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Ellyce Cooper

22 May 2014

Discovery Violations Spoil Plaintiff’s Day: FCA Case Dismissed for Spoliation

Posted by Ellyce Cooper and Brent Nichols

It is not uncommon for courts to impose a variety of sanctions on parties who fail to comply with their discovery obligations. A court in the Eastern District of Virginia, however, took the rare step of ordering dismissal of all claims with prejudice as a sanction for a False Claims Act plaintiff’s repeated spoliation of evidence.

In Hosch v. BAE Systs. Info. Solutions, Inc., No. 1:13-cv-00825, 2014 WL 1681694 (E.D.Va. April 23, 2014), Plaintiff brought suit under the anti-retaliation provisions of the False Claims Act, alleging that his employer had punished him for making disclosures regarding its allegedly fraudulent billing practices.

Defendant served discovery requests seeking the inspection and copying of Plaintiff’s cell phones, computers, and mobile device. Plaintiff initially refused to provide them and Defendant successfully moved to compel, obtaining a court order requiring Plaintiff to turn over his devices for a forensic inspection. The forensic inspection revealed that Plaintiff had systematically wiped the data from his devices, and Defendant moved for sanctions. In recommending dismissal as a sanction, the magistrate reasoned that, “Plaintiff’s severely egregious conduct in this matter, including document theft, spoliation, possible perjury, and obstruction of discovery, mandates a proportionately severe response by this Court.”

The district court then affirmed the magistrate’s recommendations, finding that “the only remedy that can adequately address that prejudice [suffered by defendant] is dismissal with prejudice.” The Court also ordered Plaintiff to pay the attorneys’ fees that Defendant incurred in filing its motions to compel and motion for sanctions.

This decision is a noteworthy development in False Claims Act jurisprudence. The potential sanction of dismissal with prejudice should make relators more cautious when it comes to their preservation and discovery obligations.

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15 May 2014

District Court Dismisses Virginia FCA Claim Against Clinical Laboratory Based on Alleged Violation of “Usual and Customary Charge” Requirement

Posted by Ellyce Cooper and Collin Wedel

On May 13, a district court in the Eastern District of Virginia dismissed a healthcare fraud action under the Virginia Fraud Against Taxpayers Act (“VFATA”) against Laboratory Corporation of America (“LabCorp”) alleging that LabCorp routinely charged Medicaid more than its “usual and customary charge” for laboratory services. The district court held that the relators’ allegations about Medicaid overcharges and improper kickbacks for Medicaid referrals could not proceed because relators (i) failed to specify the particulars of a single false claim under Rule 9(b), and (ii) failed to articulate any particular certification defendants made that was false, in violation of Rule 8(a).

The relators—competitors of LabCorp—alleged that each of LabCorp’s Medicaid reimbursement claims was actionably “false” in two ways. First, LabCorp’s charges to Medicaid prices for laboratory services were higher than the lower prices that LabCorp routinely negotiated with individual insurers and physicians, which relators alleged violated Virginia regulations requiring LabCorp to charge Medicaid its “usual and customary” rates. Second, relators alleged that these lower charges offered to individual physicians constituted impermissible kickbacks meant to induce referral of Medicaid business. Relators alleged that these violations had rendered 2,730,814 claims submitted by LabCorp “false.”

With regard to Rule 9(b), the court acknowledged a split between the circuits about whether relators must identify all of the particulars—e.g., the who, what, when, where, how—of at least one representative claim, and noted that the Fourth Circuit had not addressed that issue. Nonetheless, relying heavily on the Fourth Circuit’s decision in U.S. ex rel. Nathan v. Takeda Pharm. N. Am., 707 F.3d 451, 456 (4th Cir. 2013), cert. denied, 134 S. Ct. 1759 (2014) (a decision we previously wrote about here), the court held that relators must allege with particularity the submission of at least one specific claim for payment. The court found that the relators failed to do so.

