Wednesday, October 31, 2012

What Was the Relator Thinking? Court Sanctions Relator and Counsel for Frivolous Qui Tam Claim

Under the "what were they thinking" column, a recent U.S. District Court case from the Eastern District of Wisconsin shows that relators and their counsel who bring frivolous or unfounded qui tam claims will be subject to sanctions. USA ex rel Watson v. King-Vassel, et al., 2012 WL 5272486 (E.D. Wis. Oct. 23, 2012).

In the King-Vassel case, the relator, a physician, brought a qui tam against another physician and two companies with whom she was affiliated that provided mental health services alleging that the physician violated the False Claims Act and the Wisconsin False Claims Act when she allegedly "prescrib[ed] medications to a minor patient receiving Medicaid assistance for reasons that are not medically accepted." The state and federal governments decline to intervene, and the relator proceeded with the case, though he was grossly unprepared to do so.

First, the Court observed that the relator got the idea of bringing a qui tam suit as a result of meeting an attorney at a conference and researching how to bring a qui tam claim through a website, "".

Second, the relator found his alleged false claim by placing an ad in the the newspaper seeking minor Medicaid patients who had received certain medications and got his "lead" when a patient responded. The doctor obtained that patient's records using a "borderline-fraudulent release" that failed to mention that the records would be used to bring suit.

Based on these patient records, the relator filed suit against the physician alleging that she had improperly prescribed psychotropic drugs to the minor patient for four years since the drugs at issue were not approved by the FDA for such indications. By doing do, the relator alleged that the physician caused false claims for reimbursement to be submitted to Medicaid. The relator further sued the two companies that the physician was affiliated with on the grounds that they employed the physician. After several months of discovery, the defendants moved for summary judgment.

Third, though it had been apparent from early in the case that the defendant companies did not employ the physician and were not responsible for her alleged conduct on the grounds of respondeat superior, the relator did not move to dismiss them until after the summary judgment was filed. At that point, however, one of the corporate defendants had moved for sanctions on the grounds that it should not have been sued since it was not the employer of the physician defendant. The Court granted sanctions against the relator and his attorney pursuant to 28 U.S.C. 1927 and its inherent powers, finding that the attorney waited far too long after she should have known better to withdraw the claim against the corporate defendant. As a result of relator counsel's failure to conduct an "appropriate investigation" after becoming aware of the "serious flaw" in his claim against the corporate defendant, the defendant "was forced to proceed through the entire discovery process and file an extensive summary judgment brief, all to combat a claim that could have been readily dismissed after a minor inquiry."

Fourth, the Court granted summary judgment against the relator who failed to provide any expert testimony or competent evidence to show that the defendant physician's prescribing of certain drugs in fact caused the submission of a false claim to Medicaid or even to show that the prescribed drugs were improper for that patient.

Overall, the Court observed that the relator's "attack here on a single doctor's prescriptions to a single patient does not provide the government with substantial valuable information, as intended by the qui tam statutes. Instead of providing the government with valuable information, [the relator] seemingly sought only to cash in on a fellow doctor's attempts to best address a patient's needs. In return, [the physician] was treated to a lawsuit, the proceeds of which would be split three ways between [the relator, his counsel, and the patient's parent]."

One question that remains is why the government did not dismiss this case or at least dismiss the corporate defendants pursuant to 31 U.S.C. 3730(2)(c)(2). This case was frivolous, and this should have been apparent as to the corporate defendants even at the sealed stage: the corporate defendants were not subject to respondeat superior liability because the physician was an independent contractor and not an employee of defendants. 

A. Brian Albritton
October 31, 2012

Tuesday, October 23, 2012

SEC Received Nearly 3,000 Whistleblower Tips in 2012

The MarketWatch site of the Wall Street Journal reported SEC Commissioner Luis Aguilar's comments about the SEC's Dodd-Frank whistleblower program which began last year.  Like the False Claims Act's qui tam provisions, the SEC's program pays a bounty to whistleblowers who, according to the SEC, "come forward with high-quality original information that leads to a Commission enforcement action in which over $1,000,000 in sanctions is ordered." Commissioner Aguilar reports that the SEC  has received 2,820 whistleblower tips as of August of this year and that "[t]ips have come from around the US and from 45 foreign countries." He further stated that agency staff have "seen a noticeable difference in the quality of information they receive since the inception of the program."

