On March 20, 2017, the US District Court for the Southern District of Mississippi denied a motion to permanently seal the record of previously dismissed False Claims Act (FCA) claims.  The three relators, who initially brought the claims in US v. Apothetech Rx Specialty Pharmacy Corp., claimed they would face potential reputational damage and retaliatory actions if the case was not permanently sealed. The court ultimately held, however, that such “generalized apprehensions of future retaliation” were not enough to overcome the strong public right of access to judicial proceedings.

The underlying qui tam complaint was initially filed on August 14, 2015, and alleged the defendants engaged in a fraudulent scheme of improperly compensating independently contracted sales representatives for referrals. The relators voluntarily dismissed the complaint a year later in August 2016. Upon dismissal, however, the court temporarily sealed all case records related to the case to permit the relators time to file the present motion to seal.  Continue Reading Relators Denied Permanent Seal on FCA Case Record after Voluntary Dismissal

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

On October 11, 2016, a three-judge panel of the Seventh Circuit Court of Appeals issued a ruling in United States ex rel. Uhlig v. Fluor Corp., affirming summary judgment against the relator in an FCA action where the government had declined to intervene. See generally 2016 WL 5905714, No. 14-2815 (7th Cir. Oct. 11, 2016).

The defendant had contracted with the US Army to perform electrical work at bases in Northern Afghanistan. It hired the relator, an electrician, as a foreperson for this work, but subsequently declined to renew his contract because he did not hold an electrician’s license. The relator then emailed the Defense Contract Management Agency, complaining that he was losing his job while other unlicensed electricians, who were Afghan nationals, were not. In a follow-up email, the relator alleged that the defendant company was committing fraud, and copied a website dedicated to “exposing . . . corporate greed among [defense] contractors.” The company then fired him on the grounds that sending his supervisor’s name and contact information violated its computer-use policy.

The relator filed FCA and retaliatory discharge claims, and the company successfully moved for summary judgment. The district court held that because the relator had no objective basis for asserting that the company had committed fraud, his emails did not constitute protected activity under the FCA.

On appeal, the relator argued that the company violated the FCA by “knowingly employing unlicensed electricians in breach of its contract and submitting invoices for the unlicensed services to the government for payment.” The Seventh Circuit disagreed, noting that the contract in question made electrician licenses optional, and the company had “independently decided to phase in a self-imposed requirement” that electricians such as the relator had to hold licenses. Because the company was accordingly in compliance with the contract, the Court reasoned, there was no false certification.

The Court then turned to the relator’s retaliation claim, noting that the determination of whether an employee’s conduct was protected turned in part on whether “a reasonable employee in the same or similar circumstances might believe that the employer is committing fraud against the government.” Citing the fact that he did not have “any firsthand knowledge of Fluor’s contract obligations to the Army,” the Court held that Uhlig had no reasonable basis for such a belief.

The primary lesson for FCA practitioners regarding retaliation claims is that even if a plaintiff subjectively believes a defendant is committing fraud, courts will not recognize protected activity if there is no reasonable basis for such a belief.

The Fifth Circuit Court of Appeals recently affirmed a district court’s dismissal of a retaliation claim under the False Claims Act (FCA) as to several individual defendants.

In Howell v. Town of Ball, a Ball, Louisiana police officer, Howell, sued the town and several town officials for employment retaliation in violation of the FCA (among other claims).  The officials moved to dismiss, arguing that the FCA creates a cause of action only against a plaintiff’s employer.  The district court agreed, citing the subsection of the FCA that creates a cause of action for those “discriminated against in the terms and conditions of employment . . .”  31 U.S.C. § 3730(h) (emphasis added).

On appeal, Howell argued that a 2009 amendment to the FCA (which removed the reference to “employer” in § 3730(h)) “indicate[d] a legislative intent to broaden the class of viable defendants.” In a July 1 decision, a three-judge panel of the Fifth Circuit disagreed with Howell, holding that “the reference to an ‘employer’ was deleted to account for the broadening of the class of FCA plaintiffs to include ‘contractors’ and ‘agents,’ not to provide liability for individual, non-employer defendants.”

In sum, FCA plaintiffs can only bring retaliation actions against their actual employers, notwithstanding the role that other non-employer individuals may have had in allegedly retaliatory activity.