On an alternative but related ground, the court also dismissed the complaint under Rule 8(a), relying heavily on the difference between certifying legal compliance in order to participate in a program versus to be paid under that program. The court, distinguishing between legal and factual falsity, held that, in this complaint alleging factual falsity, no liability for fraud under a false certification theory can exist unless relators plead the details of what statement defendants made that was actually false. In Hunter, the relators argued that LabCorp could not have participated in the Medicaid program without agreeing to be bound by Virginia regulations, which mandate that providers cannot charge higher prices for Medicaid patients than for non-Medicaid patients. Under this theory, each overpriced claim was made false because LabCorp would not have been able to submit those overpriced claims were it not for its prior agreement to abide by the regulations. The court, however, held that LabCorp’s general agreement to abide by the law in exchange for participating in Medicaid was not an agreement in exchange for Medicaid payment; its agreement was not false when it was made; and, most notably, “a general representation of compliance with all laws lacks the requisite nexus between the subject matter of the certification and the event triggering the loss—i.e., the kickback and overcharge schemes.”

Although this case arose under the VFATA, rather than the federal False Claims Act, the court’s grounding of its opinion in Rules 8(a) and 9(b) offers guidance to companies seeking to defend against similarly allegations of fraud in the Fourth Circuit. This ruling further strengthens the Fourth Circuit’s already stringent pleading standards under Rules 8(a) and 9(b).

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09 January 2014

Eleventh Circuit Joins Four Other Circuits in Applying Sovereign Immunity Analysis to Question of Whether State Agencies Can be Sued Under the FCA

Posted by Ellyce Cooper and Christopher Munsey

In a case decided last week, United States ex rel. Lesinski v. South Florida Water Management District, No. 12-16082, 2014 U.S. App. LEXIS 14 (11th Cir. January 2, 2014), the Eleventh Circuit Court of Appeals affirmed the dismissal of a qui tam suit against the South Florida Water Management District, holding that the District is an arm and instrumentality of the state of Florida, and therefore not a “person” under the False Claims Act. The relator alleged that the District violated the FCA by fraudulently claiming FEMA reimbursements for ineligible repairs to the area’s canals. The district court granted the District’s motion to dismiss on the ground that the District is an arm of the state of Florida. The relator appealed, arguing that the District is a municipal, rather than state, agency. Under relevant Supreme Court authority, local governments and municipalities constitute “persons” who can be sued under the FCA, but states and agencies acting as arms of the state cannot. Compare Vt. Agency of Natural Res. v. United States ex rel. Stevens, 529 U.S. 765, 780 (2000), and Cook County v. United States ex rel. Chandler, 538 U.S. 119, 134 (2003).

The Eleventh Circuit, joining the Fourth, Fifth, Ninth, and Tenth Circuits, held that the Eleventh Amendment “arm of the state” analysis is the proper test for determining whether a state entity is a “person” under the FCA. After analyzing the test’s four factors – (1) how state law defines the entity; (2) what degree of control the state maintains over the entity; (3) where the entity derives its funds; and (4) who is responsible for judgments against the entity – the court concluded that the District is an arm of the state of Florida, and affirmed the dismissal. The court placed particular weight on the fact that the state’s control of the District was “pervasive and substantial.” 2014 U.S. App LEXIS 14 at *11. The circuit court declined to address the District’s argument that it was immune from suit in federal court under the Eleventh Amendment, although it specifically noted that the analysis is identical to that for the FCA “person” question. Id. at *18 n.9.

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08 January 2014

DOJ Announces Increase In Qui Tam Suits Filed In 2013; $3.8 Billion In Fraud Recoveries

Posted by Ellyce Cooper and Brent Nichols

In December, the Department of Justice announced that the number of False Claims Act qui tam suits filed in 2013 grew significantly. 752 were filed in 2013 — over 100 more than the prior record established last year. These numbers indicate that both DOJ and private whistleblowers, whom the statute allows to file suit on behalf of the government, are bringing FCA cases with increasing frequency.

In 2013, the Department of Justice again recovered significant settlements and judgments from civil cases involving alleged fraud against the government. In its December announcement, DOJ stated that it recovered $3.8 billion in such cases in fiscal year 2013. This figure represents the second highest annual total ever, but is lower than the nearly $5 billion recovered in 2012.

Health care fraud accounted for the most significant proportion of recoveries, representing $2.6 billion of the total $3.8 billion. Of that $2.6 billion, about $1.6 billion resulted from alleged false claims submitted by drug and device companies to federal health insurance programs.

