In a stunning reversal, a federal district court overseeing the AseraCare trial has not only vacated a verdict in favor of DOJ on the issue of whether claims submitted by the defendant were false, but has strongly indicated that the court is likely to grant summary judgment for the defendants. As we have previously reported here and here, in May 2015, the district court elected to bifurcate the trial into two phases, one focused on the falsity of a sample of claims and the second phase focused on the remaining elements of FCA liability. If the government could establish FCA liability through the two phases of the trial as to at least a fraction of the sample, the court planned to permit extrapolation of this liability to the broader universe of claims submitted by AseraCare. A critical issue in the falsity phase has been whether patients met CMS’ medical criteria for hospice eligibility, i.e., they have “a life expectancy of 6 months or less if the terminal illness runs its normal course.” Prior to the court’s decision to bifurcate, the government represented in interrogatories that it would only use the testimony of its expert witness and the sampled medical records to demonstrate that patients did not meet CMS’ criteria, and therefore AseraCare falsely certified to their eligibility for hospice care.
A recent opinion examines the interplay between the Health Insurance Portability and Accountability Act (“HIPAA”) and the False Claims Act (“FCA”). Relators Pam Howard and Eben Howard filed a wrongful termination action against Arkansas Children’s Hospital – a covered entity under HIPAA – alleging that they were terminated after expressing concern about the hospital’s billing practices in violation of the FCA and several other statutes. The relators allege that they were terminated from their positions after raising concerns regarding the manner in which the hospital billed the federal government. The Howards shared with an attorney protected health information (“PHI”) that they had retained in anticipation of their lawsuit.
Posted by Scott Stein and Brenna Jenny
A district court in the Southern District of Florida recently denied motions to dismiss filed by a Medicare Advantage (“MA”) plan and MA providers in a case alleging upcoding through fraudulent diagnosing. See United States ex rel. Graves v. Plaza Med. Ctrs. Corp., No. 10-cv-23382 (S.D. Fla. July 6, 2015). The case is one of a growing number of qui tam cases in the Medicare Advantage sphere, mirroring heightened congressional pressure on CMS and DOJ to take steps to combat Medicare Advantage fraud (as previously reported here).
Posted by Kristin Graham Koehler, Monica Groat, and Marina Romani (Summer Associate)
As we have previously discussed on this blog, a court in the Northern District of Alabama last month granted AseraCare’s motion to bifurcate its trial. On June 25, 2015, the court refused the Government’s request to reconsider that decision.
Posted by Scott Stein and Brenna Jenny
On December 8, 2014, a district court in the Southern District of Georgia dismissed FCA claims brought against the corporate parent and affiliates of a hospital, rejecting the government’s attempt to hold these associated corporations liable for the hospital’s alleged reverse false claims violations. See U.S. ex rel. Schaengold v. Mem’l Health, Inc., No. 11-cv-0058 (S.D. Ga. Dec. 8, 2014).
The government intervened as to one count of the relator’s qui tam action, which alleged that defendant Memorial Health, Inc., its wholly-owned subsidiary Memorial Hospital, and a physician group (“MHUP”) wholly-owned by another Memorial Health subsidiary, violated the FCA by failing to timely return overpayments received by Memorial Hospital. According to the relator (the former CEO of Memorial Health and Memorial Hospital), Memorial Health and affiliated entities (collectively, “Memorial System”) employed the physicians of MHUP and paid compensation at levels above fair market value rates. As a result, these compensation arrangements between referring physicians and healthcare entities could not meet the Stark Law’s exception for “bona fide employment relationships,” which requires fair market value compensation. The Stark Law requires any funds received in violation of the law to be refunded within sixty days of collection. Under this theory, by submitting a cost report including services obtained in violation of the Stark Law, yet certifying that the services identified in the report complied with all applicable laws, the hospital concealed an obligation to refund overpayments to the government.
Although this theory of FCA liability is premised on the submission of cost reports, the government and the relator attempted to impute liability on additional corporate entities that did not submit any cost reports for these physicians’ services. Memorial System’s Board of Directors had previously discussed potential fair market value concerns with their compensation arrangements with MHUP. The government argued that because Memorial Health and all other relevant subsidiaries operated as a unitary health system controlled by a centralized management team, which was aware of the alleged Stark Law violations, all of the related entities were liable for the hospital’s submitted claims.
