Tuesday, December 17, 2013

Refusing to Extend the Seal: Court Refuses Requests to Extend Seal of Qui Tams for Informal Discovery or Settlement Negotiations

Section 3730(2), Title 31, of the False Claims Act ("FCA") provides that when a qui tam relator files an FCA complaint under seal, the case may remain under seal for "at least 60 days" while the government investigates and decides on whether or not to intervene. It is the rare case that remains under seal only 60 days, however, and in some cases, the government keeps the qui tam under seal for years, even over the objection of the relator. For example, one case in the Middle District of Florida, the Wasserman case, was filed under seal in 2004, but the government did not unseal it until 2010.

Ben Vernia at False Claims Counsel blog recently wrote about one federal district court judge in South Carolina who has given notice that the court will no longer agree to these automatic extensions of the seal for qui tams. In a recent "standing order," U.S. District Court Judge Joseph Anderson, Jr. observed that in "recent years, this court has extended the seal period, at the request of the government, on eight occasions in two actions," only to be informed by the government after all that time that it was not going to intervene in those cases.

Judge Anderson noted that the 4th Circuit observed that there are four reasons why Congress adopted the sixty-day seal period: "(1) to permit the United States to determine whether it already was investigating the fraud allegations (either criminally or civilly); (2) to permit the United States to investigate the allegations to decide whether to intervene; (3) to prevent an alleged fraudster from being tipped off about an investigation; and, (4) to protect the reputation of a defendant in that the defendant is named in a fraud action brought in the name of the United States, but the United States has not yet decided whether to intervene." Am. Civil Liberties Union v. Holder, 673 F.3d 245, 250 (4th Cir. 2011). Judge Anderson, however, noted that "none of the foregoing reasons for extending the seal period involve discovery of documents from the putative defendant or settlement negotiations." In turn, the Court observed further that the FCA's legislative history provides that "with the vast majority of cases, 60 days is an adequate amount of time to allow Government coordination, review and decision."

In light of these considerations, Judge Anderson stated that in deciding whether "good cause" exists to continue the seal after 60 days, "henceforth, the court will no longer consider informal discovery and/or settlement negotiations as sufficient grounds for extending the seal period."

If widely adopted, Judge Anderson's position would radically change FCA practice both for relators and qui tam defendants.

A. Brian Albritton
December 16, 2013

Monday, December 16, 2013

Employment Arbitration Rulings, Qui Tam Retaliation Claims, and Collateral Estoppel

I recently came across an interesting case that further illustrates the perils to False Claim Act relators who split their employment and FCA retaliation claims. In the unpublished case of Kalyanaram v. New York Institute of Technology, 2013 WL 6482578 (2nd Cir., December 11, 2013), the Court dismissed the relator's retaliation claim against his employer on the grounds that it was barred by the doctrine of collateral estoppel. Collateral estoppel is the common law rule that prevents a party from re-litigating an issue or fact that has previously been decided, even if that issue or fact was decided in a different case, as long as there was "full and fair opportunity" to litigate the issue in the prior proceeding.  

In Kalyanaram, the relator's employer, a technical school, fired the relator, a teacher, on the grounds that he was engaging in professional misconduct. The relator contested his firing in an arbitration proceeding pursuant to a collective bargaining agreement. While that case was pending, the relator also filed a qui tam against his employer alleging that the school submitted false financial aid information so that its students would get federal and state financial aid and that the school retaliated against him for complaining about it.

The relator argued in his employment arbitration that the school retaliated against him for his complaints about the school's alleged deceptive and fraudulent practices. The relator, however, did not allege in the arbitration that the school retaliated against him because he had been either a qui tam whistleblower or had filed a False Claims Act suit. The arbitrator rejected his retaliation claims, such as they were, and found that the relator had engaged in professional misconduct by authoring pseudonymous emails "in order to convey unsubstantiated and potentially scurrilous innuendos and accusations to the detriment" of his employer. When the federal court that was hearing the relator's qui tam heard about the relator's adverse arbitration decision, the Court on its own motion ordered briefing on whether the relator's retaliation claim was barred by collateral estoppel and ultimately dismissed the retaliation claim on that ground.

The Second Circuit upheld the District Court's dismissal of the relator's retaliation claim. The Court observed that "collateral estoppel turns not on whether a prior adjudication found that an employer had a reasonable basis to discipline an employee, but on whether an employee raised a claim that behind the veil of reasonableness lay an impermissible motivating factor." Though the relator did not ever raise that he had filed a qui tam suit in the arbitration, given the relator's complaints about retaliation in that forum, the Court found that the arbitrator "actually and necessarily decided . . . that [the school] had not disciplined [the relator] in retaliation for his critiques of the school's fraudulent practices." Stated more simply, once the arbitrator found that there was a legitimate basis for discharging the relator and that the employer's reason for firing the relator was not a pretext for some other impermissible reason, that arbitration decision served to estopp and prevent the relator from claiming in the qui tam proceeding that he had been retaliated against by his employer for a different reason.

The relator complained in his appeal that he "never had a full and fair opportunity to present a compete picture of his whistleblower activities," but the Court found "he had only himself to blame." Essentially, the relator chose not to tell his arbitrator about the qui tam, even though the federal court permitted him to reveal it to the arbitrator and to "respond to any questions" about in it in that proceeding.

