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.
Outcome. The Tenth Circuit affirmed summary judgment entered by the district court for the hospital, holding that the relator had failed to establish that her allegations satisfied the FCA’s materiality requirements.
Why this Case Is Important. One hotly-contested question in assessing materiality is from whose perspective materiality should be judged. The relator (both here and numerous relators in other cases) argued that materiality should be judged based on the likely impact of the legal violation on a “reasonable person” or on what the defendant knew or had reason to know in connection with making the alleged misrepresentation. The Tenth Circuit rejected this argument, holding that the materiality analysis requires evaluation of the effect on the likely or actual behavior of the government recipient of the alleged misrepresentation. Thus, information that the government was aware of conduct by the defendant or similar conduct by similarly-situated parties yet did not seek return of payment is relevant proof that the violation was not material. In the instant case, the Tenth Circuit noted that before filing the qui tam, the relator had called CMS’s fraud hotline to report the conduct but that CMS had taken no action.
Additionally, the Tenth Circuit rejected the relator’s argument that the government’s reaction to noncompliance is not relevant unless the defendant can show that the government had knowledge of actual noncompliance. Rather, the Tenth Circuit held that government inaction in the face of noncompliance was sufficient for summary judgment purposes.
Finally, the Tenth Circuit considered whether compliance with the reporting requirements in question went to “the essence of the bargain.” The relator argued that accurate data reporting was of central importance to the effective operation of the quality and value-based programs at issue. The Tenth Circuit did not disagree but said that did not necessarily mean it went to the essence of the bargain given the availability of administrative procedures designed to ensure hospitals remained in compliance. To hold otherwise would make the FCA into an “all-purpose antifraud statute or a vehicle for punishing garden-variety breaches of contract or regulatory violations.”
The Tenth Circuit’s opinion in Lawrence comes very close to the sort of “rigorous” and “demanding” application of the FCA’s materiality requirement contemplated by Escobar. The Tenth Circuit rejected arguments advanced with some success by relators in other cases, which have threatened to water-down the FCA’s materiality standard, making Lawrence one of the most significant FCA decisions of the year.
Eleventh Circuit Reinstates Most of Substantial FCA Jury Verdict
U.S. ex rel. Ruckh v. Genoa Healthcare, LLC, 963 F.3d 1089 (11th Cir. 2020)
Background. The roller coaster ride of U.S. ex rel. Ruckh v. Genoa Healthcare, LLC, continues. In a previous post, we wrote about the staggering $348 million judgment entered following a jury verdict against a management company and skilled nursing facilities (SNFs) owned by Consulate Health Care. The jury found the defendants committed FCA violations by artificially inflating Resource Utility Group (RUG) levels for Medicare therapy patients and falsely certifying that the SNFs had created timely and adequate patient care plans required by Medicaid. Following the judgment, as we noted here, the district court judge took the extraordinary step of overturning the judgment on materiality grounds.
Outcome. The Eleventh Circuit reversed the district court’s decision on the Medicare claims, but upheld dismissal of the Medicaid claims. As to the Medicare claims, the Eleventh Circuit held that where an SNF billed Medicare for a higher level of service than what was actually provided, that constituted a material misrepresentation. However, for the Medicaid claims, the Eleventh Circuit noted that when the relator had complained about lack of care plans, her employer had self-reported the deficiencies to the state but the state did not stop reimbursing Medicaid claims or seek recoupment. Because there was not proof otherwise at trial that the state had ever declined payment for lack of care plans, the Eleventh Circuit agreed that the relator had failed to prove materiality. In sum, the Eleventh Circuit reinstated $85 million of the jury’s $115 million single damages verdict, which could be trebled to $255 million.
