May 292015

Over Government’s Objection, District Court Permits Bifurcation of Trial Between Proof of Falsity and Other FCA Elements

Scott D. Stein and Brenna E. Jenny
, , , ,

Posted by Scott Stein and Brenna Jenny

A court in the Northern District of Alabama recently granted defendant AseraCare’s motion to bifurcate its trial, limiting the government in the first phase to proving the element of falsity as to its sample of claims.

As we previously reported here, the government intervened in a qui tam suit against AseraCare, which alleged that the hospice provider submitted claims for patients who did not meet the criteria for medically indicated hospice care. In December 2014, the court permitted the government to attempt to establish FCA liability by extrapolating from a sample of 233 claims. AseraCare subsequently moved to bifurcate the falsity element from the other elements of the case. According to AseraCare, it would be prejudiced and the jury confused if, prior to a jury determination that false claims had actually been submitted, the government were permitted to present evidence of general corporate practices. In opposing the motion, the government argued that its own prejudice from a bifurcated trial would outweigh any to AseraCare because the issues of falsity and knowledge are interwoven, and evidence of patterns and practices would advance its case as to both elements.

The court disagreed that “the existence of the scheme,” if it could be established through evidence of corporate practices, also “proves the falsity of the claims.” Because the government had limited itself to a narrow sample of 233 patients, the court ruled that evidence of general corporate practices, including from locations that did not treat these patients, was best left to a separate trial phase encompassing the issue of whether AseraCare knew it was submitting false claims.

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

Scott D. Stein

Chicago

sstein@sidley.com

Brenna E. Jenny

Washington, D.C.

bjenny@sidley.com

You might also like
Fourth Circuit En Banc Vacates Application of Safeco to FCA Cases

The Fourth Circuit, evenly divided while sitting en banc, recently unwound a panel decision finding that Safeco’s “reckless disregard” standard applies to the False Claims Act (“FCA”).

In January 2022, a panel of the Fourth Circuit held, joining every other circuit to have considered the issue, that when allegations of false claims are premised on violations of ambiguous laws or regulations, the defendant’s scienter is properly assessed using the standard for “reckless disregard” established by the Supreme Court in Safeco Insurance Company of America v. Burr, 551 U.S. 47 (2007).  Under Safeco, courts ask whether a defendant’s interpretation of the ambiguous law or regulation at issue was objectively reasonable and whether authoritative guidance might have warned the defendant away from that interpretation.  As discussed here, applying Safeco, the panel affirmed the district court’s dismissal of the case.

New Pharmacy, Same Result: Seventh Circuit Holds That Objective Reasonableness Dooms “Usual and Customary” Pricing Case

On April 5, 2022, in a 2-1 decision, the Seventh Circuit applied the precedent it set in United States ex. rel. Schutte v. SuperValu Inc., 9 F.4th 455 (7th Cir. 2021) (discussed here) and found once again that a defendant retail pharmacy did not act with “reckless disregard” under the False Claims Act (“FCA”) by interpreting Medicare Part D and Medicaid “usual and customary” price requirements as allowing it to charge those programs its retail cash prices rather than prices offered through discount programs. United States ex rel. Proctor v. Safeway, Inc., No. 20-3425, 2022 WL 1012256 (7th Cir. Apr. 5, 2022).

Fourth Circuit Applies Safeco to FCA Claims, Accuses CMS of “Maintaining Strategic Ambiguity” Around Medicaid Drug Rebate Program Requirements

In a recent 2-1 decision, the Fourth Circuit joined every other circuit to have considered the issue in applying Safeco’s “reckless disregard” standard to legally false FCA claims based on alleged violations of ambiguous laws and regulations.  Under Safeco, courts ask whether a defendant’s interpretation of the ambiguous law or regulation at issue was objectively reasonable and whether authoritative guidance might have warned the defendant away from that interpretation.  The Fourth Circuit found that the Safeco standard “duly ensures that defendants must be put on notice before facing liability for allegedly failing to comply with complex legal requirements.  Without such notice, defendants are not likely to receive due process.”