Tuesday, December 6, 2016

Supreme Court Finds That Courts Have Discretion to Fashion Remedy for Violations of False Claims Act Seal Provision: State Farm Fire & Casualty Co. v. U.S. ex rel. Rigsby

Dear Readers:

The Supreme Court today handed down its unanimous decision in State Farm Fire & Casualty Co. v. U.S. ex rel Rigsby et al, and affirmed the 5th Circuit's ruling that a relator's violation of the False Claims Act's "seal" provision, 33 U.S.C. § 3730(b)(2), does not require dismissal of the relator's qui tam complaint. I assume this ruling was widely anticipated since, as the Court pointed out, there is nothing in the False Claims Act's "text and structure" that requires dismissal of a relator's qui tam in the event a relator violates the seal. As to what sanction, including dismissal, may be appropriate for a violation of the seal, the Supreme Court left that to the "sound discretion of the district court." 


For those seeking further details about the Rigsby decision, I commend to you Ronald Mann's analysis of the Court's opinion found on SCOTUSblog: Opinion analysis: Justices reject automatic dismissal for seal violations in False Claims Act cases.


A. Brian Albritton

December 6, 2016

Thursday, December 1, 2016

Fifth Circuit Refuses to Take the “One Purpose” Test of the Anti-Kickback Statute to Its Logical Extreme: United States ex rel Ruscher v. Omnicare, Inc.

Dear Readers:

As you have probably experienced, False Claims Act (“FCA”) cases based on alleged violations of the Anti-Kickback Statute, 42 U.S.C. § 1320a-7b(b), have risen sharply in the last few years. Simply stated, the Anti-Kickback Statute (“AKS”) makes it a crime to knowingly and willfully offer, pay, solicit, or receive any remuneration directly or indirectly to induce or reward referrals of items or services reimbursable by a Federal health care program, such as Medicare or Medicaid. The AKS has been broadly enforced primarily, in my view, due to the application of the “one purpose” test: that is, to prove that a contract or transaction between health care providers violates the AKS, a relator or the government need only show that “one purpose” of the remuneration involved in the transaction was for the purpose of inducing referrals. See Robert G. Homchick, “Federal Anti-Kickback Statute Primer.” Not surprisingly with a lower standard of proof to prove a “false claim,” enforcement of the AKS through the False Claims Act has expanded its reach into areas that would have been unthinkable years ago when most of the AKS enforcement was on the criminal side. In fact, one commercial blog claims that “Anti-Kickback Statute violations — as well as violations of the Stark Law — now make up most False Claims Act cases.” Becker’s Hospital Review, “20 things to know about the Anti-Kickback Statute,” September 5, 2014.

Amidst these ever growing AKS cases, I came across a remarkable case, United States ex rel Ruscher v. Omnicare, Inc., et al., 2016 WL 6407128, __ Fed. Appx.__ (5th Cir., 10/28/2016), that applied a common sense analysis to this “one purpose” test and refused to extend it to a logical extreme.  Ruscher refused to find an AKS violation simply because one of the parties to a contract designed to provide legitimate pharmacy services “merely hoped” or expected referrals as a benefit or by-product of that contract. 

Here are some of the key facts: Defendant Omnicare provided pharmacy services to skilled nursing facilities (“SNFs”) and their residents. Omnicare routinely entered into Preferred Provided Agreements with the SNFs, which designated Omnicare as the SNFs’ preferred provider of pharmacy services and set forth, among other things, pricing, payment terms, and billing mechanisms. These SNFs provided medical, nursing, and therapy services to residents who usually had their pharmacy drug costs reimbursed by Medicare Part A, Medicare Part D, or Medicaid. Part A benefits last for 100 days. When providing pharmacy benefits to residents covered by Part A, Omnicare billed the SNF for prescription costs. Medicate, in turn paid the SNFs a per diem amount for each Part A resident’s care, including pharmacy services. After a resident’s Part A benefits expired, any pharmacy services provided to residents by Omnicare were reimbursed by the patient’s Medicare Part D and/or Medicaid coverage. 

