims were submitted during the period of alleged kickbacks is sufficient. Defendants argue that the law requires plaintiffs to specifically identify claims “resulting from” an alleged kickback – i.e., that there is proof that the alleged kickback caused the referral or recommendation of the item or service contained in the claim. The Third Circuit’s recent decision in United States ex rel. Greenfield v. Medco Health Systems, Inc. articulated a middle of the road approach.  In affirming summary judgment for the defendants, the Court held that to prevail, plaintiffs must establish that a claim submitted to a federal health care program was “exposed to a referral or recommendation” in violation of the AKS.

The relator, a former area vice president for Accredo, a specialty pharmacy that sells blood clotting drugs and provides nursing assistants to hemophiliacs in their homes, filed a qui tam suit alleging that Accredo violated the AKS and FCA in connection with donations to two charitable organizations that assist the hemophiliac community: Hemophilia Services, Inc. (HSI) and Hemophilia Association of New Jersey (HANJ).  During the time Accredo made monetary donations to HSI and HANJ, the HANJ website allegedly listed Accredo as one of four “approved providers” or “approved vendors” and directed users to “remember to work with our HSI [approved] providers.” In 2010, Accredo notified both charities that it was decreasing its donation the following year. In response, HSI allegedly engaged in activities to persuade Accredo to restore its donation level to previous years, including encouraging its members to contact Accredo to protest the funding cut. The relator was involved in purportedly analyzing the return on investment for returning to previous donation levels. After the relator’s report allegedly projected a significant decline in business in New Jersey if donation levels were not restored, Accredo restored the donation level and relator filed his suit.

The government declined to intervene in this case, but the relator continued the litigation. He argued the expansive view: that the donations amounted to kickbacks, and since Accredo certified compliance with the AKS when submitting Medicare claims, the FCA was violated and, therefore, every claim submitted by Accredo was false. The district court granted summary judgment to Accredo.  The district court declined to decide whether the relator had established an AKS violation, but instead held that the relator did not show sufficient evidence of causation of an FCA violation. The district court held that the relator’s evidence that Accredo submitted claims for 24 federal beneficiaries during the relevant time period, by itself, “did not provide the link between defendants’ 24 federally insured customers and the donations.” The court held that “[a]bsent some evidence….that those patients chose Accredo because of its donations to HANJ/HSI,” the relator could not carry his burden.

On appeal, the government argued that the district court erred to the extent it required proof that patients chose Accredo because of the referrals and recommendations. In the government’s view, all the relator needed to establish was the existence of “a claim that sought reimbursement for medical care that was provided in violation” of the AKS.

The Third Circuit affirmed the district court’s ruling, but for different reasons than those offered by the parties, the government, and the district court. The Third Circuit rejected the relator’s and government’s position that the alleged kickbacks tainted all claims as false by virtue of the kickback.  However, the Court declined to read the “resulting from” language in the AKS to require, as advocated by Accredo and found by the district court, that the relator needed to prove the patients purchased prescriptions from Accredo because of Accredo’s donations to HSI and HANJ. Instead, the Court held that the relator “must show, at minimum, that at least one of the 24 federally insured patients for whom Accredo provided services and submitted reimbursement claims was exposed to a referral or recommendation of Accredo by HSI/HANJ in violation of the AKS.” As explained by the Court, “[a] kickback does not morph into a false claim unless a particular patient is exposed to an illegal recommendation or referral and a provider submits a claim for reimbursement pertaining to that patient.”

This decision is helpful confirmation that relators and the government cannot simply rely on an alleged kickback to demonstrate that a defendant who submits claims to Medicare, violated the FCA.  Defending this type of allegation should include examination of the evidence relied upon to show the connection between the alleged kickback and the purported false claim.  Whether other courts will follow the Third Circuit’s reasoning or follow the “resulting from” language in the AKS and require a stronger connection between a kickback and claim remains to be seen.  This issue will be a continued subject of litigation in these cases.

On April 6, 2018, the U.S. District Court for the Eastern District of Pennsylvania granted a motion for summary judgment filed by a waste company in an implied certification case under the False Claims Act (FCA), holding that the relator failed to satisfy the Supreme Court’s materiality standard announced in the landmark Escobar case.

The claims in U.S. ex rel. Cressman v. Solid Waste Services, Inc. arose from waste company employees discharging leachate, a liquid that passes through or is generated by trash, onto a grassy area at a transfer station, rather than sending the leachate to a treatment plant.  The relator reported the leachate discharge to the Pennsylvania Department of Environmental Protection (DEP), which conducted an investigation.  The waste company cooperated in the investigation, conducted its own investigation, and took corrective steps in response to the allegations.  The company also entered into a consent decree in connection with which it paid a civil penalty.

The relator then filed his qui tam action under the FCA, in which the government declined to intervene.  The relator asserted that the defendant waste company was liable under the FCA because it submitted claims for payment to federal agencies without disclosing its violation of environmental regulations arising from the leachate discharge incident. Continue Reading Another Court Grants Summary Judgment to FCA Defendant Based on Escobar’s Materiality Standard

On March 13, 2018, the United States District Court for the Eastern District of Oklahoma dismissed U.S. ex rel. Montalvo v. Native American Servs. Corp. In this case, the relators alleged that the defendants performed substandard work at a US Army ammunition plant. Specifically, the relators alleged that the defendant oversaw a construction project in which a subcontractor was ordered to pour concrete into areas that contained tree roots and stems, which allegedly damaged the quality of the concrete.

At summary judgment, the only evidence offered by the relator was an affidavit setting forth the facts above. The only disputed fact was whether the defendant knew about the tree roots and stems when ordering the subcontractor to pour the concrete. Regardless of that factual dispute, the court concluded that the plaintiff had failed to offer sufficient evidence that the defendant had knowingly caused the submission of false claims and granted summary judgment in the defendant’s favor. Continue Reading District Court Rejects FCA Claim Based on “Substandard” Product