Notwithstanding the number of tips, the article points out the SEC has made only one reward payment thus far to a whistleblower.

A. Brian Albritton
October 23, 2012

Monday, October 22, 2012

Relators Pursue False Claims Act Defendant Into Bankruptcy

The Wichita Business Journal and the blog from Greene LLP have both highlighted an adversary case recently brought in U.S. Bankruptcy Court in the Southern District of New York (Case no. 12-11873-smb) by two relators against Hawker Beechcraft Corporation. The relators had brought a False Claims Act qui tam in U.S. District Court in Kansas (Case no. 07-1212-MLB) against Hawker, its subcontractor, TECT Aerospace, Inc., and other defendants that had  been pending for five years at the time Hawker sought bankruptcy protection. The suit arose from a government defense contract with Hawker to produce parts for military training aircraft. The suit alleges, according to the Greene blog, that "TECT used unapproved production processes that rendered the parts brittle and susceptible to corrosion . . . . .[and] that Hawker Beechcraft knew about these defects and yet failed to notify the government of the problems, inducing the government to accept defective merchandise. . . . .  [T]he relators have consequently claimed damages of more than $763 million in the case."  Hawker has sought to discharge its False Claims Act liability in bankruptcy. The relators, however, have filed an adversary proceeding alleging that Hawker's False Claims Act liability is not dischargeable in bankruptcy since the claims allegedly arose as a result of Hawker's fraudulent conduct and because the claim is owed to a "domestic governmental unit", both of which are exceptions to discharge in bankruptcy. The relators' adversary complaint can be found here.

A. Brian Albritton
October 22, 2012

Tuesday, October 16, 2012

United States ex rel Williams v. Renal Care Group: 6th Circuit Refuses to Impose FCA Liability on Company that Took Lawful Advantage of Medicare Loopholes

In a startling reversal of a summary judgment entered in favor of the government in a False Claims Act (FCA) case, the 6th Circuit recently rejected attempts by the government to establish FCA liability simply because a company, Renal Care Group, Inc. (“RCG”), a dialysis provider, had “created a wholly-owned subsidiary to take advantage of loopholes in the Medicare regulatory scheme that would permit it to increase profits.” United States ex rel Williams v. Renal CareGroup, 2012 WL 4748104 (6th Cir.) In the absence of regulations and statutes clearly prohibiting such an arrangement, the Court found that RCG had not acted with reckless disregard of the truth or falsity of the claims submitted by its subsidiary to Medicare because RCG had taken several steps to try to determine whether its subsidiary relationship violated applicable statutes and had not made a secret of its corporate arrangement.  

RCG was a dialysis provider that provided dialysis services at more than 260 facilities and in addition provided “dialysis supplies and services to home dialysis patients.” RCG created a subsidiary, RCGSC, that only provided dialysis equipment, but not services, to home dialysis patients. Medicare reimbursed dialysis providers according to two different methods: Method I applied to dialysis providers who operated dialysis facilities and who also provided home dialysis and services. Method II applied to providers who provided equipment and supplies to home dialysis patients but who did not provide dialysis services. Medicare reimbursed Method II providers at a higher rate than those of Method I, and further provided that “Method II payments may only go to an entity that is not a ‘provider of services [or] a renal dialysis facility . . . '”

RCG created RCGSC for the purpose of obtaining the higher Method II Medicare reimbursements. Moreover, RCG controlled RCGSC’s operations. The two companies shared RCG’s employees, officers, and directors, all of whom "held key roles in RCGSC’s corporate structure” as well as shared “office space, payroll, insurance benefits, contracts, and human resource services.”

