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State/Local FCA

14 June 2017

New Jersey Supreme Court Curtails Attorney General’s Subpoena Power in FCA Action

On June 7, 2017, the New Jersey Supreme Court, in a 3-2 decision affirming the decision of the Appellate Division, found that the Attorney General’s administrative subpoena power under New Jersey’s False Claims Act is limited to the 60 day period (which may be extended by motion) in which the Attorney General must make his or her intervention decision. “[A]fter the Attorney General declines to intervene in a qui tam action and leaves that action in the relator’s control, the Attorney General loses the authority to issue administrative subpoenas.” In the Matter of the Enforcement of New Jersey False Claims Act Subpoenas, A-5-16 (No. 077506). (more…)

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15 September 2016

OIG Prods States To Increase FCA Civil Penalties

As we previously reported, federal FCA civil penalties were effectively doubled recently due to federal legislation requiring regular re-indexing of penalties to inflation.  Now, CMS is prodding the states to amend their own FCAs to take similar action.

DOJ and HHS-OIG are charged with regularly reviewing state FCAs to determine whether they are at least as effective as the federal FCA in rewarding and facilitating qui tam actions.  States that are deemed compliant receive an extra 10 percent in their share of recoveries in Medicaid fraud cases.  Earlier this week, CMS announced that states will be expected to amend their FCAs to reflect the increased civil penalties now available under federal law.  States will be given two years to bring their FCAs into compliance.

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05 June 2015

Maryland Expands its False Claims Act

Posted by Jaime Jones and Bevin Seifert

On May 12, 2015, Maryland Governor Larry Hogan signed into law Senate Bill 374, an expansion of the Maryland False Claims Act (“MFCA”), which took effect on June 1, 2015. The prior version of the MFCA was limited to Medicaid and healthcare-related fraud, whereas the new law covers any claims made to the state or to local government.

(more…)

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19 December 2014

NYT Reports on State AGs Delegating Police Powers to Plaintiffs’ Lawyers

The front page of this morning’s New York Times contains an article titled “Lawyers Create Big Paydays by Coaxing Attorneys General to Sue.” The article reports on the growth of a “flourishing industry that pairs plaintiffs’ lawyers with state attorneys general to sue companies,” and the serious concerns this raises when states effectively delegate their police powers to investigate and sue to private firms with a financial interest in the outcome of investigations they are seeking State-granted authority to conduct. We have observed this trend extending into municipal False Claims Act cases.

The article is worth a read by anyone concerned about this troubling trend.

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15 May 2014

District Court Dismisses Virginia FCA Claim Against Clinical Laboratory Based on Alleged Violation of “Usual and Customary Charge” Requirement

Posted by Ellyce Cooper and Collin Wedel

On May 13, a district court in the Eastern District of Virginia dismissed a healthcare fraud action under the Virginia Fraud Against Taxpayers Act (“VFATA”) against Laboratory Corporation of America (“LabCorp”) alleging that LabCorp routinely charged Medicaid more than its “usual and customary charge” for laboratory services. The district court held that the relators’ allegations about Medicaid overcharges and improper kickbacks for Medicaid referrals could not proceed because relators (i) failed to specify the particulars of a single false claim under Rule 9(b), and (ii) failed to articulate any particular certification defendants made that was false, in violation of Rule 8(a).

The relators—competitors of LabCorp—alleged that each of LabCorp’s Medicaid reimbursement claims was actionably “false” in two ways. First, LabCorp’s charges to Medicaid prices for laboratory services were higher than the lower prices that LabCorp routinely negotiated with individual insurers and physicians, which relators alleged violated Virginia regulations requiring LabCorp to charge Medicaid its “usual and customary” rates. Second, relators alleged that these lower charges offered to individual physicians constituted impermissible kickbacks meant to induce referral of Medicaid business. Relators alleged that these violations had rendered 2,730,814 claims submitted by LabCorp “false.”

