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On July 5, 2019, the D.C. Circuit Court of Appeals affirmed dismissal of a qui tam lawsuit against several chemical manufacturers that set forth a unusual theory of liability: the relator alleged that the manufacturers violated the False Claims Act (FCA) by failing to self-report information about the dangers of their chemicals under the Environmental Protection Agency’s (EPA) voluntary Compliance Audit Program.

According to the relator, the manufacturers should have self-disclosed certain information to the EPA, who in turn would have assessed civil penalties under the Toxic Substances Control Act.  By failing to do so, the relator alleged that the defendant manufacturers concealed their obligations to transfer property (the risk information) and money (the unassessed penalties) to the government.Continue Reading Failure to Voluntarily Self-Report is a “Non-starter” under the FCA

This is the second post of a two-part discussion of FCA pleading standards and discusses the pleading requirements for connecting a fraudulent scheme to the submission of false claims.  Read our previous post on the requirements for pleading the details of a fraudulent scheme.

Pleading Submission of False Claims

Most courts require FCA plaintiffs to round out their FCA pleadings with allegations that false claims were submitted to the government as a result of the alleged fraud scheme.  Some courts require plaintiffs to identify specific representative examples, while others permit the pleading of “reliable indicia” leading to a “strong inference” that claims were actually submitted.

Pleading Actual Claims  

The U.S. District Court for the District of Massachusetts recently laid out the level of detail generally expected for pleading the submission of actual false claims.  In U.S. ex rel. Wollman v. General Hospital Corporation, it held the relator made insufficient allegations of actual claims submitted as part of a fraudulent billing scheme involving overlapping surgeries when the complaint included “no dates, identification numbers, amounts, services, individuals involved, or length of time” for any of the surgeries at issue.Continue Reading Recent Developments in FCA Pleading Standards – Part Two

This is the first post of a two-part discussion of FCA pleading standards and discusses the requirements for pleading the details of a fraudulent scheme. Read our post on the pleading requirements for connecting a fraudulent scheme to the submission of false claims.

The False Claims Act (FCA) continues to be the federal government’s primary civil enforcement tool for imposing liability on healthcare providers who defraud federal healthcare programs.  A significant portion of FCA litigation is initiated through the filing of sealed qui tam complaints by relators on behalf of the United States.  When these complaints are unsealed, whether the government intervenes or not, their first hurdle is often surviving a motion to dismiss.  Because actions under the FCA allege fraud against the government, courts require allegations sufficient to satisfy Rule 9(b) of the Federal Rules of Civil Procedure.

Determining whether an FCA complaint satisfies Rule 9(b) turns on two related questions: Does it contain an adequate description of the alleged fraud scheme? If so, does it connect that scheme to false claims submitted to the government?

This post discusses the requirements for adequately pleading a fraudulent scheme.  We have also written a follow-up post discussing the requirements for connecting that scheme to the submission of actual false claims.  To follow our discussion of recent developments in FCA pleading standards, subscribe to this blog.

Pleading Details of a Fraudulent Scheme

Generally speaking, courts agree that in order to pass muster, FCA complaints must include all of the details one would expect to find in the first paragraph of a newspaper article—that is, the “who, what, when, where and how” of the alleged fraud.  While meeting this standard may seem simple enough, courts continue to grapple with the nuances and difficulties associated with pleading fraud with the requisite specificity.Continue Reading Recent Developments in FCA Pleading Standards – Part One

On January 14, 2019, Intermountain Healthcare, Inc. and Intermountain Medical Center (Intermountain) filed a petition for writ of certiorari with the U.S. Supreme Court.  Intermountain’s petition comes after the U.S. Court of Appeals for the Tenth Circuit reversed a district court’s grant of Intermountain’s motion to dismiss.  In relevant part, the district court concluded that the relator failed to identify any company employees with knowledge of the alleged fraud or when any employees knew about the fraud.  The Tenth Circuit reversed, holding that the relator need not allege those facts because they were in the defendant’s exclusive control and that allegations of knowledge need only be pleaded generally.

