On January 11, 2018, a federal court in Florida overturned a $350 million False Claims Act (FCA) jury verdict against a nursing home operator, finding “an entire absence of evidence of the kind a disinterested observer, fully informed and fairly guided by Escobar, would confidently expect on the question of materiality.”

In United States ex. rel. Ruckh v. CMC II LLC et al., the relator claimed that a skilled nursing facility and its management company failed to maintain “comprehensive care plans” ostensibly required by Medicare regulations as well as a “handful of paperwork defects” (for example, unsigned or undated documents). In addition, the relator alleged a corporate-wide scheme to bill Medicare for services that were not provided or needed. Continue Reading Escobar Upends $350 Million FCA Verdict

Attendees at the Health Care Compliance Association’s Health Care Enforcement Compliance Institute are reporting that, Michael Granston, Director, Civil Frauds, Commercial Litigation Branch of the Civil Division of the US Department of Justice (DOJ), announced a significant shift in policy for the DOJ in dealing with False Claims Act (FCA) complaints that are deemed “frivolous” on the merits. Acknowledging the burden on the resources of all parties caused by the litigation of frivolous FCA matters, Mr. Granston reportedly stated that, going forward, once it has determined that the allegations of a qui tam complaint lack merit, the DOJ will more aggressively exercise its discretion to move to dismiss the case rather than leave to the qui tam relator in every instance the option of whether to continue the litigation. Senior management—including boards of directors, in-house corporate counsel and chief compliance officers—should take notice of this new, potentially meaningful, opportunity to extricate FCA defendants from burdensome qui tams pursued by relators purely for settlement value. Continue Reading DOJ Announces Significant Shift Towards Affirmative Dismissal Of “Frivolous” Qui Tam Complaints: A New Exit Strategy For Defendants?

We reported back in March on the US District Court for the District of Columbia’s summary judgment decision in the Lance Armstrong/Floyd Landis/US Postal Service (USPS) False Claims Act (FCA) litigation, centered on Lance Armstrong’s use of performance enhancing drugs (PEDs) while he was leading a professional cycling team sponsored by the USPS. A pack of motions in limine (MILs) filed by the parties over the past few weeks suggest that the case may well be headed to trial this fall, and raise some notable legal issues to watch as it continues to unfold, including: Continue Reading Motions in Limine Filed in Lance Armstrong/US Postal Service Litigation Raise FCA Damages, Government Knowledge and Relator Character Issues on Which Court’s Rulings May Have Widespread Impact

In a decision issued August 8th, the Eighth Circuit affirmed the dismissal of a whistleblower’s False Claims Act (FCA) suit alleging the University of Minnesota Medical Center-Fairview (UMMC) wrongly claimed a “children’s hospital” exemption to Medicaid cuts based on a reasonable interpretation of an unclear state law.

In 2011, Minnesota passed an amendment that cut Medicaid reimbursement levels for inpatient services by 10 percent, but exempted “children’s hospitals.” The law did not define the term “children’s hospital,” instead the statute exempted “children’s hospitals whose inpatients are predominantly under 18 years of age” from the rate cut. UMMC believed that the University of Minnesota Children’s Hospital should qualify for this exemption and contacted the Minnesota Department of Human Services (MDHS) to obtain confirmation. In 2012, MDHS issued the exemption and a retroactive refund.

The relator, an MDHS official who claimed to be the drafter of the exemption language, complained within MDHS that UMMC’s children’s hospital did not qualify based on the intended meaning of the term “children’s hospital.” After further review prompted by the relator, MDHS reversed its position, finding a “lack of clarity in the statutory definition of what constitutes a children’s hospital” but that the UMMC exemption was not “consistent with the law or how other similarly situated children’s facilities are treated” and sought return of the retroactive refund. The Minnesota Legislature later amended the law in May 2014 to retroactively exempt all UMMC Medicaid patients aged under 18 from the rate reduction.