With regard to Rule 9(b), the court acknowledged a split between the circuits about whether relators must identify all of the particulars—e.g., the who, what, when, where, how—of at least one representative claim, and noted that the Fourth Circuit had not addressed that issue. Nonetheless, relying heavily on the Fourth Circuit’s decision in U.S. ex rel. Nathan v. Takeda Pharm. N. Am., 707 F.3d 451, 456 (4th Cir. 2013), cert. denied, 134 S. Ct. 1759 (2014) (a decision we previously wrote about here), the court held that relators must allege with particularity the submission of at least one specific claim for payment. The court found that the relators failed to do so.

On an alternative but related ground, the court also dismissed the complaint under Rule 8(a), relying heavily on the difference between certifying legal compliance in order to participate in a program versus to be paid under that program. The court, distinguishing between legal and factual falsity, held that, in this complaint alleging factual falsity, no liability for fraud under a false certification theory can exist unless relators plead the details of what statement defendants made that was actually false. In Hunter, the relators argued that LabCorp could not have participated in the Medicaid program without agreeing to be bound by Virginia regulations, which mandate that providers cannot charge higher prices for Medicaid patients than for non-Medicaid patients. Under this theory, each overpriced claim was made false because LabCorp would not have been able to submit those overpriced claims were it not for its prior agreement to abide by the regulations. The court, however, held that LabCorp’s general agreement to abide by the law in exchange for participating in Medicaid was not an agreement in exchange for Medicaid payment; its agreement was not false when it was made; and, most notably, “a general representation of compliance with all laws lacks the requisite nexus between the subject matter of the certification and the event triggering the loss—i.e., the kickback and overcharge schemes.”

Although this case arose under the VFATA, rather than the federal False Claims Act, the court’s grounding of its opinion in Rules 8(a) and 9(b) offers guidance to companies seeking to defend against similarly allegations of fraud in the Fourth Circuit. This ruling further strengthens the Fourth Circuit’s already stringent pleading standards under Rules 8(a) and 9(b).

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18 March 2014

Decision Recognizes Expanded Implied Certification Theory Under California False Claims Act

Posted by Kimberly Dunne and Brent Nichols

A recent decision by the California Court of Appeal could significantly expand liability for government contactors under the California False Claims Act (“CFCA”). See San Francisco Unified School Dist. ex rel Contreras v. First Student, Inc., No. A136986, Cal. Court. App. (1st Dist. Mar. 11, 2014). In Contreras, the Court held that a “vendor impliedly certifies compliance with express contractual requirements when it bills a public agency for providing goods or services,” even when the vendor has not expressly represented that it is in contractual compliance. Under the rule articulated in Contreras, once a relator has established a false implied certification, he or she need only show that the false certification was “material” to the government’s payment decision and that the defendant acted with scienter (i.e., knowledge or reckless disregard). This decision represents a substantial departure from jurisprudence holding that a breach of contract in and of itself does not give rise to liability under the federal FCA.

In Contreras, a school district contracted with First Student to provide transportation services. The contract required First Student to use school buses that were in “excellent” condition and complied with federal and state safety regulations, and to conduct regular maintenance inspections in accordance with government regulations. Relators alleged that defendant violated these contractual terms by using buses with low tire treads and worn brake lines, and by failing to perform the required inspections. Over the course of several years, First Student submitted monthly invoices, but notably these invoices did not expressly certify compliance with contractual terms. The school district eventually became aware of some maintenance problems, but ultimately renewed its contract with First Student and the State did not intervene in the suit. The trial court granted First Student’s motion for summary judgment, finding that there was no triable issue as to materiality because the district was aware of the issues and still renewed its contract.

The Court of Appeal reversed. After making clear that CFCA should be given “the broadest possible construction,” the Court found that each of First Student’s invoices impliedly certified compliance with contractual terms and that the non-compliance was material because the “alleged falsities were material as a matter of common sense.” The Court rejected defendant’s argument that the invoices could not be material because the district renewed its contract with First Student after learning of the issues. Instead, the Court’s materiality analysis “focused on the potential effect of the false statement when made, not on the actual effect of the false statement when discovered.” Here, even though the district paid First Student’s invoices and renewed its contract, the Court found there was a factual dispute as to whether the implied false certifications—at the time they were made—would have had a “natural tendency” to influence the district’s payment decision.