Procurement fraud (consisting predominantly of cases brought against defense contractors) represented the second largest area of recovery, accounting for $890 million, the highest ever annual recovery in that area.

DOJ’s announcement suggests that it is continuing to aggressively pursue False Claims Act and fraud cases.

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09 September 2013

H.E.A.T. Taskforce Touts another Victory in Florida

Posted by Ellyce Cooper and Patrick Kennell

In May of 2009, DOJ and HHS partnered to establish the Health Care Fraud Prevention and Enforcement Action Team (HEAT) to “focus[] efforts to reduce and prevent Medicare and Medicaid financial fraud through enhanced cooperation.” The latest settlement to come out of this partnership was for $26 million against a network of hospitals in Florida — Shands Healthcare. (United States of America and the State of Florida ex rel. Terry L. Myers v. Shands Healthcare, et al., No. 3:08-cv-441-J-16 (M.D. Fla. Apr. 30, 2008).

Six of Shands Healthcare’s Florida hospitals were defendants in a qui tam FCA lawsuit filed by the president of a healthcare consulting firm. The crux of Relator’s fraud based claims was that the hospitals billed Medicare, Medicaid and TRICARE “for inpatient procedures that should have been billed as outpatient services.”

The settlement will be split between federal agencies and the State of Florida, with the vast majority going to federal agencies. The realtor’s portion of the recovery has yet to be determined.

DOJ and HHS took the opportunity to again emphasize their “tireless[]” effort to “seek justice” in healthcare fraud cases. The DOJ Press Release providing more details on the settlement is available here. Note that since January 2009, DOJ has recovered $10.8 billion from cases involving alleged fraud against federal health care programs.

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08 May 2013

Fourth Circuit Clarifies “Protected Activities” Under the First Prong of a FCA Retaliation Claim

Posted by Ellyce Cooper and Maureen Soles

A recent Fourth Circuit decision clarifies what constitutes “protected activity” under the anti-retaliation provision of the FCA (31 U.S.C. § 3730(h)(1)). In Glynn v. Edo Corp., 710 F.3d 209 (4th Cir. 2013), the Fourth Circuit affirmed the District Court’s grant of summary judgment dismissing an employee’s retaliation claim. The court held that because plaintiff’s evidence failed to “raise a distinct possibility of a viable FCA action” or prove that any false certification was material, he failed to establish he engaged in “protected activity,” the first of three elements in a FCA retaliation claim.

Dennis Glynn worked as an engineer for Impact Science & Technology (“IST”). IST designs and manufacturers Mobile Multi-Band Jammer systems (“MMBJs”), which jam the frequencies used to detonate IEDs, for the government. Glynn alleged IST terminated him for reporting to the government alleged fraudulent conduct, specifically that IST was “shipping systems that … were putting our troops in jeopardy” and IST had failed to implement a quality assurance plan (“QAP”) as contractually required.

The first element of a retaliation claim under the FCA requires a plaintiff to prove that he “engaged in ‘protected activity’ by acting in furtherance of a qui tam suit.” Glynn, 710 F.3d at 214 (citing Zahodnick v. Int’l Bus. Mach. Corp., 135 F.3d 911, 914 (4th Cir. 1997)). Glynn attempted to satisfy this prong with three theories; the court rejected each theory.

Glynn first argued he engaged in “protected activity” by investigating IST’s alleged fraudulent activity of supplying a substandard product to the government. Although an employee does not need to file an actual qui tam case, the plaintiff must be investigating matters that reasonably could lead to a viable FCA case. Here, the court found that the issue identified by Glynn “was not severe enough in degree to trigger any contractual obligation on IST’s behalf.” The court held that plaintiff failed to offer sufficient evidence that his investigation raised a “distinct possibility of a viable FCA action,” because the product still “met the Government Customer’s standards.” Therefore, Glynn did not engage in protected activity.

