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.

Bipartisan Legislation Introduced To Overhaul FCA To Further Hamstring Defendants

A bipartisan group of senators, led by Senators Grassley (R-IA), Leahy (D-VT), Wicker (R-MI), Durbin (D-IL), and Kennedy (R-LA), has introduced the False Claims Amendments Act of 2021.  This legislation is worth watching not just because it would significantly amend the FCA, but because Senator Grassley has a successful track record of shepherding through to passage legislation reversing gains made by defendants in FCA cases.

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Government Narrowly Avoids Invalidation of All LCDs in the Ninth Circuit

A divided panel of the Ninth Circuit recently reversed a district court decision that held that local coverage determinations (“LCDs”) are valid only when issued through a 60-day notice-and-comment rulemaking process.  Agendia, Inc. v. Becerra, No. 19-56516 (9th Cir. July 16, 2021).  The impact of the district court’s ruling—and a spirited dissent from the Ninth Circuit majority opinion—would have been significant for healthcare enforcement actions, including under the False Claims Act.  LCDs have never gone through notice-and-comment rulemaking.  A decision that all LCDs are accordingly invalid would have undermined a number of False Claims Act cases premised on the use of LCDs to apply the “reasonable and necessary” standard for Medicare reimbursement.  The Ninth Circuit is the first court of appeals to weigh in on this issue, however, and others may yet reach a different conclusion.

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Fifth Circuit Affirms DOJ’s Broad Authority to Dismiss Qui Tams Over Relators’ Objections, but Adds Teeth to “Hearing” Requirement

On July 7, 2021, the Fifth Circuit affirmed a district court’s grant of the United States’ motion to dismiss—over the relator’s objection—two qui tams that challenged pharmaceutical patient support programs.  While the court’s decision is consistent with those of other courts of appeal that have confirmed DOJ’s broad authority to dismiss qui tams over relators’ objections, the Fifth Circuit appears to add some teeth to the requirement that the relator be provided with a “hearing” before such a dismissal may be granted.

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D.C. Circuit Applies But-For Causation Standard, Weak Materiality Test to FCA Claims, While Concurrence Questions Viability of Fraudulent Inducement Theory

On July 6, 2021, the D.C. Circuit Court of Appeals affirmed in part and reversed in part a district court’s dismissal of the qui tam suit against IBM in United States ex rel. Cimino v. Int’l Bus. Machines Corp., No. 19-7139.  The relator alleged that IBM and the Internal Revenue Service (“IRS”) had entered into a software license agreement, but that upon learning that the IRS was uninterested in renewing the agreement, IBM fraudulently induced the IRS to extend the contract.  In particular, IBM allegedly collaborated with the auditor of the agreement, resulting in an audit finding that the IRS owed IBM $292 million for noncompliance with the contract’s terms.  IBM then offered allegedly to waive that fee in exchange for the IRS renewing the agreement.  The relator further alleged that once the new agreement was in place, IBM nonetheless collected $87 million of the noncompliance penalty by disguising that amount as fees for products and services that were never provided.  According to the relator, this scheme yielded FCA liability in two ways: first, IBM fraudulently induced the IRS to renew the agreement; second, IBM submitted false claims by billing $87 million for unprovided products and services.

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Drug Diagnosis Code Data Sought by HHS OIG May Cue Enforcement

Leadership from HHS-OIG recently advocated for new mandates that physicians include a diagnosis code with each prescription and that claims data capture this information. This followed on the heels of a Congressional Research Service report suggesting that Congress should pass legislation requiring healthcare providers to include diagnostic information in prescriptions.  As Sidley lawyers Jaime L.M. Jones, Brenna E. Jenny, and Matt Bergs discuss in an article published in Bloomberg Law entitled Drug Diagnosis Code Data Sought by HHS OIG May Cue Enforcement, HHS-OIG may see diagnosis code data as a tool to engage in nuanced investigations into pharmaceutical companies for off-label promotion of prescription drugs, leveraging law enforcement’s increasingly sophisticated capacity to use data analytics to identify targets for investigation.

A copy of the article is available here.

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DOJ Opposes Supreme Court Review of Granston Dismissal Standard

On May 21, 2021, the Department of Justice filed a brief in opposition to a petition for writ of certiorari filed by the relator in U.S. ex rel. Cimznhca, LLC v. UCB, Inc.  The petition challenges the Seventh Circuit’s decision reversing the district court’s denial of the government’s motion to dismiss over the relator’s objection.  In reversing, the Seventh Circuit determined that, so long as relators have an opportunity to be heard under 31 U.S.C. § 3730(c)(2)(A), the government may dismiss qui tams when it satisfies the standard contained in Federal Rule of Civil Procedure 41(a)(1)(A)(i).  That rule provides that a plaintiff may dismiss an action by serving notice of dismissal any time before the opposing party serves either an answer or a motion for summary judgment.

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DOJ Announces “First in the Nation” Fraud Charges for Abuse of Pandemic Telehealth Flexibilities

Yesterday DOJ announced another round of coordinated law enforcement actions to combat healthcare fraud related to COVID-19.  One of these indictments features “first in the nation charges for allegedly exploiting the[] expanded” opportunities to receive Medicare reimbursement for telehealth services during the COVID-19 public health emergency.

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