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

Wednesday, August 26, 2015

Worth The Read: Interpreting Unclear Medicare Regulations and FCA Liability - U.S. ex rel Parker v. Space Coast Medical Associates, L.L.P.

Dear Readers:

I commend to you the analysis of the Middle District of Florida opinion, U.S. ex rel Space Coast Medical Associates, LLP, 2015 WL 1456122 (M.D. Fla. Feb. 6, 2015), by Arnold and Porter attorneys Mark D. Colley, Alan E. Reider, and Murad Hussain. Space Coast is another example wherein a court refused to find that a defendant "knowingly" submitted false claims when the Medicare regulations at issue were unclear and the defendant's interpretation of the regulations was not unreasonable.

In this qui tam case, the relators alleged that physicians in an oncology practice failed to provide the proper level of supervision required by "Medicare guidelines." In its order granting the motion to dismiss filed by Messrs. Colley, Reider, and Hussain, the Court conducted a thorough analysis of these so called "guidelines" only to find after analyzing the regulations, the Medicare Benefit Policy Manual, and Local Coverage Determinations that they did not actually require "that radiation oncologists be the physicians who supervised the radiation therapists at issue" and that the regulatory authorities relied on by relators were not preconditions for payment of Medicare claims. Following cases such as U.S. ex rel Hixson v. Health Mgmt. System, Inc., 613 F.3d 1186, 1190 (8th Cir. 2010), the Court then went a step further and found that the Defendants did not knowingly submit a false claim because relators had not shown that "Defendants' interpretations of the regulations were unreasonable."

A. Brian Albritton
August 26, 2015

Tuesday, August 18, 2015

Why the 5th Circuit's Rigsby v. State Farm Fire and Casualty Opinion Is Favorable to False Claims Act Defendants

Dear Readers:

In US ex rel Rigsby v. State Farm Fire and Casualty Co., 2015 WL 4231645 (5th Cir. July 13, 2015), the 5th Circuit recently addressed the limits of Rule 9(b), which requires that fraud be pled with particularity, and whether it applied to limit discovery after trial. The Court held that the district court abused its discretion when it refused on the basis of Rule 9(b) to permit relators to pursue "at least some additional discovery" after they had prevailed at trial. Though at first glance the Rigsby decision may appear to be favorable to relators, the case is, in fact, quite favorable to False Claims Act defendants.

I originally wrote about the district court's decision in Rigsby in "Limiting Discovery and Preventing Claim Smuggling in False Claims Act Cases." Relying in part on Rule 9(b) and scope of the relators' knowledge as an "original source," the district court prevented relators from seeking additional discovery and searching for new claims after they had prevailed at trial. Prior to trial, the district court found that although relators had alleged a broad scheme, the relators only had first hand knowledge of a single claim.  As a result, the district court only permitted the relators to obtain discovery about and proceed to trial on that single claim. The district court reserved ruling on whether to permit the relators to expand their suit and obtain additional discovery until after the trial of that single claim. Having prevailed at trial and shown that the defendant, State Farm, violated the False Claims Act, relators asked the district court after trial to "initiate expanded discovery" for other potential claims. The district court refused to permit the relators additional discovery in order to expand their claims into areas where they did not have knowledge and when it was unclear whether other claims really existed. The district court noted that satisfying Rule 9(b) with "sufficient detail" and defeating a motion to dismiss permits a relator access to the discovery process, but discovery should be "targeted" only to "the claims alleged, avoiding a search for new claims." 

