Government investigation

On January 19, 2017, another district court ruled that a mere difference of opinion between physicians is not enough to establish falsity under the False Claims Act.  In US ex rel. Polukoff v. St. Mark’s et al., No. 16-cv-00304 (Jan. 17, 2017 D. Utah), the district court dismissed relator’s non-intervened qui tam complaint with prejudice based on a combination of Rule 9(b) and 12(b)(6) deficiencies.  In so doing, the Polukoff court joined US v. AseraCare, Inc., 176 F. Supp. 3d 1282, 1283 (N.D. Ala. 2016) and a variety of other courts in rejecting False Claims Act claims premised on lack of medical necessity or other matters of scientific judgment.  This decision came just days before statements by Tom Price, President Trump’s pick for Secretary of Health and Human Services (HHS), before the Senate Finance Committee in which he suggested that CMS should focus less on reviewing questions medical necessity and more on ferreting out true fraud.  Price’s statements, as well as decisions like Polukoff, are welcome developments for providers, who often confront both audits and FCA actions premised on alleged lack of medical necessity, even in situations where physicians vigorously disagree about the appropriate course of treatment.

In Polukoff, the relator alleged that the defendant physician, Dr. Sorensen, performed and billed the government for unnecessary medical procedures (patent formen ovale (PFO) closures). The relator also alleged that two defendant hospitals had billed the government for associated costs.  Specifically, the relator alleged that PFO closures were reasonable and medically necessary only in highly limited circumstances, such as where there was a history of stroke.  Medicare had not issued a National Coverage Determination (NCD) for PFO closures or otherwise indicated circumstances under which it would pay for such procedures.  However, the relator held up medical guidelines issued by the American Heart Association/American Stroke Association (AHA), which, essentially, stated that PFO closures could be considered for patients with “recurring cryptogenic stroke despite taking optimal medical therapy” or other particularized conditions. Continue Reading The FCA and Medical Necessity: An Increasingly Tenuous Relationship

On December 6, 2016, the Supreme Court of the United States decided State Farm Fire and Casualty Co. v. United States ex rel. Cori Rigsby and Kerri Rigsby. At issue was whether a qui tam relator’s violation of the seal requirement, 31 U.S.C. § 3730(b)(2), requires a court to dismiss the suit. In a unanimous decision, the Court concluded that violation of the seal does not mandate dismissal, affirming a lower court decision to deny the defendant’s motion to dismiss.

Section 3730(b)(2) requires qui tam complaints to be filed under seal for at least 60 days and provides that they shall not be served on the defendants until the court so orders. The purpose of the seal is to give the government time to investigate. In practice, the government often seeks numerous extensions while it investigates the conduct alleged in the relator’s complaint.

Justice Kennedy, writing for the Court, reasoned that the text of the False Claims Act (FCA) makes no mention of a remedy as harsh as dismissal. The Court also noted that the FCA was intended to protect the government’s interests, whereas mandatory dismissal would run contrary to those interests, as it would put an end to potentially meritorious qui tam suits. Although the Court made no definitive ruling as to what sanction would have been appropriate, it did note that dismissal “remains a possible form of relief,” while “[r]emedial tools like monetary penalties or attorney discipline remain available to punish and deter seal violations even when dismissal is not appropriate.”

We previously wrote about this matter, here.

The law is uncertain. One example of this uncertainty is how the “Yates memo” is to be applied in civil cases — in particular, what constitutes “cooperation” and how cooperation may benefit a company under investigation for False Claims Act violations. On September 29, 2016, DOJ attempted (for a second time) to address the lack of clarity surrounding cooperation in civil matters. While DOJ provided some more detail on what it viewed as “full cooperation,” and indicated that “new guidance” had been issued within DOJ on cooperation in civil enforcement matters, it still failed to give concrete guidance on how such cooperation may benefit a company in a FCA or other civil resolution. In essence, DOJ is saying “Trust Us” to companies considering the potential benefits of cooperation.

Read the full article here.

On October 5, 2016, the Court of Appeals for the Third Circuit remanded a “reverse” False Claims Act (FCA) case to the District Court for the Eastern District of Pennsylvania for further proceedings. The court’s decision in United States ex rel. Custom Fraud Investigations, LLC v. Victaulic Company, Case No. 15-2169 (3d Cir., Oct. 5, 2016), breathes new life into a case that was previously dismissed by the district court in September 2014, and provides extensive discussion about how reverse claims operate in the era of the 2009 Fraud Enforcement and Recovery Act (FERA) amendments.

