Monday, May 2, 2016

The Government Should Dismiss Meritless Qui Tam Suits - The Case of US ex rel Thomas v. Black and Veatch Special Projects Corp.

Dear Readers:

Last week the 10th Circuit affirmed the District Court's grant of summary judgment in favor of the defendant in US ex rel Thomas v. Black and Veatch Special Projects Corp., 2016 WL 1612857 (10th Cir.). I previously covered the District Court's decision.

Black and Veatch is a great case that addresses whether and when a defendant's "false certification" of its compliance with a government contract is material to the government's decision to pay on that contract. As the Court explained, "liability [under the False Claims Act (FCA)] does not arise merely because a false statement is included in the claim; rather, the false statement must be material to the government's decision to pay out moneys to the claimant." Here, the Court essentially found that the false certification regarding minor breaches of the contract was not material to the government's decision to continue paying on the contract because the government continued to pay defendant on the contract long after the government knew of and defendant self-reported the violations.

Defendant Black and Veatch was a large construction firm that contracted with the United States Agency for International Development (USAID) to build a huge electrical plant in Afghanistan. The Relators discovered (and the construction firm also self-reported) that some of the employment records for a handful of the defendant's employees had been fraudulently tampered with so that the employees could get visas and work permits in Afghanistan. Such violations, Relators alleged, constituted a "material" violation of the contract and resulted in a false certification to the government that went to the heart of the defendant's government contract.

Looking at the contract as whole and the impact these minor violations had on its performance, the Court found that these violations did not undermine the contract's purpose and that the defendant substantially performed all of its contractual duties and obligations. More importantly, the Court found that these violations were not material because the USAID continued to pay the defendant on the contract long after government officials learned of the defendant's violations and the results of defendant's internal investigation. 

I said it when I reviewed the District Court case but it's worth repeating: the real significance of this case is the government's failure to exercise its authority under the FCA to dismiss the Relators' suit pursuant to 31 U.S.C. 3730(c)(2)(a). What possible justification was there for allowing it to continue?  If the government as the "real party in interest" didn't have a problem with the defendant, why let Relators, acting in the government's name and collecting money for the government, proceed with this matter? Why force a defendant to defend a case like this? 

Apparently, the government never exercises its power to dismiss meritless qui tam cases. I know of only one case where the government dismissed a claim under 3730(c)(2)(a): US ex rel Roach v. Obama, 2014 WL 7240520 (D. DC). In that case, the relator alleged that Barack Obama was not eligible to hold the office of President and that transactions engaged by him as President violated the FCA. Is Roach the bar for when the government will exercise its power to dismiss meritless qui tam suits -- that they have to be brought by a birther? It sure seems like it.

A. Brian Albritton
May 2, 2016

Monday, March 28, 2016

Mistakenly Filling Out CMS-1500 Form Does Not Give Rise to False Claims Act Liability: US ex rel Johnson v. Kaner Medical Group

Dear Readers:

I recommend to you U.S. ex rel Johnson v. Kaner Medical Group et al., a non-intervened qui tam case out of the 5th Circuit: two District Court opinions and the 5th Circuit's decision affirming the District Court's sua sponte grant of summary judgment in favor of the defendants. See 2014 WL 7239537 (December 19, 2014, N.D. TX), 2015 WL 631654 (February 12, 2015, N.D. TX), and 2016 WL 873816, __ Fed. Appx.__ (5th Cir., March 7, 2016). Essentially, Kaner stands for the proposition that you cannot make a False Claims Act ("FCA") case based on a medical provider's mistakes in filling out and submitting incorrect Medicare paperwork, when the evidence shows that the provider did, in fact, provide the billed service and had no intent to "cheat" Medicare. Additionally, the District Court's opinions are critical of the Relator for not really having the case she had originally pled in her initial and first amended complaints, wrongfully bypassing Rule 9(b) with theories she later abandoned in order to obtain discovery, and then seeking to build a new case through discovery.

The 5th Circuit affirmed the District Court's "sua sponte" grant of summary judgment in favor of the defendants, a medical clinic and its owner, that provided allergy services. The Relator had alleged that the medical clinic submitted false claims to Medicare and Tricare because the clinic billed "for allergy services performed by medical assistants under the referring provider's National Provider Identifier ('NPI") number when the referring provider was not the provider supervising services." The medical clinic, it turned out, had an internal practice when filling out the CMS-1500 billing form of always using the same NPI number of the clinic's referring physician as the NPI number of the provider-supervisor of the medical assistants who actually provided the allergy treatment, regardless of whether that supervisor was on site or not at the clinic when the services were provided to the patient. Beyond that paperwork error, however, the medical assistants did, in fact, provide the services to the patients, and they appeared to have always been supervised by some one who was qualified.

The 5th Circuit observed that a "knowing" violation of the False Claims Act "is an elevated standard" and that a "finding of negligence or gross negligence is not sufficient to satisfy the [FCA's] scienter requirement." The Court explained further that "mismanagement --alone-- of programs that receive federal dollars is not enough to create FCA liability," and that the "record indicates that, at most, [the clinic's] misunderstanding of CMS's requirements was negligent." Citing prior precedent, the 5th Circuit reiterated that "[t]he FCA is not a general enforcement device for federal statutes, regulations and contracts, "but is instead the "Government's primary litigation tool for recovering losses from fraud." The District Court's opinions are also worth the read on what mens rea is required to prove a False Claims Act case. The FCA, the District Court emphasized, "does not create liability for improper internal policies unless, as a result of such acts, the provider knowingly asks the Government to pay amounts it does not owe."

