Category: Government Intervention

Government Challenges “Materiality” Standard of Escobar

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Ever since the Supreme Court’s June 16, 2016 decision in Universal Health Services, Inc. v. United States ex rel. Escobar, a False Claims Act (“FCA”) case upholding the theory of implied certification, significant discussion has commenced regarding the Court’s “new” FCA materiality standard. How the appellate courts define materiality under the FCA, post-Escobar, will have a significant impact on the future of FCA litigation. Recently, the United States government (the “Government”) argued for an expansive definition of materiality through the filing of an amicus brief in the Eleventh Circuit.

Background: Escobar

In Escobar, as explained in a previous post, the Court placed the focus of an implied certification analysis on whether compliance with the requirement that was violated was “material to the Government’s payment decision….” [1]. With regard to the FCA’s materiality requirement, the Court stated that “[t]he materiality standard is demanding,” that “materiality looks to the effect on the likely or actual behavior of the recipient of the alleged misrepresentation” and that a “misrepresentation is material only if it would likely induce a reasonable person to manifest his assent.”[2]

The Government’s Take

In an amicus brief submitted in U.S. ex. rel. Marsteller v. Tilton,[3] the Government argued that the term “material” is already defined under the FCA as “having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property” (31 U.S.C. § 3729(b)(4)) and that the Escobar decision did nothing to change this definition. The Government stated that:

Although the Court in Escobar described the materiality requirement as “demanding,” and clarified that a violation is not material because the government has the legal right to refuse payment because of that violation, no matter how insubstantial, nothing in Escobar actually imposed a heightened test beyond the “natural tendency” test codified in the False Claims Act, entrenched in the common law, and applied in numerous courts of appeals…. [4]

Regarding the “natural tendency” test, the Government argued that a court should take a “holistic” approach, focusing on the “tendency or capacity of the undisclosed violation to affect the government decision maker.” [5] The Government stressed that “there is no requirement that the misrepresentation be likely to affect the ultimate decision itself.” Id. In fact, in the Government’s view, “a FCA plaintiff need not demonstrate that the government would in fact have refused payment, nor need a plaintiff even show that refusal was likely to result.” [6] Moreover, under the Government’s approach, the factors enunciated in Escobar are neither exhaustive nor individually dispositive and should only be evaluated as part of the overall materiality assessment to determine whether the violation had a natural tendency to influence the decision to pay a claim. The Government also stated its belief that under this approach, a determination on materiality will “likely…be a determination for a jury.” [7]

Discussion

The Government’s amicus brief does not seek clarification of Escobar. Rather, it asks the Court of Appeals to reject the clear pronouncement in Escobar and instead adopt its preferred definition. The court already rejected the Government’s proposed interpretation, stating:

We need not decide whether §3729(a)(1)(A)’s materiality requirement is governed by §3729(b)(4) or derived directly from the common law. Under any understanding of the concept, materiality “look[s] to the effect on the likely or actual behavior of the recipient of the alleged misrepresentation.”[8]

The Government’s new amicus brief appears to be a request that the Eleventh Circuit Court of Appeals disregard the clear language of Escobar in favor of its preferred interpretation of the statute. At a minimum, it seems, the Government is hoping for a ruling that materiality is always a jury question with full knowledge that most FCA cases end in settlement if they cannot be successfully challenged by a motion to dismiss or a motion for summary judgment.

Practical Takeaways

  • The Government is arguing for a materiality requirement that is significantly less demanding than outlined by the Supreme Court, which would significantly increase the scope of potential FCA liability.
  • The Government’s view of materiality being a determination for a jury would have a large implication for the future progress of FCA litigation as, if adopted, it would be difficult to challenge materiality by a motion to dismiss (although the sufficiency of a pleading under Federal Rule of Civil Procedure 9(b) could still be challenged) or even by a motion for summary judgment.
  • As the appellate and district courts interpret Escobar, it is even more vital that a provider facing potential FCA liability be represented by experienced counsel who will advocate for a straightforward interpretation of Escobar and the FCA’s materiality requirement.