Overall, this decision blurs the line between breach of contract and CFCA liability, and suggests that a mere knowing breach of a material contractual term may form the basis of a CFCA claim.

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04 February 2014

Supreme Court of Louisiana Overturns $330 Million Judgment In Off-Label Marketing Case

Posted by Jonathan Cohn and Josh Fougere

Last week, the Supreme Court of Louisiana reversed a $330 million judgment ($258 million in penalties, $70 million in attorney fees, and $3 million in costs) against Johnson & Johnson and its subsidiary, Janssen Pharmaceutical, because there was no evidence that “any defendant made or attempted to make a fraudulent claim for payment against any Louisiana medical assistance program within the scope of [the Louisiana Medical Assistance Programs Integrity Law (‘MAPIL’)]”—a state statute based on the federal False Claims Act. Caldwell ex rel. State v. Janssen Pharmaceutical, Inc., Nos. 2012-C-2447, 2012-C-2466, 2014 WL 341038, slip op. at 1-2, 19-20 (La. Jan. 28, 2014)

The case centers on a narrow set of facts related to defendants’ antipsychotic drug Risperdal. In September 2003, the FDA told all manufacturers of so-called atypical antipsychotics to amend their labels to warn about potential adverse side effects associated with the drugs, and to issue letters about the change to healthcare providers around the country. Defendants did so, but their letter also reported that Risperdal had been associated with lower risks than other atypical antipsychotics. The FDA took issue with those statements and directed defendants to issue a “corrective” letter, which they did in July 2004. Just a couple of months later, the Louisiana Attorney General brought suit, alleging that the original letter contained off-label statements misrepresenting Risperdal’s safety and efficacy and that defendants were subject to civil penalties under Louisiana law as a result. In 2010, a jury returned a verdict for the state, finding that the defendants had violated Louisiana’s MAPIL 35,146 times (based on the number of letters mailed and sales calls made) and assessed a civil penalty of $7,250 per violation. The verdict was affirmed by the intermediate appellate court.

The Louisiana Supreme Court found no evidence to support that judgment based on its reading of the state’s false-claims act. Proceeding through each of the statute’s three subsections one-by-one, the court explained the law’s scope and why the conduct at issue did not fall within it. First was subsection (A), which provides that “[n]o person shall knowingly present or cause to be presented a false or fraudulent claim.” La. Rev. Stat. § 43:438.3(A). Because the statute elsewhere defined a “false or fraudulent claim” as one that a provider submits “knowing” it to be false or misleading, the court focused the responsibility for policing falsity on the person or entity actually making the claim for payment. The AG was thus required to “show that a Louisiana doctor who prescribed Risperdal for his patient, or a healthcare provider who dispensed the drug to the patient, knew that the defendants had made misleading statements about their product, but nonetheless prescribed or dispensed the drug to the patient knowing that there may be drugs that are equally safe, and less expensive, or safer than Risperdal, and notwithstanding that knowledge, prescribed or dispensed Risperdal.” Put another way, the “doctor or healthcare provider would have had to have knowingly committed malpractice, prescribing or dispensing Risperdal despite knowing there were better, cheaper, or safer, more efficacious drugs available, for the defendants to be liable under this provision.” No evidence supported such a finding.

Next, the court turned to subsection (B), which provides that “[n]o person shall knowingly engage in misrepresentation to obtain, or attempt to obtain, payment from medical assistance programs funds.” Again requiring a tight nexus between the claim for payment and the allegations, the court found “no showing the defendants knowingly attempted to obtain payment from the medical assistance programs pursuant to a claim.” In addition, the court read the “misrepresentation” requirement to “logically place[] the obligation of truthful and full disclosure on the healthcare provider or any person seeking to obtain payment through a claim made against medical assistance program funds or entering into a provider agreement,” in light of the “absurd consequences” that would arise if “potentially any information required by any federal or state agency or source, which is not fully disclosed by any person who ultimately receives Medicaid funds, directly or indirectly, could, if not truthfully or fully disclosed, subject that person to civil penalties under MAPIL.”