In overturning the district court's decision, the 5th Circuit 
  • Observed that the district court "focused discovery and the subsequent trial on a [single] claim rather than permitting [relators] to seek out and attempt to prove other claims in order to 'protect the interests of the parties.'" The district court structured discovery and trial in this manner in order to "strike a balance between the relators' interest in identifying . . . other allegedly false claims and the defendant's interest in preventing a far ranging and expensive discovery process." The Court approved of the district court's decision to limit discovery and initially confine the case to what it referred to as a "bellwether false claim" and to leave till after the trial the decision as to "whether additional discovery and further proceedings were warranted."
  • Whereas the parties and the district court had framed much of the dispute on whether Rule 9(b) permitted the prevailing relators to conduct post-trial discovery, the Court found that Rule 9(b) was "inapplicable" to the decision "about whether this case should move forward after trial."  
  • As Rule 9(b) did not apply, the Court found that the district court abused its discretion by refusing to permit "at least some additional" post-trial discovery given that the "scope of discovery is broad" and the relators had both alleged and offered proof at trial of a scheme "far beyond the realm" of the single claim that was tried.
  • Yet, though it permitted discovery, the Court stressed that Rigsby "presents something exceptional that most (if not all) plaintiffs in FCA cases are unable to show when seeking discovery: a jury's finding of a false claim and a false record" together with allegations in the "final pretrial order."  These two factors, the Court observed, made it "more than probable, nigh likely . . . that additional false claims might have been submitted" and as a result the relators had "at least edged the door ajar for some additional, if superintended, discovery."
  • Far from declaring that relators have free rein in discovery to search for FCA claims, the Court "emphasize[d] that our decision hinges in large part on the idiosyncratic nature of this case--seldom will a realtor in an FCA case present an already-rendered jury verdict in her favor while seeking further discovery."  
  • "[T]he typical case," the Court observed, "might warrant shutting the door to more discovery."
Overall, the lessons of Rigsby are very favorable to the defense. Courts in False Claim Act cases may "balance" the interests of the relator and the defendant in determining the scope of discovery and may limit discovery and trial to bellwether or representative claims. In turn, far from being confined to a motion to dismiss, the only identified limit of Rule 9(b) and its corresponding application to discovery is after a jury verdict in favor of relators. While the relators may have "edged the door ajar" for some limited post-trial discovery for new claims, the Rigsby case is "exceptional" and "idiosyncratic." In the "typical case," a court appropriately acts within its discretion to limit relators from trying to search out new claims beyond what they have pled with specificity.

A. Brian Albritton
August 18, 2015

Tuesday, July 28, 2015

No False Claims Act Liability Based on Ambiguous Medicare Regulations: Donegan v. Anesthesia Associates of Kansas City

Medicare regulations are often complex, ambiguous (especially when applied), and bereft of any guidance by the Centers for Medicare and Medicaid Services (CMS) or the local Medicare administrative contractor. As the 4th Circuit aptly observed, Medicare statutes and regulations "are among the most completely impenetrable texts within human experience." Rehabilitation Ass'n of Va., Inc. v. Kozlowski, 42 F.3d 1444, 1450 (4th Cir. 1994). As a result of the complexity of these regulations, qui tam relators are increasingly exploiting the ambiguities of Medicare billing regulations in order to bring qui tam actions alleging Medicare providers submitted false claims when they failed to follow the relator's interpretation of billing regulations.

In US ex rel Donegan v. Anesthesia Associates of Kansas City, 2015 WL 3616640 (W.D. Mo., June 9, 2015), the Western District of Missouri recently addressed whether False Claims Act (FCA) liability can be based on an ambiguous Medicare regulation for which there was no authoritative interpretation prohibiting the defendant's billing practice. The Court found as a matter of law that the relator could not establish that the defendant knowingly submitted a false claim because the relator could not "show that there is no reasonable interpretation of the law that would make the [defendant's] allegedly false statement true."

In this qui tam case, the relator sued an anesthesiologist group practice alleging that it had fraudulently billed for anesthesiology services that its anesthesiologists did not "direct" but only "supervised." The case turned on whether the anesthesiologists complied with a Medicare billing regulation, referred to as the "Seven Steps" regulation, and the question of whether the anesthesiologists "personally participated in the most demanding aspects of the anesthesia plan including . . . emergence." 

The issue facing the Court was that there was no authoritative interpretation of "emergence." In its regulation, CMS did not define "emergence," when it began or when it ended. Moreover, no Medicare billing contractor had provided a Local Coverage Determination that defined "emergence" either. The Court noted further that there was "no guidance from any national or state anesthesiology organization defining 'emergence' because emergence is a process, and each patient is different."  

