Healthcare Enforcement & Compliance

Earlier this month, the U.S. Court of Appeals for the First Circuit overturned its own precedent to hold the FCA’s first-to-file rule is “non-jurisdictional.” In so doing, the First Circuit flipped the district court’s award of $34 million from one whistleblower to another. United States v. Millenium Labs., Inc., No. 17-1106, 2019 U.S. App. LEXIS 13506 (1st Cir. May 6, 2019). The appeal arises out of the government’s successful intervention in and settlement of several qui tam suits against drug-testing giant Millennium Health for $227 million. Fifteen percent of the settlement, totaling just over $34 million, was set aside for the relator’s share under the FCA. While the FCA encourages such qui tam suits by permitting relators to share in any recovery obtained by the government, the statute’s “first-to-file” rule ensures that the potential payout is not diluted by prohibiting relators other than the first from bringing a related action and sharing in the recovery. The first-to-file rule specifically states that “[w]hen a person brings an action [under the FCA], no person other than the Government may intervene or bring a related action based on the facts underlying the pending action.” 31 U.S.C. § 3730(b)(5). The First Circuit had to address whether Mark McGuire or Robert Cunningham—both of whom had filed related qui tams against Millennium Health—was the first-to-file relator. McGuire, who had filed his qui tam after Cunningham, brought a claim for declaratory judgment that he was the first to file. Cunningham moved to dismiss the claim under Rule 12(b)(1), arguing that because he filed his complaint first in time the district court lacked subject matter jurisdiction to consider McGuire’s claim. Under existing First Circuit precedent, the district court addressed the “first-to-file” question as “jurisdictional,” and therefore looked beyond the pleadings to consider extrinsic evidence on the question of whether Cunningham truly was the first to provide sufficient notice to the government that it was a victim of the alleged fraud. After considering such evidence, the district court found that Cunningham was the first to file and, therefore, that McGuire’s claim was barred. On appeal, however, the First Circuit relied on “new developments,” including the Supreme Court’s decision in Kellogg Brown & Root Services, Inc. v. United States ex rel. Carter, 135 S. Ct. 1970 (2015), to overturn its precedent and join the D.C. and Second Circuits in holding that the first-to-file rule is “non-jurisdictional.” As a result, the First Circuit parted company with the Fourth Circuit’s decision post-Carter that maintained the first-to-file rule as jurisdictional, flagging a circuit split that may ultimately require clarification by the Supreme Court. The First Circuit’s reversal of its own precedent was critical because it meant its analysis of the first-to-file rule was limited to the allegations in the pleadings under a Rule 12(b)(6) analysis. Analyzing only the facts alleged within the four corners of the complaints, the First Circuit determined McGuire was the first-to-file relator because Cunningham’s general allegations did not include the “essential facts” of the fraud McGuire alleged, which was the fraud that the government ultimately pursued. The First Circuit reiterated that mere notice – particularly of a different fraud than the government chose to pursue – is not sufficient; the first-to-file complaint must contain all the essential facts of the fraud it alleges.

On May 13, 2019, the U.S. Supreme Court decided Cochise Consultancy, Inc. v. United States ex rel. Hunt, No. 18–325, and resolved a circuit split regarding the statute of limitations for an FCA claim brought by a relator between six and ten years after a violation, but less than three years after the government knew or should have known the relevant facts. The Court held that relators can invoke a statute that tolls the usual six-year FCA statute of limitations to permit suit until up to three years “after the date when facts material to the right of action are known or reasonably known to the official of the United States charged with responsibility to act in the circumstances, but in no event more than 10 years after the date on which the violation is committed.”  31 U.S.C. § 3731(b).  In doing so, the Court settled the debate about whether a relator can claim the benefit of this tolling provision even when the government declines to intervene and the relator knew of the alleged violation before the usual six-year statute of limitations expires. The Court held a relator can. Relator Billy Joe Hunt worked for a defense contractor in Iraq tasked with cleaning up excess munitions left behind by enemy forces. Hunt alleged that the contractor and others defrauded the United States through a scheme designed to award a security subcontract to a higher priced contractor than the lowest qualified bidder. As a result of the alleged scheme, Hunt claimed that the United States paid for the higher priced services through September 2006. On November 30, 2010, Hunt reported the alleged fraud to FBI agents investigating a separate kickback scheme. On November 27, 2013, Hunt filed a sealed complaint alleging FCA claims against the contractors in federal court in Alabama. The government declined to intervene, and the contractors moved to dismiss the claims as time-barred under the six-year statute of limitations period in 31 U.S.C. § 3731(b)(1). The district court dismissed the claims, but the U.S. Court of Appeals for the Eleventh Circuit reversed, finding that Section 3731(b)(2) tolled the statute of limitations until three years after the United States became aware of the alleged scheme. The Supreme Court agreed to review the decision to resolve a split among the circuit courts about how to apply the tolling provision. The Court agreed that Hunt was entitled to invoke the three-year tolling provision under Section 3137(b)(2), even though the government declined to intervene and Hunt knew of the alleged fraud well before disclosing the scheme to the FBI in 2010. The Court reasoned the text of the statute does not support the contractors’ theories that the United States should have to intervene before the tolling provision applied or that a private relator could himself be “the official” whose knowledge begins the three-year tolling period. Although the Court was not enamored with the text of Section 3731(b)(2)—Justice Alito called the FCA “a terribly drafted statute” at oral argument—the justices unanimously agreed it could only be read one way. This decision creates an anomaly in the world of tolling provisions—typically, plaintiffs can claim the benefit of a tolling provision only when they personally did not know they had a potential claim. Not so in FCA cases. Rather, Cochise makes clear that an FCA relator can bring an otherwise time-barred claim that the realtor has long known about if a third party (“the official of the United States”) did not know the claim existed until a later date. This is what the Court decided Congress envisioned when it wrote the statute. After all, in an FCA suit, the United States is always the beneficiary of more than half of any settlement or judgment proceeds. The United States has the authority to move to dismiss an FCA suit, even when it did not intervene, and its consent is always required to settle an FCA suit. Given this unique role, the Court decided it was not illogical to follow the plain meaning of the statutory text and extend to relators tolling rights that depend on the knowledge of the United States. The implications for government contractors and others subject to the FCA are clear: First, relators now have more time—as many as four more years—to bring FCA claims. Second, because claims brought by private relators are initially sealed while the government decides whether to intervene—a process that can itself take years—a government contractor may not learn of a timely-filed complaint until more than ten years after the alleged violation. Third, government recoveries in declined qui tam actions may trend upward, given that there is now a broader universe of conduct that could be encompassed by a relator’s complaint. Fourth, government contractors may want to evaluate their document-retention policies to retain documentation related to government claims until ten years—or more—have elapsed. Burdensome though this may be, it might assist contractors defend themselves against the aged FCA claims made possible by the Court’s interpretation of the statute.

On April 12, 2019, the U.S. Department of Justice announced Sutter Health LLC—along with its affiliates Sutter East Bay Medical Foundation, Sutter Pacific Medical Foundation, Sutter Gould Medical Foundation, and Sutter Medical Foundation—would pay $30 million to settle allegations they provided inaccurate information about Medicare Advantage Plan beneficiaries in order to receive inflated payments. The settlement stems from a coordinated effort between the U.S. Department of Health and the Department of Justice to combat waste, fraud, and abuse in health care. Approximately one third of Medicare recipients are enrolled in managed care “Medicare Advantage” plans, which are run by Medicare Advantage Organizations. Under Medicare Advantage plans, the federal government pays Medicare Advantage Organizations a monthly fee per enrollee (“capitation”), instead of paying the care provider on a fee-for-service basis. The federal government does not pay a flat per-beneficiary fee; instead it adjusts capitation payments based on beneficiaries’ “risk scores.” Risk scores are informed by patient diagnostics and reflect the relative cost and complexity of beneficiaries’ medical needs. Medicare Advantage Organizations receive bigger capitation payments for beneficiaries who have higher risk scores. Sutter Health was not a Medicare Advantage Organization. Instead, it was a healthcare service provider, which contracted with several Medicare Advantage Organizations to provide care to certain Medicare Advantage Plans’ enrollees. In exchange, Sutter received a share of the Medicare Advantage Organizations’ federal capitation payments. Justice and the Centers for Medicare and Medicaid Services alleged the federal government overpaid for capitation payments. The government claimed Sutter Health based capitation payments upon inflated diagnostic codes that the Medicare Advantage Organizations fraudulently submitted to the federal government. With its $30 million payment, Sutter Health settles allegations that it reported inflated and unsubstantiated diagnoses and procedures to the Medicare Advantage Organizations for the patients it treated, thus settling its alleged role in the overpayments. In March of this year, DOJ filed a complaint alleging substantially similar conduct against Sutter Health et al. after intervening in a separate qui tam suit. See United States ex rel. Ormsby v. Sutter Health, et al., Case No. 15-CV-01062-JD (N.D. Cal.). That suit remains ongoing.

