Category

Materiality

22 February 2017

DC Circuit Affirms Dismissal of FCA Claim Based On Insufficient Evidence of Materiality

In United States ex rel. McBride et al. v. Halliburton Co. et al., No. 15-7144, 2017 WL 655439 (D.C. Cir. Feb. 17, 2017), the D.C. Circuit affirmed a district court’s summary judgment in favor of several FCA defendants because the Relator failed to show their alleged misrepresentation was “material to the Government’s decision to pay,” as required by the Supreme Court’s decision in Escobar.

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30 November 2016

On Remand, First Circuit in Escobar Minimizes Importance of Government Payment Practices In Assessing Materiality

As we reported here, in its ruling in Universal Health Services, Inc. v. United States ex rel. Escobar last June, the Supreme Court affirmed the viability of the implied certification theory of liability under the FCA, but remanded the case to the First Circuit to apply the Court’s newly-articulated framework for analysis of such claims.  Last week, the First Circuit ruled that even under the Supreme Court’s demanding test for liability, the relators still stated a cognizable implied certification claim, and therefore reversed the district court’s dismissal of the relators’ complaint.  Critical to the First Circuit’s ruling was its view that evidence of the government’s payment practices when faced with similar alleged violations are less important to the analysis than the court’s assessment of the centrality of a regulation to the contractual relationship between the government and the defendant.

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04 November 2016

Ninth Circuit Asked To Clarify Scope of Falsity and Materiality Post-Escobar

In Escobar, the Supreme Court held that implied certification liability under the FCA may exist where the following two conditions are met: (1) the claim does not merely request payment, but also makes specific representations about the goods or services provided; and (2) the defendant’s failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading.  This has come to be referred to in post-Escobar briefing as the “two-part test.”  However, DOJ has been engaged in an aggressive campaign of filing statements of interest in courts throughout the country arguing that the two-part test is not the exclusive means of establishing implied certification liability post-Escobar, seeking to maintain an expansive scope for the implied certification theory.  The hook for DOJ’s argument is the statement elsewhere in Escobar that “We need not resolve whether all claims for payment implicitly represent that the billing party is legally enti­tled to payment.”  District courts have split on whether Escobar’s two part test is the exclusive means of establishing implied certification liability.

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22 July 2016

District Court Applying Escobar Rejects DOJ’s Materiality Allegations Under Rule 9(b)

In one of the first post-Escobar decisions applying the Supreme Court’s guidance on materiality under the False Claims Act, a federal district court in California has concluded that bare-bones allegations that ‘the government would not have paid a claim’ do not satisfy Rule 9(b).  The case involves allegations that defendants submitted false claims to federal healthcare programs for diagnostic sleep studies and sleep disorder-related medical devices.  After DOJ intervened and filed an intervention complaint, defendants moved to dismiss on several grounds, including on the ground that DOJ’s implied certification claims failed adequately to plead materiality.  DOJ’s Intervention Complaint contained bare-bones allegations of materiality.

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20 April 2016

False Statements Regarding The Length Of Time A Patient Needs A Purchased Medical Device Are Not Material To The Government’s Payment Decision And Not Actionable Under The FCA

If Medicare pays a flat rate for a patient to purchase a medical device regardless of how long the patient uses the item, any false statement to Medicare regarding the length of time the patient needs that device is not an FCA violation because it is not material to Medicare’s payment decision.  That was the holding recently by a federal district court in Massachusetts, granting summary judgment to device manufacturer DJO, Inc. and ending its role in a decade-long qui tam litigation against numerous manufacturers of bone-growth stimulators.  United States ex rel. Bierman v. Orthofix Int’l, N.V. 05-10557-RWZ (D. Mass. Apr. 11, 2016).

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04 December 2015

Supreme Court Agrees to Review Viability of False Implied Certification and Condition of Payment Theories under the False Claims Act

The U.S. Supreme Court today granted certiorari in Universal Health Services, Inc. v. Escobar, No. 15-7.  The petition presented three questions for review, of which the Court agreed to hear two.  Specifically, the Court agreed to review:

2. Whether the “implied certification” theory of legal falsity under the FCA-applied by the First Circuit below but recently rejected by the Seventh Circuit-is viable.

