April 10, 2015

10 April 2015

Opinion Dismissing FCA Claims Based on Prior Disclosure to Government Officials Highlights Debate About What Constitutes A “Public Disclosure”

Posted by Scott Stein and Emily Van Wyck

In United States ex rel. Rockey v. Ear Inst. of Chicago, No. 11-cv-07258 (N.D. Ill. Mar. 25, 2015), the relator alleged that her former employer, the Ear Institute of Chicago, regularly submitted false claims to Medicare by submitting claims for services rendered by an audiologist under a physician’s name. Additionally, some of these claims were for services not covered by Medicare including therapeutic services performed by an audiologist or services performed without a physician order. In November 2010, the relator alerted the Ear Institute to this improper billing practice and shortly thereafter, the Ear Institute sent a letter identifying the issue to Wisconsin’s Medicare contractor and explaining that none of these claims resulted in overpayments. The letter did not address claims submitted for services not covered by Medicare. The relator filed suit in October 2011 against the Ear Institute, all of its doctors and audiologists, and its billing contractor. Defendants then moved to dismiss the complaint under the public disclosure bar.

The relator argued that the letter failed to sufficiently disclose all of her claims. The court disagreed with the relator explaining that the letter disclosed all elements necessary to show that defendants violated Medicare regulations and, as such, the letter alerted Medicare to “the likelihood of wrongdoing.” That disclosure, the court held, was sufficient to trigger the public disclosure bar.

The district court’s holding is consistent with Seventh Circuit precedent that disclosures to “a competent public official . . . who has managerial responsibility for the very claims being made” qualify as public disclosures. Glaser v. Wound Care Consultants, Inc., 570 F.3d 907, 909 (7th Cir. 2009). The Seventh Circuit’s view makes sense; there is little reason to reward whistleblowers when the defendant has self-disclosed to a responsible government official prior to the filing of a lawsuit. However, the Seventh Circuit standard does conflict with rulings from other circuits, which hold that a disclosure must be made to the public writ large to qualify under the public disclosure bar. We have written about some of these other decisions here and here.

The court then assessed whether the relator qualified as an original source. The original source provision requires that an individual have “knowledge that is independent of and materially adds to the publicly disclosed allegations.” The court noted that “materially adds” is not defined in the statute and no federal appeals court has interpreted the phrase. The district court therefore applied the “usual definition”—that the relator’s knowledge must have a “natural tendency to influence” or to be “capable of influencing” payment. In arguing that the original source provision applied, the relator claimed that while defendants identified their billing errors in the letter, they did not admit that they knowingly violated Medicare billing regulations. The court disagreed, stating that defendants admitted their billing practices were knowing and intentional. The relator also claimed that she provided detailed examples of fraudulent claims. The court rejected the relator’s proposition that these details materially added to defendants’ “comprehensive mea culpa.” Thus, the relator was not an original source and the public disclosure bar applied.

Even if these claims were not barred by public disclosure, the court found that the claims would still fail because the relator did not adequately allege knowledge, falsity, or materiality. With regard to the remaining claims relating to reimbursement for noncovered services (the claims that were not disclosed in the letter) and the conspiracy and retaliation claims, the court denied defendants’ motion to dismiss.

A copy of the district court’s opinion can be found here.

10 April 2015

Sixth Circuit Rejects Government’s $664M FCA Judgment, Remands For Second Time

Posted by Scott Stein and Jessica Rothenberg

In the latest decision in litigation that spans 17 years and relates to conduct that occurred 32 years ago, the Sixth Circuit reversed a $664 million judgment in favor of the government against United Technologies Corp. and remanded the case, for a second time, for a recalculation of damages. A copy of the Sixth Circuit’s opinion in United States v. United Techs. Corp., No. 13-4057 (6th Cir. Apr. 6, 2015) can be accessed here.

In 1999, the United States filed a lawsuit against Pratt & Whitney (“P&W”), now owned by United Technologies, alleging that Pratt violated the False Claims Act by falsely certifying that it had corrected previously misstated projected costs in a 1983 bid to supply engines for the Air Force’s F-15 and F-16 fighter jets. The Air Force ultimately chose to divide its engine orders between P&W and another manufacturer, and each year, issued a “call for improvement” that requested more favorable terms than the prior year’s “best and final offer” from P&W and the other manufacturer. The Air Force certified each year that P&W’s prices were “fair and reasonable” based on the “market test between competitors.”

In 1998, the government filed an administrative action against P&W with the Armed Services Board of Contract Appeals alleging that P&W misrepresented that it had corrected problems in its initial bid and used its most accurate cost data to develop its best and final offer prices. However, the Board rejected the government’s claim, holding that P&W alleged misstatements did not cause any damages because the Air Force had relied on competitive forces, rather than the erroneous price and cost data, in awarding its contracts. Therefore, Board concluded, the prices that the Air Force paid for the engines were not inflated by the alleged fraud. The Federal Circuit affirmed the Board’s determination.

In 1999, the government filed a separate lawsuit in federal district court alleging violations of the FCA and for common law restitution. In 2008, the district court held P&W liable under the FCA, but found that the government had suffered no actual damages and awarded the government only $7 million in statutory penalties. The district court also determined that the government’s claims for restitution were barred by claim preclusion because they should have been litigated before the Board. See United States v. United Techs. Corp., No. 3:99-cv-093, 2008 WL 3007997 (S.D. Ohio Aug. 1, 2008). The government appealed, and in 2010, the Sixth Circuit affirmed liability, but found that the government’s restitution claims were not barred by claim preclusion and remanded the case back to the district court. See United States v. United Techs. Corp., 626 F.3d 313 (6th Cir. 2010). On remand, the district court held that the Board and Federal Circuit litigation did not resolve whether P&W misstatements caused the government damages and therefore rejected P&W’s issue preclusion defense. In addition to the $7 million originally awarded, the government was awarded $657 million in treble damages, restitution, and prejudgment interest. See United States v. United Techs. Corp., 950 F. Supp. 2d 949 (S.D. Ohio 2013).

On appeal from the 2013 judgment, the Sixth Circuit affirmed the district court’s holding that issue preclusion did not bar the government’s damages claim under the FCA and common law restitution. However, the Sixth Circuit held that the district court had, mistakenly, exclusively relied on the government’s damages estimate, which failed to take into account the role that competition between P&W and the other manufacturer played in determining reasonable and fair prices, and whether that competition mitigated the damages to the government. Citing the protracted litigation and the decades that had passed since the fraud, the court was “tempted” to end the case with the government receiving the $7 million in statutory penalties under the FCA. Further, the court stated that “the government had every opportunity to put on an expert to show whether affected its damages,” but it had “refused to do so.” However, the Sixth Circuit ultimately decided that the district court, which presided over the remand litigation, was in a better position to decided whether the government should have another chance to prove its damages after taking into account the role of competition. The Sixth Circuit reversed the lower court’s judgment and remanded the case for further proceedings.

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