On April 11, 2017, the US District Court for the District of Oregon sided with the Oregon Health and Sciences University (OHSU), finding that as an arm of the state, OHSU is not subject to liability under the False Claims Act (FCA) even when the claim is brought by the federal government. In United States ex rel. Doughty v. Oregon Health and Sciences University, No. 3:13-CV-1306-BR (April 11, 2017 D. Or.), the district court dismissed the qui tam FCA claims, in which the federal government intervened, but granted leave to file an amended complaint on other grounds.

The United States asserted, among other claims, that after relocating its Vaccine and Gene Therapy Institute (VGTI) to its Oregon National Primate Research Center (ONPRC), OHSU wrongly applied to VGTI the higher billing rates applicable to ONPRC, allegedly resulting in inflated reimbursement through a National Institutes of Health grant. OHSU filed a motion to dismiss the case on the grounds it is an arm of the state and not a “person” subject to FCA liability. The United States argued that OHSU is a not an arm of the state for purposes of the FCA, and, even if it were, the bar against FCA liability is limited to cases brought by private individuals. Continue Reading District Court Finds Oregon University Immune to FCA Suit Brought by Federal Government

Released on March 27, 2017, the Compliance Program Resource Guide (Resource Guide), jointly prepared by the US Department of Health and Human Services Office of Inspector General (OIG) and the Health Care Compliance Association (HCCA) reflects the result of a “roundtable” meeting on January 17, 2017, of OIG staff and compliance professionals “to discuss ways to measure the effectiveness of compliance programs.” The resulting Resource Guide document catalogues the roundtable’s brainstorming discussions to “…provide a large number of ideas for measuring the various elements of a compliance program…to give health care organizations as many ideas as possible, to be broad enough to help any type of organization, and let the organization choose which ones best suit its needs.”

Here are a few main takeaways from the Resource Guide:

  • Ideas for Auditing: The Resource Guide contributes to the critical conversation about how to evaluate compliance program effectiveness by listing additional ideas on what to audit and how to audit those areas. The items listed in the Resource Guide generally center on ideas on auditing and monitoring compliance program elements, such as periodically reviewing training and policies and procedures to ensure that they are up-to-date, understandable to staff and accurately reflect the business process as performed in practice. Legal and compliance can use this document to identify those particular elements that may be most applicable to their individual organization.

Organizations would also benefit from considering the questions listed in the new compliance program guidance issued in February by the US Department of Justice (DOJ) Criminal Division’s Fraud Section, “Evaluation of Corporate Compliance Programs” (DOJ Guidance), as part of examining compliance program effectiveness. (We covered the DOJ Guidance previously.) Health care organizations may also use the various provider-specific compliance program guidance documents created by OIG over the years as another source for ideas on what to measure.

  • Not a Mandate: The Resource Guide is very clear that it is not intended to be a “best practice”, a template, or a “‘checklist’ to be applied wholesale to assess a compliance program.” This clarification is an important one since there is the potential for the Resource Guide to be (incorrectly) viewed by qui tam relators or others as creating de facto compliance program requirements or OIG recommendations.
  • How to Measure: The Resource Guide does not delve into how or who should undertake or contribute to the effectiveness review. Who conducts the review is a question that may have legal significance given the nature of a particular issue. General counsel and the chief compliance officer should consider this issue as part of the organization’s ongoing compliance program review. It may be valuable to include the organization’s regular outside white collar counsel to comment on such critical, relevant legal considerations as the proper conduct of an internal investigation; preserving the attorney-client privilege in appropriate situations; coordinating communications between legal, compliance and internal audit personnel; and applying “lessons learned” from the practices of qui tam relators and their counsel. Outside consultants may also have useful expertise and insight to contribute. In some situations, the organization may want to undertake a compliance program assessment conducted under attorney-client privilege as part of advising the executive team and the board audit and compliance committee.

Perhaps the greatest benefit of the Resource Guide is the extent to which it serves as a catalyst for closer, coordinated consideration of the metrics by which compliance program effectiveness may be measured by legal and compliance personnel and the audit and compliance committee. The Resource Guide is one of several resources that can be referenced by the general counsel and the chief compliance officer as they work together to support the organization’s audit and compliance committee in reviewing compliance program effectiveness.