The government alleged that RCG and RCGSC violated the False Claims Act by submitting false claims “while knowing that RCGSC was a sham corporation created for the sole purpose of increasing Medicare reimbursements” and “while knowing that RCGSC was not in compliance with Medicare rules and regulations.” The government moved for partial summary judgment on the issues of falsity and materiality, which the Court granted. The Court went a step further, however, and later found that the defendants had acted with the requisite knowledge to violate the False Claims Act as well, and it entered judgment against the defendants in the amount of $82,000,000.

The 6th Circuit reversed the judgment on all counts and instead entered summary judgment for the defendants on the two False Claims Act counts. First, the Court rejected the government’s argument that the RCG’s subsidiary was an alter-ego of RCG, observing that “[t]he corporate form need not be disregarded when its adoption was meant to 'secure its advantages and where no violence to the legislative purpose is done by treating the corporate entity as a separate legal person.'” (citation omitted). RCG, the Court went on, had not acted with an unlawful purpose simply because it sought to “maximize profits,” saying “[w]hy a business ought to be punished solely for seeking to maximize profits escapes us.” Analyzing the statutory and regulatory basis underlying the differences in reimbursement, the Court concluded “[a]ll of this points to the conclusion that the structure of RCG and RCGSC is not obviously inconsistent with Congress's goals for the payment scheme.”

Sunday, October 7, 2012

Do Public Disclosures Have to Satisfy a Rule 9 Like Test for the Public Disclosure Bar to Apply?

In "District Court Dismisses Whistleblower's Case Against Humana for Public Disclosure," 9/30/12, attorney Ben Vernia and his blog,, recently highlighted an interesting decision from the Southern District of Florida on the application of the "public disclosure bar" and whether the bar applies when the facts or allegations underlying the claim are publicly disclosed in newspaper articles and a lawsuit, even when those facts are innocently characterized and not presented as violating the False Claims Act.

In US ex rel Osheroff v. Humana, Case no. 10-24486-cv-Scola (SDFL, 9/28/12), the Relator brought a case against Humana, a Medicare Advantage provider, and several so called "Cuban-style medical clinics" with whom it contracted alleging that the Defendants "conspired to induce patients to enroll in Medicare Advantage Plans . . . by offering them improper benefits in violation of anti-kickback and anti-inducement laws." Along with standard "primary and specialty medical care," the Clinics offered patients "wellness programs and social activities, along with free transportation, meals, massages, salon services, and entertainment." The Relator alleged that these benefits constituted improper inducements and that offering patients such benefits caused Defendants to present false claims to Medicare and to falsely certify their compliance with the AntiKickback Act.

Defendants moved to dismiss the Relator's claims on the grounds that they were barred by the "public disclosure bar." Modified in 2010, the public disclosure bar provides that the Court shall dismiss claims brought by a relator "if substantially the same allegations or transactions as alleged in the action or claim were publicly disclosed - (i) in a Federal criminal, civil, or administrative hearing in which the Government or its agent is a party; (ii) in a congressional, Government Accountability Office, or other Federal report, hearing, audit, or investigation; or (iii) from the news media, unless the action is brought by the Attorney General or the person bringing the action is an original source of the information." 31 U.S.C. 3730(e)(4)(A).

Defendants contended that the public disclosure bar precluded the Relator's claims because newspaper articles and advertisements, Defendants' websites and print brochures, and Florida state court litigation "disclose[d] information that is substantially the same as the allegations and transactions described in the Amended Complaint." For example, Defendants pointed to articles in the Miami Herald about the "Cuban-style" medical clinics which described how the clinics "offer their patients free social activities and meals" and that over half of clinic clients "arrive by van—at no charge.” They also pointed to advertisements about the Clinics and their services as well as disclosures made about the Clinics in a state court case. The Court found that the articles and advertisements as well as the state court litigation (though only for the pre-2010 version of the statute) qualified as public disclosures.

