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.

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.

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Drug Diagnosis Code Data Sought by HHS OIG May Cue Enforcement

Leadership from HHS-OIG recently advocated for new mandates that physicians include a diagnosis code with each prescription and that claims data capture this information. This followed on the heels of a Congressional Research Service report suggesting that Congress should pass legislation requiring healthcare providers to include diagnostic information in prescriptions.  As Sidley lawyers Jaime L.M. Jones, Brenna E. Jenny, and Matt Bergs discuss in an article published in Bloomberg Law entitled Drug Diagnosis Code Data Sought by HHS OIG May Cue Enforcement, HHS-OIG may see diagnosis code data as a tool to engage in nuanced investigations into pharmaceutical companies for off-label promotion of prescription drugs, leveraging law enforcement’s increasingly sophisticated capacity to use data analytics to identify targets for investigation.

A copy of the article is available here.

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DOJ Opposes Supreme Court Review of Granston Dismissal Standard

On May 21, 2021, the Department of Justice filed a brief in opposition to a petition for writ of certiorari filed by the relator in U.S. ex rel. Cimznhca, LLC v. UCB, Inc.  The petition challenges the Seventh Circuit’s decision reversing the district court’s denial of the government’s motion to dismiss over the relator’s objection.  In reversing, the Seventh Circuit determined that, so long as relators have an opportunity to be heard under 31 U.S.C. § 3730(c)(2)(A), the government may dismiss qui tams when it satisfies the standard contained in Federal Rule of Civil Procedure 41(a)(1)(A)(i).  That rule provides that a plaintiff may dismiss an action by serving notice of dismissal any time before the opposing party serves either an answer or a motion for summary judgment.

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DOJ Announces “First in the Nation” Fraud Charges for Abuse of Pandemic Telehealth Flexibilities

Yesterday DOJ announced another round of coordinated law enforcement actions to combat healthcare fraud related to COVID-19.  One of these indictments features “first in the nation charges for allegedly exploiting the[] expanded” opportunities to receive Medicare reimbursement for telehealth services during the COVID-19 public health emergency.

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Massachusetts High Court Adopts Broad Reading of Commonwealth’s Public Disclosure Bar

In a May 2021 decision, the Massachusetts Supreme Judicial Court (“SJC”) affirmed the dismissal of a Massachusetts False Claims Act (“MFCA”) suit on the grounds that it was barred by the MFCA’s public disclosure bar.  The suit, brought by relator Johan Rosenberg (“Relator”), alleged that Defendant banks conspired to engage in fraud in connection with resetting interest rates for certain municipal bonds known as “variable rate debt obligations” or VRDOs.

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Sunshine Act Enforcement No Longer Just on the Horizon

DOJ recently announced its second FCA settlement within the past half year that resolves alleged Anti-Kickback Statute (“AKS”) violations and corollary failures to satisfy Sunshine Act reporting obligations.  Before this pair of settlements, neither DOJ nor CMS has publicly announced any targeted efforts to enforce the Sunshine Act, and these settlements seem to be on the cutting edge of an emerging government enforcement priority.

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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.

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