Monday, August 22, 2016

The Eleventh Circuit Reminds Us Again That It Meant What It Said in Clausen: Margaret Jallali v. Sun Healthcare Group.

Dear Readers:

Defense practitioners in the Eleventh Circuit should take a look at the Circuit's recent unpublished opinion which reaffirmed the Circuit's "binding precedent" that "each element of an False Claims Act (FCA) claim must meet the pleading standard of Rule 9(b)"; Margaret Jallali v. Sun Healthcare Group, et al., 2016 WL 3564248 (11th Cir. July 1, 2016). Only three pages long, Jallali affirmed the lengthy decision by Southern District of Florida Judge Kathleen Williams --the author of U.S. ex rel Keeler v. Eisai-- who dismissed the Relator's FCA claims due to her failure to satisfy Rule 9(b): U.S. ex rel Jallali v. Sun Healthcare Group, et al., 2015 WL 10687577 (S.D. Fla. 9/17/2015). Judge Williams' opinion is definitely worth the read as well. 

To fully appreciate Jallali's holding that a relator must satisfy Rule 9(b)'s requirement to plead with particularity as to each element of his or her FCA claim, the reader should review Judge Williams' dismissalAs described in District Court's opinion, the Relator focused primarily on the defendants' "allegedly deceptive record keeping, alteration of charts, and falsified physician approvals." Apparently, the Relator provided a lot of detail about the defendants' allegedly fraudulent scheme both in her complaint and at a hearing the District Court held on the motion to dismiss. 

Notwithstanding detailed allegations of the defendants' fraud, Judge Williams observed that "Relator appears to conflate the internal processes of maintaining patient records with the separate act of billing the government." It is not enough, the Court explained, for Relator to describe a false scheme allegedly committed by the defendants. As "recognized" by the Eleventh Circuit in Corsello v. Lincare, Inc. 428 F.3d 1008, 1014 (11th Cir. 2005), Judge Williams pointed out that "a relator's pleading is insufficient if he 'provided the who, what, where, when, and how of improper practices, but he failed to allege the who, what, where, when, and how of fraudulent submissions to the government.'" In short, Rule 9(b) required the Relator to "link" the fraudulent activities she alleged "to claims submitted" by the defendants or to "specific facts of who, what, where, when, and how the claims were submitted."

  • Each element of an FCA clam must meet Rule 9(b);
  • The Court "disregard[s] conclusory statements regarding a defendant's allegedly fraudulent submissions to the Government and require[d] a factual basis for the conclusory statement";
  • The Court would not accept Relator's claim of personal knowledge of billing fraud when Relator only alleged she had "a reliable indication that claims were fraudulently submitted to Medicare for payment";
  • The Relator failed to allege the "who, what, where, when, and how" of any specific false claim for payment; and
  • That although the Relator provided "voluminous documents and allegations regarding improper internal practices," . . . "nowhere in the blur of facts and documents . . . can one find any allegation, stated with particularity, of a false claim actually being submitted to the government."
In sum, Jallali reminds defense counsel and, most importantly, district courts in the Eleventh Circuit that Rule 9(b) applies to every element of an FCA claim; it is simply not enough for a relator to provide "indications" or make "assumptions" that the defendant submitted false claims to the government.

A. Brian Albritton
August 22, 2016

Friday, June 17, 2016

The Supreme Court Resets How False Claims Act Liability Should Be Determined for False Certification Claims: Universal Health Services Inc. v. United States ex rel. Escobar

Dear Readers:

Yesterday the Supreme Court issued its long-awaited opinion in the False Claims Act case, Universal Health Services, Inc., v. United States ex rel. Julio Escobar and Carmen Correa, 579 U.S. __ (2016), often referred to as the "Escobar case." The Court's unanimous opinion resets how False Claims Act ("FCA") liability is determined for legally false claims, i.e., those claims based on false certifications, express or implied, made by a provider or contractor in conjunction with submitting claims for payment to the Government. Essentially, Escobar seeks to anchor the FCA's prohibition against "false or fraudulent" claims in the common law definition of fraud. Common law fraud encompasses either affirmative misrepresentations or misleading omissions. For fraud to occur, however, the Court stressed that misrepresentations or omissions relating to a statutory, regulatory, or contractual requirement must be material to the Government's payment decision. At the same time, the Supreme Court "clarified" that materiality is a "rigorous" requirement, and determining what is or is not material does not "depend on what label the Government attaches to a requirement."  

The Supreme Court initially affirmed that FCA liability can be based on an "implied false certification" based on dramatic facts relating to counseling and medical treatment provided by a mental health care facility to a teenage patient which led to her death. In Escobar, the facility represented in its claims to Medicaid that it had provided specified therapies and other types of treatment to the beneficiary. In reality, the facility had not provided the therapies and treatment it billed for because many of its personnel were neither licensed or qualified to provide these services and in fact had misrepresented their qualifications and licensing status to the government to obtain provider numbers that permitted them to submit claims to Medicaid. The Court found that the facility's Medicaid claims "do more than merely demand payment."  Rather, the claims were "actionable misrepresentations" because they contained "half truths" while "omitting critical qualifying information." Escobar held that the implied certification theory could be a basis for FCA liability "at least where two conditions are satisfied: first, the claim does not merely request payment, but also makes specific representations about the goods or services provided; and second, the defendant's failure to disclose noncompliance with material statutory, regulatory or contractual requirements makes those representations misleading half-truths."

