text-align: justify;”>Three new FCA cases of interest were reported in the last few weeks. One was discussed previously on FCADefense.com in Toumey Loses Stark/FCA Case Again by Drew Howk. Another, Ulysses, Inc. v. United States^[1] is yet another example of the growing trend of failed FCA counter-claims by the Government in response to contract litigation. The Third, Fresenius Medical Care Holdings, Inc. v. U.S.,^[2] explores tax deductions for FCA settlements.  The most interesting case of the last few months remains U.S. ex rel. Keltner v. Lakeshore Medical Clinic, Ltd., discussed in detail in Retained Overpayments Change the FCA Ball Game. Just a District Court case, Keltner shows the tremendous added risk to health care providers and other government contractors under the newly amended FCA.
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Jury verdicts in False Claims Act litigation are rare. Two in the same case are rarer still. On May 8, 2013, after just over four hours of deliberation, a jury in the Federal District Court of South Carolina returned a verdict for the Government, finding that the Tuomey Healthcare System violated both the Stark law and the FCA. The jury returned a judgment for the Stark violations totaling $39.3 million. The parties will now have to submit proposals regarding what FCA damages are appropriate, with a verdict potentially reaching nearly $357 million (or, more likely, reach a post-verdict settlement). This potential award is the sum of treble damages for the violations themselves ($117.9 million) and the maximum punitive award of $11,000 for each of as many as 21,730 claims ($239 million).

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Claims Act defense attorneys have been warning government contractors, particularly Medicare and Medicaid providers, of increased risks and a reduced ability to defend against whistleblower complaints since the passage of the Fraud Enforcement Recovery Act of 2009 (“FERA”). The greatest risk comes from FERA’s addition of a new kind of reverse false claim: the “retained overpayment.”^[1] The predictions came true recently in a Wisconsin qui tam case. US ex rel. Keltner v. Lakeshore Medical Clinic, Ltd.^[2] should serve as a warning to all government contractors. It can also, more constructively, offer guidelines for how health care providers should proceed in the future.

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Introduction

Three cases are addressed in a review of the False Claims Act decisions of the past month. The first, US v. Anchor Mortage Corp., is a significant Seventh Circuit case addressing the proper treble damages calculation under the statute. The second, US ex rel. Carter v. Halliburton, considers the application of the Wartimes Suspension of Limitations Act (“WSLA”) to the FCA statute of limitations and the ability of a whistleblower to refile a case barred under the first-to-file rule. The third, US ex rel. Keltner v. Lakeshore Medical Clinic, Ltd., is the only District Court case reviewed this month. It provides a stark example of the increased risk to government contractors based upon the new “unrefunded overpayment” reverse false claim definition from FERA and the PPACA.

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By Andrew B. Howk

In U.S. v. Anchor Mortgage Corp., the Seventh Circuit held that treble damage calculations under the FCA must be calculated from the net losses, rather than the gross losses, suffered by the Government. For defendants in FCA litigation, this decision not only affects the potential damages for an adverse judgment but also the relative positions of the parties at the settlement table.

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By David B. Honig and Andrew B. Howk

In U.S. v. MedQuest, the Sixth Circuit held that violations by a provider of conditions of participation in Medicare were insufficient as a matter of law to “trigger the hefty fines and penalties created by the FCA.” This case was a reaffirmation by the Sixth Circuit that “[t]he False Claims Act is not a vehicle to police technical compliance with complex federal regulations.”

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The recent amendments to the False Claims Act, the Fraud Enforcement Recovery Act of 2009 (“FERA”), the Patient Protection and Affordable Care Act of 2010 (“PPACA”) and the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”) continue to generate new rules and guidance. Effective 2007, Congress created incentives for states to pass and enforce mirror FCA statutes that create equal or greater incentives for whistleblowers to bring Medicaid cases as they would have under the federal statute. Those incentives give states a 10% greater recovery in FCA cases than they would if the statute fell short of the federal requirements. HHS-OIG is responsible for determining whether the state statutes meet the requirements.

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Appellate Court Cases

Three appellate-level FCA cases were reported in January and February 2013. Only one, U.S. ex rel. Nathan v. Takeda Pharmaceuticals North America, Inc.,^[1] was selected for publication. All three cases addressed Rule 9(b)’s requirement that allegations of fraud be lead “with particularity.” The cases, read together, highlight the differences among Circuits in how they interpret Rule 9(b) pleading requirements. Some Circuits, including the D.C. Circuit that ruled in Takeda, require pleading with individual claim specificity, while others, including the Fifth Circuit, below in Jajdelski, allow pleading with scheme detail plus “strong inference” that false claims were submitted.

U.S. ex rel. Nathan v. Takeda Pharmaceuticals North America, Inc.

In Takeda, the whistleblower, a former Takeda sales manager, alleged that Takeda caused doctors to submit false claims through its marketing of the drug Kapidex. He alleged that marketing Kapidex to rheumatologists, who typically do not treat patients with conditions for which the FDA has approved the drug, so encouraged the use of the drug that “off label” prescriptions would be false claims caused by Takeda. He also alleged Takeda caused doctors to submit false claims by improperly prescribing large doses for unapproved conditions. Takeda allegedly caused such claims by providing 60 mg samples rather than 30 mg samples of the drug. Kapidex was only approved in 60 mg doses for one specific condition, erosive esophagitis.

