FCA UPDATE
FCA UPDATE
Exploring Recent Developments in False Claims Act Litigation, Enforcement and Compliance
FCA UPDATE
Exploring Recent Developments in False Claims Act Litigation, Enforcement and Compliance
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Register today! Health Care Enforcement Q2 Roundup Webinar

By , , and on Jul 2, 2018
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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.



Massachusetts Lawsuit Against Long-Term Pharmacy Care Provider Fails to Clear the Legacy FCA Public Disclosure Bar

By on May 16, 2018
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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 [...]

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DOJ Issues Memorandum Outlining Factors for Evaluating Dismissal of Qui Tam FCA Cases in Which the Government Has Declined to Intervene

By , and on Jan 29, 2018
Posted In , , , , , ,

As first reported in the National Law Journal, the US Department of Justice (DOJ), Civil Division, recently issued an important memorandum to its lawyers handling qui tam cases filed under the False Claims Act (FCA) outlining circumstances under which the United States should seek to dismiss a case where it has declined intervention and, therefore, is not participating actively in the continued litigation of the case against the defendant by the qui tam relator. (more…)



A Closer Look at Rigsby and the Supreme Court’s Rejection of Mandatory Dismissal for Seal Violations

By and on Dec 13, 2016
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In light of the rising civil monetary penalties under the False Claims Act (FCA) and the looming threat of bank-breaking treble damages, avenues to dismissal are paramount to defendants operating in industries vulnerable to FCA claims, including health care. The United States Supreme Court’s unanimous decision in State Farm Fire & Casualty Co. v. United States ex rel. Rigsby, issued on December 6, 2016, narrows the path for one such avenue.

In Rigsby, the Supreme Court closed the door on what would have been a powerful tool for defendants facing qui tam complaints brought under the FCA: mandatory dismissal based on a relator’s violation of the 60-day seal requirement. The Court did not, however, foreclose dismissal as a possible sanction against relators who violate the seal‑requirements.

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Predictions on False Claims Act Enforcement in the Trump Administration

By and on Nov 28, 2016
Posted In , ,

While there are a number of executive policies that will be affected by the presidential election, there are several reasons to expect modest change in the government’s approach to False Claims Act (FCA) actions. The most significant reason for this expectation is that the vast majority of FCA cases are filed by relators on behalf of the government and the Department of Justice (DOJ) has historically viewed itself as obligated to conduct an investigation into those cases. There is little reason to suspect the financial motivations that encourage relators and relators’ counsel to continue to bring cases under the FCA will diminish. That said, the possibility of repeal of the Affordable Care Act (ACA) could remove or change some of the ACA’s FCA amendments that enhanced the ability of certain individuals to qualify as a relator. The composition of the Supreme Court may have the most significant impact on the FCA given the Court’s increasing interest in this area.

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Eleventh Circuit Says Whistleblower’s Suit Should Never Have Been Heard

By on Nov 16, 2016
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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.

(more…)



District Court Opinion Analyzes the Impact of the 2010 FCA Amendments on the Public Disclosure Bar

By on Oct 11, 2016
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On September 30, 2016, the US District Court for the Southern District of Indiana issued an opinion in United States ex rel. Conroy v. Select Medical Corp., et al. (Case No. 12-cv-000051) regarding the 2010 False Claims Act (FCA) Amendments to the public disclosure bar (31 U.S.C. § 3730(e)(4)(A)) and the government’s associated right to veto  a public disclosure-based dismissal.

The opinion addresses a motion to dismiss a non-intervened FCA suit based on several grounds, including the public disclosure bar.  Complicating matters was that the allegations involved claims that arose both prior to and after March 23, 2010 – the effective date of the amendments to the public disclosure bar.  In addition, the government, despite not intervening with respect to the FCA claims, filed its own brief opposing a public disclosure bar-based dismissal.  (more…)



Ninth Circuit Rejects Qui Tam Relator’s Original Source Claim

By on Aug 8, 2016
Posted In

On July 27, 2016, a three-judge panel of the Ninth Circuit Court of Appeals in California issued a ruling in United States ex rel. Hastings v. Wells Fargo Bank, NA, Inc., affirming the district court dismissal of a qui tam suit on the grounds that the relator was not an original source.

The relator had sued Wells Fargo and a number of other lending institutions under the Federal Claims Act (FCA), claiming they had falsely certified to the federal Department of Housing and Urban Development (HUD) that they were in compliance with a regulation requiring borrowers to make a down payment of at least 3%. Federal regulations allow this down payment to be paid via gift, so long as repayment for the gift is not “expected or implied.” See U.S. ex rel. Hastings v. Wells Fargo Bank, Nat. Ass’n (Inc.), 2014 WL 3519129, at *1 (C.D. Cal. July 15, 2014) (summarizing HUD regulations).

The defendants moved to dismiss, arguing that the gravamen of the allegations (that certain charities were, with the tacit approval the defendants, making “gifts” to borrowers that were ultimately repaid) had already been disclosed in various public documents that predated the qui tam suit. Because of these public disclosures, the suit could only proceed if the relator was an “original source” of the information, per 31 U.S.C. § 3730(e)(4)(A). The district court held that the relator, a real estate agent, was not an original source because his knowledge of the charities and their gift programs was secondhand. The court also held the fact that relator had “offered his view to HUD that [the gift programs] violated HUD standards” to be of no moment, because “[i]dentifying the legal consequences of information already in the public domain does not constitute discovery of fraud.” 2014 WL 3519129, at *11.

