Category: Damages

Fourth Circuit Says Attorney General Holds “Unreviewable Veto Power” Over Qui Tam Settlements and Sends Statistical Sampling Issue Back to the Trial Court

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The Attorney General of the United States has an unreviewable veto power over qui tam settlements, according to the Fourth Circuit’s recent published decision in United States ex rel. Michaels v. Agape Senior Community.[1] In the same decision, the court declined to decide an issue raised by the relators over the trial court’s refusal to allow statistical sampling to prove damages, a method of proof that would have cost the relators an estimated $36 million, far more than the value of the case.

In Michaels, the relator brought an action alleging that 24 affiliated elder care facilities defrauded Medicare and other federal health care programs by charging for unnecessary services and services for which the patients were not eligible.[2] The federal government, after receiving an extension, declined to intervene.

According to the relators, it would have cost $36 million to present their proof of damages. They said it would take their experts four to nine hours per patient to review the charts for about 50,000 alleged claims submitted to federal health care programs. The trial court refused to allow statistical sampling under those circumstances because the evidence was available for expert review. It had not been “destroyed or dissipated.”[3]

After that decision was made, the relators and the defendants reached a confidential settlement, but the Department of Justice, after being presented with notice, objected because the amount of the proposed settlement was appreciably less than the $25 million that the government estimated in damages based on its own statistical sampling.[4] When the relators moved to enforce the settlement, the trial court sustained the government’s objection and concluded that the Attorney General’s office had unreviewable veto power over qui tam settlements even, as in this case, where the government had not sought to intervene in the matter.[5] The trial court noted that if it could review that decision, it would have concluded that the government’s position was not reasonable because it would have cost the relators between $16.2 million and $36.5 million for trial preparation alone.[6]

Instead of proceeding first to trial, the court certified both issues for appeal – the “unreviewable veto power” and the use of statistical sampling. Certification is a little-used procedural method of having significant pretrial issues decided by the appellate court before trial.

The Fourth Circuit first addressed the unreviewable veto power issue. It considered decisions from the Fifth, Sixth and Ninth Circuits. The Fifth and Sixth Circuits had concluded that the Attorney General has absolute veto power over voluntary qui tam settlements.[7] The Ninth Circuit, on the other hand, had held years earlier that the government carried unreviewable veto authority only during the limited initial 60-day (or extended) period during which the government was allowed by statute to intervene without court approval.[8] After that period, according to the Ninth Circuit, the government needed “good cause” in order for its objections to be sustained by a court.[9]

In Michaels, the Fourth Circuit agreed with the Fifth and Sixth Circuit because, it said, the “plain language” of 31 U.S.C. 3730(b)(1), that a “qui tam action may be dismissed only if the court and the Attorney General give written consent to the dismissal and the reasons for consenting,” was unambiguous.[10] It rejected the Ninth Circuit’s position based on language in 31 U.S.C. 3730(d)(2) that states that, where the government declines to intervene, “the person bringing the action or settling the claim shall receive an amount which the court decides is reasonable for collecting the civil penalty and damages.”

The court then decided not to decide the statistical sampling issue presented by the relators.[11] The Fourth Circuit concluded that the relators had not presented a pure question of law that was appropriate for a pretrial review by the appellate courts.[12] This was because they presented a question about the trial court’s exercise of discretion in refusing to allow such sampling.[13]

The decision in Michaels places the federal government in a strategically strong position in qui tam actions. By vetoing settlements without having intervened in the dispute at all, the government can avoid significant expenditure of money and resources by sitting back and watching the relators litigate with defendants and then saying “no” without that decision being subject to judicial review – regardless of whether the government’s objection is reasonable. That impacts both relators and defendants who may spend months (or years) in litigation with nothing to show for it prior to trial. The trial court’s decision in Michaels with respect to statistical sampling also adds to the bar for relators because, as in that case, it could cost millions to prosecute the issues of damages alone.

