False Claims Act (FCA)
Subscribe to False Claims Act (FCA)'s Posts

First Circuit Affirms Dismissal of Former Sales Representative’s False Claims Act Claims Against Medical Device Manufacturer

On December 16, 2016, the US Court of Appeals for the First Circuit issued an opinion in United States ex rel. Hagerty v. Cyberonics, Inc. (Case No. 16-1304) affirming the US District Court for the District of Massachusetts’ dismissal of a relator’s False Claims Act (FCA) claims for failure to plead the alleged fraudulent scheme with the level of particularity required by Federal Rule of Civil Procedure 9(b).

The relator, a former sales representative of medical device manufacturer Cyberonics, Inc., alleged that his former employer had engaged in a scheme to overbill the government by encouraging unnecessary, untimely surgical procedures to prematurely replace batteries in patients’ Vagus Nerve Stimulator (VNS) devices. The relator alleged that while VNS devices, implanted to treat patients with refractory epilepsy, have battery lives of eight to nine years, Cyberonics adopted a sales strategy designed to result in battery replacements after four to five years.


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

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.


Supreme Court Determines that Seal Violation Does Not Mandate Dismissal

On December 6, 2016, the Supreme Court of the United States decided State Farm Fire and Casualty Co. v. United States ex rel. Cori Rigsby and Kerri Rigsby. At issue was 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. In a unanimous decision, the Court concluded that violation of the seal does not mandate dismissal, affirming a lower court decision to deny the defendant’s motion to dismiss.

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.

Justice Kennedy, writing for the Court, reasoned that the text of the False Claims Act (FCA) makes no mention of a remedy as harsh as dismissal. The Court also noted that the FCA was intended to protect the government’s interests, whereas mandatory dismissal would run contrary to those interests, as it would put an end to potentially meritorious qui tam suits. Although the Court made no definitive ruling as to what sanction would have been appropriate, it did note that dismissal “remains a possible form of relief,” while “[r]emedial tools like monetary penalties or attorney discipline remain available to punish and deter seal violations even when dismissal is not appropriate.”

We previously wrote about this matter, here.

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

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.


Government’s Case Dismissed Due to Inability to Allege False Claims With Particularity

The United States District Court for the Middle District of Florida recently dismissed the government’s False Claims Act case against Liberty Ambulance Service, Inc. for failure to plead its claims with sufficient particularity.  The court in United States ex rel. Pelletier, No. 3:11-cv-00587 (M.D. Fla. Jan. 7, 2016), held that while the government’s allegations plausibly gave rise to relief on its claim that the defendant defrauded the government by falsifying reports of ambulance services provided, the government nonetheless failed to meet the particularity requirement of Rule 9(b).

The crux of the court’s decision was that the government failed to sufficiently allege that Liberty had actually submitted a false claim to the government.  The court reiterated the often-invoked standard that liability under the FCA attached “not to the underlying fraudulent activity or to the government’s wrongful payment but to the “claim for payment.’”  Thus, the court stated, “a False Claims Act plaintiff may not describe an improper scheme in detail and assume that a claim for payment must have been or likely was submitted based on the scheme.”

The court observed that the government had alleged in detail the fraudulent scheme to falsify records:  “the government’s complaint and supporting materials go into great detail regarding a scheme whose purpose may well have been to secure payment from the government based on false claims.”  Yet the government’s allegations failed to allege with sufficient particularity that Liberty has actually submitted false claims. Despite presumably having access to the submitted claims, the government could not identify a single false claim submitted by the defendant.  Nor were any of the government’s witnesses “involved with the actual submission of claims to the government or the receipt of payment from the government.”  Unable to cite specific false claims and without “first-hand knowledge of Liberty’s internal billing practices,” the government could not meet Rule 9(b)’s particularity requirement.

The court distinguished the U.S. Court of Appeals for the Eleventh Circuit’s decision in United States ex rel. Walker v. R&F Prop. of Lake County, Inc., 433 F.3d 1349 (11th Cir. 2005), where that court had affirmed the denial of a motion to dismiss an FCA claim despite the plaintiff’s failure to specifically identify any false claim.  In Walker, the plaintiff had some knowledge of the defendants’ billing practices and had spoken to an office administrator who confirmed how the government was billed.  Here, by contrast, the court held, the statements of the defendant’s employees that the government offered did “not demonstrate the same degree of familiarity with the billing process as would provide the indicia of reliability necessary to meet the Rule 9(b) standard.”

