District Court Dismisses Legal Aid Group’s Qui Tam Action Against Mortgage Lender On Public Disclosure Bar Grounds

On May 12, a federal district court dismissed what the New York Times had described as an “innovativequi tam suit against U.S. Bank, N.A., alleging that the lender had submitted over $2.3 billion in false claims for FHA insurance payments. United States v. U.S. Bank, N.A., No. 3:13-cv-704 (N.D. Oh. May 12, 2015). In an unusual step, the suit was brought by a legal aid group, Advocates for Basic Legal Equality, Inc. (“ABLE”), rather than by an individual relator.


Court Enters Protective Order Limiting Relator’s Access to Competitively Sensitive Information

Posted by Scott Stein and Jessica Rothenberg

A recurring problem in qui tam cases, particularly when the relator is or works for a competitor of the defendant, is the issue of relators’ access to confidential and other competitively-sensitive information produced or created during a government investigation preceding unsealing or once a case is being actively litigated. Recently in one such case, a federal district court in the Northern District of Ohio entered an order limiting the relators’ access to the defendant’s competitively-sensitive information. The relators – the former Director of Contract Services and the then-current Director of Business Development and Technology for defendant Cellular Technology, Ltd. (“CTL”), a laboratory services company, allege that CTL defrauded the U.S. government by inflating direct labor costs under its contracts to provide research services to the National Institutes of Health. Specifically, the relators allege that CTL, in its proposals, to NIH over-inflated the total staff hours it would take to complete various projects and identified its highest paid personnel to perform work, as well as additional employees and individuals who were never employed by CTL, without any expectation of those individuals performing the work being represented. According to the relators’ complaint, CTL’s alleged fraud resulted in at least $3.25 million in excess costs being billed to and paid by the U.S. Government. The U.S. Department of Justice intervened in September 2011, also alleging that CTL represented to NIH that certain employees would work on contracts, knowing that some would never perform any work on the projects, over-inflated the total number of hours it would take to complete the projects, and later billed NIH for far more hours than its employees actually spent on NIH projects.

In an effort to resolve the suit, the United States and CTL jointly agreed to engage an auditor to conduct an audit of the work performed by CTL for NIH under the contracts at issue. In connection with the audit, the United States, CTL, and the auditor signed a confidentiality agreement governing the disclosure of documents and information to the auditor necessary to perform the audit and prepare any reports. In addition, on January 23, the court entered an order limiting the circumstances under which the materials provided to and created by the auditor could be shared with the relators. Under the court’s order, prior to the relators gaining access to any of the audit materials, they must disclose to the U.S. Attorney’s Office their current employer. That disclosure will be forwarded immediately to CTL. Additionally, if at any time either of the relators obtains new or additional employment, a supplemental notice must be filed within five days of beginning the new or additional employment. If either of the relators is deemed to be, or is employed by, a CTL competitor (as defined by the order), neither of the relators will be permitted access to the materials provided to and created by the auditor until the employment or activity that renders the relator a competitor ends. Any materials to which the relators already had been permitted access prior to becoming a competitor, including any notes taken by the relators concerning those materials, must be returned immediately. The order also prohibits relators from making copies of any of the materials provided to the auditor and requires that all materials provided to and prepared by the auditor, and any notes taken by relators in their review of those materials, must be returned to the U.S. Attorney’s Office at the conclusion of the litigation.

This order provides a useful model for other cases in which relators seek access to competitively-sensitive information. A copy of the Order Concerning Materials Produced in Connection with Audit in United States v. Cellular Tech., Ltd., No. 1:09CV01008 (N.D. Ohio 2015) can be found here.

Court Denies Relator’s Summary Judgment Motion on “Swapping” Arrangements

On July 23, a federal district court in Ohio issued an opinion providing further guidance on how courts may view “swapping” arrangements under the Anti-Kickback Statute. The relator alleged that Omnicare, a pharmacy provider, gave a nursing home discounts on drugs provided to Medicare Part A patients in exchange for referrals of Medicare Part D business, a so-called “swapping” arrangement that the relator alleged violated the Anti-Kickback Statute. The relator moved for summary judgment on the basis of a contract with a nursing home in which Omnicare agreed to charge a nursing home a rate for certain drugs for Medicare Part A patients, but a higher rate (“usual and customary charge”) for the same drugs billed under Medicare Part D.

The court denied the relator’s motion for summary judgment on liability under the AKS for two reasons. The first issue was whether the prices that Omnicare offered under Medicare Part A constituted “remuneration.” The relator argued that the fact that prices for certain drugs were lower for Part A patients than for Part D patients was evidence that the Omnicare offered “discounts” for Part A business, and that such discounts qualify as remuneration. In essence, the relator argued that any prices less than “usual and customary charges” should be deemed to be “remuneration” under the AKS. Omnicare, by contrast, argued that whether the Part A prices qualify as “remuneration” depends on whether the prices were fair market value, not whether they were less than prices offered for services under Part D. The Court concluded that “fair market value” is the appropriate benchmark for determining remuneration. Given that, the court stated, it would be relevant whether Omnicare charges the same price for Part A services regardless of whether a nursing home refers Part D patients. Likewise, the court explained, Omnicare’s costs of providing services would be relevant “because no rational market participant would intentionally lose money on its Part A patients unless otherwise compensated.” The relator introduced evidence that Omnicare’s pricing was below its “invoice cost,” but Omnicare presented contrary evidence that invoice cost was not the appropriate measure of cost, in part because it failed to reflect discounts from suppliers. The court concluded that Omnicare’s evidence therefore raised a genuine issue of fact on the issue of remuneration. On the second issue, the court also held that Omnicare had raised a genuine issue of fact as to whether Omnicare intended “below-market” pricing on Part A patients to induce the nursing home to refer Part D business or rather, as Omnicare contended, its pricing “was merely the product of sloppy accounting and management at Omnicare.”

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