Catherine Kim

06 October 2015

California District Court Denies Government’s Request to Maintain Documents Under Seal

On September 25, 2015, a Central District of California judge denied the government’s request to maintain documents under seal in a declined qui tam suit, on the basis that the documents describe only routine investigative methods of the government.  See United States ex rel. Hong v. Newport Sensors, Inc. et al., No. 13-cv-01164-JLS-JPR (C.D. Cal. Sept. 25, 2015).  This order followed the court’s prior denial of an attempt by the government to maintain the seal for a failure to show good cause to limit the unsealing to only specific documents.


14 July 2015

Court Declares No HIPAA Violation for Relators Who Retained Protected Health Information

Posted by Scott Stein, Meenakshi Datta, and Catherine Kim

A recent opinion examines the interplay between the Health Insurance Portability and Accountability Act (“HIPAA”) and the False Claims Act (“FCA”). Relators Pam Howard and Eben Howard filed a wrongful termination action against Arkansas Children’s Hospital – a covered entity under HIPAA – alleging that they were terminated after expressing concern about the hospital’s billing practices in violation of the FCA and several other statutes. The relators allege that they were terminated from their positions after raising concerns regarding the manner in which the hospital billed the federal government. The Howards shared with an attorney protected health information (“PHI”) that they had retained in anticipation of their lawsuit.


04 September 2014

Seventh Circuit Limits “Worthless Services” Theory, Heightens The Bar For Public Disclosure

Posted by Scott Stein and Catherine Kim

Several circuit courts have recognized the “worthless services” theory of FCA liability, which allows qui tam relators to assert FCA claims premised on the notion that the defendant received reimbursement for goods or services that were worthless. In a recent case, U.S. ex rel. Absher v. Momence Meadows Nursing Center, Inc., the Seventh Circuit held that assuming the theory is viable in the Seventh Circuit (an issue it declined to decide), it does not apply to situations in which deficient performance of a contract is alleged to have resulted in services “worth less” than what was contracted for. As the court succinctly put it, “[s]ervices that are ‘worth less’ are not ‘worthless.'”

The case was originally filed by two nurses who formerly worked at Momence, alleging that the nursing home knowingly submitted false claims to Medicare and Medicaid by seeking reimbursement for treatment that allegedly failed to comply with standards of care. Although the United States and Illinois declined to intervene, the relators proceeded to trial. The jury reached verdicts against Momence and awarded over $3 million in compensatory damages, which was trebled under the FCA.

On appeal, Momence argued that the district court lacked jurisdiction under the public disclosure bar because the FCA action was based on allegations of non-compliant care that were the subject of previous government reports. The Seventh Circuit, however, continuing its streak of recent opinions narrowing the scope of the public disclosure bar, held that the bar was not implicated because the reports did not disclose “that Momence had the scienter required by the FCA.”

The court then proceeded to assess whether the relators’ claims failed as a matter of law. Although the Seventh Circuit declined to address the viability of a worthless services theory of FCA liability – “a question best saved for another day” – it nevertheless concluded that even if that theory was valid, “[i]t is not enough to offer evidence that the defendant provided services that are worth some amount less than the services paid for.” Because the court concluded that the relators failed to offer evidence establishing that Momence’s services were “truly or effectively ‘worthless[,]'” it held that the worthless services theory could not support the jury’s verdict.

Similarly, the court found that the relators’ evidence in support of the express certification theory was also insufficient because the relators not only failed to put forth evidence of “precisely how many . . . forms contained false certifications[,]” but they also failed to identify “even a roughly approximate number of forms contain[ing] false certifications.” While the court acknowledged the difficulty in producing evidence that supports “even an approximate finding[,] . . . under the FCA, the plaintiff must ‘prove all essential elements of the cause of action . . . by a preponderance of the evidence.'”

Lastly, with respect to the implied certification theory, the court acknowledged that it had not expressly determined whether such theory is recognized in the Seventh Circuit. However, it declined to answer the question here since the realtors did not argue to the jury that the purported implied certifications were conditions of payment, thereby waiving the theory on appeal.