The court’s decision confirms the importance of holding an FCA plaintiff—whether a relator or the government—to its burden of pleading its claims with particularity.  Even where the plaintiff can allege a plausible scheme to defraud the government, without a particularized accusation that false claims were submitted, the FCA case cannot proceed.

Northern District of Georgia finds Fresenius did not violate the FCA

On October 30, 2015, the United States District Court for the Northern District of Georgia granted Fresenius Medical Care Holdings, Inc.’s (Fresenius’s) motion for summary judgment in United States ex rel. Saldivar v. Fresenius Medical Care Holdings, Inc., No. 1:10-CV-1614-AT. The district court, in a 108-page decision, found that the undisputed evidence showed that no reasonable jury could find that that Fresenius acted “knowingly.” Thus, the relator could not prevail on his claims.

The relator had alleged that Fresenius violated the False Claims Act (FCA) by billing Medicare for the overfill in medication vials, which is included to facilitate the extraction of the amount labeled on the vial. While the district court did find that billing for the overfill was impermissible, it determined that the relator could not prove that Fresenius either knew it was impermissible, or “acted with deliberate ignorance or reckless disregard as to the impermissibility of billing for administered overfill.”

The district court analyzed whether Fresenius knew that “the overfill was not reimbursable under the Medicare rules and regulations.” The court discussed actual knowledge, finding that the relator presented no evidence that Fresenius actually knew it should not have sought Medicare reimbursement for overfill. The court also held that the evidence presented by the relator would not support a finding that Fresenius recklessly disregarded the statutory or regulatory requirements because Fresenius’s interpretation of the statutory and regulatory scheme was reasonable. In reaching its decision, the court pointed to the following facts:

  • During the relevant time, the law was silent on the issue of billing for overfill;
  • Fresenius relied on counsel in determining that Medicare would reimburse overfill;
  • Fresenius and its counsel made this decision partly based on the belief that many companies had billed overfill for years, and the government knew about it but took no action;
  • Fresenius had disclosed its overfill billing to the government on multiple occasions in previous years, but the government never warned Fresenius that such billing was impermissible;
  • Fresenius was very serious in its efforts to comply with Medicare rules and regulations; and
  • The relator had no evidence to counter any of the above.

The district court rejected the relator’s argument that Fresenius had the necessary pieces to conclude that overfill billing was impermissible, finding that the relator nonetheless could not establish that Fresenius was reckless.

The court’s decision in this case shows the importance of thoughtful decision-making and appropriate disclosures in the face of a frequently cloudy regulatory scheme. While relators will continue to stretch facts to try to prove knowledge or intent, a number of recent decisions, including this one and others on which we previously reported (Issues of Fact Must Really Be Genuine: Another District Court Ends a Relator’s FCA Suit on Scienter Grounds, Omnicare Decision Demonstrates that Relators Cannot Rely on Ambiguous Evidence of Intent to Survive Summary Judgment, and Should Exercise Caution and Recent Decisions Serve as Reminder that Scienter is a Fertile Ground for [...]

Continue Reading

Recent Decisions Serve as Reminder that Scienter is a Fertile Ground for Pre-Trial Disposition

Last week, two different district courts dismissed False Claims Act (FCA) claims on scienter grounds — one on a motion to dismiss and one at summary judgment. While FCA plaintiffs frequently claim that scienter is a fact-intensive inquiry best resolved by the factfinder, this is often not the case, as these two decisions underscore. FCA defendants should always explore every possible opportunity to seek dismissal based on lack of knowledge or recklessness, first on the pleadings and, failing that, at summary judgment.

On August 19, the U.S. District Court for the Eastern District of Pennsylvania granted a motion for summary judgment on scienter grounds in U.S. ex rel. Budike v. PECO Energy, in which the relator alleged FCA violations based on purported overcharges for electricity to the U.S. Navy.  The court held that where the evidence showed that PECO addressed and attempted to resolve malfunctions with a meter, the relator could not establish recklessness. Although there was evidence that the meter was malfunctioning and the defendant was unable to fix it, this was insufficient: “PECO’s ineptitude in successfully repairing the meter does not, alone, trigger FCA liability.”