Last week, the U.S. Court of Appeals for the Fifth Circuit considered an appeal from the Eastern District of Louisiana, which dismissed appellants’ FCA retaliation claims based on res judicata. Res judicata, or “claim preclusion,” is the principle that a matter may not be re-litigated once it has been decided on the merits. Appellants had previously brought employment discrimination actions against Lockheed Martin alleging they were wrongfully terminated because of their race. Both actions were decided in favor of Lockheed at summary judgment. See Javery v. Lockheed Martin Corp., No. 14-2644, 2016 U.S. Dist. LEXIS 55475 (E.D. La. Apr. 26 , 2016); DeJan v. Lockheed Martin Corp., No. 14-2731, 2016 U.S. Dist. LEXIS 37894 (E.D. La. Mar. 23, 2016). While their employment discrimination actions were pending, appellants filed an FCA retaliation suit against Lockheed alleging they were terminated for engaging in “protected activity.” Lockheed moved for summary judgment based on res judicata, asserting the claims arose out of the same facts that gave rise to the prior final judgments on the plaintiffs’ discrimination claims. The district court agreed and granted summary judgment in favor of Lockheed. Javery v. Lockheed Martin Corp., No. 17-5106, 2018 U.S. Dist. LEXIS 143447 (E.D. La. Aug. 23, 2018). On appeal, appellants argued the district court incorrectly applied the “transactional” test and asked the Fifth Circuit to instead determine “whether the primary right and duty or wrong are the same in each action.” In an unpublished decision, the Court of Appeals rejected appellants’ argument and confirmed that the appropriate test in the Fifth Circuit for purposes of res judicata is the “transactional” test, which asks whether the claims in the second action arise out of the “same nucleus of operative facts” as the previous action. Javery v. Lockheed Martin Corp., No. 18-31049, 2019 U.S. App. LEXIS 11305 (5th Cir. Apr. 18, 2019). This decision serves as a warning to plaintiffs who attempt two bites at the apple under different legal theories. Had the purported whistleblowers included their FCA retaliation claims in the original lawsuit, they may have had their claims decided on the merits.

On Tuesday, March 19, the Supreme Court considered whether to extend the FCA’s alternate 10-year statute of limitations to cases in which the government does not intervene.   The case, Cochise Consultancy Inc. v. United States, ex rel. Hunt, involves a whistleblower’s qui tam action alleging that two defense contractors defrauded the government. The case centers on the FCA’s two statutes of limitations. One allows lawsuits to be filed within six years of the alleged fraud. 31 U.S.C. § 3731(b)(1). The other allows lawsuits to be filed three years after the federal government knows of facts “material to the right of action,” but never more than 10 years after the alleged fraud. 31 U.S.C. § 3731(b)(2). In Cochise, the relator filed his complaint in 2013, more than six after the alleged fraud, which took place in 2006 and 2007. The relator argued that his complaint was timely under the 10-year limitations period of § 3731(b)(2) because he filed it within three years after the FBI learned of the fraud in 2010. It was undisputed that if the government had intervened, the 10-year limitations period would have applied.   At issue was whether that period can apply in cases where, as in Cochise, the government does not intervene. The Fourth and Tenth Circuits had previously ruled that it could not, but the Eleventh Circuit created a split when it ruled—in the decision on appeal in Cochise, and as previously reported by this blog here—that that period could apply to cases in which the government is not a party. At Tuesday’s argument, defense contractors’ counsel argued that extending the 10-year limitations period would result in increased claims, impose higher evidentiary burdens, and allow relators to “wait in the weeds” while developing their cases. But relator’s counsel argued that, in practice, relators have a strong incentive to file as soon as possible, because otherwise the potential plaintiff risks their claim being dismissed under the “first to file bar,” which is intended to avoid duplicative FCA litigation by prohibiting subsequent FCA actions based upon the same essential facts as a previously filed qui tam action. The Solicitor General’s Office also argued the relator’s position was consistent with the FCA’s purpose because “the majority of any recovery would go to the United States” even where the government does not intervene. Although it is difficult to predict the Court’s decision based on oral argument, it seems at least possible that the Court will extend the FCA’s 10-year statute of limitations to cases where the government does not intervene. That result would likely increase risk and costs for defendants facing FCA claims.  

Within the last five years, district courts in the Seventh Circuit have repeatedly denied motions to dismiss qui tam lawsuits brought under the FCA that allege a scheme to defraud government health programs by reporting inflated “usual and customary” prices for prescription drugs. By contrast, at least one district court in the Sixth Circuit recently granted such a motion under Rule 9(b). On March 7, 2019, a district court in the Tenth Circuit—considering similar prescription drug allegations for the first time—sided with the Seventh Circuit and denied defendants’ motion to dismiss plaintiffs’ FCA claims. In United States ex rel. Strauser v. Stephen L. LaFrance Holdings Inc., plaintiffs allege that between 2008 and 2012, defendants charged cash-paying customers four dollars for a thirty-day supply of any one of more than 300 commonly prescribed generic medications. Unlike cash-paying customers, plaintiffs allege that defendants charged Medicaid beneficiaries a higher price for the same drugs and reported that higher price as the “usual and customary charge to the general public” for purposes of receiving Medicaid reimbursement. Because Medicaid bases its payments on the so-called usual and customary prices reported by the pharmacies, plaintiffs allege that defendants did not extend the same four-dollar discount pricing to Medicaid in an effort to increase their reimbursement. In their complaint, Plaintiffs allege that defendants’ practices constituted fraudulent claims for payment under the FCA because it was understood throughout the pharmacy industry that “usual and customary charge” referred to the amount a pharmacy charged cash-paying customers. Plaintiffs also allege that defendants attempted to avoid detection by not advertising the four-dollar generic pricing in the media or through brochures, signs, or other promotional materials. Defendants moved to dismiss plaintiffs’ FCA claims by arguing, among other things, that plaintiffs failed to plead scienter with sufficient particularity. Defendants argued that the relevant FCA provisions—i.e., 31 U.S.C. § 3729(a)(1)(A), (B), and (G)—apply only to persons who act “knowingly.” Defendants argued that they could not have acted knowingly because excluding discount pricing of generic drugs from the usual and customary charges “was a reasonable interpretation of [an] ambiguous legal framework and not clearly proscribed by law.” The court found defendants argument unpersuasive. The court noted that defendants’ argument was “in tension with the plain meaning of the words ‘usual and customary,’” as well as plaintiffs’ allegation that the phrase is understood throughout the pharmacy industry to refer to the amount a pharmacy charges cash-paying customers. The court’s decision is notable in that expands the Seventh Circuit’s general acceptance of FCA claims regarding “usual and customary” prices for prescription drugs to a different jurisdiction. The court’s decision also serves as yet another win for whistleblowers complaining of fraudulent prescription drug practices and prices. The decision is found at: United States ex rel. Strauser v. Stephen L. LaGrance Holdings, Inc., 2019 U.S. Dist. LEXIS 36385 (N.D. Okla. Mar. 7, 2019).

Seven years after filing their initial complaint, a Montana federal court ruled that plaintiffs’ FCA action—at least on some claims and against some defendants—may finally proceed. Cain v. Salish Kootenai Coll., Inc., No. CV-12-181-M-BMM, 2019 U.S. Dist. LEXIS 26955 (D. Mont. Feb. 20, 2019). In 2012, plaintiffs, as relators in a qui tam action, alleged that a tribal college, its board of directors, and various employees violated the FCA by submitting falsified student grades, retention data, and other records to the Department of Health and Human Services (“DHS”) and the Indian Health Service in order to receive federal education grants. The district court twice dismissed the FCA claims against Salish Kootenai College—before and after an appeal to the Ninth Circuit—finding that the tribal college was an extension of the sovereign tribe, and therefore not a “person” subject to the FCA. The court also dismissed plaintiffs’ claims against the individual defendants without prejudice, finding that plaintiffs had failed to satisfy Rule 9(b)’s heightened pleading requirements. Plaintiffs filed an amended complaint against the several defendants, which “repeat[ed] multiple paragraphs and insert[ed] a separate name into each allegation” to demonstrate each defendant’s alleged involvement with the false representations made to the DHS and Indian Health Service. Defendants again moved to dismiss, arguing that: (1) they could not be sued for conduct related to their official capacities; and (2) plaintiffs’ repetitive fraud allegations still failed to meet Rule 9(b)’s particularized pleading requirements with respect to each individual defendant. The court first concluded that, like federal employees sued in their personal capacities, tribal employees cannot hide behind the sovereign immunity of their employer to shield themselves from personal liability “for their alleged fraudulent conduct arising out of actions they took in their official capacities.” The court then held that plaintiffs’ repetitive, fill-in-the-defendant pleading style satisfied Rule 9(b) because: The crux of the Amended Complaint, and what likely saves it, is that Plaintiffs allege that Individual Defendants all acted in similar manners, all had similar involvements, and were all warned by Plaintiffs. The collective warning implies that the Individual Defendants’ [sic] possessed collective knowledge, collectively acted, and collectively omitted specific information in the applications submitted that gave rise to the alleged fraud against the United States Government. Combined with allegations that each defendant was involved in two different fraudulent schemes, details of which were described within the amended complaint to answer the who, what, when, where, and how of the scheme, the court found that the redundant pleading satisfied Rule 9(b)’s particularity requirements and denied the defendants’ motion to dismiss. The Montana federal court’s decision is notable for at least two reasons. First, it holds, under these particular alleged facts, that tribal employees can be sued in their individual capacities for violations of the FCA. Second, it permits repetitive, fill-in-the-defendant-style pleadings and allegations of “collective knowledge” to satisfy Rule 9(b)’s heightened pleading standard, even as to individual defendants sued in their personal capacities, where the allegations of the fraudulent schemes are sufficiently detailed. As the court recognized, “the practice does not constitute a failure per se,” so long as the allegations sufficiently state the “who, what, when, where, and how” to meet the particularized pleading requirements of Rule 9(b).

