Category: Litigation Handbook

Fourth Circuit Addresses Expanded Definition of “Original Source”

In 2010, the False Claims Act (“FCA”) was extensively amended to limit the public disclosure bar and to expand the ability of whistleblowers to qualify as “original sources” in qui tam litigation. This month, the Fourth Circuit Court of Appeals took an in-depth look at both provisions, in the case US ex rel. Moore & Co. v Majestic Blue Fisheries…. Continue Reading →

The FCA, Advice of Counsel Defense and CMS Commentary Meets the Jury

A recent court decision had highlighted two issues on the cutting edge of health care and False Claims Act (“FCA”) law. Both address what happens in the transition from health care advice to health care litigation. The first is the application of the attorney client privilege and the advice of counsel defense. The second is the application of CMS advisory opinions beyond the regulatory sphere and in the courtroom. Continue Reading →

FCA Cases Just Got Harder to Settle

On May 26, 2015, the United States Supreme Court issued its decision in Kellog Brown & Root Service, Inv. et al. v. United States ex rel. Carter, 575 U.S. ____ (2015), Case No. 12-1497. Most of the commentary on the case centers around the Court’s decision on the Wartime Suspension of Limitations Act, but the Court also issued a crucial decision on the False Claims Act’s “first-to-file bar,” one that will reverberate through FCA settlement discussions for years to come.

The Case

The FCA’s first-to-file bar states:

When a person brings an action under this subsection, no person other than the Government may intervene or bring a related action based on the facts underlying the pending action.[1]

At issue in Kellog Brown & Root was the meaning of “pending action.” The government and the qui tam relator argued that it applied only to cases pending at the time a new complaint was filed, and that, after dismissal, a new complaint would not be barred. The defendant argued that the filing of a qui tam case barred all future cases related to the same set of facts. The Court, applying the plain language of the word “pending,” ruled for the government and the relator. It did note, however, that its ruling could chill settlement prospects:

If the first-to-file bar is lifted once the first-filed action ends, defendants may be reluctant to settle such actions for the full amount that they would accept if there were no prospect of subsequent suits asserting the same claims. [2]

This issue arose during oral argument. At that time, the government argued that a case resolved on its merits would be barred, as a second qui tam relator would be acting on behalf of the government, which already had its claims resolved. However, a case settled and dismissed without prejudice “would not be barred by the first­-to­-file provision.” (Transcript, p. 57, ll. 8-9). Justice Alito, writing the opinion for the Court, agreed that the decision could cause problems in future FCA cases, particularly settlement discussions but stated:

That issue is not before us in this case. The False Claims Act’s qui tam provisions present many interpretive challenges, and it is beyond our ability in this case to make them operate together smoothly like a finely tuned machine. [3]

Practical Takeaway

The United States often refuses to dismiss FCA whistleblower cases with prejudice as part of a settlement. This refusal is a precautionary measure by the government, which is obligated to protect its ability to take further civil or even criminal action should additional improper acts come to light. The ruling in Kellogg Brown & Root will, as predicted, make it very difficult for a defendant to accept such a settlement, as another qui tam relator could file the day after a case is dismissed, and the defendant would have to litigate, and perhaps even settle and pay for, the same actions a second time. The defendant might even have to settle a third and fourth time if there is still life in the FCA’s six-year statute of limitations. The FCA’s separate public disclosure limitation might offer some protection to defendants, but that was significantly watered down in the 2010 amendments to the FCA. Prior to 2010, the bar stated:

“[n]o court shall have jurisdiction over an action under this section based upon the public disclosure of allegations or transactions in a criminal, civil, or administrative hearing, in a congressional, administrative, or Government Accounting Office report, hearing, audit, or investigation, or from the news media, unless the action is brought by the Attorney General or the person bringing the action is an original source of the information.[4]

As amended, the statute reads:

(A) The court shall dismiss an action or claim under this section, unless opposed by the Government, if substantially the same allegations or transactions as alleged in the action or claim were publicly disclosed— (i) in a Federal criminal, civil, or administrative hearing in which the Government or its agent is a party; (ii) in a congressional, Government Accountability Office, or other Federal report, hearing, audit, or investigation; or (iii) from the news media, unless the action is brought by the Attorney General or the person bringing the action is an original source of the information.[5]

Under the amended statute, public disclosures are limited to federal hearings, and the government can conclusively contest dismissal. Under the earlier version, a public disclosure deprived the Court of jurisdiction without consideration of the government’s position. A defendant attempting to settle an FCA case in which the government refuses to dismiss with prejudice must now consider the effect of the Kellog Brown & Root decision in light of the 2010 amendments to the Act and take into consideration the risks a second whistleblower might be waiting in the wings. Defendants’ only choices in such a situation will be to wait out settlement until the statute of limitations would bar a new lawsuit or to accept whatever additional conditions the government might demand in exchange for dismissal with prejudice. Such conditions can include higher settlement amounts and imposition of onerous and expensive corporate integrity agreements.

