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October 11, 2013

11 October 2013

Regulatory Violations – Standing Alone – Again Rejected As Sufficient To State FCA Claim

Posted by Jaime Jones and Brenna Jenny

The Eighth Circuit Court of Appeals recently reaffirmed that mere regulatory noncompliance, standing alone, is not sufficient to establish False Claims Act liability for claims submitted to Medicare. Rather, the court held, a relator must allege facts tying a defendant’s alleged conduct to Medicare’s expectations regarding material conditions of payment. See United States ex rel. Ketroser v. Mayo Found., No. 12-3206 (8th Cir. Sept. 4, 2013).

In the Ketroser case, relators alleged that the defendant violated the FCA when it submitted one written report, rather than two, as part of a pathology analysis incorporating a two-stage testing process. According to relators, because the CPT codes for the tests were both included in a section of the Medicare Codebook that required “reporting,” Medicare expected Mayo, to create two separate written reports. Mayo responded that it created a written report of the first test, and more broadly “reported” the results of the second test through oral communications between physicians and supplemental written comments as needed.

The court affirmed the district court’s dismissal of the claim based on relators’ failure to submit any “specific evidence” that Medicare considered separate written reports to be a material condition of payment. In this regard, the court joined other Circuits, including the Second, Fifth, Sixth, Seventh, and Ninth, in holding that pleading a “claim of regulatory noncompliance” does not satisfy FCA pleading requirements.

Furthermore, the court suggested that even if Medicare had expected a separate written report as a condition of payment, the Codebook’s “reporting” requirement was ambiguous, and Mayo’s reasonable interpretation negated any inference that Mayo had “knowingly” submitted a false claim. As other courts have held (see related posts here and here), the Eighth Circuit reiterated that where a defendant’s “interpretation of the applicable law is a reasonable” one, relators fail to plead the requisite scienter under the FCA.

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11 October 2013

Supreme Court Invites Solicitor General To Weigh In On The Pleading Requirements For FCA Cases

Posted by Jaime Jones and Nirav Shah

This week, the Supreme Court invited the Solicitor General to file a brief expressing the views of the United States on the pleading standards in FCA cases. U.S. ex rel. Nathan v. Takeda Pharmaceuticals North America, Inc., et al., Dkt. No. 12-1349 (Oct. 7, 2013). This move signals that the Court may soon decide whether to grant certiorari and hear a case that has significant implications for the efforts of the whistleblower bar and federal government to leverage the FCA for billions of dollars in recoveries each year.

In the decision at issue, the Fourth Circuit dismissed a complaint by the qui tam plaintiff for his failure to “allege with particularity that specific false claims were presented to the government for payment,” which the court held was necessary to satisfying the heightened pleading requirements of Rule 9(b). Circuits are split on this issue, with the Sixth, Eight, and Eleventh Circuits adopting the standard articulated by the Fourth Circuit, while the First, Fifth, Seventh, and Ninth Circuits have allowed qui tam claims to survive based only on “reliable indicia that lead to a strong inference that claims were actually submitted.” See, e.g., U.S. ex rel. Grubbs v. Kanneganti, 565 F.3d 180, 190 (5th Cir. 2009).

It is unclear for which approach the Solicitor General may advocate. In a case involving similar issues three year ago, the Solicitor General merely noted that the First Circuit’s more-relaxed pleading requirement “deepens an existing circuit conflict.” There, the Solicitor General recommended that the Court answer the fundamental pleading question raised by the Circuit split—albeit not in that particular case. See Ortho Biotech Prods., L.P. v. U.S. ex rel. Duxbury, Dkt. No. 09-654.

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