Express/implied certification

In the fourth of a related set of qui tam False Claims Act (FCA) suits, the United States District Court for the Northern District of Illinois granted summary judgment in favor of generics manufacturer Par Pharmaceutical Companies (Par). The court’s August 17, 2017, opinion in U.S. ex rel. Lisitza et al v. Par Pharmaceutical Co, Inc. held that the relator had not presented sufficient evidence to support an implied certification theory of FCA liability.

Like its sister cases, the relator in Par Pharmaceutical alleged that the defendant caused the submission of false claims to the Medicaid program via an unlawful prescription-switching scheme. The alleged scheme involved manufacturing generic drugs in forms and dosage strengths that were atypical and not covered by existing Medicaid reimbursement limits, then marketing the drugs to pharmacies based on their higher reimbursement potential. The pharmacies would then fill the scripts with the more expensive forms and dosages manufactured by Par. The relators also alleged that the drugs were dispensed without physician approval and without meeting the medical necessity and economic requirements of governing state and federal Medicaid regulations, in violation of the FCA.

Continue Reading Par Pharmaceutical Beats FCA Prescription-Switch Allegations

One of the most litigated issues following the Supreme Court’s Escobar decision is whether the Court created a limited, two-part test to define the implied certification theory under the False Claims Act. In the US Court of Appeals for the Second Circuit, the prevailing view confirms that the proper interpretation of Escobar is that the implied certification theory can only proceed when the defendant made specific representations about the goods or services provided and that those representations were rendered misleading due to its failure to disclose noncompliance with material statutory, regulatory or contractual requirements. On August 10, 2017, federal district judge Deborah Batts in the Southern District of New York joined the majority view of her colleagues in U.S. ex. rel. Forcier v. Computer Sciences Corporation and the City of New York in dismissing part of the government’s complaint.

In this case, the US Department of Justice (DOJ) filed a complaint in intervention alleging the City of New York (City) and its billing contractor, Computer Sciences Corporation (CSC), submitted false claims to the Medicaid program in two ways.

First, DOJ argued that the defendants failed to adhere to Medicaid secondary payor requirements concerning the state’s Early Intervention Program (EIP), which pays for services to children with developmental delays. These requirements obligate municipalities to take “reasonable measures” to determine whether third party insurance coverage was available for the EIP services and seek reimbursement from such available payors. DOJ alleged that CSC and the City did not comply with these requirements by submitting incorrect policy numbers to third party insurers knowing that such claims would be denied and by incorrectly informing Medicaid that no third party coverage existed or such coverage had been rejected. Continue Reading Latest District Court Decision Confirms Escobar Two-Part Implied Certification Test

On May 16, 2017, the US Court of Appeals for the Fourth Circuit issued a decision in US ex rel. Badr v. Triple Canopy, Inc. In this case, the government had contracted with a private security company to provide guards at a military airbase in Iraq. Although the applicable contract required the guards to have certain marksmanship scores, the defendant (as alleged by the relator and the government) failed to employ guards with the requisite qualifications.

The Fourth Circuit’s recent decision is the continuation of a years-long battle between the plaintiffs and Triple Canopy over whether the operative complaint adequately pleads violations of the False Claims Act. The Fourth Circuit previously held that the complaint had done so, but after Triple Canopy petitioned the Supreme Court for certiorari, the Supreme Court remanded the case back to Fourth Circuit for reconsideration in light of the high court’s recent Escobar decision.

Continue Reading Fourth Circuit Decision in Triple Canopy Sets up Another Implied Certification Circuit Split

On March 27, 2017, the United States District Court for the Eastern District of Pennsylvania dismissed a False Claims Act (FCA) complaint due to failure to satisfy the Supreme Court’s pleading standards for implied certification claims.