Plaintiff next claimed he engaged in “protected activity” when he reported IST’s false certification of compliance with government contracts based on IST’s failure to implement a QAP or to report defects. With regard to the defects, the court applied the same reasoning as to the first theory and found that product improvements did not trigger any reporting requirement. As to the QAP, the court disagreed with the district court’s holding that the “false certification theory was essentially dead on arrival because he never actually received the contracts.” Instead, the court clarified that plaintiff is not required to have “firsthand knowledge of a contract” (i.e. the plaintiff does not have to see the contract itself); circumstantial evidence of a false certification can be sufficient if it raises a distinct possibility of a viable FCA action. But, any false certification must be material. In this case, the failure to implement a QAP was not material because the contractual language relating to the QAP required IST to perform inspections and testing, which the record established IST engaged in at both the modular and systems level. Therefore, any failure to implement a QAP was likely an administrative failure, and not a material false certification.

Finally, the court rejected Glynn’s third theory – that he engaged in “protected activity” by initiating the government investigation – because his complaint failed to “raise a distinct possibility of a viable FCA claim.” Merely “perk[ing] the government’s ears” is not enough to satisfy the “protected activity” prong of the anti-retaliation provision of the FCA.

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06 May 2013

Qui Tam Counsel May Recover For Both Contingent and Statutory Fees

Posted by Ellyce Cooper and Brent Wilner

A recent opinion by the United States District Court for the District of New Jersey underscores the significant incentives for attorneys to represent whistleblowers in False Claims Act litigation. In resolving a fee dispute between a relator and his counsel following a settlement of FCA claims, the court found that the fee shifting provisions of the FCA, 31 U.S.C. § 3730(d)(1)-(2), do not preclude the relator’s attorney from receiving contingency fees in addition to the statutorily mandated attorney’s fees. United States ex rel. DePace v. Cooper Health System, __ F. Supp. 2d __, 2013 WL 1707952 (D.N.J. Apr. 22, 2013).

Relator Dr. Nicholas DePace alleged that Cooper Health System paid illegal kickbacks to physicians to induce referrals for expensive cardiac services causing false claims for reimbursement to be submitted to government payors in violation of the FCA and its New Jersey parallel. Dr. DePace retained Pietragallo, Gordon, Alfano, Bosick, & Raspanti, LLP to represent him in this qui tam matter. He also was represented by his personal counsel, Joseph Milestone. Dr. Depace’s contingency fee agreement provided that the Pietragallo Firm would receive 40 percent of any recovery on his FCA claims prior to trial, and expressly contemplated that these contingency fees would be “in addition to” any attorney’s fees paid under the state or federal FCAs. The contingency fee agreement allocated a portion of that amount to Milestone.

The federal and New Jersey governments ultimately intervened in Dr. DePace’s action for purposes of settling the claims prior to trial. Under the settlement agreement, Cooper agreed to pay the United States and New Jersey a combined $12,600,000, out of which the United States and New Jersey agreed to pay Dr. DePace a total of $2,394,000. Cooper also agreed to pay “as full payment” attorney’s fees of $430,000 “in accordance with subsection 3730(d)(1).”

Thereafter, when allocating the funds, the Pietragallo Firm withheld 40 percent of Dr. DePace’s award to fulfill the contingency fee agreement. (Milestone declined any fees and the Pietragallo Firm withheld 30 percent and provided Dr. DePace with 70 percent). Dr. DePace challenged the allocation of contingency fees beyond the statutory fees, with the dispute ultimately returning to Judge Irenas, the judge who presided over the underlying FCA action.

After finding that the court had jurisdiction to reopen the case, Judge Irenas rejected Dr. DePace’s pleas. In particular, the court rejected Dr. DePace’s argument “that because the Federal False Claims Act states that ‘all’ attorneys’ fees are to be awarded against the defendant, the statute does not allow for attorneys to receive additional fees from clients through contingency agreements.” Judge Irenas relied heavily on the Supreme Court’s policy rationale in Venegas v. Mitchell, 495 U.S. 82, 89-90 (1990) (a case involving 42 U.S.C. § 1988, rather than the FCA) that “‘depriving plaintiffs of the option of promising to pay more than the statutory fee if that is necessary to secure counsel of their choice would not further . . . general purpose of enabling such plaintiffs in civil rights cases to secure competent counsel.'” The court pointed to analogous concerns articulated in the FCA’s legislative history that “‘[u]navailability of attorneys fees inhibits and precludes many individuals, as well as their attorneys, from bringing civil fraud suits.'” See S. Rep. No. 99–345, at 29 (1986), reprinted in 1986 U.S.C.C.A.N. 5266, 5294.

