On December 16, 2016, the US Court of Appeals for the First Circuit issued an opinion in United States ex rel. Hagerty v. Cyberonics, Inc. (Case No. 16-1304) affirming the US District Court for the District of Massachusetts’ dismissal of a relator’s False Claims Act (FCA) claims for failure to plead the alleged fraudulent scheme with the level of particularity required by Federal Rule of Civil Procedure 9(b).
The relator, a former sales representative of medical device manufacturer Cyberonics, Inc., alleged that his former employer had engaged in a scheme to overbill the government by encouraging unnecessary, untimely surgical procedures to prematurely replace batteries in patients’ Vagus Nerve Stimulator (VNS) devices. The relator alleged that while VNS devices, implanted to treat patients with refractory epilepsy, have battery lives of eight to nine years, Cyberonics adopted a sales strategy designed to result in battery replacements after four to five years.
On November 8, 2016, the US Court of Appeals for the Eleventh Circuit issued a decision in U.S. ex rel. Saldivar v. Fresenius Medical Care Holdings, Inc., remanding the case for entry of an order dismissing the case for lack of subject matter jurisdiction based on the False Claims Act’s (FCA) pre-2010 public disclosure bar.
We previously posted about the US District Court for the Northern District of Georgia’s October 30, 2015, decision granting Fresenius’ motion for summary judgment. As a reminder, relator Chester Saldivar alleged that Fresenius violated the FCA by billing the government for the “overfill” in medication vials, which is the extra medication included to facilitate the extraction of the amount labeled on the vial.
Fresenius maintained that the action should be dismissed for lack of subject matter jurisdiction due to the pre-2010 version of the public disclosure bar in the FCA, which prevents qui tam actions if the allegations in question were publicly disclosed and the relator is not an original source. The district court concluded that Saldivar’s allegations of overfill billing were publicly disclosed to the government in communications between Fresenius and the Centers for Medicare and Medicaid Services (CMS) as well as publicly in a complaint in another matter. But, the district court held that Saldivar was an “original source” and not barred from bringing the action because of his experience in managing the inventory of the medication and his discussions with supervisors and coworkers about overfill use and billing.
On the merits of Saldivar’s allegations, the district court then held that Saldivar could not prove that Fresenius knew that billing for overfill was impermissible. On that basis, the district court granted Fresenius’ motion for summary judgment and Saldivar appealed.
On May 27, 2016, the US Department of Justice said it will appeal to the Eleventh Circuit its loss in the False Claims Act (FCA) case against hospice chain AseraCare Inc. The government’s decision to appeal comes as no surprise, and it means that the substantial attention this case has received will continue.
As a reminder, this case, U.S. ex rel. Paradies v. AseraCare, Inc., focused on whether AseraCare fraudulently billed Medicare for hospice services for patients who were not terminally ill. AseraCare argued (and the district court ultimately agreed) that physicians could disagree about a patient’s eligibility for end-of-life care and such differences in clinical judgment are not enough to establish FCA falsity.
The government appealed three orders issued by the US District Court for the Northern District of Alabama. We previously posted about each of these three orders.
The first order on appeal is the district court’s May 20, 2015 decision bifurcating the trial, with the element of falsity to be tried first and the element of scienter (and the other FCA elements) to be tried second. The government had unsuccessfully sought reconsideration of this decision. This is the first instance in which a court ordered an FCA suit to be tried in two parts.
The second order on appeal is the district court’s October 26, 2015 decision ordering a new trial, explaining that the jury instructions contained the wrong legal standard on falsity. This order came after two months of trial on the element of falsity and after a jury verdict largely in favor of the government.
The third order on appeal is the district court’s March 31, 2016 decision, after sua sponte reopening summary judgment, granting summary judgment in favor of AseraCare. In dismissing the case, the court explained that mere differences in clinical judgment are not enough to establish FCA falsity, and the government had not produced evidence other than conflicting medical expert opinions.
The government must file its opening brief 40 days after the record is filed with the Eleventh Circuit. We will be watching this case throughout the appellate process.
Assistant Attorney General Leslie R. Caldwell spoke at the SIFMA Compliance and Legal Society New York Regional Seminar.
