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.

Third Circuit Holds That A Live Hearing Is Not Required When Government Seeks To Dismiss FCA Complaint Over Relator’s Objection

The Third Circuit recently held that relators are not automatically entitled to an in-person hearing when the government moves to dismiss a qui tam suit over the relator’s objection. U.S. ex rel Chang v. Children’s Advocacy Center of Delaware, No. 18-2311 (3d Cir. Sept. 12, 2019). Weih Chang filed qui tam lawsuit in 2015 alleging the Children’s Advocacy Center of Delaware had misrepresented material information when applying for governmental funding. After a lengthy investigation, the United States declined intervention and moved to dismiss under the statutory provision that allows dismissal, “notwithstanding the objections of the person initiating the action if the person has been notified by the Government of the filing of the motion and the court has provided the person with an opportunity for a hearing on the motion.” 31 U.S.C. § 3730(c)(2)(A). The district court granted the motion to dismiss, holding that the government had shown a legitimate interest in dismissing the suit and Chang had not met the burden of showing that the move to dismiss was arbitrary or capricious. Chang appealed, arguing that he had a statutory right to an in-person hearing prior to dismissal and that at the hearing he could have introduced evidence to show that the dismissal was arbitrary and capricious. Id. at *5-6. The Third Circuit affirmed the district court opinion, holding the court had not erred in granting dismissal without conducting an in-person hearing. Id. at 8.

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DOJ Defends Medicare Advantage Upcoding Claims Against Sutter

On August 28, 2019, the United States filed a brief in opposition to Sutter’s June 14, 2019 motion to dismiss the Department of Justice’s Complaint-in-Intervention in a False Claims Act suit alleging Sutter knowingly submitted and caused the submission of unsupported diagnosis codes for Medicare Advantage Organization (MAO) patients in order to inflate Medicare reimbursements.  On the same day, the Relator, Kathy Ormsby, also filed a similar brief in opposition to Sutter’s motion to dismiss.  We previously discussed Sutter’s motion to dismiss here and the Department of Justice’s Complaint-in-Intervention here.

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The Illinois False Claims Act: Key Provisions and Current Trends

On August 23, 2019, Bloomberg Law published an article by Kathleen Carlson and Suzanne Notton of Sidley Austin discussing key provisions of the Illinois False Claims Act and recent trends in Illinois False Claims Act case law.  This article is the first in a series of articles addressing the False Claims Acts of states that see relatively frequent state FCA lawsuits.  In addition to Illinois, these states include California, Florida, Massachusetts, and New York.  A copy of the article can be downloaded here.

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Medicare Advantage Providers Pay $5M to Settle FCA Allegations Relating to Unsupported Diagnosis Codes

On August 8, 2019, Beaver Medical Group L.P. (“Beaver”) and a Beaver-affiliated physician, Dr. Sherif Khalil, agreed to pay a combined total of $5 million to resolve allegations that the providers knowingly submitted diagnosis codes that were not supported by the medical records in order to inflate reimbursements from Medicare.  The qui tam action was brought by a former employee of Beaver, Dr. David Nutter, and DOJ intervened.  The settlement reflects DOJ’s continuing efforts to use its enforcement power to pursue fraud in the Medicare Advantage space despite recent setbacks in the UnitedHealthcare Insurance Co. v. Azar, 330 F. Supp. 3d 173 (D.D.C. 2018), which vacated a portion of CMS’s 2014 Final Overpayment Rule applicable to the Medicare Advantage program, previously discussed here.  Indeed, in its press release, DOJ emphasized that preventing Medicare Advantage fraud remains a top priority:  “As enrollment in Medicare Advantage continues to grow, investigation into accuracy of diagnosis data becomes ever more important….Those who inflate bills sent to government health programs can except to pay a heavy price.”  We will continue to monitor and provide updates on these issues as they develop.

DOJ’s press release can be found here.

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District Court Dismisses FCA Suit in Medicare Advantage Upcoding Case

On August 6, 2019, the United States District Court for the Western District of Texas granted a motion to dismiss filed by Baylor Scott & White Health (“Baylor”), a network of inpatient short-term acute care hospitals, in a False Claims Act suit alleging that Baylor submitted “more than $61.8 million in false claims” by upcoding certain diagnosis codes.  The Court dismissed all claims with prejudice, finding that the Relator, Integra Med Analytics LLC, alleged only “naked assertions devoid of further factual enhancement” that were “insufficient under Rule 8’s pleading standards.”  The Department of Justice declined to intervene in the suit.

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Court Establishes a Test to Determine the Scope of the FCA’s “News Media” Provision

On July 16, 2019, the United States District Court for the Central District of California granted in part and denied in part motions to dismiss a declined FCA suit against defendants Providence Health & Services (“Providence”), its affiliates, and J.A. Thomas and Associates, Inc. (“JATA”), a clinical documentation consultant.  The suit alleges that Providence perpetrated an upcoding scheme whereby it trained its doctors to describe medical conditions with language that would support increasing the severity levels of the DRGs that Providence reported to Medicare, leading to inflated Medicare reimbursements.

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Eleventh Circuit Holds That It Is Relator’s Burden To Prove Lack of Fair Market Value As An Essential Element of AKS-Based Claims

Last week, the Eleventh Circuit issued an opinion holding that a Relator bringing an FCA claim premised on an AKS violation – at least when relating to lease arrangements – must show that the financial arrangements were not at fair market value.  See Bingham v. HCA, Inc., Case No. 1:13-cv-23671 (11th Cir. 2019).  Significantly, this ruling provides that proving fair market value (or lack thereof) is not a burden imposed solely on defendants as part of a safe harbor defense, but is instead an essential element to establishing the existence of remuneration in the first instance.  In the same opinion, the court also held that a Relator cannot rely upon information gleaned in discovery to satisfy Rule 9(b)’s pleading requirements.

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