On August 20, the U.S. District Court for the Northern District of Illinois granted a motion to dismiss, also on scienter grounds, in U.S. ex rel. Sibley v. A Plus Physicians Billing Service, Inc.  This case involved the alleged use of false or altered reimbursement codes. The court held that the relator had failed to allege scienter on the part of the president of the billing service:

The only allegations relator makes specifically about Schoewe are that: (1) he is the president and a co-owner of A-Plus and is “responsible for submitting the claims” created by its billers; (2) he, along with [his codefendant], “trained [relator] on the job”; (3) he told relator that “her bonus depended on maintaining a certain level of reimbursements”; (4) relator “complained to … [him] about being asked to bill improperly”; (5) he promised [clients] … that A-Plus would “continue billing in the same fashion”; (6) he told relator that he was “okay” with her “billing [the clients’ account] properly”; and (7) he ordered relator get approval for [client] claims she had not submitted for lack of documentation.  These allegations are insufficient to state an FCA claim against Schoewe in accordance with Rule 9(b).

However, the Sibley court did not dismiss the complaint against the codefendant who, as relator’s supervisor, was alleged to have specifically instructed relator to select codes to maximize reimbursement rather than to reflect actual services provided.

Sibley is also notable inasmuch as it held that a retaliation claim under the FCA, even after the 2009 amendments, cannot be maintained against individuals.

While factually very different, these two district court outcomes indicate that courts will scrutinize allegations and purported evidence of scienter and that, in many instances, whether a defendant has acted with knowledge or recklessness should not make it to the factfinder.

Condition of Payment Limitation on Implied Certification Cases is Alive and Well in the D.C. Circuit

To the extent there was ever any doubt about the vitality the “condition of payment” limitation on “implied certification” False Claims Act (FCA) cases in the D.C. Circuit, the court put that doubt to rest on Friday, July 10 in United States ex rel. Davis v. District of Columbia, No. 14-7060, 2015 WL 4153919 (D.C. Cir. Jul. 10, 2015).

Davis involved a relator’s allegations that the District of Columbia failed to maintain records to support the cost reports it submitted to the D.C. Medical Assistance Administration, in violation of recordkeeping regulations. The court reversed the district court’s award of summary judgment for the relator, on the grounds that the relator had not shown a “knowing” violation of the regulations. However, in doing so, it took the opportunity to clarify its stance on implied certification cases under the FCA:

To establish knowledge on the basis of an implied certification, Davis had to prove that the District… knew both that it violated a legal obligation and that its compliance was a condition of payment (emphasis added).

The court went on:

Not all failures to comply with a federal statute or regulation expose a provider to liability under the False Claims Act. “[A] false certification of compliance with a statute or regulation cannot serve as the basis for a qui tam action under the [False Claims Act] unless payment is conditioned on that certification.” United States ex rel. Siewick v. Jamieson Sci. & Eng’g, Inc., 214 F.3d 1372, 1376 (D.C. Cir. 2000).  In other words, a defendant may be held liable under the False Claims Act for falsely certifying it complied with a statute or regulation only if “certification was a prerequisite to the government action sought.” Id. The parties dispute whether the regulations the District allegedly violated are conditions of payment, rather than conditions of participation in the Medicaid program. Several of our sister circuits have recognized the difference and cautioned against treating all Medicare and Medicaid regulations as conditions of payment.

The D.C. Circuit chose not to decide whether the regulations at issue were, in fact, conditions of payment, grounding its decision in resolution of the knowledge question. Accordingly, it did not need to say all that it did about the necessity of a condition of payment in an implied certification case.  But the fact that it addressed this issue—and answered it in the affirmative—is a welcome development for FCA defendants, given the court’s decision several years ago in United States v. Sci. Applications International Corp., 626 F.3d 1257, 1266 (D.C. Cir. 2010) (“SAIC”). SAIC contained expansive language onto which some relators have seized, interpreting that case as a rejection of the condition of payment requirement in favor of a more amorphous and fact-driven materiality standard. Davis silences those erroneous interpretations.