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 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.

On August 7, 2018, the 11th Circuit Court of Appeals affirmed a ruling by the United States District Court for the Southern District of Florida dismissing a qui tam suit against the AIDS Healthcare Foundation, Inc. (AHF), finding that the payments made to AHF employees for referring patients to AHF were protected by the employment safe harbor of the federal Anti-Kickback Statute (AKS).

In Jack Carrel, et al. v. AIDS Healthcare Foundation, the relator claimed that AHF, a nonprofit organization that provides medical services to patients with HIV/AIDS, paid kickbacks to employees in exchange for referring HIV-positive patients for health care services billed to federal health care programs in violation of the AKS and both the Florida and federal False Claims Acts (FCA). The relators, each former AHF directors or managers, specifically cited two allegedly representative false claims in which an employee was paid $100 for referring patients to AHF for completing follow up clinical services that were billed to the Ryan White Program. The Department of Justice and the State of Florida declined to intervene.

In response to AHF’s initial motion to dismiss on May 8, 2015, the district court dismissed all but two of the relators’ claims for lack of particularity, but permitted the claims related to payments to employees for referrals to proceed into discovery. In June 2017, after the conclusion of discovery, the district court granted summary judgment to AHF on the remaining two claims based on the applicability of employee safe harbor. Under the AKS employee safe harbor (42 U.S.C. § § 1320a-7b(b)(3)(B); 42 C.F.R. 1001.152(i)), the definition of “remuneration” excludes “any amount paid by an employer to an employee, who has a bona fide employment relationship with the employer, for employment in the furnishing of any item or service for which payment may be made in whole or in part under Medicare, Medicaid or other Federal health care programs.”  Continue Reading Circuit Court Affirms Payments for Referrals Made to Employees are Protected by the AKS Safe Harbor

On April 2, 2018, the magistrate judge for the US District Court for the Southern District of Indiana issued an order refusing qui tam relators’ request to conduct discovery related to claims submitted to Medicare on a nationwide basis in an ongoing False Claims Act (FCA) case.  Importantly, the judge considered whether statistical sampling could be used to establish liability under the FCA for multiple entities affiliated with the defendant when the alleged false claims in the relators’ complaint originated from a single location. The US Department of Justice (DOJ) subsequently submitted a statement of interest defending relators’ discovery request and the use of statistical sampling to establish liability for false claims, which the court has not yet addressed.

In the underlying qui tam case, the relators alleged that Evansville Hospital, a long-term acute care hospital in Indiana, and a physician violated the FCA by submitting claims to Medicare for medically unnecessary lengths of stay in order to maximize Medicare reimbursement. Continue Reading Courts Weigh Appropriateness of Statistical Sampling in Ongoing Case

On April 11, 2018, the Eleventh Circuit split from several other circuits on the question whether False Claims Act (FCA) relators can rely on the three-year statute of limitations extension in 31 U.S.C. § 3731(b)(2) in cases where the United States declines to intervene.

Under § 3731(b), an FCA case must be filed within the later of:

  1. 6 years after the date on which the violation…is committed, or
  2. 3 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.

In United States of America, ex rel. Billy Joe Hunt v. Cochise Consultancy Inc. et al., No. 16-12836, the relator filed his claim more than six years after the alleged violations, but within three years of when he first informed the government of the facts giving rise to the claim. (He may have been delayed in filing his claim owing to the fact he was in federal prison for his role in a separate kickback scheme involving the same company.) Thus, the case turned on whether the three-year extension in § 3731(b)(2) applies to cases where the government has declined to intervene.

The district court’s answer was ‘no.’ It dismissed the case based on the statute of limitations. This approach was consistent with published decisions from the Fourth Circuit and Tenth Circuit—both of which emphasized that applying § 3731(b)(2) to cases where the Government did not intervene could lead to “bizarre scenarios” in which the statute of limitations period for a relator’s claim is dependent on a nonparty to the action. See United States ex rel. Sanders v. N. Am. Bus Indus., Inc., 546 F. 3d 288, 293 (4th Cir. 2008) and United States ex rel. Sikkenga v. Regence BlueCross BlueShield of Utah, 472 F.3d 702, 726 (10th Cir. 2006) (“Surely, Congress could not have intended to base a statute of limitations on the knowledge of a non-party.”).

But, reviewing the district court’s decision on appeal, the Eleventh Circuit split from its sister circuits and reversed the decision below, resurrecting the relator’s claims. The court asserted that the Fourth Circuit and Tenth Circuit erred because they “reflexively applied the general rule that a limitations period is triggered by knowledge of a party. They failed to consider the unique role that the United States plays even in a non-intervened qui tam case.”

Instead, the court adopted a textual analysis, concluding that nothing in § 3731(b) suggests that the three-year extension applies only to intervened cases. Likewise, it rejected the defendants’ arguments that applying § 3731(b)(2) to non-intervened cases would render § 3731(b)(1) superfluous, and would encourage relators to wait to bring a secreted fraud to the government’s attention. The court emphasized that under its reading, § 3731(b)(1) would not be redundant in all circumstances, and that despite the three-year extension in paragraph (2), relators nonetheless face considerable structural pressure to bring their claims as soon as possible, at risk of losing the right to recover.

The defendants in Hunt also argued that § 3731(b) is ambiguous and asked the court to consult legislative history for guidance. The court disagreed that the statute is ambiguous, and added that even if it were appropriate to consult the legislative history of § 3731(b), the court would conclude that Congress intended § 3731(b)(2) to apply even where the government has not intervened.