The third subsection states that “[n]o person shall conspire to defraud, or attempt to defraud, the medical assistance programs through misrepresentation or by obtaining, or attempting to obtain, payment for a false or fraudulent claim.” La. Rev. Stat. § 43:438.3(C). Here, too, the gap between the allegedly misleading statements and the claims for payment doomed the state’s case: “Even if the defendants were attempting to gain a competitive edge over other manufacturers of atypical anti-psychotics through the use of misleading off-label statements,” and “even if the defendants’ conduct was intended to influence the prescribing decisions of doctors treating schizophrenia patients,” there could be no liability because there was “no showing the defendants failed to truthfully or fully disclose or concealed any information required on a claim for payment made against the medical assistance programs” or that any such statements “were made to the department relative to the medical assistance programs,” and there was “no causal connection” between any such conduct and “any false or fraudulent claim for payment to a healthcare provider or other person.”

The thrust of the Louisiana court’s reasoning is straightforward but powerful: a statute designed to prevent false or fraudulent claims requires a close connection between the allegedly fraudulent conduct and the claim for payment from the state, and liability will not necessarily attach to any allegation of wrongdoing that ultimately winds its way to a Medicaid claim. Because the Louisiana statute bears similarities with false claims act statutes in other jurisdictions, this is a significant ruling for manufacturers defending false marketing claims elsewhere.

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28 January 2014

West Virginia Considers New False Claims Act Legislation

Posted by Jonathan F. Cohn and Brian P. Morrissey

Earlier this month, the West Virginia House Judiciary Committee approved a State False Claims Act by a 15-9 vote, advancing the bill for consideration by the full House. If enacted, the bill would add West Virginia to the list of over 30 states that currently have False Claims Act legislation in place.

The proposed bill mirrors the federal False Claims Act in many key respects. Like the federal Act, the bill would punish any person who “knowingly presents or causes” the presentment of a “false or fraudulent claim” to an agent of the State government. W. Va. H.B. 4001 § 14-4-2(a)(1). In addition, it subjects violators to potential treble damages, as well as civil penalties and costs. Id. § 14-4-2(a). Qui tam relators may initiate suits under the proposed law, and may proceed with litigation even when the State elects not to intervene. Id. § 14-4-4. Relators would be entitled to a share of any recovery, not to exceed 25% in cases in which the State has intervened and 30% in cases the relator has pursued alone. Id. § 14-4-6(a)-(b). Also like the federal Act, the proposed bill imposes “first-to-file” and “original source” limitations on qui tam actions. Id. § 14-4-7(c), (d)(1).

Importantly, the proposed bill’s “original source” limitation may impose only a modest hurdle to prospective qui tam suits. The proposed bill states that a court “shall” dismiss a qui tam action if “substantially the same allegations were publicly disclosed” by another source. Id. § 14-4-7(d)(1). Like the federal FCA, however, the proposed bill appears to prevent the court from dismissing the case if the State opposes dismissal. Id.; see 31 U.S.C. § 3730(e)(4)(A). In addition, the proposed bill explicitly contemplates that a qui tam relator may pursue litigation and share in the recovery even if the relator’s claims are based “primarily” on a prior public disclosure from another source. W. Va. H.B. 4001 § 14-4-6. In this respect, the proposed bill appears to diverge from the federal FCA, which (after its 2009 and 2010 amendments), prohibits a qui tam relator from proceeding with a suit based on a prior public disclosure unless the relator provided the information to the Government prior to the public disclosure, or has knowledge that is “independent of and materially adds to” that public disclosure. 31 U.S.C. §3730(e)(4)(B).

Critics of the proposed legislation, including the West Virginia Chamber of Commerce, have expressed concern that the bill may adversely affect the business climate in the State and may unduly burden the West Virginia Attorney General’s Office. The Attorney General’s Office has not formally taken a position on the bill, although its General Counsel has noted that the bill would “dramatically” increase whistleblower litigation, and thereby impose “significant” challenges on the Office’s limited resources.