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

On June 20, 2016, the United States District Court for the Northern District of Texas granted summary judgment in defendants’ favor on all but her retaliation claims in relator’s False Claims Act (FCA) suit against defendants Vista Hospice Care, Inc. and VistaCare, Inc.  The court found that the relator, a former social worker at Defendants’ facility, failed to provide any evidence of a corporate scheme to admit Medicare beneficiaries before they were eligible.  The decision echoed principles announced by the United States District Court for the Northern District of Alabama in US ex rel. Paradies v. AseraCare, Inc., which we have been following on this blog (and which is now on appeal to the Eleventh Circuit).

The relator relied on two types of evidence: (1) expert testimony that physicians incorrectly certified certain patients’ eligibility; and (2) Defendants’ implementation of corporate policies designed to incentivize improper admissions.

The relator’s expert identified a population of 12,000 patients who had been discharged in the relevant period and were on hospice for a total of at least 365 days.  The expert then selected a stratified sample of 291 patients for evaluation by a second expert.  The first expert then extrapolated the second expert’s analysis to form an opinion as to the total number of claims submitted for the 12,000 patients that were allegedly false.

The court rejected this approach.  First, the court cast doubt on extrapolation evidence, refusing to find it reliable.  The court stated that “[i]n this context, statistical sampling of the type done by [the expert] . . . cannot establish liability for fraud in submitting claims for ineligible patients, as the underlying determination of eligibility for hospice is inherently subjective, patient-specific, and dependent on the judgment of involved physicians.”  The court concluded that “proof regarding one claim does not meet Relator’s burden of proof regarding other claims involving different patients, different medical conditions, different caregivers, different facilities, different time periods, and different physicians.”

Second, the court found that the manner in which the expert chose the stratified sample of 291 patients was “fundamentally flawed” because the sample the expert relied on was not randomly selected and did not control for variables the expert identified as important, such as geographical differentiation, different clinical staffs and doctors or disease type.  Thus, the court prohibited the relator from presenting evidence beyond the 291 patients.

The court also rejected the evidence the relator presented as to these 291 patients.  The court concluded that the relator’s expert’s mere disagreement with a certifying physician’s assessment of hospice eligibility was insufficient to prove a violation of the FCA.  Rather, “[b]ecause a physician must use his or her clinical judgment to determine hospice eligibility, an FCA claim . . . must be predicated on the presence of an objectively verifiable fact at odds with the exercise of that judgment, not a matter of questioning subjective clinical analysis.”  For example, a relator must show that a physician “never reviewed the patient’s medical condition nor saw the patient, or that the physician did not actually believe that if the patient’s disease ran its normal course, the patient had a prognosis of six months or less.”  Here, the fact that the expert simply reached different conclusions than the certifying physicians as to the necessity of admitting certain patients was insufficient.

As to Defendants’ alleged improper implementation of certain corporate policies, the relator pointed to those policies (1) encouraging admission of patients earlier than competitors and before determining eligibility, (2) requiring multiple layers of review before discharging patients, and (3) instructing staff to document evidence supporting eligibility for eligible patients.  According to the relator, these policies supported an inference that Defendants billed for ineligible patients.  But the court found that making that inference would be improper, finding that “[w]hat Relator is missing here is a causal link between Defendants’ policies, a few instances where medical information was allegedly falsified, and actual false or fraudulent certifications and claims.”

As this case underscores, FCA claims dependent on issues of clinical judgment are met with skepticism by the courts, in recognition of the fact that the FCA is not a tool to arbitrate good faith clinical disputes.  Attempts by FCA plaintiffs to extrapolate to prove broad liability are also being closely scrutinized, particularly where, as here, the unique clinical elements underlying each claim are not generalizable across a broad universe.

 

On May 23, 2016, the US District Court for the District of Massachusetts dismissed several of the claims in a False Claims Act (FCA) whistleblower suit against Medtronic, Inc. and its wholly-owned subsidiary Medtronic MiniMed, Inc. (Medtronic) related to its insulin pumps and integrated diabetes management systems.

In United States ex rel. Witkin v. Medtronic, Inc., the relator, Witkin (a former employee of Medtronic) alleged that certain of Medtronic’s promotional activities related to its insulin pumps and the pediatric use of its integrated diabetes management systems designed for adult use were false or misleading, resulting in false claims for reimbursement.  The district court held that Witkin failed to plead his claims with sufficient particularity pursuant to Fed. R. Civ. P. 9(b).  The district court emphasized the particularity requirement in this case, observing that “the alleged fraudulent promotional activity permits only a weak inference of resulting false claims.”  Specifically, the district court held that, with respect to allegations that Medtronic promoted its insulin pumps for use with a type of insulin that is not approved for administration with a pump, Witkin failed to connect allegations of fraudulent promotion to any false claims for reimbursement of either the pumps or the insulin. In addition, with respect to the pediatric use of adult integrated diabetes management systems, the District Court invoked the often-cited principle that “Witkin had alleged an elaborate fraudulent scheme with some detail, but without particularity as to the ‘who, what, where, and when’ of the underlying fraudulent promotion or eventual false claims.”