Omnicare’s billing and collections from these SNFs sometimes resulted in some confusion as to whether Omnicare had properly billed and been paid for the services it provided. This confusion gave rise to billing disputes with the SNFs that sometimes took years to resolve.  The relator in Ruscher worked in Omnicare’s Collections Department for a time, collecting past-due accounts from SNFs. She became suspicious of Omnicare’s contract negotiations with these SNF clients over past due accounts receivables, and as a result, filed a False Claims Act qui tam against Omnicare and several other defendants in the Southern District of Texas. Among other things, the relator alleged that Omnicare violated the FCA by purportedly making and causing SNFs to make false claims on the SNFs’ cost reports for Medicare and Medicaid reimbursement that allegedly resulted from kickbacks in violation of the AKS. After pending for several years, the Court granted summary judgment in favor of Omnicare, and the Fifth Circuit affirmed that summary judgment. Among other things, the relator primarily contended that Omnicare paid unlawful kickbacks to the SNFs both by not collecting Part A debt that was allegedly owed it and by offering prompt-payment discounts to induce the SNFs to refer patients to Omnicare who were covered under Medicare Part D and Medicaid. Stated simply, the relator alleged that Omnicare was not collecting all that it was due from the SNFs or offering the SNFs favorable payment terms so that the SNFs in turn would have a favorable opinion of Omnicare, continue to contract with it, and continue to refer the SNF residents whose pharmacy services were reimbursed by Medicare Part D and Medicaid.

The Fifth Circuit acknowledged that the AKS “criminalizes the payment of any funds or benefits designed to encourage an individual to refer another party to a Medicare provider for services to be paid for by the Medicare program" and that the relator needed to only show that “one purpose of the remuneration was to induce such referrals.” Yet, the Court found the Omnicare did not violate the AKS: “there is no AKS violation . . . where the defendant merely hopes or expects referrals from benefits that were designed wholly for other purposes.” Among the reasons cited by Ruscher to support its finding were:

  • OIG – HHS had previously stated that prompt payment discounts were not included among the designated HHS “Safe Harbors” because “by definition, preferred payment discounts are designed to induce prompt payment and thus do not appear to violate” the AKS.
  • Relator’s evidence primarily showed Omnicare was trying to collect verifiable debt and settle billing disputes without unnecessarily aggravating its SNF clients in the midst of ongoing or anticipated contract negotiations.
  • At best, the evidence showed that Omnicare did not want unresolved settlement negotiations to negatively impact its contract negotiations with SNF clients and was avoiding confrontational collection practices that might discourage SNFs from continuing to do business with Omnicare.
  • None of the evidence showed that Omnicare designed its settlement negotiations and debt collection practices to induce SNF clients to continue making Medicare and Medicaid referrals to Omnicare.
  • SNFs were not told they were getting special benefits from Omnicare settlement negotiations and debt collection practices let alone that any such benefits were tied to Medicare and Medicaid referrals.  The Court noted that “if purported benefits were designed to encourage SNFs to refer Medicare and Medicaid patients, one might expect to find evidence showing that the SNFs at least knew about those benefits.”
  • While Omnicare “may have hoped for Medicare and Medicaid referrals, absent any evidence that Omnicare designed its settlement negotiations and debt collection practices to induce such referrals, relator cannot show an AKS violation.”
  • Omnicare’s prompt payment discount offers to SNFs did not violate the AKS because there was no evidence they were designed to induce referrals.  The relator showing that they were offered in contract negotiations and included in new contracts was not enough in and of itself to show an illegitimate motive for the purpose of inducing referrals rather than the legitimate purpose of inducing payments.  

In short, the Court found that Omnicare’s legitimate billing and collections practices with its SNF clients did not run afoul of the AKS simply because a byproduct of its contracts and its collections practices was to promote continued good will with the SNFs and, in turn, their referrals. The Court distinguished such an agreement from other agreements that are designed, at least in part, to induce referrals. 

Perhaps the most remarkable result is that the 5th Circuit affirmed summary judgment for Omnicare and did not find this question of Omnicare’s motive or intent to be a jury question. In affirming summary judgment, the Ruscher Court relied on a criminal case, U.S. v. McClatchey, 217 F.3d 823, 834 (10th Cir. 2000), which addressed the AKS in the context of ruling on a jury instruction. According to McClatchey, determinations as to a defendant’s motive in AKS cases are jury determinations. In a footnote, the Court observed that “it may be difficult for a jury to distinguish between a motivating factor and a collateral hope or expectation. Making such difficult determinations, however, is the very role to which our system of justice assigns to the finder of fact.”  

Unfortunately, the 5th Circuit decided not to publish Ruscher. Nor did the Court provide any guidance as to how better to distinguish between agreements for which one purpose is the inducement of referrals and legitimate agreements wherein one of the parties hopes that referrals result from the agreement.  Nevertheless, it is a good first step, and hopefully one that other courts will expand upon and bring some common sense limitations to the application of the AKS. 

A. Brian Albritton
December 1, 2016 

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