This month the Department of Justice brought a “first of its kind” action against two pharmacies, their owner, and three pharmacists for allegedly dispensing and billing Medicare for prescriptions in violation of both the Controlled Substances Act (CSA) and the False Claims Act (FCA).  See United States v. Oakley Pharmacy, Inc., et al., No. 2:19-cv-00009 (M.D. Tenn).  The action, seeking both injunctive relief and civil monetary penalties, is a coordinated effort by the Department’s Prescription Interdiction & Litigation (PIL) Task Force, which is committed to using “all available . . . tools,” including the FCA, “to reverse the tide of opioid overdoses in the United States.”  In August 2018, the Department filed its first civil action under the CSA and FCA enjoining prescribers from “recklessly and unnecessarily distribut[ing] painkillers and other drugs.”  It is now clear that the Department will also target the pharmacies that fill illegitimate prescriptions, and that pharmacists can no longer claim they are following “doctor’s orders” to avoid enforcement action. The action alleges that several pharmacies, their owner, and several pharmacists (collectively “Defendants”) knowingly dispensed controlled substances without a valid prescription in violation of 21 U.S.C. § 842(a)(1); knowingly and intentionally distributed and dispensed controlled substances outside the usual course of the professional practice of pharmacy, in violation of 21 U.S.C. § 841(a); and billed Medicare programs to pay for controlled substances that were not used for a medically accepted indication and lacked a legitimate medical purpose in violation of the FCA,  31 U.S.C. 3729, et seq.  Controlled Substances Act Violations Under the CSA and implementing regulations, a prescription is legally valid only if it is issued for “a legitimate medical purpose by an individual practitioner acting in the usual course of his professional practice.”  21 C.F.R. § 1306.04(a).  Here, the Defendants allegedly dispensed prescriptions outside the usual course of professional practice and in violation of their responsibilities to ensure that prescriptions were issued for legitimate medical purposes. The Government alleges that a “pharmacist is required to refuse to fill a prescription if he or she knows or has reason to know that the prescription was not written for a legitimate medical purpose,” and has a corresponding legal duty to recognize “red flags” that raise a reasonable suspicion that a prescription for a controlled substance is not legitimate.  Defendants allegedly ignored “red flags” and warning signs of abuse, such as prescriptions for unusually high dosages of opioids, dangerous combinations of opioids and other controlled substances, and prescriptions from patients travelling long distances to have their prescriptions filled.  According to the Complaint, of the 68,000 community pharmacies in the United States, only three bought more opioid doses per capita than defendant Dale Hollow over the last three years. False Claims Act Violations The Government appears to assert an Escobar implied false certification theory under the False Claims Act.  In submitting claims for reimbursement for drugs dispensed to Medicare beneficiaries, pharmacists must certify compliance with all federal laws, regulations, and Centers for Medicare & Medicaid Services’ instructions, including the CSA.  Further, pharmacists must certify that the data determining payment is accurate, complete, and truthful to the best of their knowledge, and this certification is material to the Government’s payment decision.  42 C.F.R. § 423.505(k).  Claims for reimbursement that do not have a medically accepted indication do not contain accurate, complete and truthful information about the request for payment. The Government alleges that Defendants dispensed “scores of controlled substance prescriptions” that did not constitute valid prescriptions complying with federal and state law, and were not issued for a legitimate medical purpose or for a medically accepted indication.  Medicare does not cover drugs unless they have a medically accepted indication, are reasonable and necessary, and/or are issued for a legitimate medical purpose.  Had Medicare known the prescriptions were illegitimate and invalid, the Government argues, it would not have paid for the controlled substances medications.  Instead, from 2012 through 2018, Medicare paid one of the pharmacies over $1.4 million for controlled substances, over $1 million of which was for opioids alone. DOJ Enforcement Trends This action is the latest in a string of enforcement efforts by the Department to leverage existing tools to combat the prescription opioid crisis, which the Trump Administration declared a national public health emergency in 2017.  Since then-Attorney General Jeff Sessions announced the PIL task force in February 2018 (which itself is an outgrowth of the Opioid Fraud and Abuse Detection Unit), the Department has prioritized enforcement actions against opioid manufacturers, distributors, and prescribers, as opposed to opioid users.  At the Department’s National Opioid Summit in October, Deputy Attorney General Rod Rosenstein stressed that the Department would use “every tool – including both criminal and civil enforcement powers – [to] cut off the supply of pills from corrupt doctors and pharmacists.”  That effort is now clearly underway.

For those who pay close attention to FCA settlements, the January 22 press release from the United States Attorney for the Southern District of New York of a $60 million settlement against Walgreens related to its Prescription Savings Club (“PSC”) program should not come as a complete surprise. In an earlier press release, almost two years ago to the day, the Southern District of New York announced a $50 million settlement with Walgreens for paying kickbacks to induce beneficiaries of government healthcare programs under its PSC program to fill their prescriptions at Walgreens’ pharmacies. The prior 2017 action was filed by relator Marc D. Baker and then settled after the government intervened. But the 2017 settlement agreement did not release all claims, indicating the $50 million price tag was just a down payment for a final resolution down the road. The non-released claims, however, remained unknown because that portion of the agreement was redacted. Two years later, we finally know the claims plaintiffs’ reserved and what appears to be the resolution of Baker’s qui tam action against Walgreens. That is, to resolve Baker’s complaint against Walgreen’s PSC program, the Department of Justice announced a $60 million settlement with Walgreens, because Walgreens “submit[ed] claims to Medicaid programs of 39 states and the District of Columbia (collectively, “States”) in which the prices it identified as the usual and customary (“U&C”) prices for certain prescription drugs that it sold through the PSC program were higher than the prices it charged for those drugs pursuant to the PSC program and thereby . . . obtaining more money in reimbursements from the States’ Medicaid programs for sales of such drugs than it was entitled to receive.” This time the 2019 settlement agreement is unredacted, revealing the language—the last sentence of paragraph six in both agreements—that was presumably redacted in the 2017 agreement. Together, Walgreens will have paid $110 million in settlements as a result of Relator Baker’s claims. The saying goes that lightning never strikes the same place twice, but that’s not the case when a relator reserves claims in a settlement agreement. It just may take a while—in this case, two years—for the bolt to strike the second time.

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.