Accordingly, the district court dismissed the claims that relied on a theory of off-label promotion on Rule 9(b) grounds.  Notably, the district court distinguished the alleged off-label promotion at issue in this case from claims in other cases that premise FCA liability on truthful off-label promotion, noting that there is a question about whether imposing liability in such circumstances would run afoul of the First Amendment (citing the Second Circuit’s 2012 holding in United States v. Caronia, which we discussed in our post on May 26).

The particularity of the pleading was also an issue in a claim unrelated to off-label promotion.  The district court also dismissed, on Rule 9(b) grounds, Witkin’s claims that Medtronic assisted patients in fabricating eligibility criteria for pump therapy because Witkin failed to include particularized allegations of patient targets or when or what information was falsified “let alone allegations of doctors who endorsed the fabricated certifications of medical necessity and thereafter made false claims to the government health care programs.”

The decision was not a total loss for Witkin, however, as the district court permitted certain FCA claims to continue, based on payments to physicians allegedly in violation of the Anti-Kickback Statute (AKS).  In addition, the district court allowed Witkin’s retaliatory discharge claims to continue.  As to the dismissed claims, however, the district court indicated that it was not inclined to allow Witkin to amend.  The district court warned that, as Witkin had already been allowed two amended complaints, the court was unlikely to grant any additional requests to amend the complaint, stating that, absent unforeseen circumstances, Witkin would not be allowed to “try to reformulate his allegations, yet again, to avoid their legal deficiencies.”

The issue is one that various courts have addressed over the years: what recourse does a corporation have when a relator steals confidential information and discloses it to his or her attorney and to the government?  The answer is . . . it depends.  It depends on the scope of the materials taken, their relationship to the relator’s claim, and the breadth of the disclosure. Continue Reading When Relators Steal Corporate Documents: Northern District of Illinois Dismisses Counterclaim for Breach of Contract

On March 7, the U.S. Court of Appeals for the Fifth Circuit affirmed a grant of summary judgment by the U.S. District Court for the Northern District of Texas in favor of Kaner Medical Group and its owner, David Kaner, in a qui tam suit brought under the False Claims Act (FCA).  United States ex rel. Johnson v. Kaner Med. Grp., 2016 WL 873816 (5th Cir. Mar. 7, 2016).  The suit was filed by a former employee of the group, who alleged that the group submitted false claims for reimbursement to Medicare and TRICARE, and that she was terminated in retaliation for raising concerns regarding the group’s billing practices.

The relator’s FCA claims were based on the group’s practice of entering the National Provider Identifier (NPI) of the provider who referred a patient to the group’s allergy clinic on Medicare claims in a box that, according to instructions from the Centers for Medicare & Medicaid Services (CMS), should have contained the NPI of the provider who supervised the work carried out at the allergy clinic on the day the patient received the service.  The district court found that, although the summary judgement record indicated the possibility that a large number of the group’s claims forms had incorrect provider information, the evidence did not show that the performing medical assistants lacked the requisite supervision or that the services were rendered under circumstances that would cause the group not to be entitled to payment.  U.S. ex rel. Johnson v. Kaner Med. Grp., 2015 WL 631651 (N.D. Tex. Feb. 12, 2015).  Instead, the record “provide[d] evidence that defendants perhaps were negligent in their indications on some of the forms of healthcare provider information.”

In affirming the district court, the appeals court found that the relator presented no evidence that the group acted “knowingly,” i.e., with actual knowledge of information or in deliberate ignorance or reckless disregard with respect to the truth or falsity of the information.  Instead, the appeals court agreed with the district court that the record indicated that “at most, [the group’s] misunderstanding of CMS’s requirements was negligent, which is not sufficient to attach liability under the FCA.”  As the court found in favor of the group on summary judgment, it also found that the relator did not engage in protected activity under the whistleblower protections of the FCA, and affirmed the dismissal of her retaliation claim.

