Earlier this month, in U.S. ex rel. Polukoff v. St. Mark’s Hospital et al., No. 17-4014 (Jul. 9, 2018), the Tenth Circuit reversed a lower court’s dismissal of FCA claims, holding that “[i]t is possible for a medical judgment to be ‘false or fraudulent’” under the FCA. As previously reported here, the relator had alleged that a cardiologist performed and billed Medicare and Medicaid for unnecessary heart surgeries known as PFO closures. The District of Utah, in granting defendants’ motion to dismiss, had concluded that claims associated with those procedures, in which the doctor represented that the procedures were medically necessary, could not be deemed objectively false because “liability may not be premised on subjective interpretations of imprecise statutory language such as ‘medically reasonable and necessary.’”
Last week, the Sixth Circuit again resurrected the relator’s case in United States ex rel. Marjorie Prather v. Brookdale Senior Living Communities, Inc. (a discussion of the Sixth Circuit’s previous opinion is available here. In a 2-1 decision, the majority held that the relator’s materiality and scienter allegations sufficed under Universal Health Services, Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016). The majority issued the decision over a vigorous dissent by Judge McKeague. The gulf between the majority and the dissent reflects persistent questions about how Escobar applies at the pleading stage (see discussion here). (more…)
The False Claims Act’s anti-retaliation provision, 31 U.S.C. § 3730(h), provides relief to an “employee, contractor, or agent,” who is “discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment because of lawful acts done . . . in furtherance of an action” under the FCA. Recently, in Smith v. LHC Group, Inc. et al., __ F. App’x __, 2018 WL 1136072 (6th Cir. Mar. 2, 2018) (unpublished), the Sixth Circuit clarified that the test for an employer’s intent in a “constructive discharge” retaliation case is an objective one — joining the majority of circuits that have rejected a subjective employer intent requirement in constructive discharge cases in different contexts. (more…)
On September 30, 2016, the Sixth Circuit remanded a False Claims Act (“FCA”) lawsuit against Brookdale Senior Living Solutions (the “defendant” or “Brookdale”), which alleges, among other things, that physician signatures on home care certifications and care plans were late and that Brookdale paid physicians to provide certifications for patients that did not require home care. Specifically, the Sixth Circuit reversed and remanded the district court’s dismissal of United States ex rel. Prather v. Brookdale Senior Living Cmtys., Inc., Case No. 15-6377, holding that the relator “sufficiently plead the submission of particular claims to the government because she provided a detailed description of the alleged fraudulent scheme, and included her own personal knowledge of the review of Medicare claims for submission.”
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.
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.
Posted by Scott Stein and Jessica Rothenberg
In the latest decision in litigation that spans 17 years and relates to conduct that occurred 32 years ago, the Sixth Circuit reversed a $664 million judgment in favor of the government against United Technologies Corp. and remanded the case, for a second time, for a recalculation of damages. A copy of the Sixth Circuit’s opinion in United States v. United Techs. Corp., No. 13-4057 (6th Cir. Apr. 6, 2015) can be accessed here.
In 1999, the United States filed a lawsuit against Pratt & Whitney (“P&W”), now owned by United Technologies, alleging that Pratt violated the False Claims Act by falsely certifying that it had corrected previously misstated projected costs in a 1983 bid to supply engines for the Air Force’s F-15 and F-16 fighter jets. The Air Force ultimately chose to divide its engine orders between P&W and another manufacturer, and each year, issued a “call for improvement” that requested more favorable terms than the prior year’s “best and final offer” from P&W and the other manufacturer. The Air Force certified each year that P&W’s prices were “fair and reasonable” based on the “market test between competitors.”
In 1998, the government filed an administrative action against P&W with the Armed Services Board of Contract Appeals alleging that P&W misrepresented that it had corrected problems in its initial bid and used its most accurate cost data to develop its best and final offer prices. However, the Board rejected the government’s claim, holding that P&W alleged misstatements did not cause any damages because the Air Force had relied on competitive forces, rather than the erroneous price and cost data, in awarding its contracts. Therefore, Board concluded, the prices that the Air Force paid for the engines were not inflated by the alleged fraud. The Federal Circuit affirmed the Board’s determination.