The Seventh Circuit vacated the judgment and remanded the case for judgment to be entered for the defendants. Although the court did not definitively preclude the possibility of a plaintiff prevailing on a worthless services theory in the Seventh Circuit, the reasoning contained in its ruling strongly suggests that such theory, if recognized, would likely be reserved for the most extreme cases.

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

26 June 2014

Fourth Circuit Dismisses Case Despite Applying Narrow Interpretation of Public Disclosure Bar

Posted by Jaime Jones and Catherine Kim

In a June 23, 2014 opinion, the Fourth Circuit affirmed the dismissal of qui tam claims against suppliers of the National Center for Employment of the Disabled (“NCED”) and the National Industries for the Severely Handicapped (“NISH”) under the FCA’s public disclosure bar, as well as the relator’s failure to satisfy the relevant pleading requirements.

The relator initially filed this qui tam suit on June 20, 2006, alleging that NCED engaged in various schemes to defraud the government, primarily by receiving payments under the Javits-Wagner-O’Day Act (“JWOD”) program despite failing to comply with JWOD regulations. Prior to the filing, however, various newspapers published articles discussing NCED’s lack of compliance with JWOD program requirements. A criminal investigation followed and in 2010, a jury convicted NCED’s former CEO of making false statements and conspiracy to defraud the government.

In light of such events, NISH and the supplier defendants filed motions to dismiss, asserting that the district court lacked subject matter jurisdiction pursuant to the public disclosure bar and that the relator’s first amended complaint suffered from various pleading defects. The district court granted the defendants’ motions, and the relator appealed.

In reviewing the district court’s decision, the Fourth Circuit adopted an interpretation of the FCA’s public disclosure provision that “stands in contrast to the broader tests applied by our sister circuits[.]” Specifically, while other circuits generally assess whether the allegations are “supported by” or “substantially similar” to fraud that has already been publicly disclosed, the Fourth Circuit asked whether the relator’s allegations were “actually derived from the public disclosure itself.”

With respect to the claims against NISH and three supplier defendants, the court held that the district court lacked subject matter jurisdiction over such claims because the relator had apparently relied on and even cited to information appearing in public disclosures and had not demonstrated “direct and independent knowledge” of the alleged fraud. Although the court concluded that the relator was an original source with respect to the claims against Weyerhaeuser Co., it nonetheless dismissed such claims as well due to various pleading defects.

The Fourth Circuit’s narrower reading of the public disclosure provision could present challenges to FCA defendants, depending on how lower courts ultimately apply the “derived from” standard adopted in this case. While it is unclear which interpretation of the public disclosure bar will ultimately prevail among the circuit courts, we will continue to monitor this issue and provide updates on any new developments.

16 April 2014

DC Circuit Opens Circuit Split on FCA’s First-to-File Bar

Posted by Scott Stein and Catherine Kim

We previously reported on the federal district court’s decision in U.S. ex rel. Shea v. Verizon Business Network Services, Inc. (“Verizon II“), which held that the FCA’s first-to-file rule barred a relator from filing a qui tam action based on his filing of an earlier related qui tam (“Verizon I“), despite the fact that the first-filed suit was no longer “pending.” Shea contended on appeal that the district court erred in dismissing Verizon II with prejudice since Verizon I was no longer pending when Shea filed his operative second amended complaint.

On April 11, 2014, the District of Columbia Circuit Court of Appeals upheld the district court’s dismissal in a 2-1 decision, adopting the position that the first-to-file bar applies an earlier-filed related suit, even after the original action is no longer “pending.” In so holding, the court expressly disagreed with contrary holdings by the Fourth, Seventh, and Tenth Circuits. See In re Natural Gas Royalties Qui Tam Litigation, 566 F.3d 956 (10th Cir. 2009); U.S. ex rel. Chovanec v. Apria Healthcare Grp., Inc., 606 F.3d 361 (7th Cir. 2010); U.S. ex rel. May v. Purdue Pharma L.P., 737 F.3d 908 (4th Cir. 2013).