Though not mentioned in the 5th Circuit's opinion, the District Court criticized the Relator for abandoning the claims she originally pled and attempting to use discovery to find a viable claim. For example, in denying the Relator's motion for partial summary judgment in its 2014 opinion, the District Court criticized the Relator's attempt to inject new theories of FCA liability, saying: "[t]o whatever extent the grounds of the motion might be viewed to expand the . . . claim alleged by plaintiff in her second amended complaint, the court is not giving effect to the expansion because the court is not allowing plaintiff to add to her pleaded claims by assertions made for the first time in her motion for partial summary judgment."   

In its 2015 opinion granting summary judgment sua sponte in favor of the defendants, the Court stated that it was "disturbed" about the "volume of discovery that has been conducted in this action and they attempts by the plaintiff to build her case exclusively on that discovery." "By pleading what appear to have been false claims in her original complaint," the Court explained, "plaintiff probably avoided dismissal and was thus able to engage in extensive discovery directed against defendants seemingly for the purpose of seeking to create out of whole cloth the appearance of the basis for an FCA claim." In turn, that discovery, "ultimately provided [plaintiff] the resources with which to inundate the Court with her 7,076 page appendix and other documents, apparently in the belief on plaintiff's part that quantity rather than quality of summary judgment evidence would carry the day for her." The Court, moreover, stated that it "does not believe that the intent of the FCA was to allow a relator to file a fictitious complaint to the end of opening the door to discovery, hoping that the discovery might uncover facts that could be used in asserting an FCA claim."

In sum, Kaner is another instructive example that FCA cases must be founded on a real intent to cheat the government and not on a provider's mistakes or negligence in complying with technical regulatory requirements. Here, the Medicare provider mistakenly filled out the CMS-1500 form, but the Court essentially found that not to be a material error. Kaner is also another instance where a court has criticized a relator for not having the case she pled and misusing the FCA by attempting  to build a new FCA case by getting access to discovery.

A. Brian Albritton
March 28, 2016

Monday, February 8, 2016

Fourth Circuit Holds that Facts Learned by Relators' Counsel in Previous Qui Tam Trigger Public Disclosure Bar

In United States ex rel. May v. Purdue Pharma L.P., the Fourth Circuit recently held that the pre-2010 public disclosure bar prohibits a subsequent relator from bringing a False Claims Act qui tam based upon “facts” that their counsel learned in representing a prior relator who brought a qui tam. No. 14-2299, 2016 WL 362250 (4th Cir. Jan. 29 2016). Stated simply, when one relator’s qui tam is dismissed, the public disclosure bar applies to subsequent efforts by relator’s counsel to get around that dismissal by bringing the same qui tam with new relators who are not original sources.  

In 2005, a former district sales manager (“Original Relator”) for Purdue Pharma (“Purdue”), brought a qui tam action in the U.S. District Court for the Southern District of West Virginia against Purdue. In 2010, the Court dismissed the Original Relator’s qui tam because he had signed a release when he accepted a severance package from Purdue.  

Subsequently, the Original Relator’s wife, along with a former Purdue employee that had worked with the Original Relator, filed a nearly identical qui tam against Purdue.  In doing so, they were represented by multiple attorneys, one of whom had represented the Original Relator in his qui tam against Purdue. The District Court dismissed the new qui tam, finding that it was based on claims that were publicly disclosed in the Original Relator’s suit.  In so doing, the Court applied the pre-2010 public disclosure bar. 31 U.S.C. § 3730(e)(4)(A)(2009) (“No court shall have jurisdiction over an action under this section based upon the public disclosure of allegations in a . . . civil . . . hearing unless the . . . person bringing the action is an original source of the information.”)

On appeal to the Fourth Circuit, Relators made three arguments to avoid the public disclosure bar. First, they argued that their allegations were not “derived from” a public disclosure because they had not personally reviewed the Original Relator’s lawsuit prior to instituting their qui tam. Second, though the Relators acknowledged that their attorney had represented the Original Relator and that their attorney’s knowledge was imputed to them, they argued that their attorney’s knowledge was nevertheless derived from nonpublic sources. Finally, Relators argued that the False Claims Act (“FCA”) was intended to encourage relators to bring qui tams even if based upon "second hand" knowledge of a fraud against the government. 

Affirming the District Court, the Fourth Circuit rejected the Relators’ attempt to sidestep the public disclosure bar. The Court noted that (1) the allegations in Relators’ qui tam were publicly disclosed prior to the filing of their complaint, and (2) Relators did not independently discover the facts underpinning their allegations but instead based their claims on what their attorney learned while representing the Original Relator in the prior qui tam. Rejecting the argument that the FCA encouraged relators to bring claims even if based on second hand information, the Court stated that the FCA “is not designed to encourage lawsuits by individuals like the Relators who (1) know of no useful new information about the scheme they allege, and (2) learned of the relevant facts through knowledge their attorney acquired when previously litigating the same fraud claim.” Accordingly, the Court held that Relators’ complaint was subject to the public disclosure bar and must be dismissed due to a lack of subject matter jurisdiction.

Purdue Pharma’s holding reflects the Fourth Circuit’s narrow reading of the pre-2010 public disclosure bar which prohibits jurisdiction over subsequent qui tam suits that are “based upon” prior public disclosures. Unlike other circuits, however, the Fourth Circuit narrowly construes the phrase “based upon” to preclude actions “only where the relator has actually derived from [a public] disclosure the allegations upon which his qui tam action is based.” See United States ex rel. Siller v. Becton Dickinson & Co., 21 F.3d 1339, 1348 (4th Cir.1994).  

