In a January 10, 2019 decision, the US District Court for the District of Arizona granted summary judgment to Defendants because Relators failed to raise a genuine issue of material fact on the issue of “knowledge” under the False Claims Act (FCA) which, as everyone knows by now, includes deliberate ignorance or reckless disregard. The decision is significant for the simple fact that courts can be reluctant to address scienter on summary judgment, and in many cases prefer to simply let the issue go to trial. Moreover, the court’s opinion makes clear that corrections to claiming issues and improvements to systems that result in better claims submission do not function as evidence of knowledge or recklessness under the FCA. In tort law parlance, “remedial measures” are not evidence of fraud.

In Vassallo v. Rural/Metro Corp., a qui tam lawsuit in which the government declined to intervene (but filed a statement of interest attempting to support the Relator’s opposition to summary judgment), the allegations primarily concerned Defendants’ transition from using internal coders to an outside coding vendor to code claims for ambulance transports. There were some alleged issues with the coding performed by the outside coding company, which Defendants worked to improve and correct during and after the transition. Notably, Defendants had been operating under a Corporate Integrity Agreement (CIA) during the time period at issue, and consistently received positive results from the Internal Review Organization (IRO) with respect to coding, billing and claims submission.

The district court held that no reasonable jury could have found that Defendants acted with deliberate indifference or reckless disregard. Relators contended, among other things, that Defendants’ transition to the outside coding vendor was reckless, and that they completed the transition despite knowing about the vendor’s coding and billing errors and issues. In response, Defendants pointed to evidence regarding their training and oversight efforts, their instructions that the vendor’s coders should undercode if they had any doubt about the correct code to be used, their positive results under the CIA, and their retention of Deloitte to address any continued issues with the vendor’s coding. Continue Reading Process Improvements Not a Basis to Establish Scienter: District Court Grants Summary Judgment to Defendants

On December 21, just before the government shutdown began, the Civil Division of the US Department of Justice (DOJ) announced its fiscal 2018 False Claims Act (FCA) statistics.  According to DOJ, FCA judgments and settlements totaled over $2.8 billion for the year.

While this number is the lowest total since 2009, the reason for this result is related to a drop in non-health care related cases.  In fact, the statistics show that health care remains the top driver of FCA activity, both in the number of cases filed and total dollars recovered; only about $370 million of the $2.8 billion, or about 13 percent, came from non-health care cases. Almost all of the fiscal 2018 number–over $2.5 billion–came from cases involving the Department of Health and Human Services (HHS). This appears to be the largest percentage of the total recoveries since DOJ began reporting these statistics in 1987. $1.9 billion of this $2.5 billion came from qui tam cases (also resulting in over $266 million in relator share awards). Indeed, 2018 continued the trend into the ninth consecutive year where health care case recoveries exceeded $2 billion.

The overall number of new FCA matters also fell for the second year in a row; 767 new cases were filed in 2018, with 645 of them filed by relators. Interestingly, the number of new HHS cases also is trending downwards. 2018 saw 506 new HHS cases, 446 of which were filed by relators. In 2017, DOJ reported 550 new HHS cases (495 from relators) and 573 new HHS cases (503 from relators) in 2016, which was the all-time high record of new HHS cases. The 2018 total is consistent with number of new HHS cases filed since 2010.

DOJ’s press release notably emphasized three policy issues outside of dollars that have defined DOJ’s FCA activities in 2018: the continued focus on alleged violations of the Anti-Kickback Statute, 42 U.S.C. § 1320-7b; the movement seek dismissal of unmeritorious cases as discussed in the Granston Memo; and “holding individuals accountable” by seeking monetary resolutions with individuals in addition to corporations. We should expect all three of these trends to continue into 2019.

DOJ’s 2018 False Claims Act statistics can be found here and the press release can be found here.

On November 16, 2018, the United States Supreme Court granted certiorari in United States ex rel. Hunt v. Cochise Consultancy, Inc., 887 F.3d 1081 (11th Cir. 2018). The question presented to the Court is “whether a relator in a False Claims Act qui tam action may rely on the statute of limitations in 13 U.S.C. § 3731(b)(2) in a suit in which the United States has declined to intervene and, if so, whether the relator constitutes an “official of the United States” for purposes of Section 3731(b)(2).”

Section 3731(b) requires an FCA case be filed either (1) six years after the date on which the violation…is committed, or (2) three years after the date when facts material to the right of action are known or reasonably should have been known by the official of the United States charged with responsibility to act in the circumstances, but in no event more than 10 years after the date on which the violation is committed, whichever is later.

In Cochise Consultancy, Inc., the Eleventh Circuit held that § 3731(b)(2) was available to a relator in a non-intervened case. The court also held that the relevant person whose knowledge triggers the limitations period is an official of the United States.