What is interesting about the case is that the Relator argued that for the public disclosure bar to apply, media disclosures must "reveal Defendants’ participation in the alleged fraud with the same specificity as would be required pursuant to Rule 9(b) of the Federal Rules of Civil Procedure; generalized, 'innocuous' information about the subject matter of the suits . . . will not suffice." Stated another way, the Relator argued that the public disclosures must not only reveal the facts which would constitute a violation of the AntiKickback Act, but must also show that the Defendants were knowingly engaged in wrongdoing. In fact, the Relator went so far as to argue that the bar did not apply because the articles had not shown that the inducements offered by the Defendants fell outside the "safe harbors" permitted by Medicare for limited patient inducements.

The Court rejected the Relator's arguments. Instead, the Court found that the articles and advertisements revealed facts sufficient to show that Clinics were offering remuneration to existing and prospective Medicare recipients and that such revelations were "sufficient to bring the Defendants' alleged fraud to the Government's attention." In turn, the Court found that Relator's claims were "based upon" and "substantially the same" as facts disclosed in the public disclosures, and since the Relator did not have "independent knowledge" of and was not an "original source" for his claims, the Court dismissed his claims against Humana and the Clinics with prejudice.

A. Brian Albritton
October 7, 2012

False Claims Act News from the AHLA Annual Meeting

Joe Carlson of recently reported on some of the news about the False Claims Act and qui tams that came up at the jointly held annual conference of the American Health Lawyers Association and the Health Care Compliance Association: "Shift Seen in False Claims Whistle-Blower Suits," 10/2/2012.

According to relator counsel and HHS speakers at the conference, relators increasingly are continuing to litigate qui tam suits even when the government declines to intervene.

Dan Anderson, deputy director of Commercial Litigation for DOJ's Civil Division, told the conference that DOJ has been "roundly criticized for taking too long" to make intervention decisions in healthcare cases and that it will now try to make an intervention decision "within nine months."

Anderson went on, reports Carlson, to note that the "hospital industry has reason to be concerned now . . . And there is reason to think there will be an uptick in the number of qui tam cases that are filed . . . We had a record-setting year last year, and this year we are going to blow right past that."

A. Brian Albritton
October 7, 2012

Government Files Statement of Interest in Qui Tam against CVS/Caremark

Ed Silverman at the blog, Pharmalot, has written an interesting piece about the recent qui tam filed against CVS/Caremark by a former CVS auditor, Anthony Spay. Spay alleges false claims by CVS/Caremark relating to Medicare Part D, the prescription drug benefit program. The government declined to intervene in the matter, but Spay is moving forward with his qui tam suit. CVS/Caremark has moved to dismiss, and that has caused the government to file a "Statement of Interest," which opposes various positions of the Defendants.

Far from riveting, the Statement of Interest makes several points that may interest readers: First, the government requests that if the Court dismisses the Complaint, it do so without prejudice. "Because the United States has no part in preparing such complaints," the government argues, "it should not be prejudiced if a realtor has failed to plead his allegations sufficiently. Such a dismissal does not . . . mean that a better informed relator or the United States could not make out a viable claim in the future."

Second, the government argues that its decision not to intervene should in no way be interpreted to mean "that the claims lack merit." Such a presumption is "totally unwarranted and inappropriate." The decision not to intervene, the government asserts, "signals that the United States is not intervening - no more, no less" and "[i]t is inappropriate for Caremark to suggest that non-intervention is indicative of the United States' views of the merits of this case, for purposes of considering a motion to dismiss or for any other reason."

Third, much of the Statement of Interest addresses records known as Prescription Drug Event or "PDE" records and the role such records play in supporting Part D claims for reimbursement. The Statement of Interest seeks to rebut the attempt by CVS/Caremark to assert (i) that the PDE does not qualify as a "claim" for payment for the purpose of the False Claims Act; and (ii) that because PDE data was available for "research, analysis, reporting, and public health functions," it has been publicly disclosed and cannot be the basis for a FCA claim.

A. Brian Albritton
October 7, 2012