If you have any questions, please contact:


DOJ Seeks to Nearly Double Health Care Fraud Litigation Budget for 2016

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Just three months ago, the Department of Justice announced a record year for False Claims Act recoveries totaling more than $5 billion – including $2.3 billion from health care defendants alone. Helping contribute to these recoveries was another record: over 700 whistleblower cases filed in 2014.

Yesterday, as part of the President’s budget proposal announcements, the DOJ has requested “Investments for Litigation Enforcement” in the amount of $5.5 million for FY 2016 – an increase $1 million for the hiring of 15 positions to help the Civil Division’s enforcement strategy. The DOJ justifies the request as part of an effort to “expand on” past success of its health care fraud initiative. Further, the DOJ notes the extra staff and funding is needed in order to handle “the increasing number of whistleblower cases” weighing down the DOJ’s enforcement efforts. The increase of $1 million would nearly double the DOJ’s current health care fraud enforcement budget of $1.2 million.

The position of the DOJ further solidifies what experts have previously speculated: that whistleblower cases filed against health care providers are increasing – especially in light of the Affordable Care Act’s expansion of the FCA’s reach and the DOJ’s aggressive enforcement of ‘reverse’ false claim actions.

Rather than a long shot, it is likely that this request will be greeted with bipartisan support as both sides of the aisle have shown longstanding enthusiasm for increasing the reach of the False Claims Act and providing the necessary funding to enforce it. The latest show of such support came after the DOJ’s announcement of record 2014 recoveries when both Senator Leahy and Senator Grassley issued press releases touting the effectiveness of the FCA.

Health Care Takeaway

Health care fraud cases filed by whislteblowers can remain under seal for years before a defendant is made aware of them. The DOJ’s announcement of a record 700 such claims being filed last year, its aggressive pursuit under expanded provisions of the FCA in 2014, and its request to nearly double the budget for litigating health care fraud claims all point to another record year for the DOJ.

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


Eastern District of Tennessee Denies Interlocutory Appeal of Order Permitting Sampling to Prove Liability

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In September, the District Court for the Eastern District of Tennessee issued an order denying Defendants’ motions for summary judgment and permitting the government to use statistical sampling to determine liability in a False Claims Act case. The decision – a first in FCA jurisprudence – was immediately the subject of a motion for interlocutory appeal by the Defendants. … Continue Reading →


DOJ Announces that 2014 Sees Record FCA Recoveries and Whistleblower Lawsuits

Yesterday, November 20, the Department of Justice (“DOJ”) announced that the United States had recovered almost $6 billion from False Claims Act (“FCA”) litigation in 2014 – marking the first time the DOJ has recovered more than $5 billion in a single year.

With these recoveries, the DOJ reached several milestones. Not only was this the largest recovery year for the DOJ, but it makes 2014 the third consecutive year that the DOJ has announced record recoveries. The record recoveries were bolstered by over 700 whistleblower lawsuits filed on the government’s behalf in 2014. Of the total $5.69 billion recovered, almost $3 billion was recovered in lawsuits filed by whistleblowers in qui tam actions under the FCA…. Continue Reading →


Qui Tam Complaints to Be Reviewed by Criminal Division

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Leslie R. Caldwell, Assistant Attorney General for the Criminal Division, announced recently that all new qui tam complaints would be “shared by the Civil Division with the Criminal Division as soon as the cases are filed.” Fraud prosecutors will now review all qui tam complaints to determine whether to open a parallel criminal investigation.

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DOJ Intervenes in Retained Overpayment Suit

With the passing of the Affordable Care Act (“ACA”), False Claims Act (“FCA”) observers noted the imminent filing of cases alleging violations of the ACA’s amendments to the FCA or “reverse” false claims. Such claims are per se false claims under the FCA and arise when a government contractor or health care provider becomes aware of a government overpayment and improperly fails to reimburse the government within 60 days. While these cases have remained largely out of sight – and most assuredly under seal – the Department of Justice (“DOJ”) has found its test case in the Southern District of New York and intervened: U.S. v. Continuum Health Partners, Inc., et al.

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