After concluding that Verizon I and Verizon II were “related” within the meaning of the FCA, and that the first-to-file bar applied even when the relator in the earlier and later-filed qui tams was the same, the court proceeded to analyze the proper interpretation of the term “pending.” The court rejected Shea’s reading that the first-to-file bar ceases to apply after the first action is settled, in favor of a less temporal interpretation. Specifically, the court held that “the bar commences ‘when a person brings an action . . . ‘ and thence forth bars any action ‘based on the facts underlying the pending action.'”

The court reasoned that if Congress had intended to make the first-to-file bar temporal, it would have done so expressly as it has done in other contexts, such as barring certain actions in the Court of Federal Claims. The court also concluded that its reading “better suits the policy considerations undergirding the statute[,]” namely preventing duplicative suits once the government is on notice of the alleged fraud.

Circuit Judge Srinivasan dissented on this point, asserting that both a plain reading and the broader statutory context favored Shea’s interpretation that the first-to-file bar ceases to apply once the initial action is no longer pending. According to Judge Srinivasan, the FCA provision with “chief responsibility” for “weed[ing] out copycat actions” is the public disclosure bar, not the first-to-file bar.

It remains to be seen which of the competing approaches taken by the circuit courts will prevail, but we will continue to monitor this important issue and provide updates on any new developments. In the meantime, the D.C. Circuit’s decision provides significant protections for defendants by prohibiting relators from bringing suit when the government has already been put on notice of the relevant facts supporting the relator’s claims.

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

06 August 2013

Pennsylvania District Court Rejects Plaintiff’s Theory for Tolling FCA Statute of Limitations under Wartime Suspension of Limitations Act

Posted by Scott Stein and Catherine Kim

In contrast to the Fourth Circuit’s holding in United States ex rel. Carter v. Halliburton, No. 12-1011 (4th Cir. Mar. 18, 2013), which we previously wrote about here, a district court in the Western District of Pennsylvania recently declined to apply the tolling provisions of the Wartime Suspension of Limitations Act (WSLA) to a False Claims Act case. United States ex re. Emanuele v. Medicor Associates, et al., No. 10-245 (W.D. Pa. July 26, 2013).

A qui tam was originally filed under seal on October 8, 2010 by a cardiologist employed at Medicor, who alleged that Medicor had entered into various “sham” contractual arrangements with a medical center for the purpose of providing kickbacks to induce patient referrals. The relator also alleged that Medicor knowingly submitted false claims to Medicare and other federal healthcare programs for medically unnecessary procedures.

After the government elected not to intervene in the case, each of the defendants filed a motion to dismiss for failure to state a claim, arguing, among other things, that the relator’s claims were barred by the FCA statute of limitations. The district court agreed, ruling that the claims based on conduct that occurred prior to October 8, 2004 were time barred and that the relator’s remaining claims failed to satisfy the specific pleading requirements of Rule 9(b). However, the court provided the relator an opportunity to cure the deficiencies in his Complaint.

In addition to filing an Amended Complaint, the relator also filed a Supplemental Opposition to the Defendants’ Motion to Dismiss, asserting that the FCA statute of limitations should be tolled under the WSLA in accordance with the Fourth Circuit’s decision in Carter, thereby allowing the relator to file claims for conduct that occurred as far back as October 11, 2002.

Prior to amendment in 2008, the WSLA provided:

When the United States is at war . . . the running of any statute of limitations applicable to any offense (1) involving fraud or attempted fraud against the United States . . . shall be suspended until three years after the termination of hostilities as proclaimed by the President or by a concurrent resolution of Congress.

18 U.S.C. § 3287 (2007).

However, after reviewing the Fourth Circuit’s split decision, the Pennsylvania district court agreed with the Carter dissent that the legislative history and Congressional intent behind both the WSLA and the FCA “caution against application of the WSLA’s tolling provisions to private FCA claims” in light of the fact that neither the WSLA nor its legislative history include any reference to private actions. The district court also highlighted that the policies underlying the FCA would be thwarted by allowing private relators to benefit from the WSLA’s tolling provisions, as relators would subsequently have incentive to postpone the filing of FCA claims in order to increase their potential recovery. Moreover, the district court found that its interpretation of the WSLA was consistent with its earlier conclusion that the tolling provisions of the FCA do not apply where the United States is not a party to the action.