If you have any questions, please contact Jon Rabin at jrabin@hallrender.com or (248) 457-7835 or your regular Hall Render attorney.

[1] No. 15-2145 (Feb. 14, 2017).
[2] Id. at 5.
[3] Id. at 10, 13.
[4] Id. at 11.
[5] Id. at 10-11.
[6] Id. at 12-13.
[7] Searcy v. Philips Electronics North America Corp., 117 F.3d 154 (5th Cir. 1997); United States v. Health Possibilities, P.S.C., 207 F.3d 335 (6th Cir. 2000).
[8] United States ex rel. Killingsworth v. Northrop Corp., 25 F.3d 715 (9th Cir. 1994).
[9] Id.
[10] Michaels, supra at 21.
[11] Id. at 26-27.
[12] Id.
[13] Id.


Massive Penalty Spike Darkens the FCA Landscape

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In November 2015, the Bipartisan Budget Act of 2015 went into effect. One aspect of that act was the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015. The new law required that the Program Fraud Civil Remedies Act and the False Claims Act (“FCA”) penalties be “corrected” to adjust for inflation since their last adjustment and then that the penalties be adjusted for inflation each following year.

In May, the Railroad Retirement Board was the first agency to issue its inflation “corrections,” shocking the FCA world. This week, the Department of Justice (“DOJ”) followed suit, expanding the spike to the entire FCA world.

In 1986, the FCA was completely rewritten and included a minimum penalty of $5,000 per claim and a maximum penalty of $10,000 per claim.

In 1996, under the Debt Collection Improvement Act of 1996 (“1996 Act”), the minimum and maximum penalties were increased to $5,500 and $11,000, respectively. Practitioners expected the correction to run from that date, leading to an increase of approximately 140% with a maximum penalty of about $15,000.

Instead, the government disregarded that correction because it was subject to the 10% cap set forth in the 1996 Act. The government went all the way back to 1986, leading to a massive 216% penalty increase.

The new DOJ minimum penalty per claim under the FCA is $10,781 and the maximum is $21,563. These will have an immediate effect on health care providers submitting Medicare and Medicaid claims.

To government contractors, this is a foreboding change. The FCA was always onerous, to the point that the Eighth Amendment Excessive Fines Clause was often considered, though no case ever turned on that issue. This massive increase may well put that defense back in play, particularly for claims that are microscopic in comparison to the penalties, e.g., a $5.00 laboratory service. While penalties are often not paid as part of negotiated settlements, they are mandated for any case decided by a court. It is that threat that often makes settlement discussions feel like coercion or even extortion to contractors.

For contractors, and particularly health care providers, this suggests new measures should be considered to insulate from these heightened penalties. One such suggestion is the batching of individual services to include as many as possible on a single “claim” to the government. The FCA applies to “claims for payment,” not individually itemized services found within each claim. There is no case law yet to guide providers on whether services for multiple recipients found on a single claim for payment would be one or many claims. However, that is the best prophylactic action available and provides the sort of argument courts will welcome to avoid having to resolve issues on Eighth Amendment constitutional grounds.

The FCA’s treble damages penalty was not changed as part of this adjustment.

The maximum civil monetary penalty was increased to $10,781.

All of these changes are effective for penalties assessed after August 1, 2016. This includes any failure to identify a prior overpayment after more than 60 days under the FCA’s 60-Day Overpayment Rule.  Notably, the DOJ stated that penalties associated with violations that occurred prior to November 2, 2015, the date the Bipartisan Budget Act went into effect, will still be subject to the old penalties.

Health Care Takeaway

The FCA’s already oppressive penalties have become draconian. Providers best avoid these new penalties with strong compliance programs and by working closely with their health care counsel to evaluate their programs, particularly in the billing and coding departments, as this terrifying specter looms over the entire industry. Providers can protect themselves somewhat from these changes by adjusting their billing practices to include as many individual services on as few claims for payment as possible.

