A key area of dispute in False Claims Act (FCA) cases based on Anti-Kickback Statute (AKS) violations is what degree of connection plaintiffs must allege between alleged kickbacks and “false claims.” The AKS states that “a claim that includes items or services resulting from a violation of this section constitutes a false or fraudulent claim for purposes of [the FCA].”

The government and relators typically argue that the mere fact that claims were submitted during the period of alleged kickbacks is sufficient. Defendants argue that the law requires plaintiffs to specifically identify claims “resulting from” an alleged kickback – i.e., that there is proof that the alleged kickback caused the referral or recommendation of the item or service contained in the claim. The Third Circuit’s recent decision in United States ex rel. Greenfield v. Medco Health Systems, Inc. articulated a middle of the road approach.  In affirming summary judgment for the defendants, the Court held that to prevail, plaintiffs must establish that a claim submitted to a federal health care program was “exposed to a referral or recommendation” in violation of the AKS.

The relator, a former area vice president for Accredo, a specialty pharmacy that sells blood clotting drugs and provides nursing assistants to hemophiliacs in their homes, filed a qui tam suit alleging that Accredo violated the AKS and FCA in connection with donations to two charitable organizations that assist the hemophiliac community: Hemophilia Services, Inc. (HSI) and Hemophilia Association of New Jersey (HANJ).  During the time Accredo made monetary donations to HSI and HANJ, the HANJ website allegedly listed Accredo as one of four “approved providers” or “approved vendors” and directed users to “remember to work with our HSI [approved] providers.” In 2010, Accredo notified both charities that it was decreasing its donation the following year. In response, HSI allegedly engaged in activities to persuade Accredo to restore its donation level to previous years, including encouraging its members to contact Accredo to protest the funding cut. The relator was involved in purportedly analyzing the return on investment for returning to previous donation levels. After the relator’s report allegedly projected a significant decline in business in New Jersey if donation levels were not restored, Accredo restored the donation level and relator filed his suit.

The government declined to intervene in this case, but the relator continued the litigation. He argued the expansive view: that the donations amounted to kickbacks, and since Accredo certified compliance with the AKS when submitting Medicare claims, the FCA was violated and, therefore, every claim submitted by Accredo was false. The district court granted summary judgment to Accredo.  The district court declined to decide whether the relator had established an AKS violation, but instead held that the relator did not show sufficient evidence of causation of an FCA violation. The district court held that the relator’s evidence that Accredo submitted claims for 24 federal beneficiaries during the relevant time period, by itself, “did not provide the link between defendants’ 24 federally insured customers and the donations.” The court held that “[a]bsent some evidence….that those patients chose Accredo because of its donations to HANJ/HSI,” the relator could not carry his burden.

On appeal, the government argued that the district court erred to the extent it required proof that patients chose Accredo because of the referrals and recommendations. In the government’s view, all the relator needed to establish was the existence of “a claim that sought reimbursement for medical care that was provided in violation” of the AKS.

The Third Circuit affirmed the district court’s ruling, but for different reasons than those offered by the parties, the government, and the district court. The Third Circuit rejected the relator’s and government’s position that the alleged kickbacks tainted all claims as false by virtue of the kickback.  However, the Court declined to read the “resulting from” language in the AKS to require, as advocated by Accredo and found by the district court, that the relator needed to prove the patients purchased prescriptions from Accredo because of Accredo’s donations to HSI and HANJ. Instead, the Court held that the relator “must show, at minimum, that at least one of the 24 federally insured patients for whom Accredo provided services and submitted reimbursement claims was exposed to a referral or recommendation of Accredo by HSI/HANJ in violation of the AKS.” As explained by the Court, “[a] kickback does not morph into a false claim unless a particular patient is exposed to an illegal recommendation or referral and a provider submits a claim for reimbursement pertaining to that patient.”

This decision is helpful confirmation that relators and the government cannot simply rely on an alleged kickback to demonstrate that a defendant who submits claims to Medicare, violated the FCA.  Defending this type of allegation should include examination of the evidence relied upon to show the connection between the alleged kickback and the purported false claim.  Whether other courts will follow the Third Circuit’s reasoning or follow the “resulting from” language in the AKS and require a stronger connection between a kickback and claim remains to be seen.  This issue will be a continued subject of litigation in these cases.

