Welcome to Original Source: The Sidley Austin False Claims Act Blog

The False Claims Act (FCA) has long been a key enforcement tool for the federal government in matters involving government contracts or other expenditures of government funds. FCA enforcement has traditionally focused primarily on two industries receiving a substantial amount of government funds: healthcare and defense and other government contractors. Recently, however, FCA enforcement has expanded to other industries, including financial services. Through the False Claims Act Blog, lawyers in Sidley’s White Collar, Healthcare, FDA, Government Contracting, Financial Services, Appellate, and other practices will provide timely updates on new and interesting developments relating to FCA enforcement and litigation.

Medicare Advantage Enforcement: DOJ Advances New Theories Based on Retrospective Chart Reviews

Over the past two months, DOJ has filed complaints-in-intervention in two FCA cases premised on allegedly fraudulent diagnosis codes submitted to CMS as a result of retrospective chart reviews.  These cases demonstrate how DOJ has begun to explore new legal theories that articulate a narrower view on the legality of retrospective chart reviews designed to add diagnosis codes.

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Third Circuit Adopts the Seventh Circuit’s Voluntary Dismissal Standard for Evaluating Granston Motions to Dismiss

On October 28, 2021, the Third Circuit affirmed a district court’s grant of the United States’ motion to dismiss—over the relator’s objection—a qui tam alleging that the defendant had caused hospitals to submit false claims.  Adopting the Seventh Circuit’s approach, the court determined that in evaluating the government’s motion to dismiss over a relator’s objection in a declined qui tam, courts should apply the standards for voluntary dismissals contained in Federal Rule of Civil Procedure 41(a).

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DOJ Walks Back Recent Flexibilities for Corporate Resolutions

In a recent speech, Deputy Attorney General Lisa Monaco announced three important updates to how DOJ attorneys are to approach corporate resolutions (as discussed further here).  These changes depart from flexibilities offered by DOJ during the last administration.  While the remarks were made against the backdrop of the Deputy Attorney General’s criminal portfolio, these Department-wide policies apply with equal force to the Civil Division’s False Claims Act work.  It will be particularly important for companies in the middle of ongoing FCA investigations to reassess their strategies in light of these new policies.

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DOJ Deploys the FCA on Cybersecurity Fraud

Sidley lawyers Brenna Jenny and Sujit Raman recently published an article in Law360 entitled How To Minimize FCA Cyber Fraud Enforcement Risk, which analyzes the implications of DOJ’s recent formation of a Civil Cyber-Fraud Initiative to use the FCA to pursue cybersecurity-related fraud.  Although the Initiative focuses generally on government contractors and grant recipients—and does not, by its terms, impose any new cybersecurity requirements—the project promises in particular to attract whistleblowers in the defense industry, as recent years have witnessed high-profile FCA cases implicating alleged cybersecurity non-compliance in that sector.  The healthcare industry may also see a marked increase in cybersecurity-related qui tams, especially in light of a recent Department of Health and Human Services Office of Inspector General report taking the Centers for Medicare & Medicaid Services to task for failing to hold hospitals accountable for the cybersecurity of their networked devices.  Healthcare providers and medical device manufacturers, in addition to other government contractors and grantees, would do well to heed DOJ’s warning that “cybersecurity failures…are prime candidates for potential False Claims Act enforcement.”

A copy of the article is available here.

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Allegations that Community Health Network Paid Doctors Above Fair Market Value and Rewarded Physician Referrals Survives Motion to Dismiss

This month the U.S. District Court for the Southern District of Indiana denied Community Health Network’s (“Community”) motion to dismiss the United States’ complaint-in-intervention alleging that Community submitted false claims based on underlying violations of the Stark Law. United States ex rel. Fischer v. Community Health Network, Inc., No. 14-cv-1215 (S.D. Ind.).  The complaint alleged that Community violated the Stark Law through physician compensation that exceeds fair market value (“FMV”) and is based on the volume or value of referrals.  The opinion is notable in concluding that even physician compensation at the 90th percentile of rates paid in the market can plausibly allege a financial relationship that is not FMV and thus violates the Stark Law.

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PE Investors – Even Minority – Exposed to False Claims Act Risk

As we have discussed in prior posts (here), private equity investors in the healthcare and life sciences industries increasingly face direct risk under the FCA where they actively manage portfolio companies accused of regulatory noncompliance leading to the submission of false claims.  In each of the cases discussed in these earlier actions the PE fund defendant was the sole or majority investor and DOJ and the courts relied on facts demonstrating that the funds were aware of and endorsed or otherwise participated directly in the underlying fraud.

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Largest Settlement to Date Announced With a PE Investor to Resolve Claims that a Portfolio Company Healthcare Provider Violated the FCA

This week, in a case we previously reported on here, a PE fund and two executives agreed to pay $25M to resolve claims that they caused the submission by a portfolio company mental health center of false claims for services that were not rendered in compliance with various state law and contractual requirements.

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