Of course, this case also appears as an application of that sometime informal rule of procedure known as the "bad man rule." That informal rule of procedure is normally found only in criminal cases, and frequently appears as the "real reason" for many otherwise unexplained court rulings. Though it did not explicitly reference the bad man rule, the Second Circuit did observe that the relator "repeatedly lied under oath," "presented an elaborate, fabricated defense," and "clung to this strategy through almost a year." In short, he was a "very bad man" who lied to the arbitrator and the Court and got what he deserved.

A. Brian Albritton
December 16, 2013

Wednesday, December 4, 2013

Stark Law Violations and the False Claims Act: US ex rel Baklid-Kunz v. Halifax Hospital Medical Center

In the ongoing qui tam case, US ex rel Baklid-Kunz v. Halifax Hospital Medical Center, case no. 6:09-cv-1002-Orl-31 (M.D. Fla.), which I have previously featured, the Court recently granted the Government's Motion for Partial Summary Judgment and found that the hospital's compensation arrangement with several oncologists that it employed violated the Stark Law. As there was a "factual issue" regarding whether the Hospital "knowingly" submitted claims for payment from Medicare or Medicaid arising from these Stark violations, the Court did not find --yet-- that the Hospital violated the False Claims Act. False Claims Act liability based on these Stark Law violations, however, remains a real possibility: if the Court or jury later determines that Halifax "knowingly" submitted claims for payment arising from Stark violations, then it could be subject to hundreds of millions of dollars in treble damages and penalties arising under the False Claims Act.

Halifax Hospital and a recent ruling in another Middle District of Florida case, US ex rel Schubert v. All Children's Health System, Inc., case no. 8:11-cv-01687-T-27, involving a Stark Law violation serving as the basis for a False Claims Act violation, demonstrate the incredible breath of the Stark Law, how easy it can be for hospitals to run afoul of it in compensating physicians, the incredible damage exposure to hospitals, and why such claims are especially attractive to relators seeking to bring False Claims Act cases. For example, the relator in Halifax Hospital is reported to be the hospital's former compliance officer.

The Stark Law, 42 USC 1395nn(a), prohibits physicians from referring Medicare/Medicaid patients to a whole host of business entities or "services," including hospitals, clinical labs, durable medical equipment providers, in which the physician or an immediate family member has a financial interest. In turn, hospitals are prohibited from submitting any claim for payment to Medicare or Medicaid that were furnished as a result of a prohibited referral. For example, if a physician has a "financial relationship" with a hospital that violates Stark and refers Medicare patients to the hospital, the hospital may not bill for any services rendered arising from that referral, regardless of whether the patient needed those services, was otherwise entitled to them, or what the services cost. Now, the reference to "financial relationship" does not refer only to some kind of under the table payment or kickback. Rather, the statute interprets "financial relationship" broadly to include "any arrangement involving remuneration between a physician (or an immediate family member of such physician) and an entity" and includes "any remuneration, directly or indirectly, overtly or covertly, in cash or in kind." 42 USC 1395nn(h)(1)(B).

According to the Court, Halifax Hospital ran afoul of Stark Law by employing six oncologists at the hospital for five years and paying them an "incentive bonus" which turned out to violate Stark Law. The Stark Law permits hospitals and other entities to employ physicians and others who might refer Medicare patients to them provided that a "bona fide employment relationship" exists. Whether an employment relationship is bona fide or not depends in large part on whether the entity, such as a hospital, pays the physician "consistent with the fair market value of the services," without regard to the "volume or value of any referrals made by the physicians, as reflected in a "commercially reasonable agreement." 42 USC 1395nn(e)(2). Basically, Halifax Hospital's incentive bonus for its oncologists turned out to be too generous and thus did not satisfy the bona fide employment exception. As a result, Halifax Hospital was prohibited by Stark from submitting Medicare claims for its services that were furnished pursuant to referrals from these ineligible oncologists employed by the hospital.

As a result of Halifax's violations, the Government sought reimbursement of $27,102,000 in Medicare payments generated as a result of these improper referrals. The Hospital did not have any way of lowering this damage figure. By that, I mean the Hospital cannot claim that the referrals were really warranted regardless of the improper bonus; that the bonus payment was immaterial to whether the referral for services was appropriately made; that services were really provided or needed; or that damages were the difference in value between normal referrals that comply with Stark and referrals allegedly made as a result of Stark violations. No, the result is particularly harsh because the services provided were simply not eligible for payment based solely on the ineligible referral source.

The Court found that Stark Law violations can give rise to False Claim Act liability if a hospital or other provider who accepted the illegal referral "falsely certified compliance with the Stark Law" in connection with submitting a claim to a federally funded insurance program such as Medicare. If, as the Government contends in Halifax Hospital, the Hospital is found to have violated the False Claims Act by submitting claims for payment arising from Stark Law violations, then the $27 million damage will be trebled and the hospital would additionally be subject to fines of $5,500 to $11,000 for each separate billing or claim submitted to Medicare. Damages could easily exceed $100 million. One press report stated that the Government was seeking damages in excess of $750 million. 

A. Brian Albritton
December 4, 2013