A divided panel of the U.S. Court of Appeals for the Sixth Circuit again revived an FCA suit against home-health services providers premised on the providers’ alleged improper procurement of physician medical necessity certifications supporting Medicare claims. In United States v. Brookdale Senior Living Communities, Inc., --- F.3d ----, 2018 WL 2770598 (6th Cir. June 11, 2018), a nurse alleged she was hired by several related companies that operate senior communities, assisted living facilities, and home health care providers. She claimed these providers sought to enroll as many of their assisted living facility residents in home health care services as possible but failed to keep up with submitting Medicare claims for those services. The nurse asserted she was hired to help clear a backlog of unsubmitted Medicare claims for which the providers had not compiled the appropriate documentation. One document she said was frequently missing was a physician’s certification that the services delivered were medically necessary. Federal regulations require that these physician certifications “be obtained at the time the plan of care is established or as soon thereafter as possible and must be signed and dated by the physician who establishes the plan.” 42 C.F.R. § 424.22(a)(2). The nurse accused the providers of failing to comply with this timing requirement and instead submitting claims without a certification or paying physicians to review outstanding claims and sign certifications long after the care occurred. This dispute has stretched over several years. The nurse filed her case in 2012. After the United States declined to intervene in 2014, the providers successfully moved to dismiss, but the Sixth Circuit reversed in 2016 before the Supreme Court’s decision in Universal Health Services., Inc. v. United States ex rel. Escobar, which clarified the materiality element of an FCA claim. In its 2016 decision, the Sixth Circuit held that submitting a Medicare claim based on a late physician certification is false if the length of the delay is not justified by the reasons the home-health agency provides for it. Following remand, the district court dismissed the nurse’s complaint again, concluding she failed to adequately plead materiality. She appealed. To create FCA liability, a defendant’s false statement to the government that the defendant complied with a statutory, regulatory, or contractual requirement must be material to the government’s decision to pay the claim the statement supports. In Escobar, the Supreme Court called this materiality requirement “demanding” and necessitating a “holistic” analysis, factors relevant to which include (1) whether the government expressly identified the requirement as a condition of payment, (2) whether the government consistently refuses to pay claims based on non-compliance with the requirement, and (3) whether the noncompliance is minor or goes “to the very essence of the bargain.” These factors are neither exhaustive nor dispositive. The Sixth Circuit first held that compliance with the timing requirement for physician certifications was a condition of payment. The court held 42 C.F.R. § 409.41(b) expressly identifies the physician certification as a condition for payment by referencing 42 C.F.R. § 424.22. The preface to § 424.22 provides: “Medicare Part A or Part B pays for home health services only if a physician certifies and recertifies the content specified in paragraphs (a)(1) and (b)(2) of this section, as appropriate.” The court rejected the providers’ argument that because the timing requirement appears in paragraph (a)(2)—not (a)(1) or (b)(2)—it was not a condition of payment. The court reasoned that the use of the word “certifies” in the preface to § 424.22 requires defining “certification” by reference to all of paragraph (a), including the timing requirement in paragraph (a)(2). The Sixth Circuit then held the nurse did not need to allege in her complaint that the government had previously rejected Medicare claims that lacked a physician’s certification. The court determined that the government’s response to similar claims was not relevant because the nurse alleged that the government did not know that the providers’ claims were false. The court also held that the timing requirement went to the essence of the government’s bargain for home health services. It cited administrative guidance from HHS referencing the importance of the timing requirement in deterring fraud. Finally, the court held the nurse’s allegations that she and others raised concerns about the providers’ practices, but that those concerns were dismissed, were sufficient to plead scienter. In a long and detailed opinion, Circuit Judge David W. McKeague dissented from the majority’s conclusion. He argued the nurse should have been required to provide more detail about how and why the providers’ delay in obtaining the physician certifications deceived the government. He highlighted the practical problem for providers created by the Sixth Circuit’s 2016 decision that a physician certification can create FCA liability if the length of the delay is not justified by the reasons the home-health agency provides for it. According to Judge McKeague, the standard forms submitted during the Medicare claims process do not explicitly call for information about when the physician certification was signed. Providers are merely required to warrant that they have the physician certification on file. Thus, a provider is not prompted to explain the reasons why a certification was late, or even indicate that it was late at all. At least two lessons can be drawn from the Sixth Circuit’s decision. First, providers should take a broad view when reading regulations to determine if compliance with a requirement is a condition of payment. To borrow a phrase from the majority, “overly crabbed” interpretations of regulations are unlikely to be successful. Second, providers cannot rely on Medicare claims submission forms to ensure they have met all the requirements for submitting a claim. They need to understand the claim-submission requirements adopted through administrative guidance and court decisions in their jurisdiction and disclose required information whether or not called for explicitly in a Medicare form. The case is far from over—the nurse must now actually prove the allegations in her complaint. But the providers will at minimum face the typically expensive consequence of defending themselves against FCA claims. And if unsuccessful, they may face the draconian penalties for FCA violations. These risks should encourage all providers to proceed with caution when managing physician certifications and other Medicare claims compliance issues.

Rejecting the views of the Fourth and Tenth Circuits, the Eleventh Circuit held the FCA’s three year statute of limitations period in § 3731(b)(2) applies to a relator’s claim even when the United States declines to intervene, and in so doing held it is the knowledge of a government official, not the relator, that triggers the three year limitations period, rejecting the contrary view of the Ninth Circuit. In United States ex rel. Hunt, No. 16-12836, 2018 U.S. App. LEXIS 9065 (11th Cir. Apr. 11, 2018), the Eleventh Circuit construed the FCA’s statute of limitations provision in § 3731(b) to decide whether the Relator’s claim was time-barred.  Section 3731(b) states: (b) A civil action under section 3730 may not be brought- (1) more than 6 years after the date on which the violation of section 3729 is committed, or (2) more than 3 years after the date when facts material to the right of action are known or reasonably should have been known by the official of the United States charged with responsibility to act in the circumstances, but in no event more than 10 years after the date on which the violation is committed, whichever occurs last. Because the Relator failed to file his qui tam action within the six year limitations period in (b)(1), the question was whether his action was time-barred under (b)(2).  The defendants argued that it was, because the government declined to intervene.  The Fourth and Tenth Circuits, in fact, had previously held that a Relator can only avail him- or herself of the limitations period in (b)(2) if the government remains a party to the action by intervening.  United States ex rel. Sanders v. N. Am. Bus Indus., Inc., 546 F.3d 288, 293 (4th Cir. 2008); United States ex rel. Sikkenga v. Regence Bluecross Blueshield of Utah, 472 F.3d 702, 726 (10th Cir. 2006) (“Surely, Congress could not have intended to base a statute of limitations on the knowledge of a non-party.”). The Eleventh Circuit, however, found “the phrase ‘civil action under section 3730’ … includes § 3730(b) qui tam actions when the government declines to intervene.”  2018 U.S. App. LEXIS 9065, at *18.  The Court further explained: Nothing in § 3731(b)(2) says that its limitations period is unavailable to relators when the government declines to intervene. In the absence of such language, we conclude that the text supports allowing relators in non-intervened cases to rely on § 3731(b)(2)’s limitations period. Id. at *18. The Eleventh Circuit also said the contrary holdings from the Fourth and Tenth Circuits “do not persuade us,” because “[t]hey failed to consider the unique role that the United States plays even in a non-intervened case.”  Id. at *27.  The court described the government’s role in non-intervened cases as “significant” because the government may “request to be served with copies of all pleadings and deposition transcripts, seek to stay discovery[,] . . . veto a relator’s decision to voluntarily dismiss the action,” and may be permitted to intervene later.  Id. at *12-13. The court emphasized that the majority of a recovery, even in a non-intervened case, still belongs to the government as the victim of the fraud.  Id. at *25.  “Given this unique role, we cannot say that it would be absurd for Congress to peg the start of the limitations period to the knowledge of a government official even when the United States declines to intervene.”  Id. at *26. The court also rejected the defendants’ arguments that such an interpretation rendered the statute superfluous, and found “little” legislative history on the statute and none that undermined the court’s interpretation.  Id. at *28-39.   The court next had to “address whether that limitations period is triggered by the knowledge of a government official or of the relator.”  Id. at *39.  The court again relied on the statutory text: Section 3731(b)(2) is clear that the time period begins to run when “the official of the United States charged with responsibility to act in the circumstances” knew or reasonably should have known the material facts about the fraud.  31 U.S.C. § 3731(b)(2).  Nothing in the statutory text or broader context suggests that the limitations period is triggered by the relator's knowledge. Id. at *39.  As a result, the court rejected the “legal fiction” of the Ninth Circuit’s contrary view, United States ex rel. Hyatt v. Northrop Corp., 91 F.3d 1211, 1217 (9th Cir. 1996), and held “that it is the knowledge of a government official, not the relator, that triggers the limitations period” in § 3731(b)(2).  Id. at *39-40. As a result of holding that § 3731(b)(2) applies in non-intervened cases and is triggered by the knowledge of a government official, not of the relator, the court reversed the district court’s decision dismissing the relator’s complaint for untimeliness.  Id. at *40.