On April 6, 2018, the U.S. District Court for the Eastern District of Pennsylvania granted a motion for summary judgment filed by a waste company in an implied certification case under the False Claims Act (FCA), holding that the relator failed to satisfy the Supreme Court’s materiality standard announced in the landmark Escobar case.

The claims in U.S. ex rel. Cressman v. Solid Waste Services, Inc. arose from waste company employees discharging leachate, a liquid that passes through or is generated by trash, onto a grassy area at a transfer station, rather than sending the leachate to a treatment plant.  The relator reported the leachate discharge to the Pennsylvania Department of Environmental Protection (DEP), which conducted an investigation.  The waste company cooperated in the investigation, conducted its own investigation, and took corrective steps in response to the allegations.  The company also entered into a consent decree in connection with which it paid a civil penalty.

The relator then filed his qui tam action under the FCA, in which the government declined to intervene.  The relator asserted that the defendant waste company was liable under the FCA because it submitted claims for payment to federal agencies without disclosing its violation of environmental regulations arising from the leachate discharge incident. Continue Reading Another Court Grants Summary Judgment to FCA Defendant Based on Escobar’s Materiality Standard

When is a new qui tam lawsuit derivative of a lawsuit in which the government has already intervened? The US Court of Appeals for the Ninth Circuit answered that question on December 1, 2017, when it decided United States ex rel. Bennett v. Biotronik, Inc. In doing so, the Ninth Circuit addressed the “government action bar” contained in 31 U.S.C. § 3730(e)(3), which states that a relator may not bring a qui tam suit “based upon allegations or transactions which are the subject of a civil suit . . . in which the Government is already a party.”  31 U.S.C. § 3730(e)(3).

The Ninth Circuit in Bennett was faced with False Claims Act (FCA) claims predicated on facts that had already been the basis of a prior qui tam action against the defendant, Biotronik. The government had since settled and dismissed several (but not all) claims in the prior action. The district court dismissed the relator’s complaint based upon the government action bar. In affirming the district court’s dismissal, the Ninth Circuit reached two relevant conclusions. Continue Reading Ninth Circuit Case Provides New Insight into Government Action Bar

Over the last several months, a handful of federal court decisions—including two rulings this summer on challenges to the admissibility of proposed expert testimony—serve as reminders of the importance of (and parameters around) fair market value (FMV) issues in the context of the Anti-Kickback Statute (AKS) and the False Claims Act (FCA).

First, a quick level-set.  The AKS, codified at 42 U.S.C. § 1320a-7b(b), is a criminal statute that has long formed the basis of FCA litigation—a connection Congress made explicit in 2010 by adding to the AKS language that renders any claim for federal health care program reimbursement resulting from an AKS violation automatically false/fraudulent for purposes of the FCA.  42 U.S.C. § 1320a-7b(g).  Broadly, the AKS prohibits the knowing and willful offer/payment/solicitation/receipt of “remuneration” in return for, or to induce, the referral of federal health care program-reimbursed business.  Remuneration can be anything of value and can be direct or indirect.  In interpreting the “in return for/to induce” element, a number of federal courts across the country have adopted the “One Purpose Test,” in which an AKS violation can be found if even just one purpose (among many) of a payment or other transfer of value to a potential referral source is to induce or reward referrals—even if that clearly was not the primary purpose of the remuneration. Continue Reading Recent Developments on the Fair Market Value Front – Part 1

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

As part of a settlement agreement reached on August 23, three hospitals and their former parent system agreed to pay $2.95 million to resolve state and federal False Claims Act (FCA) allegations that they failed to investigate and repay overpayments from the New York Medicaid program in a timely manner under the so-called “60 Day Rule.” The allegations were originally made by a former employee via a 2011 qui tam suit, United States of America ex rel. Kane v. Continuum Health Partners, Inc.

Under the 60 Day Rule, enacted as part of the Affordable Care Act in 2010, providers are required to report and return overpayments within 60 days of identification. When “identification” happens has been the subject of much debate, and was one of the main issues in the decision issued by the US District Court in the Southern District of New York last year, which denied Continuum’s motion to dismiss the government’s complaint. Despite repaying all of the improper claims, the government alleged in Kane that Continuum and the hospitals “fraudulently delay[ed] repayments” for up to two years after it had identified them. As has become the custom in the Southern District of New York, the settlement agreement contains certain admissions by Continuum concerning the covered conduct, including that beginning in 2009, a software compatibility issue caused them to mistakenly submit improper claims to the New York Medicaid program, the billing errors were brought to their attention over the course of late 2010 and early 2011, and that Continuum began to reimburse Medicaid for the 444 improper claims in February 2011 and concluded repayment in March 2013.