In the second half of its opinion, the Supreme Court addressed whether FCA liability can be based only where a defendant fails to disclose that it has violated an "expressly designated condition of payment." Escobar essentially rejected the express condition of payment/condition of participation dichotomy developed by the appellate courts in false certification cases, finding instead that FCA liability arises only if the defendant fails to disclose in submitting a claim that it has violated a material condition of payment. And then it threw a curve ball: "statutory, regulatory, and contractual requirements are not automatically material, even if they are labeled conditions of payment." In fact, the Court noted that if FCA liability depended only on violating express conditions of payment,"[t]he Government might respond by designating every legal requirement an express condition of payment. But billing parties are often subject to thousands of complex statutory and regulatory provisions. Facing [FCA] liability for violating any of them would hardly help would-be-defendants anticipate and prioritize compliance obligations."  

The FCA's "materiality standard," the Supreme Court pointed out, is "demanding." The Court explained further: "[t]he [FCA] is not an all-purpose anti-fraud statute or a vehicle for punishing garden-variety breaches of contract or regulatory violations. A misrepresentation cannot be deemed material merely because the Government designates compliance with a particular statutory regulatory, or contractual requirement as a condition of payment. Nor is it sufficient for finding of materiality that the Government would have the option to decline to pay if it knew of the defendant's noncompliance. Materiality . . . cannot be found where noncompliance is minor or insubstantial." (internal quotes/citations omitted).

Noting that the FCA's definition of materiality "descends from common-law antecedents," the Supreme Court then looked to common-law characterization of materiality to define it. Citing Williston on Contracts, Escobar explained that "[u]nder any understanding of the concept, materiality looks[s] to the effect on the likely or actual behavior of the recipient of the alleged misrepresentation." Looking to the Restatements on Torts and Contracts, the Court identified two key criteria for determining materiality: "(1) if a reasonable man would attach importance to [it] in determining his choice of action in the transaction; or (2) if the defendant knew or had reason to know that the recipient of the representation attaches importance to the specific matter in determining his choice of action, even though a reasonable man would not." (internal quotes/citations omitted). 

In a footnote, Escobar rejected the appellant's assertion that "materiality is too fact intensive for courts to dismiss [FCA] cases on a motion to dismiss or summary judgment." The Court explained further that "[FCA] plaintiffs must also plead their claims with plausibility and particularity under Federal Rules of Civil Procedure 8 and 9(b) by, for instance, pleading facts to support allegations of materiality."

The Court's opinion ended with a reminder that the FCA "is not a means of imposing treble damages and other penalties for insignificant regulatory or contractual violations.  This case centers on allegations of fraud, not medial malpractice."

Overall, Escobar contains something for relators, defendants, and the government. By rooting FCA liability to the common law definition of fraud, the Supreme Court seeks to apply the FCA to serious frauds and effectively prevent it being used as a weapon to police technical violations and contractual disputes. Having given broad guidance and repeated injunctions as to the "rigorous" standard for materiality, it is up to the courts below to further expand and apply these principles.

A. Brian Albritton
June 17, 2016

Wednesday, June 15, 2016

DOJ Announces New Policy Regarding Individal Accountability and Corporate Cooperation for False Claim Act Cases

Dear Readers:

Acting Associate Attorney General Bill Baer spoke at the ABA's 11th National Institute on Civil False Claims Act and Qui Tam Enforcement last week in Washington, D.C. AAG Baer addressed how the U.S. Department of Justice (DOJ) will focus on individual accountability in civil False Claims Act (FCA) cases and in light of that focus, what steps corporations must undertake to earn "cooperation credit" in settling FCA cases. These new DOJ policies announced by AAG Baer are very important for practitioners in qui tam/FCA cases and will certainly impact how corporate defendants investigate, report, and settle FCA cases.

DOJ published AAG Baer's remarks, which are found here. I highlight below those portions of his remarks that I found to be most interesting.

First, AAG Baer addressed how the DOJ policy of holding individuals accountable for corporate misdeeds, announced in the Yates memo, would be "implemented" in FCA cases. He stated:
  • DOJ is committed "to the notion that individual accountability applies with equal force and logic to the department's civil enforcement."
  • In applying the Yates memo, DOJ starts "by asking department attorneys to make sure they are examining the potential liability of individual actors at the outset of an investigation into corporate wrongdoing" and it is "department policy to pursue civilly those individuals who are responsible [for FCA violations] and hold them accountable in addition to pursuing our civil case against the organization."
FCA practitioners will see a concrete difference in FCA government investigations and intervened cases because
  • "At the very outset of any FCA investigation into a corporate scheme, [DOJ] attorneys are instructed to focus on both the company and individuals who may be responsible for bad conduct . . . . Our inquiry into individual misconduct now proceeds in tandem with the underlying corporate investigation."
In a "departure from past practice," FCA settlements and releases will no longer automatically include a release of corporate executives and employees: that is, DOJ will investigate companies and their executives together, but DOJ will not necessarily "negotiate[] outcomes" for these defendants at the same time. Rather, DOJ will "often" settle FCA claims with companies first. But, the fact that it does so will not end DOJ's "inquiry into whether and which individuals will be pursued."  In fact, whereas in the past DOJ's FCA settlements released both the corporation and its executives, it may not do so in the future:  "you should not assume we will be amenable to releasing individuals from [FCA] liability when we settle with the organization."