The relator’s suit, filed in September 2013, alleged that UMMC knew that University of Minnesota Children’s Hospital (which is a unit inside a larger hospital) did not legally qualify as a “children’s hospital” under the state law. The relator attempted to characterize UMMC’s efforts to obtain an exemption as making false claims or false statements to MDHS as well as support for a “reverse false claims” theory because, according to relator’s logic, UMMC had an obligation to refund the money received after obtaining the exemption because UMMC knew it was not entitled to the exemption in the first place.

The district court and the Eighth Circuit disagreed with the relator. Both courts found that the state law was unclear and “in the absence of a statutory definition of ‘children’s hospital,’ it was reasonable for UMMC to inquire about the proper classification of its children’s unit … A reasonable interpretation of ambiguous statutory language does not give rise to a FCA claim.”  The relator relied heavily on his role as drafter of the relevant amendment and the legislature’s historical treatment of children’s hospitals in making his arguments. The court found “this reliance cripples his argument. Legislative history is properly consulted only in light of a textual ambiguity.”

Whether a reasonable interpretation of an ambiguous law can state a claim under the FCA has been the subject of several recent decisions in favor of defendants, many of which we have covered on this blog, such as:

Eight Circuit Affirms Summary Judgment Grant Based on Reasonable Interpretation of Ambiguous Regulation

D.C. Circuit Finds for FCA Defendant Where Liability Premised on Interpretation of Undefined, Ambiguous Term

and Court Holds Defendant’s Interpretation of Ambiguous Regulation Need Not Be ‘Most Reasonable’ Interpretation

An unusual aspect of UMMC’s litigation battle with the relator was the initial approval of UMMC’s interpretation by the state, as well as what effectively was a subsequent ratification of that position by the state legislature. In any event, this latest decision confirms that we can anticipate more judicial skepticism of FCA claims involving conflicting, but reasonable, interpretations of ambiguous laws. This growing line of cases is important where the Supreme Court has now recognized implied certification as a theory of liability, pursuant to which FCA claims are based on alleged violations of underlying regulations, statutes or contract provisions. Purported violations of ambiguous laws will not support such implied certification claims.

In a previous post, we discussed the petition for certiorari in Gonzalez v. Planned Parenthood of Los Angeles (S. Ct. No. 14-4080), a False Claims Act (FCA) case in which the relator alleged that Planned Parenthood knowingly overcharged the government for contraceptives it provided to low-income individuals in California.

In Gonzalez, the Ninth Circuit held that the district court properly dismissed the relator’s claims because documents attached to the complaint showed that the government knew about Planned Parenthood’s allegedly improper billing practices; thus, the relator could not demonstrate the requisite scienter under the FCA. The relator argued that the issue of government knowledge was worthy of Supreme Court consideration due to a split between the Ninth Circuit and other circuits on this issue.

We opined that Relator’s cert petition did not raise an issue worthy of consideration by the Supreme Court. Consistent with our expectation, the Supreme Court denied the cert petition on May 18, 2015.

In 2012, a jury concluded that Bayer Corporation (Bayer) unlawfully terminated a sales representative, Mike Townsend, because he reported to the Arkansas Attorney General that with the alleged knowledge of Bayer’s sales force, physicians were overbilling Medicaid for Bayer’s drugs. See Townsend v. Bayer Corp., 774 F.3d 446, 452 (8th Cir. 2014).

Shortly before Townsend was terminated, his corporate credit card had been suspended for about six months, because his wife had inadvertently used his expense reimbursements from Bayer to pay other bills. After Townsend paid off the outstanding balance on his corporate credit card account, the account was reactivated. As alleged, however, Bayer terminated Townsend after the account was reactivated, claiming that the closed credit card account did not allow Townsend to entertain physicians. A jury concluded that Townsend was terminated because of his alleged whistleblowing activities, and not for the reasons Bayer had asserted.

