Written by: David Honig
The DOJ’s recent revisions to its Justice Manual created a new path for self-disclosing potential fraud to the government – one which is unique in its ability to defray the costs of potential False Claims Act violations.
In 2015, Deputy Attorney General Sally Quillian Yates released a memo entitled Individual Accountability for Corporate Wrongdoing, more commonly known as the Yates Memo. The Yates Memo ordered a focus on identifying individuals responsible for corporate FCA violations. It was also the first official mention of applying the concept of cooperation credit, generally used in criminal sentencing, as is explained by a car accident lawyer natick ma, to the government’s settlement considerations in civil FCA cases. In the Yates Memo, the DOJ linked cooperation credits to corporations providing it with information about individuals involved in the alleged misconduct, “regardless of their position, status, or seniority” and noted that credit for cooperation would only be provided in civil matters if entities provided facts regarding individuals’ misconduct too.
This condition of cooperation applies equally to corporations seeking to cooperate in civil matters; a company under civil investigation must provide to the Department all relevant facts about individual misconduct in order to receive any consideration in the negotiation.
In May 2019, the DOJ, in an apparent follow-up to the Yates Memo, updated its Justice Manual to include guidance for awarding cooperation credit in civil FCA cases. For the first time, the DOJ expressly described the unique benefit to a potential FCA defendant in self-reporting to the DOJ – significant reduction in FCA fines and penalties – an advantage not offered by other forms of self-disclosure. The guidance encourages corporations to voluntarily self-disclose misconduct and cooperate with the DOJ. In return for taking steps like identifying involved individuals, undertaking more extensive data preservation, investigating and analyzing the root cause of the misconduct, implementing disciplinary action and implementing or improving the compliance program, the DOJ will consider awarding cooperation credit.
The guidance identified three specific actions which may justify cooperation credit: (1) voluntary disclosure to the DOJ; (2) ongoing cooperation with an investigation; and (3) remediation. First, voluntary disclosure to the DOJ could justify cooperation credit if it is “proactive, timely, and voluntary self-disclosure to the Department.” Additional credit would apply to entities that self-disclose additional misconduct outside the original scope discovered during an investigation into the entity’s, or the DOJ’s, original concerns. It will also consider self-reporting to a relevant agency, public acknowledgement of the self-disclosure and assistance in resolving any qui tam litigation with a relator, if relevant.
Second, ongoing cooperation with a government investigation could also justify cooperation credit. The guidance provides an illustrative list of cooperative measures, including:
- Identifying individuals responsible for the misconduct;
- Preserving and disclosing relevant documents and providing them in native format to facilitate review;
- Identifying individuals with knowledge about the misconduct;
- Admitting liability or accepting responsibility; and
- Helping recover losses for the misconduct.
But the DOJ made clear it will weigh additional acts that assist an ongoing investigation.
Third, the DOJ will also look to remedial measures, including measures to address the root cause of the problem, improvement of a compliance program, discipline of those responsible and anything else that demonstrates recognition of misconduct, acceptance of responsibility and affirmative measures to prevent repetition of misconduct.
The credit is discretionary with the DOJ and generally results in reduced penalties or damages multiplier available under the FCA. The maximum credit available would be single damages plus lost interest, investigative costs and relator share, if relevant.
The DOJ’s new guidance offers a unique remedy other self-reporting mechanisms might not, including through the OIG’s Provider Self-Disclosure Protocol or CMS’s Self-Referral Disclosure Protocol (“SRDP”): a potentially significant reduction of FCA fines and penalties. All the cooperation credit opportunities enumerated in the new guidance can be achieved only through self-disclosure to the DOJ itself. With this in mind, health care providers considering self-disclosure through the OIG Self-Disclosure Protocol or CMS’s SRDP may wish to consult with counsel about seeking credit through the new DOJ guidance.
Written by: David Honig
This week, the United States Supreme Court ruled that the government’s 10-year deadline to file FCA actions could be extended to whistleblowers. The Court’s decision in Cochise Consultancy, Inc. et al. v. United States ex rel. Hunt resolved a circuit split that had dogged the courts, whistleblowers and defendants for decades. Health care providers should work closely with their counsel to ensure their policies and practices account for the need to defend against fraud claims stretching back more than 10 years.