3. If the “implied certification” theory is viable, whether a government contractor’s reimbursement claim can be legally “false” under that theory if the provider failed to comply with a statute, regulation, or contractual provision that does not state that it is a condition of payment, as held by the First, Fourth, and D.C. Circuits; or whether liability for a legally “false” reimbursement claim requires that the statute, regulation, or contractual provision expressly state that it is a condition of payment, as held by the Second and Sixth Circuits.

The various federal circuits have staked out divergent standards on these issues, leading to significant disharmony in application of the FCA.  With this case the Court has the opportunity to establish uniform, national standards for FCA liability, and potentially to curtail some of the statute’s more abusive applications.

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10 April 2015

Opinion Dismissing FCA Claims Based on Prior Disclosure to Government Officials Highlights Debate About What Constitutes A “Public Disclosure”

Posted by Scott Stein and Emily Van Wyck

In United States ex rel. Rockey v. Ear Inst. of Chicago, No. 11-cv-07258 (N.D. Ill. Mar. 25, 2015), the relator alleged that her former employer, the Ear Institute of Chicago, regularly submitted false claims to Medicare by submitting claims for services rendered by an audiologist under a physician’s name. Additionally, some of these claims were for services not covered by Medicare including therapeutic services performed by an audiologist or services performed without a physician order. In November 2010, the relator alerted the Ear Institute to this improper billing practice and shortly thereafter, the Ear Institute sent a letter identifying the issue to Wisconsin’s Medicare contractor and explaining that none of these claims resulted in overpayments. The letter did not address claims submitted for services not covered by Medicare. The relator filed suit in October 2011 against the Ear Institute, all of its doctors and audiologists, and its billing contractor. Defendants then moved to dismiss the complaint under the public disclosure bar.

The relator argued that the letter failed to sufficiently disclose all of her claims. The court disagreed with the relator explaining that the letter disclosed all elements necessary to show that defendants violated Medicare regulations and, as such, the letter alerted Medicare to “the likelihood of wrongdoing.” That disclosure, the court held, was sufficient to trigger the public disclosure bar.

The district court’s holding is consistent with Seventh Circuit precedent that disclosures to “a competent public official . . . who has managerial responsibility for the very claims being made” qualify as public disclosures. Glaser v. Wound Care Consultants, Inc., 570 F.3d 907, 909 (7th Cir. 2009). The Seventh Circuit’s view makes sense; there is little reason to reward whistleblowers when the defendant has self-disclosed to a responsible government official prior to the filing of a lawsuit. However, the Seventh Circuit standard does conflict with rulings from other circuits, which hold that a disclosure must be made to the public writ large to qualify under the public disclosure bar. We have written about some of these other decisions here and here.

The court then assessed whether the relator qualified as an original source. The original source provision requires that an individual have “knowledge that is independent of and materially adds to the publicly disclosed allegations.” The court noted that “materially adds” is not defined in the statute and no federal appeals court has interpreted the phrase. The district court therefore applied the “usual definition”—that the relator’s knowledge must have a “natural tendency to influence” or to be “capable of influencing” payment. In arguing that the original source provision applied, the relator claimed that while defendants identified their billing errors in the letter, they did not admit that they knowingly violated Medicare billing regulations. The court disagreed, stating that defendants admitted their billing practices were knowing and intentional. The relator also claimed that she provided detailed examples of fraudulent claims. The court rejected the relator’s proposition that these details materially added to defendants’ “comprehensive mea culpa.” Thus, the relator was not an original source and the public disclosure bar applied.

Even if these claims were not barred by public disclosure, the court found that the claims would still fail because the relator did not adequately allege knowledge, falsity, or materiality. With regard to the remaining claims relating to reimbursement for noncovered services (the claims that were not disclosed in the letter) and the conspiracy and retaliation claims, the court denied defendants’ motion to dismiss.

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

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