As previously discussed as a part of our ongoing FCA Fundamentals series, the False Claims Act (FCA) is the federal government’s most important and most effective tool for fighting fraud. While Congress has substantially expanded the scope of the FCA since its inception during the Civil War, courts have recognized that the FCA was “not designed to reach every kind of fraud practiced on the Government” and is not intended to be a “vehicle for punishing garden-variety breaches of contract or regulatory violations.” Rather, the FCA applies only to false or fraudulent claims or omissions that are “material” to the government. So what is materiality?

Continue Reading False Claims Act Fundamentals:  What is Materiality?

The False Claims Act, 31 U.S.C. § 3729, et seq. is the federal government’s primary and most effective tool for fighting fraud. This post provides an overview of the elements that plaintiffs must satisfy to establish liability under the False Claims Act and common defenses related to the elements.
Continue Reading False Claims Act Fundamentals: Elements of the False Claims Act

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

As we have previously covered in a blog post dated August 25, 2021, the Senate is currently considering Senate Bill 2428, the False Claims Amendments Act of 2021 (FCAA), which would cause several significant changes that would make it more difficult for defendants in False Claims Act (FCA) cases.  On October 28, 2021, Senate Judiciary Committee (Committee) considered the bill originally introduced by Senator Chuck Grassley (R-IA) in July of this year.

Continue Reading False Claims Act Amendments Take More Direct Attack at Escobar and Pass Senate Judiciary Committee

On December 2, the U.S. District Court for the Western District of Virginia granted a motion to dismiss a False Claims Act (FCA) lawsuit brought by the United States and the Commonwealth of Virginia, which alleged that a Walgreens clinical pharmacy manager falsified hepatitis C drug prior authorization submissions to Virginia Medicaid. See United States v. Walgreen Co., 2021 WL 5760307 (W.D. Va. Dec. 3, 2021).

Continue Reading FCA Lawsuit Against Walgreens Dismissed Because Government Fails to Plead Materiality

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.

Continue Reading Changes Coming to the FCA?  Proposed Amendments Would Impact Materiality Analysis, Government Discovery, Among Other Issues

How should a court evaluate the FCA’s materiality requirement when the government’s ability to deny claims is constrained? According to a recent decision from the Eleventh Circuit, the court should “broadly” consider the government’s “pattern of behavior as a whole,” and may find evidence of materiality in administrative actions that might not support materiality in other cases.

Background

The case, U.S. ex rel. Donnell v. Mortgage Investors Corporation, was brought by two mortgage brokers who specialized in originating mortgage loans guaranteed by the United States Department of Veterans Affairs (VA). Under the program at issue, VA regulations limited the fees and costs lenders could collect from veterans and required lenders seeking VA guarantees to certify compliance with the fee-and-cost restrictions. The relators alleged that the defendant, Mortgage Investors Corporation (MIC), defrauded the VA by charging veterans prohibited fees and falsely certifying they had not done so.

After originating loans and obtaining VA guarantees, MIC typically sold its loans on the secondary market to holders in due course. This introduced an “important wrinkle,” the appeals court noted, because the VA is statutorily required to honor its guarantee when borrowers default on loans possessed by holders in due course.

Continue Reading Eleventh Circuit Broadens Materiality Analysis for Some Cases

As 2020 draws to a close, we take a look back at a number of the most significant False Claims Act (FCA) cases of the prior 12 months.  Although no blockbuster cases emerged, such as the Supreme Court’s 2016 decision in Escobar, there were a number of noteworthy cases that will have lasting impact on future FCA litigation.  We discuss those cases briefly below.  We expect to cover these cases and much more in our Healthcare Fraud and Abuse Review, which we will release in early 2021.

Materiality

U.S. ex rel. Janssen v. Lawrence Memorial Hospital, 949 F.3d 533 (10th Cir. 2020)

Background.  In 2016, the Supreme Court held in Escobar that whether a defendant can be held liable under the FCA for violating a statute, rule, regulation, or contract provision turns, in part, on the elements of materiality and scienter, which the Court said are “rigorous” and “demanding.”  Post-Escobar, courts have grappled with specific applications of these standards, with some courts appearing to apply them less “rigorously” than others.

Allegations.  In U.S. ex rel. Janssen v. Lawrence Memorial Hospital, the relator primarily alleged that the defendant hospital falsified patient arrival times associated with certain CMS pay-for-reporting and pay-for-performance programs.  The relator introduced proof that the hospital had knowingly falsified arrival times in patient records by recording actual arrival times on patient triage sheets but then entering later times in the medical record or delaying patient registration until after the administration of some tests.

Continue Reading Key False Claims Act Cases in 2020