Enforcement
Is There FCA Risk in Your Public Data? DOJ Launches the “FOCUS” Initiative, Formalizing Engagement with Data Miner Relators
The U.S. Department of Justice’s (the “Department”) Civil Division recently announced a new anti-fraud initiative dubbed the Fraud Oversight through Careful Use of Statistics (FOCUS) initiative. FOCUS is designed to formalize the Department’s engagement with so-called “data miner” relators who file qui tam complaints under the False Claims Act (FCA). The announcement signals the Department’s intent to both leverage a fast-growing source of FCA litigation and discourage data-miner relators from filing actions that cannot overcome a motion to dismiss. It carries significant implications for government contractors, grant recipients, healthcare providers, lenders, importers, and other recipients of federal funds whose dealings with the United States leave a public data trail. The FOCUS Initiative FOCUS is a response to the explosion of FCA qui tam lawsuits in recent years, culminating in a record 1,297 qui tam complaints in FY 2025. In FY 2026, there have already been 780 qui tam lawsuits filed—putting us on pace for another record-setting year. Much of the surge has been driven not by traditional insider whistleblowers (e.g., current and former employees), but by companies and individuals analyzing publicly available government data for potential signals of fraud. Through FOCUS, the Civil Division seeks to provide guidance to would-be data-miner relators to ensure that their qui tam complaints are worthy of civil prosecutors’ time and have the potential of withstanding a motion to dismiss. Civil Fraud Section prosecutors will meet with data miners to assess their analytical capabilities, validation methods, and the reasons their data signals reliably correlate to actionable fraud. These pre-filing meetings are voluntary, not a precondition to filing. But the Department has signaled that it will preferentially work with data miners that demonstrate an investment in pre-filing diligence, analytical rigor, familiarity with program rules, and legally sufficient allegations. This may be another part of the Department’s broader interest in weeding out unmeritorious qui tam actions quickly, and potentially even seeking their dismissal. Background: The Rise of the Data-Miner Relator The traditional FCA relator is an industry insider: a former employee, contractor, vendor, or consultant with firsthand knowledge of alleged misconduct. The 1986 amendments to the FCA were structured around that paradigm, with bounty incentives of 15% to 30% of any recovery designed to encourage insiders to come forward. Over the last decade, however, a different model has emerged: “whistleblowers” who identify potential fraud solely through pattern analysis of publicly disclosed government data. Data-miner relators typically rely on large federal data sets, including Medicare and Medicaid claims data published by the Centers for Medicare & Medicaid Services, Paycheck Protection Program (PPP) loan disclosures by the Small Business Administration, customs and trade data, and federal grant and contract award databases. The data miners apply statistical analyses, or, increasingly, machine-learning and AI tools, to flag anomalies or connections in the data that suggest fraud. PPP loans have been a particularly active driver of recent filings, with data miners cross-referencing SBA loan data against company filings, state corporate registries, news media, company websites, and other public sources to identify potential affiliation, headcount, or eligibility issues. Mixed Results in the Courts Data-miner relators have faced two structural defenses. First, the FCA’s public disclosure bar, 31 U.S.C. § 3730(e)(4), precludes qui tam suits substantially based on certain public disclosures unless the relator is an original source. Second, Federal Rule of Civil Procedure 9(b)’s requirement that fraud be pleaded with particularity, which applies to FCA claims, has proven difficult to satisfy for data miners, where statistical inference is their primary tool. The leading appellate decisions reflect judicial skepticism of “stats without facts” pleadings. For example, the Ninth Circuit reversed the denial of a motion to dismiss where the relator, a self-described data analytics company with no insider knowledge, relied on statistical analyses of CMS claims data to allege a Medicare upcoding scheme.1 The court held the data-miner relator had offered only a possible explanation for billing patterns that were equally consistent with a plausible, lawful alternative explanation, and therefore failed to cross the line from possibility to plausibility under Iqbal and Twombly. The Fifth Circuit reached a similar conclusion holding that statistical data cannot satisfy Rule 9(b) where it is equally consistent with a legal and obvious alternative explanation.2 The government has pushed back against opportunistic professional relators. In United States ex rel. CIMZNHCA, LLC v. UCB, Inc., the Department moved to dismiss a qui tam filed by an entity organized specifically for that qui tam action and by an organization that had established nearly a dozen other entities to pursue parallel Anti-Kickback Statute–based FCA cases against pharmaceutical manufacturers.3 The Department argued the cases lacked sufficient merit to justify the cost of investigation and were contrary to the public interest. The Seventh Circuit ultimately reversed the district court’s denial of the motion, observing that the FCA was not designed to operate as an investment vehicle for financial speculators. But the caselaw cuts both ways. Where data miners have invested in genuine pre-filing investigation, supplemented public data with non-public information, or tied their analyses tightly to documented program requirements, courts have allowed suits to proceed past the pleading stage, and the Department has occasionally even intervened. PPP-related qui tam actions brought by data miner entities have produced significant recoveries and are principal drivers of the FY 2024 and FY 2025 surge in qui tam filings. What the FOCUS Initiative Signals Read against this backdrop, FOCUS reflects a few policy choices. First, the Department is embracing the data-miner relator model. The Civil Division could have responded to the qui tam surge by pressing for more restrictive judicial constructions of the public disclosure bar or by expanding its use of dismissal authority under 31 U.S.C. § 3730(c)(2)(A). Instead, the Department is opening a formal channel for engagement, on the premise that the most sophisticated analytics partners may surface from the ocean of data frauds the Department or other whistleblowers might otherwise miss. Second, the Department intends to triage and filter. By prioritizing data miners that can articulate validation methods, demonstrate pre-filing diligence, and show familiarity with program rules, the Department is implicitly distinguishing rigorous data miners from less sophisticated and more opportunistic ones. Cases built on raw statistical outliers without supporting facts, like the model the Fifth and Ninth Circuits have rejected, may be less likely to merit DOJ attention (or intervention). The Department has recently expressed increased interest in discouraging unmeritorious qui tam actions. FOCUS may be a significant component of that effort given the number of data-miner relator qui tam actions. Through FOCUS, DOJ cautions data-miner relators that they must: “provide valuable leads through high-quality, reliable, and predictive data analyses and signals and a thorough understanding of the relevant legal obligations”; “state with particularity the circumstances constituting fraud” under Rule 9(b); “assess potential alternative explanations for the observed conduct” and “articulate . . . both scienter and falsity”; and demonstrate “program eligibility requirements and relevant regulatory frameworks.” Third, FOCUS complements the Department’s broader fraud-enforcement trends. With FCA recoveries setting a record at $6.8 billion in FY 2025, the cross-agency Trade Fraud Task Force ramping up tariff- and customs-related FCA enforcement, the Civil Cyber-Fraud Initiative continuing to mature, and DEI-related civil rights FCA initiatives recently announced, FOCUS adds yet one more effort toward the Department’s FCA enforcement push. Considerations for FCA-Exposed Organizations For organizations that directly or indirectly receive federal funds, news of the FOCUS Initiative reinforces the need to monitor developments in FCA enforcement and continue to invest in robust compliance programs. A few practical implications are worth highlighting: Public data is potential enforcement data. Data an organization submits to or generates for the federal government, such as claims data, loan applications, customs entries, payroll certifications, grant certifications, and many others, may be or may soon be accessible to data-miner relators. That is a key risk vector, but also an opportunity, as organizations can pressure-test internal data against the same kinds of analyses third parties run externally, including outlier and anomaly detection on billing, pricing, and reporting data. Documentation of legitimate variation could be a difference maker. The Fifth and Ninth Circuits’ rejections of data-miner relator FCA theories rested largely on the Courts’ willingness to credit lawful alternative explanations for statistical outliers. Organizations that can document why their billing, coding, payroll, or pricing patterns may differ from peers, such as because of case mix, geography, business model, regulatory interpretation, or other lawful drivers, may be substantially better positioned if a data miner’s complaint is unsealed or DOJ opens an investigation. The value of pre-CID self-assessment and self-disclosure may be increasing. Once the Department engages with a data-miner relator through FOCUS, the path from analytic insight to civil investigative demand may be shorter than under the traditional insider-driven model. When an organization’s internal review surfaces genuine compliance issues, particularly in current Department priority areas, such as Medicare Advantage risk-adjustment coding, PPP eligibility and forgiveness, customs valuation and country-of-origin, and cybersecurity certifications, early voluntary disclosure and remediation could meaningfully affect resolution outcomes. Dorsey’s Government Solutions and Investigations Practice Group counsels and represents organizations that received federal funds, including government contractors, government grantees, healthcare providers, financial institutions, and other recipients, on FCA risk, response to HHS-OIG subpoenas, FCA civil investigative demands, defense of qui tam litigations, and compliance programs. Please contact the authors or your Dorsey relationship attorney with questions about how the FOCUS initiative may affect your organization. 1 United States ex rel. Integra Med Analytics, LLC v. Providence Health & Servs., 854 F. App’x 840 (9th Cir. 2021). 2 United States ex rel. Integra Med Analytics, LLC v. Baylor Scott & White Health, 816 F. App’x 892 (5th Cir. 2020). 3 United States ex rel. CIMZNHCA, LLC v. UCB, Inc., 970 F.3d 835 (7th Cir. 2020).
May 4, 2026
by Chris DeLong, Alex Hontos, Eric Weisenburger, Surya Saxena, and Matthew Gillespie
Enforcement
Ninth Circuit Permits 340B Program Enforcement Under the FCA
Drug manufacturers participating in the Section 340B Drug Pricing Program now face a significant new litigation risk under the False Claims Act (“FCA”). In a recent decision, Adventist Health System v. AbbVie, the Ninth Circuit reversed a district court to hold that a covered entity can pursue an FCA qui tam action premised on 340B overcharging even though Section 340B itself provides no private right of action. For hospitals, health systems, and other 340B-participating entities, the ruling deserves careful attention. Background: The 340B Program and Astra USA v. Santa Clara County The 340B Program, created in 1992, requires drug manufacturers that participate in Medicaid to sell drugs to qualifying covered entities, such as safety-net hospitals, federally qualified health centers, and similar facilities, at ceiling prices set by a statutory formula. Covered entities use the discounted acquisition costs to stretch limited resources for low-income and uninsured patients. For years, the principal legal obstacle to covered entities pursuing overcharge claims has been Astra USA, Inc. v. Santa Clara County, 563 U.S. 113 (2011). The Supreme Court held that Section 340B suits by covered entities to enforce manufacturers’ Pharmaceutical Pricing Agreements are “in essence” suits to enforce the statute itself, which are barred because the statute does not create a private right of action. If a covered entity believed it was overcharged, the exclusive remedy was Section 340B’s Administrative Dispute Resolution process, administered by the Health Resources and Services Administration (“HRSA”). Covered entities have complained for years that the ADR process is slow, resource-intensive, and provides only direct remedies like overcharge reimbursement or PPA termination. Notably, the ADR process does not provide anywhere near the scope of damages and penalties available under the FCA, which allows treble damages and per-claim penalties. Adventist’s Allegations Adventist, a nonprofit operator of clinics and hospitals, alleged that AbbVie, AstraZeneca, Novartis, and Sanofi knowingly charged prices that violated 340B’s ceiling price formula for many years. According to the qui tam complaint, all four manufacturers dropped the prices for several categories of drugs to $0.01, the default price when 340B’s ceiling price formula results in a ceiling price of $0 under HRSA’s penny pricing rule. Adventist contends that market forces could not explain the sudden uniformity of the decrease, but instead that the drop is explained by years of inappropriate price increases followed by belated correction. Adventist brought suit as a qui tam relator on behalf of the federal and state governments, alleging that the inflated manufacturer prices caused Medicaid and Medicare to reimburse covered entities at fraudulently inflated rates, that critical access hospitals overbilled Medicare at 101% of costs, and that government-funded prisons and clinics paid unlawfully inflated prices. The Ninth Circuit’s Holding The Court reversed the district court’s dismissal on two independent grounds. First, the Court reasoned that the absence of a private right of action under Section 340B does not bar an FCA qui tam action. The Court ruled that the FCA provides its own independent right of action and creates a cause of action on behalf of the government. As a result, Adventist was not suing to vindicate its own interests as a covered entity. Rather, it was suing on behalf of the government. The Court analogized to an earlier decision holding that the absence of a private right of action under the Service Contract Act did not bar a relator from bringing FCA claims premised on violations of that Act. To the Court, what mattered was whether false claims were presented to the government, not whether the relator could independently enforce the underlying regulatory requirement. Second, the Court explained that Adventist’s claims are not “in essence” an attempt to enforce Section 340B in an end run on Astra USA. There, the plaintiff sought compensatory damages for breach of contract, relief that mirrored what the 340B ADR process provides. Here, Adventist seeks treble damages and civil penalties under the FCA for false claims submitted to government healthcare programs. The Court concluded this difference placed Adventist’s claims in a different category, noting that Adventist’s claims of an FCA violation required more because “the violation of a statute does not itself create a violation of the FCA.” The Court also rejected the defendants’ arguments regarding a failure to allege falsity, holding that the plain text of the statutory ceiling price formula independently required penny pricing regardless of any regulation, and that HRSA’s 2011 written guidance had formally adopted that interpretation years earlier. What This Means Going Forward For covered entities, the decision potentially opens a previously unavailable avenue to pursue fraud losses the government sustained from 340B overcharging, which is beyond the losses recoverable through the ADR process. Covered entities sitting on pricing anomaly data, or on evidence of precipitous price decreases like those alleged here, may have a viable FCA theory to evaluate alongside the ADR route. For drug manufacturers, the exposure calculus has changed materially, particularly in the Ninth Circuit. FCA liability means treble damages plus per-claim civil penalties, consequences that would be far steeper than ADR reimbursement. The FCA’s statute of limitations and statue of repose, however, may limit the scope of potential liability based on Adventist’s theory. The decision highlights the importance of documentation around 340B ceiling price calculations and compliance histories. The Court permitted Adventist’s pre-2019 claims to survive at the pleading stage based on the theory that the statutory formula was self-executing. What discovery reveals about how the defendant manufacturers calculated and what the defendants knew about ceiling prices in earlier years will likely be key to ultimate exposure. The Ninth Circuit’s ruling has no immediate effect outside the circuit, and it may well be contested further. But given the scale of the 340B program, which facilitated more than $80 billion in drug purchases in 2024 alone, and the relative novelty of FCA theory, the Adventist decision is a development that organizations and practitioners across the spectrum will monitor closely.