The court also rejected the relator’s distinction between non-intervention cases and cases like Cooper where the government had intervened, noting that there was “no case law or statistics to support his broad generalizations about the amount of risk and work involved in intervention and non-intervention cases,” particularly given that in the five-year litigation of this qui tam matter, the government in Cooper only intervened “shortly before” settlement. Moreover, the court noted that because the language in § 3730(d)(1) and § 3730(d)(2) (intervention and non-intervention cases) is identical, there is no reason to interpret these subsections differently.

While the issue was one of first impression in the Third Circuit, Judge Irenas noted that several other courts had made similar rulings in FCA cases. See United States ex rel. Lefan v. General Electric Co., 394 Fed. App’x 265, 272 (6th Cir.2010); United States ex rel. Alderson v. Quorum Health Group, Inc., 171 F. Supp. 2d 1323, 1335 n.35 (M.D. Fla. 2001); United States ex rel. Poulton v. Anesthesia Assocs. of Burlington, Inc., 87 F. Supp. 2d 351, 359 (D. Vt. 2000); United States ex rel. John Doe I v. Pennsylvania Blue Shield, 54 F.Supp.2d 410, 413 (E.D. Pa. 1999).

Finally, the opinion also discussed the implications of New Jersey’s ethical rules on the fees, but still did not find the fee arrangement unenforceable. Consistent with the reasoning above, the court concluded “the policy behind the fee shifting provisions of the Federal False Claims Act was to ensure that litigants had access to competent counsel. This policy would not be undermined by allowing a party to choose to pay a contingency fee in addition to a statutory fee in order to secure his preferred counsel.”

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24 May 2012

D.C. Circuit Loosens the Court’s Interpretation of the Original Source Rule

Posted by Brent Wilner and Ellyce Cooper

On May 15, 2012, the United States Court of Appeals for the District of Columbia Circuit issued an opinion, which dramatically altered the Court’s precedent regarding the original source rule. United States ex rel. Davis v. District of Columbia, No. 11-7039, Slip Op., (D.C. Cir. May 15, 2012), available at http://www.cadc.uscourts.gov/internet/opinions.nsf/C7A5B64099D02F98852579FF004E73DC/$file/11-7039-1373743.pdf (“Davis”).

In Davis, the whistleblower raised allegations that the District of Columbia Public Schools (“DCPS”) improperly obtained Medicaid reimbursement for special education services through claim submissions lacking adequate documentation. At issue before the D.C. Circuit was when the whistleblower made the allegations to the government.

Until 1998, the whistleblower provided accounting services to DCPS including submitting DCPS’s claims for special education services. Davis Slip Op. at 3. While preparing the 1998 claim, DCPS replaced the whistleblower’s firm with another accounting firm. Id. DCPS proceeded to file a claim prepared by the new firm, even though the new firm never obtained proper documentation for the claim. Id.

In 2002, the District of Columbia Auditor released a report to the public finding that “for fiscal years 1996-1998, ‘$15 million of costs incurred for services referred to special education students [by DCPS] were disallowed for Medicaid reimbursement due to the absence or unavailability of supporting documentation.'” Davis Slip Op. at 4. Two years later, the whistleblower informed the Inspector General of the U.S. Department of Health and Human Services that DCPS “d[id] not have in their possession documentation to support a drawdown of federal [M]edicaid funds for [1996-1998].'” Id. at 8. Thereafter, in 2006, the whistleblower filed his qui tam action alleging, inter alia, that the District of Columbia violated the FCA by submitting the 1998 claim in the absence of documentation. Id. at 4.

The District Court granted the District of Columbia’s motion to dismiss the qui tam action for lack of subject matter jurisdiction. Id. at 6. Relying on an earlier D.C. Circuit opinion, United States ex rel. Findley v. FPC-Boron Employees’ Club, 105 F.3d 675 (D.C. Cir. 1997), the district court reasoned that the whistleblower could not have been the “original source” of the information “[b]ecause there was no evidence that Davis notified the federal government before the 2002 Auditor’s report.” Id. That is, the whistleblower’s action was premised on information that had already been publicly disclosed.