By contrast, had this case been brought in any other circuit, it would have been more easily disposed of:  the majority of circuit courts read the phrase “based upon” to mean “substantially similar to” or “ supported by” publicly disclosed information. United States ex rel. Ondis v. City of Woonsocket, 587 F.3d 49, 57 (1st Cir.2009) (“majority view [among circuits] holds that as long as the relator's allegations are substantially similar to information disclosed publicly, the relator’s claim is ‘based upon’ the public disclosure even if he actually obtained his information from a different source”). In these circuits, simply comparing the original qui tam with the subsequent qui tam would have sufficed to show that the second was “based upon” the initially filed case.

Author: Nathan Huff 
Editor: A. Brian Albritton
February 8, 2016

Tuesday, January 19, 2016

Limiting Geographic and Temporal Discovery in False Claim Act Cases: Dalitz v. Amsurg Corp.

Dear Readers:

Relators in False Claims Act ('FCA") cases are always looking for more discovery in order to expand their qui tam claims and put pressure on the defendants, especially in health care qui tam cases where the FCA penalties can easily dwarf any damage claims. Thankfully, courts in FCA cases are increasingly willing to impose reasonable limits for both the geographic scope and time period for discovery. See e.g., here and here

A recent example of this trend may be found in the case of Douglas Dalitz et al. v. Amsurg Corp., et al, 2:12-cv-2218-TLN-CKD (December 15, 2015, E.D. CA). In Dalitz, the Court refused to permit the relators to conduct nationwide discovery when they had only alleged FCA violations at one California location of the defendants. The Court also rejected the relators' request for 8 years of discovery and confined the scope of discovery to a much shorter period.

The Court based its ruling primarily on three different factors. First, the Court relied on the recent amendment to Rule 26(b)(1) which provides that discovery be "proportional to the needs of the case." Second, the Court limited discovery in large part based upon its reading of the relators' complaint and its "factual" allegations. Third, the Court relied on an affidavit submitted by the defendants which explained that their business was made up of ambulatory surgical centers ("ASCs") throughout the country; that local management operated each ASC; and that there was no central "database" for all locations.

The Court confined relators' geographic discovery to the only ASC alleged in their complaint and denied the relators' request for nationwide discovery or, alternatively to discovery of defendants' 14 California locations. In limiting geographic discovery, the Court observed:
  • Relators' factual allegations were confined to the one California location at which they worked and there were no factual allegations to back up their claim that the fraudulent conduct they observed was the "standard practice of the entire . . . corporate enterprise";
  • Defendants' affidavit further explained that "clinical management and billing operations" of each their locations was handled locally by the physicians or Board of each ASC and thus not "dictated by [defendants'] national directives";
  • Nationwide discovery in the 34 states where defendants operated would be an "extreme burden" on defendants because there was "no central nationwide database from which they can obtain the requested documents from each ASC"; and
  • That state-wide discovery of all 14 California locations was "still disproportionate to [relators'] need" because relators' "allegations almost exclusively centered on defendants' actions" at the one location.
The Court also limited the temporal scope of discovery sought by relators. Relators had requested discovery from January 1, 2007 to the present, but the Court confined discovery to the period of December 2008 to August 2012. The Court rejected the defendants' request to limit discovery to the relators' 5 month period of employment from late 2010 to early 2011 because the relators' complaint "demonstrated" that the "alleged wrongful behavior" occurred prior to and continued after the relators had left. Yet, the Court noted that relators had not shown why discovery "relating back to January 1, 2008" was warranted, since the defendants' had not acquired the location until December of that year. In turn, the Court did not permit relators to pursue discovery after the date on which they filed their original complaint because the complaint itself "repeatedly refers to those actions in the past tense, strongly suggesting that [relators] claims are limited to the time frame prior to the date on which this action was initiated."

A. Brian Albritton
January 19, 2016

Sunday, December 6, 2015

U.S. Department of Justice 2015 False Claims Act Statistics: A Great Year for Relators in Declined Qui Tam Cases

The Civil Division of the U.S. Department of Justice (DOJ) announced its False Claims Act (FCA) recoveries for fiscal year 2015 last week. Here is the DOJ's press release and its cumulative statistics for 1987 through 2015. The DOJ's statistics reflect that the overall recoveries were down from last year's high point and that the government and relators filed fewer FCA cases. 

The biggest take away from the 2015 figures is that relators are continuing to vigorously pursue qui tam cases in which the government has declined to intervene: 2015 was the best year ever for relator recoveries in declined qui tam cases. Moreover, 2015 was the first year in which the relators' share of awards from FCA cases in which the government declined to intervene exceeded that of qui tam cases in which the government intervened. The days are officially over when relators' counsel and relators dropped most of their qui tam cases when the government declined. Rather, these statistics show that relators' counsel are increasingly pursuing and obtaining recoveries in declined cases.

DOJ recovered $3.583 billion in FCA settlements and judgments in 2015, not including recoveries from cases "delegated" to the U.S. Attorneys' Offices.  

Regarding the $3.583 billion in total FCA recoveries for 2015, I observed the following:
  • Total FCA recoveries were down 38% from the $5.781 billion recovered by DOJ last year; FY 2014  was the best year ever for FCA recoveries.
  • $2.913 billion or 80% of DOJ's 2015 recoveries resulted from qui tam cases, both intervened and non-intervened/declined (herein "declined") cases.
  • $1.149 billion or 32% came from 2015 recoveries in declined qui tam cases.
2015 was the best year ever for relator recoveries in qui tam cases in which the government declined to intervene. By comparison, the best year for recoveries in declined qui tam cases was 2011 in which relators recovered $173 million. In 2015, DOJ obtained more recoveries from declined qui tam cases than all the previous years added together: $1.149 billion in 2015 v. $1.006 billion in 1987-2014.