As the outcome in this case demonstrates, the fact that a health care provider has improperly billed Medicare is not enough to support an FCA claim.  Among other things, a plaintiff must raise a genuine dispute of material fact that a defendant knowingly asked Medicare to pay amounts it does not owe.  As the court noted, the FCA “is not a general ‘enforcement device’ for federal statutes, regulations and contracts. . . but the Government’s ‘primary litigation tool’ for recovering losses resulting from fraud.”

On February 25, 2016, the United States District Court for the Eastern District of Virginia dismissed a False Claims Act (FCA) case alleging that PAE Government Services (PAE) intentionally overcharged the Department of State (DOS) for bottled water supplied to various facilities in Iraq.  United States of America ex rel. Anthony Garzione, 2016 WL 775780 (E.D. Va. 2/25/2016).  Even though PAE allegedly chose the highest bidder when it awarded a subcontract for the water and terminated the relator, Anthony Garzione, when Garzione complained, the court dismissed claims that PAE violated the FCA and retaliated against Garzione.  According to the court, the Federal Acquisition Regulations (FAR) required only that PAE award the subcontract at a “reasonable price.”  Id. at *5-6.  Garzione came forward with nothing in his complaint to show that the highest bid was objectively “unreasonable.”  Id.  For the same reason, Garzione did not engage in protected activity when he raised complaints.  Id. *8.

In 2013, DOS awarded PAE a contract to supply “life support and logistical function” at embassies and consulates throughout Iraq.  The contract included “food and supplies,” among other things.  Id. *1.  For the first year of the contract, PAE supplied very small quantities of bottled water to DOS facilities through a subcontract with Taylors International Services, Inc. (Taylors).  In 2014, however, DOS modified the contract to require PAE to supply much greater quantities of bottled water.  PAE immediately issued a request for bid proposals, which ultimately included the following:  a bid from Taylors for $3.65 per case for Pearl brand water; a bid from Pearl itself for $3.50 per case; and a bid from AWI for $1.18 per case.  Id.

PAE chose Taylors.  Garzione complained and sought to solicit other companies to fill the subcontract. Eventually, the complaint alleges, PAE supervisors began to treat Garzione with hostility, excluded him from meetings and communications, and eventually fired him in February 2015.  Id. *2.  Throughout it all, the subcontract for bottled water remained with Taylors.

Garzione sued, raising three claims. Counts I and II alleged that PAE “falsely certified” that it had complied with the requirements of the FAR to seek the payment of only “reasonable” prices.  As the district court explained, “[t]his claim is based on the legal theory that PAE’s costs for bottled water were necessarily not ‘reasonable’ because it selected Taylors[.]”  Id. *3. Under Count III, Garzione alleged that he engaged in “protected activity” when he questioned PAE’s selection of Taylors and was terminated in retaliation for doing so.  Id.

With little trouble, the district court dismissed all three counts.

First, the court dismissed Counts I and II.  To begin, the court rejected Garzione’s allegations that Taylors’ prices were unreasonable, observing that Garzione did not cite “any authority for the proposition that the highest bid constitutes an ‘unreasonable price’[.]”  Id. at *5.  In addition, the court rejected an argument that PAE had made false statements to the government by impliedly certifying, when it submitted invoices, that the price paid for bottled water was reasonable when, in fact, it was not. Id. at *6.  According to court, there was nothing in the contract requiring PAE to comply with the FAR regulations that the price was “reasonable.”  Id.

Second, the court held that the complaint failed to adequately allege that PAE either had the “specific intent to defraud” the government, or acted with recklessness when it submitted claims for bottled water.  Id. *7.  For these same reasons, the complaint failed to meet Federal Rule of Civil Procedure 9(b)’s heighten pleading standard.  Id.

Finally, the court turned to the retaliation claim and dismissed it. To bring a successful claim for retaliation under the FCA, a plaintiff must allege that he engaged in “protected activity” by acting to prevent a FCA violation at the time of the adverse employment action. Id. at *7.  But “protected activity” requires that the company conduct at issue involve “an objectively reasonable possibility of an FCA action[.]”  Id. *8.  “Here,” the court explained, “plaintiff failed to plead anything more than his subjective belief that PAE” violated the “reasonable” price regulations.  Id. At most, Garzione put PAE on notice that he disagreed with the selection of Taylors, and that he thought the company could get a better price. That was neither enough to state a FCA claim or to act as the foundation for a retaliation claim. Id.