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

N.D. Ill.: Upcoding Allegations Against Hospitalist Group Survive Motion to Dismiss


A recent case out of the Northern District of Illinois Federal Court, US ex rel. Oughatiyan v. IPC the Hospitalist Company, Inc., demonstrates the high risk inherent in evaluation and management (E&M) coding for health care providers…. Continue Reading →

Boilerplate Litigation and the False Claims Act


Written by David B. Honig and Delphine P. O’Rourke

Assertion of affirmative defenses creates risk for clients, attorneys and law firms.  Treating False Claims Act litigation like any other litigation will lead to the unnecessary expenditure of time and money and potentially sanctions. A recent decision out of the Southern District of Texas, United States ex rel. King v Solvay S.A.,¹ is an excellent primer in how affirmative defenses should not be used.

Health Care Takeaway

Boilerplate affirmative defenses should be used with caution in FCA litigation.  Health care providers and their counsel should remain aware that the defenses typically raised in other matters will not be available to them when dealing with the government, or with government contractors. It is important to keep this knowledge at the forefront throughout the relationship with the government. Contracts directly with the government or related in any way to a government program, must be entered into with the absence of these defenses in mind. Ongoing decisions must also be made with the lack of these defenses as a significant consideration for actions of a third party that a health care provider could rely upon as a defense for their own actions (e.g., waiver or unclean hands) is not available in a case brought on behalf of the government.

Affirmative Defenses and the FCA

Affirmative defenses are raised by defendants in litigation, stating specific reasons beyond the Plaintiff’s ability to prove their case why the defendant should not be found liable.  Examples of affirmative defenses in health care cases include Stark exceptions and Anti-Kickback safe harbors.  Some litigators have a standard “basket” of affirmative defenses they raise in every case.  These are called “boilerplate” defenses and the courts frown upon them more with each passing week.

In King, the Defendant asserted twenty-five “affirmative and other defenses.” These included defenses commonly seen in contract and general tort litigation, including contributory or comparative fault, waiver, estoppel, laches,  unclean hands, failure to mitigate, superseding conduct of third parties, the learned intermediary doctrine and the absence of damages.² Most of these defense do not apply in FCA cases, as the action is brought on behalf of the government. Other defenses can apply but only in unusual and very specific circumstances. Asserting inapplicable affirmative defenses wastes an attorney’s time and a client’s money, particularly if the case reaches the motion to strike or motion for summary judgment stage. More importantly, courts can impose sanctions for frivolous pleadings under Rule 11(c) not only against an individual attorney but also against  the attorney’s entire firm.³

Affirmative defenses raised by the Defendant and addressed by the Court in King included:

  • Comparative or Contributory Fault. Solvay, the Defendant, raised comparative fault as an affirmative defense but did not clarify until after the relator brought a motion for partial summary judgment that it would abandon it for the FCA claims but retain it for state law claims. With Solvay’s withdrawal of the defense as to the FCA claims, the court denied the motion for partial summary judgment as moot.
  • Waiver and Estoppel. Generally, waiver and estoppel are not available against the government when the defendant’s actions impacted the public fisc. While there may be exceptions to this general rule, they would be quite unusual and the defenses should not be raised in the absence of material facts that would show they would apply. The court, finding no facts or argument in support of such an unusual exception, granted the plaintiff’s motion for partial summary judgment.
  • Unclean Hands and Laches. Unclean hands is not available as a defense in FCA cases. Like estoppel, it is available against the government in extraordinarily rare cases and the defense should only be raised in such cases. Solvay withdrew the defense in regard to the FCA after the relator’s motion was filed.  With Solvay’s withdrawal of the defense as to the FCA claims, the court denied the motion for partial summary judgment as moot.
  • Failure to Mitigate. Failure to mitigate is not a defense in FCA cases as the “government has no duty to mitigate damages where fraud is alleged.”4 and therefore, the court granted the motion for partial summary judgment.
  • Superceding Conduct of Third Parties. The trial court in King found that there could be instances in which the acts of third parties caused the relator’s damages. Based upon that language, the defense was addressed only regarding the relator’s personal allegations and not the FCA claims. The motion for partial summary judgment was therefore denied.
  • Learned Intermediary. The trial court noted that it was unlikely that the learned intermediary doctrine could be used against the government in an FCA case and that there were no cases supporting such use.  However, the court denied the motion for partial summary judgment because of the relator’s “unique theory of liability.”5
  • Absence of Damages. The Defendant argued that it raised absence of damages to bar recovery for claims that the relator was unable to prove at trial. The court denied the motion for partial summary judgment, though, finding it premature.

