Welcome to Original Source: The Sidley Austin False Claims Act Blog

The False Claims Act (FCA) has long been a key enforcement tool for the federal government in matters involving government contracts or other expenditures of government funds. FCA enforcement has traditionally focused primarily on two industries receiving a substantial amount of government funds: healthcare and defense and other government contractors. Recently, however, FCA enforcement has expanded to other industries, including financial services. Through the False Claims Act Blog, lawyers in Sidley’s White Collar, Healthcare, FDA, Government Contracting, Financial Services, Appellate, and other practices will provide timely updates on new and interesting developments relating to FCA enforcement and litigation.

DOJ’s First “Cyber-Fraud” Settlement Targets Healthcare Provider

Yesterday DOJ announced its first settlement under the Department’s new “Cyber-Fraud Initiative.”  This initiative, announced in October 2021, aims to “utilize the False Claims Act to pursue cybersecurity related fraud by government contractors and grant recipients.”  However, as discussed further here, in addition to targeting traditional government contractors, the initiative presents broader opportunities for DOJ to use the FCA to address data protection practices by healthcare providers.

The healthcare industry is consistently the recipient of disproportionate oversight under the FCA, and thus it is perhaps no surprise that DOJ’s first settlement under the Cyber-Fraud Initiative was with a healthcare provider.  As announced here, a healthcare provider furnishing medical services on air force bases paid $930,000 to resolve allegations that it “violated the False Claims Act by falsely representing to the State Department and the Air Force that it complied with contract requirements relating to the provision of medical services.”  The settlement also resolved allegations relating to controlled substances.

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Court Agrees With DOJ That FMV Payments Can Be Kickbacks

On February 23, 2022, a district court in the Central District of California denied a defendant’s motion to dismiss a qui tam suit premised on alleged Anti-Kickback Statute (“AKS”) violations, holding that “even some fair-market-value payments will qualify as illegal kickbacks.” See United States ex rel. Chao v. Medtronic PLC, No. 17-cv-1903 (C.D. Cal.).

The relator’s operative complaint argued that the defendant, a manufacturer of medical devices, violated the FCA by offering kickbacks in various forms to reward physicians for using the defendant’s devices.  Among other arguments, the defendant urged the court to dismiss the complaint because the relator failed to allege that certain payments to physicians for proctoring other physicians on how to use the medical devices exceeded fair market value (“FMV”). As such, the defendant contended, the relator failed to address the potential applicability of the AKS’s personal services safe harbor.

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DOJ Statistics on FCA Recoveries Through FY 2021 Reveal Continued Focus on Healthcare and More Direct Government Enforcement

On February 1, 2022, Acting Assistant Attorney General for the DOJ Civil Division, Brian M. Boynton, announced that the Civil Division recovered over $5.6 billion in settlements and judgments under the False Claims Act (“FCA”) for fiscal year 2021.  This is the second largest annual total in FCA history and a significant increase from the $2.2 billion recovered during fiscal year 2020.  Detailed statistics on FCA recoveries from 1986 through FY 2021 are available here.

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First Circuit Joins Circuit Split on FCA Dismissal Authority, Finds Government Has Broad Authority to Dismiss FCA Cases

On January 21, 2022, the First Circuit affirmed the government’s request for dismissal of a whistleblower complaint alleging that several pharmaceutical companies had colluded to defraud Medicare Part D. The government, after declining to intervene, requested dismissal based on its finding that: (1) the suit would require “substantial expenditure of government resources”; (2) “many key aspects of [the relator’s] allegations [we]re not supported”; and (3) “allegations that [the relator] used the qui tam process to leverage his financial interests through securities trading .  . . convince[d] the [g]overnment that [the relator was] not an appropriate advocate of the United States’ interests.”

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Fourth Circuit Applies Safeco to FCA Claims, Accuses CMS of “Maintaining Strategic Ambiguity” Around Medicaid Drug Rebate Program Requirements

In a recent 2-1 decision, the Fourth Circuit joined every other circuit to have considered the issue in applying Safeco’s “reckless disregard” standard to legally false FCA claims based on alleged violations of ambiguous laws and regulations.  Under Safeco, courts ask whether a defendant’s interpretation of the ambiguous law or regulation at issue was objectively reasonable and whether authoritative guidance might have warned the defendant away from that interpretation.  The Fourth Circuit found that the Safeco standard “duly ensures that defendants must be put on notice before facing liability for allegedly failing to comply with complex legal requirements.  Without such notice, defendants are not likely to receive due process.”

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Remote Patient Monitoring Gains Qui Tam Attention

Last week one of the first qui tam suits alleging manipulation of the billing rules for a type of remote patient monitoring was unsealed, following the relator’s voluntary dismissal.  See United States ex rel. Mathurin v. Vector Remote Care LLC (Nov. 18, 2020 E.D.N.Y.).  Relators not infrequently voluntarily dismiss their case when DOJ informs them that it lacks merit.  Whatever the merits of this one, given the explosive increase in remote patient monitoring during the pandemic and the predicted future increases in these patient care modalities, we expect continued whistleblower activity focused on this space.  Of course, such allegations will be met with substantial challenges to establishing that these kinds of issues in fact fail to comply with the applicable coverage and reimbursement criteria or render any claims materially false.

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OIG Will Audit Hospitals for Compliance with Provider Relief Fund Balance Billing Rule

Yesterday HHS-OIG updated its Work Plan to add yet one more audit of potential misconduct relating to the COVID-19 pandemic.  This project, titled Hospital’s Compliance With the Provider Relief Fund Balance Billing Requirement for Out-of-Network Patients, focuses on compliance with a clause in the Provider Relief Fund Terms and Conditions that restricts balance billing for COVID-19 patients.  That clause states: [F]or all care for a presumptive or actual case of COVID-19, Recipient certifies that it will not seek to collect from the patient out-of-pocket expenses in an amount greater than what the patient would have otherwise been required to pay if the care had been provided by an in-network Recipient.”

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