The FCA’s statute of limitations is triggered by one of two events. The first trigger is the submission of a claim. The FCA prohibits actions for claims more than six years after their submission. But the second trigger can extend the statute of limitations to 10 years from a submission of a claim if the action is brought within three years of the government learning of the alleged false claims.
Until last week, circuit courts disagreed on the application of these triggers. Some circuits held that whistleblowers proceeding without government intervention must bring claims within six years of submission—never 10 years—because the second trigger only applied when the government intervened in an action.The 11th Circuit injected, on the other hand, applied the 10-year statute of limitations to whistleblowers proceeding without government intervention.
In Cochise, a whistleblower filed an FCA action in Alabama seven years after the alleged fraud but less than three years after he reported the alleged fraud to the government. After the government declined intervention, the defendant moved to dismiss, arguing the six-year statute of limitations barred the whistleblower’s action on seven-year old claims. The district court dismissed the action, rejecting the whistleblower’s argument that because the action was filed within three years of the government learning of the alleged fraud, that the 10-year period applied. The whistleblower appealed to the 11th Circuit.
On appeal, the 11th Circuit reversed the district court and held that the whistleblower’s claims were subject to the 10-year statute of limitations. The court noted that the FCA does not tie the additional time to file to government intervention. While in most cases the plaintiff’s knowledge triggers a statute of limitations, in FCA cases, the government is the real party in interest and thus its knowledge is the measure—even for claims filed by whistleblowers. Defendants appealed to the Supreme Court, which granted review of the case.
The Supreme Court unanimously affirmed the 11th Circuit’s decision. The Court applied “fundamental rules of statutory interpretation” and rejected the defendant’s argument that the 10-year period only applied if the government brought an action or intervened. The Court held that the FCA’s statute of limitations states clearly that both the six-year and ten-year bars apply to “civil actions” brought under the FCA. To accept the defendants argument would require two different meanings of that phrase—one for whistleblowers and one for the government. Rejecting this position, the Court ruled that “civil action” means the same thing at all times, in all cases and to all parties. Even in upholding the 11th Circuit’s decision, the Court recognized this result would allow a whistleblower to delay filing up until 10 years after the claims by waiting to notify the government. But Justice Thomas, writing for the Court, noted that “a result that ‘may seem odd . . . is not absurd,’” can still be within the law. With no other “plausible interpretation of the text,” he wrote, “the ‘judicial inquiry is complete.’”
The Cochise case is the final word on the FCA’s statute of limitations, absent Congressional action. The FCA raises unique problems when it comes to the statute of limitations. While such statutes stop running when a case is filed, whistleblower cases are filed under seal. It may be years from the filing date before an FCA defendant even discovers they have been sued. The combination of the seal provision and the statute can mean an FCA defendant may be forced to answer to actions a decade or more before they first hear of a whistleblower’s lawsuit. With this decision, that time has grown even longer.
The prospect of answering allegations for claims more than a decade old presents unique challenges for health care providers. The evidence exonerating them may be destroyed, lost or inaccessible because of technological changes. In weighing proper policies for document retention and preservation, health care providers should analyze their practices, in light of this new decision, with counsel.
Written by: David Honig
On July 5, 2019, the United States Court of Appeals, District of Columbia Circuit issued an opinion enforcing Supreme Court precedent that the False Claims Act (“FCA”) should be reserved for true fraud against the government—not “garden-variety regulatory violations.”
In U.S. ex rel. Kasowitz Benson Torres LLP v. BASF Corp., the D.C. Circuit reviewed a district court’s dismissal of an FCA action for failure to state a claim for relief. The whistleblowers alleged that several chemical manufacturers produced chemicals with adverse health effects and failed to disclose this information to the EPA, as required under the Toxic Substances Control Act (“TSCA”). The whistleblowers argued that although the EPA took no regulatory action against the defendants, the chemical manufacturers violated the FCA by “depriving the government of money by failing to pay TSCA civil penalties and by concealing their liability from the EPA.” The whistleblowers also argued that the chemical manufacturers deprived the government of “property” by failing to disclose adverse health information about the chemicals they manufactured.
