Chastising DOJ for asking eighteen times to extend the seal period, the Fifth Circuit recently held that due to its “dilatory conduct,” DOJ could not avail itself of the FCA’s tolling provision. In the same opinion, the court held that continued reimbursement does not defeat materiality where there are “valid reasons why an agency may continue to pay claims despite allegations of fraud.”
The relator alleged that the defendants, including a critical access hospital, violated the FCA by (1) inflating supply costs, (2) “ping-ponging” patients between nursing homes and the critical access hospital to manipulate the facilities’ “swing bed” status, and (3) improperly waiving copays and deductibles. Eight years after it first moved to extend the seal period, DOJ intervened. DOJ’s intervenor complaint alleged that the defendants “abused the special Medicare rules for Critical Access Hospitals by improperly claiming . . . compensation for work not performed.” The government prevailed at trial and defendants appealed.
Defendants’ appeal rested in part on Escobar’s oft-cited holding that the government’s regular payment of claims—despite actual knowledge that certain requirements were violated—“is strong evidence that the requirements [were] not material.” The defendants argued that Medicare continued to reimburse the critical access hospital well after the allegations in relator’s complaint were brought forward, even as DOJ conducted its eight-year investigation, and that Escobar thus foreclosed a finding of materiality.
Disagreeing, the Fifth Circuit averred that while “Escobar articulated that continued payment despite knowledge of fraud often indicates lack of materiality, ‘often’ does not mean ‘always.’” The court explained that it was not clear that the Centers for Medicare and Medicaid Services (CMS) or its contractor was “cognizant” of the defendants’ fraud. Moreover, without continued reimbursement, the critical access hospital “would have probably closed.” “Stopping reimbursement upon the first allegations of fraud would thus have undermined CMS’s goal of sustaining healthcare access for underserved rural patients.”
The court then addressed the defendants’ argument that the FCA’s six-year statute of limitations cut off liability at September 2009 (i.e., six years before DOJ filed its intervening complaint). DOJ countered that the September 2009 cutoff did not apply because the intervening complaint related back to the date of the relator’s complaint. Agreeing with the defendants, the court noted that the FCA provides that a DOJ complaint-in-intervention relates back only to the extent that DOJ’s claim “arises out of the conduct, transactions, or occurrences” alleged in the relator’s complaint. Here, because DOJ brought claims absent from the relator’s complaint, DOJ’s claims did not relate back.
The Fifth Circuit next assessed whether the FCA’s tolling provision (potentially extending the statute of limitations to ten years) saved DOJ’s pre-September 2009 claims. To avail itself of the tolling period, DOJ must file within “3 years after the date when facts material to the right of action are known or reasonably should have been known by the office of the United States charged with responsibility to act in the circumstances.” The court added that DOJ “must also have acted with due diligence to preserve its claim.” Pointing to one of DOJ’s memoranda in support of extending the seal period, the court noted that a DOJ expert recommended intervention as early as August 2011. The court thus concluded that DOJ must have known the action’s material facts by August 2011, but neither intervened within three years nor offered an “explanation for how, despite [its] knowledge, it was nonetheless diligent in investigating and asserting its claims.”
Indeed, the defendants also argued on appeal that the district court should have dismissed DOJ’s complaint because DOJ lacked “good cause”—required by the FCA—for the eighteen extensions of the seal period. The Fifth Circuit’s response is noteworthy: “We agree that the Government’s incessant delay in intervening is inexcusable . . . . And we lament that, faced with eighteen increasingly rote requests for extension of the seal period, the district court enabled the Government’s gamesmanship.” Yet the Fifth Circuit declined to sanction dismissal, citing both (1) defendants’ failure on appeal to “pinpoint” when the district court’s “cumulative indulgence of the Government’s snail’s pace rose to an abuse of discretion” and (2) the lack of precedent for dismissal because of delays in making an intervention decision.
The Fifth Circuit’s opinion is available here.
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