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.
The principles in the Yates Memo expressly extend to both criminal and civil enforcement matters (as discussed further here), but when it comes to cooperation credit, the application of these principles in the civil and criminal contexts is not on equal footing. Criminal matters are resolved in the context of the federal sentencing guidelines, which incorporate a clear framework for applying credit for cooperation. Credit for cooperation in the civil context is far more nebulous, which can create the perception that the benefits will not outweigh the costs. Last week, DOJ’s newly appointed acting Associate Attorney General, Bill Baer, addressed these concerns and offered insight into DOJ’s application of the Yates Memo principles to civil enforcement matters.
In April 2015, we wrote about the Sixth Circuit’s decision to reverse and remand a $664 million judgment in favor of the government against United Technologies Corp., relating in part to claims that United Technologies’ predecessor, Pratt & Whitney (“P&W”), violated the False Claims Act by falsely certifying that it had corrected misstated projected costs in a 1983 bid to supply engines for the Air Force’s F-15 and F-16 fighter jets. See United States v. United Techs. Corp., No. 13-4057 (6th Cir. Apr. 6, 2015). The $664 million award included $7 million in statutory penalties related to the False Claims Act violation, and $657 million in damages for common law claims of payment by mistake and unjust enrichment.
As we have discussed here and here, yesterday the Supreme Court heard oral arguments in Universal Health Services v. United States ex rel. Escobar, which presents questions over the viability and scope of the implied certification theory. The justices actively questioned the advocates, raising concerns over whether the position of the government and the respondents (“Escobar”) contains logical limitations, and pressing the petitioner (defendant Universal Health Services (“UHS”)) over whether the limitations it proposes truly are consistent with common understandings of fraud.
The Sixth Circuit recently issued a strongly worded rebuke to the government in response to its proposition that “actual damages” in a FCA suit premised on wage underpayment equals the full amount of the government’s payment for the contractor’s services. See United States ex rel. Wall v. Circle C Constr., No. 14-6150 (6th Cir. Feb. 4, 2016). The defendant contractor—hired to build warehouses for the Army—had certified to compliance with certain laws and regulations, including one requiring payment of above-market wages. The contractor underpaid several employees by a total of $9,900, and the government argued that the contractor’s noncompliance “tainted” all of its claims, resulting in damages equal to the full amount the government paid for the services. Trebling these so-called damages yielded a total FCA damages award in excess of $750,000.
After nearly four years, CMS has revised and finalized its proposed rule offering guidance to Medicare Part A and B providers and suppliers as to how they can fulfill their statutory obligations to report and return “identified” overpayments. CMS altered a number of its proposals, including adopting a six-year lookback period, rather than ten. Perhaps most critically for providers, the Agency departed from its earlier interpretation of “identified” to allow for some length of time—generally six months, except in extraordinary circumstances—to quantify overpayments before the sixty-day repayment clock begins to run.
Although the Seventh Circuit last year became the first circuit court clearly to reject the “implied certification” doctrine of FCA liability, a district court in that circuit recently sought to cabin the impact of the ruling. See United States ex rel. Kroening v. Forest Pharm., No. 12-cv-00366 (E.D. Wisc. Jan. 6, 2016). As reported here, the Supreme Court will review the viability of the implied certification theory later this year. While the Kroening court ultimately dismissed the relator’s claims under Rule 9(b), the opinion highlights the divergence of the viewpoints around the implied certification theory that the Supreme Court has been asked to help resolve.
A district court recently denied a relator’s efforts to translate alleged manipulation of skilled nursing facility (“SNF”) CMS Star Ratings into a claim under the FCA, while allowing the relator to proceed with allegations that the CEO of a SNF chain oversaw a kickback scheme designed to churn business. See U.S. ex rel. Orten v. North Amer. Health Care, Inc., No. 14-cv-02401 (N.D. Cal. Nov. 9, 2015). The case reinforces well-established precedent that FCA suits alleging regulatory violations cannot proceed where the government does not condition payment on complete regulatory compliance. The government’s Statement of Interest arguing that the public disclosure bar was triggered as to certain claims demonstrates the DOJ’s growing wariness of opportunistic behavior by relators seeking to capitalize on pre-existing government investigations to which they did not contribute.
A district court recently took a broad view of the public disclosure bar in holding that where previously unsealed qui tam suits take a scattershot approach to broad industry allegations of misconduct, even companies not named in those suits can successfully invoke the public disclosure bar during later litigation.
In United States ex rel. Ambrosecchia v. Paddock Labs., LLC, No. 12-cv-2164 (E.D. Mo. Sept. 23, 2015), the relator alleged that defendants violated the FCA by making fraudulent misrepresentations to CMS about FDA approval dates for drugs and providing false Drug Efficacy Study Implementation (“DESI”) codes indicting defendants’ products were safe and effective, which the federal healthcare programs then relied upon to pay for drugs ineligible for reimbursement. The defendants moved to dismiss, arguing that the claims were substantially the same as those in a suit filed prior to the relator’s, and therefore the public disclosure bar applied. The relator attacked the application of the public disclosure bar both procedurally and substantively.