FCA UPDATE
FCA UPDATE
Exploring Recent Developments in False Claims Act Litigation, Enforcement and Compliance
FCA UPDATE
Exploring Recent Developments in False Claims Act Litigation, Enforcement and Compliance
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Eighth Circuit Rejects FCA Claim for Failure to Allege Actual Claims for Payment

By on Mar 11, 2019
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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. (more…)



Timing is Everything: The Sixth Circuit’s Application of the Materiality Test

By on Jul 16, 2018
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The materiality test articulated in Escobar has become one of the most litigated issues in False Claims Act (FCA) practice. Most courts have taken to heart the Supreme Court’s direction that materiality is a “demanding” and “rigorous” test in which “minor or insubstantial” non-compliance would not qualify as material. However, a recent Sixth Circuit two-to-one decision found that noncompliance with a physician signature timing requirement sufficiently alleged materiality under Escobar, reversing the district court’s dismissal of the case. United States ex rel. Prather v. Brookdale Senior Living Communities, Inc., 892 F.3d 822 (6th Cir. 2018). This opinion arguably is inconsistent with Escobar. The better analysis of Relator’s complaint would conclude that the Relator pled insufficient facts, under the Rule 9(b) particularity standard, to suggest that the untimely physician signature somehow resulted in the government paying for home health services for which it otherwise would not have paid.

Case Summary

This decision was Relator’s second time before the Sixth Circuit litigating the complaint she filed in 2012 against Brookdale Senior Living, Inc., and related entities (Brookdale) after the government declined to intervene. The dispute centers around compliance with the regulation, 42 C.F.R. §424.22(a), which pertains to home health services. Section 424.22(a) provides that a “physician must certify the patient’s eligibility for the home health benefit,” including that the individual is home bound and eligible for home care under Medicare’s coverage rules. Subsection (a)(2) has a timing requirement for this certification; “the certification of need for home health services must be obtained at the time the plan of care is established or as soon thereafter as possible and must be signed and dated by the physician who establishes the plan.” Relator alleged that she was engaged to help Brookdale deal with a large backlog of Medicare claims, including obtaining physician certifications months after a patient’s treatment began. She argued that claims with these “late” certifications violated § 424.22(a)(2) and rendered those claims false under an implied certification theory. (more…)



Courts Weigh Appropriateness of Statistical Sampling in Ongoing Case

By on Jun 13, 2018
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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. (more…)



Massachusetts Lawsuit Against Long-Term Pharmacy Care Provider Fails to Clear the Legacy FCA Public Disclosure Bar

By on May 16, 2018
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On April 30, 2018, the U.S. District Court for the District of Massachusetts dismissed the last remaining state False Claims Act (FCA) claims against long-term care pharmacy provider PharMerica, Inc. on the grounds that neither relator qualified as an “original source” under the applicable pre-2010 version of the FCA, thereby precluding their claims under the public disclosure bar. Critically, neither relator had firsthand, “direct” knowledge of the alleged fraud scheme.

In 2007, two relators (employees of a pharmaceutical company) filed suit alleging that their employer had offered financial incentives to two long-term care pharmacy providers (LTCPs) in exchange for the pharmacy providers’ promotion of prescriptions of a specific antidepressant. Specifically, the relators alleged that their employer offered significant discounts and rebates to LTCP customers in exchange for increased promotion of the antidepressant, and that market-tier discounts were offered in exchange for the performance level of each LTCP. The relators alleged that further kickbacks in the form of research and educational grants, gifts, and payment for advertising initiatives were offered to the LTCPs in exchange for purchase and recommendation of the antidepressant. Relators’ knowledge, however, was sourced from two other co-workers; neither relator was directly involved in the alleged scheme.

In 2010, the United States declined to intervene and the case was unsealed. Two years later, in 2012, the Court dismissed all federal claims and 18 state law based claims. Subsequently the other defendants (including the relators’ former employer) entered into settlement agreements, leaving PharMerica facing state FCA claims under Louisiana, Michigan, and Texas law.

On September 29, 2017, PharMerica moved to dismiss the remaining three claims on several grounds, including that each claim was precluded by each applicable state’s public disclosure bar. This argument was based, in part, on the fact that it was undisputed that the fraud allegations at issue had been publicly disclosed in a 2002 case before the Eastern District of Louisiana. Therefore, to avoid dismissal, relators needed to establish that they met the standards of the pre-2010 original source exception to the public disclosure bar in order for their claims to survive. This exception required, in relevant part, that the relator have direct and independent knowledge of the publicly-disclosed information.

