The FCA continues to be the federal government’s primary civil enforcement tool for investigating allegations that healthcare providers or government contractors defrauded the federal government. In the coming weeks, we will take a closer look at recent legal developments involving the FCA. This week, we examine the FCA’s public disclosure bar and recent cases considering whether disclosures are sufficient to bar FCA claims.
Courts have continued to clarify the requirements for a relator to be considered an original source, and thus exempted from the public disclosure bar, under the FCA’s pre-PPACA and post-PPACA versions. In these cases, courts have typically focused on the requirements that a relator have “direct and independent knowledge of the information on which the allegations are based” (pre-PPACA) and “knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions” (post-PPACA).
The Third and Sixth Circuits made significant rulings regarding the type of knowledge that a relator must possess to have “direct knowledge” to qualify as an original source under the pre-PPACA statute. In U.S. ex rel. Antoon v. Cleveland Clinic Foundation, 788 F.3d 605 (6th Cir. 2015), the Sixth Circuit held that “proof of first-hand knowledge of fraud” is “not a necessary component” to establishing direct knowledge and that “direct knowledge is knowledge gained by relator’s own efforts and not acquired from labor of others.” This case-by-case determination is controlled by the character of the relator’s discovery and investigation. The Sixth Circuit found that the relator did not qualify as an original source because the “heart” of his FCA claim was founded on a review of medical records and he could only “speculate” about whether a physician was personally involved in the surgery that formed the basis of his fraud allegations. “Mere suspicion” that fraudulent activity resulted based on a review of medical records did not entitle the relator to original source status.
In U.S. ex rel. Morgan v. Express Scripts, Inc., 602 Fed. App’x 880 (3rd Cir. 2015), the Third Circuit held that the relator lacked direct knowledge where his allegations arose only from conducting an “eyeball comparison of two publicly available price listings” and relying on his “years of experience” in the pharmaceutical industry.
In interpreting when a relator “materially adds” to publicly disclosed information under the amended FCA, courts have focused not on the nature of the relator’s discovery and investigation, but instead on qualitatively comparing a relator’s allegations and the publicly disclosed information. This generally has narrowed the circumstances under which a relator qualifies as an original source.
In U.S. ex rel. Osheroff v. Humana, Inc., 776 F.3d 805 (11th Cir. 2015), the Eleventh Circuit provided its first interpretation of when a relator “materially adds” to publicly disclosed information. The qui tam suit alleged FCA liability based on violations of the AKS as a result of clinics providing free exercise classes, transportation and other perks to patients. Public disclosures detailed many of these perks, but the relator contended he was an original source because he added details about the frequency and type of services provided—showing they were more than nominal in value—and because he conducted his own investigation of the clinics’ programs. The Eleventh Circuit disagreed, explaining that the relator’s information did not “materially add” to the publicly disclosed information because the disclosures “were already sufficient to give rise to an inference that the clinics were providing illegal remuneration to patients.”
Similarly, in U.S. ex rel. Rockey v. Ear Institute of Chicago, 92 F. Supp. 3d 804 (N.D. Ill. 2015), the district court rejected the relator’s argument that he qualified as an original source by alleging “numerous detailed examples” of improper physician billing not previously disclosed, because the “isolated examples” did not materially add to the “comprehensive mea culpa” letter sent to Medicare by one of the defendant’s physicians.
In U.S. ex rel. Winkelman v. CVS Caremark Corp., 2015 WL 4577341 (D. Mass. July 29, 2015), the relators argued they were original sources because they provided details on how an alleged scheme to inflate usual and customary prescription drug prices was carried out, including that a relator “saw first-hand how CVS implemented” a generic drug discount program and that during an audit a relator “observed that CVS’ usual and customary prices were higher” than the program prices. The district court held that the relators failed to “materially add” to the public disclosures because their first-hand observations did not constitute “qualitatively different information” from that already publicly disclosed “concerning the nature” of the alleged drug pricing scheme—specifically, the fact that CVS was not charging the government the generic drug discount program prices, and thus was not treating the program prices as usual and customary prices, had already been publicly reported in the media and in congressional hearings and reports.
Finally, courts diverged on the question of whether a relator’s status as an original source is temporally limited to when her “direct and independent knowledge” begins and ends. In U.S. ex rel. Galmines v. Novartis Pharmaceuticals Corp., 88 F. Supp. 3d 447 (E.D. Pa. 2015), the district court held there is no such strict time limitation as “the limitation on a relator’s ability to recover for additional periods of time [for the same underlying scheme] is not the original source bar but the pleading requirements and the discretionary powers of the court over discovery.” The district court reasoned that the time period of the fraud is not a “material fact” for the FCA’s first-to-file bar, so it would “bedevil judicial reasoning” to conclude it is “nonetheless a critical element for original-source purposes.”
Yet, in U.S. ex rel. Gravett v. Methodist Medical Center, 82 F. Supp. 3d 835 (C.D. Ill. 2015), the district court found that the relator had direct and independent knowledge regarding the fraudulent scheme during the time of his employment with the defendant, but that he was not an original source outside that time period because “it is not possible for [the relator] to have direct knowledge of the specific patients and treatments provided after his termination from employment[,] as he would not have been present to personally observe these situations, and he offers no other basis” to support the finding that he had direct knowledge of such situations.