March 23, 2026
by Alex Hontos, Chris DeLong, Matthew Gillespie, and Anna Ashley
Enforcement
FCA Basics: Government Investigations and Self-Disclosure
This is the sixth post in the Dorsey FCANow Blog’s FCA Basics Series covering the fundamentals of the False Claims Act (“FCA”), outlining FCA procedure and highlighting key facets of FCA practice. Today’s post discusses pre-litigation matters: government investigations and voluntary self-disclosure of violations. FCA Investigations There are a few different ways the government finds out about fraudulent activity. When a relator files a qui tam action, the government concurrently receives a disclosure of material evidence from the relator, assesses the allegations, makes a delegation determination, and typically opens an investigation. Early in the assessment process, DOJ often determines how the investigation will be staffed: (1) delegated investigations are fully delegated to the local U.S. Attorney’s Office (“USAO”); (2) monitored investigations are include some degree of reporting from the USAO to Civil Frauds, but the local USAO typically maintains primary responsibility for the investigation; or (3) joint investigations which are handled by both Civil Frauds and the USAO. The government may also initiate an investigation based on whistleblowers who report fraudulent activity directly to the Department of Justice without filing a qui tam, public reporting or litigation, data mining, self-disclosures, or through other agency oversight activities. CIDs and Subpoenas The Department of Justice wields potent pre-trial investigative tools that are not available in other forms of litigation. One such tool is the civil investigative demand (“CID”). CIDs give the government authority to compel witnesses to produce documents, sworn testimony, and answers to interrogatories—all before a complaint is filed (or before a qui tam is unsealed). The scope of discovery with CIDs is broad, and DOJ may serve CIDs on any organization or person the government believes has information relevant to an FCA investigation. CIDs are, however, subject to certain limitations. CIDs can only be issued before the government files a lawsuit or intervenes in qui tam suit, at which point the government’s investigative tools are largely the traditional civil discovery methods. Additionally, the government cannot demand information protected by a grand jury subpoena or other recognized protections from disclosure of documents or information. This includes attorney-client privileged communications, attorney work product, or Fifth Amendment-protected communications. Courts often defer to Department of Justice authority and enforce CIDs so long as they are reasonably relevant to the investigation and follow procedural requirements. CIDs are enforced through direct action in federal district court. Additionally, many agencies, including the Department of Health and Human Services Office of Inspector General, can issue administrative subpoenas compelling production of documents or testimony relevant to FCA claims or other potential violations of regulations or statutes. Self-Disclosure “Self-disclosure” refers to a voluntary disclosure to the government of a potential FCA violation. Some agencies, like the Department of Health and Human Services, have formal mechanisms to self-disclose potential FCA violations, whereas other agencies do not. Self-disclosure can be a valuable tool to mitigate the potential consequences of an FCA violation for a couple reasons, both legal and strategic. The FCA contains provisions that allow for a reduction in damages for voluntary disclosures of a violation of the FCA, and the Justice Manual contains similar language. DOJ considers voluntary disclosure when evaluating the appropriate resolution of FCA violations. While the Justice Manual does not provide clear guidance on how cooperation credit is calculated, it does require some form of credit for “proactive, timely, and voluntary” self-disclosure. Voluntary self-disclosure may also reduce the likelihood the government demands other serious disciplinary action, such as corporate integrity agreements or administrative penalties. Voluntary self-disclosure also carries possible risks. The government will frequently conduct its own investigation in response to significant self-disclosures to verify the scope of the disclosure and potential violations. As a result, it often behooves the self-disclosing party to undertake its own assessment of the full scope of any potential violations to ensure that the self-disclosure is as thorough and accurate as possible.
March 9, 2026
by Alex Hontos, Chris DeLong, Matthew Gillespie, Annie Boeckers, and Joe Coffey
Enforcement
DOJ Doubles Down on Antidiscrimination FCA Claims, Identifies Problematic Practices
Deputy Assistant Attorney General Brenna Jenny reaffirmed DOJ’s commitment to targeting employment practices at organizations that receive federal funding with the False Claims Act during the Federal Bar Association’s annual Qui Tam Conference in Washington, D.C. In her prepared remarks, Jenny also identified fact patterns that represent the types of “antidiscrimination” FCA claims DOJ is pursuing. What was the state of play before Jenny’s remarks? In the early months of 2025 and the second Trump administration, the White House and DOJ issued numerous executive orders1 and memoranda threatening federal enforcement actions against entities engaging in ambiguously defined “illegal DEI.” According to public reporting by the Wall Street Journal (and confirmed by Jenny), DOJ has opened FCA investigations into claims of discrimination by corporate federal contractors. DOJ’s theories, however, have yet to be tested in court or result in publicly acknowledged settlement agreements. What did Jenny say? Jenny distanced DOJ’s efforts from the administration’s previous emphasis on “DEI,” stating that the targets of DOJ’s investigations were not being investigated for having DEI programs. Jenny specifically observed that federal contractors can operate DEI programs without discriminating, and that DOJ’s enforcement efforts were instead focused on noncompliance with federal antidiscrimination laws. Jenny suggested this approach was consistent with both statute and the judiciary’s interpretation of the law, saying those authorities have rejected discriminating today to fix discrimination in the past. Jenny also referred to preexisting antidiscrimination standards in the Federal Acquisition Regulation (“FAR”), such as the FAR’s prohibition on discrimination against employees or applicants based on race, sex, or other protected characteristics (see FAR 52.222-26(c)(1)), as an example of the basic commitment to opportunity, advancement, and compensation based on merit rather than protected characteristics. Jenny did not address the tension between DOJ’s position and the FAR’s longstanding affirmative action requirements. Notably, Jenny also disclosed that nearly 500 qui tam lawsuits have been filed in the first six weeks of this year, a figure that far outpaces even 2025’s record-breaking number of filings. This is explosive growth in qui tams—for additional context, prior to the 1986 Amendments to the False Claims Act, the number of qui tams filed nationally often was less than 20 per year. What types of conduct is DOJ investigating? Jenny reported that DOJ’s antidiscrimination FCA investigations have centered around companies with programs or practices that pressured supervisors to make hiring or promotion decisions based on race or sex. She also noted that the “particularly strong” cases were those in which the pressure had the intended effect and resulted in employment decisions based on race or sex. DOJ’s pending investigations generally fall within three categories of fact patterns: Creating and tracking demographic goals for particular roles. According to Jenny, these are frequently tracked via color-coded charts where green indicates the goal has been met. Jenny characterized this tracking as treating race or sex as a performance metric. Tying employee compensation to the development of diversity goals. While Jenny noted that promoting diversity is not “necessarily” unlawful, tying compensation or performance evaluations to the development or achievement of diversity goals is problematic under DOJ’s interpretation of the law. Tying employee compensation to achieving demographic goals. Jenny stated this most often occurs with senior executives or recruiting professionals, either on a business-wide or unit-specific basis. Jenny also warned against executive training and mentoring programs for employees with specific protected characteristics that are internally marketed as providing exclusive opportunities. Jenny also indicated that requiring a certain number of applicants with specific protected characteristics to apply, or lowering standards for interviews for candidates with specific protected characteristics, “raises serious questions” under federal antidiscrimination law. What did Jenny say about DOJ’s legal theories? Jenny provided some insight into DOJ’s view of how the FCA supports its antidiscrimination claims. Addressing the element of materiality, Jenny stated federal contracting is not solely about the good or service being contracted for: it is about carrying out public works consistent with the law and federal policy objectives. When a company discriminates, Jenny said, they step outside the conditions for federal financial support. Jenny also rejected the notion that the “headcount” of previous claims based on similar violations indicates a lack of materiality. Jenny also argued that scienter is not hard to prove in these cases, even when there is no direct evidence of a directive to hire a certain number of individuals of a particular race or sex, for example. Training materials, emails, meeting notes, and other records showing a directive or intent to make employment decisions based on protected characteristics can all support a finding of scienter, according to Jenny. Finally, Jenny noted the government holds a lot of flexibility in determining damages for antidiscrimination FCA claims against government contractors, up to and including the full value of the contract(s) with the government. In considering any multipliers, Jenny said DOJ will consider cooperation, the duration and scope of the conduct, the involvement of senior leadership, and remediation. Finally, Jenny warned that DOJ will seek per-claim penalties in addition to damages. *** While DOJ’s theories behind their antidiscrimination FCA investigations have not yet been tested in court, DOJ continues to project a commitment to using the FCA to punish recipients of federal funding for engaging in what the administration views as discriminatory practices. Recipients of federal funds should ensure that they have a full understanding of their own diversity, DEI, and employment practices and conduct a candid assessment of DOJ’s likely view of those practices. And given the long duration of FCA investigations and litigations, organizations should think strategically and carefully about risk mitigation and act with purpose when they receive a civil investigative demand. 1 See Executive Order 14173, Ending Illegal Discrimination and Restoring Merit-Based Opportunity (Jan. 21, 2025).
February 25, 2026
by Alex Hontos, Chris DeLong, and Matthew Gillespie
Enforcement
False Claims Act Recoveries Top $6.8 Billion in Record FY 2025
The Department of Justice (DOJ) announced that False Claims Act (FCA) settlements and judgments surpassed $6.8 billion in FY 2025—the highest single-year total in FCA history.1 DOJ reported a record 1,297 qui tam filings and 401 new government investigations opened for the year. Healthcare fraud enforcement once again dominated the recoveries, accounting for more than $5.7 billion of the total. By the Numbers2 Total FCA recoveries: $6.888 billion (record high and a 136% increase over FY 2024) Qui tams filed: 1,297 (record high; prior record set in 2024 with 980) Government investigations opened: 401 (down from 425 in 2024) Recoveries by case type: $5.34 billion from qui tam matters (includes both intervened and declined cases) vs. $1.55 billion from non-qui tam cases Sector breakdown:Health and Human Services (HHS): $5.722 billion (83% of total recoveries, and up from last year’s total of $1.8 billion) Department of Defense (DoD): $633.9 million (up from last year’s total of $98.3 million) Other (non-HHS/non-DoD): $532.6 million (down from last year’s total of $1.23 billion) DOJ's Key Enforcement Areas DOJ emphasized that “[s]topping rampant fraud is a top priority, and this record-breaking year proves the False Claims Act remains one of the government’s most powerful weapons against fraud.” DOJ highlighted three areas where it directed its resources and enforcement efforts: healthcare fraud, fraud involving government procurement, loan, and grant programs, and fraud that evades tariffs and customs duties. Healthcare Fraud With more than $5.7 billion in recoveries, 83% of the total, healthcare fraud enforcement continues to predominate FCA recoveries. DOJ highlighted three focal points for FY 2025: managed care (especially Medicare Advantage), prescription drugs, and medically unnecessary services and substandard care. DOJ continues to pursue allegedly unsupported risk-adjustment coding in Medicare Advantage, including a matter in which a health plan and its affiliate agreed to pay up to $98 million.3 DOJ also intervened in a qui tam case alleging illegal kickbacks to steer beneficiaries into certain Medicare Advantage plans, and it continues to litigate cases accusing insurers of using improper diagnoses to boost reimbursements. These actions reflect the scale and importance of Medicare Advantage, now the largest component of Medicare by both spending and enrollment, and signal ongoing scrutiny of coding, marketing, and broker relationships. Prescription drug enforcement remained vigorous, spanning pricing, dispensing, and kickbacks, and intersecting with the opioid crisis. A unanimous jury returned a $948.8 million judgment against the nation’s largest long-term care pharmacy for dispensing drugs without valid prescriptions. In a first-of-its-kind resolution, a consulting firm paid $323 million based on allegations that its advice to a drug manufacturer caused the submission of false opioid-related claims. DOJ also secured a $450 million settlement involving copay assistance and price-fixing, and relators won nearly $1.9 billion in verdicts tied to off-label promotion and dispensing without valid prescriptions. DOJ likewise pursued providers for medically unnecessary services and substandard care, including a $45 million settlement with a wound care company and $3.6 million settlement against a health system over grossly substandard nursing home services. Procurement and Defense Fraud In military procurement, DOJ resolved the second-largest procurement fraud case in history, with a defense contractor paying $428 million over allegations of false cost and pricing data and double billing on a weapons maintenance contract. Additional defense-related resolutions included $62 million and $29.74 million for defective pricing, $21 million for inflated subcontractor charges, $15.875 million involving a consulting firm, and $15.7 million for nonconforming parts—illustrating the breadth of alleged misconduct. Cybersecurity Compliance DOJ recovered more than $52 million across nine settlements, continuing a multi-year trend attributable to DOJ’s Civil Cyber-Fraud Initiative, representing another year of increasing focus on the Initiative. Recoveries include $11.2 million against a health benefits administrator and its parent company for falsely certifying compliance with cybersecurity requirements; $9.8 million from a medical device maker tied to vulnerabilities in genomic sequencing systems; and settlements with two universities over noncompliance with cybersecurity clauses in federal contracts. Pandemic Related Fraud Pandemic-related fraud also remained active. DOJ obtained more than 200 settlements and judgments totaling over $230 million, bringing total civil recoveries in pandemic relief programs to more than $820 million. This includes a $20 million consent judgment against a borrower tied to false PPP loan applications, an $8.1 million recovery from a major airline for exceeding Payroll Support Program limits, and claims against three former financial technology executives over allegedly false PPP claims. Tariffs and Customs Fraud DOJ expanded FCA enforcement on tariff and customs avoidance, launching a cross-agency Trade Fraud Task Force. Cases have targeted misrepresentations about product type, country of origin, and other tactics used to evade duties. Notable resolutions include a record-setting $54.4 million settlement with an industrial tools manufacturer over unpaid duties on tungsten carbide products imported from China, along with additional settlements involving a stone importer ($12.4 million), flooring company ($8.1 million), plastics company ($6.8 million), and furniture maker ($4.9 million). The initiative signals a durable focus on trade compliance as an FCA risk area. What to Watch for In FY 2026 The record recoveries, surge in qui tam filings, and sharpened enforcement priorities, FCA risk is and will likely remain elevated. DOJ’s stated priorities point to sustained, aggressive, and perhaps intensifying FCA enforcement across healthcare, procurement, and customs-related matters in the year ahead. And given the anti-fraud messaging from the Administration and host of new certifications (e.g., DEI, civil rights, FOCI) the Administration is foisting on government contractors and grantees, FY 2026 is shaping up to be a robust year for FCA enforcement. Companies should pressure-test compliance programs—especially in health care, government procurement, cybersecurity, and trade—and involve counsel early to assess exposure, structure remediation, and mitigate risks. 1 False Claims Act Settlements and Judgments Exceed $6.8B in Fiscal Year 2025, Dept. of Justice, Press Release, https://www.justice.gov/opa/pr/false-claims-act-settlements-and-judgments-exceed-68b-fiscal-year-2025. 2 Fraud Statistics Overview: October 1, 1986-September 30, 2025, Dept. of Justice, https://www.justice.gov/opa/media/1424121/dl. 3 Fact Sheet: False Claims Act Settlements and Judgments FY 2025, Dept. of Justice, https://www.justice.gov/opa/media/1424126/dl.
