Late last week, Judge Patti Saris (D. Mass.) issued an opinion on cross-motions for summary judgment filed by a qui tam relator and Massachusetts and a group of defendants that includes South Bay Mental Health Center (“South Bay”) and its private equity fund owner, permitting the vast majority of plaintiffs’ claims to proceed to the jury. The opinion addresses important questions of law as to each of the elements of the FCA related to claims to Medicaid for services allegedly provided in violation of various state regulatory requirements. However, the opinion is most notable for being the first to hold at the dispositive motion stage that a private equity fund and its principals can act with the requisite scienter and cause the submission of false claims, and thus be exposed directly to the treble damages and statutory penalties of the FCA as a result of conduct by a healthcare provider portfolio company. As such, we may expect it to add momentum to DOJ’s stated intent to pursue FCA claims against PE investors in the industry, as we previously reported here.
The Eastern District of Pennsylvania recently ruled on a summary judgment motion in a case that has been pending in the federal courts since 2002, involving alleged conduct by the defendant drug manufacturer from 1996-2004, when the pharmaceutical industry and compliance programs were vastly different than they are in 2020. U.S. ex rel. Gohil v. Sanofi U.S. Services Inc’s, No. 02-cv-02964 (E.D. Pa. Nov. 12, 2020). In its ruling, the court adopted an expansive definition of remuneration and a low bar to satisfy the causation element of FCA claims premised on underlying alleged violations of the Anti-Kickback Statute. On this basis, the court is allowing the relator to proceed to trial on allegations that his former employer caused the submission of false claims by paying kickbacks in the form of fees to physicians to participate in advisory boards and speaker programs, educational grants, and meals and gift baskets, while granting summary judgment for the defendant based on allegations related to preceptorships and other alleged kickbacks.
At a recent U.S. Chamber of Commerce, Institute for Legal Reform meeting, Principal Deputy Associate Attorney General Ethan Davis set forth the current enforcement priorities of the U.S. Department of Justice (DOJ), clarifying for corporations accessing stimulus funds or otherwise dealing with government programs or acting in regulated industries how it is focusing its efforts to target fraud in the midst of the COVID-19 pandemic. While Davis underscored DOJ’s commitment to using the False Claims Act (FCA) and other “weapons in [its] arsenal” to fight fraud against the various pandemic stimulus programs, he also emphasized DOJ’s commitment to exercise enforcement discretion in cases lacking the hallmarks of bad corporate intent.
At the recent Compliance Week Annual Conference, Principal Deputy Associate Attorney General Claire McCusker Murray delivered extensive remarks on DOJ’s corporate enforcement priorities. Of particular note, Murray discussed a number of policy reforms focused on promoting and incentivizing corporate compliance and cooperation.
The U.S. District Court for the Northern District of Florida recently held that a False Claims Act suit can proceed against a Florida pharmacy and its owner, rejecting in particular the owner’s arguments that the complaint did not sufficiently allege that he acted with improper intent or caused the submission of false claims.
When a relator brings a civil action for a violation of the FCA, the Government “may elect to intervene and proceed with the action,” and, thereafter, the Government “shall have the primary responsibility for prosecuting the action.” 31 U.S.C. 3730(b)(2), (c)(1). In United States ex rel. Brooks, et al. v. Stevens-Henager College, Inc., et al., No. 2:15-cv-00199, 2019 WL 186663 (D. Utah Jan. 14, 2019), a judge in the District of Utah addressed the issue of “whether a relator retains an independent right to maintain the non-intervened portion of an action” in which the Government only partially intervened. The district court held that, under the plain language and legislative history of the statute, the relator has no right to litigate the non-intervened portions of the case. (more…)
On September 7, 2018, the United States District Court for the District of Columbia vacated CMS’s 2014 Final Overpayment Rule, applicable to the Medicare Advantage program, granting summary judgment to UnitedHealthcare that the Final Rule violated the Medicare statute, was inconsistent with the Affordable Care Act (ACA) and the False Claims Act (FCA), and violated the Administrative Procedures Act (APA). In broad strokes, the District Court confronted two statutory issues. The first centered on the undisputed fact that the Final Rule did not account for known errors in the data (from traditional Medicare) used to calculate payments to Medicare Advantage plans. The court found that this failure violates the statutory mandate of “actuarial equivalence” because, although “payments for care under traditional Medicare and Medicare Advantage are both set annually based on costs from unaudited traditional Medicare records,” the Final Rule “systematically devalues payments to Medicare Advantage insurers by measuring ‘overpayments’ based on audited patient records.” As a result, the court concluded that the Final Rule “establishes a system where ‘actuarial equivalence’ cannot be achieved.” On the same basis, the court found that the Final Rule violates the statutory requirement to use the “same methodology” in calculating expenditures in traditional Medicare and determining payments to Medicare Advantage plans. The Final Rule “fails to recognize a crucial data mismatch and, without correction, it fails to satisfy [the Medicare statute].” (more…)
Noncompliance with ambiguous regulations often presents a weak case for an FCA suit. A growing number of courts (as discussed here and here) have held that reasonable interpretations of regulations, absent contrary guidance from the government, reflect a mens rea inconsistent with the requisite “knowing” misconduct under the FCA. However, the Eleventh Circuit recently reached a contrary conclusion, holding that defendants who articulate reasonable interpretations of ambiguous regulations can nonetheless be liable under the FCA. See United States ex rel. Phalp v. Lincare Holdings, Inc., No. 16-10532 (May 26, 2017). (more…)
The Eighth Circuit recently affirmed a district court’s grant of summary judgment because the “defendant’s reasonable interpretation of an ambiguous regulation ‘belies the scienter necessary to establish a claim of fraud under the FCA.’” The opinion further reinforces a similar ruling the Eighth Circuit released last week (as reported here) and rejects objections from DOJ that such a holding “absolves defendants of liability whenever they can justify their conduct with a plausible post-hoc interpretation of an ambiguous law.” United States ex rel. Donegan v. Anesthesia Assoc. of Kansas City, No. 15-2420 (8th Cir. Aug. 12, 2016).
On August 8, 2016, the Eighth Circuit affirmed the dismissal of a FCA complaint against the University of Minnesota Medical Center (“UMMC”) alleging that UMMC improperly characterized the children’s unit of its hospital as a “children’s hospital”– a term not defined in the relevant statute – in order to avoid a decrease in Medicaid reimbursements under a recent statutory amendment. The Court held that UMMC’s lobbying efforts with the Minnesota Department of Human Services (“MDHS”) to classify itself as a “children’s hospital” under that amendment, and corresponding claims for Medicaid reimbursement, could not be characterized as “false” under the FCA.