The D.C. Circuit rejected the lower court’s interpretation of the public disclosure bar. Instead, the Davis court relied on the Supreme Court’s opinion in Rockwell Int’l Corp. v. United States, 549 U.S. 457 (2007). The D.C. Circuit found that Rockwell stands for the proposition that “[t]he relator can be an ‘original source’ to the government of his information even if the publicly disclosed information came from someone else.” Davis Slip Op. at 10.

Of particular import, Davis rejected the defendant’s (and Findley’s) concern that “‘once the information has been publicly disclosed . . . there is little need for the incentive provided by a qui tam action.'” Ibid. (citing Findley, 105 F.3d at 691). Rather, the court indicated that there is a policy interest to qui tam actions that survives the public disclosure: “[T]he relator’s information can be different and more valuable to the government than the information underlying the public disclosure, which might be nothing more than speculation or rumors.” Id. at 10-11 (citing Rockwell, 549 U.S. at 472). The Davis court stated examples of this would arise where the whistleblower has “an eyewitness account” or “important documents” that might not have been contained in the public disclosure. Id. at 11. Ultimately, the court concluded that “we will no longer require that a relator provide information to the government prior to any public disclosure of allegations substantially similar to the relator’s and will instead enforce only the text’s deadline of ‘before filing an action.'” Id.

It is worth noting that much of the impact of Davis has already been foretold by recent Congressional amendments to the FCA. Davis was decided applying the 1986 version of the FCA, which barred suits “based upon the public disclosure of allegations or transaction . . . unless the action is brought by the Attorney General or the person bringing the action is an original source of the information.” 31 U.S.C. § 3730(e)(4)(A) (2006) (amended 2010). As amended in 2010, the FCA now defines an “original source” as:

[A]n individual who either (i) prior to a public disclosure . . . has voluntarily disclosed to the Government the information on which allegations or transactions in a claim are based, or (2) who has knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions, and who has voluntarily provided the information to the Government before filing an action under this section.

31 U.S.C. § 3730(e)(4)(B) (Supp. 2010). As the Davis court noted, Congress mitigated one concern the defense bar might have had after Rockwell, namely, Congress precluded a whistleblower from bringing a qui tam action if he or she added nothing to publicly disclosed information “by amending the statute to provide incentives to only those relators whose information adds value.” Davis Slip Op. at 11 n.4.

The Davis opinion nevertheless provides a reminder to entities operating in the federal reimbursement space that whistleblower suits may remain a viable threat even after alleged misconduct is revealed through public disclosures.

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07 February 2012

Justice Department Celebrates the 25th Anniversary of Key Amendments to the False Claims Act

Posted by Patrick E. Kennell III and Ellyce R. Cooper

On January 31, 2012, the Department of Justice celebrated the 25th anniversary of the 1986 Amendments to the False Claims Act with speeches by Attorney General Eric Holder, Assistant Attorney General Tony West, and Members of Congress. The celebration also included a panel discussion entitled “$30 Billion, 25 Years: The False Claims Act in Review.” The DOJ used the occasion to celebrate its recent accomplishments and to describe its future enforcement efforts.

In press releases sent out to mark the occasion, the DOJ noted the following successes:

  • “Since [the 1986] changes were enacted, the Justice Department has recovered more than $30 billion under the act.”1
  • “Since January 2009, the department has recovered $8.8 billion under the False Claims Act – the largest three-year total in the Justice Department’s history, and 28 percent of all recoveries since the False Claims Act was amended in 1986.”2
  • $6.6 billion of the amounts recovered since January 2009 have been from healthcare fraud recoveries.3
  • “[F]or every dollar Congress has provided for healthcare enforcement over the past three years, the Departments of Justice and Health and Human Services have recovered nearly seven.”4
  • “In FY 2011 alone, the Department of Justice secured more than $3 billion in settlements and judgments in civil cases involving fraud against the government.”5
  • “Whistleblowers have filed nearly 8,000 actions – including a record high of 638 in the past year alone.”6

The DOJ also noted a series of key settlements including:

  • $2.3 billion – Pfizer Inc. (2010);
  • $1.7 billion – Columbia/HCA I & II (2000 and 2003);
  • $1.415 billion – Eli Lilly and Company (2009);
  • $950 million – Merck Sharp & Dohme (2011);
  • $923 million – Tenet Healthcare Corporation (2006);
  • $875 million – TAP Pharmaceuticals (2002);
  • $750 million – GlaxoSmithKline (2010);
  • $704 million – Serono, S.A. (2005).
  • $650 million – Merck (2008); and
  • $634 million – Purdue Pharma (2007).7