The Eleventh Circuit’s decision deepens the divide among circuits as to how to apply § 3731(b)(2), creating a three-way circuit split. The decision is a departure from the Fourth Circuit and Tenth Circuit. Both courts determined that § 3731(b)(2) extends the statute of limitations period only if the government is a party. See United States ex rel. Sanders v. N. Am. Bus Indus., Inc., 546 F.3d 288 (4th Cir. 2008); United States ex rel. Sikkenga v. Regence BlueCross BlueShield of Utah, 472 F.3d 702 (10th Cir. 2006).

The decision is also a departure from the Third Circuit and Ninth Circuit. The Third Circuit and Ninth Circuit also held that § 3731(b)(2) is available when the government does not intervene.  However, the three-year period depends on the relator’s knowledge. See United States ex rel. Malloy v. Telephonics Corp., 68 F. App’x 270 (3d Cir. 2003); United States ex rel. Hyatt v. Northrop Corp., 91 F.3d 1211 (9th Cir. 1996).

The Supreme Court’s decision to tackle this issue will provide clarity to businesses subject to the FCA because it will likely provide an answer as to how long a relator has to bring an action when the government has not intervened. It could also do away with any forum shopping that relators currently have the ability to engage in.

The Office of Inspector General, Department of Health and Human Services posted an unusual negative Advisory Opinion (AO 18-14) on a drug company’s proposal to provide free drugs to hospitals for use with pediatric patients suffering from a form of epilepsy. Of particular interest is OIG’s reliance on a longstanding, but rarely used, authority to justify finding and relying on public information about the drug at issue, including pricing information, to support its unfavorable conclusion. This advisory opinion might counsel future opinion requestors to withdraw their opinion request once OIG indicates the opinion will be unfavorable.

Click here to read the full post.

The October issue of the journal Science features a series of short articles highlighting a database containing a list of more than 18,000 scientific papers and conference abstracts that have been retracted over the past several decades. An analysis of the database shows that nearly 60 percent of retraction notices mentioned fraud or other kinds of misconduct (the balance of which were retracted because of errors, problems with reproducibility and other issues). The Science article, as well as a link to the searchable database, can be accessed here. Not only does research misconduct have significant potential for reputational harm–potentially career ending for the investigator, with ripple effects for the institution–but as described below, when the associated research is federally funded, such misconduct could have significant legal (and liability) implications.

US health care organizations are used to warnings about the potential for exposure under the federal False Claims Act (FCA) resulting from improper claims submitted to federal payors such as Medicare and Medicaid. Less attention has been paid to the potential for FCA liability resulting from research non-compliance. Recipients of federal grant funding are subject to a variety of complex rules (e.g., the National Institute of Health (NIH)  Grants Policy Statement), as well as the terms and conditions of the Notices of Award.  Just as compliance with Medicare rules can lead to questions about potential FCA exposure for Medicare payments, compliance with federal grant funding rules can lead to the same questions for grant funds.

For example, grant recipients should consider the FCA implications of research misconduct. “Research misconduct” is defined by the Public Health Services’ (PHS’s) final rule, effective  June 2005 (the Rule), as the “fabrication, falsification, or plagiarism in proposing, performing, or reviewing research, or in reporting research results.” 42 C.F.R. § 93.103. The Rule confers upon an organization an affirmative duty to protect PHS funds from misuse by ensuring the integrity of all PHS supported work, and primary responsibility for responding to and reporting allegations of research misconduct. 42 C.F.R. § 93.100(b). The Rule applies to grant funding from a variety of federal agencies, including the Food & Drug Administration, NIH, Centers for Medicare and Medicaid Services, and the Substance Abuse and Mental Health Services Administration, to name a few.

Continue Reading Practice Reminder: Research Misconduct can be a Source of False Claims Act Liability

At a time when health care organizations are facing greater financial and reputational costs than ever before, more than 150 health care industry leaders, legal and compliance executives, and investors gathered for McDermott’s Health Care Litigation, Compliance & Investigations Forum at the Ritz-Carlton in Chicago to discuss strategies for proactively managing and effectively responding to compliance risks, investigations and litigation.

Sylvia Mathews Burwell, Secretary of Health and Human Services from 2014 to 2017, delivers the keynote presentation.

The event covered a wide range of issues, including fraud and abuse (such as False Claims Act and Stark Law matters), governance, cybersecurity, antitrust, white-collar, intellectual property, products liability and tax-exemption disputes. The event also featured a keynote address by Sylvia Mathews Burwell, Secretary of Health and Human Services from 2014 to 2017, on the foundations of the Affordable Care Act (ACA), the ramifications of the elimination of the individual mandate and the ACA’s prospects going forward.

