When healthcare providers and other government contractors are subject to scrutiny for bills submitted to the government, it is often the result of a whistleblower complaint filed under the qui tam provisions of the False Claims Act.
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False Claims Act Decisions and Settlements to Know from Q4 2021
The final months of 2021 saw a flurry of noteworthy False Claims Act (FCA) activity. Among other developments, appellate courts issued important decisions concerning materiality, the government’s qui tam dismissal authority, and the application of the Eighth Amendment’s Excessive Fines Clause. The fourth quarter also brought news of several significant settlements, including a group of eight- and nine-figure resolutions of alleged Anti-Kickback Statute violations by pharmaceutical manufacturers and the latest example of a private equity firm paying a substantial sum to resolve FCA allegations leveled against one of its portfolio companies.
This post summarizes key developments from the year’s final quarter and identifies important takeaways for healthcare providers and government contractors.
Continue Reading False Claims Act Decisions and Settlements to Know from Q4 2021
Changes Coming to the FCA? Proposed Amendments Would Impact Materiality Analysis, Government Discovery, Among Other Issues
On July 26, Senator Chuck Grassley (R-IA) introduced a long-promised bill to amend the False Claims Act (FCA). Not-so-creatively entitled the False Claims Act Amendments Act of 2021 (S.B. 2428), the proposed legislation is notably co-sponsored by a prominent—and bipartisan—group of senators. The text of the bill, available here, would most importantly bring changes to the analysis of the FCA’s materiality element while also affecting the process through which defendants may obtain discovery from the government.
According to a press release issued by Senator Grassley, the legislation is mainly intended to “clarif[y] the current law following confusion and misinterpretation of the Supreme Court decision in United Health Services v. United States ex rel. Escobar.” As we have previously covered at length (in blog posts dated June 23, 2016; March 20, 2020; April 8, 2020; and June 25, 2021) the U.S. Supreme Court’s 2016 decision in Escobar confirmed that the FCA’s materiality element is “rigorous” and “demanding,” and that it cannot be satisfied simply by showing that the government would have had the “option” to decline payment had it known the facts underlying an allegedly fraudulent claim.
Instead, Escobar focuses the materiality inquiry on the government’s actual or likely response to alleged fraud: if the government regularly pays similar claims with knowledge of the facts, that is “strong evidence” that the alleged misrepresentations are not material; on the other hand, if the government often denies payment under similar circumstances, that supports a finding of materiality.
In Senator Grassley’s view, however, Escobar has given way to “confusion” and “misinterpretation” that “has made it all too easy for fraudsters to argue that their obvious fraud was not material simply because the government continued payment.” Consistent with that view, the proposed legislation appears calculated to make materiality-based dismissals—as well as other kinds of dismissals—more difficult for FCA defendants to obtain. Whether it would succeed in that aim, however, is open to debate.
Provider Beware: Recent FCA Cases Emphasize the Importance of Diligently Addressing Potential Overpayments
A common feature of False Claims Act (FCA) litigation is the pursuit of liability under the FCA’s so-called “reverse” false claims provision, 31 U.S.C. § 3729(a)(1)(G). Reverse false claims liability applies when a person or entity knowingly does either of the following:
- Makes, uses, or causes, to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the government.
- Conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the government.
The reverse false claims provision of the FCA is especially significant for healthcare providers, in part because the 2010 Affordable Care Act (ACA) (as well as associated regulations) expressly linked the knowing retention of overpayments from federal healthcare programs to reverse false claims liability under the FCA. Specifically, the relevant statutory provision of the ACA defines the term “obligation,” as used in the FCA, to include any overpayment that is not “reported and returned” within 60 days after it is “identified,” a term courts and Centers for Medicare & Medicaid Services (CMS) have interpreted somewhat broadly. See 42 U.S.C. § 1320a-7k(d). Thus, by “improperly avoid[ing]” this “obligation”—i.e., knowingly or recklessly failing to return the overpayment within the ACA’s 60-day timeframe—a provider violates the FCA.
The upshot for providers is that a failure to diligently investigate and appropriately address a potential overpayment may lead to a host of problems, including whistleblower lawsuits, intrusive government scrutiny, and ultimately, FCA liability for treble damages and civil penalties. What’s more, this may be true even in cases where the receipt of the overpayment was not itself the result of any fraudulent conduct. Indeed, as the cases discussed below demonstrate, that risk is far from just hypothetical.
Escobar’s “Rigorous” Materiality Standard: Recent Developments – Part Two
This is the second post of a two-part discussion of recent developments related to the materiality standard set forth by the Supreme Court in Universal Health Services v. U.S. ex rel. Escobar. Read our previous post, which covered appellate court decisions and key decisions related to government knowledge and payment.
Courts Take Differing Approaches to the Significance of Government Intervention Decisions
In assessing the False Claims Act’s (FCA) materiality element, courts have increasingly taken divergent approaches to analyze the significance of the government’s decision about whether to intervene in a qui tam action.
In several 2019 decisions, district courts held that the government’s decision to intervene in a qui tam action was relevant – even if not dispositive – to the materiality analysis under Escobar. In U.S. ex rel. Longo v. Wheeling Hospital, Inc., for instance, the U.S. District Court for the Northern District of West Virginia found that the government’s decision to intervene in the very qui tam action before it “strongly militate[d] in favor of materiality.” And in U.S. ex rel. Arnstein v. Teva Pharmaceuticals USA, Inc., the U.S. District Court for the Southern District of New York explained that the government’s decision to intervene in “a factually similar case” in the same district “provide[d] strong evidence that AKS [Anti-Kickback Statute] violations were material to the Government’s payment decisions,” even though the government had not intervened in the case before the court.
