Alex Hontos

The Justice Department announced in a recent press release that it obtained more than $2.8 billion in settlements and judgments from cases involving fraud and false claims against the government. The vast majority of this amount—$2.1 billion—came from lawsuits filed by whistleblowers, or “relators” suing on behalf of the government, under the qui tam provisions of the False Claim Act (“FCA”). Included in the qui tam recoveries was $5 million from former professional cyclist and seven-time Tour de France winner, Lance Armstrong, which he paid to resolve a lawsuit alleging his admitted use of performance enhancing drugs resulted in the submission of millions of dollars in false claims to the United States Postal Service for sponsorship payments. Altogether, qui tam actions in FY2018 generated over 70% of the recoveries and represented over 80% of new cases (645 out of 767). The Department’s historical statistics show that qui tam actions, in fact, have consistently accounted for the substantial majority of settlements and new cases since 1986 when Congress increased the incentives for whistleblowers. Will 2019 show continued reliance on qui tam actions?  As reported earlier this year, the nominee to be the next Attorney General of the United States, Bill Barr, has expressed skepticism regarding the constitutionality of the FCA’s qui tam provision. Given the Department’s continued success in recouping large settlements and deterring future misconduct through qui tam actions, however, it may prove difficult to suddenly reverse the Department’s traditional reliance on such actions. In the press release announcing the FY2018 statistics, Assistant Attorney General for the Civil Division Jody Hunt voiced strong support for qui tam plaintiffs, saying: “Whistleblowers have played a vital role in unmasking fraudulent schemes that might otherwise evade detection. The Taxpayers owe a debt of gratitude to those who often put much on the line to expose such schemes.” Whether the Department continues to rely heavily on qui tam actions, there is no doubt the Department will continue to prosecute FCA cases in 2019. And although the FY2018 statistics demonstrate FCA actions may cover just about anything—even qui tam against former Tour de France winners—they are more likely to involve highly scrutinized fields such as healthcare and defense. Nearly 90% of 2018 FCA recoveries involved the healthcare industry, and 2018 marked the ninth consecutive year that recoveries from the healthcare industry exceeded $2 billion. Thus, all companies and professionals, but particularly those operating in the healthcare industry, must remain vigilant to protect against such claims, and would be well-advised to bolster compliance programs to ensure the integrity of claims submitted to the government. Or, as Armstrong’s many yellow jerseys perhaps should have suggested:  proceed with caution.

In recent weeks, the United States Department of Justice (“DOJ”) issued two memoranda that might change the calculus of False Claims Act (“FCA”) cases.  The memoranda at a minimum provide organizations with new—or at least invigorated—defenses to qui tam actions and civil enforcement matters. First, on January 10, Michael Granston, Director of DOJ’s Civil Frauds section, issued a memorandum encouraging DOJ trial attorneys to consider dismissing unmeritorious qui tam cases (even over the objection of the relator).  The DOJ’s authority to dismiss FCA cases has long been built directly into the governing statute, 31 U.S.C. § 3730(c)(2)(A), which provides that: The Government may dismiss the action notwithstanding the objections of the person initiating the action if the person has been notified by the Government of the filing of the motion and the court has provided the person with an opportunity for a hearing on the motion. In practice, DOJ trial attorneys rarely use this power, preferring to allow qui tam cases they declined to intervene in to continue being prosecuted by the relator.  The Granston Memo encourages a shift in practice by suggesting that DOJ attorneys should dismiss qui tam cases that lack substantial merit.  Meritless qui tam cases drain limited government resources and may “generate adverse decisions that may affect the government’s ability to enforce the FCA.”  To aid in determining whether a DOJ attorney should seek dismissal of a declined qui tam action, the Granston Memo sets forth seven factors, including curbing parasitic qui tams and preserving government resources. Second, on January 25, the Associate Attorney General (“AAG”) issued a memorandum prohibiting reliance on government agency “guidance documents” as a basis for liability in DOJ affirmative civil enforcement matters—including FCA cases.  Such “guidance documents” include all non-statutory or regulatory documents that purport to advise the public of legal rights or obligations, as are commonly issued by agencies like the US Environmental Protection Agency and the Department of Health and Human Services.  The memo advises DOJ litigators that because “[g]uidance documents cannot create binding requirements that do not already exist by statute or regulation . . . [DOJ] litigators may not use noncompliance with guidance documents as a basis for proving violations of applicable law.”  The AAG's memo acknowledges that sub-regulatory guidance serves a valuable function, and does not likely presage a government-wide change in agency’s use of such documents.  But FCA matters—qui tam or otherwise—that are built on such sub-regulatory guidance are on shakier ground. These memoranda create interesting implications for FCA cases.  First, the AAG’s memo narrows potential FCA liability by excluding a wide range of agency documents from being the basis of FCA violations.  The AAG’s memo also raises interesting questions about what agency materials might be evidence of “materiality,” particularly after the Supreme Court’s recent Escobar decision.  Second, although the authority of the DOJ to dismiss qui tam actions has not changed, the government may be newly receptive to arguments for the dismissal of plainly deficient qui tam cases.  The memo thus presents an opportunity for legal counsel to affirmatively seek dismissal of a weak FCA case—a move that could potentially save the accused violator the time and expense of otherwise defending against the case. The two memoranda are available here and here.