If your organization needs support in current litigation or wants to ensure best practices to help avoid one, we’re here to help.

Below are key insights from the sessions:

Every Day’s Adventure: How Leading GCs Are Thinking about Compliance and Enforcement

  • Collaboration between the general counsel and the compliance officer provides a proactive and team-oriented approach to substantive legal and policy issues.
  • Keys to effective collaboration include communication, coordination and a culture of sharing, coupled with respect for the independence of the compliance/audit function.
  • Transparency is key; bad news is OK, but surprises are not. Stay closely engaged with the board and internal audit team. Of audience members surveyed, 40 percent brief their board on legal or compliance matters about once a quarter, and 47 percent do so every board meeting.
  • Preventative compliance measures involve a formal enterprise risk management plan and proactive two-way communication with line teams regarding trends and solutions.

Continue Reading Best of McDermott’s 2018 Health Care Litigation, Compliance & Investigations Forum

The False Claims Act (FCA) allows the government to pursue any “alternate remedy available” if the government chooses not to intervene in a qui tam action. See 31 U.S.C. § 3730(c)(5). However, if the government pursues an “alternate remedy,” the FCA gives the qui tam plaintiff the “same rights” in the “alternate” proceeding that the plaintiff would have had if the qui tam action “had continued.” Id. In U.S. v. Couch et al., the question before the United States Court of Appeals for the Eleventh Circuit was whether the FCA allows a qui tam plaintiff to intervene in a criminal forfeiture proceeding when the government chooses to prosecute fraud rather than intervene in the qui tam plaintiff’s action. No. 17-13402 (Oct. 17, 2018). The Eleventh Circuit held that criminal forfeiture law bars qui tam plaintiffs from intervening in related forfeiture proceedings.

Background

The suit stemmed from a qui tam action brought by Lori Carver, a former employee of an Alabama-based pain management company. During her employment, Carver allegedly discovered that the two doctors that ran the clinic, John P. Couch and Xiulu Ruan, submitted false claims to federal health care programs. Carver took her information to the US Attorney’s office, which encouraged her to bring a qui tam action against the doctors and the clinic. Carver brought the qui tam action in 2013 and the case remains pending. Carver is litigating the case herself, because the government chose not to intervene.

With Carver’s information, the government began investigating Dr. Couch and Dr. Ruan. Two years after Carver brought her qui tam action, the government criminally charged both doctors with conspiracy to distribute controlled substances and conspiracy to commit health care fraud. The charges in the indictment partially overlapped with Carver’s qui tam complaint. Thereafter, more defendants and charges were added to the criminal case in subsequent, superseding indictments. A jury ultimately convicted Couch on all charges and Ruan on all but one charge, which resulted in the judge issuing a preliminary forfeiture order.

Carver moved to intervene in the forfeiture proceedings, asserting a right to some of the forfeited assets. Carver primarily argued that the alternate-remedy provision allows her to intervene to claim a share of the assets she would be entitled to if the government had intervened in her qui tam action.

In response, the government argued that Carver did not have standing to intervene under the alternate-remedy provision because her qui tam case is pending—meaning that Carver has not yet established a right to a relator’s share. The government also argued that the FCA does not permit intervention in criminal cases.

The district court denied Carver’s motion to intervene and ruled that the alternate-remedy provision does not permit intervention in criminal cases.

Appeal Before Eleventh Circuit

The Eleventh Circuit took issue with the government’s jurisdictional arguments. The Eleventh Circuit concluded that Carver had standing to assert that the alternative-remedy provision gives her a right to intervene in criminal forfeiture proceedings and claim an interest in the forfeited property.

The Eleventh Circuit rejected the government’s claim that Carver’s potential property interest in the forfeited assets was too “speculative.” While the Eleventh Circuit agreed that no court had yet adjudicated whether Carver was entitled to a relator’s share, it noted that if this were enough to deprive the panel of jurisdiction, “no person claiming a property interest would ever get into federal court.”

Turning to the substantive issues, the Eleventh Circuit noted that whether a criminal fraud prosecution is an “alternate remedy” is an open question. Applying statutory construction to interpret the alternate-remedy provision of the FCA, the Eleventh Circuit held that the three criminal forfeiture statutes at issue each expressly bar third parties from intervening in forfeiture proceedings to claim an interest in property subject to forfeiture: “these criminal forfeiture statutes speak to the precise issue raised in this appeal, and they make plain that [Carver] has no right to intervene.”

The Eleventh Circuit noted that its ruling will not prevent Carver from getting her relator’s share, with the government having provided a related assurance to the court that if Carver is successful in her FCA case, she will be entitled to her share of the judgment, including the restitution already paid, which can be offset against the FCA judgment.