As has been the trend for almost every year since 1987, recoveries from qui tam cases exceeded non qui tam cases: $2.913 billion to $670,783,021.

Lowest Number of FCA Cases Filed Since 2010.

737 FCA cases and investigations were filed in FY 2015: 105 "direct filed" by DOJ/US Attorneys and relators filed 632 qui tams
  • Qui tam cases filed in 2015 were also the lowest since 2010 when relators filed only 576 qui tams.
  • 2015 FCA cases decreased 9% from the 810 FCA cases filed in FY 2014.
  • 2015 qui tam cases decreased 11.48% over FY 2014's 714 filed qui tams.

Relator Share Awards Increased Especially in Declined Cases.

The big news for 2015 concerns relators' share awards. Relators had their best year ever in the amount of relators' share awards recovered: $597,610,533. The only previous year in which more than $500 million was awarded to relators was 2011.
  • In FY 2014, relators' share awards in declined cases totaled $14,622,854 but that total grew in 2015 to $334,642,108 – a 2188% increase. Prior to 2015, the largest year for relators' share awards was 2011: $49,041,606.
  • For the first time, the relators' share awards in declined cases, $334,642,108, exceeded relators' share awards in qui tam cases where the government intervened: $262,968,424. 
  • In fact, the relators' share awards in declined cases for 2015 exceeded all previous years of relators' share awards put together since 1987: $202,530,697.

FCA Recoveries in Health Care Fraud Cases Continued to Lead. 

As in many years past, the largest portion of FCA recoveries arose from FCA cases alleging health care fraud against the federal government (e.g., Medicare, Tricare) and state Medicaid programs: in 2015, the DOJ received $1.965 billion in health care fraud recoveries form FCA cases. That total was down from $2.401 billion in 2014. 2015 had the smallest recovery in health care fraud FCA cases since 2009, when $1.632 billion was recovered.
  • 60.79% of the 737 FCA cases/investigations initiated in 2015 related to health care fraud.
  • 66.93 of all qui tams filed in 2015 related to health care fraud: 448/632.
  • The $330,393,564 total of relators' share awards for 2015 represented 55.29% of the total amount of all relators' share awards in 2015, but that total was a decrease from last year in which relators received almost $356 million in awards in FCA health care cases.
  • Relators' share awards in declined health care cases increased substantially: from $10,841,222 in 2014 to $131,047,572 in 2015, a 1108% increase!

FCA Recoveries Excluding Cases Arising from Health Care and Department of Defense Continue to Be High.

Excluding health care fraud and Department of Defense cases, the remaining category of FCA cases had another respectable year in 2015: 247 FCA cases and investigations, both non qui tam and qui tam, were filed. This represented only a slight decrease from FY 2014 when 256 cases/investigations were filed.

DOJ obtained $1.359 billion in settlements and judgments for this category in 2015. Here again, settlements in declined qui tam cases led with $647,516,850 recovered. Not surprisingly, the relators' share award in declined qui tam cases also was large: $201,678,887, which was an increase of 15562.7% over the relators' share awards in 2014: $1,287,632. The relators' share awards in 2015 for declined cases was more than 4 times more than the relators' share for intervened qui tams: $201,678,887 to $39,746,064. 

A. Brian Albritton
December 6, 2015

Tuesday, December 1, 2015

Courts Increasingly Find That Defendants Did Not Knowingly Submit False Claims When They Followed Plausible Interpretations of Ambiguous Regulations

Dear Readers:

There have been several dramatic examples in the last few months where courts have either granted summary judgment in favor of False Claim Act ("FCA") defendants or even overturned jury verdicts in favor of relators. See e.g., U.S. ex rel Purcell v. MWI Corporation, Civ. No.14-5210, slip. op.(D.C. Cir. Nov. 24, 2015) (overturning jury verdict); U.S. v. Aseracare Inc., Civ. No. 2:12-CV-245-KOB, slip. op. (N.D. Ala. November 3, 2015)(overturning jury verdict); U.S. ex rel Phalp v. Lincare Holdings Inc. and Lincare Inc. d/b/a Diabetic Experts of America, __ F.Supp.3d__, 2015 WL 4528955 (S.D. Fla. July 13, 2015)(granting summary judgment for defendants); US ex rel Donegan v. Anesthesia Associates of Kansas City, 2015 WL 3616640 (W.D. Mo. June 9, 2015)(granting summary judgment for defendant). In each of these FCA cases, the court found that the defendant did not submit false claims to Medicare or other government agencies because the regulations which the defendants allegedly violated were ambiguous (or silent) and the defendants had adopted a plausible interpretation of that regulation, even if that interpretation was later found to be erroneous. The decisions have fallen two ways: because the regulations at issue which the defendants allegedly violated were ambiguous and the defendants adopted a plausible interpretation of them, these courts have found that either the defendant did not violate the regulation at issue and submit a false claim or if it did submit a false claim, the defendant did not do so knowingly. See Fried Frank's recent alert addressing the Purcell case; Sidley and Austin's recent blog post on Aseracare, and my blog post on Donegan.