Fighting corporate fraud and other misconduct is a top priority of the Department of Justice. Our nation’s economy depends on effective enforcement of the civil and criminal laws that protect our financial system and, by extension, all our citizens. These are principles that the Department lives and breathes- as evidenced by the many attorneys, agents, and support staff who have worked tirelessly on corporate investigations, particularly in the aftermath of the financial crisis.
“Fighting corporate fraud and other misconduct is a top priority ofthe Department of Justice. Our nation’s economy depends on effective enforcement of the civil and criminal laws that protect our financial system and, by extension, all our citizens. These are principles that the Department lives and breathes- as evidenced by the many attorneys, agents, and support staff who have worked tirelessly on corporate investigations, particularly in the aftermath ofthe financial crisis.”
Imagine that you’re counsel to a company embroiled in a False Claims Act (FCA) case. Now imagine that your company is about to sign a settlement agreement ending that case after years of protracted discovery and motion battles with a relator or the government. You sigh in relief, right? But if that settlement includes a corporate integrity agreement (CIA), you should think twice about relaxing. A recent decision by the U.S. District Court for the Eastern District of Pennsylvania dampens the upsides of settling, as it turns out that a CIA can potentially expose a company to new FCA cases for alleged CIA violations.
In U.S. ex rel. Boise v. Cephalon, Inc. (July 21, 2015) (1 No. 08-287, 2015 WL 4461793) the U.S. District Court for the Eastern District of Pennsylvania held that relators stated a claim under the 31 U.S.C. 3721(a)(1)(G)—otherwise known as the “reverse false claims” provision of the False Claims Act— based on alleged violations of a Corporate Integrity Agreement (CIA). In other words, just when Cephalon thought that it had a FCA matter behind it, a relator was able to advance a new action claiming that Cephalon hadn’t complied with the terms of the CIA. Continue Reading Pay Now or Pay More Later: Recent Cases Point to an Increased Risk of Reverse False Claims Act Claims
Companies may think their documents are safe from disclosure based on confidentiality agreements with employees, but a recent decision in the Northern District of Illinois highlights the risk that courts will permit a relator to keep company documents after a False Claims Act (FCA) suit is filed — even potentially privileged documents — and not enforce contractual restrictions that relators have violated. Upon unsealing of the FCA complaint in U.S. ex rel. Shmushkovich v. Home Bound Healthcare, Inc., the defendant placed the relator on administrative leave and requested the return of its property. Despite the defendant’s request, the Northern District of Illinois allowed the relator to retain the defendant’s documents relevant to his FCA claims, even though he had not obtained them in discovery.
Noting its broad discovery discretion, the wide range of activity protected by the FCA and the public policy favoring facilitation of FCA claims, the court did not order the return of the documents, though it required the relator to provide the defendant with a list of the documents he retained and to destroy any documents not relevant to his claims. Furthermore, the court did not order return of potentially privileged documents, though the court held that the relator’s possession was not by itself a waiver of privilege. The court stated that if relator’s counsel reviewed any documents later deemed improperly held, it would hold a hearing to determine whether the defendant was injured by relator’s counsel’s access to privileged documents.
In support of its decision, the court noted that a number of courts have recognized a public policy exception to enforcement of nondisclosure agreements where the information is used in a FCA investigation. The court defended this protection of self-help discovery by noting that courts only permit retention where the documents reasonably relate to the formation of an FCA case, and that ordering return of documents is inefficient, as documents will “inevitably be recovered” in discovery.
The decision highlights the importance of companies keeping a tight rein on access to attorney-client privileged documents and highly sensitive business documents, even where strong non-disclosure agreements seem to afford protection. Because, according to this court, a relator can retain company documents relevant to FCA claims, this shifts control over relevance and privilege decisions from the defendant to the relator. Necessarily, the views of a company and a relator will differ on these issues. Thus, companies should take steps to limit the number of employees who have access to privileged and highly sensitive documents – which is also a good strategy to demonstrate the company’s intent to keep the materials confidential in the first place, in the event there is subsequent litigation over privilege and business sensitivity issues.
Physicians who enter into compensation arrangements such as medical directorships must ensure that those arrangements reflect fair market value for bona fide services the physicians actually provide. Although many compensation arrangements are legitimate, a compensation arrangement may violate the anti-kickback statute if even one purpose of the arrangement is to compensate a physician for his or her past or future referrals of Federal health care program business. OIG encourages physicians to carefully consider the terms and conditions of medical directorships and other compensation arrangements before entering into them.