While Kane was the first court to directly grapple with the issue of when a provider had “identified” an overpayment, the Kane court’s interpretation of “identify” has been essentially supplanted by the final rule released by Medicare in February 2016. The final rule makes clear that a provider can conduct “reasonable diligence” into whether it has received an overpayment and can quantify the amount of such overpayment without triggering the 60-day clock. Even with the final rule, there continue to be significant questions about what constitutes “reasonable diligence” and how the rule intersects with the FCA’s reverse false claims cause of action, which only is triggered by knowingly concealing or knowingly and improperly avoiding or decreasing an overpayment retained in violation of the rule.

The Kane case and settlement confirm the interest of the government and relators in examining overpayment and 60 Day Rule issues under the FCA. The potential ramifications can be significant — the settlement amount is more than triple the $844,000 in overpayments Continuum originally received from (and repaid to) Medicaid. It may be advisable for providers to review their policies and procedures for addressing and resolving potential overpayment issues and maintaining documentation of those efforts to defend their actions if questioned by the government.

On May 17, the United States Court of Appeals for the Second Circuit affirmed the dismissal of a relator’s False Claims Act (FCA) claims predicated on allegations that Pfizer “improperly marketed Lipitor, a popular statin, as appropriate for patients whose risk factors and cholesterol levels fall outside the National Cholesterol Education Program (NCEP) Guidelines.”  In United States ex rel. Polansky v. Pfizer, Inc. the relator, Polansky, claimed that the Guidelines were incorporated into the drug’s FDA label and were thus mandatory.  He further alleged that Pfizer induced doctors to prescribe the drug outside the Guidelines, and induced pharmacists to fill such “off-label” prescriptions that were, in turn, reimbursed by government payors.  Polansky claimed that requests for reimbursement for these prescriptions impliedly, but falsely, certified that the prescriptions were for on-label uses.

The Second Circuit rejected the relator’s theory at its most basic level, finding that the Lipitor label did not mandate compliance with the NCEP Guidelines, which were clearly advisory in nature.  The fact that the Guidelines were mentioned in the label did not render them mandatory.  Quoting the district court, the Second Circuit wrote, “we cannot accept plaintiff’s theory that what scientists at the National Cholesterol Education Program clearly intended to be advisory guidance is transformed into a legal restriction simply because the FDA has determined to pass along that advice through the label.”  In short, the Second Circuit held that prescribing outside of the Guidelines was not an off-label use.

Because the fundamental premise of the relator’s claims disintegrated, the court did not need to wade into other challenges Pfizer had raised to the relator’s claims.  However, the court noted that it was “skeptical” of relator’s theory of liability as a broader legal matter, observing that “it is unclear just whom Pfizer could have caused to submit a ‘false or fraudulent’ claim: The physician is permitted to issue off-label prescriptions; the patient follows the physician’s advice, and likely does not know whether the use is off-label; and the script does not inform the pharmacy at which the prescription will be filled whether the use is on-label or off.  We do not decide the case on this ground, but we are dubious of Polanky’s assumption that any one of these participants in the relevant transactions would have knowingly, impliedly certificated that any prescription for Lipitor was an on-label use.”

The Polansky case is not the first time the Second Circuit has rejected an off-label marketing theory as a basis for liability.  In December 2012, in the case of United States v. Coronia, the court overturned, on First Amendment grounds, the criminal conviction (under the Food, Drug & Cosmetic Act) of a pharmaceutical sales representative for promoting off-label use of a drug.

The Polansky court concluded its May 17 opinion by signaling that future FCA claims predicated on purported off-label marketing theories would receive serious scrutiny:

“The False Claims Act, even in its broadest application, was never intended to be used as a back-door regulatory regime to restrict practices that the relevant federal and state agencies have chosen not to prohibit through their regulatory authority. (quoting the district court).  It is the FDA’s role to decide what ought to go into a label, and to say what the label means, and to regulate compliance.  We agree with [the district court] that there is an important distinction between marketing a drug for a purpose obviously not contemplated by the label . . . and marketing a drug for its FDA-approved purpose to a patient population that is neither specified nor excluded in the label.”