Another case recently decided by U.S. District Judge Amy Totenberg of the Northern District of Georgia should be added to this list: U.S. ex rel Saldivar v. Fresenius Medical Care Holdings, Inc., 2015 WL 7293156 (N.D. Ga October 30,  2015). In Fresenius, the Court issued an interesting summary judgment order in a FCA qui tam case addressing whether and when a Medicare provider can be said to "know" that its Medicare billing practices were false. In an incredibly thorough (40 pages) and well-researched opinion, the Court found that the defendant did not have knowledge that its billing practices violated Medicare, even though the Court previously found that defendant had, in fact, submitted false billings. Well worth the read, the Court's ruling contains a number of "nuggets" that may be helpful to defendants in FCA cases relating to Medicare regulations.

The relator in Fresenius alleged that the owner of the largest chain of renal dialysis facilities, Fresenius Medical Care North America, billed Medicare for using and administering the "overfill" of two injectable drugs used in the treatment of patients suffering from end stage renal disease. In the vials containing these two drugs, the drug manufacturer always included a small amount more of the medicine beyond the stated amount on the vial, i.e., "overfill." Whereas Medicare normally only reimbursed Fresenius for the stated drug amount contained in a vial, Fresenius captured that extra bit of overfill from the vials and later administered it to patients. Fresenius billed Medicare for using and administering the overfill to its patients. 

Prior to January 1, 2011, the Centers for Medicare and Medicaid Services ("CMS") had not expressly prohibited Medicare providers such as Fresenius from billing for overfill. Not long before that date, CMS issued a regulation specifically prohibiting providers from billing for overfill and stating further that "the prohibition against billing for overfill was not a new policy" but instead "a clarification of existing policy." The relator alleged that Fresenius violated the FCA by administering overfill to patients and billing Medicare during 2005 to 2010, a period in which the relator contended that Fresenius should have known that Medicare prohibited it from billing for overfill.  

Granting summary judgment in favor of Fresenius, the Court found that the company did not violate the FCA because "no reasonable jury could find that Fresenius acted knowingly or recklessly" in billing Medicare for administering overfill to patients during the period at issue. In handing down its decision, the Court 
  • Bifurcated the summary judgment motions, addressing initially whether Fresenius billing Medicare for overfill constituted a "false claim." After granting summary judgment in favor of the government and finding that such billings were false, the Court permitted additional discovery and a second summary judgment motion addressing whether Fresenius "knew" or was reckless in submitting false claims. Though it initially granted partial summary judgment on the "falsity" question, the Court observed later: "If the Court had been, at that time, presented with the record as it is now developed, the Court would likely not have reached the falsity element at all. Whether overfill administration was reimbursable from 2006 through 2010 is not clear on the face of any one statute or regulation. And although, as explained in this Order, there were those in the industry who believed overfill administration was not reimbursable during that time, given the ambiguity in the Medicare rules and the record now presented, no reasonable jury could decide that Fresenius was reckless, let alone acted with actual knowledge that overfill was not reimbursable."
  • Found that Fresenius did not know that billing for overfill was false nor was it reckless in failing to recognize such billings were false. In the initial part of its analysis and at the end, the Court emphasized that Medicare rules or regulations were "silent" as to the issue of whether a provider, such as Fresenius, could bill for overfill. Notwithstanding CMS's statement that its 2011 regulation forbidding providers from billing overfill was simply a "clarification" of existing policy, the Court observed that nothing unequivocally prohibited providers from using and billing for overfill.
  • Acknowledged that Medicare did have a policy prohibiting billing for "discarded overfill" -- a close question that simply gave rise to an ambiguity as to whether overfill could be used and billed. The Court explained: "One could have deduced from the Medicare policy on discarded drugs that overfill was free, and thus should not be billed even if administered. But one could alternatively, reasonably assume that by prohibiting overfill billing only when overfill is discarded, Medicare implicitly recognized that overfill can be billed when administered."
  • Examined numerous sources as to Fresenius' knowledge about overfill and billing in order to determine if Fresenius acted recklessly: 
    • Statements by Fresenius' executives over the years reflecting that they believed billing for overfill was permissible;
    • Open knowledge among staff about the policy to use and bill overfill, including knowledge by the Monitor of a Medicare Consent Decree of a company acquired by Fresenius;
    • Advice by the company's lawyers that billing for overfill did not violate Medicare rules;
    • Previous FCA qui tam cases brought against the company that made similar allegations and which had either been dismissed by the relator or which the company had addressed and was then dismissed or abandoned by the relator;
    • Periodic reviews by HHS-OIG of the company's billing practices, its knowledge from those reviews that Fresenius was billing overfill, and the OIG's failure to object; and
    • Statements made by the company to Medicare showing it was openly using/billing overfill.
  • Refused to accord any real weight to a fiscal intermediary's 2005 negative comments on overfill. The Court noted that the "closest" that Fresenius "got to a warning" that billing for overfill might be improper was a 2005 document from its Medicare fiscal intermediary (n/k/a as a "Medicare Administrative Contractors") primarily addressing "wastage" but also stating that providers could not bill for "wasted overfill." Even this, the Court observed, did not "tip the scales in favor of a finding of recklessness." The fiscal intermediary's document, the Court explained, was "several steps removed from an authoritative interpretation of CMS rules or regulations" and the Court cited several cases emphasizing the "limited authority" of a fiscal intermediary. Moreover, the document itself did not qualify as "official" policy of the fiscal intermediary.
  • Most importantly, the Court rejected the relator's argument that Fresenius had sufficient information at its disposal that it should have connected the dots and concluded from these different sources that it could not bill Medicare for administering overfill. Observing that a failure to put such information together may have been "arguably negligent," the Court found that it did not support a finding of recklessness. Fresenius had adopted a plausible interpretation of Medicare rules and regulations that was consistent with its communications with the OIG and CMS and some in the industry.
Fresenius together with the other cases cited above stand for strict enforcement of the FCA's knowledge requirement. As the D.C. Circuit explained in Purcell,"innocent mistakes made in the absence of binding interpretive guidance [should not be] converted into FCA liability, thereby avoiding the potential due process problems posed by penalizing a private party for violating a rule without first providing adequate notice of the substance of the rule." 