The D.C. Circuit, unimpressed with the whistleblowers’ allegations, held:
- An unassessed potential penalty for regulatory noncompliance does not constitute an obligation that gives rise to a viable FCA claim; and
- A regulatory agency’s statutory right to be informed does not constitute a traditional property right.
In its opinion, the D.C. Circuit noted that the TSCA grants the EPA the authority to impose civil penalties, but does not require them to do so. The Court held that an obligation “arises only if and when the EPA decides to impose a penalty” and without an obligation to impose a civil penalty, the defendants’ non-compliance with the TSCA did not equate to a claim of conversion, or any other appropriate claim for relief under the FCA.
The whistleblowers’ argument that the defendants violated the reverse false claims provision by knowingly avoiding an obligation to transmit property to the government was just as quickly dismissed. The Court held that the TSCA gave the EPA only an interest in the chemical manufacturers’ substantial risk information. The Court noted that this information is not transmitted to the EPA by chemical manufacturers for the EPA’s benefit, but to allow the EPA to “carry out its regulatory mission.” The Court held that because the EPA’s concern is regulatory, the defendants’ obligation to inform the EPA of substantial risk information is not an obligation to transmit an interest in property.
This opinion reinforces both the demanding materiality standard created by the Supreme Court’s Escobarholding, as well as the First Circuit’s ruling in U.S. ex rel. D’Agostino v. ev3, Inc., et al., which held that a whistleblower cannot take the place of a regulatory agency. To do so would create a chilling effect on a manufacturer’s reporting obligations and the EPA’s ability to perform its duties.
This opinion serves as useful caselaw in combating unique regulatory arguments for liability under the FCA. Potential penalties under a statute or by a regulatory agency do not automatically create FCA liability, nor can a whistleblower rely on those potential penalties without placing themselves in the shoes of a regulatory agency.
Written by: David Honig
The United States Court of Appeals for the First Circuit issued an opinion creating a national divide on when a relator is an “original source” of an FCA claim, finding that a relator’s secondhand knowledge of fraud was “direct” knowledge.
Facts of the Case
In United States ex rel. Banigan v. PharMerica, Inc., a former employee of drug manufacturer Organon, James Banigan, alleged that PharMerica, Inc. one of the largest long-term care pharmacy companies in the United States, accepted illegal kickbacks from Organon in exchange for having Medicaid patients switched from their originally prescribed antidepressants to Organon’s antidepressant Remeron.
Banigan had worked in the same department as two Organon executives who conceived the scheme. Though he was not directly involved in the transactions, Banigan received emails about them, and both executives had spoken to him directly about their plot to induce prescription switches through heavy discounting and cost-saving opportunities.
The Court found that Banigan’s lawsuit, filed in 2007, stated claims that were “substantially similar” to those alleged by a New Orleans based long-term care physician in a settled 2002 lawsuit against PharMerica. Consequently, Banigan was barred from bringing suit, unless he was an “original source” of the information.
Notably, the district court previously held that Banigan’s claims were not subject to the first-to-file bar, which is designed to prevent duplicative qui tam actions where the government has already learned of the alleged fraud from a previously filed action. Applying the Supreme Court’s holding in Kellogg Brown & Root Servs., Inc. v. U.S. ex rel. Carter—that the bar applied only where the first suit was still “pending”—the district court held that because the 2002 lawsuit was settled and dismissed, Banigan’s 2007 suit could proceed.
The Public Disclosure Bar and the Original Source Exception
The public disclosure bar is designed to prevent opportunistic relators, enticed by the financial incentives that the FCA provides, from bringing “parasitic qui tam actions,” that is, suits that are “based upon a prior, public disclosure of fraud” in a civil proceeding. A lawsuit is “based upon” a public disclosure if the relator’s allegations are “substantially similar to” the information already in the public domain and “ultimately target the same fraudulent scheme.”
Prior to 2010, the public disclosure bar no longer applied when “the person bringing the action is an original source” who has “direct and independent knowledge of the information on which the allegations are based.” (Emphasis added). The 2010 amendments to the FCA, which post-date the allegations in this case, removed the word “direct” from the original source exception. The Judiciary Committee’s report on the 2010 amendments reflected frustration with courts interpreting the term too narrowly, creating a chilling effect on potential relators and leading to the dismissal of meritorious cases.
