The Third Circuit may become the second court of appeals to weigh in on whether a relator in a qui tam action may amend her complaint under Rule 15 to add claims previously prohibited by the “first-to-file” rule. Last week, a federal court certified this and two additional questions for interlocutory review. The district court’s decision follows an April ruling denying Pfizer’s motion to dismiss an amended complaint in a case that is over a decade old, and the question has important implications for the viability of otherwise time-barred claims. (more…)
On March 22, 2017, the District Court for the Northern District of California dismissed a False Claims Act, 31 U.S.C. §3729 complaint against several hospitals for alleged Medicare, Medicaid, Tricare claims submission schemes. United States ex rel. Cherry Graziosi v. Accretive Health, Inc., et al, No. 13-cv-1194 (N.D. Ill. Mar. 22, 2017).
The relator alleged that each of the Defendant hospitals submitted a claim for payment to federal health insurance programs for hospital admissions. When submitting this form, Relator alleged, the hospital must certify that inpatient admissions were determined to be medically necessary by a licensed physician with personal knowledge of the medical necessity. She alleged that the hospitals submitted forms for reimbursement for inpatient treatment in circumstances where the Emergency or Hospital Staff physicians had previously determined that inpatient treatment was not required. According to Relator, these fraudulent submissions were generated or recommended by Accretive Health, Inc., a consultant.
On December 6, 2016 the Supreme Court ruled that violation of the FCA’s seal provisions does not mandate dismissal of a relators’ complaint. Rather, while Section 3730(b)(2) requires relators to file under seal, the text of the statute is silent as to the remedy for violating this requirement. The Court left to the District Court’s discretion to determine the appropriate remedy for violations of the seal provision. Slip Op. at 10.
The Fourth Circuit ruled recently in U.S. ex rel. Bunk v. Government Logistics N.V., No. 15-1088, 2016 WL 6695787 (4th Cir. Nov. 15, 2016), that the Relators had presented sufficient evidence to proceed to trial against Defendant Government Logistics (GovLog) based on the traditional fraudulent transaction theory of successor liability. The Court declined, however, to expand the scope of successor liability under the FCA to include the substantial continuation theory, which, as discussed here, would have allowed Relators to establish liability by showing merely that GovLog retained its predecessor’s employees, managers, assets, and operations, among other indicia of corporate continuity. See United States v. Carolina Transformer, 978 F.2d 832, 840 (4th Cir. 1992).
The False Claims Act allows relators to share in a recovery even where the United States pursues an “alternative remedy” rather than direct FCA litigation. In a recent decision, the District of Massachusetts determined that where an entity voluntarily repays stolen funds and takes action to do so as soon as the theft was discovered, that repayment does not constitute an “alternative remedy” requiring a relator’s share.
On May 31, 2016, the Supreme Court granted certiorari in State Farm Fire and Casualty Co. v. United States ex rel. Cori Rigsby and Kerri Rigsby, making it the third False Claims Act (FCA) case the Supreme Court has taken up in the last two terms. The issue to be decided by the Court is “[w]hat standard governs the decision whether to dismiss a relator’s claim for violation of the FCA’s seal requirement, 31 U.S.C. § 3730(b)(2)?”
On March 28, 2016, Petitioners in Universal Health Services v. United States ex rel. Escobar filed their reply brief reinforcing their argument that the implied certification theory of liability is not a valid basis of liability under the False Claims Act (“FCA”). Alternatively, Petitioners argue that if the Court accepts the implied certification theory of liability, the theory must be limited to noncompliance with an express condition of payment.
On February 25, 2016, Respondents in Universal Health Services v. United States ex rel. Escobar, cautioned the Supreme Court against limiting the Government’s ability to prosecute fraud and argued that the Supreme Court should find the implied certification theory of liability a viable theory under which to bring claims against contractors.
On January 19, Petitioner filed its opening merits brief in Universal Health Services v. United States ex rel. Escobar, urging the Supreme Court to reject entirely, or at the very least sharply curtail, the “implied certification” theory of FCA liability developed in the Circuit courts.
The U.S. Supreme Court today granted certiorari in Universal Health Services, Inc. v. Escobar, No. 15-7. The petition presented three questions for review, of which the Court agreed to hear two. Specifically, the Court agreed to review:
2. Whether the “implied certification” theory of legal falsity under the FCA-applied by the First Circuit below but recently rejected by the Seventh Circuit-is viable.
3. If the “implied certification” theory is viable, whether a government contractor’s reimbursement claim can be legally “false” under that theory if the provider failed to comply with a statute, regulation, or contractual provision that does not state that it is a condition of payment, as held by the First, Fourth, and D.C. Circuits; or whether liability for a legally “false” reimbursement claim requires that the statute, regulation, or contractual provision expressly state that it is a condition of payment, as held by the Second and Sixth Circuits.
The various federal circuits have staked out divergent standards on these issues, leading to significant disharmony in application of the FCA. With this case the Court has the opportunity to establish uniform, national standards for FCA liability, and potentially to curtail some of the statute’s more abusive applications.