It remains to be seen whether courts in other jurisdictions that have yet to address this issue will adopt the interpretation of the Fourth Circuit or the Pennsylvania district court when assessing the potential applicability of the WSLA to private FCA actions. However, this issue bears monitoring given the significance of the statute of limitations to both liability and damages.

14 June 2013

First Circuit Upholds Limits on Whistleblower Discovery

On June 12, 2013, the First Circuit in United States ex rel. Duxbury v. Ortho Biotech Products, L.P., No. 12-2141, held that the district court properly limited discovery on the relator’s FCA claims to only those time periods and regions of the country as to which relator could be considered an “original source.”

Relator, a former employee of manufacturer Ortho Biotech Products, based his FCA claims in part on allegations that OBP delivered kickbacks to doctors in various forms to induce prescriptions of OBP’s anemia drug, Procrit. In 2007, the District of Massachusetts dismissed the kickback-related allegations for failure to plead fraud with sufficient particularity. The First Circuit reversed that decision, finding that the complaint properly set forth allegations of kickbacks that resulted in false claims by eight healthcare providers in the western U.S. between 1992 and 1998. The Court then remanded the case to the district court for consideration of discovery and statute of limitations issues.

On remand, Judge Zobel found that the temporal scope of discovery properly was limited to a roughly seven month period in late 1997 and early 1998. The district court reasoned that claims accruing prior to this time frame were barred by the FCA’s statute of limitations, and claims arising afterwards fell outside the scope of the court’s subject matter jurisdiction, because relator could not be an “original source” of claims arising after his termination. Additionally, the court limited relator’s discovery to the facts arising in the western United States because he only had “direct and independent knowledge” of OBP’s activities there. At the close of discovery, the parties stipulated that relator had not identified and did not possess any admissible evidence to support his remaining claims. OBP moved for summary judgment, which the district court granted.

Relator appealed, contending that the district court erroneously had applied the “original source” rule in determining the scope of its subject matter jurisdiction. Without reaching the merits of the district court’s subject matter jurisdiction, the First Circuit held that the limitations imposed by the district court were well within its “broad discretion in managing discovery.” Specifically, the First Circuit found the district court was not required to “expand the scope of discovery based upon the amended complaint’s bald assertions that the purported kickback scheme continued after [relator’s] termination or was ‘nationwide’ in scope.” Accordingly, the Court found that relator’s claims “evaporated” with the failure to uncover any admissible evidence to support the allegations in the complaint by the close of discovery, and upheld the grant of summary judgment for the defendant.

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

11 April 2013

Sixth Circuit Reverses Summary Judgment After Failing to Find Any Violation of a Condition of Payment

Posted by Scott Stein and Catherine Kim

Under a “false certification” theory of FCA liability, a party certifies compliance, expressly or impliedly, with a statute or regulation as a condition of government payment where it has not actually complied. Over the past few years, we have witnessed a split among the circuits in such “false certification” cases over what constitutes a “condition of participation,” as opposed to a “condition of payment,” as only the latter can form the basis of an FCA action. In light of its recent ruling in United States ex rel. Hobbs v. MedQuest Assoc., No. 11-6520 (6th Cir. Apr. 1, 2013), the Sixth Circuit joins the list of circuits imposing stricter standards on plaintiffs seeking to meet the “condition of payment” requirement.

On April 1, 2013, Judge Rogers reversed a district court’s grant of summary judgment against MedQuest in a qui tam case based on false certification. In this case, the Government alleged that MedQuest had filed two types of false claims for reimbursement under Medicare Part B: (1) claims that were false because two of MedQuest’s independent diagnostic testing facilities (“IDTF”) had used physician supervisors who had not been approved by the local Medicare carrier; and (2) claims that were false because they were submitted by an IDTF that was not properly enrolled in Medicare and were filed under a physician’s billing number. Under the Government’s theory, in both scenarios MedQuest failed to comply with Medicare conditions of payment.