January 23, 2026
by Alex Hontos, Chris DeLong, Seth Goertz, Matthew Gillespie, and Anna Ashley
Enforcement
Judge Rejects FCA Settlement Deal: No Rubber Stamping and Bromides Won’t Do
A recent decision by the U.S. District Court for the Northern District of California to reject a proposed $57 million settlement in a False Claims Act (FCA) litigation highlights the unique challenges and complexities that surround the resolution of FCA cases—challenges that set them apart from ordinary civil litigation. Background: The Tetra Tech Case The settlement arises from a case about the Hunters Point Naval Shipyard in southeast San Francisco, which is a Superfund cleanup site due to radiological contamination. In the 1990s, the U.S. Navy agreed to convey the shipyard piecemeal as it was remediated to San Francisco to develop for residential or commercial purposes. From about 2005 to 2018, the defendant in the litigation, Tetra Tech EC, did remediation work on contracts worth approximately $262 million. Whistleblowers (qui tam relators) filed a sealed complaint under the FCA in 2013. In 2019, the government filed a complaint-in-intervention alleging that the defendant, among other things, violated the False Claims Act by submitting soil samples for testing that were known to be clean, manipulating other testing data, and reporting these false results to the Navy. Earlier this year, the government and Tetra Tech separately agreed to a $40 million settlement a claim under Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) for remediation costs at the former Navy site. That included an agreed consent decree, which the court had already approved. That was just one of five counts against the defendant, however. The government and Tetra Tech recently reached an agreement to settle the remaining four claims, including two counts under the FCA, a common law fraud count, and a breach of contract count, for $57 million. The settlement allocated $51.87 million to “soil fraud allegations” and $5.13 million to “building scan fraud allegations.” Court Scrutiny: More Than a Rubber Stamp Like ordinary civil litigations, the FCA allows resolution of claims under the statute and for the parties to seek dismissal of the claims. But the FCA also uniquely conditions voluntary dismissal of FCA claims on “written consent” from the court and the Department of Justice “and their reasons for consenting.” See 31 U.S.C. § 3730(b)(1). In addition, where a qui tam relator objects to a settlement reached between the government and the defendant, the FCA requires the court approve only settlements that are “fair, adequate, and reasonable under all the circumstances.” See 31 U.S.C. § 3730(c)(2)(B). In this case, the government and the qui tam relators disagreed on the share of the proceeds due to the relators. But the government sought approval of the settlement despite the continuing dispute over the share. The court declined to approve the settlement on the current record, noting that the government’s justifications were vague and generic, and did not address the specific concerns raised by the case, such as the adequacy of the settlement considering the serious radiation remediation issues. The court emphasized that it cannot simply “rubber stamp” the government’s decision and must conduct a meaningful review. Another layer of complexity in FCA cases is the determination of a qui tam relator’s share of the settlement. In this case, the qui tam relators sought a 23% share as a group, while the government proposed different allocations based on the nature of the allegations and invoked a statutory bar, the “first-to-file” rule, as to three the qui tam relators. The court found both sides’ proposals lacking in specificity and evidentiary support, directing the parties to provide detailed, claim-by-claim analyses addressing whether and what award should be made jointly or individually to each qui tam relator. The Court directed the parties to file supplemental briefing to address these issues. Takeaways: Why FCA Settlements Are Different The Tetra Tech case is a vivid illustration of why FCA settlements are often not routine. Settling FCA cases can be complex for several reasons. Courts are called to provide a rationale for even a basic dismissal and, where a relator objects, may review settlements for reasonableness and fairness. Alleged frauds against the government run the gamut of potential public policy interests, from environmental safety (like in this case) to public health and welfare to national defense and security. The government’s interests in resolution of an FCA action may diverge from those of whistleblowers, inviting careful judicial balancing of those interests.
November 12, 2025
by Chris DeLong
Enforcement
Department of Justice Launches “Civil Rights Fraud Initiative” to Target DEI Through False Claims Act
On Monday, May 19, 2025, Department of Justice (“DOJ”) Deputy Attorney General Todd Blanche issued a memorandum establishing the “Civil Rights Fraud Initiative” (the “Memorandum”), in the latest signal that DOJ intends to aggressively enforce the False Claims Act in pursuit of the administration’s goals. According to the Memorandum, DOJ has launched a joint enforcement effort between the Civil Division’s Fraud Section (“Civil Frauds”) and the Civil Rights Division (“Civil Rights”), which “will utilize the False Claims Act to investigate and, as appropriate, pursue claims against any recipient of federal funds that knowingly violates federal civil rights laws.” The Memorandum signals that DOJ intends to adopt a dramatically different interpretation of federal contractors’ and federal funds recipients’ civil rights obligations from prior administrations. For instance, the Memorandum specifically identifies universities that receive federal funding as potential targets of the Civil Rights Fraud Initiative, and outlines four examples of conduct that “could violate the False Claims Act:” “Encourag[ing] antisemitism,” though neither term is defined; “Refus[ing] to protect Jewish students;” “Allow[ing] men to intrude into women’s bathrooms;” or “Requir[ing] women to compete against men in athletic competitions.” The Memorandum also re-emphasizes that Diversity, Equity, and Inclusion (“DEI”) initiatives are an enforcement priority for DOJ. Citing to Executive Order 14173, Ending Illegal Discrimination and Restoring Merit-Based Opportunity, the Memorandum reiterates that certifying compliance with civil rights laws while “knowingly engaging in racist preferences, mandates, policies, programs, and activities, including through [DEI] programs that assign benefits or burdens on race, ethnicity, or national origin,” also implicates the False Claims Act. The Civil Rights Fraud Initiative may extend beyond mere civil liability. The Memorandum provides that both Civil Frauds and Civil Rights will “engage with” DOJ’s Criminal Division. The Memorandum also encourages qui tam litigation as a means to achieve DOJ’s goals. What Happens Next? It is highly likely that in the coming weeks and months, DOJ will issue Civil Investigative Demands (“CIDs”) to an increasing number of universities, public school districts, contractors, grant recipients, and other entities that receive federal funds. CIDs essentially act as subpoenas to facilitate investigation of potential False Claims Act violations, and based upon the priorities outlined in the Memorandum, such CIDs will likely demand information, documents, or interviews related to DEI, antisemitism, and trans-inclusivity policies, practices, programs, and activities. It is similarly likely that such investigative and/or litigation activity will result in courts being asked to decide whether the administration’s interpretations of federal civil rights obligations are consistent with the law. There is reason to suspect that courts may be skeptical of the administration’s application of the law, as even the examples articulated in the Memorandum could be read to contradict Supreme Court precedent on the scope of “sex discrimination” under Bostock v. Clayton County, 590 U.S. 644 (2020), which held that Title VII of the Civil Rights Act of 1964 protects employees against discrimination based on sexual orientation or gender identity. In the meantime, however, many recipients of federal funds will likely be subject to extensive investigative efforts and potential litigation based upon DOJ’s new Civil Rights Fraud Initiative. What Federal Fund Recipients Should Do Now The Memorandum marks the latest and most concrete signal that DOJ intends to leverage the False Claims Act to target institutions of higher education, contractors, and others that do business with the federal government that the administration alleges violate civil rights laws. Although the False Claims Act’s statute of limitations extends between six and ten years, federal fund recipients can and should take immediate steps to (i) reduce the likelihood that they become the target of a federal investigation; and (ii) assess and limit the scope of liability if such an investigation does occur. For instance, organizations should: Conduct a thorough review of all DEI-related policies and practices to ensure that practices and programs do not differentiate based on protected characteristics. This can include hiring, employee resource groups, contracting, grant funding, university admissions, and much more. Assess current practices as they relate to religion-based harassment and speech. Now is the time to determine if your policies and practices make clear that religion-based harassment or discrimination are appropriately prohibited and responded to. For institutions of higher education, policies should strike a careful balance between permitting the free expression of students, faculty, and staff, and ensuring that others are free from discriminatory harassment. Analyze bathroom, athletics, and other trans-inclusive policies to determine the scope of potential risk, and if there are changes that could be made to reduce risk consistent with your organization’s goals. If your organization receives a Civil Investigative Demand, closely review it and ensure that you understand the scope of it—including understanding that receipt of a CID likely indicates an active civil fraud investigation against the organization. In addition, depending on past practices and the scope of federal funds received, some recipients of federal funds may benefit from a preemptive review of past and current policies and practices to determine exposure, if any, to potential False Claims Act liability. The False Claims Act provides for treble damages plus penalties to the federal government, but DOJ has given credit for self-disclosure and cooperation when entities proactively disclose potential violations. Federal fund recipients should consider whether such a review and potential disclosure could be in their best interests.
May 22, 2025
by Chris DeLong, Alex Hontos, Caitlin L.D. Hull, Eric Weisenburger, Matthew Gillespie, and Annie Boeckers
Enforcement
False Claims Act Settlements and Judgments Near $3 Billion in 2023
The U.S. Department of Justice (DOJ) announced recently that settlements and judgments under the False Claims Act, 31 U.S.C. § 3729, et seq. (FCA) totaled approximately $2.7 billion in FY 2023 (October 1, 2022 – September 30, 2023). DOJ and whistleblowers were party to 543 settlements and judgments, a record high, and a fifty-percent increase from the 351 settlements and judgments obtained in FY 2022. Healthcare fraud schemes continue to make up the lion’s share of settlement and judgment totals. In FY 2023, nearly $1.9 billion of total recoveries related to healthcare fraud. The FCA fraud recovery statistics reveal important trends—and insight into what the future holds for industries subject to the FCA. There is a rise in FCA litigation across the board, with DOJ-initiated cases increasing. DOJ brought 500 FCA cases in FY 2023, more than any year ever. DOJ-initiated cases are on a years-long ramp up from 305 cases brought in FY 2022 and 212 brought in FY 2021. The surge relates at least in part to DOJ’s pursuit of pandemic-relief program fraud, including improper payments under the Paycheck Protection Program (PPP). In FY 2023 alone, DOJ resolved 270 FCA cases involving PPP loans. By comparison, Relator’s filed 712 qui tam actions in FY 2023, still a significant margin over DOJ (and representing the third highest in history), but representing a modest increase over the 658 FCA cases Relators brought in FY 2022. Relatedly, DOJ is pursuing more investigations of potential frauds. Speaking at the 2024 Federal Bar Associations Qui Tam Conference, Principal Deputy Assistant Attorney General Brian M. Boynton said that, in FY 2023, DOJ issued a record 1,504 Civil Investigative Demands, an investigative tool to obtain documents, interrogatory responses, and testimony. DOJ indicated its commitment to increased investigation and enforcement actions in the coming year, highlighting the following priorities: Cybersecurity. In 2021, the DOJ announced a Civil Cyber-Fraud Initiative, which is focused on using the FCA to bring enforcement actions when government contractors fail to follow federal cybersecurity requirements. Pandemic-relief fraud. DOJ and its COVID-19 Fraud Enforcement Task Force have pursued a variety of pandemic related fraud schemes, including fraud related to PPP loans and the Economic Injury Disaster Loan Program. Healthcare fraud. DOJ continues its focus on healthcare fraud, including financial inducements for referrals—“kickbacks”—nursing-home related fraud schemes, and Medicare Advantage Program fraud. Third-Party Liability. DOJ is focused on third parties that cause the submission of false claims. These third parties can include private equity firms, consultants, or even electronic medical record software providers. The central focus is whether conduct by the third party played a significant and foreseeable role in advancing the scheme. Whether the focus on these priorities in the upcoming year will lead to new records in FCA statistics for FY 2024 is of course yet to be seen, but based on the recent trends and the extended statute of limitations period afforded to DOJ to investigate pandemic relief fraud, it seems likely that this year will be a continuation of the record-setting FY 2023.