With the benefit of this hindsight, the First Circuit departed from its sister circuits’ narrow construction of “direct” knowledge, finding that Banigan’s secondhand knowledge of the fraud, learned from the executives who concocted the scheme, was sufficient to meet the original source exception. The Court specifically criticized the Eleventh Circuit’s holding in United States ex rel. Saldivar v. Fresenius Med. Care Holdings, Inc., that an employed technician was not an original source because his “firsthand knowledge related to inventory and administration of [medications], not costs and billing[.]” Echoing the Judiciary Committee’s concerns, the First Circuit found that such a narrow interpretation of direct knowledge was “incompatible with a core purpose of the FCA — to incentivize disclosures of fraudulent activity underlying claims for reimbursement from the government.”
- Though this decision interprets the term “direct” in the pre-2010 language of the original source exception to the public disclosure bar, relators with only secondhand knowledge of their alleged fraud may nevertheless assert it as persuasive authority for courts interpreting the relaxed knowledge requirement under the current language.
- The First Circuit’s broad interpretation of the term “direct” may also influence other circuits who have not already construed the term in cases where the pre-2010 language still applies.
- This case further serves as a harsh reminder of the effect of the Supreme Court’s decision in Kellogg,which interpreted the first-to-file rule narrowly. Where a second relator revives previously litigated claims, the Kellogg Court offered defendants cold comfort in the form of ‘issue preclusion,’ applicable only if the first action was decided on the merits rather than the relative norm of settlement, as occurred in this case.
Written by: David Honig
In a matter of first impression, the Third Circuit yesterday held that conflicting medical opinions can create a genuine dispute of material fact as to the element of falsity in a False Claims Act action.
Facts of the Case
In U.S. v. Care Alternatives, relators alleged that Care Alternatives, a hospice facility, “admitted patients who were ineligible for hospice care and directed its employees to improperly alter those patients’ Medicare certifications to reflect eligibility.”
Generally, Medicare will pay hospice benefits for individuals who are certified as “terminally ill” by at least one physician. The certification must be accompanied by documentation supporting a medical prognosis that the individual’s life expectancy is six months or less if the illness runs its normal course. The relators’ expert opined that in 35 percent of the sample cases he reviewed, a reasonable physician would not have certified the patients as terminally ill with a prognosis of six months or less based on the accompanying documentation. Reviewing the same sample set, Care Alternatives’ expert disagreed, finding that a reasonable physician could reasonably certify each case.
Interplay of Falsity and Scienter
The district court found that relators “could not prove falsity because they had not produced evidence that any physician lied and ‘received a kickback to certify any patient as hospice eligible’ or ‘certified any patient whom that physician believed was not hospice eligible.’” The Third Circuit held that the district court improperly “incorporated a scienter element into its analysis regarding falsity.” In reversing the district court’s holding, the Third Circuit sought to “make clear that in our Court, findings of falsity and scienter must be independent from one another for purposes of FCA liability.” It explained that “[s]cienter helps to limit the possibility that hospice providers would be exposed to liability under the FCA any time the Government could find an expert who disagreed with the certifying physician’s medical prognosis.” It warned that by folding the scienter element into an “objective” falsity test, a court fails to fully consider evidence of scienter.
The Third Circuit specifically disagreed with the Eleventh Circuit’s recently issued opinion in U.S. v. AseraCare Inc., which upheld an “objectively false” standard. In AseraCare, the court adopted a bright-line rule that “‘a reasonable difference of opinion among physicians reviewing medical documentation ex post is not sufficient on its own to suggest that [the original medical judgments, and therefore the claims based thereon] … are false under the FCA.’” The AseraCare court opined that “[a] properly formed and sincerely held clinical judgment is not untrue even if a different physician later contends that the judgment is wrong.” Despite disagreeing with this conflation of the falsity and scienter elements, the Third Circuit agreed with the general proposition. It preferred the Sixth Circuit’s distinction, however, that the sincerely held medical opinion is saved from FCA liability by the scienter element, and not by a conclusion that it cannot be false. Nevertheless, the Third Circuit praised the Eleventh Circuit’s decision in the same case to vacate the district court’s order granting summary judgment and to remand the action for further development of the scienter element.