The court rejected the proposition that “merely being a parent, or an associated corporation, of a subsidiary that commits an FCA violation” can be sufficient to support FCA liability for a subsidiary’s violations. Instead, related entities can only be liable if they were directly involved in the submission of claims, or if veil-piercing is appropriate. The court quickly concluded that, although the other entities were involved in arrangements that ultimately culminated in the submission of allegedly false claims to the government, the absence of any allegations that they were directly involved in causing the submission of falsely certified cost reports warranted dismissal. The court also concluded that veil-piercing was inappropriate. Noting that overlapping management generally does not merit veil-piercing, the court ruled that even if all entities could be considered “alter egos,” there as no allegation that failure to pierce the corporate veil would result in injustice. The government was granted twenty days to amend its complaints and replead its claims against the hospital’s affiliated entities.
A copy of the court’s decision is available here.
Posted by Kristin Graham Koehler and Monica Groat
On November 20, Acting Associate Attorney General Stuart F. Delery and Acting Assistant Attorney General Joyce R. Branda announced that the Department of Justice recovered a record $5.69 billion in settlements and judgments from civil cases involving alleged fraud against the Government in fiscal year 2014. This figure represents the highest annual total recovery and an increase of nearly $2 billion over the Government’s recovery in fiscal year 2013.
Recoveries from the financial industry accounted for the most significant proportion of fraud-related recoveries, representing $3.1 billion of the total $5.69 billion. This amount was more than double the previous record for recoveries from banks and other financial institutions, which paid $1.4 billion in fiscal year 2012. Healthcare fraud represented the second largest area of recovery; DOJ recovered $2.3 billion from pharmaceutical and device manufacturers, hospitals, and other healthcare providers. Fiscal year 2014 was the fifth straight year during which the Government has recovered more than $2 billion in cases involving false claims against federal healthcare programs, including Medicare and Medicaid.
Of the $5.69 billion recovered this year, nearly $3 billion related to lawsuits filed under the FCA’s qui tam provisions, and relators recovered $435 million. The number of FCA qui tam suits filed in 2014 decreased slightly: 713 suits were filed in 2014, compared with 754 in 2013. These numbers indicate that both DOJ and private relators are continuing to bring FCA cases; although the volume of cases did not increase, recoveries by both the Government and relators increased. The announcement also confirms that DOJ is continuing to aggressively pursue fraud cases, with a continuing interest in healthcare fraud and an increasing focus on the financial industry.
Earlier this month, the Justice Department announced that federal prosecutors are increasing their scrutiny of whistleblower complaints that allege fraud against the government, in order to discover evidence of criminal conduct.
Previously, the criminal division had concentrated its efforts through a “strike force” in nine cities deemed to have the worst healthcare fraud problems. Lauding the successes of these efforts, Assistant Attorney General Leslie Caldwell, in a speech before the Taxpayers Against Fraud Education Fund, announced that DOJ was “stepping up” its analysis of whistleblower complaints so that it can “move swiftly and effectively to combat major fraud involving government programs.”
To do so, the criminal division will now review “all new qui tam complaints . . . as soon as they are filed.” By DOJ policy, the civil division will maintain supervisory authority over all False Claims Act cases with damages exceeding $1 million, but the criminal division will no longer be reliant on referrals from civil authorities for potential prosecution. Going forward, “[e]xperienced prosecutors in the Fraud Section are immediately reviewing the qui tam cases . . . to determine whether to open a parallel criminal investigation.”
Ms. Caldwell promised that the Department would be “committing more resources to this vital area.” In addition to earlier review by criminal prosecutors, the additional resources will allow for more coordination between Main Justice and local United States Attorney’s offices. Ms. Caldwell further encouraged whistleblower lawyers to “reach out to criminal authorities in appropriate cases” because “the sooner [prosecutors] on the criminal side learn about potential conduct, the sooner [the criminal division] can investigate.”
The Justice Department’s focus on criminal fraud prosecutions, particularly in the healthcare sector, is an increasing trend that shows no sign of slowing down. This makes careful responses more vital anytime a company is the subject of a whistleblower lawsuit or subject to a civil investigative demand or subpoena from DOJ. Even if a case begins as civil in nature, one can be sure that criminal prosecutors will be reviewing it closely for any evidence of criminal misconduct.
Posted by Scott Stein and Catherine Kim
Several circuit courts have recognized the “worthless services” theory of FCA liability, which allows qui tam relators to assert FCA claims premised on the notion that the defendant received reimbursement for goods or services that were worthless. In a recent case, U.S. ex rel. Absher v. Momence Meadows Nursing Center, Inc., the Seventh Circuit held that assuming the theory is viable in the Seventh Circuit (an issue it declined to decide), it does not apply to situations in which deficient performance of a contract is alleged to have resulted in services “worth less” than what was contracted for. As the court succinctly put it, “[s]ervices that are ‘worth less’ are not ‘worthless.'”