On August 20, 2018, U.S. District Judge Algenon L. Marbley of the United States District Court for the Southern District of Ohio granted summary judgment in favor of The Brink’s Company (Brink’s), concluding that Regional Federal Reserve Banks (RFRB) are not “the Government” for purposes of the federal False Claims Act (FCA).

The relator’s qui tam action was premised on an alleged penny-swapping scheme. Brink’s and other armored carriers regularly enter Coin Terminal Agreements (CTA) with RFRBs to transport and store coins. Pursuant to one such CTA, Brink’s received, weighed, tracked and stored the Federal Reserve Bank of Cleveland’s coins and provided similar services to other customers. Although Brink’s maintained electronic records of the coins in its inventory, it did not segregate physical coins by customer.

The relator, a former Brink’s employee, alleged Brink’s violated its contract with the Federal Reserve Bank of Cleveland and defrauded the government by engaging in a penny-swapping scheme with Jackson Metals. In essence, the relator alleged that Brink’s entered into a secret agreement, allowing Jackson Metals to purchase commingled pennies, cull out the pennies minted prior to 1982, and replace them with pennies minted after 1982. Pennies minted prior to 1982 have a higher metallurgical value because of their copper content. The replacement pennies are made from lower-value zinc. The relator argued that this penny-swapping scheme deprived the government of the value of the copper.

In moving for summary judgment, Brink’s argued, in part, that the FCA did not apply because RFRBs are not “the Government” under the FCA. The court agreed. First, Judge Marbley examined the structure of the Federal Reserve. He contrasted the Board of Governors with RFRBs, noting that RFRBs “are ‘private corporations whose stock is owned by the member commercial banks within their district.’” Continue Reading Southern District of Ohio Concludes that Regional Federal Reserve Banks are not “the Government” Under the FCA

On October 1, 2018, the District Court for the Northern District of California dismissed with prejudice a relator’s qui tam suit against Carelink Hospice Services, Inc. (Carelink) for failure to meet the heightened pleading standards mandated by Federal Rule of Civil Procedure 9(b). The court’s decision largely rested on the relator’s inability to specifically plead the existence of identifiable false claims—a strong affirmation that, in the Ninth Circuit, courts continue to hold relators to their pleading burdens.

The relator worked for Carelink, a hospice provider, for a three-month period in 2015. As a hospice provider, Carelink needed to provide certifications of terminal illness to justify admissions to the facility and, in turn, receive reimbursements from Medicare for services rendered. The relator, without identifying particular claims for reimbursement or patients, alleged that Carelink violated the FCA by seeking reimbursement for patients who Carelink knew were not terminally ill. The court seized upon the relator’s inability to point to specific claims in rendering its dismissal of the case.

Relying on Rule 9(b)’s particularity requirement, the court dismissed the relator’s complaint due to her failure to identify, with the required specificity, actual false claims. The court noted that the relator “relies on general allegations that Carelink presented false claims” but failed to “identify any reimbursements from Medicare[.]” The court came to this conclusion despite the relator’s citation to four patients about whom she alleged to have raised eligibility concerns. The court reasoned that these allegations, without “describ[ing] the nature of [her] concerns or her basis for believing the four individuals” were not eligible for Medicare reimbursements, were not enough to satisfy Rule 9(b).

The court concluded that the relator “fail[ed] to identify with particularity what ‘claims’ Caremark submitted” that were false because the allegations “do not provide a reasonable basis for [the court] to infer that claims had been submitted on behalf of any particular patient.” The court specifically dispelled the relator’s argument that, based on her extremely limited tenure with Carelink, the Rule 9(b) requirement should be relaxed in her case.

This decision confirms that, in the Ninth Circuit, a relator must allege the existence of specific, particularized, identifiable false claims submitted to the government. This confirmation serves as a strong defense against relators who do not sufficiently allege the “who, what, when, where, and how” of their FCA claims.

In the latest installment of Health Care Enforcement Quarterly Roundup, we examine key enforcement trends in the health care industry that we have observed over the past few months. In this issue, we report on:

  • Practical applications of recent guidance from the US Department of Justice (DOJ)
  • A recent blow to DOJ’s effort to use the federal False Claims Act (FCA) to attack Medicare Advantage reimbursement
  • Continued enforcement efforts at the state and federal level to combat the opioid crisis
  • Potential changes to the Stark Law and Anti-Kickback Statute
  • Continued reporting on how the lower courts have interpreted the landmark Escobar case

Click here to read the full issue of the Health Care Enforcement Quarterly Roundup.

Join us on for a webinar discussion on Tuesday, October 23. will take a deep dive into the trends and issues covered in this installment of the Health Care Enforcement Quarterly Roundup. Click here to register.