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).
As we reported here, DOJ recently implemented steep increases to FCA penalties as required by the Bipartisan Budget Act of 2015, effectively doubling the prior rates. Constitutional challenges to FCA penalties under the Excessive Fines and Due Process clauses have traditionally not fared well. Supreme Court case law calls on courts to examine the ratio between punitive and compensatory damages when assessing such challenges, and the steep hikes in penalties may alter how courts adjudicate these claims. In an article available here, we discuss the future of constitutional challenges to FCA judgments in light of the starkly higher penalty range.
As we reported here, the Bipartisan Budget Act of 2015 (“the Act”) required all federal agencies to increase the civil monetary penalties within their purview. While the adjustment is painted as a “cost-of-living adjustment,” the first step up is a jarring one: agencies must take penalties as they were last adjusted by law (other than under the Inflation Adjustment Act), and increase each penalty by the change in the Consumer Price Index (“CPI”) since that time. The Act requires agencies to make adjustments effective no later than August 1, 2016. Yesterday DOJ released an interim final rule (available here), announcing adjustments to the penalties it enforces, including penalties under the FCA.
We previously reported on the Supreme Court’s opinion earlier this year in Tyson Foods v. Bouaphakeo, a non-FCA case that upheld the use of statistical sampling to establish liability in a Fair Labor Standards Act suit, but which offered important narrowing limitations that we argued were applicable to FCA cases (see here). Relying in part on Tyson Foods, a district court recently refused to allow a relator to use extrapolation to establish FCA liability, finding that extrapolation was inappropriate in a case based on claims of medical necessity. See United States ex rel. Wall v. Vista Hospice Care, Inc., No. 07-cv-00604 (N.D. Tex. June 20, 2016).
DOJ recently filed an amicus brief urging the First Circuit to revive a suit premised on the contention that an agency would have acted differently had it known of defendant’s fraud. See Brief for the United States as Amicus Curiae Supporting Neither Party, United States ex rel. D’Agostino v. ev3, Inc., No. 16-1126 (1st Cir. 2016). The government warns the First Circuit that adopting the district court’s reasoning in dismissing a “fraud-on-the-FDA” theory of liability would have wide-ranging consequences and “categorically foreclose claims that involve federal agency oversight of a defendant’s conduct.” Although courts generally agree that mere regulatory violations, standing alone, cannot serve as the predicate for FCA liability, relators often try to leverage so-called “fraud-in-the-inducement” theories (discussed further here) to repackage regulatory violations into ostensibly valid FCA claims. DOJ has so far suffered losses when advocating for a similar theory of liability in the context of FCA claims based on violations of current Good Manufacturing Practices (“cGMP”) (as discussed here and here), and DOJ’s latest effort to protect FCA liability where it touches on FDA’s discretionary decisions could have broad impact on cases alleging fraud within the context of agency enforcement. In addition, the effort by DOJ here to recast off-label promotion as a “fraud-on-the-FDA” also appears part of an evolving effort to maintain the viability of off-label claims in the face of growing judicial refusal to sanction off-label promotion as the predicate for FCA liability.
In the wake of Warner Chilcott’s civil settlement and guilty plea last fall, DOJ made headlines with the indictment of former Warner Chilcott executive Carl Reichel for his alleged role in the company’s violations of the Anti-Kickback Statute (“AKS”) (as discussed here). The indictment closely followed the announcement by Deputy Attorney General Sally Yates that the government was implementing a new commitment to prosecute individuals where appropriate (as discussed here). Today the government’s highest-profile test case fell short, with a jury acquitting Reichel after less than one day of deliberations.
This morning Justice Thomas announced a unanimous opinion in Universal Health Services, Inc. v. United States ex rel. Escobar. The Supreme Court held that implied certifications can violate the False Claims Acts in limited circumstances—when the “rigorous” and “demanding” materiality standard is met.