Fortified with the testimony of two experts, the relator argued that emergence excluded time in the recovery room after an operation: to personally participate in the patient's "emergence" from anesthesia that had been administered by a certified registered nurse anesthetist (CRNA) under the physician's "direction" meant the physician had to examine the patient in the operating room. In fact, one expert even referenced "a nationwide medicare carrier for railroad retirees" which defined "emergence" as the period between when anesthesia is no longer administered to the patient and before the patient is turned over to the recovery room. Citing its own evidence, the defendant, however, argued that emergence included a patient's time in the recovery room, which is where its physicians most often checked in on patients who had been administered anesthesia by CRNAs.  

The Court granted summary judgment in favor of the defendant on the relator's only remaining theory left from the amended complaint: that the defendant's anesthesiologists did not personally participate in patient's emergence from anesthesia because emergence did not extend to the recovery room.  

First, the Court rejected the relator's attempt to assert another theory of liability that was not contained in the amended complaint. Acknowledging that this unpled theory "may be meritorious," the Court nevertheless held that the relator may not assert new theories of FCA liability that were not contained in the amended complaint and which were "based on information learned during discovery." "A relator," the Court stated, "cannot plead an FCA violation generally and then fill in the blanks following discovery." Because the relator described a "distinct, independent scheme" and had not pled this theory of liability or provided a representative example in the complaint, the Court "cannot consider this theory of liability." 

Second, observing that the "Seven Steps" regulation is ambiguous because there is no authoritative interpretation in the regulation or otherwise as to when emergence ends, the Court found that the defendant reasonably interpreted the regulation's reference to emergence to include a patient's recovery in the recovery room. The Court acknowledged that the defendant's interpretation is "opportunistic because it has a financial motive to interpret the regulation that way." Yet, in the "absence of an authoritative contrary interpretation of the regulation . . . a defendant does not act with the requisite deliberate ignorance or reckless disregard by taking advantage of a disputed legal question." Moreover, the Court conceded that "the relator has arguably put forth a more reasonable interpretation of the regulation," but "this is not enough" because the relator "must carry its burden of showing that there is no reasonable interpretation of the law that would make the allegedly false claim valid."

Donegan is a real step forward in preventing relators from exploiting ambiguities in Medicare regulations to bring a qui tam action against Medicare providers and hold them hostage if they do not settle. Of course, the Court is not saying a defendant's mistaken or opportunistic interpretation can never give rise to other civil remedies by Medicare -- the government has numerous avenues other than the FCA to enforce its regulatory interpretations. Yet, civil remedies are one thing, but subjecting a defendant to harsh FCA sanctions for violating an ambiguous regulation is a whole different order of magnitude. This is especially true for Medicare providers, like the defendant in this case, who easily can bill and submit thousands of small Medicare claims and for whom the $5,500 - $11,000 penalty per Medicare claim can quickly lead to exposure for catastrophic damages if they lose. Essentially, the Court's ruling has brought common sense back to the analysis of when a false claim arises when dealing with ambiguous regulations. Now, at least in the 8th Circuit, a defendant who reasonably interprets an ambiguous regulation in the absence of a contrary authoritative regulation cannot know that its interpretation is false and thus cannot be found guilty of violating the False Claims Act.

A. Brian Albritton
July 28, 2015

Monday, July 6, 2015

Violation of Government Contract Does Not Give Rise to False Claim Where Government Knows of Violation and Continues to Pay Claims

Dear Readers:

I commend to you the recent False Claims Act case of U.S. ex rel Thomas v. Black and Veatch Special Projects Corp., 2015 WL 3570661 (D. Kan. June 5, 2015). The Court granted summary judgment in favor of the defendant, a government contractor, who contracted with the United States Agency for International Development ("USAID") to provide services and support for power projects in Kandahar, Afghanistan. In a common sense ruling, the Court found that defendant did not falsely certify its compliance with the provisions of the USAID contract because USAID continued to make numerous contract payments to the defendant even after it both learned of the defendant's failure to comply with one of the contract's provisions and was served with a copy of the qui tam complaint together with relators' disclosure of material evidence.

The USAID contract provided for defendant to submit invoices every two weeks to the USAID, which in turn, reviewed and evaluated whether the work was satisfactory, and if it was, authorized periodic payments to the defendant. All work remained subject to USAID's final inspection and acceptance, and the USAID contracting officer was permitted to reduce or suspend payments if he found substantial evidence that the defendant failed to comply with any material requirement of the contract.