False Claims Act cases are unusual and complex. They are brought by a private litigant but are on behalf of the government. They are often based upon extraordinarily dense and complex regulations related to health care, defense or education. Defense of these cases is not the same as defense of general commercial cases and health care providers should ensure they select counsel knowledgeable about these differences.

Should you have any questions regarding this article or False Claims Act litigation and compliance, please contact:

1 2015 WL 475935, S.D. Tex. Case No. H-06-2662, Feb. 4, 2015.

2 King at *1.

3 Fed.R.Civ.P. 11(c)(1).

4 US ex rel. Garrison v. Crown Roofing Servs., Inc., 2011 WL 4914971 at *1, S.D.Tex. Oct. 14, 2011).

5 King at. *9.[[5]]

Up the Creek Without a Regulation

by David B. Honig and Brian C. Betner

CMS Announces Further Delay of Repayment Rule

To be published in the February 17, 2015 Federal Register, CMS has extended its deadline for finalizing the Affordable Care Act’s (“ACA”) 60-day payback rule. This is the rule that requires a Medicare or Medicaid provider to return an identified overpayment within 60 days of its identification. On day 61, the overpayment becomes a violation of the False Claims Act (“FCA”).

The 60-day rule, found in the ACA[1], as well as amendments to the FCA, are the fund-raising and enforcement tools of the new law. Together, they create an entirely new type of false claim, one that is not knowingly false when submitted but only becomes “knowingly false” once identified and not repaid within a specified time. The ramifications of this change are enormous.

CMS has yet to provide a final rule giving guidance to contractors. Significant questions remain, including basic issues such as “what qualifies as an overpayment?” and “when does a provider know of an overpayment?”

Under the proposed rule[2], a provider needing time beyond the 60 days to complete a repayment may use the Extended Repayment Schedule process found in CMS’s Financial Management Manual[3]. Until the rule is final, though, providers may rely only upon the plain language of the statute, which offers no opportunity for an extension, even using the protocol established by CMS.

Specific types of providers await a final rule to explain how the new 60-day payback requirement applies to them. Disproportionate Share Hospitals get some clarification in the proposed rule about when they must perform reconciliation, but there is no such clarification in the statute. The same section of the proposed rule provides clarification for outlier reconciliation, though there is nothing about it in the statute.

Another significant question, which remains unanswered absent of a final rule, is the applicable look-back period. The statute states that an identified overpayment becomes an FCA violation if not repaid within 60 days. It does not, though, identify a limit to the look-back period beyond which a provider has a repayment obligation. As written, the statute would require an institutional provider identifying an overpayment from decades past to research it and repay it within 60 days. If a provider fails to do so, on the 61st day it becomes a FCA violation, triggering the FCA’s statute of limitations, which can stretch back as much as 10 years. Every claim, whether found on a hospital’s new computer system or in a moldering carton in the back of a physician’s rented storage space, could be a potential false claim. The proposed rule would limit the look-back period to 10 years, extending the FCA’s effective statute of limitations back more than 20 years[4].

While the government is granting itself another year to finalize the rules for the application of the new statute, there is no similar relief to providers. The government is already intervening in and actively prosecuting retained overpayment cases. The statute, the government argues, is sufficiently clear that providers can be held liable for its violation, often to the tune of millions of dollars. But the government does concede that additional time is appropriate due to “the complexity of the rule.”

This must be of significant concern to providers. The government has already intervened in retained overpayment cases, including US v. Continuum Health Partners in the Southern District of New York. Whistleblowers are bringing these actions, comforted with the knowledge that providers are crippled by CMS’s own failure to finalize rules that clarify their duties and define their rights and obligations. One court even allowed a case to go forward on a retained overpayment claim where no overpayment was identified because the provider’s actions in changing its auditing processes were sufficient to raise a factual issue whether it did so to remain willfully ignorant of prior billing errors[5].