If you have any questions, please contact:


Massive Spike in FCA Penalties

In November 2015, the Bipartisan Budget Act of 2015 went into effect. One aspect of that act was the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015. The new law required that the Program Fraud Civil Remedies Act and the False Claims Act (“FCA”) penalties be “corrected” to adjust for inflation since their last adjustment and then that the penalties be adjusted for inflation each following year.

This week, the Railroad Retirement Board was first to issue its inflation “corrections,” and they shocked the FCA world.

In 1986, the False Claims Act was completely rewritten and that new rewrite included a minimum penalty of $5,000 per claim and a maximum penalty of $10,000 per claim.

In 1996, pursuant to the Debt Collection Improvement Act of 1996, the penalties were increased to $5,500 and $11,000. Practitioners expected the correction to run from that date, leading to an increase of approximately 140 percent with a maximum penalty of about $15,000.

Instead, the Board disregarded that correction because it was subject to the ten percent cap of the 1996 act. The Board went all the way back to 1986, leading to a massive 216 percent penalty increase.

The new minimum penalty per claim under the FCA for railroad claims is $10,781.40 and the maximum is $21,562.80. These will have an immediate effect on health care providers as Railroad Medicare claims make up a significant percentage of all Medicare claims. Railroad workers’ retirement is administered through the Railroad Retirement Board, rather than the Social Security Administration. Providers are not likely to even notice the difference between Social Security and Railroad Medicare cards as they look quite similar. Both are red, white and blue. The Railroad Medicare card says “Medicare Health Insurance provided by the Railroad Retirement Board” on it, and the patient’s alphanumeric identifier starts, rather than ends, with a letter. Railroad Medicare is administered by Palmetto GBA.

More significantly, the Railroad Retirement Board is only the first agency to make its adjustments. There is no reason to believe other agencies won’t do exactly the same thing. In fact, it is a near certainty as consistency in the FCA is an important governmental interest. Additionally, receipt of Medicaid money is contingent upon the states significantly mirroring the federal FCA, so expect similar changes in state penalties.

To government contractors, this is a foreboding change. The FCA was always onerous, to the point that the Eighth Amendment Excessive Fines Clause was often considered, though no case ever turned on that issue. This massive increase may well put that matter back in play, particularly for claims that are microscopic in comparison to the penalties, e.g. a $5.00 laboratory service. While penalties are often not paid as part of negotiated settlements, they are mandated for any case decided by a court. It is that threat that often makes settlement discussions feel like coercion or even extortion to contractors.

For contractors, and particularly health care providers, this suggests new measures should be considered to insulate from these new penalties. One such suggestion is the batching of individual services to include as many as possible on a single “claim” to the government. The FCA applies to “claims for payment,” not individually itemized services found within each claim. There is no case law yet to guide providers on whether services for multiple recipients found on a single claim for payment would be one or many claims. However, that is the best prophylactic action available and provides the sort of argument courts will welcome to avoid having to resolve issues on Eighth Amendment constitutional grounds.

The FCA’s treble damages penalty was not changed as part of this adjustment.

The maximum civil monetary penalty was increased to $10,781.

All of these changes are effective for claims or statements made after August 1, 2016. This includes any failure to identify a prior overpayment after more than 60 days under the FCA’s 60-Day Overpayment Rule.

Health Care Takeaway

The FCA’s already onerous penalties have become draconian for Railroad Medicare claims and are likely to do so for all claims in the coming months. Providers best avoid these new penalties with strong compliance programs and by working closely with their health care counsel to evaluate their programs, particularly in the billing and coding departments, as this terrifying specter looms over the entire industry. Providers can insulate themselves somewhat from these changes by adjusting their billing practices to include as many individual services on as few claims for payment as possible.

If you have any questions, please contact David B. Honig at dhonig@hallrender.com or (317) 977-1447 or your regular Hall Render attorney.

Assisting with this story were:

Lori A. Wink (lwink@hallrender.com or  (414) 721-0456) in our Milwaukee office;

Amy O. Garrigues (agarrigues@hallrender.com or (317) 447-4962) in our Raleigh office; and

Steven H. Pratt (spratt@hallrender.com or (317) 977-1442) in our Indianapolis office.