Among its many provisions, the USAID contract required the defendant to comply with Afghan law and to obtain work visas and permits for all foreign citizens working for the defendant on the contract in Afghanistan. The relators, employees of the defendant, discovered that forged documents had been submitted to the Afghan government on behalf of seven of the defendant's employees, and they informed the USAID of their discovery. Subsequently, the defendant conducted its own internal investigation and confirmed to USAID that forged educational documents had been provided on behalf of seven employees to the Afghan government in order to obtain work permits for them.  

In their qui tam complaint, Relators alleged that the defendant submitted legally false claims for payment to USAID by impliedly certifying its compliance with Afghan law in its periodic requests for contract payment. Relators cited to a Federal Acquisition Regulation that required defendant and its personnel to comply with all applicable United States and host country laws. Relators asserted that because defendant fraudulently obtained permits and visas in violation of Afghan law, it failed to comply with a contractual prerequisite of payment and as a result falsely certified its compliance with the contract.  

Granting summary judgment in favor of the defendant, the Court found that the realtors had not provided any facts to show that "USAID may have reduced or refused payments" based on alleged false documents and the violation of Afghan law.  The Court found that compliance with Afghan law "was not material to the government's decision to pay defendant's invoices" because "USAID . . . continued to pay defendant, even though it knew about these allegations and even though . . . it could not determine whether defendant had filed the forged documents."

Remarkably, the Court noted further the government continued to pay the contract even after the relators filed their qui tam suit:  
USAID's conduct after relators filed suit also demonstrates that compliance with Afghan law did not matter to the government's payment decision. Relators commenced this action and provided a copy of the Complaint and a statement of all material facts to the government on August 23, 2011. . . .  . Since then, defendant had submitted at least forty-seven invoices for USAID payment. USAID never demanded that defendant refund any amount paid. Nor has it reduced or withheld payment of any invoice submitted after realtors filed suit. Instead, USAID has accepted and paid for all deliverable components completed by defendant under the contact. . . . . USAID's conduct after relators filed this action demonstrates that defendant's compliance with Afghan work permit and visa requirements did not matter to the government's payment decision. 2015 WL  3570661 *13 (citations omitted).
In short, the Court found that the defendant's compliance with Afghan law provision must not be material to the contract's conditions of payment because USAID continued to make payments on its contract even though it was aware of relators' qui tam suit and the defendant's contractual violation. 

The case illustrates two of the maddening aspects of qui tam litigation. First, the government should have dismissed this case when it was filed on the basis that the agency did not believe the defendant's had violated a material provision of the contract.  Instead, as the government so often does, the relator filed a qui tam suit alleging that the defendant violated some government contractual provision or regulation, the government declined to intervene and of course said nothing and the relator prosecuted the matter in the name of the government --all the while as the government agency in question continued to do business with the defendant in the same manner that is alleged to be a FCA violation in the suit.  Almost assuredly, the U.S. Attorney's Office would have inquired of USAID when relators filed their suit and they should have learned then that USAID did not find the contract violation to be material.  Yet, the government permitted the qui tam to proceed even though the government later permitted the defendant to obtain  statements from the USAID contracting representatives who confirmed that they knew "about the defendant's conduct" but continued to direct that USAID pay defendant's invoices.  

Second, the case offers some hope to defendants who are accused by realtors --but not the government-- of violating some obscure or ambiguous regulation or contractual provision. This case permits the defendant to use the government's knowledge of the alleged violation and its continued payment of claims to show that the so called violation must not be material if the government does nothing in the face of these allegations and continues to pay claims.

Defendant's counsel Kathleen Fisher, Nathan F. Garrett, and Todd P. Graves, (the former U.S. Attorney for Kansas City, Missouri) of the Graves Garrett firm should be commended for their excellent work in securing this decision by the Court.