In 1999, the government filed a separate lawsuit in federal district court alleging violations of the FCA and for common law restitution. In 2008, the district court held P&W liable under the FCA, but found that the government had suffered no actual damages and awarded the government only $7 million in statutory penalties. The district court also determined that the government’s claims for restitution were barred by claim preclusion because they should have been litigated before the Board. See United States v. United Techs. Corp., No. 3:99-cv-093, 2008 WL 3007997 (S.D. Ohio Aug. 1, 2008). The government appealed, and in 2010, the Sixth Circuit affirmed liability, but found that the government’s restitution claims were not barred by claim preclusion and remanded the case back to the district court. See United States v. United Techs. Corp., 626 F.3d 313 (6th Cir. 2010). On remand, the district court held that the Board and Federal Circuit litigation did not resolve whether P&W misstatements caused the government damages and therefore rejected P&W’s issue preclusion defense. In addition to the $7 million originally awarded, the government was awarded $657 million in treble damages, restitution, and prejudgment interest. See United States v. United Techs. Corp., 950 F. Supp. 2d 949 (S.D. Ohio 2013).
On appeal from the 2013 judgment, the Sixth Circuit affirmed the district court’s holding that issue preclusion did not bar the government’s damages claim under the FCA and common law restitution. However, the Sixth Circuit held that the district court had, mistakenly, exclusively relied on the government’s damages estimate, which failed to take into account the role that competition between P&W and the other manufacturer played in determining reasonable and fair prices, and whether that competition mitigated the damages to the government. Citing the protracted litigation and the decades that had passed since the fraud, the court was “tempted” to end the case with the government receiving the $7 million in statutory penalties under the FCA. Further, the court stated that “the government had every opportunity to put on an expert to show whether affected its damages,” but it had “refused to do so.” However, the Sixth Circuit ultimately decided that the district court, which presided over the remand litigation, was in a better position to decided whether the government should have another chance to prove its damages after taking into account the role of competition. The Sixth Circuit reversed the lower court’s judgment and remanded the case for further proceedings.
In a February 25, 2015 opinion, the Sixth Circuit became the fifth circuit court effectively to narrow the scope of the FCA’s public disclosure bar by holding that disclosures to the government do not trigger the protections of that provision. The Sixth Circuit also expanded upon prior rulings in this regard, clarifying that even disclosures to government contractors and private consultants during the course of an administrative audit and investigation will not lead to the application of the public disclosure bar to FCA liability.
The relator in Whipple v. Chattanooga-Hamilton County Hospital Authority alleged that the defendant hospital submitted false claims for reimbursement based on a variety of improper billing practices he observed during his employment with the hospital. After the relator left the hospital’s employ, a Medicare contractor acting on behalf of the Department of Health and Human Services Office of Inspector General (“OIG”) audited the hospital in response to an anonymous complaint regarding improper billing practices. OIG subsequently opened an administrative investigation into whether the errors and potential overpayments identified by the contractor’s review violated criminal law and consulted with the United States Attorney’s Office for the Eastern District of Tennessee before declining to pursue the matter further. To conduct its own internal investigation of the allegations, the hospital retained an outside billing consultant.