After the jury delivered its verdict, the court then ordered Bayer to reinstate Townsend “at the same rate of pay and with the same seniority he held at the time of his termination.” See Townsend v. Bayer Corp., 11-cv-00055-JM, ECF No. 121 (E.D. Ark. 2013). Bayer offered him a position at a lower rate of pay and seniority in Knoxville, Tennessee, more than 500 miles away from his current home in Little Rock, Arkansas. After Townsend’s motion for reinstatement was stayed pending an appeal to the Eighth Circuit, the district court concluded that Bayer’s job offer was not a good faith effort to comply with the Court’s order that Townsend be restored to a comparable position under 31 U.S.C. § 3730(h)(2).

This case presented the rare circumstance of a False Claims Act (FCA) whistleblower who wishes to continue working for a company that has allegedly terminated him for reporting unlawful conduct. In many ways, this case presents some guidance as to how companies should treat whistleblowers. Although it is not the case that companies can never terminate employees who have reported unlawful conduct to the government, they certainly cannot terminate employees because of their whistleblowing activities. See 31 U.S.C. § 3730(h)(1) (providing relief for employees who are “discriminated against . . . because of lawful acts done by the employee . . . in furtherance of an [FCA] action”).

If a company has legitimate non-discriminatory reasons to terminate an employee who has reported alleged fraud, the company should document these reasons in the employee’s personnel file. It is particularly helpful to the employer if the reasons for termination transpired or commenced prior to the employee reporting the alleged fraud to the government.  Many courts have determined that terminated employees are only entitled to relief if their protected conduct was a “but-for” cause—meaning that the employee would not have been terminated if he had not reported the alleged fraud. Accordingly, legitimate reasons for termination, especially if properly documented, can overcome the anti-retaliation provisions of the FCA.

We previously posted about the court’s decisions in United States ex rel. Martin v. LifeCare Centers of America, Inc., No. 08-cv-251, 2014 WL 4816006 (E.D. Tenn. Sept. 29, 2014) and United States v. AseraCare, Inc., No. 2:12-CV-245-KOB, 2014 U.S. Dist. LEXIS 167970 (N.D. Ala. Dec. 4, 2014), both of which permitted claims to proceed despite the government’s reliance on statistical samples to prove falsity.

Now, two other courts have endorsed—or at least refused to reject—the notion that a statistical sample can establish the falsity of claims for payment about which the government and relators have presented no direct evidence. In United States ex rel. Ruckh v. Genoa Healthcare, LLC, 11-cv-01303-SMD-TBM (M.D. Fla. Apr. 28, 2015), the relator moved in limine to admit evidence of a statistical sample that had not yet been created. As the defendant characterized the motion, it was “an effort to obtain th[e] Court’s ‘advisory opinion’ or ‘comfort order’ indicating” that if the relator’s expert conducts the sample, it will be admissible. Although the Court declined to engage in this speculative exercise, it rejected the defendant’s position that a sample could never be used to demonstrate falsity. In doing so, the Court cited LifeCare and United States v. Robinson, No. 13-cv-27-GFVT, 2015 WL 1479396 (E.D. Ky. Mar. 31, 2015), another recent district court case that relied heavily upon LifeCare in concluding that “statistical sampling methods and extrapolation have been accepted in the Sixth Circuit and in other jurisdictions as reliable and acceptable evidence in determining facts related to False Claims Act claims as well as other adjudicative facts.”