The Court rejected the relators’ arguments that they qualified for the original source exception. First, the Court noted that Louisiana, Michigan and Texas each have public disclosure bars and original source exceptions that are substantively identical to the corresponding provisions of the federal FCA. The Court further noted that the “first-to-file” bar did not block relator’s claims, as the 2002 lawsuit that publicly disclosed the alleged fraud scheme was dismissed in 2006, a year before the relators filed their complaint. It was further found to be undisputed that relators’ knowledge of the alleged scheme was independent of the 2002 lawsuit, thereby establishing that the relators had “independent” knowledge of the scheme.

The fatal flaw in relators’ argument was that neither had direct knowledge of the information on which the allegations are based,” as required by the [...]

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District Court Discards FCA Claim with Prejudice for Inability to Identify Specific False Claims

By on May 10, 2018
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On April 24, 2018, the District Court of Maryland dismissed with prejudice a relator’s qui tam suit against Johns Hopkins Health System Corporation (Johns Hopkins) for failure to state a claim. The court’s decision rested on two rationales, the second of which is generally applicable to FCA claims in the Fourth Circuit and serves as strong deterrent against relator “fishing expeditions.”

The facts of the case revolve around an agreement that Johns Hopkins entered into with Maryland’s Health Services Cost Review Commission (HSCRC), the agency tasked with setting hospital rates for services throughout Maryland. This agreement set a reimbursement “budget cap” that relied on Johns Hopkins’ history of patient volumes, costs and patterns of services in its setting.

The agreement between Johns Hopkins and the HSCRC focused on care provided to Maryland residents. Importantly, the “budget cap” assigned to Johns Hopkins under the agreement applied only to services provided to Maryland residents. Revenue for services provided to out-of-state residents was not counted towards the cap, thereby creating, according to the relator, an incentive for Johns Hopkins to inappropriately recruit and prioritize out-of-state patients in contravention to the focus of the agreement. The relator claimed that senior management sought to increase revenue by treating out-of-state patients at the expense of Maryland patients, leading to false claims each time Johns Hopkins submitted claims and impliedly represented that it was compliant with the agreement’s focus on Maryland patients. Both the United States and the State of Maryland declined to intervene in the relator’s case.

Relying heavily on Rule 9(b)’s particularity requirement, the court dismissed the relator’s complaint due to his failure to identify, with the requisite specificity, claims for payment from Johns Hopkins to the government. The court noted that one of Rule 9(b)’s purposes is “to eliminate fraud actions in which all the facts are learned after discovery,” an especially important purpose in qui tam actions in which a relator has suffered no injury and “may be particularly likely to file suit as a pretext to uncover unknown wrongs.”

The court concluded that the relator alleged a scheme that “need not necessarily have led to the submission of false claims” and failed to identify any particular false claims for payment actually submitted to the government. The court strongly confirmed that Rule 9(b) requires substantial evidence of fraudulent activity before discovery and that courts in the Fourth Circuit will not allow relators to attempt “fishing expeditions” into a defendant’s conduct.

This decision affirms that, in the Fourth Circuit, a relator must provide specific, particularized allegations that point to identifiable claims actually presented to the government for payment.  This affirmation serves as a strong defense against relators who have not conducted sufficient diligence and expect the discovery process to offer the evidence required to satisfy Rule 9(b) after the filing of a complaint.



Eleventh Circuit Decision Expands Circuit Split on the FCA’s Statute of Limitations

By and on Apr 26, 2018
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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 [...]

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District Court Rejects FCA Claim Based on “Substandard” Product

By on Mar 26, 2018
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On March 13, 2018, the United States District Court for the Eastern District of Oklahoma dismissed U.S. ex rel. Montalvo v. Native American Servs. Corp. In this case, the relators alleged that the defendants performed substandard work at a US Army ammunition plant. Specifically, the relators alleged that the defendant oversaw a construction project in which a subcontractor was ordered to pour concrete into areas that contained tree roots and stems, which allegedly damaged the quality of the concrete.

At summary judgment, the only evidence offered by the relator was an affidavit setting forth the facts above. The only disputed fact was whether the defendant knew about the tree roots and stems when ordering the subcontractor to pour the concrete. Regardless of that factual dispute, the court concluded that the plaintiff had failed to offer sufficient evidence that the defendant had knowingly caused the submission of false claims and granted summary judgment in the defendant’s favor. (more…)



Predictions on False Claims Act Enforcement in the Trump Administration

By and on Nov 28, 2016
Posted In , ,

While there are a number of executive policies that will be affected by the presidential election, there are several reasons to expect modest change in the government’s approach to False Claims Act (FCA) actions. The most significant reason for this expectation is that the vast majority of FCA cases are filed by relators on behalf of the government and the Department of Justice (DOJ) has historically viewed itself as obligated to conduct an investigation into those cases. There is little reason to suspect the financial motivations that encourage relators and relators’ counsel to continue to bring cases under the FCA will diminish. That said, the possibility of repeal of the Affordable Care Act (ACA) could remove or change some of the ACA’s FCA amendments that enhanced the ability of certain individuals to qualify as a relator. The composition of the Supreme Court may have the most significant impact on the FCA given the Court’s increasing interest in this area.