On January 26, 2017, the US District Court for the Western District of Virginia rejected a defendant’s attempt to invoke collateral estoppel principles to dismiss an indictment for fraud.  In United States v. Whyte, the defendant, Whyte, argued that the indictment should be thrown out because a jury had previously found in his favor after trial of a relator’s civil qui tam claims under the False Claims Act (U.S. ex rel. Skinner v. Armet Armored Vehicles and William Whyte, W.D. Va. June 4, 2015), based on allegations of fraud that overlapped with those in the indictment.  Whyte argued that the jury’s verdict established that no fraud was committed, and that the government, as real party in interest in the qui tam case, had the full opportunity to litigate the issues.  Accordingly, Whyte contended that collateral estoppel mandated dismissal.

The district court disagreed, and its opinion rested on the fact that the government did not intervene in the qui tam action.  The court found that the government’s declination meant that the collateral estoppel doctrine’s requirement that the parties to the prior case and the case at bar be identical was absent.  The court acknowledged that party identicality for estoppel purposes can exist where there where “there is such a degree of affinity of interests of the person who was not a formal party to the prior proceeding, as to render the doctrine of collateral estoppel applicable.”  In re Goldschein, 241 B.R. 370, 374 (D. Md. 1999) (citing Va. Hosp. Assoc. v. Baliles, 830 F.2d 1308, 1312 (4th Cir. 1967)).  But it held that in such cases, the non-party must have had the ability to control the prior proceedings.  While the government is a “real party in interest” in a declined qui tam, the court determined that it lacks the ability to control the litigation.  The court reasoned:

By statute, if the government elects not to intervene, it retains no right to control the litigation in any meaningful way.  It may not issues subpoenas, conduct depositions, propound discovery, call witnesses, or cross-examine the defendant’s witnesses. It is entitled to receive pleadings and deposition transcripts, but no more. In instances in which the government elects not to intervene, it cannot reasonably be argued that the government had a ‘full and fair opportunity to litigate’ the issues.

The court further opined that any contrary holding would render meaningless the government’s statutory election decision.  “If the government were bound by private actors prosecuting FCA cases in its name, there would be no purpose to Congress’s decision to permit the government to elect to intervene, or to decline to intervene.  Under Whyte’s proposed interpretation, the government would be forced to be a party regardless of its intervention decision.”

The court’s characterization of the government’s lack of control over a declined qui tam case fails to address the  statutory tools available to the government. Among other things, the government can seek a stay of discovery if the discovery being conducted by the relator is interfering with a parallel criminal investigation or prosecution; it frequently files statements of interest in declined qui tams espousing its views on the legal issues in play in the case; it can object to a settlement between the relator and the defendant and must consent to any dismissal of the action by the relator; the government can settle a case over the objection of the relator and has a broad right to dismiss any FCA case.  Further, a declination decision is not final–the government can later seek to intervene for “good cause” as the case progresses.  Whether these examples suffice to establish “control” for collateral estoppel principles is a question that the Whyte court would presumably answer in the negative, but the notion that the government lacks any control over an FCA case in which it has declined to intervene ignores the many avenues pursuant to which the government can (and does) exert control.  And the irony here is that while the defendant escaped civil fraud liability notwithstanding the lower preponderance of the evidence standard of proof applicable to such claims, he now must face criminal fraud charges which the government must prove beyond a reasonable doubt.

According to a report released last week, the Health Care Fraud and Abuse Control Program (HCFAC) returned over $3.3 billion to the federal government or private individuals as a result of its health care enforcement efforts in fiscal year (FY) 2016, its 20th year in operation. Established by the Health Insurance Portability and Accountability Act of 1996 (HIPAA) under the authority of the Department of Justice (DOJ) and the Department of Health and Human Services (HHS), HCFAC was designed to combat fraud and abuse in health care. The total FY 2016 return represents an increase over the $2.4 billion amount reported by the agencies for FY 2015.

The report serves as a useful resource to understand the federal health care fraud enforcement environment. It highlights costs and returns of federal health care fraud enforcement, providing not only amounts recovered from settlements and awards related to civil and criminal investigations but also outlining funds allocated for each departmental function covered by the HCFAC appropriation. Total HCFAC allocations to HHS for 2016 totaled $836 million (approximately $255 million of which was allocated to the HHS Office of Inspector General (OIG)) and allocations to DOJ totaled $119 million. The report touts a return on investment of $5 for every dollar expended over the last three years.

