The question of when an overpayment becomes “identified” for purposes of False Claims Act liability has generated significant uncertainty, and one district court just added more fodder for debate. See UnitedHealthcare Ins. Co. v. Price, No. 16-cv-157 (D.D.C. Mar. 31, 2017). The Affordable Care Act (“ACA”) requires persons to report and return overpayments from Medicare or Medicaid within 60 days of identification, and the failure to do so can trigger FCA liability. The ACA delegated to CMS the task of defining when an entity has “identified” an overpayment. CMS promulgated two rules (in May 2014 for Medicare Advantage (“MA”) plans and Part D Sponsors and in February 2016 for Medicare Part A/B providers), which equate “identification” to circumstances in which a person “has, or should have through the exercise of reasonable diligence, determined that the person has received an overpayment.” The “should have identified” standard generated concerns that CMS was using a simple negligence standard. The FCA, however, requires proof of at least “reckless disregard,” which courts have equated to gross (not merely simple) negligence.
As we previously discussed here, the government’s continued payment despite knowledge of contractual or regulatory noncompliance has become a powerful defense argument post-Escobar. The Fourth Circuit recently affirmed summary judgment in favor of government contractors after they obtained declarations from responsible government officials that undercut the relator’s theories of liability. See United States ex rel. Searle v. DRS C3 & Aviation Co., No. 15-2442 (4th Cir. Feb. 23, 2017).
The extent to which statistical sampling can be used to establish FCA liability remains a hotly disputed topic among federal courts. In a closely watched case, the Fourth Circuit last week declined to become the first circuit court directly to address the issue. See United States ex rel. Michaels v. Agape Senior Cmty., Inc., No. 15-2145 (4th Cir. Feb. 14, 2017).
Historical government payment practices have gained new importance following the Supreme Court’s guidance in Escobar that such practices can preclude a finding that regulatory compliance was material to the payment of an allegedly false claim. Evidence regarding the government’s prior knowledge of regulatory violations and continued payment can also bear on the mens rea element of an FCA claim. Perhaps not surprisingly in light of the importance of this evidence, DOJ recently tried—unsuccessfully—to block a defendant’s efforts to discover information relating to historical payment determinations by CMS Medicare Administrative Contractors (“MACs”). See United States ex rel. Ribik v. HCR ManorCare, Inc., No. 09-cv-13 (E.D. Va. Feb. 3, 2017).
In a recent opinion, the First Circuit significantly constrained the scope of the fraud-on-the-FDA theory of liability, which posits that had the FDA known of the defendant’s alleged violation of the Food, Drug, and Cosmetic Act (“FDCA”), it would not have approved the defendant’s product, such that no claims for that product would have been covered by federal healthcare programs. See United States ex rel. D’Agostino v. ev3, Inc., No. 16-1126 (1st Cir. Dec. 23, 2016). The court imposed a rigorous causation standard on fraud-on-the-FDA claims, requiring relators to show that FDA took “official action” after discovering that a manufacturer had submitted fraudulent information to the agency. This standard mirrors the new materiality standard set forth by the Supreme Court in Escobar, in that both require relators to ground their allegations in how the government reacted to learning of the alleged fraud.
As we reported here, in its ruling in Universal Health Services, Inc. v. United States ex rel. Escobar last June, the Supreme Court affirmed the viability of the implied certification theory of liability under the FCA, but remanded the case to the First Circuit to apply the Court’s newly-articulated framework for analysis of such claims. Last week, the First Circuit ruled that even under the Supreme Court’s demanding test for liability, the relators still stated a cognizable implied certification claim, and therefore reversed the district court’s dismissal of the relators’ complaint. Critical to the First Circuit’s ruling was its view that evidence of the government’s payment practices when faced with similar alleged violations are less important to the analysis than the court’s assessment of the centrality of a regulation to the contractual relationship between the government and the defendant.
As we reported here and here, the question of whether statistical sampling can be used to establish FCA liability became intertwined in a Fourth Circuit interlocutory appeal challenging the government’s assertion that it has unfettered authority to veto FCA settlements. United States ex rel. Michaels v. Agape Senior Cmty., Inc., No. 15-2145 (4th Cir.). During oral arguments last week, the Fourth Circuit panel demonstrated a clear preference for avoiding the sampling component of the appeal, likely leaving the lower courts to continue to develop a piecemeal approach.
The ability to invoke the FCA’s statute of limitations defense often hinges on the timing of when “the official of the United States” knew or should have known of the alleged fraud. Most courts have sided with the government’s interpretation of “the official of the United States” as meaning only the Attorney General or his or her designees. A district court recently sided with the majority interpretation, but in so doing, affirmed avenues of discovery outside of DOJ Civil that should have put the government on notice of a potential FCA claim. See United States v. Kellogg Brown & Root Services, Inc., No. 12-cv-04110 (C.D. Ill. Sept. 16, 2016).
As we previously reported here, DOJ is appealing its defeat in AseraCare, in which the district court concluded that “expressions of opinion, scientific judgments, or statements as to conclusions about which reasonable minds may differ cannot be false,” and that the government had marshaled nothing more than a difference of opinion between its own expert and the defense’s. On appeal to the Eleventh Circuit, DOJ is arguing forcefully for rejection of the view that disputes about medical necessity cannot serve as the basis for an FCA claim.
The Eighth Circuit recently affirmed a district court’s grant of summary judgment because the “defendant’s reasonable interpretation of an ambiguous regulation ‘belies the scienter necessary to establish a claim of fraud under the FCA.’” The opinion further reinforces a similar ruling the Eighth Circuit released last week (as reported here) and rejects objections from DOJ that such a holding “absolves defendants of liability whenever they can justify their conduct with a plausible post-hoc interpretation of an ambiguous law.” United States ex rel. Donegan v. Anesthesia Assoc. of Kansas City, No. 15-2420 (8th Cir. Aug. 12, 2016).