Federal scrutiny of charities that assist patients with accessing prescription drugs has increased with rising prescription drug prices.  Some prescription drug charities receive funding from medical providers or drug manufacturers, which can raise questions about whether the charities’ funders are using the charities to generate improper recommendations or referrals. In December 2017, the U.S. Department of Health and Human Services Office of Inspector General rescinded a 2006 advisory opinion that had assured a patient-assistance charity that its subsidies for individuals’ prescription drug purchases would not subject it to federal Anti-Kickback Statute liability. The OIG’s rescission could signal shifting federal policy towards increased scrutiny of drug charities funded by drug manufacturers. Amidst these changes, a new decision from the U.S. Court of Appeals for the Third Circuit is a good reminder that AKS compliance issues do not automatically translate into FCA violations. In United States ex rel. Greenfield v. Medco Health Sols., Inc., --- F.3d ‑‑‑‑, 2018 WL 473158, at *1 (3d Cir. Jan. 19, 2018), the court held that an FCA claim premised on an AKS violation must show that a particular patient was exposed to an illegal recommendation or referral and that a claim for payment for care for that patient was submitted to the government. Medco concerned Accredo Health Group, Inc., a specialty pharmacy servicing patients with hemophilia. Accredo supported hemophilia charities, two of which allegedly recommended Accredo as a preferred provider through communications to their members. The relator alleged that this amounted to an AKS violation, which gave rise to an FCA claim because Accredo had certified compliance with the AKS when submitting its reimbursement claims to government payors. Accredo successfully argued to the trial court that the relator’s claim failed because he could not show any evidence that any beneficiaries of federal programs chose Accredo because of its alleged improper payments to the charities. On appeal, the relator argued that this amounted to a requirement that he show each patient subjectively sought Accredo’s care because of Accredo’s charitable donations. The court in Medco set out to identify “what ‘link’ is sufficient to connect an alleged kickback scheme to a subsequent claim for reimbursement: a direct causal link, no link at all, or something in between.” The United States, as amicus curiae in support of neither party, urged the court to hold that no proof of a patient’s subjective intent to utilize Accredo because of the charities’ recommendation was required to establish an FCA violation. The court agreed, holding that proof of an FCA violation required evidence that at least one of Accredo’s claims sought reimbursement for care provided in violation of the AKS, but that a patient’s subjective reason for choosing Accredo need not be proven. Nevertheless, the referral or recommendation that violated the AKS must be the referral or recommendation that resulted in the false claim. The court held the relator had failed to show that any of Accredo’s 24 federally insured patients were exposed to the recommendation of the hemophilia charities or that they were even members of the charities. The court explained that “[a] kickback does not morph into a false claim unless a particular patient is exposed to an illegal recommendation or referral and a provider submits a claim for reimbursement pertaining to that patient.” The court rejected the relator’s request that the court infer the patients were members of the charities based on the relator’s assertion that “[e]ssentially all hemophelics” in the geographic area Accredo served were members of the charities to which Accredo donated. This inference was not enough because it was impossible to rule out the chance that none of the patients was a member and that none was exposed to the charities’ recommendation. Thus, the relator’s evidence failed to “link Accredo’s alleged kickback scheme to any particular claim” and so Accredo did not face FCA liability. The court pointed out several issues it did not address in its opinion. It expressed no view as to whether Accredo’s relationship with the charities was an AKS violation in the first place. Nor did the court reach the issues of whether the relator could satisfy the FCA’s materiality requirement, even if he had shown a link between the patients exposed to the charities’ recommendation and Accredo’s claims. And although not addressed by the court, the low number of federally insured patients at issue—24—means the court did not have an opportunity to address claims against a provider who services a large number of federally insured patients. Medco does not explain what evidence would be sufficient to show at least one of a large number of patients were exposed to an improper referral or recommendation. Still, the Medco decision is a useful reminder that the AKS and FCA have separate elements, and an AKS violation does not automatically translate to FCA liability.  Organizations in the healthcare space--particularly charities--should take heed.

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.

If the government does not take action and continues to pay for Medicare/Medicaid claims after it learns of non-compliance related to the claims, is the non-compliance material to the government’s decision to pay?  This is a question being answered in the negative by courts across the country, who have concluded that the government (or a qui tam relator) is not able to proceed under a False Claims Act (FCA) “implied certification” theory if evidence shows that the government did not take action and continued to pay claims after learning of non-compliance with laws associated with those claims.  A Florida Federal Court in United States ex. rel. Ruckh v. Salus Rehabilitation, LLC et. al (Case No. 8:11-cv-1303-T-23TBM), is one of the latest to address this issue and find no FCA violation. Background In 2016, the United States Supreme Court addressed the issue of whether a claim submission without disclosure of a statute or regulation infraction could potentially trigger a FCA violation in Universal Health Services, Inc. v. United States ex rel. Escobar, spawning a new line of cases that have interpreted the new standards the Court set forth for implied certification FCA cases.  Prior to the Escobar decision, the circuit courts across the U.S. were split on the issue.  In these so-called “implied certification” cases, the government alleged that the party submitting a claim to the government impliedly certified that the services were provided in compliance with laws. In Escobar, the Supreme Court analyzed the reach of the FCA in situations in which a party was alleged to have made a misrepresentation in a payment claim to the federal government because the services provided were, in fact, not in compliance with the law.  The Court recognized the implied certification theory, but held, among other things, that under the theory, FCA liability depends on whether the defendant violated a requirement that it knew was material to the government’s decision to pay.  In providing guidance on how to determine “materiality”, the Court noted that, “[t]he materiality standard is demanding.  The False Claims Act is not ‘an all-purpose antifraud statute’ or a vehicle for punishing garden-variety breaches of contract or regulatory violations.”  The Court went on to note: “[I]f the Government pays a particular claim in full despite its actual knowledge that certain requirements were violated, that is very strong evidence that those requirements are not material” and “if the Government regularly pays a particular type of claim in full despite actual knowledge that certain requirements were violated, and has signaled no change in position, that is strong evidence that the requirements are not material.” Analysis In light of the guidance in Escobar, many courts in analyzing “implied certification” allegations under the FCA, have given significant consideration to evidence about how the government acted following a defendant’s non-compliance disclosure.  Courts will make a fact-intensive inquiry into the post-disclosure conduct of the government in order to determine whether a given violation is material to the governments’ payment decision on the related claims.  If the government refused to make further payment or took other action against the provider after learning of the non-compliance, that refusal may help the government or a relator to establish that compliance with the particular law at issue was material to the government’s decision to pay.  However, if the government continues to pay the claims, and takes no other action, it has proven difficult for the government or a relator to succeed. A recent example of the uphill battle Escobar is presenting for relators and the government in these “implied certification” FCA cases is the Salus case.  On January 11, 2018, a federal court in Florida followed a line of post-Escobar cases, denying an implied certification theory case under the FCA based on evidence that the government continued to pay claims related to the subject matter of the relator’s complaint, even after the government learned about the non-compliance.  In Salus, a nurse relator alleged FCA violations against the owners and operators of 53 specialized nursing facilities based on the nursing facility’s alleged failure to maintain a comprehensive care plan for residents required under Medicaid, as well as defects in paperwork required to support claims to the Medicare program, such as unsigned or undated documents. The judge in Salus vacated a $350 million verdict against Salus Rehabilitation, which had been entered less than a year earlier (on March 1, 2017), because the evidence in the case showed that the government knew about the non-compliance, and did nothing about it. In overturning the prior verdict against the nursing homes, the court stated, “[n]ot only did the relator fail to prove that the governments regarded the disputed practices as material and would have refused to pay, but the relator failed to prove that the defendants submitted claims for payment despite the defendants’ knowing that the governments would refuse to pay the claims if either or both governments had known about the disputed practices. In fact, both governments were—and are—aware of the defendants’ disputed practices, aware of this action, aware of the allegations, aware of the evidence, and aware of the judgements for the relator—but neither government has ceased to pay or even threatened to stop paying the defendants for the services provided to patients throughout Florida continuously since long before this action began in 2011.”  The judge noted that the government had never made any complaint or imposed any administrative sanction on the practices alleged by the relator. The judge further wrote, “federal and state governments regard the disputed practices with leniency or tolerance or indifference, or perhaps with resignation to the colossal difficultly of precise, pervasive, ponderous and permanent record-keeping in the pertinent clinical environment.” The Salus decision is another win for health care providers who have long lived in fear of the enormous penalties under the FCA whenever non-compliance is discovered with the highly complex, technical and ever-changing health care regulations. While each case applying the materiality standard must be analyzed on its particular facts and circumstances at issue, the post-Escobar cases analyzing the materiality standard have provided a welcomed, more consistent approach that providers can look to when defending these cases.