After determining that § 3731(b)(2) is available to a relator in a non-intervened case, the Eleventh Circuit turned to the question whether the three-year extension is triggered by knowledge of the relator or knowledge of a government official. The Ninth Circuit held previously that while § 3731(b)(2) is available in a non-intervened case, the three-year period turns on the relator’s knowledge, not the government’s knowledge. United States ex rel. Hyatt v. Northrop Corp., 91 F.3d 1211, 1217 (9th Cir. 1996). Here again, the Eleventh Circuit reached the opposite conclusion, splitting from the decision in Hyatt:

Because the text unambiguously identifies a particular official of the United States as the relevant person whose knowledge causes the limitations period to begin to run, we must reject the Ninth Circuit’s interpretation as inconsistent with that text.

The Bottom Line: The Eleventh Circuit’s decision that the three-year tolling provision is available to qui tam relators is an outlier, and it creates a significant split among the circuits with regard to a key application of the statute of limitations in non-intervened FCA cases. Practitioners in the Eleventh Circuit (and elsewhere) should be careful to preserve arguments on this issue for further review, as this issue appears ripe for resolution in the Supreme Court.

The table below summarizes the current law on this question:

State of the Law on § 3731(b)(2)
Jurisdiction Position
First Circuit No circuit decisions, but some district courts have held that Section 3731(b)(2) is available to a relator in a non-intervened case, and that an official of the United States is the relevant person whose knowledge triggers the limitations period. See e.g., U.S. ex rel. Ven-A-Care v. Actavis Mid Atlantic LLC, 659 F. Supp. 2d 262 (1st Cir. 2009) )
Second Circuit No circuit decisions, and caselaw in the district courts is split. Compare United States ex rel. Wood v. Allergan, Inc., 246 F.Supp.3d 772 (S.D.N.Y. 2017) (relators may avail themselves of Section 3731(b)(2)) with United States ex rel. Finney v. Nextwave Telecom, Inc., 337 B.R. 479 (S.D.N.Y. 2006) (Section 3731(b)(2) applies only in cases in which the government intervenes).
Third Circuit Section 3731(b)(2) applies when the government is not a party, but that the relator is the “official of the United States”—so the limitations period begins to run based on the relator’s knowledge. United States ex rel. Malloy v. Telephonics Corp., 68 F. App’x 270, 272-73 (3d Cir. 2003) (unpublished).
Fourth Circuit Section 3731(b)(2) extends the FCA’s default six-year period only if the government is a party. United States ex rel. Sanders v. N. Am. Bus Indus., Inc., 546 F. 3d 288 (4th Cir. 2008).
Fifth Circuit No circuit decisions, but caselaw in the district courts has held that tolling is available to relators, but relators’ knowledge is trigger.. See e.g., U.S. ex rel. Gonzalez v. Fresenius Medical Care N. Am., 2008 WL 4277150 (W.D. Tex. 2008) (Section 3731(b)(2) applies when the government is not a party, but that the relator is the “official of the United States”—so the limitations period begins to run based on the relator’s knowledge).
Sixth Circuit No circuit decisions, but caselaw in the district courts has held that Section 3731(b)(2) extends the FCA’s default six-year period only if the government is a party . See e.g., United States ex rel. Griffith v. Conn, 117 F. Supp. 3d 961 (E.D. Ky. 2015).
Seventh Circuit No circuit decisions, but district courts have found tolling available to relators, but relators’ knowledge is trigger.. See e.g., See United States ex rel. Bidani v. Lewis, No. 97-CV-6502, 1999 WL 163053 (N.D. Ill. 1999) (Section 3731(b)(2) applies when the government is not a party, but that the relator is the “official of the United States”—so the limitations period begins to run based on the relator’s knowledge).
Eighth Circuit No circuit decisions, but caselaw in the district courts has held that Section 3731(b)(2) extends the FCA’s default six-year period only if the government is a party. See e.g., United States ex rel. Dicken v. N.W. Eye Ctr., 2017 WL 2345579 (D. Minn., 2017) ().
Ninth Circuit Section 3731(b)(2) applies when the government is not a party, but the relator is the “official of the United States”—so the limitations period begins to run based on the relator’s knowledge. United States ex rel. Hyatt v. Northrop Corp., 91 F.3d 1211, 1217 (9th Cir. 1996).
Tenth Circuit

Section 3731(b)(2) extends the FCA’s default six-year period only if the government is a party. United States ex rel. Sikkenga v. Regence

BlueCross BlueShield of Utah, 472 F.3d 702 (10th Cir. 2006).

Eleventh Circuit Section 3731(b)(2) is available to a relator in a non-intervened case. An official of the United States is the relevant person whose knowledge triggers the limitations period. See discussion above.
D.C. Circuit No circuit decisions, but caselaw in the district courts has held Section 3731(b)(2) extends the FCA’s default six-year period only if the government is a party. See e.g., United States ex rel. Landis v. Tailwind Sports Corp., No. 1:10CV00976 (CRC), 2016 WL 3197550 (D.D.C. June 8, 2016).

 

On December 21, the US Department of Justice (DOJ) obtained more than $3.7 billion in settlements and judgments from civil cases involving fraud and false claims against the government in the fiscal year ending Sept. 30, 2017. Recoveries since 1986, when Congress substantially amended the civil False Claims Act (FCA), now total more than $56 billion.

Of the $3.7 billion in settlements and judgments, $2.4 billion involved the health care industry, including drug companies, hospitals, pharmacies, laboratories and physicians. This is the eighth consecutive year that the department’s civil health care fraud settlements and judgments have exceeded $2 billion. In addition to health care, the False Claims Act serves as the government’s primary avenue to civilly pursue government funds and property under other government programs and contracts, such as defense and national security, food safety and inspection, federally insured loans and mortgages, highway funds, small business contracts, agricultural subsidies, disaster assistance and import tariffs. Continue Reading Justice Department Recovers More Than $3.7 Billion from FCA Cases in Fiscal Year 2017

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