We will continue to monitor the bill’s progress in the West Virginia Legislature.

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26 March 2013

Office of Inspector General Issues Updated Guidelines for State False Claims Acts

The Office of Inspector General of the Department of Health and Human Services (OIG) has issued updated guidelines for determining whether a state false claims act satisfies the requirements of section 1909(b) of the Social Security Act. Where the Inspector General determines that a state act satisfies the requirements of section 1909(b), the state is entitled to an increased share of recovery in false claims cases brought under that state act. Effective March 15, 2013, the new guidelines replace previous guidelines issued on August 21, 2006 and reflect amendments to the Federal False Claims Act (FCA) that have gone into effect since issuance of the previous guidelines.

As part of the revisions, OIG modified the guidelines for determining whether the state act appropriately establishes liability for false or fraudulent claims with respect to state Medicaid expenditures. These revised guidelines reflect amendments to the FCA that expanded liability to include false statements “material” to a false or fraudulent claim. OIG also expanded the guidelines with respect to provisions that reward and facilitate qui tam actions. Among these revisions, OIG restricted state law limits on actions resulting from public disclosures and modified the minimum percentages of recovery that a relator must receive under the state act. With respect to the civil penalty provisions, OIG revised the guidelines to provide minimum civil penalty amounts of at least $5,500 to $11,000, which amounts reflect adjustments per the Federal Civil Penalties Inflation Adjustment Act.

To qualify for the incentive provided by section 1909 of the Social Security Act, a state false claims act must fulfill the requirements of section 1909(b) as amended at the time of OIG’s review. OIG provided a two-year grace period during which states with false claims acts that had been approved before the amendments to the FCA became effective would continue to qualify for the incentive. After expiration of the grace period, a state must amend and resubmit its false claims act to OIG for review and either have its act approved or be under OIG review in order to qualify for the incentive.

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13 March 2013

$5.5 Million New York State Settlement Marks First FCA Tax Recovery

Posted by HL Rogers and Loui Itoh

Although the federal FCA specifically exempts tax fraud, New York is one of over 30 states and four municipalities that have enacted separate FCA laws. These state FCA laws generally follow the federal FCA but vary in certain specifics. For instance, New York’s state FCA law specifically exempted tax fraud, similar to the federal FCA, when it was passed in 2007. However, it was expanded in 2010 by amendments that allowed, among other things, whistleblower claims related to tax fraud. This expanded provision had not been successfully used until this month when New York announced its first FCA tax recovery. The settlement marks the first time that an FCA has been used to penalize tax fraud. Critics and experts will be watching closely to see if this recent recovery will lead to a new national trend.

On March 5, 2013, New York Attorney General Eric T. Schneiderman announced that tailor Mohanbhai “Mohan” Ramchandani and his business corporation, Mohan’s Custom Tailors, Inc., pled guilty to a ten-year tax evasion scheme and agreed to pay a $5.5 million civil settlement for claims filed under New York State’s False Claims Act. The civil claims were first raised by a whistleblower who offered insider information and will receive a $1.1 million award under the New York FCA’s relator award provisions.

The Attorney General’s investigation concluded that since 2002, Mohan and his business had knowingly failed to pay at least $1.7 million in state and local sales taxes, and that Mohan himself owed at least $256,000 in state and local personal income taxes. Mohan confessed to these charges before the New York County Supreme Court, admitting that he and his business had knowingly failed to pay nearly $2 million in taxes. In addition to the civil settlement, Mohan faces up to three years in prison for the felony charges.

Although it specifically exempted tax fraud when it was passed in 2007, New York’s FCA was expanded in 2010 by amendments authored by Attorney General Schneiderman, who was then a state senator. Schneiderman called the newly expanded state FCA, a “False Claims Act on Steroids.” The revised FCA allows a whistleblower to bring a qui tam suit against an individual or business that makes more than $ 1 million net income and defrauds the state by more than $350,000 in taxes. The relator may keep up to 25 to 30 percent of the recovery, depending on whether the government joins the suit. The question remains whether this will become a national trend and another consistent tool in state governments’ arsenals to penalize tax fraud.

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