In U.S. ex rel. Schimelpfenig v. Dr. Reddy’s Labs. Ltd., the relators alleged that defendant Dr. Reddy’s Labs violated the False Claims Act (FCA) by causing the submission of claims for prescription drugs, which allegedly did not comply with two federal statutes; the Poison Prevention Packaging Act of 1970 (PPPA) and Consumer Product Safety Improvement Act of 2008 (CPSIA). As alleged by the relators, the defendants that manufactured the drugs failed to issue general conformity certificates for the prescription drugs imported and distributed in the United States, in violation of the CPSIA, and failed to test the packaging of the drugs for child-resistance in violation of the PPPA. The relators alleged that as a result of the noncompliance, drug retailers (also joined as defendants) submitted claims to government payers for federal reimbursement of noncompliant drugs. Continue Reading Another District Court Dismisses Improperly Pled Implied Certification Claims

On March 2, 2017, the US District Court for the Southern District of New York applied the materiality standard announced by the Supreme Court of the United States in Universal Health Services, Inc. v. United States ex rel. Escobar to dismiss a relator’s complaint because the relator, a former managing director of Moody’s, failed to plead materiality as a matter of law.

In United States ex rel. Kolchinsky v. Moody’s Corp., the district court had previously dismissed with prejudice four of five categories of claims, and dismissed without prejudice the relator’s “Ratings Delivery Service” claim, i.e., that Moody’s provided inaccurate ratings directly to subscribers, including government agencies.  In his Second Amended Complaint, the relator attempted to cure the pleading defects of Ratings Delivery Service claim in a “124-page tome,” but to no avail. Continue Reading SDNY Dismisses Sub-Prime Mortgage Crisis Complaint on Materiality Grounds Because Government Paid Claims Despite Notice of Alleged Fraud

On January 12, 2017, the US Court of Appeals for the Ninth Circuit affirmed a district court’s grant of summary judgment in favor of a government contractor, where a relator had asserted that the contractor had violated material contractual requirements.

In United States ex rel. Kelly v. SERCO, Inc., defendant SERCO provided project management, engineering design and installation support services for a range of government projects to the US Department of Defense, Navy Space and Naval Warfare Systems Command (SPAWAR). The Federal Acquisition Regulation (FAR) requires that government contracts of this nature contain a clause requiring the contractor to implement a cost and progress tracking tool called an “earned value management system” (EVMS), which is “a project management tool that effectively integrates the project scope of work with cost, schedule and performance elements for optimum project planning and control,” 48 C.F.R. § 2.101, and that this EVMS comply with ANSI-748, a national standard for EVMS. SECRO’s monthly cost reports allegedly did not comply with this standard. After the government declined to intervene, the relator pursued a claim against SERCO arguing that its failure to comply with ANSI-748 amounted to a fraud against the government. Continue Reading Relying on Escobar, Ninth Circuit Tosses Implied Certification Case

We previously reported on the Seventh Circuit’s decision in United States ex rel. Nelson v. Sanford-Brown Ltd.,

in which the court rejected the implied certification theory of FCA liability and granted summary judgment for the defendant.  Following the Supreme Court’s decision in the Escobar case, the Seventh Circuit revisited its decision on October 24, 2016.  Once again, the Seventh Circuit affirmed the district court’s entry of summary judgment in the defendant’s favor, this time pursuant to the standards for implied certification claims announced in Escobar.

In Escobar, the Supreme Court held that implied certification can be a basis for liability when the claim for payment makes specific representations about the goods or services provided and the defendant’s failure to disclose noncompliance with material legal obligations makes those representations “misleading half-truths.”  In Sanford-Brown, the Seventh Circuit concluded that the relator failed to demonstrate any specific representations, never mind those that were misleading.

In addition, the court applied the Escobar court’s holding that FCA plaintiffs must demonstrate materiality, holding that the relator’s claims could not survive on that additional basis.  The Seventh Circuit quoted the Supreme Court’s characterization of the materiality standard as “demanding” and “rigorous.”  The Seventh Circuit observed that, under Escobar, courts must look to the “likely or actual” payment behavior of the government payor.  The Seventh Circuit held:

Here, Nelson has offered no evidence that the government’s decision to pay SBC would likely or actually have been different had it known of SBC’s alleged noncompliance with Title IV regulations.

In fact, the court observed that the government had examined the defendant multiple times.  The court concluded:

At bottom, even assuming Nelson’s allegations are true, the most he has shown is that SBC’s supposed noncompliance and misrepresentations would have entitled the government to decline payment.  Under [Escobar], that is not enough.

This decision is consistent with what the Supreme Court held in Escobar: the government’s mere option to decline to pay claims is insufficient to establish materiality and, thus, insufficient to establish FCA liability.