In his speech, Attorney General Eric Holder stated that the DOJ is committed to “aggressively utilizing” the FCA to combat fraud and that the past successes of the DOJ “represent[] a wide-ranging effort to eradicate the scourge of fraud from some of government’s most critical programs.”8 Attorney General Holder also noted that “in these challenging economic times” the DOJ’s mandate to “aggressively pursue those who would take advantage of their fellow citizens – has never been more clear or more urgent.”9 Finally, Attorney General Holder stated that “the strength of our resolve is equal to the breadth of our mandate.”10 Likewise, Assistant Attorney General for the Civil Division, Tony West indicated that “Attorney General Eric Holder, has made fighting fraud – particularly healthcare fraud – a top priority.”11

It is clear from the remarks at this celebration that the recent increase in civil and criminal FCA actions will continue for the foreseeable future.12 It also remains evident that the healthcare sector continues to be a focus of the DOJ’s enforcement efforts, although it also continues to pursue other industries. The increase of whistleblower FCA cases during this past year also evidences the increased awareness of the FCA by employees of companies that deal with government funding in some way. Corporations and individuals should continue to have extensive compliance programs in place to ensure that the DOJ does not target them as part of the DOJ’s “aggressive[] pursu[it]” of government fraud related actions using the DOJ’s broad mandate.


1 Press Release, United States Department of Justice, Justice Department Celebrates 25th Anniversary of False Claims Act Amendments of 1986 (Jan. 31, 2012), available at http://www.justice.gov/opa/pr/2012/January/12-ag-142.html.

2 Id.

3 Press Release, United States Department of Justice, Assistant Attorney General Tony West Speaks at the 25th Anniversary of the False Claims Act Amendments of 1986 (Jan. 31, 2012), available at http://www.justice.gov/iso/opa/civil/speeches/2012/civ-speech-120131.html.

4 Id.

5 Press Release, United States Department of Justice, Justice Department Celebrates 25th Anniversary of False Claims Act Amendments of 1986 .

6 Press Release, United States Department of Justice, Attorney General Eric Holder Speaks at the 25th Anniversary of the False Claims Act Amendments of 1986 (Jan. 31, 2012), available at http://www.justice.gov/iso/opa/ag/speeches/2012/ag-speech-120131.html.

7 Press Release, United States Department of Justice, Justice Department Celebrates 25th Anniversary of False Claims Act Amendments of 1986.

8 Press Release, United States Department of Justice, Attorney General Eric Holder Speaks at the 25th Anniversary of the False Claims Act Amendments of 1986.

9 Id.

10 Id.

11 Press Release, United States Department of Justice, Assistant Attorney General Tony West Speaks at the 25th Anniversary of the False Claims Act Amendments of 1986.

12 For a detailed accounting of DOJ Fraud Statistics, see Department of Justice, Fraud Statistics Overview (Dec. 7, 2011, 2:47 PM), http://www.justice.gov/civil/docs_forms/C-FRAUDS_FCA_Statistics.pdf.

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02 February 2012

Supreme Court’s Ruling On The Affordable Care Act Could Undo Key FCA Amendments

Posted by Ellyce Cooper and Stephanie Hales

On March 26–28, 2012, the Supreme Court will hear oral argument on various challenges to the Affordable Care Act (ACA), the federal health reform legislation enacted in March 2010. Two laws comprise the ACA: the Patient Protection and Affordable Care Act (PPACA) and the Health Care and Education Reconciliation Act of 2010. While the vast bulk of the political debate surrounding the ACA involves the individual health insurance mandate and Medicaid expansion provisions, these are only two components of a law that the Eleventh Circuit Court of Appeals described in its underlying opinion as “contain[ing] hundreds of new laws about hundreds of different areas of health insurance and health care.” Florida v. DHHS, Nos. 11-11021 & 11-11067, Slip Op. at 22 (11th Cir. Aug. 12, 2011). In this light, one of the most significant issues before the Supreme Court is whether the remainder of the ACA’s provisions are severable from any provisions that may be deemed unconstitutional.