Intermountain’s petition raises two questions:

  • Can a plaintiff avoid Federal Rule of Civil Procedure 9(b)’s pleading requirements by asserting that only the defendant possesses the information needed to meet those requirements?
  • Do the False Claims Act’s (FCA) qui tam provisions violate the Appointments Clause of Article II of the U.S. Constitution?

Both questions have previously appeared in petitions for writ of certiorari, but neither question has been addressed by the Supreme Court.  See, e.g., Petition for Writ of Certiorari, U.S. ex rel. Joshi v. St. Luke’s Hospital, Inc. (denied Oct. 2, 2006); Petition for Writ of Certiorari, GPM Gas Corp. et al. v. U.S. ex rel. Grynberg (denied Apr. 22, 2002).Continue Reading Supreme Court Asked to Review Pleading Standard and Constitutionality of FCA

On December 26, 2018, the U.S. Court of Appeals for the Fourth Circuit issued an opinion in United States ex rel. Grant v. United Airlines affirming dismissal of the relator’s False Claims Act (FCA) allegations on the grounds that the complaint failed to plead presentment of a false claim with sufficient particularity under Rule 9(b). In the same opinion, however, the court revived the relator’s retaliation claim on the grounds that the relator satisfied the lower standard of Rule 8(a) applicable to retaliation claims, which are not claims of fraud.

Presentment Must Follow from Conduct Alleged in Complaint

The court affirmed dismissal of the relator’s substantive FCA claims because it held that the relator failed to adequately plead presentment under Rule 9(b) in either of the two ways that the Fourth Circuit has recognized as acceptable:

  1. By alleging with particularity that specific false claims actually were presented to the government for payment, including by describing the time, place, and contents of the false representation; the person making the false representation; and what was obtained by making this representation
  2. By alleging a pattern of conduct that would “necessarily have led to a false claim being submitted”

The court focused its analysis on whether the complaint was adequately pleaded under the latter of those two options. The relator was a former maintenance technician of United Airlines who was a second-tier subcontractor on a government contract for the repair and maintenance of military aircraft. His complaint alleged that United Airlines was specifically subcontracted to repair, overhaul and inspect certain airplane engines and was required to do its work in compliance with certain regulations. The complaint alleged that United Airlines violated the FCA by failing to comply with the required regulations in completing work on these airplane engines.
Continue Reading Fourth Circuit Weighs in on Standards for Pleading Presentment and Retaliation

In 2016, the U.S. Supreme Court handed down its decision in Universal Health Services, Inc. v. U.S. ex rel. Escobar confirming the viability of the implied false certification theory in False Claims Act (FCA) cases and mandating that claims brought pursuant to that theory satisfy “demanding” materiality and scienter requirements.  As discussed in a prior post, since Escobar, the U.S. Courts of Appeals have wrestled with analyzing and applying the materiality and scienter requirements discussed in the Supreme Court’s opinion, resulting in a number of recent petitions for writ of certiorari filed with the Supreme Court seeking clarification of the Escobar mandates.

In one of its first actions of 2019, the Supreme Court recently denied petitions in two closely-watched FCA cases, U.S. ex rel. Harman v. Trinity Industries, Inc., and Gilead Sciences Inc. v. U.S. ex rel. Campie.

