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Eighth Circuit Rejects FCA Claim for Failure to Allege Actual Claims for Payment

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...

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

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...

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Courts Weigh Appropriateness of Statistical Sampling in Ongoing Case

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...

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

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...

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

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...

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

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: 6 years after the date on which the violation…is committed, or 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...

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District Court Rejects FCA Claim Based on “Substandard” Product

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...

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Predictions on False Claims Act Enforcement in the Trump Administration

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...

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Ninth Circuit Rejects Qui Tam Relator’s Original Source Claim

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...

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Congressional Hearing Explores FCA Oversight and Reform

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...

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