Until very recently, no case existed in which FCA liability arose from a violation of the Health Insurance Portability and Accountability Act (“HIPAA”). But in United States v. America at Home Healthcare and Nursing Services, Ltd., Judge John Robert Blakely of the United States District Court for the Northern District of Illinois, Eastern Division, allowed an FCA claim premised on a HIPAA violation to survive a motion to dismiss. In America at Home Healthcare, plaintiff Amy O’Donnell filed a qui tam action under the FCA against her previous employer, America at Home Healthcare Nursing Service, Ltd. (“AAH”).  As defendant’s name suggests, AAH is a provider of home health services. Among other allegations of wrongdoing, plaintiff claimed that AAH violated the FCA by unlawfully soliciting patients. More specifically, plaintiff alleged that AAH searched medical charts of individuals who were not AAH patients in order to generate a list of persons to target as new home health patients. In June 2017, Judge Blakely dismissed plaintiff’s solicitation claim because plaintiff failed to allege that defendant’s solicitations were unlawful. However, in July 2017, plaintiff amended her complaint, and this time alleged that defendant’s solicitations violated HIPAA. Section 1320d-6-d(a) of HIPAA criminalizes knowingly using, obtaining, or disclosing an individual’s identifiable health information without authorization. According to Judge Blakely, a violation of § 1320d-6-d(a) can result in FCA liability if: (1) defendant knowingly billed the government for unnecessary medical services after obtaining patients’ information unlawfully; and (2) defendant submitted claims and cost reports to the government that impliedly certified compliance with Medicare laws and regulations, but knowingly failed to disclose its HIPAA violations. With respect to the second basis for FCA liability under HIPAA, defendant argued that plaintiff’s “implied certification” theory failed to satisfy the Supreme Court’s materiality standard from Universal Health Services, Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989, 195 L. Ed. 2d 348 (2016), because HIPAA violations are not material to the government’s decision to pay claims. The FCA defines “material” as having “a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property.” Judge Blakely rejected defendant’s materiality argument. Instead, the court referenced plaintiff’s allegation that HIPAA violations go to the very essence of the bargain between the government and health care providers, because an unlawful solicitation subjects patients to abusive marketing practices. The court further referenced plaintiff’s allegation the government does not knowingly pay claims to providers who violate § 1320d-6(a) of HIPPA. Finally, the court was untroubled by the fact that “no HIPAA-based FCA cases exist.” Instead, Judge Blakely analogized this case to kickback cases, and concluded: “[I]nformation that a home health agency has pilfered protected health data to solicit patients has a good probability of affecting a payment decision. These allegations suffice to keep [plaintiff’s] solicitation theory alive for now.” Judge Blakely’s decision is found at: United States v. America at Home Healthcare and Nursing Services, Ltd., 2018 U.S. Dist. LEXIS 2592 (E.D. Ill. Jan. 8, 2018).

The False Claims Act authorizes civil penalties between $10,781 to $21,563 per false claim, as well as three times the amount of damages which the government sustains (i.e. treble damages). The Eighth Amendment provides that "[e]xcessive bail shall not be required, nor excessive fines imposed, nor cruel and unusual punishments inflicted." The Supreme Court of the United States has recognized that a statutory penalty constitutes a "fine" subject to Eighth Amendment review if it constitutes punishment for an offense. Accordingly, the Fourth, Seventh, Eighth, and Ninth Circuit Court of Appeals have determined that the per-claim penalty and treble damages provided for under the FCA are subject to scrutiny under the Excessive Fines Clause of the Eighth Amendment because they have a punitive purpose, at least in part. A punitive sanction violates the Excessive Fines Clause if it is grossly disproportional to the gravity of a defendant's offense. Nonetheless, federal courts undertaking this Eighth Amendment analysis have generally upheld FCA per-claim penalties and treble damages. Proportionality of a punitive sanction is determined by a variety of factors, including the reprehensibility of the defendant's conduct; the relationship between the penalty and the harm to the victim; the sanctions in other cases for comparable misconduct; the possible maximum penalty available under the FCA and other statutes; and the legislative intent for the statute. See United States v. Aleff, 772 F.3d 508, 512 (8th Cir. 2014); United States v. Mackby, 339 F.3d 1013, 1016-18 (9th Cir. 2003). The Supreme Court has noted that the treble damages provision of the statute has a compensatory aspect, in addition to its punitive objectives, because some amount of money beyond actual damages is "necessary to compensate the Government completely for the costs, delays, and inconveniences occasioned by fraudulent claims." Cook Cnty., Ill. v. United States ex rel. Chandler, 538 U.S. 119, 130 (2003). Additionally, the treble damages provision allows the government to recover some measure of the amount it must pay to compensate relators in qui tam actions. See United States ex rel. Drakeford v. Tuomey, 792 F.3d 364, 388 (4th Cir. 2015). In contrast, the per claim penalty is purely punitive. Id. In the context of a FCA jury trial, the jury will generally be charged with determining the measure of the damages to the government and the number of false claims. The Court will then apply the treble multiplier to the damages award and, utilizing the jury’s determination of the number of false claims, determine what amount (between $10,781 to $21,563) to assess for each false claim. In cases involving the submission of hundreds or even thousands of false claims/statements (e.g., Medicare fraud claims), FCA damage awards can be daunting. As a result, Defendants may raise the Excessive Fines Clause as a defense to a massive award. However, with some exceptions, courts have generally upheld these awards, taking into account the above-mentioned factors as well as the general public interest in preventing fraud on the government. In litigation pending in the U.S. District Court for the Eastern District of Washington, United States of America et al v. Washington Closure Hanford LLC, et al, the defendant contractor raised constitutional challenges to the FCA’s penalties and treble damages provisions as an affirmative defense in its answer. The Government moved for summary judgment arguing that this defense was premature because the Court had not yet imposed penalties or treble damages; this constitutional challenge should instead be raised at the judgment phase. The contractor responded that courts can address the merits of such a defense based on the amount of damages sought by the Government, which in this case are in excess of $70 million. While the timing for addressing this Eighth Amendment challenge is typically at the post-trial stage, courts have not clearly addressed whether it may be considered in advance, which may provide a strategic advantage to litigants. Accordingly, the pending motion for summary judgment presents an interesting question for the trial court to resolve which may help provide further guidance for FCA litigants. FCA Now will be monitoring the Court’s ruling and keep you updated with any key developments.

The U.S. Court of Appeals for the Sixth Circuit recently concluded that a contractor should obtain an award of attorney fees for having to defend against an “unreasonable” False Claims Act (“FCA”) suit.  In United States ex. rel. Wall v. Circle C. Constr. LLC, the Government sued a contractor that built warehouses for the U.S. Army. During construction, it was alleged that the contractor’s subcontractor paid two electricians $9,900 less than the wages mandated by the Davis-Bacon Act, a federal law that sets wages on public-works projects. That underpayment rendered false the “compliance statements” that the contractor periodically sent to the Government, and the Government subsequently that the contractor had made a false claim against the United States. In its lawsuit, the Government sought $1.66 million in damages. The Government claimed that the contractor’s allegedly false claim of $9,900 had caused $554,000 in “actual damages,” which it was entitled to treble under the FCA.   The Government argued that the $9,900 underpayment had “tainted” all of the subcontractor’s electrical work and rendered the total value ($554,000) of the performance worthless. During a previous appeal, the Sixth Circuit rejected that argument. It held that the underpayment did not “taint” the total value of the electrical work and reversed a $763,000 judgment for the Government. It remanded for an award of $14,748—less than one percent of the Government’s demand. On remand, the contractor sought $468,704 in attorneys’ fees it had spent defending against the Government’s $1.66 million claim.  The contractor’s demand for attorneys’ fees arose out of the Equal Access to Justice Act, 28 U.S.C. § 2412(d)(1)(D), which states that a court must “award to the [defendant] the fees and other expenses related to defending against the excessive demand” if the Government’s original demand was both (1) “substantially in excess of the judgment finally obtained” and (2) “unreasonable when compared with such a judgment.” The district court denied the contractor’s motion for fees, but the Sixth Circuit reversed, explaining that it would be an “understate[ment]” to say the government’s demand of $1.66 million was “substantially in excess” of the $14,748 judgment. It also found that the demand was “unreasonable compared to the judgment.” In the FCA context, actual damages are “the difference in value between what the government bargained for and what the government received.” Here, the government bargained for buildings and wages; it got the buildings but “not quite all” of the wages. The shortfall—$9,900—was the government’s actual damages. The court found that no reasonable person could accept that the underpayment tainted the entire value of the electrical work because the Government benefitted “every minute of every day” in the form of functioning electrical systems. The Government argued that the contractor was not entitled to fees because its underpayment amounted to “bad faith,” one of the exceptions listed in 28 U.S.C. § 2412(d)(1)(D). The court disagreed and found that the Government failed to show that the underpayment was anything other than “an honest mistake.” The court noted that, unlike many FCA cases, this case did not involve an systematic attempt to defraud the government. Rather, it involved a $9,900 inaccuracy in a $20 million project. The court also noted that the subcontractor’s prices did not clearly state how much it paid the electricians and that both of the contractor’s co-owners testified that they submitted “compliance statements” with the honest belief that they were true. Although the district court found that the contractor was “reckless” in not knowing whether its “compliance statements” were accurate, that standard was less stringent that bad faith. The Government also argued that an attorneys’ fee award would “chill[]” its ability to enforce the FCA. In response, the court observed: “One should hope so. In this case the government made a demand for damages a hundredfold greater than what it was entitled to, and then pressed that demand over nearly a decade of litigation, all based on a theory that as applied here was nearly frivolous.” The court then reversed and remanded for an award of attorneys’ fees to the contractor.