Although the district court agreed with the Government, the Sixth Circuit held that MedQuest’s actions merely violated Medicare conditions of participation and were thus “addressable by the administrative sanctions available” rather than through the “extraordinary remedies of the FCA[.]” Specifically, the court found that the Medicare Enrollment Application’s required certification that the IDTFs “abide by the Medicare laws, regulations and program instructions” did not
“condition . . . payment on compliance with any particular law or regulation” (emphasis in original). Moreover, after determining that the Medicare supervising-physician regulations could only constitute a condition of payment under a “cut-and-paste approach” to statutory interpretation, the court concluded that “it is not reasonable to expect Medicare providers to attempt such an approach . . . in their efforts to comply with the FCA.”

The court also held that MedQuest’s submission of claims under a physician’s billing number at most represented a failure to update the facility’s enrollment information in the Medicare program. In the absence of a regulation conditioning Medicare payment on the provision of an accurate enrollment form, MedQuest could not be found liable under the FCA.

“‘[T]he False Claims Act is not a vehicle to police technical compliance with complex federal regulations[,]'” wrote Judge Rogers, quoting from another Sixth Circuit case. “[W]here, as in this case, the violations would not ‘natural[ly] tend[] to influence’ CMS’s decision to pay on the claims, . . . the ‘blunt[ness]’ of the FCA’s hefty fines and penalties makes them an inappropriate tool for ensuring compliance with technical and local program requirements[.]” While this line of Sixth Circuit cases will prove valuable to defendants facing FCA claims based on false certification, it is important to note that other jurisdictions like the First Circuit continue to adhere to a broader interpretation of a condition of payment, as highlighted here. Importantly, it remains to be seen which approach will become the dominant one among the remaining circuits that have yet to address this issue.

20 November 2012

District Court Dismisses Off-Label FCA Claims After Concluding That Industry Guidelines Do Not Constitute A Legal Restriction

Posted by Scott Stein and Catherine Kim

In August, we wrote about a decision in which a court rejected the government’s theory that submission of claims for services that failed to comply with industry guidelines were “false.” Last week, another plaintiff seeking to impose FCA liability based on violation of voluntary guidelines suffered a similar defeat.

On November 14, Judge Brian Cogan of the Eastern District of New York dismissed the relator’s Fifth Amended Complaint in United States ex rel. Polansky v. Pfizer, Inc., No. 04-cv-0704 (E.D.N.Y. Nov. 14, 2012) alleging that Pfizer engaged in off-label marketing of its popular statin Lipitor in violation of the False Claims Act. The complaint alleged that Pfizer engaged in off-label marketing by encouraging physicians to prescribe Lipitor to lower the cholesterol of patients whose risk factors for heart disease and cholesterol levels did not fall within the National Cholesterol Education Program (“NCEP”) Guidelines. Specifically, the relator contended that the publication of an NCEP Guidelines chart in Lipitor’s 2005 label prohibited Pfizer from marketing the drug to physicians for use on patients who fell outside the parameters of the guidelines. Though such guidelines were not republished in the 2009 label, the relator noted that they were still referenced in the Dosage and Administration section.

Concluding that “[o]ff-guideline use does not equate to off-label[,]” the court dismissed the complaint, holding that the NCEP Guidelines did not constitute a legal restriction, but were “merely informational and advisory[.]” The court noted that had the FDA desired to limit Lipitor use to patients falling within the NCEP guidelines, it could have done so expressly. Yet the 2009 label, as read by the court, contained no restrictions regarding the appropriate patient population for Lipitor. Indeed, the only reference to the guidelines appeared in a four-word parenthetical in the label’s dosage instructions.

For these reasons, the court held that the relator’s off-label claims failed under the 2009 label. And since the relator conceded that the changes to the 2009 label from the earlier label were not substantive, the court concluded that the relator’s claims must fail under the 2005 label as well.

“The False Claims Act, even in its broadest application, was never intended to be used as a back-door regulatory regime to restrict practices that the relevant federal and state agencies have chosen not to prohibit through their regulatory authority,” wrote Judge Cogan. “I cannot accept plaintiff’s theory that what the scientists at the [NCEP] clearly intended to be advisory guidance is transformed into a legal restriction simply because the FDA has determined to pass along that advice through the label.”

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