The Fourth Circuit Court of Appeals affirmed dismissal of Nathan’s Third Amended Complaint, as well as the trial court’s refusal to allow him to file a Fourth Amended Complaint. The Court rejected his plea for a lenient application of Rule 9(b) that would allow him to allege the existence of a fraudulent scheme without identifying any actual false claims presented for payment. Where the relator alleges the defendant’s actions “could have led, but need not necessarily have led, to the submission of false claims,” the Court said, “a relator must allege with particularity that specific false claims actually were presented to the government for payment.” ^[2] On the issue of allowing a Fourth Amended Complaint, the Court noted that Nathan was fully aware of the failures of his pleadings when filing the Third Amended Complaint, that the case had been ongoing for two years and that the trial court properly exercised its discretion, given the court’s interest in finality and unduly subjecting Takeda to continued time and expense.

U.S. ex rel. Bender v. North American Telecommunications Inc.^[3]

In another Rule 9(b) case, the D.C. Court of Appeals rejected the relator’s attempt to plead an FCA case “on information and belief” for his lack of access to documents needed to plead fraud with particularity. The Court noted that a relator may, in some circumstances, plead an FCA case “on information and belief” “if he provides the factual basis for the charges leveled against the defendant and some factual basis for the claim that the defendant is in control of the information that the relator requires in order to plead with particularity.”^[4] Bender, though, offered such vague allegations that he failed to meet that standard.

U.S. ex rel. Jajdelski v. Kaplan, Inc.^[5]

In another Rule 9(b) case, the Fifth Circuit Court of Appeals reversed dismissal of an FCA Complaint that failed to identify specific false claims submitted. In the Fifth Circuit, the Court wrote, it is sufficient “to allege particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted.”^[6] The Court did uphold the trial court’s refusal to allow Jajdelski to add claims to his Fourth Amended Complaint that occurred more than six years prior to its filing, rejecting the argument those claims “related back” to the original Complaint. Those claims could not relate back, the Court concluded, as they did not arise “out of the conduct, transaction, or occurrence, set out—or attempted to be set out—in the original pleading.”^[7]

Trial Court Cases of Interest

U.S. ex rel. Conrad v. Abbott Laboratories, Inc.^[8]

In Conrad, the court considered a relatively complex public disclosure question. FCA whistleblowers may not bring cases based upon information that has been publicly disclosed. The public policy purpose behind this jurisdictional rule is to encourage people with inside information to come forward, not to encourage people to read the front page of The New York Times and then file suit to get a slice of the qui tam pie. Congress referred to such actions as “parasitic” qui tam suits and amended the FCA in 1943 to prevent them.

In Conrad, there was not a single source that affirmatively pointed out a fraud. Rather, five different sources, when considered together, contained all the information necessary for a person of sufficient expertise to find the alleged fraud. The court also considered the question whether CMS^[9] data files qualified as “reports” under the public disclosure bar, as they were collections of data sans conclusions or discussions. The court, bound by the recent Supreme Court decision in Schindler Elevator Corp.^[10] considering the same question for a FOIA^[11] response, determined that the CMS data files qualified as “reports” under the public disclosure bar.

U.S. ex rel. Griffith v. Conn^[12]

In Griffith, the United States, after four extensions to consider intervention and after declining to intervene, moved for a 60-day stay of proceedings. The lawsuit was against an attorney and a Social Security Administration administrative law judge alleged to have coordinated sham proceedings. The court refused to grant the stay. It noted that the statute, at §3730(c)(4), allows for 60-day stays of discovery where such discovery “would interfere with the Government’s investigation or prosecution of a criminal or civil matter arising out of the same facts.” However, the statute does not allow for a stay of the entire proceeding.

Deck v. Miami Jacobs Business College Co.^[13]

Students of Miami Jacobs filed a putative class action alleging breach of contract, violation of RICO, several Ohio statutes, common law torts, equitable claims and the False Claims Act. The students’ enrollment agreements included arbitration as the exclusive remedy for claims related to their enrollment. They argued they could not be forced to arbitration, based upon their FCA claims and the ruling in Ngyuen v. City of Cleveland.^[14] The court noted that it, along with other courts, had uniformly rejected the reasoning of Ngyuen. As the government had declined intervention^[15], the court found the FCA claims fell within the arbitration clause signed by the students.

Should you have any questions, please contact David B. Honig at dhonig@hallrender.com or (317) 977-1447.

by David B. Honig

Can the False Claims Act be used by the government or whistleblowers in quality of care cases? The Department of Justice seems to think so, based in significant part on the retention of overpayments amendments to the FCA by FERA and the PPACA.^[1] If they are right, the ramifications for health care providers, and the attorneys who advise them, are legion, the consequences significant.

Recently a DOJ attorney, during a presentation about the False Claims Act, said “we are starting to look at quality of care cases as potential FCA cases.” He explained that every claim to a federally funded health care program impliedly certifies that the services provided meet the standard of care; therefore, services that fail to meet the standard of care are false. When challenged that such application would mean federalization of third-party claims for malpractice, he begged to differ. The government expects that it purchased services of a certain quality, he explained, and when it does not receive that quality, the claim is false. It is not different, he posited, from a fighter jet the government is assured goes Mach 2 when, in fact, it only goes Mach 1.^[2] He went on to assure the audience that the FCA would not be applied to individual cases with bad outcomes but would, rather, be used as a tool when there was a pattern of poor quality. An example, he suggested, would be a peer review case – if a hospital, as a result of peer review, determined that a physician consistently provided services below the acceptable standard of care, permitting the doctor to continue billing for services at the hospital, or failing to repay claims identified as inadequate, could be a False Claims Act violation. Rest assured, he promised, the Government would only bring such cases in the most egregious examples – there was no interest in federalizing simple medical malpractice cases.

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