March 11, 2024
by Chris DeLong, Alex Hontos, Kirk Schuler, and Saifuddin Kalolwala
Enforcement
Supreme Court’s Recent Decision on FCA’s Scienter Standard Potentially Raises Threshold for Government to Establish “Reckless Disregard”
On June 1, 2023, a unanimous Supreme Court decision sought to clarify the meaning of “scienter” in the FCA context, which deals with the defendant’s knowledge (or lack thereof) that a claim for payment was false and intent to submit the false claim. See United States ex rel. Schutte v. SuperValu Inc., 143 S. Ct. 1391 (2023) (“SuperValu”). There, the Court ruled that “[f]or scienter, it is enough if respondents believed that their claims were not accurate.” Id. at 1404. According to the SuperValu decision, only that subjective belief as to the claim’s falsity matters, and whether there is an “objectively reasonable” explanation for the false claim is irrelevant. Id. at 1399 (“The FCA’s scienter element refers to respondents’ knowledge and subjective beliefs—not to what an objectively reasonable person may have known or believed.”). While explaining the basis for the decision, Justice Thomas wrote that “the FCA’s standards focus primarily on what respondents thought and believed,” discussing how the three different FCA knowledge standards—actual knowledge, deliberate ignorance, and reckless disregard—each rely on the defendant’s subjective knowledge. Id. at 1400-01. Describing “reckless disregard” in the FCA context, Justice Thomas explained that the term “captures defendants who are conscious of a substantial and unjustifiable risk that their claims are false, but submit the claims anyway.” Id. That sentence is already being used to argue that SuperValu heightened the government’s burden when it is attempting to prove reckless disregard—that to establish reckless disregard the government must show that the defendant was, as Justice Thomas described, “conscious of a substantial and unjustifiable risk that their claims are false.” If courts rely on this as the standard for establishing reckless disregard in the future, it could heighten the government's burden as compared to tests currently used by courts. For example, in July 2022 the Middle District of Georgia described the reckless disregard standard in the FCA context as when the defendant “knows or has reason to know of facts that would lead a reasonable person to realize that harm like a false claim is the likely result of the relevant act.” United States ex rel. Hockaday v. Athens Orthopedic Clinic, P.A., 616 F. Supp. 3d 1339, 1354 (M.D. Ga. 2022) (quoting Urquilla-Diaz v. Kaplan Univ., 780 F.3d 1039, 1058 (11th Cir. 2015)) (cleaned up). As one example of how defendants are already using the Court’s language, in a June 23 brief to the Western District of Virginia District Court discussing the impact of the SuperValu decision, the defendants in the Miller case contended that “[t]he Supreme Court clarified that the FCA’s ‘reckless disregard’ standard ‘captures defendants who are [1] conscious of a [2] substantial and [3] unjustifiable risk that their claims are false, but submit them anyway.’” See, e.g., United States ex rel. Miller v. Reckitt Benckiser Group PLC, 1:15-cv-00017, Dkt. No. 149 at 10-11 (W.D. Va. July 7, 2023). DOJ responded that there is no three-part test to establish reckless disregard, and instead the effect of the SuperValu decision is simply rejecting any argument that the FCA’s scienter element incorporates an objective test. Id., Dkt. No. 150 at 3. According to DOJ, the Court was not “establishing new and restrictive criteria” to show reckless disregard, but was merely “summarizing” existing case law. Id. The Western District of Virginia has not yet made a ruling relevant to these arguments, but the eventual ruling will be one of the first to test a potential new argument available to FCA defendants resulting from the SuperValu decision, and may provide an additional hurdle for the government to prove reckless disregard.
August 10, 2023
by Eric Weisenburger
Enforcement
Eighth Circuit Analyzes Scope of FCA Liability Under Anti-Kickback Statute
On July 26, 2022, the Eighth Circuit Court of Appeals issued an opinion interpreting the standard for the causal link the government must show to establish that a “false or fraudulent” claim under the False Claims Act (“FCA”) included “items or services resulting from a violation” of 42 U.S.C. § 1320a-7b(g), the federal anti-kickback statute. United States ex rel. Cairns v. D.S. Med. LLC, 2022 U.S. App. LEXIS 20584 (8th Cir. Jul. 26, 2022) (emphasis added). In Cairns, the Eighth Circuit reviewed a jury verdict from the Eastern District of Missouri where a neurosurgeon named Sonjay Fonn and a medical implant company owned by his fiancée were found liable for violations of the FCA. According to the Court’s opinion, Dr. Fonn used spinal implants in his medical practice to treat degenerative-disc disease and other spinal disorders. Id. at *3-4. Because of the large commissions associated with each implant sold, Fonn was “in a powerful position” to impact the economic fortunes of prospective implant distributors. Id. at *4. Dr. Fonn chose to use implants distributed by defendant DS Medical, which was owned by his fiancée. Id. The arrangement resulted in commissions of more than $1 million in a single year from one manufacturer for DS Medical, and Fonn was offered the opportunity to purchase company stock. Id. Several area physicians filed a qui tam complaint based on Fonn’s high implant use and his financial relationship with DS Medical. Id. at *4-5. The Government intervened and the case proceeded to trial. Id. at *5. The Government’s theory of liability was that the couple and their businesses submitted false or fraudulent Medicare and Medicaid claims after having violated the anti-kickback statute. Id. The district court instructed the jury that the Government could establish falsity or fraud if it proved, by a preponderance of the evidence, that the defendants submitted Medicare or Medicaid claims which failed to disclose the violations of the anti-kickback statute. Id. The jury returned a verdict for the Government on several of the claims. Id. On appeal, the defendants argued that the district court committed two reversible errors. Id. at *8. First, the defendants argued that the district court erred by applying a “preponderance of the evidence” standard of proof for the anti-kickback violations and should have instead applied a “proof beyond a reasonable doubt” standard. Id. at *9–10. While the plain text of the FCA provides that the government need only prove each “essential element” of a claim by a “preponderance of the evidence,” the defendants argued that because a violation of the anti-kickback statute – a criminal offense – normally has to be proven with proof “beyond a reasonable doubt” that the higher standard should apply to the FCA claim. Id. Second, the defendants argued that the district court erred in failing to provide a jury instruction on but-for causation. Id. at *8. Rejecting the first argument, the Eight Circuit affirmed the district court’s use of the “preponderance of the evidence” standard of proof. Id. at *9–10. The Court explained that “[t]he fact that the False Claims Act expressly provides a preponderance-of-the-evidence standard for all ‘essential elements’ leaves no doubt” that FCA violations, due to their status as civil sanctions, can be proven under the lower standard. Id. As such, the government may “establish an illegal kickback by a preponderance of the evidence as part of a larger False Claims Act case.” Id. at *10. The Eighth Circuit then turned to the Defendants’ argument that they were entitled to a jury instruction on but-for causation. On this issue, the Court agreed with the Defendants, reversing the verdict and remanding the case for a new trial. Id. Explaining its reasoning, the Court found that the statutory language at issue (the 2010 amendment to the anti-kickback statute) was unambiguous, and that the issue turned on the plain meaning of the phrase “resulting from.” Id. at *10-11. After briefly reviewing case law acknowledging and considering the plain meaning of “resulting,” the Court determined that the statute required a showing of but-for causation. Id. at *11. In concrete terms, this means that a plaintiff who seeks to establish falsity or fraud based on claims “resulting from” a violation of the anti-kickback statute must show that “a defendant would not have included particular ‘items or services’ but for the illegal kickbacks.” Id. at *17. The court rejected the alternative constructions suggested by the Government, such as that liability could be shown by proving claims were “tainted by” or “provided in violation of” the anti-kickback statute. Id. at *14. The Court concluded by explaining that its ruling was narrow and it did not imply that every case arising under the FCA requires a showing of but-for causation. Id. at *17.
September 23, 2022
by Scott Mah and Charles J. Pults
Enforcement
DOJ Secures FCA Settlement with Health Services Companies
The U.S. Attorney’s Office for the District of Massachusetts recently secured a settlement agreement resolving allegations that Molina Healthcare, Inc. and its prior subsidiary, Pathways of Massachusetts, which provide mental health services in Springfield and Worcester, Massachusetts, violated the False Claims Act (“FCA”), 31 U.S.C. § 3729 et seq. and the Massachusetts-equivalent to the FCA. The settlement agreement also resolves similar claims brought by employees of Molina Healthcare and Pathways under the qui tam provisions of these statutes. Under the terms of the settlement agreement, Molina Healthcare and Pathways have agreed to pay the federal government and Massachusetts $4,625,000 to resolve these claims. As detailed in the settlement agreement, the governments allege that Molina Healthcare and Pathways submitted claims to MassHealth, a joint federal and state Medicaid program, as well as other care centers managed by MassHealth, for services despite knowing such services were provided while failing to adhere to applicable licensing and supervisory regulations. Specifically, the governments contend that Molina Healthcare and Pathways did not properly document their supervision of clinicians requiring supervision and allowed unqualified clinicians to supervise social workers and other psychological associates. The governments further claim that Molina Healthcare and Pathways received overpayments for their services and did not return the overpaid amount. Additionally, the settlement agreement resolves claims asserted by employees of Molina Healthcare and Pathways, who had previously brought suit against these companies under the FCA’s qui tam provisions. According to the settlement agreement, these employees contended that the companies submitted claims to MassHealth despite not qualifying as an eligible mental health care center under state law and regulations as well as lacked sufficient staff for the services provided. In settling these claims, Molina Healthcare and Pathways explicitly stated that they do not admit to any liability or to the truth of the allegations asserted in the suit brought by the employees. Moving forward, healthcare companies billing federal and state healthcare programs ought to be mindful that a lack of tight internal controls and regulatory compliance may result in becoming a target of the government’s enforcement of the FCA.
July 18, 2022
by Alex Hartzell
Enforcement
DOJ Announces Settlement with Home-Health Services Company Over FCA Kickback and Overbilling Allegations
The Department of Justice recently announced that it resolved two civil lawsuits filed under the qui tam, or whistleblower, provisions of the False Claims Act to the tune of nearly $4 million. The suits alleged that a suburban Chicago diagnostics company, SNAP Diagnostics, LLC, that provides home testing for sleep disorders was defrauding Medicare and four other federal health care programs through kickbacks and unnecessary testing. Since Medicare began covering home sleep testing in 2009, SNAP has received nearly $9 million from Medicare - almost all of it the result of fraud and kickbacks, according to the government's allegations. As alleged by the government, SNAP, its founder Gil Raviv, and its vice president Stephen Burton violated the False Claims Act and the Anti-Kickback Statute through various fraudulent billing practices. In particular, Raviv allegedly instructed SNAP to submit claims for patients' second and third nights of home sleep testing when the company knew they were medically unnecessary because only a single night of testing was needed to effectively diagnose certain sleep disorders. In addition, the government alleged that SNAP’s business model relied on multiple unlawful kickback schemes. First, SNAP purportedly paid commissions and bonuses to its sales force for selling multi-night testing to providers, and it gave free home sleep tests to physicians and their families to induce referrals. Second, after its sleep testing was performed, SNAP personnel allegedly interpreted the results and gave unsigned reports to referring physicians who in turn would bill as if the physicians had performed the professional service of interpreting the results themselves. This allowed providers to “keep” the billing for the professional component of home sleep testing services. SNAP intentionally allowed physicians to fraudulently bill for this service as a way of increasing referrals and driving the volume of SNAP's business. Other allegations against SNAP include the unnecessary and unlawful multiplication of the copays of federal health care beneficiaries including senior citizens on Medicare. The settlement requires that SNAP pay $3.5 million, Raviv pay $300,000, and Burton pay $125,000 for a total settlement amount of $3.925 million. This is not the first home-health services company to settle with the DOJ in recent months (see our March 8, 2022 blog) and serves as yet another reminder to healthcare companies of the importance of internal controls and due diligence - especially when federally-funded treatment is involved.
June 20, 2022
by Tess Erickson
Enforcement
Home-Health Services Company Settles After Allegations of Double-Billing Scheme
The Department of Justice recently announced that a home-health services company has agreed to pay over $45,000 to resolve alleged False Claims Act (“FCA”) violations. Professional Family Care Services, Inc. (“PFCS”), a North Carolina corporation, faced allegations of fraudulent billing for work by an employee that was convicted of wire fraud and sentenced to prison for her role in the alleged scheme. For two years starting in 2015, PFCS billed the Department of Veterans Affairs (the “VA”) for home-health services related to the medical care of an Army veteran identified by the initials W.R. While PFCS was billing the VA for home-health services, W.R. was actually residing with a Certified Nursing Aide. Relevant evidence indicated that PFCS was billing the VA based on falsified timesheets provided by the aide, for example, timesheets showing her providing services to W.R. and another patient simultaneously. As a result, VA alleged that PFCS failed to provide W.R. with the time and quality of care required under the VA program. W.R. was eventually admitted to the hospital, where it was discovered that W.R. was extremely malnourished and died shortly after. Following the death of W.R., PFCS submitted 15 separate claim forms seeking payment from the VA for the services provided by the aide totaling $11,273.92. Under 31 U.S.C. § 3729(a)(1), civil FCA claims may lead to treble damages in addition to other penalties for false or fraudulent claims. As a result, PFCS agreed to pay $45,486.76 to settle the dispute and avoid litigation. The aide was sentenced to twelve months and one day in federal prison for wire fraud related to the charging of home services for W.R. and ordered to pay over $90,000 in restitution. The primary takeaway here is that businesses that bill services to the government must closely review their invoices. PFCS’s employee was double-charging the government for services, which could have been identified by internal review protocols. Regardless of whether PFCS was aware of or condoned the actions, they were ultimately liable for monetary penalties. Healthcare is one of the largest drivers of FCA liability, and this case serves to highlight the importance of internal controls when billing the government for healthcare services.