If individual liability is not resolved together in a corporate settlement, DOJ expects its lawyers "to have a plan for how to proceed in the investigation with respect to those responsible" individuals. While "recognizing" that "claims against individuals may not always be appropriate," DOJ will now require its attorneys to affirmatively "memorialize" any recommendation not to pursue an individual. Overall, AAG Baer noted that "we are disciplining ourselves to assess individual responsibility at the beginning of and throughout our FCA investigations."

Second, AAG Baer addressed how DOJ's new emphasis on civil accountability for corporate executives implicates companies seeking cooperation credit in FCA cases. As an initial matter, the AAG announced a "threshold requirement" whereby DOJ will not credit any company with cooperation in a settlement unless the corporation "disclose[s] all facts related to individuals involved in the wrongdoing."  He elaborated: 
  • "[U]nderstanding who did what is a necessary component" for DOJ to determine the nature and extent of any FCA violation. Essentially, a company seeking credit in an FCA settlement for its cooperation cannot withhold "critical" information that identifies those who should be held responsible.
  • A corporation demonstrates its commitment to "transparency" and cooperation by "disclosing the facts, including telling us what you know about who did what."
Cooperation, AAG Baer explained, "is not demonstrated by doing what the law requires" such as "compliance with subpoenas or other lawful demands." Rather, "genuine cooperation" involves a "focused presentation of relevant information demonstrating the actual conduct that is the subject of the investigation" and "stretches beyond the precise information that may have been requested by the government." The AAG provided the following examples of "full cooperation:" (i) a company's acknowledgement of responsibility, including in some instances "detailed and complete admissions;" (ii) remediation efforts; (iii) whether a company "reports information that might otherwise not have been discovered in the ordinary course of an investigation or that saves the government time and resources;" (iv) making available "current or former officers and employees for meetings, interviews, depositions;" and (v) disclosing facts gathered in an internal investigation.  

Internal investigations, the AAG went on, must be "tailored to the scope of wrongdoing" and cooperating companies must "make their best efforts to determine all the facts with the goal of identifying the individuals involved." That said, AAG Baer stated that companies do not need to wait until they have finished their internal investigations to self report. Rather, "timing . . . is of the essence," and companies "should come in as early as possible" even if they don't "quite have all the facts yet."

As for the attorney-client privilege, AAG Baer "emphasized" that "nothing in the individual accountability policy" requires the privilege to be waived.

As the reward for satisfying this "threshold requirement" and cooperating with the government's investigation, AAG Baer stated that "the department will use its significant enforcement discretion in FCA matters to recognize that cooperation." There is "no magic formula" or "equation," he explained, as to how much credit a cooperator might receive. Having eschewed any formula for earning cooperation, AAG Baer nevertheless analogized the "downward departures" for cooperation given by the government in federal guideline sentences to how DOJ should accord cooperation in FCA matters. Overall, he said, DOJ is "committed to taking into account the disclosures and other cooperation provided by defendants and to resolve matters for less than the matters would otherwise have settled for based on the applicable law and facts."

DOJ's new policy on individual accountability represents a significant change in FCA cases. Corporations -not individuals- have been the primary focus of most FCA cases in the past. There have been lots of exceptions, of course, especially for physicians accused of submitting false claims to Medicare or Medicaid. Yet, the past emphasis on corporations reflects the reality that it is largely corporations that contract with the government, submit false claims, and who most directly profit from them. The emphasis on corporate liability further reflects the fact that corporate entities are where the money is. Corporations, such as Big Pharma, defense contractors, and hospitals, have the resources to pay large FCA settlements.

Focusing on individual accountability likely will have a profound impact on government FCA investigations, interventions, and settlements. I anticipate that corporate internal investigations will be more involved and complicated. Individuals will lawyer up more quickly, be more concerned about their own exposure, and as a result may be less forthcoming with their employers. FCA investigations and cases are likely to become more complicated if only because cases are likely to have more parties: a corporation and its executives. As for settlements, they too will become more complicated. In Medicare cases, for example, there will be an increased focus on possibly excluding named individual defendants. Also, if individuals are named as subjects of an investigation, I would think that increases the possibility that they will turn against their employers more readily in order to earn cooperation. And, of course, what if a corporate employer refuses to indemnify the executive and/or employee?  

Finally, it will be interesting to see if DOJ and U.S. Attorneys will follow through in promoting this policy of individual accountability given that FCA investigations and cases often move quite slowly and this policy will require more time and substantial resources to enforce.

A. Brian Albritton
June 15, 2016

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