The case was originally filed by two nurses who formerly worked at Momence, alleging that the nursing home knowingly submitted false claims to Medicare and Medicaid by seeking reimbursement for treatment that allegedly failed to comply with standards of care. Although the United States and Illinois declined to intervene, the relators proceeded to trial. The jury reached verdicts against Momence and awarded over $3 million in compensatory damages, which was trebled under the FCA.
On appeal, Momence argued that the district court lacked jurisdiction under the public disclosure bar because the FCA action was based on allegations of non-compliant care that were the subject of previous government reports. The Seventh Circuit, however, continuing its streak of recent opinions narrowing the scope of the public disclosure bar, held that the bar was not implicated because the reports did not disclose “that Momence had the scienter required by the FCA.”
The court then proceeded to assess whether the relators’ claims failed as a matter of law. Although the Seventh Circuit declined to address the viability of a worthless services theory of FCA liability – “a question best saved for another day” – it nevertheless concluded that even if that theory was valid, “[i]t is not enough to offer evidence that the defendant provided services that are worth some amount less than the services paid for.” Because the court concluded that the relators failed to offer evidence establishing that Momence’s services were “truly or effectively ‘worthless[,]'” it held that the worthless services theory could not support the jury’s verdict.
Similarly, the court found that the relators’ evidence in support of the express certification theory was also insufficient because the relators not only failed to put forth evidence of “precisely how many . . . forms contained false certifications[,]” but they also failed to identify “even a roughly approximate number of forms contain[ing] false certifications.” While the court acknowledged the difficulty in producing evidence that supports “even an approximate finding[,] . . . under the FCA, the plaintiff must ‘prove all essential elements of the cause of action . . . by a preponderance of the evidence.'”
Lastly, with respect to the implied certification theory, the court acknowledged that it had not expressly determined whether such theory is recognized in the Seventh Circuit. However, it declined to answer the question here since the realtors did not argue to the jury that the purported implied certifications were conditions of payment, thereby waiving the theory on appeal.
The Seventh Circuit vacated the judgment and remanded the case for judgment to be entered for the defendants. Although the court did not definitively preclude the possibility of a plaintiff prevailing on a worthless services theory in the Seventh Circuit, the reasoning contained in its ruling strongly suggests that such theory, if recognized, would likely be reserved for the most extreme cases.
A copy of the court’s decision can be found here.
Posted by Scott Stein and Brenna Jenny
In May, the Department of Health and Human Services’ Office of Inspector General (“OIG”) published two proposed rules, one expanding its exclusion authority (“Proposed Exclusion Rule”) and the other broadening and strengthening the availability of civil monetary penalties (“Proposed CMP Rule“). Some of these proposals merely codify provisions of the Affordable Care Act (“ACA”), whereas others are a product of the OIG’s own initiative, but interwoven within both are changes reflecting the influence of the False Claims Act on the enforcement landscape.
For example, in the Proposed Exclusion Rule, the OIG is proposing to add a provision expressly stating that there is no time limitation for the conduct that can form the basis for exclusion, regardless of whether the conduct is based on the violation of a statute with a statute of limitations. 79 Fed. Reg. 26810, 26815 (May 9, 2014). Much of the OIG’s rationale reflected its desire to be able to match the time lag often associated with FCA litigation. The OIG explained that with a time limitation, it might feel compelled to file a notice of proposed exclusion against a defendant in a pending FCA suit to avoid losing its window of opportunity, even where it might subsequently decide against exclusion with a fuller understanding of the allegations.
The OIG also proposes to borrow definitional terms from the FCA for its own enforcement purposes. As a consequence of being excluded, individuals and entities cannot receive payment “for any item or service furnished” to a federal healthcare program (“FHCP”). The OIG’s new definition would expand the meaning of “furnish” to encompass not only individuals and entities who “submit claims to” FHCPs, but also those who “request or receive payment from” FHCPs, such as organizations that receive block grants from FHCPs. While this definition generally makes explicit the government’s pre-existing enforcement approach, the OIG specifically notes that this “revised wording would be consistent with the False Claims Act’s broad definition of ‘claim'” and “would appropriately encompass all current and future payment methodologies.” Similarly, in the Proposed CMP Rule, the OIG plans to codify the ACA’s new source of CMP liability, based on “any false statement, omission, or misrepresentation of a material fact in any application, bid, or contract to participate or enroll as a provider of services or a supplier under a Federal healthcare program.” The ACA did not define “material,” and the OIG proposes to define the word so as to “mirror the False Claims Act definition.”
Sidley’s client update providing more detail regarding the proposed rules is available here.