March 8, 2022
by Ryan Cole
Enforcement
Enforcement Standards Tighten on Private Insurers: Sutter Health Settles for $90 Million Following Dispute With DOJ
On August 30, 2021, the Department of Justice (“DOJ”) announced that Sutter Health and several of its affiliated entities (“Sutter”) agreed to pay a total of $90 million to settle allegations that Sutter violated the False Claims Act (“FCA”), 31 U.S.C. §§ 3729-3733, by “knowingly submitting inaccurate information about the health status of beneficiaries enrolled in Medicare Advantage Plans.” Sutter Health and Affiliates to Pay $90 Million to Settle False Claims Act Allegations of Mischarging the Medicare Advantage Program, Department of Justice (Aug. 30, 2021), https://www.justice.gov/opa/pr/sutter-health-and-affiliates-pay-90-million-settle-false-claims-act-allegations-mischarging. As a part of its settlement, Sutter also entered into a five-year Corporate Integrity Agreement with the U.S. Department of Health and Human Services to implement a centralized risk assessment program. Id. The central allegation from qui tam Plaintiff Kathy Ormsby (“Ormsby”) was that Sutter had submitted inaccurate and unsupported medical information that artificially inflated Medicare reimbursement for Sutter’s Medicare Advantage patients. United States ex rel. Kathy Ormsby v. Sutter Health, No. 3:15-cv-01062-LB, 444 F. Supp. 3d 1010 (N.D. Cal. 2020). In December of 2018, the United States formally intervened in the case and took primary responsibility for prosecuting the action. Shortly thereafter, Sutter agreed to pay $30 million to settle some of the allegations in April of 2019, but explicitly denied any liability related to the allegations. In so doing, Sutter argued that the United States had taken a mistaken approach to the case by applying an analysis involving traditional Medicare programs (using a fee-for-service model) as opposed to focusing on the unique nature of Medicare Advantage, which Sutter argued “is a fundamentally different program with its own unique standards for establishing overpayments” and thus the United States was relying on an inapplicable FCA theory of liability. Sutter argued the United States had not, and indeed could not, prove that Sutter had knowingly submitted false claims or received overpayments for submitted claims that they failed to return. Ultimately, Sutter returned to the table to discuss settling the Medicare Advantage claims following recent FCA decisions holding that the overpayment rule did not improperly hold private insurers to higher standards on the basis that nothing in the FCA renders actuarial equivalence a defense against the obligation to refund any individual, known overpayment. This is expected to buttress FCA enforcement by rejecting the idea that Medicare Advantage insurers receive apples-to-apples reimbursement with traditional Medicare. Sutter eventually settled the remaining claims for $60 million, bringing the total amount of the settlement to $90 million in addition to implementing further oversight and compliance mandates. The settlement between Sutter and the United States makes clear that defendants claiming protection against FCA enforcement should be careful when relying on rapidly changing FCA precedent. Though defendants may be tempted to highlight and defend their actions under novel legal theories, the attention brought by said action may invite unwanted scrutiny, and ultimately, harsher penalties as opposed to settling and adjusting internal procedures early in the dispute.
November 2, 2021
Enforcement
Omnicare and CVS’s “Novel” Argument Fails to Defeat FCA Claims
On March 19, 2021, a Southern District of New York judge denied a motion to dismiss a False Claims Act (“FCA”) suit alleging that Omnicare—a subsidiary of CVS Health Corp.—“dispensed drugs based on invalid prescriptions to potentially tens of thousands of individuals living at more than 3,000 residential facilities.” See United States ex rel. Bassan v. Omnicare, Inc., No. 1:15-cv-4179 (CM), 2021 U.S. Dist. LEXIS 52323 *3 (S.D.N.Y. Mar. 19, 2021). The long-pending suit, which was originally brought by qui tam relator Uri Bassan in 2015, alleges that Omnicare consistently issued prescriptions to individuals in long-term care facilities that were not supported by valid prescriptions between 2010 and 2018. The Court explained that the defendants’ motion “present[ed] what can only be described as a novel reason why the Government’s pleading is insufficiently particular.” Id. at *27. The “novel” argument was that the regulation upon which the Government relied to demonstrate that filling invalid prescriptions was illegal took effect on January 1, 2013, rendering the prior alleged conduct of dispensing prescription drugs without a prescription legal. The Court denied the motion on three bases. First, the Court explained that the Government’s pre-2013 claims arose under three different government insurance programs and the regulation at the core of the defendants’ argument only concerned one. As a result, the Court determined that the allegations related to the two other programs precluded dismissal of the pre-2013 claims. Second, the court reasoned that because the Government was able to show in detail that Omnicare’s Medicare reimbursements after January 1, 2013 were also the product of alleged false claims, the claim could not be dismissed in full. Third, the Court, relying on several regulations and guidance materials, “reject[ed] Omnicare's suggestion that it was perfectly legal to dispense drugs paid for by Medicare without a valid prescription prior to 2013.” Id. at *28-29. To do so, the Court first cited to Centers for Medicare and Medicaid Services regulatory guidance pre-dating 2013 which provided that "we have consistently maintained that drugs cannot be eligible for [Medicare] coverage unless they are dispensed upon prescriptions that are valid under applicable State law." Id. at 28-29 (citing 76 Fed. Reg. 63,018, 63,059 (Oct. 11, 2011). The Court also relied on other federal statutory schemes such as the Federal Food Drug and Cosmetic Act, which described a prescription drug as one that can only be dispensed upon a valid prescription. See 21 U.S.C. § 353(b)(1). This case is a reminder that the litigation of alleged false claims spanning several years can often be impacted by the different statutory schemes and regulations that are in effect, or not in effect, over the course of the alleged false claims.
April 1, 2021
by Leyla Bari
Enforcement
False Claims Act Anti-Retaliation Claim Leveled at PPP Recipient
A former employee of Great Dane Petroleum Contractors, Inc. a full-service Pollutant Control and General Contractor based in Florida, alleged in a recently-filed lawsuit that the company misused nearly $3 million in Paycheck Protection Program (“PPP”) funds. See Rucker v. Great Dane Petroleum Contractors, Inc., No. 21-cv-207 (M.D. Fla. Mar. 10, 2021). As another wave of applications for PPP funds come in, employers must remain vigilant to ensure that PPP funds are used appropriately or risk similar lawsuits. Amber Rucker, who was the personal assistant to Great Dane’s CFO, filed the complaint in United States District Court for the Middle District of Florida on March 10, 2021, under the federal False Claims Act (“FCA”), Florida's Private Whistleblower Act, and Florida’s Public Whistleblower Act. Her PPP-specific allegations include misuse by approving employee leaves of absence while “keeping them on the books” and altering payroll records to reflect time not worked by employees. She also alleged that Great Dane paid bribes to procure contracts, allowed its principals to use the company credit card for personal expenses, misrepresented to its worker’s compensation insurance carrier that is was a drug-free workplace, illegally deducted inflated job costs to evade taxes, and allowed certain employees a grossly inflated per diem. According to Rucker’s lawsuit, she repeatedly complained of the alleged illegal acts to Great Dane’s CFO and the President both verbally and in writing. She also claimed to object to such practices and refused to process fraudulent charges. Rucker claims that instead of investigating her allegations, Great Dane placed her on paid administrative leave shortly after her last complaint and terminated her in January 2021. Rucker’s suit relies on the FCA’s anti-retaliation clause, which provides that: Any employee, contractor, or agent shall be entitled to all relief necessary to make that employee, contractor, or agent whole, if that employee, contractor, or agent is discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment because of lawful acts done by the employee, contractor, agent or associated others in furtherance of an action under this section or other efforts to stop 1 or more violations of this subchapter. 13 U.S.C. § 3730(h). According to Rucker’s Complaint, this provision prohibited Great Dane’s decision to place her on paid administrative leave. Rucker is seeking to be reinstated, restitution for her lost wages, front pay, and compensatory damages. Rucker’s allegations are the latest—and surely not the last—in the increasing number of litigation and enforcement actions that have followed the Federal Government’s response to the COVID-19 pandemic. For example, in December 2020, the Justice Department charged 57 people with trying to steal more than $175 million in PPP funding. See Katie Benner, Justice Dept. Announces Dozens of Fraud Charges in Small-Business Aid Program, The New York Times (originally published Sept. 10, 2020, updated Dec. 9, 2020), https://www.nytimes.com/2020/09/10/us/politics/ppp-fraud-coronavirus.html. And just a month later, the Department of Justice charged six individuals with fraudulently obtaining approximately $1.5 million in PPP loans on behalf of businesses based in Georgia and South Carolina. See Justice News (Jan. 28, 2021), https://www.justice.gov/opa/pr/six-charged-connection-3-million-paycheck-protection-program-fraud-scheme. As the Department of Justice continues to investigate allegations of misuse of PPP loans, companies that accepted PPP funds should ensure that those funds are used for the proper purposes and that any allegations of misuse are investigated without any retaliation.
March 15, 2021
by Roxanna V Gonzalez
Enforcement
Justice Department Annual Release Shows Decreased FCA Recoveries But Increased FCA Matters in FY2020, Suggesting Likely Uptick in 2021
On January 14, 2021, the United States Department of Justice (“DOJ”) issued its annual press release highlighting its recoveries from False Claims Act (“FCA”) enforcement over the last fiscal year. Total recoveries in FY2020 exceeded $2.2 billion, with the majority—$1.8 billion—of those recoveries coming from the healthcare industry. These totals are down substantially from FY2019, in which total recoveries exceeded $3 billion with $2.6 billion relating to matters involving the health care industry. As was the case last year, recoveries from qui tam actions—lawsuits brought by whistleblowers or “relators” suing on behalf of the government—continued to fall, with only $1.6 billion in recoveries coming in qui tam actions following $2.2 billion in FY2019. As we noted last year, this is unsurprising given former Attorney General Barr’s well-documented distaste for the qui tam provisions of the FCA, calling them “patently unconstitutional” in a memo he wrote as an Assistant Attorney General in 1989. It also highlights the continuing effect of the “Granston Memo” on qui tam enforcement. The Granston Memo, issued in 2018, instructed DOJ prosecutors to dismiss qui tam cases that lack substantial merit on the grounds that meritless qui tam cases drain limited government resources and may “generate adverse decisions that may affect the government’s ability to enforce the FCA.” But the most likely factor for the lower recoveries in FY2020 is, of course, COVID-19, which has slowed judicial proceedings around the country and undoubtedly affected the progression of qui tam suits—an issue quickly identified by the DOJ in qualifying its reduced recoveries. The COVID-19 factor that led to a decrease in recoveries in FY2020, however, is likely to be responsible for what is expected to be a substantial increase in FCA recoveries and enforcement in 2021. First, the government’s response to the pandemic by injecting trillions into the economy has created massive FCA exposure. The risk of civil enforcement actions to combat fraud relative to the government’s expenditures are just starting to be seen now, with the recent announcement of the first civil FCA settlement based on a Paycheck Protection Program (“PPP”) loan. Many more settlements and actions are likely to follow, given the congressional authorization of nearly $1 trillion of PPP funding since March 2020. The rate of these enforcement actions is likely to increase, too, as the vaccine rollout continues and courts resume normal activities. Moreover, the government will be able to more effectively investigate and resolve FCA matters as the pandemic subsides, including addressing not only the new cases filed in 2021, but also, the still-pending 2020 matters. Notably, although the total recoveries and total qui tam recoveries for FY2020 were down as compared to FY2019 ($2.2/1.6 billion compared to $3/2.2 billion), the total number of new FCA matters increased. In FY2019, there were a total of 786 new FCA matters (148 non-qui tam and 638 qui tam). This number increased by nearly 17% in FY2020, with 922 new FCA matters reported (250 non-qui tam and 672 qui tam). Thus, as the government is able to better investigate these lingering 2020 matters in FY2021, the recoveries that may have otherwise been realized in FY2020 are now more likely to be realized in FY2021. Second, COVID-related expenditures—and the associated FCA exposure—are only expected to increase after President-Elect Biden proposed a $1.9 trillion relief plan on January 14, 2021. Although a large percentage of that sum will go to individuals and the vaccine program, hundreds of billions are likely to go to businesses, opening the door for more fraud. Finally, the Biden administration may be more willing to pursue qui tam suits than the Trump administration, leading to an increased number of qui tam actions and a corresponding increase in overall recoveries. President-Elect Biden stated plans to nominate Merrick Garland as Attorney General, who does not appear to have taken the same strong position against qui tam suits as seen with former Attorney General Barr. In short, while FY2020 was a down year for FCA recoveries, the number of total new FCA matters increased, and the conditions are ripe for a rise in FCA enforcement actions and recoveries throughout 2021.