“I refute it thus.” The FCA and “Valueless” Damages Claims

Some court decisions are so marvelous, so great at cutting through all the legal argument and theoretical absurdity, that they deserve to be quoted at length. On February 4, 2016, the Hon. Raymond M. Kethledge of the Sixth Circuit Court of Appeals wrote just such an opinion. What follows is the first paragraph of that opinion in its entirety.

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Court Awards Prevailing FCA Defendant Costs

with Drew B. Howk

On Monday, February 2, well-respected Federal District Court Judge Jed S. Rakoff awarded costs to the prevailing Defendant in US ex rel. Associates Against Outlier Fraud v. Huron Consulting, Case No. 09 Civ. 1800(JSR).

The case had a long history. The Complaint was originally filed in February 2009. It was unsealed ten months later in December. The Complaint alleged that the Defendants, “motivated by their own greed and corrupt practices,” “turned to Medicare and Medicaid as [their] piggy bank to generate the unwarranted fees.”

Ultimately, these breathless accusations came to naught, and the court granted summary judgment for all Defendants on March 8, 2013.

The relator appealed, and the Second Circuit Court of Appeals affirmed, finding, “as the district court concluded… relator has failed to identify any statute or regulation prohibiting Huron’s claim submission practices.”

At the conclusion of the case, after a bill of costs hearing, the Defendants were awarded costs in the amounts of $7,886.95 and $5,839.80. The relator challenged that award, arguing that, under the explicit language of the FCA, costs were not to be awarded, as the word “costs” should be considered synonymous with the word “expenses.”

The Federal Rules of Civil Procedure, at rule 54(d)(1), state “costs .. should be allowed to the prevailing party … [u]nless a federal statute … provides otherwise.” The FCA states, courts may not award “reasonable attorneys’ fees and expenses” without first finding that the lawsuit was “clearly frivolous, clearly vexatious, or brought primarily for purposes of harassment.” If, as the relator argued, costs and expenses mean the same thing, the FCA would bar recovery of costs by a defendant.

Judge Rakoff disagreed. The FCA, elsewhere in the statute, uses costs and expenses differently. For example, where the government intervenes and the defendant prevails, the defendant is entitled to “fees and other expenses, in addition to any costs awarded pursuant to” Rule 54(d). In order to give each word of the statute meaning, Judge Rakoff concluded, costs and expenses must have different meanings.

Expenses, the court concluded, included expert witness expenses, the cost of studies and other projects “necessary for the preparation of the party’s case.” Costs, on the other hand, referred to “relatively minor, incidental expenses,” and awarded court reporter fees and costs for deposition transcripts.

While imposition of only costs can lead to nominal awards, in some FCA cases those costs can be substantial. Further, this case should put qui tam plaintiffs on notice that they have some risk, starting with costs and escalating, should the lawsuit be frivolous, to include attorneys fees and expenses as well.

Health Care Takeaway

In light of the DOJ’s recent request to double its budget for litigation related to health care FCA actions, this case highlights the importance in selecting knowledgeable FCA litigators who have the ability to guide health care providers through the thickets of defending against FCA actions – including in part – how to recoup costs when possible.

Should you have any questions regarding the False Claims Act or defense against whistleblower actions, please contact:


Relator’s Damages and Documentation Theories Rejected in Halifax

This week a Court in the Middle District of Florida dealt a blow to a whistleblower’s allegations of fraud in U.S. ex rel. Baklid-Kunz v. Halifax Hospital Medical Center ruling that: (1) the Relator is barred from recovering damages even if it can prove its allegations and (2) the Relator is barred from arguing or presenting evidence regarding her principle theory of alleged fraud. Though trial was set to begin July 8, the Court has discontinued the trial until further notice.

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Seventh Circuit: FCA Trebling Based Upon Net Loss, Not Gross Loss to Government

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By Drew 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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