On appeal, the relator argued that the district court incorrectly applied the 1986 FCA definition of “original source” (someone who has “direct and independent knowledge of the information on which the allegations are based”) instead of the 2010 definition (someone who “(1) prior to a public disclosure … has voluntarily disclosed to the Government the information on which allegations or transactions in a claim are based, or (2) has knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions”). Compare 31 U.S.C. § 3730(e)(4)(B) (1986) with 31 USC. § 3730(e)(4)(B) (2010). The Ninth Circuit panel unanimously held that the relator was not an original source under either definition. Regarding the former, it held that his knowledge was not “direct and independent” where it was “assembled from information available to all members of the Multiple State Listing Service.” 2016 WL 4011199, at *1. Regarding the latter, it held that the relator had merely provided the government with information that did not “materially add to [the] public disclosures,” citing the fact that the gift programs in question “were extensively examined in proposed rules, internal audits, a GAO report, and congressional hearings.”  Id. at *2.

In [...]

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First Circuit Rejects FCA Suit On Public Disclosure Grounds

By on Jul 8, 2016
Posted In

On June 30, 2016, a three-judge panel of the First Circuit Court of Appeals in Boston issued a ruling in United States ex rel. Winkelman and Martinsen v. CVS Caremark Corp., affirming the district court dismissal of a qui tam suit (in which the United States had declined to intervene) on public disclosure grounds.

The relators had sued CVS in August 2011 under the FCA and several analogous state statutes, claiming CVS’ “Health Savings Pass” program was designed to defraud Medicare and Medicaid by failing to pass along discounts offered to certain customers.  CVS moved to dismiss, arguing that significant publicity in 2010 (during which labor unions and state officials alleged the Health Savings Pass program overcharged the government) was sufficient to bar the suit.

The FCA states, in relevant part, that qui tam actions cannot stand “if substantially the same allegations or transactions as alleged in the action . . . were publicly disclosed.”  31 U.S.C. § 3730(e)(4)(A).  The relators argued that their allegations were not substantially the same as the 2010 allegations because the latter described a “price gouging scheme,” as opposed to fraud.  Characterizing this as “quibbling” and an elevation of “form over substance,” the First Circuit noted that the FCA does not require public disclosures to “specifically label disclosed conduct as fraudulent,” adding that a subsequent qui tam complaint is barred “even if it offers greater detail about the underlying conduct.”  Responding to the relators’ argument that the public disclosure addressed a different state than the ones addressed in their complaint, the court held:

When it is already clear from the public disclosures that a given requirement common to multiple programs is being violated and that the same potentially fraudulent arrangement operates in other states where the defendant does business, memorializing those easily inferable deductions in a complaint does not suffice to distinguish the relators’ action from the public disclosures.

Similarly, in the context of rejecting the relators’ argument that they were original sources, the court held that “asserting a longer duration for the same allegedly fraudulent practice,” “[o]ffering specific examples of that conduct,” or “add[ing] detail about the precise manner” in which a scheme operated were all insufficient to overcome the public disclosure bar.

The takeaway for practitioners attempting to defeat relators’ complaints on the pleadings is that the FCA’s public disclosure bar does not require allegations to be even close to identical.  Because the “ultimate inquiry,” according to the First Circuit, is “whether the government has received fair notice . . . about the potential existence of the fraud,” so long as there has been public disclosure of the general allegation, qui tam FCA suits should fail.



Recent District Court Decision Highlights FCA’s Effective but Underutilized “Government Action” Bar

By on Apr 28, 2016
Posted In

On April 20, 2016, the US District Court for the Eastern District of California dismissed a False Claims Act (FCA) case based on 31 U.S.C. § 3730(e)(3), otherwise known as the FCA’s “government action” bar, in US ex rel. Bennett v. Biotronik, Inc. This bar provides: “In no event may a person bring an action under [the FCA] which is based upon allegations or transactions which are the subject of a civil suit or an administrative civil monetary penalty proceeding in which the Government is already a party.” Compared with the FCA’s public disclosure bar (§ 3730(e)(4)(a)), which serves a similar goal of preventing claims by parasitic relators where the government is already on notice of alleged fraud, the government action bar is invoked relatively infrequently. However, Bennett is reminder that qui tam defendants who face or have faced multiple suits predicated on the same or similar allegations should always consider the availability of a defense based on the government action bar, in addition to other available defenses.

The relator in Bennett alleged that the defendant, Biotronik, paid doctors to enroll patients in studies that lacked scientific and medical value, as a result of which doctors prescribed Biotronik’s cardiac devices.  A prior FCA case against Biotronik (the Sant case) contained similar allegations about studies, along with other kickback allegations. The government had intervened and immediately settled the Sant case, but the “covered conduct” in that settlement did not include the allegations relating to studies; instead, it focused on other types of purported payments to physicians.

The court dismissed the Bennett complaint based on the government action bar, in light of the prior Sant case. Drawing on the First Circuit’s opinion in US ex rel. S. Prawer & Co. v. Fleet Bank of Maine, 24 F.3d 320, 324-26 (1st Cir. 1994), the Bennett court observed that the purpose of the government action bar is to “prevent the prosecution of qui tam FCA claims that [stand] to enrich the relator but not to expose fraud.” The court held that this principle applied squarely to preclude the Bennett case, which contained similar study-related kickback allegations as those previously alleged in Sant.

The court rejected the relator’s assertion that the government action bar only applied to the “covered conduct” in the Sant settlement which, according to the relator, was the only piece of Sant as to which the government intervened. The court held that the statute does not support such a narrow and artificial reading, and that the Sant case had put the government on notice of a range of allegations, including both the “covered conduct” and the allegations concerning the studies. The government  “investigated all of those claims, and after its investigation, negotiated a joint settlement of the case and complaint.” The court observed that applying the government action bar to these facts “fits the purpose of § 3730(e)(3), to dispense with qui tam claims of wrongdoing the government has already discovered thanks to previous suits or proceedings.”

The court also rejected the relator’s assertion that the [...]

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