Other circuits have also grappled with the issue of whether an honestly held opinion that a claim was not false goes to the falsity of the claim or the scienter of the claimant.
In U.S. ex rel. Harman v. Trinity Indus. Inc., the Fifth Circuit considered whether a statement of compliance with guardrail testing regulations was false. The regulations required that design changes be submitted to the Federal Highway Administration for approval “unless an exercise of good engineering judgment finds they were not significant.” The court reviewed evidence of whether the engineering judgment exercised was “good” under the falsity element and reviewed evidence of the honesty of that judgment—good or bad—under the scienter element. In the end, that case was dismissed on materiality alone.
The First Circuit made a similar distinction in U.S. ex rel. Jones v. Brigham & Women’s Hospital, finding that questions of fact on the falsity and scienter elements precluded summary judgment where allegedly false statements were submitted in a grant application for Alzheimer’s research studies. The applicant stated that the preliminary research results were based on reliable testing methods. Whether the methods used were actually reliable was an issue on which reasonable minds could differ and went to the falsity of the statement, but whether the applicant knew them not to be reliable was a matter of scienter.
Like the Eleventh Circuit in AseraCare, however, the Ninth Circuit appears to have conflated falsity and scienter in Hooper v. Lockheed Martin Corporation. There, a relator alleged that Lockheed fraudulently underbid project costs to win a government contract. The initial bid was supposed to reflect the contractor’s good faith estimate of the cost of the project. The issue of falsity was barely discussed in Hooper, though the court reviewed allegations that the proposed costs were deliberately reduced from current market rates. Unlike the Eleventh Circuit, the Ninth Circuit found that whether the estimated costs were stated in good faith was a question of scienter, not falsity. Whether based on falsity or scienter, the jury found no FCA liability when the case proceeded to trial on remand.
Third Circuit Holding Limited to Falsity
Ultimately, the Third Circuit in Care Alternatives acknowledged that the district court’s holding “was based solely on its analysis of the falsity element,” and therefore its appellate “decision is limited to the same.” It remains to be seen, therefore, whether on remand the district court will find a different basis to grant Care Alternatives summary judgment based on consideration of scienter, causation or materiality—the other elements of FCA liability that Care Alternatives challenged in its original motion.
- The element of falsity in FCA cases is a question for a jury when reasonable medical professionals could opine differently.
- A jury determination that a claim was, in fact, false, however, does not immediately trigger FCA liability. Relators must establish that the provider knew the claim was false when it was submitted. An honestly held belief that the claim was not false will defeat the scienter element but that credibility determination is typically reserved for the jury.
- Basic tenants of summary judgment are undisturbed by this case. If the facts adduced only support an inference in favor of one party—for example, that even assuming falsity there was no knowledge on the part of the provider—then summary judgment remains appropriate.
- A provider might not be able to rely on an after-the-fact “battle of the experts” to disprove the falsity element in an FCA case; rather, clear and well-supported contemporaneous documentation will provide the best defense that a provider did not knowingly submit a false claim.
Written by: David Honig
On March 13, 2020, President Donald Trump declared a National Emergency Declaration in response to the COVID-19 pandemic. Congress is passing new emergency legislation daily, and the states are declaring emergencies and issuing orders out of governors’ offices and Departments of Health.
While the global extent of the crisis is unprecedented, the country has experienced major crises in the past, and one thing is certain: once the pandemic passes and once billions, even trillions, of dollars have been spent, there will be a reckoning. The federal government, and its state counterparts, will review their spending in search of the inevitable fraud and abuse.
Department of Justice Focused on Potential for Abuse
The False Claims Act’s (the “FCA’s”) original purpose was to deter and punish fraudulent government contractors during the Civil War. During the current crisis, Attorney General William Barr instructed the Department of Justice (the “DOJ”) attorneys to “remain vigilant in detecting, investigating, and prosecuting wrongdoing” related to the pandemic.
Joining the DOJ’s calls for active prosecution, whistleblower attorneys and advocacy groups have actively called for further focus on fraud—and health care fraud particularly—urging the DOJ to be “prompt and aggressive” in its response.
Unfortunately, the FCA is both effective and too broad—often catching well-meaning providers in its attempts to root out knowing fraud. Given its breadth and the urgent focus on federal funding during the COVID-19 pandemic, historical context paints a picture of what might be in store for providers on the frontlines.