In 2014, the government recovered almost $6 billion in FCA litigation, $1 billion more than any previous year, and announced a record 700 whistleblower filings – most of which remain under seal in federal courts. Just a few months ago, the government announced that all whistleblower cases under the FCA will be reviewed by the Criminal Division of the Department of Justice (“DOJ”). And just this month, the government asked to almost double its health care fraud litigation budget, stating that additional staff was needed to handle “the increasing number of whistleblower cases” weighing down the DOJ’s enforcement efforts. Every indication is that the whistleblower FCA actions that have been unsealed are merely the tip of the iceberg. Many more likely remain under seal awaiting first criminal then civil review. A large percentage of these are likely retained overpayment claims, which are accusations of fraud against health care providers for failing to follow rules not yet written by the government.

Until the rule is finalized, providers will be bound by the very broad and unforgiving language of the statute.

Health Care Takeaway

The retained overpayment false claim is the newest and biggest tool that the government wields in its effort to rein in the costs of its health care programs. Yet there remain no rules or guidance on how, when or where that hammer can be used. A broad statute, increased government enforcement through both the civil and the criminal divisions of the DOJ and an army of avaricious whistleblowers and their attorneys creates a daunting environment for health care providers.

When attempting to traverse this challenging landscape, providers should carefully consider the following:

  • First, normal compliance activities must be undertaken with additional care and with full appreciation that any errors discovered must be handled quickly with repayment in every case, no matter how small or inconsequential it may seem.
  • Conversely, normal compliance activities must continue, lest the government or a whistleblower allege a change indicates a willful refusal to identify overpayments, another violation of the FCA, after 60 days.
  • Third, providers may not simply rely upon their usual channels and procedure if those have not fully integrated all aspects of the retained overpayment FCA liability.
  • Finally, the assistance of qualified health care counsel is more important than ever. The penalties of the FCA can reach $11,000 per retained overpayment, treble damages and even program exclusion. These risks warrant guidance in matters that might previously have been treated as day-to-day internal matters. Involving health care counsel to advise the provider at the initial stages of tackling potential overpayments is the single most important step to ensuring an effective and efficient review.

Should you have any questions regarding this article or False Claims Act litigation, please contact:


Self-Disclosure, the Public Disclosure Bar and the FCA – Uncertainty, Circuit by Circuit

Written by David B. Honig and Ritu Kaur Cooper.

On February 3, 2015, the Fourth Circuit Court of Appeals ruled that disclosures to the public officials responsible for managing the subject of a False Claims Act lawsuit did not qualify as “public disclosures” for the purpose of the FCA’s public disclosure bar. US ex rel. Wilson v. Graham County Soil And Water Conservation Dist. In so ruling, the Fourth Circuit expressly rejected the Seventh Circuit’s ruling that such disclosures meet the bar as defined in the statute. This means that whether a report to a government oversight official is a public disclosure depends, for the time being at least, upon the location of the events in question.

The defendants, soil and water conservation districts in North Carolina’s Graham and Cherokee counties, entered into Cooperative Agreements with the National Resources Conservation Service for participation in the Emergency Watershed Protection Program for storm relief. The NRCS is a subdivision of the U.S. Department of Agriculture.

Graham County Soil & Water Conservation District was audited by county auditors, who reported program violations to several entities, including the USDA. The relator, unsatisfied with the audit results, made a written statement to a USDA Special Agent, who completed a Report of Investigation concluding additional program violations. That report was distributed to certain state and federal law enforcement agencies but was not to be further distributed “without prior clearance from the Office of Inspector General, USDA.”

The relator filed a qui tam lawsuit. The Defendants moved to dismiss the action, arguing the relator’s claim was based upon a “public disclosure,” the county audit report and the USDA Report of Investigation.[1]

At the time the action was filed, the FCA stated:

No court shall have jurisdiction over an action under this section based upon the public disclosure of allegations or transactions in a criminal, civil, or administrative hearing, in a congressional, administrative, or Government Accounting Office report, hearing, audit, or investigation, or from the news media, unless the action is brought by the Attorney General or the person bringing the action is an original source of the information.[2]

The court found that both the county audit report and the USDA Report of Investigation qualified as audits or investigations under the controlling law. The only question, therefore, was whether they were publicly disclosed.

The Seventh Circuit considered the same question in US v Bank of Farmington (1999). In that case, the defendant bank, which learned of an error during unrelated litigation with the woman who would become the relator, disclosed that error to the federal Farmers’ Home Administration (“FmHA”). The bank separately negotiated and settled with the FmHA for the loss due to its error.