January 19, 2021
by Eric Weisenburger
Enforcement
Looking Ahead: Enforcement Actions for Fraud, Waste, and Abuse Related to COVID-19
As the public health and economic responses to COVID-19 dominate the headlines and traditional government enforcement actions slow, anticipate a significant increase in government enforcement actions, internal investigations related to corporate fraud, and qui tam (whistleblower) actions in the coming months. The CARES Act contains appropriations for tens of millions of dollars for agency inspector general enforcement. Leaders in federal law enforcement are telling us they are shifting enforcement priorities to target individuals and businesses for fraud, waste, and abuse related to COVID-19. This effort will last for years given the trillions of government dollars now pouring into the economy. These investigations will focus on decisions and actions (or inactions) being made now. Organizations must be looking to mitigate risk now. Current Enforcement Picture – Scams, Statement Prosecutions, and Snake Oil State law enforcement authorities are forming task forces to combat fraud, waste, and abuse related to COVID-19. Prosecutions will initially focus on fraudsters and price gougers seeking quick gains. Arizona and Georgia are among the latest to form such task forces, joining many others, including Nevada, South Carolina, New Jersey, Pennsylvania, Kentucky, and Louisiana. They are also already producing results. On April 9, for example, Georgia announced its task force arrested a woman for illegally selling an unregistered pesticide as a cure for the coronavirus. The task forces are joint operations between state and federal agencies, which is unsurprising given the specialized knowledge of state investigators and Attorney General William Barr’s direction to every U.S. Attorney’s Office on March 16 “to prioritize the detection, investigation, and prosecution of all criminal conduct related to the current pandemic.” The Department of Justice has also created at least one nationwide federal law enforcement task force. In a March 24 Memorandum Attorney General Barr announced the creation of the “COVID-19 Hoarding and Price Gouging Task Force.” This task force announced on April 10 the arrest of a man for wire fraud for attempting to sell $750 million in nonexistent personal protective equipment to the Department of Veteran Affairs. In a March 16 letter, the National Whistleblower Center encouraged Attorney General Barr to form additional nationwide task forces, including a task force to monitor and investigate COVID-19 related False Claims Act allegations. Small Businesses and Shareholders On March 27, the CARES Act made $350 billion available in loans to small businesses under the Paycheck Protection Program (PPP). The SBA made it clear in its Interim Final Rule that the applications, and hence the money, would be available on a “first-come, first-served” basis. The SBA approved the final loan application form on March 31, and small businesses scrambled to submit applications beginning April 1. The PPP loan application for borrowers requires small businesses—i.e., generally fewer than 500 employees—to certify their eligibility as a small business. Numerous businesses may run afoul of SBA’s affiliation rules, which prevent large organizations consisting of multiple small affiliated businesses from qualifying for loans intended for small businesses. Organizations that falsely certify their small business status for federal funding are at risk for substantial penalties under the False Claims Act and other Federal enforcement statutes. The risk is especially great here given the pressure on businesses to submit applications, the ambiguity of the loan program guidance and application materials, and the current financial pressures. These same organizations will be under extreme financial pressure in the future to request loan forgiveness. For example, the loan application requires the applicant to certify that they “understand that loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities, and not more than 25% of the forgiven amount may be for non-payroll costs.” It also requires the applicant to submit supporting documentation relative to such costs for the eight-week period following the loan. The pressure to obtain maximum loan forgiveness will be great. The SBA, too, has announced in its Interim Final Rule that any shareholder, member, or partner of a small business that uses PPP funds for unauthorized purposes will be subject to liability for fraud. Task forces and whistleblowers and will be watching. Banks and Lenders Predatory lending practices also peak in times of crisis. Some lending institutions will exploit American consumers to survive financially, and in the worst cases, to make substantial profits. Consumer protection groups working with task forces are investigating these practices. Legislators are encouraging regulators to implement rules to protect vulnerable consumers from high interest rates. Agencies are already paying attention: the SBA is on alert for such frauds and limits the fees a broker can charge a borrower to 3% for loans $50,000 or less and 2% for loans $50,000 to $1,000,000 with an additional ¼% on amounts over $1,000,000. The False Claims Act—and its qui tam whistleblower provision—presents significant risk for lenders and banks participating in the federal stimulus programs. For example, the PPP loan applications require the borrower to certify “acknowledge[ment] that the lender will confirm the eligible loan amount using required documents submitted.” But underwriting loans, where time is short and the desire to help borrowers is extremely high, may lead in hindsight to questionable loan acceptances. Law enforcement may pursue lenders for recklessly disregarding false statements in loan applications. Qui tam actions are inevitable. Hospitals and Medical Providers When the CARES Act was signed into law on March 27, it allotted $100 billion in relief funds specifically to hospitals and other healthcare providers on the front lines of the pandemic. On April 10, as part of the “CARES Act Provider Relief Fund,” the U.S. Department of Health & Human Services (HHS) distributed $30 billion of these allotted funds to eligible providers. Payments to providers are based on their share of total Medicare fee for service reimbursements in 2019. The payments are not loans, they are not to be repaid, and they are being automatically deposited into provider accounts via direct deposit. Providers must sign an attestation, within thirty days of receiving the payment, confirming receipt of the funds and agreeing to HHS’s terms and conditions of payment. These terms and conditions include a certification from the provider “that the Payment will only be used to prevent, prepare for, and respond to coronavirus, and shall reimburse the Recipient only for health care related expenses or lost revenues that are attributable to coronavirus.” In addition, the terms and conditions require the provider to certify “that it will not use the Payment to reimburse expenses or losses that have been reimbursed from other sources or that other sources are obligated to reimburse.” Providers receiving other federal stimulus loans for similar relief, such as PPP loans for small business providers, may be targets of qui tam relators under the False Claims Act. Task forces and relators will examine data months and years from now for anomalies and evidence of double dipping. Retail Stores, Wholesalers, and Suppliers Retailers should be wary of price increases for items that limit the spread or effect of COVID-19, such as facemasks, sanitizers, disinfectants, cough medicine, and others. As scarcity continues to be a concern, the Department of Justice and state governments are responding by implementing and increasing enforcement of price gouging orders. President Trump recently issued Executive Order 13910 on March 23 authorizing the Secretary of Health and Human Services to designate certain healthcare and medical items as protected. Under the Order and the Defense Production Act, it is a crime to accumulate designated items—which include ventilators, respirators, PPE such as face masks and gloves, sterilization products, and disinfectant products—either over a person’s reasonable needs or to sell it over prevailing market prices. Attorney General Barr issued a March 24 Memorandum (described in the introduction) stating the Department’s intent to investigate and prosecute violators of the Order and creating the COVID-19 Hoarding and Price Gouging Task Force. Retail stores are at particular risk of enforcement actions related to these orders and should take care when adjusting prices for protected equipment. In New York City alone, the Department of Consumer and Worker Protection has received more than 7,200 complaints of price gouging related to COVID-19. New York City has filed three lawsuits against repeat offenders seeking over $100,000 in fines. With more states putting similar orders into place and the creation of the federal task force, greater enforcement of price gouging rules is inevitable. Procurement Fraud Although it received less attention than the new loan programs, the straight appropriations in the CARES Act presents increased fraud risk. Appropriated funds will be used to procure PPE, vaccines, COVID-19 tests and other medical supplies, cleaning services, and to fund the construction of new field hospitals and healthcare facilities. Enforcement against procurement fraud is already underway. As noted in the introduction, the Department of Justice announced on April 10 that it arrested and charged a Georgia man with wire fraud after fraudulently misrepresenting his ability to deliver 125 million facemasks and other personal protective equipment from domestic suppliers to the Department of Veterans Affairs. The orders would have totaled more than $750 million. As precedent, in the two years after Hurricane Katrina, the Department of Justice brought 800 prosecutions and conducted numerous qui tam and non-qui tam investigations. Businesses working to fulfill orders for personal protective equipment and other supplies are facing significant increased demand. Businesses must guard against producing substandard products, ignoring product failures and flaws, and passing through counterfeit product, all of which may lead to civil and criminal enforcement actions. These concerns apply equally to products in development. Businesses developing therapies and treatments for COVID-19 are under intense market pressure to bring their product to market. While there is insatiable demand for products that treat the virus, its symptoms, and/or prevent its spread, a business that prematurely brings a product to market that causes patient harm may face substantial exposure after the emergency passes. Whether businesses are new to the government procurement process or serve only government customers, the desire to move quickly cannot ignore compliance risk. Businesses must certify compliance with applicable regulations in exchange for payment from the government. Businesses must still pay attention to the details while working fast to satisfy government needs and being paid for that work. What Can My Organization Do Now? Understand the key legal remedies that will drive future risk—statutes like the False Claims Act. Pay attention to the details of government loan and procurement programs. Know what is required and comply. The implementing rules are a moving target and are being created “on the fly”—there is no substitute for understanding the details to minimize enforcement risk. Maintain internal controls and due-diligence procedures—through the good times and the hard times. Internal investigations remain—even in this environment—the key tool to identify and mitigate risks. While internal investigation activity may be slowed by the pandemic and its economic effects, curtailing investigations creates risk that the organization lacks visibility into misconduct or allegations of misconduct. Take internal complaints seriously. A cottage industry of qui tam relators is coming; the False Claims Act bar is recruiting whistleblowers now. You can mitigate that risk when internal whistleblowers feel “heard” and have their complaints addressed promptly and effectively. Understand the value of a timely, well-packaged voluntary disclosure to law enforcement or to the applicable agency. Busy agents and prosecutors may be receptive to “fully potted” disclosures and offer maximum cooperation credit in return.
April 14, 2020
by John Marti, Alex Hontos, Kirk Schuler, Chris DeLong, and Eric Weisenburger
Enforcement
$145 Million Settlement Shows the Depth of Government’s Effort to Combat Opioid Crisis and its Interest in Fraud Actions Against Electronic Health Records Companies
Less than a year after United States Attorney Christina E. Nolan warned electronic health records (“EHR”) companies in a DOJ press release that they “should consider themselves on notice” following a $57.25 million FCA settlement with EHR software developer Greenway Health LLC, the DOJ announced in a recent press release a $145 million settlement with another EHR vendor, Practice Fusion, Inc. The settlement includes $26 million in criminal fines and forfeitures, which Practice Fusion agreed to pay as part of a deferred prosecution agreement. That settlement figure is notable as the largest criminal fine in the District of Vermont’s history. Practice Fusion agreed to pay another $118.6 million in civil settlement, which includes approximately $113.4 million to the federal government and up to $5.2 million to states that opt to participate in separate state agreements. Practice Fusion, founded in 2005, provided electronic medical record software called Practice Fusion Solution free of charge. Instead of making money through software sales and support, the company supported itself through drug advertising revenues. The government brought both civil and criminal claims against Practice Fusion. Like the Greenway case, the government alleged Practice Fusion submitted false claims by certifying its EHR software products had specific capabilities when the software apparently did not. The settlement also resolves claims that Practice Fusion violated anti-kickback laws through programs it ran with opioid and other drug manufacturers. According to the criminal Information filed in the District of Vermont by U.S. Attorney Nolan—the same district that filed charges leading to the Greenway settlement—Practice Fusion created pain clinical decision support (“CDS”) alerts that were inconsistent with CDC Guidelines and clinical quality measures. As alleged, these CDS alerts were intended to prompt physicians to prescribe—and therefore increase sales of—extended release opioids in exchange for remuneration from the opioid manufacturer. The extended release opioid CDS alerts began in 2016, even as the opioid crisis was coming to a head and the CDC released guidelines identifying addiction and overdosing as concerns with opioid use. The settlement is noteworthy for several reasons. It resolves the first ever criminal prosecution of an EHR company, according to the press release. It also demonstrates the government’s willingness to combat the opioid crisis by targeting entities other than opioid drug manufacturers. In addition, the settlement was the result of charges brought solely by the government without any qui tam relators, just like the case in the Greenway settlement, demonstrating the government’s willingness to investigate EHR companies on its own initiative. Finally, the settlement clearly emphasizes U.S. Attorney Nolan’s prior admonition, “EHR companies should consider themselves on notice.”
March 5, 2020
by Vanessa J. Szalapski
Enforcement
DOJ’s Procurement Collusion Strike Force Priorities Highlighted By Bid-Rigging Qui Tam Settlement
In an article published late last year, Dorsey reported on the Department of Justice’s announcement regarding the formation of a new Procurement Collusion Strike Force. The Strike Force focuses on the nexus between antitrust and public procurement, with the stated aim of targeting antitrust crimes “such as bid-rigging conspiracies and related fraudulent schemes.” If there was any question whether DOJ was serious about targeting such conduct, a recent DOJ settlement suggests it is. In a press release last week the Department announced a $29 million False Claims Act settlement to resolve allegations that three corporate defendants rigged the bidding of an auction to buy a government loan on the cheap. The underlying lawsuit accused defendants Hybrid Technology LLC, Hybrid Tech Holdings LLC (collectively, “Hybrid”), and Ace Strength International of rigging bids for the right to acquire a $168.5 million nonperforming loan from the Department of Energy (“DOE”), which was secured by the assets of now-bankrupt Fisker Automotive Inc. and Fisker Automotive Holdings Inc. (collectively, “Fisker”). Hybrid submitted the sole bid, for $25 million, and won the nonperforming Fisker loan. The qui tam action was filed by FAH Liquidating Trust, the successor to the official committee of unsecured creditors of Fisker, and its legal counsel William R. Baldiga. As successful relators, the Trust and Baldiga will receive $5.2 million of the $29 million settlement. The lawsuit more specifically alleges that Hybrid was one of three bidders that made it to the final stage of the DOE’s auction process, the live auction. The other two bidders were Wanxiang America, Inc. (“Wanxiang”) and WM GreenTech Automotive Corp. (“GTA”). Hybrid allegedly communicated with Wanxiang to discourage Wanxiang from bidding, including phone calls between Hybrid and Wanxiang executives while the live auction was taking place. Hybrid allegedly repeated that conduct with GTA, and was successful in dissuading both Wanxiang and GTA from bidding such that Hybrid won the auction with its sole bid for $25 million. Hybrid faced the threat of liability under the FCA for allegedly making false statements and submissions to the government about Hybrid’s independent participation in the auction, per the lawsuit’s allegations. As a precondition to participating in the auction, the lawsuit alleges Hybrid was required to state that it would “act independently” as a bidder, that its “bids would be submitted in good faith,” and that its participation in the auction would be “conducted in accordance with the law.” After having won the auction, the lawsuit alleges Hybrid signed a Loan Purchase Agreement with DOE wherein Hybrid further represented it would continue to abide by the law and that its prior statements of independence, good faith, and legal conduct, remained “true and correct in all material respects.” The lawsuit alleges Hybrid’s collusion with Wanxiang and GTA rendered Hybrid’s statements and representations to DOE false. This particular case was not the direct result of the Department’s new Procurement Collusion Strike Force, as the investigation into Hybrid preceded its creation. But the case is symbolic of the conduct targeted by the Strike Force, and serves as a reminder that the Department is willing to team up in other ways—here with the relators and a “coordinated effort” led by the Civil Division, the District of Columbia U.S. Attorney’s Office, and DOE’s Office of Inspector General—to root out anticompetitive behavior involving government contracts. Moreover, to avoid attracting the attention of such authorities, including the Department’s Procurement Collusion Strike Force, organizations in the public procurement space that are involved in joint ventures or that are collaboratively working with business partners should be mindful of the antitrust issues that can surface at the intersection of industry and government contracts.