A. Brian Albritton
December 1, 2015

Thursday, November 19, 2015

Applying a "We're-Just-Not-Buying-It" Standard in False Claims Act Retaliation Cases: Jones-McNamara v. Holzer Health Systems

Dear Readers:

False Claims Act ("FCA") retaliation cases are increasingly common. And, a plaintiff does not have to allege very much to bring a FCA retaliation claim and defeat a motion to dismiss: Rule 9(b)'s requirement that the plaintiff plead fraud with particularity does not apply to retaliation cases, so the bar for a plaintiff to successfully state a FCA retaliation claim is often quite low. The FCA's anti-retaliation provision, 33 USC 3730(h), protects former employees who were discharged "because of lawful acts done . . . in furtherance of an action under [33 USC 3729] or efforts to stop 1 or more violations under this subchapter." Essentially, it protects "all efforts [by an employee] to stop" an FCA violation, including where the employee was simply collecting information about a possible fraud. Jones-McNamara v. Holzer Health Systems, 2015 WL 6685302 *4 (6th Cir. Nov. 2, 2015).

Yet, even with a permissive standard for bringing retaliation claims, the 6th Circuit recently instructed that there is a limit to the deference afforded plaintiffs in retaliation cases. As the Court found in Jones-McNamara, to show that an employer retaliated against an employee, the plaintiff must first "show that allegations of fraud [committed by their employer] grew out of a reasonable belief in such fraud." Translation: the Court isn't just going to allow a plaintiff to cast anything done by the employer as a potential fraud; a plaintiff's belief that his or her employer committed a fraud in violation of the FCA must be objectively reasonable.

In Jones-McNamara, a hospital compliance officer alleged that the hospital violated the Anti-Kickback statute ("AKS") and FCA because a patient transport company with whom the hospital had been dealing had given one of the hospital's emergency room physicians a "jacket valued at $23.50" and had provided "free hotdogs and hamburgers" at the hospital's "employee health and wellness fair" that was held in 2008 and 2009. Applying what appears to be a "we're just not buying it" standard, the 6th Circuit in a 2-1 decision found:  "It cannot plausibly be suggested that one jacket valued at $23.50 and occasional servings of hotdogs and hamburgers could induce a reasonable person to prefer one provider over another. In fact, these items represent such a low monetary value they can only be characterized as 'token' gestures of good will under OIG guidance." Contrasting the plaintiff's complaint with the litany of serious and exorbitant entertainment featured in HHS-OIG reports and reported cases, the Court observed: "[i]t is ludicrous to believe that a person would be tempted to make illegal referrals in exchange for a couple hotdogs once a year."

The Court challenged the plaintiff's attempt to cast these de minimis gifts as giving rise to anti-kickback violations because the plaintiff had not shown any connection between the "gifts" and any alleged referrals by the hospital to the patient transport company. Moreover, the Court complained that the plaintiff had not shown that the employees who ate the hotdogs or the physician who received a jacket were even in a position to make referrals on behalf of the hospital to the patient transport company. While the plaintiff claimed that the physician who received the jacket was in a position to make referrals, the Court observed that the plaintiff provided no evidence that was in fact true --the plaintiff just wanted it to be that way. As the Court observed further, the plaintiff reported that the hospital violated the AKS based on her "unquestioned, unconfirmed, and thus unreasonable assumption that [the doctors] not only had the authority but in fact routinely made the decision to refer business to [the transport company] in knowing and willful return for illegal kickbacks" --an allegation that had no factual basis.

Jones-McNamara is a helpful decision for defending FCA retaliation cases. First, the Court essentially says that isolated de minimis gifts simply will not give rise to an anti-kickback violation and that complaints about such gifts by an employee as being "fraudulent" certainly do not qualify as reasonable evidence that the employer is engaged in fraudulent conduct. Second, and as importantly, the Court further suggests that district courts should closely scrutinize the assumptions made by plaintiffs who allege that their employer committed fraud and determine whether such accusations are reasonable or plausible. Here, the Court simply did not find it reasonable or plausible that eating hotdogs or accepting a single jacket provided by a vendor would lead hospital employees to engage in serious violations of the law. 

A. Brian Albritton
November 19, 2015

Thursday, November 5, 2015

Striking Government Experts in Health Care False Claims Act Cases: U.S. ex rel Lawson v. Aegis Therapies, Inc.

Experts play a crucial role in False Claims Act cases involving disputes over whether a provider's claims for reimbursement by Medicare violate Medicare rules and regulations. If both sides, relator/government and the defense, have experts, then unless an expert's testimony is stricken or limited, the dueling opinions of experts will often create issues of fact and thereby prevent either side from obtaining summary judgment. Moreover, courts frequently give experts wide latitude in expressing their opinions under the rubric that expert opinions will "assist the trier of fact" even though an expert's opinions and methodology may be highly suspect.

A case that recently demonstrated that the tolerance for experts --in this instance, government experts-- is not limitless and that refused to permit experts to testify on the grounds that their testimony would not help the jury is U.S. ex rel Lawson v. Aegis Therapies, Inc., 2015 WL 1541491 (March 31, 2015, S.D. GA). In this instructive case, the Court struck the testimony of two government Medicare experts on the grounds that they essentially applied an incorrect and more stringent regulatory standard to evaluate the defendants' Medicare billing practices. Moreover, the Court refused to permit one expert to recast and equate that more stringent standard as the correct regulatory standard "based on her personal experience." 