Separate from the materiality rulings, the defendants had argued that the relator lacked standing to pursue her claims after entering into a litigation funding agreement, under which the relator relinquished 4% of her share of the judgment to the funding entity. The appellate court disagreed, noting that the relator assigned only a small portion of her claim and expressly retained complete control over it according to the funding agreement. Under those facts, the Eleventh Circuit concluded the relator maintained a sufficient interest to meet the “irreducible constitutional minimum” of standing under Article III.
Why This Case Is Important. This decision indicates that healthcare providers could have a difficult time raising materiality challenges where a relator or the government can establish that the provider billed for a higher level of service than that actually provided. On the other hand, upholding the district court’s decision to set aside the Medicaid fraud claims shows that lack of evidence that a particular regulatory violation actually impacted the government’s payment decision is fatal from a materiality perspective. Discovery into the government’s payment practices is of vital importance to plaintiffs and defendants in establishing materiality.
Falsity
U.S. ex rel. Druding v. Care Alternatives, 952 F3d 89 (3d Cir. 2020)
Background. For several years now, courts have wrestled with the question of whether subjective clinical decisions about the types and amounts of healthcare treatment provided to patients can be false for purposes of establishing FCA liability. Healthcare providers have long argued that they cannot. The Sixth Circuit (United States v. Paulus) and the Tenth Circuit (U.S. ex rel. Polukoff v. St. Mark’s Hospital), dealt significant blows to that argument in prior years, both concluding that subjective medical judgments could be false or fraudulent under the FCA. The Eleventh Circuit’s much-anticipated decision in U.S. ex rel. Paradies v. AseraCare, Inc., however, breathed new life into the argument. There, the Eleventh Circuit held “a clinical judgment of terminal illness warranting hospice benefits under Medicare cannot be deemed false, for purposes of the False Claims Act, when there is only a reasonable disagreement between medical experts as to the accuracy of that conclusion, with no other evidence to prove the falsity of the assessment.” Many viewed this as adopting an “objective falsity” standard.
Allegations. In U.S. ex rel. Druding v. Care Alternatives, the relators alleged that the defendant hospice provider violated the FCA by routinely falsely certifying patients as eligible for hospice and billing for hospice services provided to those patients. The relators’ expert examined the medical records of 45 patients and concluded the documentation did not support a hospice-eligible certification for approximately 35% of them. The provider produced its own expert who testified a physician could have reasonably concluded that the patients were terminally ill and thus needed hospice care. The district court granted summary judgment to the defendant, adopting an “objective falsity” standard and concluding, as in AseraCare, that a mere difference of expert opinion was insufficient for relators to survive summary judgment.
Outcome. The Third Circuit reversed the district court’s grant of summary judgment and expressly declined to adopt the district court’s objective falsity standard. The Third Circuit concluded that a hospice provider’s claim for reimbursement could be legally false under the FCA based on expert opinion that there was no reasonable basis for certification of a terminal illness prognosis. In other words, the relators’ expert proof was sufficient to create a triable issue of fact regarding falsity.
Why This Case Is Important. The Third Circuit distinguished AseraCare by concluding that the Eleventh Circuit had focused solely on factual falsity, while ignoring the possibility that claims could be legally false. Under a legal falsity theory, the Third Circuit explained, a medical opinion that differs from the certifying physician’s opinion is relevant evidence of whether the latter was supported by the clinical information and documentation required by Medicare to accompany the certification. The Third Circuit’s opinion serves only to deepen the divide among appellate courts on this key question of falsity. The defendant hospice provider currently is seeking review by the Supreme Court.
Both relators and the government have argued that there is no such thing as “objective” falsity but only “falsity.” But, allowing cases to go to summary judgment based on only the after-the-fact view of an expert significantly waters down the falsity standard and potentially subjects providers to punitive FCA liability even where the treating physician exercised good faith judgment. The better standard is to require some objective falsity in medical necessity cases such as showing that the physician did not believe what he or she was saying, the physician did not consider the underlying medical record, or that no reasonable physician would have determined that services were medically necessary.