February 5, 2020
by Kirk Schuler and Sam Bolstad
Enforcement
Justice Department Touts FY2019 False Claims Act Statistics as Evidence of Administration’s “High Priority” Against Fraud, but the Numbers Show Less of a Priority on Qui Tams
Earlier this month, the United States Department of Justice issued a press release to announce recoveries of over $3 billion from False Claims Act cases in FY2019. In making the announcement, Assistant Attorney General Jody Hunt of the Civil Division emphasized, “The significant number of settlements and judgments obtained over the past year demonstrate the high priority this administration places on deterring fraud against the government and ensuring that citizens' tax dollars are well spent.” But what do the numbers say about the administration’s reliance on qui tam actions to deter fraud? In short, qui tam actions appear to be less of a priority than they have been historically. The $3 billion in recoveries were announced in conjunction with FY2019 statistics revealing that $2.2 billion of those recoveries came from qui tam actions—lawsuits brought by whistleblowers or “relators” suing on behalf of the government under the FCA’s qui tam provisions. In addition, the FY2019 statistics showed the relators’ shares of the $2.2 billion topped $271 million. These qui tam numbers may appear robust on their own, but the following chart shows they are well below their five and ten year historical averages: Qui Tam Recoveries Total Recoveries (Qui Tam & Non-Qui Tam) % Qui Tam Recoveries to Total Recoveries Relators’ Share of Qui Tam Recoveries % of Relators’ Share to Total Recoveries FY2019 2,210,401,366 3,054,425,050 72% 271,941,791 9% 5 Yr Avg. 2,587,832,070 3,493,333,981 75% 437,397,496 13% 10 Yr Avg. 2,902,873,770 3,791,266,748 78% 489,500,130 13% The decline in qui tam recoveries to total recoveries, and the decline in the share of relators’ recoveries to total recoveries, perhaps are not that surprising. Blog readers may remember FCA Now’s earlier reports on Attorney General William Barr’s documented disdain for the FCA’s qui tam provisions in 1989 when he served in the Office of Legal Counsel to provide advice to the President and executive branch agencies. In that role, Attorney General Barr wrote a memorandum arguing that the qui tam provisions of the FCA were “patently unconstitutional” and that private qui tam actions were a “devastating threat to the Executive’s constitutional authority.” Those earlier views may have influenced the present based on the Department’s latest historical data, but there are other factors in play, too. For example, in January 2018, over a year before Barr became the Attorney General in February 2019, the Department of Justice instructed its prosecutors in what is known as the “Granston Memo” to more seriously consider dismissing meritless FCA qui tams when in the government’s best interest to do so. The Department’s announcement, in fact, emphasized that the FCA provides “authority for the government to dismiss cases that do not advance the goal of fraud prevention, and during the past year the government made increasing use of this tool to help prioritize and protect the expenditure of government resources.” In addition, the United States Supreme Court’s decision nearly four years ago in Universal Health Services, Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016), which required courts to apply a “rigorous” and “demanding” standard of materiality in FCA actions, may have resulted in more dismissals and smaller settlements. In other words, relators and their counsel—the ones responsible for filing qui tams—may be less willing to pursue such cases in today’s post-Granston and post-Escobar world. Time will tell of course whether the downward trend of qui tam recoveries continues, but because the Department’s announcement also revealed that new qui tam matters for FY2019 (636) are at their lowest number since 2011 (634), and are well below the five and ten year historical averages (662 and 665, respectively), lower overall qui tam and relator recoveries seem certain for FY2020.
January 28, 2020
by Kirk Schuler and Alex Hontos
Enforcement
Dorsey Alert: HHS Regulatory Sprint May Impact FCA Enforcement Trends
The False Claims Act (“FCA”) is an ever-present concern among health care providers and counsel, which is why it is no surprise that the Department of Health and Human Services' (HHS) recent “Regulatory Sprint to Coordinated Care” may impact FCA enforcement trends. Dorsey’s Health Law Blog team has been closely monitoring the “Regulatory Sprint,” including the sweeping set of proposed regulations issued by the HHS Office of Inspector General (“OIG”) and Centers for Medicare & Medicaid Services (“CMS”) that introduce significant new value-based terminology, safe harbors and exceptions to the federal anti-kickback statute (“AKS”) and federal physician self-referral law (“Stark Law”), respectively. These developments are of note for potential FCA enforcement trends, particularly because the AKS provides that a claim that includes items or services resulting from a violation of the AKS constitutes a false or fraudulent claim for purposes of the FCA. Further, the federal government and qui tam relators are increasingly pursuing alleged violations of the Stark Law under the FCA, based on arguments, for example, that claims submitted in violation of the Stark Law are false claims for FCA purposes. The new proposed AKS safe harbors and Stark exceptions and policy clarifications from the agencies that are intended to ease compliance burdens may potentially lead to fewer alleged violations of non-compliance with these laws, and thus fewer FCA actions based on non-compliance with them. To read more about the Regulatory Sprint, Dorsey’s FCA Now blog is pleased to refer you to Dorsey’s Health Law Blog landing page for an overview and link to further resources.
November 21, 2019
by Alex Hontos, Alissa Smith, Kirk Schuler, and Laura B. Morgan
Enforcement
Software Provider and DOJ Reach $8.6M Settlement for FCA Case Involving Alleged Cyber Security Shortcomings
Amid increased public and government attention to cyber security, a qui tam plaintiff’s lawsuit has resulted a large settlement for a government contractors’ purported misrepresentations regarding compliance with government cyber security standards. In what is believed to be the first-of-its-kind settlement of an FCA claim premised upon cyber security misrepresentations, Cisco Systems recently agreed to pay $8.6 million to the federal and state governments. The case, United States of America v. Cisco Systems, involved allegations from a former-subcontractor whistleblower that Cisco Systems knowingly sold video monitoring technology containing security flaws to the United States, eighteen states, and the District of Columbia. See Complaint, Case No. 11-cv-400 (W.D.N.Y. May 5, 2011). According to the whistleblower, the security flaws to the video monitoring technology created a backdoor to the system, enabling a potential user to gain unauthorized access to the entire network of a federal agency, take control of or bypass an agency’s physical security systems, or even allow an unauthorized user to obtain administrative access to the system to make modifications. Id. Notwithstanding its awareness of the security flaws, and knowing that the disclosure of the security flaws would have prevented the federal government from purchasing the video monitoring technology, the Relator alleged that Cisco Systems withheld information regarding the security flaws from multiple federal and state agencies to which it sold the video monitoring technology. Id. On July 31, 2019, the federal government, fifteen states, and the District of Columbia settled the claims against Cisco Systems. Pursuant to that agreement, Cisco Systems will pay $2.6 million to the federal government to resolve the FCA claims and approximately $6 million to state governments to resolve similar state law fraud-in-contracting claims. Cisco framed the settlement as a “partial refund” to the governments involved, and did not explicitly admit liability. The company acknowledged that “times and expectations have changed.” The settlement may be a harbinger of more cyber security claims to come. Information security has become an increasingly prominent component of all government contracts, extending well beyond contracts in the information technology space. Government contractors will therefore be increasingly required to abide by the security standards imposed by the Federal Information Security Management Act and related regulations when selling products to the government. The recent seven-figure settlement emphasizes the government’s interest in pursuing FCA actions premised upon cyber security shortcomings, and serves as a reminder to government contractors to be mindful of their cyber security compliance obligations.
August 20, 2019
by Jack Huerter
Enforcement
Another Qui Tam Suit Alleging a Scheme to Defraud by Reporting Inflated Drug Prices Survives Motion to Dismiss
Within the last five years, district courts in the Seventh Circuit have repeatedly denied motions to dismiss qui tam lawsuits brought under the FCA that allege a scheme to defraud government health programs by reporting inflated “usual and customary” prices for prescription drugs. By contrast, at least one district court in the Sixth Circuit recently granted such a motion under Rule 9(b). On March 7, 2019, a district court in the Tenth Circuit—considering similar prescription drug allegations for the first time—sided with the Seventh Circuit and denied defendants’ motion to dismiss plaintiffs’ FCA claims. In United States ex rel. Strauser v. Stephen L. LaFrance Holdings Inc., plaintiffs allege that between 2008 and 2012, defendants charged cash-paying customers four dollars for a thirty-day supply of any one of more than 300 commonly prescribed generic medications. Unlike cash-paying customers, plaintiffs allege that defendants charged Medicaid beneficiaries a higher price for the same drugs and reported that higher price as the “usual and customary charge to the general public” for purposes of receiving Medicaid reimbursement. Because Medicaid bases its payments on the so-called usual and customary prices reported by the pharmacies, plaintiffs allege that defendants did not extend the same four-dollar discount pricing to Medicaid in an effort to increase their reimbursement. In their complaint, Plaintiffs allege that defendants’ practices constituted fraudulent claims for payment under the FCA because it was understood throughout the pharmacy industry that “usual and customary charge” referred to the amount a pharmacy charged cash-paying customers. Plaintiffs also allege that defendants attempted to avoid detection by not advertising the four-dollar generic pricing in the media or through brochures, signs, or other promotional materials. Defendants moved to dismiss plaintiffs’ FCA claims by arguing, among other things, that plaintiffs failed to plead scienter with sufficient particularity. Defendants argued that the relevant FCA provisions—i.e., 31 U.S.C. § 3729(a)(1)(A), (B), and (G)—apply only to persons who act “knowingly.” Defendants argued that they could not have acted knowingly because excluding discount pricing of generic drugs from the usual and customary charges “was a reasonable interpretation of [an] ambiguous legal framework and not clearly proscribed by law.” The court found defendants argument unpersuasive. The court noted that defendants’ argument was “in tension with the plain meaning of the words ‘usual and customary,’” as well as plaintiffs’ allegation that the phrase is understood throughout the pharmacy industry to refer to the amount a pharmacy charges cash-paying customers. The court’s decision is notable in that expands the Seventh Circuit’s general acceptance of FCA claims regarding “usual and customary” prices for prescription drugs to a different jurisdiction. The court’s decision also serves as yet another win for whistleblowers complaining of fraudulent prescription drug practices and prices. The decision is found at: United States ex rel. Strauser v. Stephen L. LaGrance Holdings, Inc., 2019 U.S. Dist. LEXIS 36385 (N.D. Okla. Mar. 7, 2019).
March 14, 2019
by Nathan J. Ebnet
Enforcement
DOJ Levels False Claims Act at Pharmacies to Combat Opioid Crisis
This month the Department of Justice brought a “first of its kind” action against two pharmacies, their owner, and three pharmacists for allegedly dispensing and billing Medicare for prescriptions in violation of both the Controlled Substances Act (CSA) and the False Claims Act (FCA). See United States v. Oakley Pharmacy, Inc., et al., No. 2:19-cv-00009 (M.D. Tenn). The action, seeking both injunctive relief and civil monetary penalties, is a coordinated effort by the Department’s Prescription Interdiction & Litigation (PIL) Task Force, which is committed to using “all available . . . tools,” including the FCA, “to reverse the tide of opioid overdoses in the United States.” In August 2018, the Department filed its first civil action under the CSA and FCA enjoining prescribers from “recklessly and unnecessarily distribut[ing] painkillers and other drugs.” It is now clear that the Department will also target the pharmacies that fill illegitimate prescriptions, and that pharmacists can no longer claim they are following “doctor’s orders” to avoid enforcement action. The action alleges that several pharmacies, their owner, and several pharmacists (collectively “Defendants”) knowingly dispensed controlled substances without a valid prescription in violation of 21 U.S.C. § 842(a)(1); knowingly and intentionally distributed and dispensed controlled substances outside the usual course of the professional practice of pharmacy, in violation of 21 U.S.C. § 841(a); and billed Medicare programs to pay for controlled substances that were not used for a medically accepted indication and lacked a legitimate medical purpose in violation of the FCA, 31 U.S.C. 3729, et seq. Controlled Substances Act Violations Under the CSA and implementing regulations, a prescription is legally valid only if it is issued for “a legitimate medical purpose by an individual practitioner acting in the usual course of his professional practice.” 21 C.F.R. § 1306.04(a). Here, the Defendants allegedly dispensed prescriptions outside the usual course of professional practice and in violation of their responsibilities to ensure that prescriptions were issued for legitimate medical purposes. The Government alleges that a “pharmacist is required to refuse to fill a prescription if he or she knows or has reason to know that the prescription was not written for a legitimate medical purpose,” and has a corresponding legal duty to recognize “red flags” that raise a reasonable suspicion that a prescription for a controlled substance is not legitimate. Defendants allegedly ignored “red flags” and warning signs of abuse, such as prescriptions for unusually high dosages of opioids, dangerous combinations of opioids and other controlled substances, and prescriptions from patients travelling long distances to have their prescriptions filled. According to the Complaint, of the 68,000 community pharmacies in the United States, only three bought more opioid doses per capita than defendant Dale Hollow over the last three years. False Claims Act Violations The Government appears to assert an Escobar implied false certification theory under the False Claims Act. In submitting claims for reimbursement for drugs dispensed to Medicare beneficiaries, pharmacists must certify compliance with all federal laws, regulations, and Centers for Medicare & Medicaid Services’ instructions, including the CSA. Further, pharmacists must certify that the data determining payment is accurate, complete, and truthful to the best of their knowledge, and this certification is material to the Government’s payment decision. 42 C.F.R. § 423.505(k). Claims for reimbursement that do not have a medically accepted indication do not contain accurate, complete and truthful information about the request for payment. The Government alleges that Defendants dispensed “scores of controlled substance prescriptions” that did not constitute valid prescriptions complying with federal and state law, and were not issued for a legitimate medical purpose or for a medically accepted indication. Medicare does not cover drugs unless they have a medically accepted indication, are reasonable and necessary, and/or are issued for a legitimate medical purpose. Had Medicare known the prescriptions were illegitimate and invalid, the Government argues, it would not have paid for the controlled substances medications. Instead, from 2012 through 2018, Medicare paid one of the pharmacies over $1.4 million for controlled substances, over $1 million of which was for opioids alone. DOJ Enforcement Trends This action is the latest in a string of enforcement efforts by the Department to leverage existing tools to combat the prescription opioid crisis, which the Trump Administration declared a national public health emergency in 2017. Since then-Attorney General Jeff Sessions announced the PIL task force in February 2018 (which itself is an outgrowth of the Opioid Fraud and Abuse Detection Unit), the Department has prioritized enforcement actions against opioid manufacturers, distributors, and prescribers, as opposed to opioid users. At the Department’s National Opioid Summit in October, Deputy Attorney General Rod Rosenstein stressed that the Department would use “every tool – including both criminal and civil enforcement powers – [to] cut off the supply of pills from corrupt doctors and pharmacists.” That effort is now clearly underway.