Continue Reading Escobar’s “Rigorous” Materiality Standard: Recent Developments – Part Two
Escobar’s “Rigorous” Materiality Standard: Recent Developments – Part One
This is the first post of a two-part discussion of recent developments related to the materiality standard set forth by the Supreme Court in Universal Health Services, Inc. v. U.S. ex rel. Escobar. Our second post covers government intervention decisions, the “essence of the bargain” test, and the materiality of Anti-Kickback Statute violations.
The Supreme Court’s 2016 decision in Universal Health Services, Inc. v. U.S. ex rel. Escobar continues to play a significant role in FCA litigation, particularly with respect to courts’ analyses of the FCA’s materiality element. In Escobar, the Supreme Court described the materiality element as “rigorous” and “demanding” and set forth a number of non-exclusive considerations to guide the materiality inquiry, which primarily focus on the government’s actual conduct and its payment (or non-payment) of purportedly false claims. In 2019, courts continued to grapple with specific applications of Escobar’s directives, with some courts appearing to apply its materiality guidance less “rigorously” than others.
Some Appellate Courts Appear to Apply Escobar Less Rigorously Than Others
As we have previously discussed, the seemingly irreconcilable decisions issued by the nation’s circuit courts about how Escobar’s non-exclusive factors should apply in particular cases led parties in at least three such cases to seek further clarity from the Supreme Court. But last year the Supreme Court denied review in each of those three cases, perhaps signaling that – at least for now – it is content to allow the various issues raised in Escobar to continue to percolate in the lower courts.
Continue Reading Escobar’s “Rigorous” Materiality Standard: Recent Developments – Part One
Myriad Genetics Settlement Illustrates FCA Risks Posed by Government and Other Non-Traditional Relators
On July 19, 2019, Myriad Genetics disclosed a $9.1 million settlement agreement to resolve a False Claims Act (FCA) qui tam lawsuit alleging that it engaged in a scheme to fraudulently bill Medicare for certain hereditary cancer tests.
Notably, the qui tam relator in the case was not a Myriad corporate insider, but rather a medical director for Palmetto GBA, the Medicare Administrative Contractor (MAC) responsible for overseeing the program through which Myriad’s tests are covered by Medicare. In this way, the settlement illustrates the often overlooked risk that individuals other than conventional corporate whistleblowers—including even government employees or employees of government administrative contractors—may serve as FCA relators.
District Courts Hold that DOJ Lacks “Unfettered” Discretion to Preemptively Dismiss Qui Tam Actions
In two recent decisions, federal district courts in the Eastern District of Pennsylvania and the Southern District of Illinois, respectively, considered the Government’s motions to dismiss False Claims Act (FCA) lawsuits against pharmaceutical companies and marketing consultants alleging violations of the Anti-Kickback Statute (AKS) related to patient assistance programs. As discussed in our previous post, the two lawsuits were among 11 similar qui tam actions filed by corporate relators described by the Department of Justice (DOJ) as “shell companies,” and which DOJ sought to preemptively dismiss based on its view that the claims lacked merit and that litigation of the actions would waste “scarce government resources.”
In the Pennsylvania case, U.S. ex rel. Harris v. EMD Serono, Inc., the court granted DOJ’s motion to dismiss over the relators’ objection. In the Illinois case, U.S. ex rel. CIMZNHCA, LLC v. UCB, Inc., the court denied DOJ’s motion, declining to dismiss the case. Although reaching different dispositions, both courts parted ways with a prior decision of the U.S. Court of Appeals for the D.C. Circuit by holding that the Government does not possess “unfettered” discretion to dismiss FCA actions. Instead, the courts joined two other circuits in requiring the Government to demonstrate that its decision to dismiss an FCA action has “a rational relationship to a government interest.”
The circuit split highlighted by the decisions in EMD Serono and UCB is one of increasing importance in light of indications that the Government may be more aggressive in seeking preemptive dismissals of qui tam actions following the January 2018 Granston Memo.
Supreme Court Agrees to Resolve Circuit Split on FCA Statute of Limitations
On November 16, 2018, the U.S. Supreme Court granted certiorari in Cochise Consultancy, Inc. v. U.S. ex rel. Hunt, agreeing to decide how the FCA’s statute of limitations applies in qui tam actions brought by a private relator in which the government declined to intervene. The Court’s decision in Hunt should bring sorely needed clarity to a question that has deeply divided the federal courts of appeals.
The Supreme Court Will Review the Eleventh Circuit’s Interpretation of 31 U.S.C. § 3731(b)(2)
The FCA’s statute of limitations provision, 31 U.S.C. § 3731(b), states that a civil action may not be brought under the FCA:
- more than 6 years after the date on which the violation of section 3729 is committed, or
- more than 3 years after the date when facts material to the right of action are known or 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.
The specific question presented in Hunt is whether § 3731(b)(2), which operates as a tolling provision to the six-year limitations period of § 3731(b)(1), applies to FCA actions brought by a relator in which the government declined to intervene, and if so, whether the government’s knowledge or the relator’s knowledge is the relevant trigger for the limitations period.
Continue Reading Supreme Court Agrees to Resolve Circuit Split on FCA Statute of Limitations