Lessons from Previous Crises
In the aftermath of Hurricane Katrina a task force was established specifically to investigate fraud. That group screened over 26,000 complaints of fraud and more than 900 defendants were charged with fraud in 43 judicial districts. These allegations ranged from bribery and corruption to embezzlement and charity fraud. Pulling from this experience and similar emergencies, like the 2009 H1N1 crisis, as health care providers continue to respond to the COVID-19 pandemic, it is important to stay on the right side of the FCA. Past enforcement following crises point to these areas are likely to see increased whistleblower and DOJ scrutiny:
- Requesting out-of-pocket fees that exceed the maximum regional Medicare allowable charge directly from patients;
- Selling supplies provided by the federal government;
- Advertising products by making fraudulent claims and an implied endorsement from the federal government;
- Diversion of legitimate prescriptions to illegal channels;
- Improperly charging for vaccinations, if they become available;
- Off-label use of drugs and devices;
- Documentation of services provided; and
- Use of counterfeit or adulterated vaccines if a vaccination becomes available.
And while past efforts provide some guidance, the COVID-19 pandemic’s scale will likely create even more focus points. The patchwork of federal, state and local responses, including waivers of some credentialing and licensing requirements, is certain to create pitfalls for providers and opportunity for whistleblowers. The biggest warning for health care providers is a general one – don’t take the emergency waivers from the various governmental entities as carte blanche. They are each far more specific than the headlines touting them.
Health care provider’s first priority remains treating their patients and ensuring the safety of their staff. Working alongside their government and legal partners, there’s opportunity to navigate the ever-evolving guidance and declarations to leverage the law for increased care.
Written by: David Honig
Earlier this week, the Second Circuit in Vierczhalek v. MedImmune, Inc. affirmed the dismissal of a relator’s amended complaint, finding she was not an “original source” of new allegations that piggybacked on a public disclosure.
Facts of the Case
Relator Susan Vierczhalek, M.D., filed a qui tam action in 2009 alleging that drug manufacturer MedImmune, Inc. and two health care service providers, Trinity Homecare, LLC and OptionCare, violated the False Claims Act (“FCA”) by promoting an “off-label” use of MedImmune’s drug Synagis. Synagis is prescribed to prevent lung infections in premature infants. Drug manufacturers and others are generally prohibited by law from marketing their drugs for uses other than what the drug was specifically approved for by the FDA – known as off-label uses.
The United States declined intervention. The State of New York, however, in 2015 intervened in the action as against Trinity Homecare and OptionCare, ultimately settling those claims for $22.4 million—of which the relator’s share was $4 million. As to MedImmune, the state continued and expanded its investigation.
Investigation Leads to New Charges
Two years later, New York state filed a complaint-in-intervention against MedImmune alleging a newly discovered kickback scheme wherein MedImmune gained access to the protected health information (“PHI”) of hospitalized infants who might be candidates for Synagis. MedImmune passed that PHI to Trinity, which then used the data to identify potential patients for its Synagis-related health care services.
After the state filed its complaint, the relator began her own investigation into the new charges. She filed an amended complaint against MedImmune that abandoned her previous off-label claims and instead alleged that MedImmune conducted the same kickback scheme described in New York State’s complaint in other states as well. MedImmune moved to dismiss the amended complaint on grounds that the relator was not an “original source” of her new allegations. The district court and the Second Circuit agreed.
Public Disclosure Bar and Original Source Exception
FCA relators must be an “original source” of the allegations they bring on behalf of the government. In other words, they must have independent knowledge of “core information” regarding “the essential elements of the alleged fraud.”
New York State’s filed complaint against MedImmune was a “public disclosure” of the fraud alleged therein, which by law operated to bar any other person from asserting the same claims—unless that person was an “original source” of such allegations. Both the Southern District of New York and the Second Circuit rejected the relator’s arguments that she was an original source and could avoid the public disclosure bar. They found that her claims pertaining to fraud outside the state of New York were closely related to the claims asserted in the State’s complaint, and her allegations were not “independent of” nor did they “materially add” to the State’s complaint. Based in part on the relator’s investigation beginning after and in response to the State’s filed complaint, the Second Circuit concluded that her amended complaint was impermissibly dependent on the public disclosure and merely expanded the territory of the alleged fraud.
