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Seventh Circuit Finds Public Disclosure Bar Precludes Jurisdiction in CTA Case

In a February 29, 2016, decision, the U.S. Court of Appeals for the Seventh Circuit held that the public disclosure bar precluded a relator, a government watchdog agency, from successfully bringing a False Claims Act (FCA) suit against the Chicago Transit Authority (CTA). Cause of Action v. Chicago Transit Authority, No. 15-1143, 2016 U.S. App. Lexis 3628 (7th Cir., Feb. 29, 2016). The Seventh Circuit found that the activity underlying the alleged fraud (misreporting transportation data to the Federal Transit Administration (FTA) in an effort to get additional federal funding) was in the public domain for two independent reasons. First, there was governmental disclosure: the government, through FTA itself, knew of the activity, had investigated it, and had issued a report (in the form of a letter to the CTA) on the investigation. Second, the Illinois Auditor General conducted a performance audit of the CTA which uncovered the alleged fraud and issued a report...

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FCA Claims Based on Average Wholesale Price (AWP) Theory Barred by Public Disclosure Bar

On January 20, 2016, the U.S. District Court for the Eastern District of Missouri dismissed a complaint based on allegations of Average Wholesale Price (AWP) fraud under the False Claims Act (FCA) against CSL Behring, LLC (Behring) and specialty pharmacies Accredo Health, Inc., (Accredo) and Coram LLC (Coram).  See United States ex rel. Lager v. CSL Behring, LLC, et al., No. 4:14-CV-841CEJ, 2016 WL 233245 (E.D. Missouri 2016).  The Court found that relator’s allegations were barred by the public disclosure bar and did not satisfy the “original source” exception. Relator, a former Behring employee, alleged that the company reported inflated AWPs for prescription drugs, Vivaglobin and Hizentra, causing government health programs to reimburse specialty pharmacies much more than they paid for the drugs ($133 v. $65 and $151 v. $70).    Vivaglobin and Hizentra are classified as “DME infusion drugs” because they are self-administered by patients through a pump,...

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Seventh Circuit Strictly Construes Original Source Requirement Against ‘Bounty-Hunting’ Relator

In a decision released yesterday in U.S. ex rel. Bogina v. Medline Industries, Inc., the U.S. Court of Appeals for the Seventh Circuit affirmed a district court’s dismissal of a relator’s False Claims Act (FCA) complaint, holding that the complaint’s allegations had been publicly disclosed in a prior, settled lawsuit and the relator was not an original source. The opinion, authored by Judge Richard Posner, described FCA relators as “bounty hunters” and observed that the FCA imposes obstacles on parasitic bounty-hunting relators who seek to “be handsomely compensated if the[ir] suit succeeds.” Among those obstacles is the FCA’s public disclosure bar, which Judge Posner’s opinion ensures has sharp teeth in the Seventh Circuit. First, the court held that the 2010 amendments to the original source exception the public disclosure bar, requiring a relator to “materially add” to publicly disclosed allegations in order to surmount the bar, could be applied...

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Supreme Court Denies Cert on Whether Government Investigations Are a Public Disclosure

On October 2, 2015, the Supreme Court of the United States denied a petition for writ of certiorari in a case that sought to resolve an apparent circuit split concerning one of the most frequently litigated issues under the False Claims Act (FCA)—the circumstances in which the disclosure of allegations in a government audit or investigation can trigger the public disclosure bar.  Chattanooga-Hamilton County Hospital Authority v. U.S. ex rel. Whipple, No. 15-96.  The petition emanated from a decision we reported on in March 2015 that was issued by the United States Court of Appeals for the Sixth Circuit.  U.S. ex rel. Whipple v. Chattanooga-Hamilton County Hospital Authority, 782 F.3d 260 (6th Cir. 2015). In Whipple, the Sixth Circuit held that information in the possession of the government does not trigger the public disclosure bar because it is not in the “public domain.” In the petition to the Supreme Court, the petitioner framed the issue for review as...

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Central District of California Opinion Confirms that Information Gained through Employment is Not Necessarily “Direct” Knowledge under the Public Disclosure Bar

Last week, a court dismissed a relator’s claim for a share of the government’s $322 million settlement in United States v. Scan Health Plan, 2:09-cv-05013-JFW (C.D. Cal. Aug. 28, 2015), ruling that the relator did not qualify as an original source under the False Claims Act’s (FCA) public disclosure bar. The ruling followed the Court’s earlier decision in June that the relator’s claim was “based upon” a publicly disclosed audit report by the State of California Controller’s Office (SCO), which found that the defendant, Scan Health Plan, was receiving “duplicative of overlapping payments” from Medicare and Medi-Cal. The court’s June ruling left open, however, whether the relator could nonetheless avoid application of the public disclosure bar by showing that he was an original source. Last week’s decision concluded that he could not:  despite the relator’s previous employment with the defendant and his role in initiating the SCO’s audit, he did not have the...

