Thursday, June 15, 2017

Specialty Insurance for False Claims Act Investigations: Coverage Gaps Leave Healthcare Providers Exposed and Vulnerable

Healthcare providers continue to remain at the greatest risk of having to defend against False Claims Act (FCA) investigations, particularly those alleging billing errors and overpayments. See 2016 DOJ FCA Statistics. Not surprisingly, healthcare providers increasingly look for insurance products to help manage that risk.

Healthcare providers have discovered that they generally cannot rely on their standard Errors and Omissions (E&O) policies to manage the risk of FCA suits. See e.g., Jenkins v. St. Paul Fire & Marine Ins. Co., 248 F.3d 1164 (8th Cir. 2001) (unpublished decision); MSO Washington, Inc. v. RSUI Group, Inc., No. C12-6090 RJB, 2013 U.S. Dist. LEXIS 65957 (W.D. Wash. May 8, 2013).  Standard E&O policies most often are limited to claims for damages arising out of the rendering of, or failure to render “professional services.” And, FCA claims alleging the overbilling of a federal healthcare agency (i.e. a billing error) are generally deemed not to arise out of a healthcare provider’s “professional services” and thus are not covered. See HorizonWest, Inc. v. St. Paul Fire & Marine Insurance Co., 214 F. Supp. 2d 1074 (E.D. Cal. 2002), aff’d, 45 F. App’x 752 (9th Cir. 2002).

To fill this coverage gap in the standard E&O policy, some insurance carriers now offer specialty healthcare errors and omissions coverage.  These policies purport to cover defense costs, penalties, and other losses due to investigations into healthcare billing errors. Though a positive development, these insurance products can have potential limitations that healthcare providers should analyze closely in deciding what insurance to purchase. 
Some of these limitations were on prominent display in the case of My Left Foot Children’s Therapy, LLC v. Certain Underwriters at Lloyd’s London, 207 F. Supp.3d 1168 (D. Nevada 2016). In that case, Underwriters issued an E&O insurance policy to a provider of physical, occupational, and speech therapy for children (hereinafter “Children’s”). Underwriters agreed in their policy to defend Children’s against any claim or suit arising from “any act, error or omission in the rendering of, or failure to render Professional Services . . . to others by any Insured person.” The Policy defined professional services as “pediatric physical, occupational, aquatic and speech therapy Services.”

In addition to E&O coverage, Children’s also purchased specialty healthcare coverage in the form of a “billing errors endorsement” (the “Endorsement”).  The Endorsement provided up to $25,000 of coverage for “any billing error proceeding made against an Insured” during the one year Endorsement Period beginning April 15, 2015. 

On June 30, 2015, Children’s received notice of a qui tam action filed against it alleging that it violated the FCA by allegedly billing Medicaid for therapy services that were not medically necessary.  Children’s timely submitted a claim to Underwriters seeking coverage for the costs to defend the action and indemnification for potential damages. 
Underwriters denied E&O coverage, but agreed, subject to a reservation of rights, to provide Children’s a defense under the Endorsement. Given that $25,000 would not begin to cover the cost of defending the FCA suit, Children’s filed a declaratory judgment action challenging Underwriters’ denial of coverage. Children’s argued that the Endorsement provided coverage, that such coverage was not subject to a $25,000 limit, and that Children’s was entitled to $2,000,000 of coverage.

Underwriters countered that the FCA action did not trigger coverage under the Endorsement because the qui tam had been filed on October 28, 2014, and thus was pending prior to the Endorsement’s April 15, 2015 initial effective date.

The Court found that the Endorsement did provide Children’s coverage against the qui tam. Qui tam lawsuits under the FCA, the Court observed, have a “unique procedural status” and often remain under seal for months after being filed. Id. at 1173. The Court explained that, “it is commonly understood that a qui tam suit under the FCA becomes active once the defendant has notice of the lawsuit and that notice most often occurs at the time of service.”  Id. (citing 31 U.S.C.3730(b)(3)). Thus, in determining whether the action was pending on or prior to the initial effective date of the Endorsement, the Court utilized the date the qui tam became active, i.e., the date that Children’s received notice of it, not the date when the relator first filed it under seal. Because Children’s did not learn of the qui tam until June 30, 2015, the Court found that it fell with the coverage period of the Endorsement. The Court noted further that it was “not subject to dispute” that the qui tam qualified as a dispute over “billing errors” which was also within the scope of the Endorsement. Id. at 1173. 

Though it found coverage, the Court also found that coverage was limited based on the Endorsement’s clear language that “a sub-limit of liability of $25,000 . . . applies to any billing error proceeding.” Thus, Underwriters were required to provide Children’s with a maximum of $25,000 in coverage, leaving Children’s to go out of pocket for the remainder of what will likely be a very costly defense and settlement. 

