On February 11, 2019, the Eighth Circuit affirmed the dismissal of a group of relators’ qui tam suit against Crawford County Memorial Hospital for failure to meet the pleading standards required by Federal Rule of Civil Procedure 9(b). The court’s decision focused on the relators’ failure to allege the specifics of any actual claim for payment by Crawford County – a solid confirmation that the Eighth Circuit continues to require the pleading of identifiable false claims for payment, even in instances in which a relator is not in a position to have that information.

The three relators were a former EMT and two former paramedics at Crawford County. The relators alleged that Crawford County violated the FCA by submitting, among other things, claims for breathing treatments administered to patients by paramedics, claims for lab services performed by paramedics and EMTs, and claims with false credentials of service providers. The relators further stated that Crawford County used false statements to get these claims paid, including records documenting breathing treatments as taking 30 minutes when they did not, records referring to paramedics as “specialized ancillary staff” for breathing treatments, and documents containing false credentials for emergency staff. The complaint was fairly detailed – it included allegations that Crawford County required paramedics to perform breathing treatments previously provided by nurses, that hospital management told staff the change was explicitly for billing purposes, and that management required the paramedics to document each breathing treatment at 30 minutes, regardless of its actual length. Continue Reading Eighth Circuit Rejects FCA Claim for Failure to Allege Actual Claims for Payment

On May 31, 2017, the US Department of Justice announced a Settlement Agreement under which eClinicalWorks, a vendor of electronic health record software, agreed to pay $155 million and enter into a five-year Corporate Integrity Agreement to resolve allegations that it caused its customers to submit false claims for Medicare and Medicaid meaningful use payments in violation of the False Claims Act.

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The United States Court of Appeals for the Eighth Circuit overturned a district court’s grant of summary judgment in favor of a for-profit college in United States ex rel. Miller v. Weston Educational, Inc. on April 29. The court revived the case despite the relator’s inability to connect an amount paid by the government to any false statement by the college.

The case involved the so-called “fraudulent inducement” theory of False Claims Act (FCA) liability. The defendant, Heritage College, was alleged by the relators to have manipulated the grade and attendance records of some students so that the students would remain eligible for federal loans, scholarships and grants under Title IV. As a result of this falsification of records, the relators alleged, the college had impermissibly received and retained federal funds. The relators alleged fraudulent inducement under the FCA on the basis that Heritage’s Program Participation Agreement (PPA) with the Department of Education (DOE) and associated regulations required it to “establish and maintain such administrative and fiscal procedures and records as may be necessary to ensure proper and efficient administration of funds.”

Heritage claimed that the PPA did not specifically require maintenance of the specific grading and attendance records at issue. The Eighth Circuit’s opinion essentially sidestepped that question and moved to the issued of intent, focusing on what the college understood the provision to mean. The court held that “it is not enough to show that Heritage did not comply with the PPA; Relators must show Heritage, when signing the PPA, knew accurate grade and attendance records were required, and that Heritage intended not to maintain those records.” The court held that there was a genuine issue of material fact concerning the college’s intent when it signed the PPA, pointing to evidence including the alleged practice of altering records. The court noted that “none of the identified altered records impacted Title IV disbursements or refunds undermines Relators’ evidence of intent” and that “most of Relators’ examples of altered records come after the signing of the PPA.” However, it concluded that the evidence was sufficient to survive summary judgment.

Despite its statement regarding a lack of connection between allegedly altered records and government payments, the court held that this had no impact on materiality—an issue the court subsequently addressed. The court held that the lack of connection did not warrant summary judgment on materiality, concluding that Heritage could not have executed the PPA without promising to maintain adequate records. According to the court, Title IV itself, applicable regulations and the PPA all conditioned the college’s ability to enter into the PPA on Heritage’s promise to maintain adequate records. This prerequisite to receiving federal funds, supplied the “causal link” that made the alleged false representation material. Heritage argued that the court’s approach would make any regulatory violation actionable under the FCA, but the court rejoined that relators must still prove an intentional false representation, stating “fraud requires more than breach of promise: fraud entails making a false representation.” Further, “if Heritage intended to deceive the DOE to access Title IV funding, it did more than commit a regulatory violation: It committed fraud.”

The court’s determination of materiality avoids answering the question. In essence, the court appears to hold that if a relator presents evidence indicating that a defendant intended not to comply with any contractual provision or regulation at the time it entered into a payment relationship with the government, that is enough for fraudulent inducement purposes. Moreover, this is the case even if there is no link between the allegedly fraudulent conduct and the receipt of federal money. This relegates, at least at summary judgment, the question of materiality to an empty standard that is indistinct from knowledge, despite the fact that these are unquestionably two separate elements of an FCA claim. We will watch how other courts apply these elements in future “fraudulent inducement” cases under the FCA.