Of particular import to companies affected by the False Claims Act (FCA) and the Anti-Kickback Statute (AKS), among the ACA’s hundreds of provisions are amendments to the FCA and the AKS that expand the scope of liability and restrict the “public disclosure” defense under the FCA. For example, the ACA:

  • Amends the AKS to provide that any claim submitted to a federal healthcare program for items or services “resulting from” a violation of the AKS constitutes a “false or fraudulent claim” under the FCA. PPACA § 6402(f)(1) (adding a new subsection (g) to 42 U.S.C. § 1320a-7b).
  • Eliminates the need to prove specific intent and actual knowledge to establish an AKS violation. PPACA § 6402(f)(2) (adding a new subsection (h) to 42 U.S.C. § 1320a-7b).
  • Limits the public disclosure bar by (a) restricting the scope of materials that qualify as public disclosure, (b) making it easier for relators to qualify as an “original source,” and (c) eliminating public disclosure as a subject-matter-jurisdictional bar and instead giving the Government veto power over any motion to dismiss based on public disclosure. PPACA § 10104(j)(2) (amending 31 U.S.C. § 3730(e)).
  • Imposes an affirmative obligation on recipients of overpayments to report and return those overpayments or face liability for “reverse false claims.” PPACA § 6402(a) (adding 42 U.S.C. § 1320a-7k, including subsection (d) regarding overpayments).
  • Establishes new civil monetary penalties of up to $50,000 per violation for conduct that is also actionable under the FCA. PPACA §§ 6402(d)(2) and 6408(a) (adding new CMPs under 42 U.S.C. § 1320a-7a(a)).

In the Eleventh Circuit’s 2-1 decision, the appeals court ruled that the ACA’s individual mandate is unconstitutional. Crucially, however, the court found this provision severable from the rest of the law. In so ruling, the Eleventh Circuit stated that “the lion’s share of the [ACA] has nothing to do with private insurance, much less the mandate that individuals buy insurance.” See Slip Op. at 192. Accordingly, under the Eleventh Circuit’s analysis, the rest of the ACA’s provisions could remain intact even if the individual mandate component falls.

The law’s challengers, including 26 states, do not agree; they have told the Supreme Court that the entire law must be struck if the individual mandate is held unconstitutional. Likewise, the federal government does not completely agree with the Eleventh Circuit’s view of severability, either. In its Supreme Court brief responding to the severability question, filed January 27, 2012, the federal government makes two arguments—neither of which asserts that the individual mandate provision is severable from all of the ACA’s other provisions. First, the federal government argues that the Supreme Court should not address the merits of the severability issue in this case, because the petitioners lack standing to challenge the validity of most of the law’s provisions. Should the Justices reach the merits of this issue, however, the federal government further argues that, if the individual mandate falls, so must two particular insurance reform provisions: (1) guaranteed issue, which requires insurers to provide coverage to all comers and prohibits discrimination based on preexisting medical conditions; and (2) community rating, which prohibits plans from charging higher premiums based on applicants’ experiences or characteristics, except for limited variances based on the applicant’s age, where the applicant resides, whether the applicant uses tobacco, and whether the policy covers individuals or families. Under the federal government’s position, only these two provisions—not the entire law—should be struck if the individual mandate is found unconstitutional.

To ensure that the arguments in favor of “full” severability get a full hearing, the Supreme Court appointed an attorney, who does not represent either of the parties to the case, to argue the position that the rest the ACA provisions (including guaranteed issue and community rating) can survive even if the individual mandate does not. (Another appointed attorney will address yet another question: whether the entire case is premature for judicial consideration under the Anti-Injunction Act (26 U.S.C. § 7421(a)).)

If the Supreme Court ultimately agrees with the Eleventh Circuit that the individual mandate is unconstitutional, but holds that the provision is not severable, the entire law would be struck down as unconstitutional. Such a ruling would “undo” the multitude of corollary provisions, which have received less public attention. While it also is possible that the Supreme Court will not reach the severability question in its decision later this year on the fate of the ACA, entities subject to the FCA—and, indeed, anyone affected by the ACA’s “hundreds of provisions”—should appreciate just how much is at stake in the pending decision beyond the provisions at focus in current media coverage.

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