At this point, only a handful of district courts from two circuits have concluded that falsity can be established through a statistical sample. The decision in Ruckh contained almost no analysis at all, essentially delaying a decision until trial. Meanwhile the Robinson case addressed the behavior of a single caregiver, which is far more susceptible to a valid statistical sample than a case addressing, for example, the impropriety of the medical decision-making of numerous caregivers alleged to have provided unnecessary treatment. See, e.g., Sergeants Benev. Ass’n v. Sanofi-Aventis, 2014 U.S. Dist. LEXIS 65714, at *60 (E.D.N.Y. May 9, 2014) (“even assuming, arguendo, that the chain of causation is not too attenuated, Plaintiff cannot prove causation through generalized proof . . . Plaintiffs’ ‘theory of causation is interrupted by the independent actions of prescribing physicians.’” (citing UFCW Local 1776 v. Eli Lilly & Co., 620 F.3d 121, 135 (2d Cir. 2010)).

Similar to the LifeCare decision, both the Ruckh and Robinson courts left open the possibility that any statistical sample would be subject to a Daubert challenge. Such a challenge could be substantial. Experts would still need to be able to convince the court—and potentially a jury—that the behavior of one biller can be extrapolated to a wide swath of patients, treatments and claims, and potentially to other non-sampled billers. This remains a tall order.

We will continue to monitor future developments on this issue.

The U.S. Supreme Court will decide within the next few weeks whether to hear a False Claims Act (FCA) case that has garnered media attention because it involves alleged wrongdoing by Planned Parenthood.  In Gonzalez v. Planned Parenthood of Los Angeles (No. CV 05-8818, C.D. Cal.), the relator alleged that Planned Parenthood knowingly overcharged the government for contraceptives it provided to low income individuals in California.

The issue in the case turns on the role of government knowledge as a defense to scienter, i.e., the notion that when the government knows about or approves of the billing practices at issue, the defendant does not knowingly or recklessly submit a false claim.  In Gonzalez, the Ninth Circuit held that the district court properly dismissed the relator’s claims because documents attached to the complaint showed that the government knew about Planned Parenthood’s allegedly improper billing practices.  These documents included correspondence between Planned Parenthood and the California Department of Health Services, in which Planned Parenthood candidly disclosed its billing practices (to which it received no response or contradiction), as well as a letter from the Department to Planned Parenthood explaining that it would not seek a refund from Planned Parenthood because the key term at issue was not defined, and because the Department was concerned that “conflicting, unclear, or ambiguous representations have been made to providers” with regard to the billing practices at issue.  Accordingly, Planned Parenthood lacked the requisite scienter to establish a “knowing” submission of a false claim.

In seeking certiorari, the relator argued that there is a split between the Ninth Circuit and other circuits on the issue of government knowledge. While the relator did not dispute that a number of circuits held that government knowledge can refute allegations of knowledge or recklessness, the relator argued that the Ninth Circuit deviated from the approach taken by all other circuits by dismissing a case based on government knowledge at the pleadings stage, rather than at summary judgment.

On this issue, Planned Parenthood has the better argument.  As Planned Parenthood noted in its opposition, numerous cases in numerous circuits have found that government knowledge is relevant to scienter under the FCA.  The Ninth Circuit’s decision merely follows a long line of cases standing for this principle.  While it is true that the Ninth Circuit dismissed the case at the pleadings stage, it did so because the complaint (including evidence contained in documents the relator attached to the complaint) permitted such a dismissal.  The Court found that this evidence “fatally undercut” the relator’s allegation that Planned Parenthood “knowingly” submitted false claims.  Accordingly, the relator did not state a “plausible” claim under Federal Rule of Civil Procedure 8(a).

Such compelling evidence is not often available at the pleading stage, so it is unsurprising that in many cases the government knowledge issue is not in play until later stages of the litigation.  Yet the availability of such evidence here—provided by relator himself in connection with his complaint—was sufficient to warrant dismissal.

In sum, while the government knowledge issue arose at a procedurally early point in Gonzalez, it is not an issue worthy of the Supreme Court’s attention.  It is well-established that government knowledge can undermine an FCA claim.  Whether it does so, turns on the specific facts of each case.  In Gonzalez, those facts were set forth in documents that the relator himself attached to his complaint.

We will continue to monitor this case and will provide a further update if the Supreme Court grants cert.