$660 Million Reversal Stands in Harman

The plaintiff-relator in Harman sought review from the Supreme Court after the U.S. Court of Appeals for the Fifth Circuit reversed a $660 million jury verdict, holding that the relator failed to prove that the defendant’s alleged misrepresentations were material to government’s payment decisions.  The relator in Harman claimed that the defendant produced and sold defective highway guardrails to various states, causing them to submit fraudulent claims for reimbursement to the federal government.  However, evidence was presented that the Federal Highway Administration was aware of the alleged defects but continued to pay for the guardrails despite their non-compliance.  Relying on Escobar, the Fifth Circuit held that relator failed to overcome such “strong evidence” that the requirements at issue were not material.   The Supreme Court’s recent denial of the relator’s petition leaves intact the Fifth Circuit’s judgment and precedential opinion, providing a potential defense to FCA defendants in cases where the government was aware of certain conduct but continued to pay claims.Continue Reading With Widening Circuit Splits and Mounting Pressure, Will 2019 See a Post-Escobar Decision from the Supreme Court?

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

On Tuesday, November 20, 2018, Defendants-Petitioners Brookdale Senior Living Communities, Inc. et al. (Brookdale) filed a petition for a writ of certiorari with the U.S. Supreme Court asking the Court to resolve circuit splits regarding enforcement of the materiality and scienter elements of the False Claims Act (FCA) in cases involving the implied false certification theory of liability. The relator in the case, styled Brookdale Senior Living Communities, Inc. v. U.S. ex rel. Prather, is a former Brookdale utilization review nurse who alleges that Brookdale did not obtain physician signatures on home health certifications as soon as possible after the physician established a plan of care, in violation of Medicare regulations. The U.S. District Court for the Middle District of Tennessee previously dismissed the lawsuit for failure to plead falsity, but the case was revived on appeal by a divided panel of the Court of Appeals for the Sixth Circuit, which held that the relator adequately pleaded a regulatory violation. After the relator amended her complaint in light of the Supreme Court’s 2016 decision in Universal Health Services, Inc. v. U.S. ex rel. Escobar, which addressed the FCA’s materiality requirement, the district court dismissed the case for failure to plead materiality. On appeal, however, the Sixth Circuit again reversed in a 2-1 decision, finding that the relator adequately pleaded materiality and scienter.
Continue Reading Supreme Court Review Sought on FCA Materiality, Scienter Elements

The U.S. District Court for the Eastern District of Pennsylvania recently refused to extend the period during which a False Claims Act (FCA) action remains under seal while the government investigates and decides whether to intervene. In U.S. ex rel. Brasher v. Pentec Health, Inc., which involved claims of illegal kickbacks constituting FCA violations, the court denied the government’s eleventh extension request and subsequent request for reconsideration even after both the relator and the defendant joined that request. The case had been under seal for more than five years.

Settlement Discussions Were Not Good Cause to Extend the Seal Period

The court held that the matter would not remain sealed to allow the government and defendant time to reach a settlement. It noted that “the purpose of the sealing provision is not to allow the Government to prosecute a civil action entirely under seal and then to present a settlement as a fait accompli to the Court and the general public.”Continue Reading “Significant Abuses of the Statutory Scheme:” District Court Criticizes Practice of Regular Extensions of the FCA Seal Period

In recent years, healthcare providers have increasingly faced civil and criminal enforcement actions premised on the allegation that services billed to government healthcare programs were not medically necessary. As a result, those claims allegedly have constituted fraud in violation of the civil False Claims Act (FCA) and/or various criminal statutes.

These actions – whether brought by the government in civil or criminal proceedings or qui tam relators in civil FCA cases – pose significant issues for providers. Often, disputing clinical judgments related to care or services provided many years in the past can be particularly challenging when efforts are made by the government or relators to use statistical sampling to establish civil liability and/or damages across a vast universe of claims. Given the risks associated with these cases, it is not surprising that there have been a number of high-dollar civil settlements involving medical necessity allegations against providers, including hospitals, physicians and providers of hospice, home health and therapy services. In criminal cases, the government likewise has secured a number of high-profile convictions and guilty pleas in cases challenging billing associated with allegedly unnecessary medical procedures.Continue Reading FCA Medical Necessity Cases May Stand on Firmer Footing After Recent Appellate Decisions

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From the Bass, Berry & Sims Blog Network

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