Relying on long-established Circuit precedent, the Second Circuit concluded that “[a] relator who simply ‘conducted some collateral research and investigations’ in response to public allegations, and paired the results of that research with her background information, does not qualify as an original source.” The Second Circuit further affirmed the district court’s refusal to grant the relator leave to amend her complaint because this deficiency could not be cured.
Provider-defendants in FCA actions are vulnerable to claims by the government concerning any fraudulent conduct uncovered during an investigation, and that investigation may not be limited to the specific conduct alleged by a whistleblower. Though the government has the authority to expand the action, the whistleblower’s participation will always be limited to claims for which they are an “original source” of information.
Written by: David Honig
The Southern District of Indiana recently held that a whistleblower must present sufficient evidence to support each alleged false claim, not just one, to survive summary judgment. This holding is a win for FCA defendants that deal in a high volume of claims submitted to the government—like hospitals—and requires whistleblowers to identify every claim before trial, not just an exemplar.
In U.S. ex rel. Calderon v. Carrington Mortgage Services, LLC, et al., the qui tam complaint alleged that the mortgage company falsely certified loans as qualifying for Federal Housing Administration insurance. To support the allegations, the whistleblower alleged that the mortgage company manipulated data and falsely certified compliance to get FHA mortgages approved and then collected the proceeds when those loans defaulted. The mortgage company moved for summary judgment, arguing that the whistleblower must prove her allegations on a claim-by-claim basis before trial. The whistleblower argued that she need only prove one instance of fraud and that her burden for the remaining claims was reserved for trial.
The Court agreed with the mortgage company and held that whistleblowers suing under the FCA “must specifically identify each fraudulent claim submitted to the government.” The holding itself is critical, but it’s the Court’s rationale that will serve FCA defendants well. The Court clarified that summary judgment vets the evidence before trial, and it is necessary to identify the specific claims to preserve time and judicial resources. A failure to do so could lead to “wasted time” at trial.
While this holding clarifies the parties’ burdens at summary judgment, the whistleblower’s argument was not completely out of line. Generally, where a whistleblower alleges a complex and “far reaching scheme,” it is not enough to plead only the broad scheme—the whistleblower must also identify a representative false claim actually submitted. The whistleblower’s reliance on that standard fell flat here, though. The parties had moved well beyond the initial pleading stages and instead arrived at summary judgment, the second potential off-ramp from litigation for qui tam defendants. With this new stage of litigation comes a new burden for the whistleblower.
This case involved a mortgage company, but hospitals and health systems should see this decision as a potential tool to use in the often complex world of healthcare FCA litigation. Physicians, hospitals and health systems submit thousands upon thousands of claims to the government for reimbursement each year. Now, it is not enough for a whistleblower to allege a broad theory of fraud and coast into trial. Instead, the whistleblower must be able to identify and support each claim before trial—a necessary act according to this court to avoid “wasting time.”
Written by: David Honig
In a partial affirmation, the Fourth Circuit weeded out False Claims Act (“FCA”) claims made without particularity, requiring relators to “connect the dots” between the alleged false claims and government payment and highlighted the FCA’s recently amended “objective reasonableness” standard in reviewing retaliation claims.
In 2010, the FCA was amended to include any party that does business with the government or receives reimbursement with federal money. In U.S. ex rel. Grant v. United Airlines Inc.,¹ the relator brought a qui tamaction alleging that the airline defendant violated the FCA by: (1) knowingly presenting fraudulent or false claims for payment;² (2) knowingly making, using or causing a false record material to fraudulent or false claims;3 and (3) unlawfully terminating relator for “lawful acts done … in furtherance of an FCA action … or other efforts to stop 1 or more violations of the FCA.”4
On appeal, the court examined the claims under the Federal Rule’s stringent 9(b) pleading standard. There are two ways to successfully plead a case under Rule 9(b): (1) the allegations are made with particularity that specific false claims actually were presented to the government for payment; or (2) the allegations contain a pattern of conduct that would necessarily have led to the submissions of false claims to the government for payment. In this case, the court focused on the latter.