On September 30, the US Court of Appeals for the Sixth Circuit reversed dismissal of a relator’s False Claims Act (FCA) claims against providers of home health services in U.S. ex rel. Prather v. Brookdale Senior Living Communities, Inc. et al. The relator was a utilization review nurse who alleged that physician certifications of patient need for home health care were not signed until well after the care had been provided, in violation of 42 C.F.R. § 424.22(a)(2), which requires that such certifications be completed at the time a plan of care is established or “as soon thereafter as possible.” While the regulation does not define “as soon thereafter as possible,” the Sixth Circuit held that the relator’s allegations that the requisite certifications were not completed for several months were sufficient to allege violations of both the regulation and the FCA.

The Sixth Circuit reasoned that the phrase “as soon thereafter as possible” “suggests plainly that the analysis of whether a certification complies requires that the reason for any delay be examined.” The court went on to announce the following rule: “Certification of need may be completed after the plan of care is established, but only if an analysis of the length of delay, the reasons for it, and the home health agency’s efforts to overcome whatever obstacles arose suggests that the home health agency obtained the certification ‘as soon thereafter as possible.’” The Sixth Circuit held that the relator’s complaint satisfied this standard, because she alleged that the certifications were not completed for months due solely to a backlog of Medicare claims that arose because of the defendants’ allegedly aggressive solicitation of residents for treatment. Continue Reading Sixth Circuit Revives Home Health Qui Tam Based on Pre-Escobar Standards; Dissent Criticizes Majority for Engaging in Rulemaking

The US Court of Appeals for the Seventh Circuit recently reviewed a district court’s dismissal of an FCA claim against the City of Chicago, in which the relator alleged that the City’s certifications of compliance with civil rights laws were false because the City engaged in practices which increased racial segregation. The case is United States ex rel. Hanna v. City of Chicago, and can be found here.

On August 22, the Seventh Circuit affirmed dismissal of the relator’s complaint for failure to comply with Fed. R. Civ. 9(b). The most notable takeaway from this case is the court’s holding that where the complaint itself did not specify which statutes and regulations the City violated (and with which it thus falsely certified compliance), the relator could not rely on more specific statutory and regulatory references later identified in his briefs. The court observed: “If the particularity requirement is meant to ensure more thorough investigation before filing, it is not too much to ask that one aspect of that investigation include the specific provisions of law whose violation made the certification of compliance false. Moreover, if, as in this case, a defendant is presented with an undifferentiated raft of statutory and regulatory provisions, it will be nearly impossible for the defendant to prepare a defense.” In other words, Rule 9(b) requires an FCA relator to plead his or her theory of fraud with specificity, and to do so in the complaint. Where the alleged fraud is based on a regulatory or statutory violation, relators cannot punt articulating what that statute or regulation actually was.

The court found a number of other Rule 9(b) pleading deficiencies in addition to the foregoing, serving as a reminder that the rule is a powerful tool to weed out meritless FCA claims.

On August 22, 2016, the US Court of Appeals for the Fourth Circuit issued a decision in Carlson v. DynCorp International LLC, affirming the district court’s dismissal of an ex-employee’s retaliation suit under the False Claims Act’s (FCA) anti-retaliation provision, 31 U.S.C. § 3730(h).  While the Fourth Circuit concluded that the district court applied a standard “rendered erroneous by recent amendments to the statute,” the court nonetheless affirmed the district court’s decision dismissing the case.

Scott Carlson (Carlson) was employed by private military contractor DynCorp International LLC (DynCorp).  Because DynCorp had substantial government contracts, it was subject to certain accounting and billing standards dictated by the Office of Federal Procurement Policy.  Carlson alleged that DynCorp engaged in improper billing practices on existing government contracts, including one with the US Agency for International Development (USAID), by hiding indirect and overhead costs in an unbillable code.  Carlson further alleged that DynCorp fraudulently obtained a new contract from USAID because DynCorp’s bid on the new contract contained a false certification that DynCorp was complying with the accounting and billing standards of the Office of Federal Procurement Policy.  Carlson claims that after raising the issue with management, DynCorp terminated him.  Carlson filed his FCA suit for retaliatory termination in the Eastern District of Virginia.  The district court dismissed Carlson’s case with prejudice for failure to state a claim. Continue Reading Fourth Circuit Affirms Dismissal of Ex-Employee’s Retaliation Suit