RehabCare, the nation’s largest provider of nursing home rehabilitation services, agreed to pay $125 million on January 12 to settle claims under the False Claims Act (FCA) in connection with allegations that it caused its skilled nursing facility customers to submit false claims to Medicare for therapy services. In connection with the settlement, RehabCare entered into a corporate integrity agreement (CIA) with the Office of Inspector General (OIG). The provider’s companies, RehabCare Group, Inc. and RehabCare Group East, Inc. (RehabCare), have been subsidiaries of Kindred Healthcare, Inc. (Kindred) since their merger in 2011 with a Kindred subsidiary. In a press release, Kindred stated that it agreed to the settlement without any admission of wrongdoing in order to provide clarity for contract customers, shareholders and government oversight entities.

The government’s unsealed Complaint in Intervention alleged that RehabCare manipulated the amount and type of patient therapy to achieve a higher Medicare reimbursement level than was warranted for the patient. Skilled nursing facilities are reimbursed by Medicare by resource utility groups (RUGs), which reflect the anticipated costs associated with providing nursing and rehabilitation services to beneficiaries with similar characteristics or resource needs. A patient’s RUG is assigned based upon the time and type of therapy provided to the patient during a seven-day reference period, and the amount of reimbursement is tied to the RUG level that is determined during that reference period.

The CIA, which applies to both RehabCare and Kindred, has a five-year term and, among other requirements, provides for the development of staff training regarding the accurate use of RUGs, documentation of therapy services, coordination of care and other requirements for the provision of therapy. In addition, Kindred must engage an independent review organization to conduct annual medical necessity and appropriateness reviews related to contracted rehabilitation services. The CIA also requires the submission of annual reports that include certifications as to compliance with applicable federal health care program requirements and with the CIA from several executives of RehabCare and with executives of Kindred who have direct oversight responsibilities for RehabCare, including the compliance officer, CEO and CFO of Kindred.

The case was originally brought via a qui tam lawsuit filed by two former employees of RehabCare.  These individuals will receive approximately $24 million as their share of the recovery.

A copy of the DOJ press release is available here.

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 Pre-Trial Disposition), demonstrate that a pattern of commitment to compliance, and good faith disclosure of relevant facts to the government, can help preserve the argument that even conduct later determined to be contrary to regulation was conducted in good faith and without any knowledge or reckless disregard of potentially false claims.

Overruling its 23-year precedent, the Ninth Circuit, sitting en banc, held that to avoid dismissal under the False Claims Act’s (FCA) public disclosure bar, relators need not have participated in the public disclosure of alleged fraud to qualify as an “original source.” Although the court’s decision concerned the pre-2010 version of that bar, it is likely that its reasoning will also apply to the post-2010 version, given that the issue before the Ninth Circuit did not turn on the 2010 amendments.

U.S. ex rel. Hartpence v. Kinetic Concepts, Inc. consolidated two FCA complaints brought by former employees against Kinetic Concepts.  The complaints alleged that the company improperly submitted reimbursement claims using an automatic payment modifier code for medical devices that improve wound healing, even though the claims required individual review.  The alleged fraud was already publicly disclosed.  Thus, the FCA’s public disclosure bar precluded the suits unless the relators qualified as original sources of the information.

The pre-2010 FCA statutory language included two requirements for a relator to qualify as an original source: (1) that the relator have direct and independent knowledge of the publicly-disclosed information, and (2) that the relator provide that information to the government before filing suit.  Yet, Ninth Circuit precedent in Wang ex rel. United States v. FMC Corp., 975 F.2d 1412, added a third requirement not apparent on the face of the statute: the relator had to have had a hand in the public disclosure of the alleged fraud.  Based on Wang, the lower court dismissed the complaints against Kinetic Concepts, finding that the relators had not had a hand in the public disclosure.

In overturning Wang, the Ninth Circuit noted that a number of other circuits had declined to adopt Wang’s third prong, including the Fourth and Eighth Circuits.  The Ninth Circuit re-construed the statutory text and found that facially, the original source provision only had two requirements: (1) direct and independent knowledge of the information on which the allegations are based and (2) voluntary provision of the information to the government before filing an action based on the information.  The appellate court remanded the case to determine if the relators were original sources based on the other two prongs found in the FCA text.