February 14, 2019
by John Marti, Alex Hontos, Kirk Schuler, Lauren Roso, and David Green
Enforcement
For FY2018, Justice Department Touts Nearly $3 Billion in False Claims Act Recoveries, Mostly From Qui Tams and Alleged Healthcare Frauds
The Justice Department announced in a recent press release that it obtained more than $2.8 billion in settlements and judgments from cases involving fraud and false claims against the government. The vast majority of this amount—$2.1 billion—came from lawsuits filed by whistleblowers, or “relators” suing on behalf of the government, under the qui tam provisions of the False Claim Act (“FCA”). Included in the qui tam recoveries was $5 million from former professional cyclist and seven-time Tour de France winner, Lance Armstrong, which he paid to resolve a lawsuit alleging his admitted use of performance enhancing drugs resulted in the submission of millions of dollars in false claims to the United States Postal Service for sponsorship payments. Altogether, qui tam actions in FY2018 generated over 70% of the recoveries and represented over 80% of new cases (645 out of 767). The Department’s historical statistics show that qui tam actions, in fact, have consistently accounted for the substantial majority of settlements and new cases since 1986 when Congress increased the incentives for whistleblowers. Will 2019 show continued reliance on qui tam actions? As reported earlier this year, the nominee to be the next Attorney General of the United States, Bill Barr, has expressed skepticism regarding the constitutionality of the FCA’s qui tam provision. Given the Department’s continued success in recouping large settlements and deterring future misconduct through qui tam actions, however, it may prove difficult to suddenly reverse the Department’s traditional reliance on such actions. In the press release announcing the FY2018 statistics, Assistant Attorney General for the Civil Division Jody Hunt voiced strong support for qui tam plaintiffs, saying: “Whistleblowers have played a vital role in unmasking fraudulent schemes that might otherwise evade detection. The Taxpayers owe a debt of gratitude to those who often put much on the line to expose such schemes.” Whether the Department continues to rely heavily on qui tam actions, there is no doubt the Department will continue to prosecute FCA cases in 2019. And although the FY2018 statistics demonstrate FCA actions may cover just about anything—even qui tam against former Tour de France winners—they are more likely to involve highly scrutinized fields such as healthcare and defense. Nearly 90% of 2018 FCA recoveries involved the healthcare industry, and 2018 marked the ninth consecutive year that recoveries from the healthcare industry exceeded $2 billion. Thus, all companies and professionals, but particularly those operating in the healthcare industry, must remain vigilant to protect against such claims, and would be well-advised to bolster compliance programs to ensure the integrity of claims submitted to the government. Or, as Armstrong’s many yellow jerseys perhaps should have suggested: proceed with caution.
January 14, 2019
by Alex Hontos, John Marti, Kirk Schuler, and David Green
Enforcement
Government Contractor Awarded Attorney Fees for Defending Against "Unreasonable" FCA Claim
The U.S. Court of Appeals for the Sixth Circuit recently concluded that a contractor should obtain an award of attorney fees for having to defend against an “unreasonable” False Claims Act (“FCA”) suit. In United States ex. rel. Wall v. Circle C. Constr. LLC, the Government sued a contractor that built warehouses for the U.S. Army. During construction, it was alleged that the contractor’s subcontractor paid two electricians $9,900 less than the wages mandated by the Davis-Bacon Act, a federal law that sets wages on public-works projects. That underpayment rendered false the “compliance statements” that the contractor periodically sent to the Government, and the Government subsequently that the contractor had made a false claim against the United States. In its lawsuit, the Government sought $1.66 million in damages. The Government claimed that the contractor’s allegedly false claim of $9,900 had caused $554,000 in “actual damages,” which it was entitled to treble under the FCA. The Government argued that the $9,900 underpayment had “tainted” all of the subcontractor’s electrical work and rendered the total value ($554,000) of the performance worthless. During a previous appeal, the Sixth Circuit rejected that argument. It held that the underpayment did not “taint” the total value of the electrical work and reversed a $763,000 judgment for the Government. It remanded for an award of $14,748—less than one percent of the Government’s demand. On remand, the contractor sought $468,704 in attorneys’ fees it had spent defending against the Government’s $1.66 million claim. The contractor’s demand for attorneys’ fees arose out of the Equal Access to Justice Act, 28 U.S.C. § 2412(d)(1)(D), which states that a court must “award to the [defendant] the fees and other expenses related to defending against the excessive demand” if the Government’s original demand was both (1) “substantially in excess of the judgment finally obtained” and (2) “unreasonable when compared with such a judgment.” The district court denied the contractor’s motion for fees, but the Sixth Circuit reversed, explaining that it would be an “understate[ment]” to say the government’s demand of $1.66 million was “substantially in excess” of the $14,748 judgment. It also found that the demand was “unreasonable compared to the judgment.” In the FCA context, actual damages are “the difference in value between what the government bargained for and what the government received.” Here, the government bargained for buildings and wages; it got the buildings but “not quite all” of the wages. The shortfall—$9,900—was the government’s actual damages. The court found that no reasonable person could accept that the underpayment tainted the entire value of the electrical work because the Government benefitted “every minute of every day” in the form of functioning electrical systems. The Government argued that the contractor was not entitled to fees because its underpayment amounted to “bad faith,” one of the exceptions listed in 28 U.S.C. § 2412(d)(1)(D). The court disagreed and found that the Government failed to show that the underpayment was anything other than “an honest mistake.” The court noted that, unlike many FCA cases, this case did not involve an systematic attempt to defraud the government. Rather, it involved a $9,900 inaccuracy in a $20 million project. The court also noted that the subcontractor’s prices did not clearly state how much it paid the electricians and that both of the contractor’s co-owners testified that they submitted “compliance statements” with the honest belief that they were true. Although the district court found that the contractor was “reckless” in not knowing whether its “compliance statements” were accurate, that standard was less stringent that bad faith. The Government also argued that an attorneys’ fee award would “chill[]” its ability to enforce the FCA. In response, the court observed: “One should hope so. In this case the government made a demand for damages a hundredfold greater than what it was entitled to, and then pressed that demand over nearly a decade of litigation, all based on a theory that as applied here was nearly frivolous.” The court then reversed and remanded for an award of attorneys’ fees to the contractor.
September 6, 2017
by Alan J. Iverson
Enforcement
Genesis Healthcare Settlement with Federal Government
On June 16, 2017, The Department of Justice (“DOJ”) announced a $53.6 million dollar settlement with Genesis Healthcare Inc. (“Genesis”) over six federal whistleblower lawsuits alleging that subsidiaries of the rehabilitation and transitional care provider violated the False Claims Act (“FCA”). The original qui tam plaintiffs, former employees of companies acquired by Genesis, will receive a combined $9.67 million dollars in recovery. The settlement resolved allegations involving Genesis subsidiaries; Skilled Healthcare Group Inc. (“SKG”) and its subsidiaries, Sun Healthcare Group Inc., SunDance Rehabilitation Agency Inc., and SunDance Rehabilitation Corp. Specifically, the settlement resolved allegations that SKG and its subsidiaries knowingly submitted false claims for Medicare services by “billing for hospice services for patients who were not terminally ill” and “billing inappropriately for physician evaluation management services.” The complaint does not elaborate on the nature of the management services billing violations. Further, SKG and its subsidiaries allegedly submitted false claims to Medicare, TRICARE, and Medicaid by providing therapy to patients longer than medically needed, as well as billing for more therapy than patients actually received. The settlement also resolved allegations that Sun Healthcare Group Inc., SunDance Rehabilitation Agency Inc., and SunDance Rehabilitation Corp. knowingly submitted false claims to Medicare by billing for therapy services in the state of Georgia that were either medically unnecessary or unskilled in nature. Finally, the settlement resolved allegations that Skilled LLC, a subsidiary of SKG, violated the FCA by submitting false claims to the Medicare and Medi-Cal programs for “services that were grossly substandard or worthless and therefore ineligible for payment.” Specifically, the allegations pointed to Skilled LLC failing to meet the requirements for nurse staffing in order to be eligible for government healthcare program reimbursements. The case matter was handled by the DOJ Civil Division’s Commercial Litigation Branch, the Office of the Inspector General, and the U.S. Attorney’s Offices for the Northern District of California, the Northern District of Georgia, the Western District of Missouri, and the District of Nevada. Acting U.S. Attorney Steven W. Myhre for the District of Nevada noted, “Today’s settlement is an example of the U.S. Attorney’s Office’s commitment to holding medical providers accountable. . . . We are committed to protecting federal health care programs, including Medicare, TRICARE, and Medicaid, which are funded by taxpayer dollars.” The recent settlement falls in line with the DOJ’s increased commitment to combating health care fraud. The DOJ budget request for 2017 included a $70.8 million dollar increase ($320.2 million in total) of funding for health care fraud prevention.
June 28, 2017
by Alissa Smith
Enforcement
OIG Creates New AKS Safe Harbors, Codifies Others
On January 6, 2017, two new safe harbors to the federal anti-kickback statute (the “AKS”) will become effective pursuant to a final rule published by the United States Department of Health and Human Services Office of the Inspector General (the “OIG”) on December 7, 2016. The final rule also codifies safe harbors for certain AKS exceptions and makes a technical correction to the existing safe harbor for referral services. The OIG is authorized to promulgate safe harbors to protect various business arrangements from criminal prosecution under the AKS even though the arrangements potentially may be capable of inducing referrals of federal health care program business. The final rule as published in the Federal Register is available here. New Safe Harbors Created The two new safe harbors share a focus on making medical-related transportation more affordable. The first new safe harbor protects reductions or waivers of a federal health care program beneficiary’s obligation to pay copayment, coinsurance or deductible (“cost-sharing”) amounts for emergency ambulance services provided by a state-, municipality- or tribal-owned ambulance supplier and paid for under a fee-for-service payment system if specified requirements are satisfied (e.g., the reduction or waiver must be offered on a uniform basis to all residents, tribal members or transported individuals). See 42 C.F.R. § 1001.952(k)(4). The second new safe harbor protects free or discounted local transportation provided by an “eligible entity” (i.e., any individual or entity, except for individuals or entities that primarily supply health care items) to federal health care beneficiaries in the form of a “shuttle service” if certain conditions are met. See 42 C.F.R. § 1001.952(bb). AKS Exceptions Codified as Safe Harbors The final rule also protects certain pharmacy reductions or waivers of cost-sharing amounts (see 42 C.F.R. § 1001.952(k)(3)), remuneration between a federally qualified health center (“FQHC”) and a Medicare Advantage (“MA”) organization and (see 42 C.F.R. § 1001.952(z)), and discounts by manufacturers on drugs furnished to beneficiaries under the Medicare Coverage Gap Discount Program (see 42 C.F.R. § 1001.952(aa)). Focus on Safe Harbor for Pharmacy Cost-Sharing Waivers While all of the safe harbors are noteworthy, some additional commentary on the scope and requirements of the safe harbor for pharmacy cost-sharing waivers is warranted. First, the scope of the final rule’s pharmacy cost-sharing waiver safe harbor includes both the Medicare Part D program and the Medicaid program, whereas the similar AKS statutory exception covers only Medicare Part D. Second, the OIG clarified in its comments to the final rule that the safe harbor requirement that the reduction or waiver not be part of an “advertisement or solicitation” would be violated by a pharmacy posting information on its Web site regarding the reduction or wavier, but generally would not be violated by responding to an inquiry from a particular patient in person. Third, with respect to the safe harbor requirement that the reduction or waiver not be “routine,” the OIG stated in its comments that what is “routine” depends on the facts and circumstances of a particular case but that giving a reduction or waiver could be common enough without being automatic and still be routine. Fourth, the OIG declined to specify any particular method of determining whether a beneficiary has a “financial need,” permitting pharmacies flexibility, by way of examples, to use a multiple of the poverty guidelines or to use a combination of the poverty guidelines plus family medical expenses. The key to satisfying the requirement is that the pharmacy must apply a reasonable determination method of financial need uniformly. And while not requiring a written policy describing the pharmacy’s determination method, the OIG did say that having such a written policy, along with evidence that the policy was followed, would be “useful” in asserting the safe harbor’s protection. Fifth, if a patient is not in financial need then the pharmacy must make “reasonable collection efforts” before waiving the cost-sharing amount. The OIG recognized in its comments that the amount of the copayment or the historical inability to collect from a particular patient might be factors in a pharmacy’s decision regarding what collection efforts to take. However, a preemptive decision by a pharmacy not to request payment from, or not to pursue any collection efforts regarding, a particular patient would not satisfy this requirement. Parties intending to fit within a particular safe harbor are advised to review all of the applicable requirements. In addition, as illustrated by the discussion of the safe harbor for pharmacy cost-sharing waivers above, reviewing the OIG’s responses to comments in the final rule can help interpret the regulatory language.
December 29, 2016
by Neal N. Peterson
Enforcement
Jury Verdict in Declined Civil FCA Action Need Not Bar Criminal Prosecution for Same Conduct
The qui tam provisions of the False Claims Act allow private citizens to file FCA claims on behalf of the government. The government may elect to intervene in the action—or it may not. The United States District Court for the Western District of Virginia held earlier this month that when the government does not intervene, it is a party in interest, but not a party to the qui tam suit—a distinction of significance for purposes of collateral estoppel. See United States v. Whyte, No. 4:12-cr-21-2, 2016 U.S. Dist. LEXIS 172560 (W.D. Va. Dec. 16, 2016). The federal government indicted William R. Whyte and Armet Armored Vehicles, Inc. in 2012 on three counts of major fraud against the United States, six counts of wire fraud, and three counts of false, fictitious, and fraudulent claims. Mr. Whyte is the owner and CEO of Armet, a manufacturer and supplier of armored vehicles. Id. The indictment alleges that Mr. Whyte and Armet contracted with the government to manufacture and supply vehicles for use in Iraq, but the vehicles were delivered late and did not conform to contract specifications. Mr. Whyte avoided prosecution for a few years by fleeing to Canada, but he was extradited in September 2016. In the meantime, Armet’s former president filed a qui tam action against Mr. Whyte and Armet based on the same conduct underlying the government’s indictment. The government chose not to intervene. In Mr. Whyte’s absence, that case was tried to a jury, which returned a verdict in favor of Mr. Whyte and Armet. When Mr. Whyte returned to the United States this fall, he moved to dismiss the indictment against him on grounds of collateral estoppel. The court denied Mr. Whyte’s motion, reasoning that although the government was a party in interest to the qui tam action, it was not technically a "party" for purposes of a collateral-estoppel analysis. Because it did not intervene, the government could not “issue subpoenas, conduct depositions, propound discovery, call witnesses, or cross-examine the defendant’s witnesses”—that is, it could not exercise the degree of “practical control over the litigation [such] that it would be fair to bind it to the prior ruling [in the qui tam action].” The court emphasized that its holding recognizes a policy decision behind the framework of the FCA: it is the government’s choice whether to intervene in a civil qui tam action or pursue criminal charges, and the government should not be forced to be a party to a qui tam action.
December 27, 2016
by Betsy Sellers