In Aegis, a relator brought a False Claims Act case against a skilled nursing facility ("SNF") and a rehabilitation therapy company which provided services to the facility's residents. Among other things, the relator claimed that the SNF provided medically unnecessary care to the residents, and as a result, submitted false claims for reimbursement to Medicare. The government intervened in the case, and it retained two experts, a physician and a nurse practitioner, both of whom opined that out of a random review of 30 patient files, 29 patients had received medically unnecessary rehabilitative care.

The defendants moved to exclude the testimony of these two experts, alleging that they employed the "wrong standard" to determine what constitutes "reasonable and necessary" medical services in their evaluation of the SNF patients' medical records. Essentially, the defendants challenged the "reliability of the experts' methodology and the helpfulness of their testimony to the jury." The Court agreed and struck the government's two experts, finding that their testimony was "not based on a reliable methodology and it will not assist the trier of fact in determining a material factual question."

The Court's decision to exclude the experts turned in large part on what standard was to be applied to determine "what level of improvement [for the patient] is required for a skilled service to be necessary" and covered under Medicare. The Court found that the applicable Medicare standard for determining whether "reasonable and necessary medical services" were provided to patients depended on whether there was a reasonable expectation that the service being provided (e.g., speech-language pathology services, physical therapy, occupation therapy) will cause the patient to "improve materially in a reasonable and generally predictable period of time." Instead of applying this "material improvement" standard, the government's experts applied a different standard. In assessing whether the defendants had provided medically necessary services to the patients, the government's experts evaluated whether the services provided to the SNF's patients caused a "significant practical improvement" in the patient's condition. This later standard, the Court observed, had a "different meaning on its face than the applicable 'material standard.'"

Though the evaluating standards for what constitutes a reasonable and medically necessary service were different on their face and derived from different parts of the Medicare program (Part A and Part B), the government argued that the experts' use of the "significant improvement" standard, though different legally than the "material improvement standard," essentially meant the same thing in the "ordinary sense." In turn, one of the government's experts assured the Court that she had, "in fact, applied the correct standard." The Court was having none of it. The Court observed that "using a standard --either in its regulatory sense or in its ordinary sense-- that is decidedly at odds with the actual governing standard" does not assist the trier of fact to determine the facts at issue in the case. In fact, such testimony, the Court went on, could "confuse or mislead the jury" such that the risk of confusing the jury outweighed "any potential benefit" from the testimony.

Having stricken the government's experts, the Court granted summary judgment to the defendants in part based on the government's failure to show that the defendants had, in fact, submitted false claims to Medicare.

The Aegis case is a remarkable decision. First, the Court clearly took the time to review the complex Medicare law, regulations, and manuals at issue. It did not throw up its hands at the complexity of the issues, but instead sifted through it and the testimony to come up with a well reasoned decision as to what legal standard should be used to determine whether the Medicare services provided were medically necessary, i.e., the standard for determining whether the Medicare claims at issue were false. Second, in so doing, the Court did not defer to the experts on the issues of law "as applied" in the context of deciding whether a particular service provided to patients was medically necessary. Third, in Lewis Carroll's book, Through the Looking Glass, Humpty Dumpty says, "When I use a word . . . it means just what I choose it to mean -- neither more nor less." The Court rejected that approachThe terms, "material' and "significant," are not fungible nor may they be interpreted to mean the same when used in the "ordinary" way. 

A. Brian Albritton
November 5, 2015

Tuesday, October 27, 2015

Government Targets Laboratory Chief Executive in False Claims Act Suit – The New Normal in the Wake of the Yates Memo?

On September 9, 2015, U.S. Department of Justice, Deputy Attorney General Sally Quillan Yates announced how the Department of Justice (including U.S. Attorneys’ Offices) will investigate and prosecute business entities (the “Yates Memo”).  The Yates Memo provides that “attorneys investigating corporate wrongdoing should maintain a focus on the responsible individuals, recognizing that holding them to account is an important part of protecting the public fisk in the long term.”  As seen in a recent False Claims Act case, the Yates Memo’s principles are not just limited to criminal cases but potentially apply to False Claims Act cases as well.  

Take for example the case of U.S. v. Berkley Heartlab, Inc., et. al., No. 9:14-cv-00230, Docket Entry 75, (Aug. 7, 2015 Dist. S.C.), a qui tam case in which DOJ recently intervened. The United States alleges that the defendants paid $80 million in kickbacks to physicians in the form of improper “process and handling fees” to induce physicians to refer blood samples to three different laboratories, including Health Diagnostics Laboratory (“HDL”).  As a result of these improper inducements the subject laboratories allegedly submitted false claims to Medicare and Tricare, which in turn reimbursed which the subject laboratories more than $500 million. The United States alleges that the claims were false because (1) the laboratories were not entitled to reimbursement for claims resulting from illegal kickbacks, and (2) many of the claims were for tests that were medically unnecessary but were ordered as a result of illegal inducements.  

Among the defendants being sued in the case is Tonya Mallory, the co-founder and former Chief Executive Officer of HDL.  Named the Ernst & Young Entrepreneur of the Year for 2012 and the 2013 Virginia Business Person of the Year by Virginia Business Magazine, and formerly lauded as having “revolutioniz[ed] the practice of medicine,” Ms. Mallory now finds herself a defendant in a federal qui tam lawsuit seeking hundreds of millions of dollars in damages.  Importantly, HDL settled with the government in March 2015 for $47 million, but the government continues to pursue Ms. Mallory personally, naming her as a defendant in its August 2015 Complaint in Intervention. The pursuit of Ms. Mallory in her individual capacity, even after her former employer HDL has settled, is an example of the type of cases that are certain to become more prevalent in the wake of the Yates Memo.  