The report also includes summaries of high-profile criminal and civil cases involving claims of violations of the False Claims Act (FCA), among other claims. The cases include OIG and HHS enforcement actions as well as some of those pursued by the Medicare Fraud Strike Force, which is an interagency task force composed of OIG and DOJ analysts, investigators, and prosecutors. Successful criminal and civil investigations touch virtually all areas of the health care industry from various health care providers to pharmaceutical companies, device manufacturers and health maintenance organizations, among others.

The report follows an announcement by the DOJ last December declaring FY 2016’s recovery of more than $4.7 billion in settlements and judgments from civil cases involving fraud and false claims in all industry sectors to be its third highest annual recovery, the bulk of which, $2.5 billion, resulted from enforcement in the health care industry.

On December 19, 2016, the US Department of Health and Human Services Office of Inspector General (OIG) posted a report examining the Centers for Medicare & Medicaid Services’ (CMS’s) “2-Midnight Rule.” The OIG concluded that although the number of inpatient stays decreased and the number of outpatient stays increased under the 2-Midnight Rule, Medicare paid nearly $2.9 billion in fiscal year 2014 for potentially inappropriate short inpatient stays. The OIG recommended that CMS improve oversight of hospital billing.

Read the full article.

On November 15, the US District Court for the Northern District of California granted Scottsdale Insurance Company’s motion for judgment on the pleadings in Hotchalk, Inc. v. Scottsdale Insurance Co. (Case No. 4:16-CV-03883), ruling that Scottsdale is not required to defend or indemnify Hotchalk from a 2014 False Claims Act (FCA) suit (and subsequent settlement). Hotchalk, an education technology company, was a Scottsdale policyholder and sought coverage related to a qui tam suit that alleged improper employee incentives for student recruitment. The court ultimately found that the underlying allegations related directly to the company’s professional services, and thus were barred from coverage based on a professional services exclusion in Hotchalk’s policy.

Continue Reading District Court Lets Insurer off the Hook from Defending FCA Suit

The Yates Memo has many landscape-changing implications for corporate investigations, including the need for enhanced Upjohn warnings and the potential suppression of joint-defense agreements between corporations and their constituents (officers, directors, employees, shareholders). This new terrain exists because in order to receive cooperation credit from the government, companies must investigate and disclose all facts about corporate wrongdoers. With the spotlight shining on corporate actors from the outset, there will be an inevitable increase in individuals seeking to have independent counsel represent them early in the investigatory process. Defense costs will surely escalate under the new Yates directive. This has several important implications for D&O liability insurance coverage.

Read more here.

On May 31, 2016, the Supreme Court of the United States granted certiorari in the False Claims Act (FCA) case of State Farm Fire and Casualty Co. v. United States ex rel. Cori Rigsby and Kerri Rigsby.  At issue is 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.

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.  This investigatory period can, on occasion, extend for years.

According to State Farm’s petition for certiorari, the relators in this case intentionally violated the seal by alerting the media to the FCA allegations in their complaint.  State Farm argued that relators did so in order to “to fuel a media campaign designed to demonize and put pressure on State Farm to settle,” hiring “one of the nation’s most prominent public relations firms to assist them with this all-out campaign, which featured the Rigsbys in media interviews, filming, and photo shoots.”  The US District Court for the Southern District of Mississippi declined to dismiss relators’ complaint on the basis of the seal violations, and the US Court of Appeals for the Fifth Circuit affirmed that decision, holding that the seal violations did not warrant dismissal.  The Fifth Circuit, however, acknowledged a three-way circuit split on this issue. Continue Reading Does Violation of the Seal Requirement Require Dismissal? Supreme Court Will Decide

On April 7, a Texas jury handed a victory to Abbott Laboratories in a 10-year False Claims Act litigation battle with the relator concerning the off-label use of its products by physicians.  This is the latest in several cases over the past few years that cast doubt on the viability of an off-label marketing theory to form the basis of an FCA action.

Continue Reading Decade Old Device Off-Label Marketing Case Ends with Manufacturer Win