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Recent Fifth Circuit Decision Spotlights Perils of Complex Procedural Issues

On August 25, 2015, the Fifth Circuit vacated and remanded a district court’s order denying a relator’s Rule 60(b) motion for relief from dismissal based upon new evidence in the False Claims Act (FCA) case of United States ex rel. Gage v. Davis S.R. Aviation, LLC, No. 15-50141 (on appeal from Case No. 1:12-cv-00904-SS in the Western District of Texas). The district court had denied the Rule 60(b) motion because its underlying dismissal of the complaint was on appeal to the Fifth Circuit. In remanding, the Fifth Circuit held that the district court was required to consider the Rule 60(b) motion on its merits prior to denying it, and that not doing so was an abuse of discretion.   Because the district court failed to consider the merits of the Rule 60(b)  motion, it must now address that motion on remand even though, as a review of the pleadings demonstrates, there is little basis for relief. The relator brought a complaint “concerning the salvaging of...

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When an FCA Case Just Won’t Go Away: Attorneys’ Fees Remain Contested Even After Settlement

When settling a False Claims Act (FCA) case, the issue of a relator’s attorneys’ fees seems small compared to the monetary settlement and the breadth of the release. Two recent cases, however, demonstrate that fees can prove a sticking point in wrapping up an FCA case even after settlement. In U.S. ex. rel. Simring v. Rutgers, the U.S. Court of Appeals for the Third Circuit remanded a fee award entered after a settlement, finding that the lower court provided insufficient detail to review the reasonableness of deductions to a fee application. In U.S. ex. rel. Doghramji v. Community Health Systems Inc., the U.S. District Court for the Middle District of Tennessee evaluated whether a settlement agreement carve-out permitting objections to the relators’ attorneys’ fees permitted defendants to argue that the fees were barred by either the FCA’s “first to file” or “public disclosure” bar. The court decided that the carve-out did not protect such objections. The...

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Ninth Circuit Overturns Precedent to Simplify Original Source Exception to Public Disclosure Bar

Overruling its 23-year precedent, the Ninth Circuit, sitting en banc, held that to avoid dismissal under the False Claims Act’s (FCA) public disclosure bar, relators need not have participated in the public disclosure of alleged fraud to qualify as an “original source.” Although the court’s decision concerned the pre-2010 version of that bar, it is likely that its reasoning will also apply to the post-2010 version, given that the issue before the Ninth Circuit did not turn on the 2010 amendments. U.S. ex rel. Hartpence v. Kinetic Concepts, Inc. consolidated two FCA complaints brought by former employees against Kinetic Concepts.  The complaints alleged that the company improperly submitted reimbursement claims using an automatic payment modifier code for medical devices that improve wound healing, even though the claims required individual review.  The alleged fraud was already publicly disclosed.  Thus, the FCA’s public disclosure bar precluded the suits...

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Recent District of Massachusetts Opinion Explores Post-PPACA Public Disclosure Bar (and Reminds Relators that Pleading a “Scheme” is Not Enough Under Rule 9(b))

In an opinion last week in U.S. ex rel. Hagerty v. Cybertronics, Inc., No. 13–10214–FDS, 2015 WL 1442497 (D. Mass. Mar. 31, 2015), the U.S. District Court for the District of Massachusetts addressed the status of the False Claims Act’s public disclosure bar after the Patient Protection and Affordable Care Act (PPACA).  Specifically, the district court examined whether the bar continues to be jurisdictional, holding that while the prior version of the bar clearly presented a question of subject matter jurisdiction (“[n]o court shall have jurisdiction over an action” based on publicly disclosed allegations), the post-PPACA version “appears to be non-jurisdictional.” The district court first determined that the First Circuit Court of Appeals has not directly addressed the issue, notwithstanding the First Circuit’s explicit reference to the post-PPACA public disclosure provision as a “jurisdictional bar.”  See U.S. ex rel. Estate of Cunningham v. Millenium Labs....

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Recent Appellate Decisions Underscore Importance of Public Disclosure Bar, But Outcomes Are Highly Dependent on the Facts

Two Circuit Courts of Appeals recently came out on opposite ends of the False Claim Act’s (FCA’s) public disclosure bar.  On February 19, 2015, the United States Court of Appeals for the Third Circuit affirmed the district court’s dismissal of claims related to allegations of fraudulently inflated pharmaceutical prices, holding that the information underlying the suit had been publicly disclosed in the media and elsewhere and that the relator failed to qualify as an original source.  U.S. ex rel. Morgan v. Express Scripts, Inc., No. 14-1029, 2015 WL 728029 (3rd Cir. Feb. 19, 2015) (unpublished).  On February 25, 2015, the United States Court of Appeals for the Sixth Circuit reinstated a claim against a hospital related to allegedly fraudulent Medicaid and Medicare charges, holding that the allegations, though previously known to government auditors, had not been publicly disclosed.  U.S. ex rel. Whipple v. Chattanooga-Hamilton County Hospital Authority, No....

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