(more…)



Ninth Circuit Rejects Qui Tam Relator’s Original Source Claim

By on Aug 8, 2016
Posted In

On July 27, 2016, a three-judge panel of the Ninth Circuit Court of Appeals in California issued a ruling in United States ex rel. Hastings v. Wells Fargo Bank, NA, Inc., affirming the district court dismissal of a qui tam suit on the grounds that the relator was not an original source.

The relator had sued Wells Fargo and a number of other lending institutions under the Federal Claims Act (FCA), claiming they had falsely certified to the federal Department of Housing and Urban Development (HUD) that they were in compliance with a regulation requiring borrowers to make a down payment of at least 3%. Federal regulations allow this down payment to be paid via gift, so long as repayment for the gift is not “expected or implied.” See U.S. ex rel. Hastings v. Wells Fargo Bank, Nat. Ass’n (Inc.), 2014 WL 3519129, at *1 (C.D. Cal. July 15, 2014) (summarizing HUD regulations).

The defendants moved to dismiss, arguing that the gravamen of the allegations (that certain charities were, with the tacit approval the defendants, making “gifts” to borrowers that were ultimately repaid) had already been disclosed in various public documents that predated the qui tam suit. Because of these public disclosures, the suit could only proceed if the relator was an “original source” of the information, per 31 U.S.C. § 3730(e)(4)(A). The district court held that the relator, a real estate agent, was not an original source because his knowledge of the charities and their gift programs was secondhand. The court also held the fact that relator had “offered his view to HUD that [the gift programs] violated HUD standards” to be of no moment, because “[i]dentifying the legal consequences of information already in the public domain does not constitute discovery of fraud.” 2014 WL 3519129, at *11.

On appeal, the relator argued that the district court incorrectly applied the 1986 FCA definition of “original source” (someone who has “direct and independent knowledge of the information on which the allegations are based”) instead of the 2010 definition (someone who “(1) prior to a public disclosure … has voluntarily disclosed to the Government the information on which allegations or transactions in a claim are based, or (2) has knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions”). Compare 31 U.S.C. § 3730(e)(4)(B) (1986) with 31 USC. § 3730(e)(4)(B) (2010). The Ninth Circuit panel unanimously held that the relator was not an original source under either definition. Regarding the former, it held that his knowledge was not “direct and independent” where it was “assembled from information available to all members of the Multiple State Listing Service.” 2016 WL 4011199, at *1. Regarding the latter, it held that the relator had merely provided the government with information that did not “materially add to [the] public disclosures,” citing the fact that the gift programs in question “were extensively examined in proposed rules, internal audits, a GAO report, and congressional hearings.”  Id. at *2.

In [...]

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Congressional Hearing Explores FCA Oversight and Reform

By on May 3, 2016
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On April 28, 2016, the House Judiciary Committee’s Subcommittee on the Constitution and Civil Justice (Subcommittee) held a hearing on the False Claims Act (FCA). According to a statement of the Subcommittee chair, the hearing was called to examine FCA oversight and “what more can be done to prevent, detect, and eliminate false claims costing taxpayer dollars, while ensuring fair and just results.” The Subcommittee invited two health care lawyers, a professor and a hospital CEO to testify during the hearing. Several other individuals also submitted written statements to the Subcommittee, most notably Senator Chuck Grassley (R-IA), chairman of the Senate Judiciary Committee and long-time FCA proponent.

While the Subcommittee heard a variety of unique perspectives during the hearing, the oral testimonies generally spoke to two primary proposals. The first proposal would require corporate whistleblowers to report frauds internally before filing FCA actions. The second would eliminate or narrow FCA liability for corporations that adopt a so-called “gold standard” corporate compliance program. Both proposals appear to stem from a 2013 US Chamber of Commerce report, which asserted that the FCA as currently written and implemented “incentivize[s] the filing of frivolous lawsuits and impose[s] irrationally excessive penalties for technical violations that occur despite businesses’ good faith efforts to comply . . . .” (more…)



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