The case involves nondiscretionary import regulations—set forth in the Tariff Act of 1930—that apply to the pipe fitting industry. These regulations mandate that pipe fittings manufactured outside the United States must be marked with the country of origin; in contrast, pipe fittings manufactured in the United States are typically unmarked. Failure to properly mark foreign-manufactured pipe fittings results in a 10 percent ad valorem that accrues from the time of importation. Furthermore, if improperly marked goods are discovered by customs officials, the importer has three options: (1) re-export the goods; (2) destroy the goods; or (3) mark them properly to be released for sale in the United States. Since customs officials largely rely on importers to self-report any duties that are owed at the time of import, it is possible for improperly marked pipe fittings to enter the United States’ stream of commerce. To the extent that improperly marked pipe fittings are discovered after they have entered the market, the 10 percent ad valorem is due immediately, retroactive to the date of importation.

Continue Reading Third Circuit Revives Reverse False Claims Act Case but Acknowledges Burden on Defendants

One of the more concerning trends for the defense bar in False Claims Act cases is an uptick in parallel criminal and civil proceedings. While the pursuit of parallel proceedings is long-standing DOJ policy, the last few years have seen a “doubling down” by the government on the use of these proceedings — for instance, the 2014 Department of Justice policy requiring an automatic criminal division review of each qui tam complaint and the 2015 Yates Memorandum’s requirement for defendants to identify all culpable individuals to obtain “cooperation” credit in reaching a resolution with the government. From the defense side, parallel proceedings raise important and troublesome issues, including protecting the defendant’s Fifth Amendment rights while mounting a robust defense in the civil case. But, as shown in recent decisions from the Eastern District of Kentucky and Southern District of New York, parallel proceedings may also prove challenging to DOJ when a judge is impatient with the progress of case on its docket or when the relator is not on board with how the government would like the case to proceed.

Continue Reading The Perils of Parallel Proceedings: To Stay or Not to Stay

On July 12, 2016, the US Senate Finance Committee held a hearing to “examine ways to improve and reform the Stark Law” as a follow up to releasing a white paper on June 30 titled Why Stark, Why Now? Suggestions to Improve the Stark Law to Encourage Innovative Payment Models. The white paper summarizes comments and recommendations gathered during a roundtable discussion held by the Senate Finance Committee and the US House Committee on Ways and Means in December 2015 as well as written comments submitted by roundtable participants and other stakeholders on topics taken up by the roundtable in the weeks following the meeting.

Senate Finance Committee Chairman Senator Orrin Hatch commented in a press release that “[t]he health care industry has changed significantly since Stark was first implemented, and while the original goals of the Stark law were appropriate, today it is presenting a real burden for hospitals and doctors trying to find new ways to provide high quality care while reducing costs as they work to implement recent health care reforms. . . [The] paper reflects critical feedback from the stakeholder community on the law’s ambiguities, its unintended consequences and the need for reform, and I am hopeful it jumpstarts the discussion on how Congress can modernize the law to make it work for patients, providers and taxpayers.”

Congress’ attention to Stark Law reform would address the significant False Claims Act exposure Stark Law violations can pose, which has been a very active topic for relators and government investigations in recent years.

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On June 16, 2016, the Supreme Court of the United States issued an important decision regarding the implied certification theory of liability under the False Claims Act (FCA) in which it vacated a decision of the US Court of Appeals for the First Circuit and remanded the case for further proceedings in accordance with the opinion.  A copy of the decision can be found here.

Because of McDermott’s ongoing role in this active matter, we will not be providing extensive public analysis at this time.  However, we are pleased that the Supreme Court has vacated the opinion of the First Circuit Court of Appeals ruling against Arbour Counseling Services. The Court expressly and unanimously “disagree[d] with” the lower court’s view and stated that “[t]he False Claims Act does not adopt such an extraordinarily expansive view of liability.” It is significant that the Court remanded to the lower court to reconsider the case under the new, rigorous standard of materiality stated by the Supreme Court.  Our client looks forward to litigating the case on remand and is confident of prevailing under the new Supreme Court standard.

On June 9, 2016, Acting Associate Attorney General Bill Baer delivered a speech regarding the impact of the Yates Memorandum’s focus on individual accountability and corporate cooperation at the American Bar Association’s 11th National Institute on Civil False Claims Act and Qui Tam Enforcement.  The focus of the speech was on the interplay between the Yates Memorandum and investigations and litigation under the False Claims Act (FCA), underscoring the fact that the US Department of Justice’s (DOJ’s) focus on individuals is not limited to the criminal context. Continue Reading Acting Associate Attorney General Remarks on Yates Memorandum and False Claims Act