The Yates Memo lays out six “key steps” intended to strengthen the DOJ’s pursuit of corporate officials.  The fourth key step is of particular relevance to Ms. Mallory’s current plight: “absent extraordinary circumstances or approved departmental policy, the Department will not release culpable individuals from civil or criminal liability when resolving a matter with a corporation.”  (emphasis added).  Thus, although HDL has settled with the government, and likely cooperated in its investigation, such cooperation did not spare Ms. Mallory.  In fact, according to the first key step, HDL’s assistance in building the case against its former CEO appears to have been a pre-condition of the settlement.  The first key step provides, “in order to qualify for any cooperation credit, corporations must provide to the department all relevant facts relating to the individuals responsible for the misconduct.”  In turn, HDL’s FCA settlement with the government provides just that:

"HDL agrees to cooperate fully and truthfully with the United States' investigation of individuals and entities not released in this Agreement. Upon reasonable notice, HDL shall encourage and agrees not to impair, the cooperation of its directors, officers, and employees and shall use its best efforts to make available, and encourage, the cooperation of former directors, officers, and employees for interviews and testimony, consistent with the rights and privileges of such individuals. HDL further agrees to furnish to the United States, upon request, complete and unredacted copies of all nonprivileged documents, reports, memoranda of interviews, and records in its possession, custody or control concerning any investigation of the Covered Conduct that it has undertaken or that has been performed by another on its behalf."

Targeted corporation should no longer expect to reach a settlement without providing specific information about the individual corporate officers involved in the alleged corporate misconduct. This emphasis on the prosecution of individuals, coupled with DOJ’s insistence that cooperating corporate defendants provide information regarding individuals involved in corporate wrongdoing, further complicates the decisions of corporate counsel regarding whether, and to what extent, to cooperate with federal investigators.  It also creates an increased risk of conflicts of interest between corporate counsel and corporate officers and executives.  These risks are compounded by the upward trend in the number of False Claims Act cases being pursued each year by the Department of Justice and/or relators’ counsel

Author/Guest Blogger:  Nathan A. Huff
Editor: A. Brian Albritton
October 27, 2015

Wednesday, October 21, 2015

The FCA's Amended Public Disclosure Bar Does Not Apply to Claims That Arose Before March 2010

Congress added the “public disclosure bar” to the  False Claims Act in 1986. 31 U.S.C. 3730(e)(4). As originally enacted, the public disclosure bar provided that if a relator based their qui tam claims on information that previously had been “publicly disclosed” through designated channels, such as in the press, in an audit, or in a previous lawsuit, then the court lacked subject-matter jurisdiction over the qui tam claims unless the relator could establish his or herself as an "original source" of the information underlying the qui tam complaint.

Congress amended the public disclosure bar, effective March 23, 2010, and while it remained a basis for dismissing a relator’s qui tam claims, Congress omitted any explicit reference to the bar being jurisdictional. As a result, courts have increasingly found that the 2010 amended version of the public disclosure bar is not jurisdictional. See, e.g., U.S. ex rel. Osheroff v. Humana, Inc., et al., 2015 WL 223705 (11th Cir. Jan. 16, 2015); see also False Claims Act Redline,  HelmersMartins, (redlining the pre- and post-amendment versions of the public disclosure bar, 31 U.S.C. 3730(e)(4))

Since the 2010 amendment, courts have grappled with whether the amended version of the public disclosure bar applies to “false” claims that arose before the 2010 amendment but which were contained in qui tam complaints filed after the amendment.  The Court in United States of America ex rel. Wilhelm v. Molina Healthcare of Florida, Inc., recently addressed this precise issue, finding that the amended statute did not apply to false claims that actually arose before the date of the 2010 amendment.  2015 WL 5562313 (S.D. Fla. Sep. 22, 2015).  

In 2012, a relator filed a qui tam complaint against defendant Molina Healthcare of Florida, Inc., and it contained false claims that allegedly arose prior to 2010.  Defendant filed a Rule 12(b)(1) motion to dismiss the qui tam action, asserting that the court lacked jurisdiction because the relator based his claims on publicly disclosed information.  The relator countered that Congress amended the public disclosure bar in 2010 so that it was no longer jurisdictional in nature, rendering the defendant’s 12(b)(1) motion improper.  

The Court held that the relevant conduct for applying  the amended public disclosure bar was when the false claims were actually submitted, not the date when the lawsuit was filed.  Based on the facts alleged in the relator’s qui tam complaint, the pre-2010, jurisdictional version of the public disclosure bar applied.  And, because the jurisdictional version of the public disclosure applied, the court lacked jurisdiction if the relator based his claims on publicly disclosed information, unless he qualified as an original source. 

The Court’s ruling supports what increasingly appears to be the majority position among those courts that have considered the issue: that the jurisdictional, pre-2010 version of the public disclosure bar applies if the challenged conduct occurred before March 23, 2010—even if the relator filed suit post amendment. As a practical matter, applying the public disclosure bar in this manner will allow defendants to continue using Rule 12(b)(1) to challenge the validity of older FCA claims on a motion to dismiss. Given that courts can consider information beyond the pleadings in a 12(b)(1) challenge, defendants may continue to pursue this powerful option when the facts permit. 

Guest Blogger/Author: Scott Terry
Editor: A. Brian Albritton
October 21, 2015