Last month the Eighth Circuit considered and rejected an Eleventh Amendment sovereign immunity defense to a qui tam action under the False Claims Act.  In United States ex rel. Fields v. Bi-State Development Agency, No. 16-3783, 2017 U.S. App. LEXIS 13925 (8th Cir. August 1, 2017), a former employee of Bi-State alleged that the defendant interstate compact entity raised funds and required its employees to volunteer for a county executive’s reelection campaign, in violation of the Hatch Act.  The Government did not intervene.  Bi-State, an entity formed by Illinois and Missouri and ratified by Congress, and which owns and operates public transportation services, argued on summary judgment that it should be immune from suit under the Eleventh Amendment.  The federal district court for the Eastern District of Missouri disagreed, Bi-State brought an interlocutory appeal, and the Eighth Circuit affirmed. The Eighth Circuit had previously considered whether Eleventh Amendment sovereign immunity protected Bi-State from suit, holding in Barket, Levy & Fine, Inc. v. St. Louis Thermal Energy, 945 F.2d 1084 (8th Cir. 1991) that it did not.  An entity asserting an Eleventh Amendment defense must establish it is an arm of the state.  It must show “good reason to believe that the [compacting] [s]tates structured the new agency to enable it to enjoy the special constitutional protection of the [s]tates themselves.” Id. at 1086 (alterations in the original). Bi-State argued that a change in law affecting the first of six factors the Eighth Circuit weighs in analyzing Eleventh Amendment immunity—whether the compacting states characterize the entity as an arm of the state—should lead to a different conclusion than the holding in Barket.  Since Barket, Missouri deleted a statutory section that had provided an exception to sovereign immunity for multistate compact entities.  Because both Illinois law and the language of the compact still weighed in favor of treating Bi-State more as a municipality than as an arm of the state, however, the Eighth Circuit explained the change in Missouri law did not necessitate a different outcome.  The court went on to consider each of the other factors, finding that they pointed in different directions. Instead, the court looked to the “Eleventh Amendment’s twin reasons for being” to decide whether to extend its protections in this case: “respect for dignity of the states as sovereigns,” and “prevention of federal-court judgments that must be paid out of a [s]tate’s treasury.” Fields, 2017 U.S. App. LEXIS at 18.  The Court reasoned that suing an agency that is the creation of multiple states and the federal government did not present the same affront to dignity as suing a state.  Most importantly, though, neither Illinois nor Missouri would be financially obligated to satisfy a judgment against Bi-State.  Bi-State, then, had failed to show good reason to believe Illinois and Missouri structured it to enjoy immunity from suit, and the Eighth Circuit remanded the case for further proceedings.

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.

On June 16, 2017, The Department of Justice (“DOJ”) announced a $53.6 million dollar settlement with Genesis Healthcare Inc. (“Genesis”) over six federal whistleblower lawsuits alleging that subsidiaries of the rehabilitation and transitional care provider violated the False Claims Act (“FCA”). The original qui tam plaintiffs, former employees of companies acquired by Genesis, will receive a combined $9.67 million dollars in recovery. The settlement resolved allegations involving Genesis subsidiaries; Skilled Healthcare Group Inc. (“SKG”) and its subsidiaries, Sun Healthcare Group Inc., SunDance Rehabilitation Agency Inc., and SunDance Rehabilitation Corp. Specifically, the settlement resolved allegations that SKG and its subsidiaries knowingly submitted false claims for Medicare services by “billing for hospice services for patients who were not terminally ill” and “billing inappropriately for physician evaluation management services.” The complaint does not elaborate on the nature of the management services billing violations. Further, SKG and its subsidiaries allegedly submitted false claims to Medicare, TRICARE, and Medicaid by providing therapy to patients longer than medically needed, as well as billing for more therapy than patients actually received. The settlement also resolved allegations that Sun Healthcare Group Inc., SunDance Rehabilitation Agency Inc., and SunDance Rehabilitation Corp. knowingly submitted false claims to Medicare by billing for therapy services in the state of Georgia that were either medically unnecessary or unskilled in nature. Finally, the settlement resolved allegations that Skilled LLC, a subsidiary of SKG, violated the FCA by submitting false claims to the Medicare and Medi-Cal programs for “services that were grossly substandard or worthless and therefore ineligible for payment.” Specifically, the allegations pointed to Skilled LLC failing to meet the requirements for nurse staffing in order to be eligible for government healthcare program reimbursements. The case matter was handled by the DOJ Civil Division’s Commercial Litigation Branch, the Office of the Inspector General, and the U.S. Attorney’s Offices for the Northern District of California, the Northern District of Georgia, the Western District of Missouri, and the District of Nevada. Acting U.S. Attorney Steven W. Myhre for the District of Nevada noted, “Today’s settlement is an example of the U.S. Attorney’s Office’s commitment to holding medical providers accountable. . . .  We are committed to protecting federal health care programs, including Medicare, TRICARE, and Medicaid, which are funded by taxpayer dollars.” The recent settlement falls in line with the DOJ’s increased commitment to combating health care fraud. The DOJ budget request for 2017 included a $70.8 million dollar increase ($320.2 million in total) of funding for health care fraud prevention.

A Federal court in Ohio recently dismissed a qui tam lawsuit brought under the False Claims Act by Kustom Products, Inc. against Hupp & Associates, Inc., a defense contractor, and in so doing provided judicial treatment of the common practice of alleging facts "upon information and belief."  United States ex rel. Kustom Prods. v. Hupp & Assocs., No. 2:15-cv-03101, 2017 U.S. Dist. LEXIS 72814 (S.D. Ohio May 12, 2017), Hupp had six contracts to supply maintenance kits to the U.S. Military for its Family of Medium Tactical Vehicles (“FMTV”).  Under those contracts, Hupp was required to purchase seals for its FMTV kits from one of only two approved suppliers.  Kustom alleged that it had learned “in the course of business” that Hupp was not purchasing its seals from either of those two suppliers, even though Hupp represented to the Military that it had.  2017 U.S. Dist. LEXIS 72814 at *3-4.  Kustom’s complaint made a number of these accusations “upon information and belief.”  Id.  The United States government declined to intervene in the lawsuit.  Id. at *4.  Hupp brought a motion to dismiss Kustom’s complaint in its entirety.  Id. Evaluating the pleading standard under the False Claims Act, the court noted the familiar rule that “the heightened pleading standard set forth in Rule 9(b) applies to complaints alleging violations of the FCA,” and that standard requires that the circumstances constituting fraud or mistake shall be stated with particularity.  Id. at *5 (citations omitted).  In other words, Kustom was required to allege the “who, what, when, where, and how” of the alleged fraud.  Id. at *6.  However, Kustom’s allegations about Hupp’s fraud were lacking much detail, such as, “upon information and belief, Hupp submitted at least one invoice” that fraudulently certified that its products were purchased from approved suppliers.  Id. at *7.  The court found that this bare allegation did not satisfy the heightened 9(b) pleading standard, and noted that, in general, “allegations ‘on information and belief’… are insufficient under Rule 9(b).  Id.  In sum, Kustom’s “speculative allegations that ‘on information and belief’ Hupp has invoiced the government for parts supplied under the contracts fall far short of meeting the Rule 9(b) standard.”  Id. at *8.  The court found that these deficiencies existed with all of Kustom’s claims, and, because they were not pleaded with the particularity required by Rule 9(b), all of Kustom’s claims failed to state a claim upon which relief can be granted. The decision underscores the importance of pleading the particular facts and allegations that give rise to a claim under the False Claims Act. Although not categorically rejecting “upon information and belief” style pleading, the Court expressed significant wariness with such allegations, particularly when the plaintiff fails to plead the source of knowledge or some other reliable indicia of plausibility.

The Centers for Medicare and Medicaid Services (“CMS”) issued new Self-Referral Disclosure Protocol (“SRDP”) forms, and, beginning June 1, 2017, these SRDP forms will be mandatory for those parties submitting voluntary self-disclosures of actual or potential violations of the federal physician self-referral law (the “Stark Law”) through the SRDP. The Patient Protection and Affordable Care Act established the SRDP, giving providers and suppliers that may have received an overpayment as a result of actual or potential violations of the Stark Law the opportunity to facilitate the resolution of these violations with CMS. The SRDP forms are intended to streamline and standardize the SRDP submission process. Parties making disclosures under the SRDP will now be required to submit: (1) the SRDP Disclosure Form, providing information about the disclosing party including the history of abuse, pervasiveness of noncompliance, and steps to prevent future noncompliance; (2) the Physician Information Form(s), providing details of the noncompliant financial relationship(s) between the physician(s) and the disclosing party; (3) the Financial Analysis Worksheet, quantifying the overpayment; and (4) a certification signed by the disclosing party stating that the information provided is truthful and based on a good faith effort to bring the matter to the attention of CMS. Submissions to the SRDP involving solely a failure by a physician-owned hospital to disclose physician ownership on any public website or in any public advertisement must continue to follow special instructions from CMS available on the SRDP website. Although this is the first time CMS has mandated prescribed forms, much of the information now required for SRDP submissions is not significantly different from information previously required for such submissions. One of the differences is the new requirement that the disclosing party disclose the pervasiveness of Stark violations, illustrating how common the disclosed noncompliance was in comparison to similar relationships between the disclosing party and physicians. Some hope the specific forms will allow for faster resolutions of actual or potential Stark Law violations, but that remains to be seen.