A. Brian Albritton

July 5, 2015

Monday, February 2, 2015

Eleventh Circuit Makes Key Ruling on Public Disclosure Bar: US ex rel. Osheroff v. Humana

In the case of U.S. ex rel. Osheroff v. Humana, Inc., et al., 2015 WL 223705 (Jan. 16, 2015 11th Cir), the Eleventh Circuit clarified a number of key issues concerning the "public disclosure bar" of the False Claims Act, as amended by the Patient Protection and Affordable Care Act (2010), 31 U.S.C. 3730(e)(4). See a helpful redline of the pre/amended versions of the public disclosure bar, 31 U.S.C. 3730(e)(4), found at the HelmerMartins blog entry, "False Claims Act Redline." 
  • The Eleventh Circuit applied the pre-amendment version of the public disclosure bar to conduct occurring before the amendment’s effective date (which the Court stated was March 23, 2010) and the post-amendment version to conduct occurring after the effective date of the amendment.
  • The Eleventh Circuit decided that the amended version of the public disclosure provision is no longer jurisdictional.
  • As the amended version of the public disclosure bar is no longer jurisdictional, the Court held that a motion to dismiss under Rule 12(b)(6) is the appropriate vehicle for asserting the public disclosure bar regarding conduct subject to the amended version of the statute rather than a motion under Rule 12(b)(1).
  • In considering a Rule 12(b)(1) motion regarding conduct that is subject to the pre-amendment version of the provision, the district court is permitted to look at extrinsic documents.
  • While the Court found that a district court generally may not look beyond the pleadings in considering a Rule 12(b)(6) motion for conduct that is subject to the post-amendment version of the statute, district courts may consider extrinsic documents if they are central to a relator’s claim and their authenticity is not challenged. 
  • For example, the Court found that in deciding a 12(b)(6) motion to dismiss, the district court properly took judicial notice of newspaper advertisements, and publicly available websites in determining whether there was a prior public disclosure of the relator's allegations. The Court explained that the term "news media as used in 3730(e)(4)" has a "broad sweep" and as a result "newspaper advertisements and the [defendant] clinics' publicly available websites qualify as news media for the purposes of the public disclosure provision." These advertisements and websites, like the newspaper articles, discussed the clinics' "free services" which the relator claimed gave rise to violations of the Anti-Kickback Statute.
  • The Court found that the "significant overlap between the [relator's] allegations and the public disclosures is sufficient to show that the disclosed information forms the basis of this lawsuit and is substantially similar to the allegations of the complaint."
  • The Court held that the relator was not an original source even though the relator argued that he "conducted his own investigation of the programs offered at the clinics", and his complaint included "some details that are not present in the public disclosure." The Court found that such allegations, "at most" add "background information and details relating to the value of the services offered." Such background information, the Court observed, only "helps one understand or contextualize a public disclosure" but is "insufficient" to grant original source status to a relator under either the pre-amendment or post-amendment versions of the False Claims Act.
Overall, Osheroff joins an increasing number of courts that find the amended 2010 version of the public disclosure bar NOT to be jurisdictional and subject to attack only by a 12(b)(6) motion to dismiss. Though the Court made it look easy in this case to take judicial notice of newspaper articles and websites in applying the public disclosure bar, the Court's ruling will make it much harder in practice to assert this defense if only "undisputed" evidence can be introduced at the motion to dismiss stage. To deal with this, defendants will likely have to seek early summary judgments on the public disclosure defense.

A. Brian Albritton
February 2, 2015

Wednesday, January 14, 2015

Kellogg Brown and Root v. U.S. ex rel Carter: Justices dubious of government's broad reading of False Claims Act

Argument analysis: Justices dubious of government's broad reading of False Claims Act

Dear readers: I commend to you the excellent analysis by Ronald Mann of SCOTUSblog of the oral argument held today at the Supreme Court in the case of Kellogg Brown and Root v. U.S. ex rel Carter. That case raised two questions for the Supreme Court to decide: (1) whether the Wartime Suspension of Limitations Act applies to the False Claims Act; and (2) "whether . . . the False Claims Act’s so-called 'first-to-file' bar, 31 U.S.C. § 3730(b)(5) . . . functions as a 'one case-at-a-time' rule allowing an infinite series of duplicative claims so long as no prior claim is pending at the time of filing." 

A. Brian Albritton
January 14, 2015