Presentment of False Claims
U.S. ex rel. Benaissa v. Trinity Health, 963 F.3d 733 (8th Cir. 2020)
Background. Can a relator get past a motion to dismiss in an FCA case if the relator is unable to identify any actual false claims submitted to federal healthcare programs? Most circuits require relators to identify at least a representative false claim or plead the details of a scheme to submit false claims coupled with “reliable indicia” that lead to a strong inference that claims were actually submitted. Courts take varying approaches to what constitutes “reliable indicia.”
Allegations. In U.S. ex rel. Benaissa v. Trinity Health, the relator, a former trauma surgeon at one of the defendant’s hospitals, alleged that the hospital paid five of its highest-earning physicians above fair market value by compensating them in excess of 90th percentile compensation for their specialties and at levels not justified by their personal productivity. He also alleged that the high compensation generated practice losses for the defendant absent taking into account the physicians’ downstream referrals to the health system. The district court held that because the relator had neither identified any representative examples of false claims submitted by the defendant for the these physicians nor exhibited any direct connection to or personal knowledge of the defendant’s billing practices, he failed to satisfy Rule 9(b)’s pleading requirement of showing that any false claims had actually been presented to the government.
Outcome. On appeal, the relator argued that because about 29% of Trinity’s annual revenue came from Medicare reimbursement and all claims submitted for services by the five physicians he identified in his complaint would be tainted by the alleged Anti-Kickback Statute and Stark violations, it was “more likely” than not that Trinity submitted “at least some” tainted claims to the government. The Eighth Circuit disagreed, holding that this sort of “general inference” based on the theory that “every” claim submitted for some practitioners’ services was false did not satisfy Rule 9(b)’s particularity requirement. The relator also argued that the district court’s ruling requiring first-hand knowledge of billing practices would mean that only employees of the billing department or financial services department of a hospital could serve as relators. The Eighth Circuit rejected this notion, noting that an insider might have an easier time obtaining information about billing practices but that in no way precluded others from serving as relators as long as they had a reliable basis for knowledge regarding the submission of fraudulent claims such as talking to someone who worked in the billing department.
Why This Case Is Important. Some circuits have shown a willingness to water down the Rule 9(b) pleading requirement in FCA cases where relators alleges that “all” claims of a certain variety are false. The Eighth Circuit rightly rejected that notion, holding the line relators cannot get to discovery unless they can identify at least one representative claim or otherwise plead specific facts supporting a strong inference that claims were actually submitted.
Public Disclosure Bar
U.S. ex rel. Holloway v. Heartland Hospice, 960 F.3d 836 (6th Cir. 2020)
Background. The FCA’s public disclosure bar, set forth at 31 U.S.C. § 3730(e)(4), prevents a relator from maintaining a qui tam complaint that alleges substantially the same information previously disclosed to the public, thus precluding parasitic lawsuits based on publicly available information, unless the relator qualifies as an “original source” of the information. In applying the public disclosure bar, courts must determine: (1) whether a public disclosure has occurred; (2) whether that disclosure was substantially similar to the relevant FCA allegations; and (3) if a substantially similar public disclosure has occurred, whether the relator is nevertheless an “original source” of the FCA allegations.
Allegations. In U.S. ex rel. Holloway v. Heartland Hospice, the relator alleged that a hospice provider violated the FCA by submitting claims for hospice services that were not medically necessary by enrolling patients who were not terminally ill in hospice.
Outcome. Prior to the relator’s qui tam case, other relators had filed three separate qui tam lawsuits raising allegations that a single South Carolina hospice had billed Medicare for patients who were not terminally ill. The United States declined intervention in those cases, and they were unsealed in 2007 and voluntarily dismissed in 2008. The relator originally filed his case two years later in 2010 and then filed an amended complaint in 2018 alleging that the company had engaged in a nationwide scheme to bill Medicare for patients who were not terminally ill from 2004 to 2018. Despite the fact that the relator alleged fraud at numerous other hospice agencies beyond the single South Carolina agency and alleged fraud over a much broader and longer time period, the Sixth Circuit affirmed the district court’s dismissal of the relator’s qui tam complaint under the FCA’s public disclosure bar. The Sixth Circuit concluded that the prior lawsuits filed against the defendant’s parent corporation and other corporate affiliates barred the relator’s complaint.