On Monday, April 24, the U.S. Department of Justice announced that Energy & Process Corp. agreed to pay $4.6 million to settle False Claims Act allegations concerning the construction of a large nuclear waste treatment facility in South Carolina. The allegations came to light as part of a whistleblower action brought by a former employee of a principal E&P subcontractor in late 2013. The federal government intervened last year. The U.S. Department of Energy hired Energy & Process to provide supplies for a nuclear waste treatment facility. When complete, the multibillion dollar facility will transform more than 30 metric tons of surplus weapons-grade plutonium into fuel pellets for use at nuclear power plants. The FCA suit alleged that Energy & Process provided faulty steel reinforcing bars, failed to conduct quality assurance, and falsely certified its products and processes adhered to U.S. Nuclear Regulatory Commission standards. In its complaint in intervention, the federal government noted that if Energy & Process’s deficient efforts had not been discovered, the public would have be exposed “to the serious and long lasting risks associated with radiological contamination.” Energy & Process denied any wrongdoing and in a public statement expressed its desire to end what “has been an ongoing distraction and expense to the company for almost 10 years.” The suit highlights the strict regulatory requirements facing major players in the nuclear energy sector, the stakes of noncompliance, and the slow path to project completion—all of which impose significant costs on nuclear power projects. Though originally slated for completion in 2015, the South Carolina facility is now striving for a 2025 completion date.

The False Claims Act (FCA) allows plaintiffs/relators to bring qui tam actions, in which the government may then elect to intervene.  The FCA also provides that “[t]he Government may settle a [qui tam] action with the defendant notwithstanding the objections of the person initiating the action if the court determines, after a hearing, that the proposed settlement is fair, adequate, and reasonable under all the circumstances.”  31 U.S.C. § 3730(c)(2)(B).  In United States ex rel. Shepard v. Tippett, a federal court in Colorado recently examined the standard for deciding whether a settlement was “fair, adequate, and reasonable” such that it should be approved over the relators’ objections.  2017 U.S. Dist. LEXIS 27083 (D. Colo. Feb. 27, 2017).  The Tenth Circuit had not decided the question, and the Shepard court noted a split among other courts of appeal that had considered the issue. In Shepard, the relators argued that the standards for approving class action settlements were appropriate in the FCA qui tam context.  The inquiry, the relators argued, should involve a review of four factors: (1) whether the proposed settlement was fairly and honestly negotiated; (2) whether serious questions of law and fact exist, placing the ultimate outcome of the litigation in doubt; (3) whether the value of an immediate recovery outweighs the mere possibility of future relief after protracted and expensive litigation; and (4) the judgment of the parties that the settlement is fair and reasonable. Id. at *4 (quoting Rutter & Wilbanks Corp. v. Shell Oil Co., 314 F.3d 1180, 1188 (10th Cir. 2002)). Citing a Ninth Circuit case addressing dismissal of an FCA case, the Government argued for a much more deferential standard. That standard includes a two-part test: “(1) identification of a valid government purpose; and (2) a rational relation between dismissal and accomplishment of the purpose.” Id. at *3 (quoting United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Com., 151 F.3d 1139, 1145 (9th Cir. 1998)). In reaching its conclusion that the deferential Sequoia Orange standard is appropriate, the Shepard court considered legislative intent behind 1986 amendments to the FCA that created the current famework for government intervention in qui tam actions.  Those amendments allowed a relator to remain involved even after government intervention, thus increasing the relator’s role.  At the same time, though, the amendments gave the government greater control over qui tam actions. Id. at *4 (collecting cases). Noting that the government is the real party in interest, the Shepard court concluded that the government should have at least as much authority to settle a qui tam action as to dismiss it.  Moreover, “hamper[ing] the government’s ability to settle may run afoul of the separation of powers doctrine.” Id. Requiring only a rational relation to a valid governmental interest, then, is the proper standard.  Finding the government had met that standard in this case, the Sherpard court approved the settlement notwithstanding the relators’ objections.

On Tuesday, February 21, 2017, the Supreme Court summarily vacated the judgment in Bishop v. Wells Fargo & Co. and remanded the case to the Second Circuit in light of the Court’s recent decision in Universal Health Servs. v. United States ex rel. Escobar, which recognized the implied certification liability theory in FCA suits. In Bishop, the plaintiffs originally brought FCA claims against Wells Fargo, specifically alleging that that Wachovia Bank and World Savings Bank (both of which later merged into Wells Fargo) engaged in improper accounting practices to disguise the fact that the banks were undercapitalized, which itself was a violation of Federal Reserve rules.  Plaintiffs’ FCA claims were based on the idea that each time the banks borrowed money from the Fed’s Term Auction Facility, they were allegedly falsely certifying to the Fed that they were in sound financial condition. The Second Circuit in Bishop v. Wells Fargo & Co., 823 F.3d 35 (2d Cir. 2016) affirmed a district court ruling dismissing the FCA claims, holding that even if the allegations concerning fraudulent accounting practices were true, the plaintiffs could not tie the fraud to accusations of actionable implied false claims submitted to the government for payment.  Because the banking laws did not expressly condition Fed loans on compliance, it was irrelevant whether knowing the true capitalization of the banks would have cause the Fed to change its lending terms. After the Second Circuit’s Bishop decision, however, the Supreme Court announced its holding in Universal Health Servs. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016), which upheld the theory of implied certification liability under the FCA, where the alleged misrepresentation to the government is “material” to the government’s payment decision. Following Escobar, the plaintiffs in Bishop asked the Supreme Court to revive their suit, citing the Court’s subsequent affirmation of the implied certification theory of FCA liability and arguing that Escobar abrogated longstanding Second Circuit precedent which had rejected classic “implied certification” liability. The Court’s summary disposition illustrates the ongoing importance of Escobar to the viability FCA suits brought in appellate circuits which previously did not recognize the implied certification theory.  Moreover, financial institutions will need to closely monitor subsequent developments in Bishop given the implications of implied certification liability rooted in noncompliance with banking regulations. The Supreme Court’s summary disposition in Bishop can be found Here. Dorsey’s FCA Now blog has previously provided insights and updates on Escobar that can be found at the following links: https://www.dorseyfca.com/district-court-grants-motion-to-dismiss-relators-claims-in-one-of-the-first-post-escobar-decisions/ https://www.dorseyfca.com/implied-certification-escobar-and-the-impact-on-healthcare-providers/ https://www.dorseyfca.com/supreme-court-upholds-implied-certification-theory-of-liability-imposes-limitations-on-its-reach/

The U.S. District Court for the Southern District of Texas has dismissed an FCA retaliation claim brought by a nurse who claimed to have blown the whistle on misuse of funds at a hospital that received significant federal revenue. In Endicott v. Oakbend Medical Center, the nurse alleged she was fired after she complained that several hospital executives were using hospital employee time to enrich the executives’ private business.  She alleged the hospital and executives “knowingly used Medicaid and Medicare funds that were supposed to be used to pay vendors, physicians, and fund employee salaries” to advance the private business’s interests.  She claimed illegal retaliation under the FCA, asserting she was fired for objecting to the alleged activity. The FCA bars an employer from retaliating against an employee who engages in lawful acts in furtherance of an FCA lawsuit or other efforts to stop FCA violations. But the employee’s acts must be aimed at matters that could reasonably lead to a viable FCA claim.  For an employee’s internal complaints to be protected, they must concern false or fraudulent claims for payment submitted to the federal government.  The employee must allege that she believes in good faith, and a reasonable employee in similar circumstances might believe, that the employer is defrauding the government.  Complaining about an employer’s internal misconduct unrelated to false claims is not enough.  Nor is it sufficient to allege a non-governmental third party was the victim of fraud. The court rejected the premise of the nurse’s FCA claim—the hospital’s receipt of “substantial revenue” from Medicare and Medicaid. The nurse alleged the hospital improperly used this revenue to pay employees who were simultaneously working for the executives’ business.  But she failed to assert that the hospital submitted false claims for payment to the federal government.  The hospital’s alleged use of legitimately obtained funds for improper purposes did not create FCA liability.  The nurse’s subjective belief that the hospital’s activity constituted fraud on the government was thus insufficient to state a claim for retaliation. The court’s decision reaffirms that hospitals may face a host of consequences for misusing legitimately obtained federal revenue, but FCA liability is not typically one of them.