Under 42 U.S.C. § 1320a-7b(b)(1)(A) it is a felony for a physician to solicit or receive a kickback “in return for referring” a Medicaid or Medicare patient to another medical provider. But as a recent decision by the Eighth Circuit in United States v. Iqbal demonstrates, physicians are not the only ones capable of making illegal referrals under the statute—consultants can, too. Defendant Iqbal was a consultant that managed a group of physicians. He approached a medical provider (“PCP,” a home care agency) with a profit-splitting scheme: he would send physicians’ patients to PCP in exchange for fifty-percent of PCP’s profits for serving the patient. PCP contacted authorities about the scheme and thereafter accepted Iqbal’s proposal while working undercover with authorities. The sting operation resulted, at first, in a March 2011 meeting between Iqbal and PCP. At that meeting Iqbal touted his strong relationship with the group of physicians and his ability to refer their patients to PCP, and reiterated his fifty-fifty profit sharing scheme to which PCP agreed. Iqbal’s physicians later referred two patients to PCP, which PCP served and received Medicaid and Medicare reimbursement. PCP sent Iqbal separate payments in June and August for his fifty-percent share of the profits that PCP made from serving the two patients. Iqbal was charged with three counts of illegal kickbacks: One, for soliciting illegal kickbacks during his March 2011 meeting with PCP; Two, for receiving an illegal kickback in June; and Three, for receiving an illegal kickback in August. All three counts were “in return for referring” patients to PCP under § 1320a-7b(b)(1)(A). Iqbal challenged the sufficiency of the evidence, and conceded that the statutory phrase “in return for referring” meant that one must cause or induce the referral. The two-judge majority willingly assumed as much, declined to interpret the statute any narrower, and found the evidence sufficient to affirm his convictions. Although the majority’s reasoning was not surprising, Judge Kelly in a partial dissent and concurrence took up the task of interpreting the statutory phrase, “in return for referring.” The Eighth Circuit had not previously defined the term. Judge Kelly relied on cases from other circuits in similar contexts to adopt the interpretation “that a person refers an individual for a service only when, as a practical matter, the person exercises decision-making control over the selection of the service provider.” As a result, Judge Kelly utilized a narrower definition than Iqbal and the majority. Under that definition, Judge Kelly found insufficient evidence to affirm Iqbal’s convictions for receiving a kickback for referring the two patients, because the government failed to show that Iqbal exercised decision-making control over the physicians’ referrals. Judge Kelly, however, affirmed Iqbal’s conviction for soliciting a kickback during his March meeting with PCP because Iqbal held himself out to PCP as having the ability to make the referrals, regardless of his actual ability to do so. So physicians, consultants, and everyone in between dealing with Medicaid and Medicare patients should keep in mind that while decision-making control over a referral is likely necessary evidence to prove a “referral” in return for an illegal kickback, solicitations do not require such decision-making control. All that is required is representing that one has the ability to do so.

In the most recent example of its continued effort to hold individuals accountable for corporate misconduct, the U.S. Department of Justice (“DOJ”) announced on September 27, 2016, that the former CEO of Tuomey Healthcare System has agreed to pay $1 million to settle claims arising from his involvement in the hospital’s violations of the Stark Law.  In addition to the $1 million civil fine, the CEO is also excluded for four years from participating in any federal health care programs, including providing management or administrative services that are paid in part by federal health care programs. The underlying corporate misconduct related to violations of the Stark law, which prohibits hospitals from billing Medicare for certain services that have been referred by physicians with whom the hospital has an improper financial relationship.  A whistleblower sued Tuomey in 2005 alleging that certain physician contracts and payments violated the Stark Law, causing the hospital to submit false claims for payment to Medicare in violation of the False Claims Act (“FCA”).  After years of litigation, a jury in a 2013 retrial found that Tuomey had violated both the FCA and the Stark Law. The jury also found that Tuomey had filed more than 21,000 false claims with Medicare.  The trial court entered an order requiring Tuomey to pay $237.4 million. That judgment was later affirmed by the United States Court of Appeals for the Fourth Circuit.  On October 16, 2015, Tuomey and the government agreed to a settlement for $72.4 million, and the hospital was sold to Palmetto Health, a multi-hospital health care system based in Columbia, SC. The government alleged that the CEO had caused Tuomey to enter into the contracts with 19 specialist physicians because he was concerned that Tuomey could lose lucrative outpatient procedure referrals to a new freestanding surgery center.  The government also argued that the CEO ignored and suppressed warnings from one of Tuomey’s attorneys that the contracts were “risky” and raised “red flags.” In 2013, the CEO was fired by Tuomey’s Board of Directors. The settlement reflects the government’s increased emphasis on holding individuals accountable for corporate behavior, and comes just a little over a year after the DOJ Deputy General Sally Yates issued a memo that refocused government law enforcement inquiries on individual misconduct.  The Yates memo begins by proclaiming that “One of the most effective ways to combat corporate misconduct is by seeking accountability from the individuals who perpetrated the wrongdoing . . . [accountability] deters future illegal activity, incentivizes changes in corporate behavior . . . and promotes the public’s confidence in our justice system.”  That sentiment is reflected in the DOJ Press Release announcing the settlement, which states “Today’s settlement demonstrates that the Justice Department and its law enforcement partners will hold individual decision makers accountable for their involvement in causing the companies and facilities they run to engage in unlawful activities.” A copy of the DOJ Press Release is available here: https://www.justice.gov/opa/pr/former-chief-executive-south-carolina-hospital-pays-1-million-and-agrees-exclusion-settle