The relator filed a qui tam lawsuit under the FCA, and the bank moved to dismiss, arguing that the report to the FmHA was a qualifying public disclosure under the statute. The Court of Appeals agreed, reasoning that the purpose of a public disclosure is to bring an action to the attention of the government, “not merely to educate and enlighten the public at large about the dangers of misappropriation of tax money.”[3] It determined that a disclosure to a public official with the appropriate managerial responsibility over the issue at hand qualifies as a public disclosure, as that official is authorized to act on behalf of the public.

The Fourth Circuit Court of Appeals refused to follow the reasoning in Bank of Farmington. It focused not upon the public nature of the official but upon the public nature of the disclosure. That public nature, the court determined, required that the disclosure is something in the public domain and available outside the government. Otherwise, it said, the words “public disclosure” would be superfluous to the language in the statute related to reports to the government. In ruling this way, the court joined the First, Ninth, Tenth, Eleventh and D.C. Circuits. The Second, Third, Fifth, Sixth and Eighth Circuits have yet to rule on the issue.

Self-Disclosures and the Public Disclosure Bar

The government encourages its contractors to self-report when it discovers errors or overpayments. Such self-disclosures often include an audit by a government agency as part of the reporting process. As the law now stands, such a self-disclosure could also protect a contractor from a parasitic lawsuit filed by a person with knowledge about it but only in the Seventh Circuit and perhaps in the Second, Third, Fifth, Sixth and Eighth Circuits. In the other Circuits such a self-disclosure may satisfy the government oversight agency but would not bar an opportunistic whistleblower from bringing an action even if he or she only learned about it as a result of that disclosure.

Contractors, such as health care providers and suppliers, routinely make their self-disclosures to such government oversight agencies as the Office of Inspector General, the Centers for Medicare & Medicaid Services, U.S. Attorney’s office or the federal government contractor, depending on the circumstances involved in the alleged violation of the fraud and abuse laws.  According to the Fourth Circuit, none of these agencies are considered to be the public.  It is not common practice for contractors to publish press releases or the like to inform the public domain of their voluntary disclosure submission.

When determining whether to make a voluntary disclosure, contractors weigh the risks versus the benefits of disclosing.  In addition to the opportunity to avoid the costs and disruptions associated with a government-directed investigation and civil or administrative litigation, self-disclosures are motivated by the possibility of reducing FCA exposure by relying on the public disclosure bar as a potential defense.  The Fourth Circuit’s decision reiterates that contractors cannot rely on self-reporting as protection against whistleblower suits.  Protection will only be afforded if the contractor also issues some type of notice to the public domain of the self-disclosure.

One of the purposes of making a self-disclosure is to quietly resolve alleged errors, overpayments or other violations without drawing broad attention to the entity.  Now, contractors will have to reevaluate their policies and procedures related to conducting internal investigations and self-reporting.  Certainly their cost/benefit analysis will change.  Whereas in the last five years since the enactment of the Patient Protection and Affordable Care Act of 2010, many more health care providers have been making voluntary disclosure submissions, that trend may change if more Circuits adopt the holding of the Fourth Circuit.

We close with one final note of caution. Given the split between the Circuits, as well as the lack of decision in several Circuits, the law remains fluid. What appears to be permissible today in one Circuit could change before the actions get challenged by the government or a qui tam whistleblower. It could change because a Circuit Court is persuaded by a new decision or what comes to be a clear majority view, or it could change if the Supreme Court accepts a case to resolve the conflict. Therefore, it is important to have up-to-the-minute advice about what the law is, and what it might be in the future, when making these important decisions.

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

Should you have any questions regarding contracting, compliance or government advice and assistance, please contact:



Seventh Circuit: “Information and Belief” Insufficient under 9(b)

In U.S. ex rel. Grenadyor v. Ukranian Village Pharmacy, Inc. et al., the Seventh Circuit affirmed a trial court’s dismissal  of a whistleblower’s complaint for its failure to provide sufficient specificity regarding the alleged fraud. In the opinion, Judge Posner drives a stake through the heart of a common boilerplate phrase  with clarity and precision that makes a refreshing read for legal and non-legal readers alike.

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FCA Defendant’s Counterclaim for Breach of Confidentiality Agreement Proceeds

Last week, the District Court of the Eastern District of Pennsylvania ruled that defendants in a False Claims Act case may bring a cause of action against the Relator for breach of a confidentiality agreement. Though such causes of action have been disfavored by other courts, this ruling paves a path for government contractors and healthcare providers to strengthen the potential enforcement of confidentiality agreements.

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