As for the retaliation claims, the court focused on the protected activity the relator engaged in that caused his termination. In order to successfully plead this claim, the court noted that the relator must either point to a “distinct possibility” that FCA litigation will ensue or that the defendant’s conduct involved one or more “objectively reasonable” possibilities of an FCA violation.
Allegations based on the FCA need to be pleaded with particularity due to the seriousness of the charges and the potential damages the defendant faces. Federal Rule 9(b)’s heightened pleading standard requires relators to draw a connection between the fraudulent claims and government payments.
Here, the court acknowledged that the relator’s claims adequately alleged that defendant was engaged in some fraudulent conduct; however, the relator failed to allege how the bills for the fraudulent services were presented to the government or if the bills were even paid by the government. The defendant did not contract directly with the government, so the relator needed to explain the billing structure or point to how or whether the government actually paid for the alleged fraudulent claims. The court observed that the relator’s claims left open the possibility that the government was never billed for the services. Because there was a subcontract between the defendant and the government, the subcontractor could have declined to bill the government, or if it did bill, the government could have refused to pay the amount. The court also highlighted that the complaint left open the possibility that any fraudulent repairs were fixed prior to billing the government. Once the defendant made the repairs, the items went to the subcontractor, and, thus, it can be argued that the subcontractors realized the issues and remedied them prior to billing.
The court then focused on the relator’s retaliation claims. The relator alleged that due to his efforts in notifying the defendant of possible FCA violations, he was terminated. The court used the “objective reasonableness” standard for determining whether the relator was engaged in protected activity and noted that the relator need only a reasonable belief that the defendant’s conduct was going to, or is currently, violating the FCA. Here, the relator alleged that he notified defendant of the possible false claims through emails, which eventually led to an investigation. The court explained this conduct was protected activity under the FCA. When the relator felt the conduct was not remedied, he was terminated for taking pictures of the alleged fraudulent conduct, which then satisfied the additional two elements required for a successful retaliation claim under the FCA – knowledge and defendant taking adverse action as a result.
Courts understand the damages defendants face when litigating an FCA action and are holding relators to the stringent pleading standards. Claims merely alleging fraudulent conduct and a payment, without more, are insufficient to bring under the FCA. Health care providers need to remember to take any alleged fraudulent conduct seriously. If a relator can point to a reasonable belief that the health care provider engaged in conduct that could violate the FCA, retaliation claims will likely survive a motion to dismiss.
Written by: David Honig
In a recent case out of Kansas, the Tenth Circuit reiterated the importance of the FCA’s materiality and scienter requirements that the Supreme Court set forth in Escobar:
- FCA claims must satisfy materiality and knowledge requirements—both of which are rigorous and strictly enforced.
- A whistleblower must prove knowledge in an implied certification case—it cannot be presumed.
In U.S. ex rel. Coffman v. The City of Leavenworth, KS, a whistleblower alleged that Leavenworth fraudulently billed federal agencies for wastewater services by falsely implying compliance with environmental laws. The district court granted the city’s summary judgment motion, holding that the whistleblower failed to demonstrate that the allegedly false certifications were material to the government’s payment of monthly invoices for wastewater treatment services or that the city knowingly submitted false claims.
The Tenth Circuit affirmed, amplifying the continued trend that courts will hold relators responsible for proving both materiality and knowledge in FCA actions. The Tenth Circuit echoed Escobar, holding that the whistleblower needed to prove that the city knowingly presented a false claim to the government for payment or approval. The Tenth Circuit noted that while the whistleblower argued that she showed the city flouted environmental laws, evidence of a violation wasn’t enough. Instead, she needed to prove—and could not prove—that the city knew it was violating those laws. This was true, at least in party, because the city introduced unrebutted evidence that the Kansas Department of Health and Environment was aware of the whistleblower’s allegations but did not consider them material.
Whistleblowers cannot rely on technical violations to skate past the FCA’s materiality and knowledge requirements. They must show that a defendant knowingly presented a false claim for payment and that claims were material to the government’s decision to pay.
The Tenth Circuit’s opinion joins a growing body of caselaw across the country applying Escobar to whistleblower allegations that continue to reinforce the demanding knowledge and materiality standards under the FCA.