Category

Materiality

13 January 2022

Court Concludes Government Agencies Cannot Categorize Regulatory Violations as Material as a Matter of Law

On January 7, 2022, a district court in the Western District of Kentucky dismissed DOJ’s implied false certification theory relating to allegedly medically unnecessary genetic tests, holding that the prosecutors failed to adequately plead materiality.  In so holding, the court set forth a novel test for materiality that forecloses the government’s ability to argue that certain regulations are per se material based on the government’s characterization of them as conditions of payment.  Instead, plaintiffs must still plead “specific facts regarding the effect of a violation of that regulation” to survive dismissal. (more…)

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14 December 2021

Analyzing FCA Materiality Defense Outcomes Under Escobar

Since the Supreme Court in Escobar stated that continued payment by the government is “very strong evidence” that the alleged violations are not “material” under the False Claims Act (“FCA”), courts have grappled with how much weight the government’s continued payment should be accorded when assessing “materiality.” Courts have adopted varying approaches, with no obvious majority position. (more…)

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02 September 2021

Split Seventh Circuit Panel Spars Over Escobar Interpretation

The United States Court of Appeals for the Seventh Circuit recently allowed a previously dismissed qui tam case to proceed against Molina Healthcare of Illinois (“Molina”). The suit, brought by a relator who founded Molina subcontractor GenMed, alleges that Molina fraudulently billed Illinois’ Medicaid program for skilled nursing facility (“SNF”) services that were not actually provided.  The district court previously dismissed the case at the pleading stage in June 2020, finding that the relator’s complaint insufficiently alleged that Molina knew its alleged false claims were material. The Seventh Circuit, in a split decision, reversed and remanded the case for further proceedings. (more…)

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25 August 2021

Finding No Materiality, Court Grants Summary Judgment for Defense in Fraudulent Inducement Case

On August 12, 2021, the United States District Court for the District of Minnesota granted Boston Scientific Corporation’s (BSC) motion for summary judgment in relator Stephen Higgins’s declined qui tam, which alleged that BSC had fraudulently induced the Food and Drug Administration (FDA) to approve two types of defibrillators that the FDA later recalled. (more…)

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09 August 2021

Proposed FCA Amendments Blocked from Senate Infrastructure Bill

The recently proposed amendments to the False Claims Act have stalled out for now.  As discussed here and here, these bipartisan proposed amendments—led by Senator Grassley—would have made four changes to the FCA, and most notably, would have radically altered the burden of proof for establishing materiality.

But after making a sudden appearance on Friday in the Senate infrastructure bill, last night those amendments were excluded.  This means that the amendments’ proponents will need to consider other vehicles, particularly “must pass” bills such as the budget resolution.  The Senate is expected to consider amendments to the budget resolution later this week.

We will continue to monitor developments regarding this proposed legislation.

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06 August 2021

FCA Amendments Resurface in Senate Infrastructure Bill

As discussed further here, a bipartisan group of senators, led by Senators Grassley (R-IA), Leahy (D-VT), Wicker (R-MI), Durbin (D-IL), and Kennedy (R-LA), recently introduced proposed amendments to the False Claims Act. Those amendments have now been incorporated into the infrastructure bill currently being debated in the Senate. (more…)

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26 July 2021

Bipartisan Legislation Introduced To Overhaul FCA To Further Hamstring Defendants

A bipartisan group of senators, led by Senators Grassley (R-IA), Leahy (D-VT), Wicker (R-MI), Durbin (D-IL), and Kennedy (R-LA), has introduced the False Claims Amendments Act of 2021.  This legislation is worth watching not just because it would significantly amend the FCA, but because Senator Grassley has a successful track record of shepherding through to passage legislation reversing gains made by defendants in FCA cases.

(more…)

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13 July 2021

D.C. Circuit Applies But-For Causation Standard, Weak Materiality Test to FCA Claims, While Concurrence Questions Viability of Fraudulent Inducement Theory

On July 6, 2021, the D.C. Circuit Court of Appeals affirmed in part and reversed in part a district court’s dismissal of the qui tam suit against IBM in United States ex rel. Cimino v. Int’l Bus. Machines Corp., No. 19-7139.  The relator alleged that IBM and the Internal Revenue Service (“IRS”) had entered into a software license agreement, but that upon learning that the IRS was uninterested in renewing the agreement, IBM fraudulently induced the IRS to extend the contract.  In particular, IBM allegedly collaborated with the auditor of the agreement, resulting in an audit finding that the IRS owed IBM $292 million for noncompliance with the contract’s terms.  IBM then offered allegedly to waive that fee in exchange for the IRS renewing the agreement.  The relator further alleged that once the new agreement was in place, IBM nonetheless collected $87 million of the noncompliance penalty by disguising that amount as fees for products and services that were never provided.  According to the relator, this scheme yielded FCA liability in two ways: first, IBM fraudulently induced the IRS to renew the agreement; second, IBM submitted false claims by billing $87 million for unprovided products and services.

(more…)

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24 May 2021

Judge Saris Green Lights FCA Claims Against PE Fund Based on Regulatory Non-Compliance of its Portfolio Company Healthcare Provider for Trial

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.

(more…)

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12 April 2021

DOJ Tries to Take Materiality Off the Table for Drug Company Motions to Dismiss

In a recent Statement of Interest, DOJ articulated a problematic, and incorrect, theory of materiality in an apparent effort to make it virtually impossible for defendants to defeat bare allegations of materiality at the motion to dismiss stage in cases that involve allegedly false claims for prescription drugs.

(more…)

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