Why This Case Is Important. The relator, like relators in many other FCA cases, argued that his allegations were not “substantially similar” to the previous qui tam lawsuits because of differences in time-period or geographic location of the alleged fraud. In rejecting that argument, the Sixth Circuit adopted a broad interpretation of “substantially similar,” holding that if the public disclosures are sufficient to set the government on the trail of the alleged fraud without the relator’s assistance, then they are substantially the same as those made in the prior complaints. Importantly, in both this case and the Sixth Circuit’s subsequent decision in U.S. ex rel. Maur v. Hage-Korban, 981 F.3d 516 (6th Cir. 2020), which we argued on appeal, the Sixth Circuit indicated that the focus should not be on making fine distinctions around “substantially similar” but, rather, it should be on whether the relator has brought forward information that is independent of and materially adds to the public disclosures as an original source.
Court Review of Government 3730(c)(2)(A) Dismissals
U.S. ex rel. CIMZNHCA, LLC v. UCB, Inc., 970 F.3d 835 (7th Cir. 2020)
Background. The increasing frequency of the government’s request to dismiss qui tam actions has brought renewed attention to a long-existing circuit split concerning the appropriate standard when deciding whether to grant such a request made by the government. This split centers on whether the government’s dismissal authority under the FCA is “unfettered” and thus not subject to judicial review, as the D.C. Circuit held in Swift v. United States, or instead is contingent on the government demonstrating that its dismissal request bears a “rational relationship” to a valid government interest, as the Ninth Circuit held in U.S. ex rel. Sequoia Orange v. Baird-Neece Packing Corp.
Allegations. In U.S. ex rel. CIMZNHCA, LLC v. UCB, Inc., the relator alleged that a pharmaceutical company illegally provided kickbacks to physicians for prescribing or recommending certain prescription drugs. The alleged illegal kickbacks took the form of free education services provided by nurses to physicians and their patients and free reimbursement support services.
Outcome. The Seventh Circuit became the latest appellate court to wade into the debate regarding the standard to be applied to the government’s dismissal authority under 31 U.S.C. § 3730(c), which allows the government to dismiss a relator’s qui tam complaint over the relator’s objection if the relator is provided notice and an opportunity for a hearing. The Seventh Circuit reversed a district court’s denial of the government’s motion to dismiss, in which the district court determined that the government’s motion was “arbitrary and capricious,” and determined that the government’s motion to dismiss should be granted.
Why This Case Is Important. Rather than pick between the standard articulated by the D.C. Circuit or the Ninth Circuit, the Seventh Circuit effectively created a third standard in evaluating the government’s dismissal authority. It determined that the government had amply supported its motion to dismiss the relator’s complaint particularly in light of Rule 41(a) of the Federal Rules of Civil Procedure, which allows for dismissal any time “before the opposing party serves either an answer or a motion for summary judgment.” The Seventh Circuit found the dismissal right under Rule 41(a) to be absolute under the circumstances because the government had intervened and no answer or motion for summary judgment has been filed. While it characterized its standard as much closer to Swift than Sequoia Grove, the Seventh Circuit left for another day the question of the appropriate standard to apply if those preconditions were not met, as increasingly is the case in declined FCA cases where the government seeks dismissal after litigation has commenced.
None of the competing appellate court standards has served as a serious impediment to the government’s ability to intervene and dismiss a relator’s qui tam lawsuit. But, it is worth continuing to watch how courts grapple with this issue as the government continues to exercise this statutory authority.