The district court dismissed relator’s qui tam claims for lack of jurisdiction, holding that the alleged fraud was publicly disclosed “through the investigations, oversights and audits conducted by the government, consultants, attorneys and contractors.” On review, the Sixth Circuit reversed, declining to follow Seventh Circuit precedent that interprets “public disclosure” to include disclosures of an alleged false claim to a “competent public official who has managerial responsibility for that claim.” The Sixth Circuit joined the Fourth Circuit, which recently observed in United States ex rel. Wilson v. Graham Cnty. Soil & Water Conservation Dist. that no other circuit court has followed the Seventh Circuit’s precedent. Instead, the Sixth Circuit held that disclosure outside the government is required to trigger the public disclosure bar. The court then clarified that non-government actors—specifically, the Medicare contractor and the hospital’s third party billing consultant—do not qualify as “outsiders” or “strangers” to the alleged fraud. As such, confidential disclosures to these parties in the context of an administrative audit and investigation are not “public disclosures” under the FCA. This decision thus continues the trend of narrowly interpreting the public disclosure bar, substantially curtailing a previously powerful limit to FCA liability.
A copy of the opinion can be found here.
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.
Posted by Kristin Graham Koehler and Lauren Roth
In the continuing drama of the Allison Engine case, the Sixth Circuit, last week, revived relators’ “claims” by overturning the District Court decision and further deepening a circuit split on the issue of how to interpret the word “claims” in section 4(f)(1) of the Fraud Enforcement and Recovery Act of 2009 (FERA). Roger Sanders v. Allison Engine Company, Inc. et al., Nos. 10-3818 (6th Cir. Nov. 2, 2012).
Readers will recall that this case began its journey in 1995 with relators’ filing a False Claims Act complaint against several Navy subcontractors. The case went to trial and, at the close of relators’ case, defendants filed a motion for judgment as a matter of law, arguing that relators had failed to produce evidence that any false claim was presented to the Navy. Without evidence of presentment, defendants argued, no reasonable jury could find a False Claims Act violation. The district court agreed. On appeal, however, the Sixth Circuit held that 31 U.S.C. section 3729(a)(2) did not require presentment of a claim to the government. In a unanimous decision, the Supreme Court disagreed, and it held that a person must have intended to get a false or fraudulent claim “paid or approved by the Government” in order to be liable. Dissatisfied with this outcome, Congress revised the statute itself, removing the language from section 3729(a)(2) on which the Court had based its decision and making its revision retroactive for “all claims under the False Claims Act . . . that [were] pending on or after” June 7, 2008 (i.e., two days before the Supreme Court’s Allison Engine decision).
After FERA’s passage, the Allison Engine defendants filed a motion to preclude retroactive application of the amended provisions of False Claims Act section 3729. The district court granted the motion, finding that the retroactivity language in FERA section 4(f)(1)—which arguably had been enacted to address this very case—did not apply. The court’s rationale was grounded in an inconsistent use of terms between FERA section 4(f)(1) and 4(f)(2)—the first provision relating to pending “claims” under the False Claims Act, the second relating to pending “cases.” Among other things, the court reasoned that the differences in terminology between the two sections suggested a Congressional intent to assign different meanings to them. Interpreting “claim” to mean “any request or demand . . . for money or property” (i.e., the definition for False Claims Act section 3729, to which FERA section 4(f)(1) applies), the district court found that although the Allison Engine “case” may have been pending in June 2008, no “claims” were pending. Further, the court reasoned, even if section 4(f)(1) could be read to apply to the pending case, such application would violate the Ex Post Facto clause of the Constitution.
Sixth Circuit Decision
Back to the Sixth Circuit on appeal, the case has taken yet another turn. In its decision last week, the court reversed the district court ruling, holding that “claim” in section 4(f)(1) does mean “case.” (It also held that such application does not violate the Constitution.) While crediting the presumption that Congress uses different words to convey different meanings, the court nevertheless determined that such an argument was undermined in this case. In particular, the court was persuaded by the facts of the FERA drafting process (namely, that the two section 4(f) provisions were drafted by different chambers of Congress at different times) and the fact that other places in the False Claims Act plainly use the term “claim” to mean “civil action or case.” Because the court’s decision put it squarely on one side of a circuit split with the Second and Seventh Circuits—while the Ninth and Eleventh circuits, as well as many district courts, take the opposite view—it remains to be seen whether Allison Engine will take another ride to the Supreme Court before its journey ends.