My Left Foot demonstrates the limitations with some specialty healthcare policies, and it presents three takeaways for any healthcare provider concerned with managing the risk associated with a FCA investigation. First, a healthcare provider concerned with such risks should examine its existing E&O policy, paying particular attention to how the company’s professional services are described in the policy declarations and how the policy defines “professional services,” in order to determine whether that definition would encompass allegations of billing errors. If the policy language does not encompass such allegations, the provider may wish to purchase additional coverage, such as a billing errors endorsement.  Second, if a healthcare provider currently has specialty healthcare coverage purporting to cover FCA claims, the provider should review any sublimits contained therein and assess whether they are sufficient to indemnify the insured for the cost to defend and settle an FCA suit. Third, if a provider has to make a claim under such a policy, it should bear in mind that in determining whether a FCA action arose during the policy period of a professional liability policy (and thereby triggered coverage), courts are likely to use the date that the provider received notice of the qui tam action as opposed to the date the action was filed under seal.  

Author:  Nathan Huff
Editor:  A. Brian Albritton
June 15, 2017

Thursday, June 1, 2017

What Have You Done For Me Today: Government Prevents Relator from Intervening in False Claims Act Case That Was Based in Part on Relator's Prior Qui Tam

Can an unsuccessful qui tam False Claim Act (FCA) relator intervene in lawsuit later filed by the United States if the claims in the United States’ lawsuit mirror the allegations first made by the relator? The Ninth Circuit Court of Appeals recently addressed this issue and said no, rejecting a relator’s attempt to salvage an FCA recovery after the district court had previously dismissed his qui tam claims. See U.S. v. Sprint Comm. (Prather), --- F.3d ---, 2017 WL 1526316 (9th Cir. Apr. 28, 2017).    

In 2009, relator John Prather filed a qui tam FCA lawsuit alleging that Sprint (and others) overcharged the United States for wiretapping services. United States ex rel. Prather v. ATT, et al., Case No. 09-cv-02457 (N.D. Ca.), ECF No. 1. The Government declined to intervene (Id. at ECF No. 15), and the district court ultimately dismissed relator’s claim, finding that he based his lawsuit on publicly disclosed information and did not qualify as an original source.  Id. at ECF No. 159.

Relator appealed and in 2014, while that appeal was pending, the United States filed its own FCA lawsuit against Sprint. United States v. Sprint Comm., Case No. 14-cv-02457 (N.D. Ca.), ECF No. 1. Like the relator, the United States alleged that Sprint had overcharged the United States for wiretapping services. To his chagrin, the relator learned that the Assistant U.S. Attorney that filed the claim on behalf of the United States was actively involved in the investigation of his underlying action and the United States’ decision not to intervene in his qui tam case. Id. at ECF No. 191.
Relator then moved to intervene in the United States’ new FCA lawsuit, arguing that it amounted to an “alternate remedy” that the United States sought in lieu of intervening in his own lawsuit. Under this theory, relator argued that he should recover between 15% - 25% of the United States’ recovery—the same amount he could have recovered had the United States intervened in his qui tam. See 31 U.S.C. § 3730(c)(5) (granting a relator the right to share in the recovery if the United States elects to pursue its claim through any “alternate remedy”). The district court denied relator’s motion to intervene because his own FCA lawsuit had already been dismissed.
On appeal, the Ninth Circuit zeroed in on whether the relator had the “significantly protectable interest” required to intervene under Rule 26. U.S. v. Sprint Comm. (Prather), --- F.3d ---, 2017 WL 1526316 (9th Cir. Apr. 28, 2017). To make this call, the Court set out to determine whether the relator could have recovered had the United States intervened in his qui tam lawsuit. Id. at **4-5.  If he could have recovered, then he had a protectable interest warranting intervention. Id. If he could not have recovered, the district court’s decision to deny intervention was correct. Id.
Ultimately, the Ninth Circuit found that the relator could not have recovered in his qui tam lawsuit even if the United States had intervened. Id. at *7. Relying in large part on Rockwell Int’l Corp. v.  United States, 549 U.S. 457 (2007), the court held that the pre-2010 public disclosure bar jurisdictionally barred by the relator's claim. Id. at *6. Under Rockwell, even if the United States had intervened in relator's lawsuit, that would not have cured the jurisdictional defect, and relator’s lawsuit “would have become an action brought by the Attorney General.” Id. Because the Ninth Circuit held that the relator could not have recovered even if the United States had intervened, he had no protectable financial interest in the United States’ subsequent suit that would warrant intervention.  

In any future case where the defense can plausibly raise the public disclosure bar, Prather will empower the Government to wait and see how the public disclosure defense plays out before intervening. If the public disclosure bar applies, the Government can simply await dismissal and then file a new lawsuit with the same allegations. And the Government can do so safe in the knowledge that the new lawsuit will not be deemed an “alternate remedy” under the FCA, potentially entitling the relator to a portion of the recovery. Although Prather ultimately may have little impact to the FCA defense bar, it will certainly create issues for relators and the Government to consider when the Government weighs its intervention options.

Author:  Scott Terry
Editor:  A. Brian Albritton
June 1, 2017