Falsity
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
Falsity
FCA Basics: Liability Theories
This is the fifth 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 covers the categories and scope of FCA liability. Theories of Liability There are three principal ways an FCA defendant can be found liable: factual falsity, legal falsity, and/or “reverse” false claims. In addition, the criminal Anti-Kickback Statute often provides an independent basis for FCA liability in the healthcare sector. Factual Falsity. A claim to the federal government is factually false where some fact about the deliverable is false. A classic (and perhaps apocryphal) example traces back to the American Civil War where the Union Army was said to have received sawdust instead of gunpowder. As a more contemporary example, a claim for medical services that were not actually rendered—or that are different from those actually rendered—would be a factually false claim. Legal Falsity. A claim is legally false if it violates a legal condition of payment for the product or service being billed. For example, if a non-licensed individual provides healthcare services for a federal healthcare program beneficiary, those claims would be considered legally false for violating the condition of payment that the provider be qualified to provide the billed-for services. Reverse False Claims. The reverse false claims provisions of the FCA give the government a means to recover from someone who makes a material misrepresentation to avoid paying an obligation owed to the government. Unlike traditional false claims, reverse false claims involve preventing the government from collecting money it is owed, rather than making a false claim to receive money from the government. One classic example of a reverse false claim is if a provider knowingly retains an overpayment. Liability for retention of an overpayment arises where a party received from the government more money than it was due and knowingly fails to return the overpayment. Another increasingly common example is when importers misrepresent the product being imported into the country or the product’s country of origin to avoid paying tariffs or other duties. Notably, however, the FCA specifically excludes tax-related obligations. Anti-Kickback Statute. The Anti-Kickback Statute (“AKS”) is a criminal liability statute that prohibits rewarding or paying for referrals for services covered by federal health care programs (i.e., kickbacks). It was enacted to prevent kickbacks from influencing healthcare decisions and is designed to protect federal healthcare programs from overutilization, increased costs, and potential fraud. The AKS has numerous “safe harbor” provisions exempted certain conduct from liability, but claims submitted to the government that are “tainted” by an AKS violation are false claims under the FCA. Scope of Liability FCA damages and penalties are crucial components of FCA litigation as damages often drive the government’s or relator’s decision to litigate. The FCA imposes a rough form of justice upon those found liable for defrauding the government: the FCA applies treble (triple) damages in most circumstances, plus per-claim penalties. Public policy concerns, primarily deterrence, justify these steep penalties. However, recovery is not meant to be a windfall for the government, and FCA damages generally exclude consequential damages, pre-judgment interest, punitive damages, and investigation costs. In some FCA contexts, the government’s damages are the amount of money it paid minus the amount it would have paid had the claim not been false—multiplied by three. For example, if the government paid for $5 per widget for 100 widgets ($500) but only twenty widgets were delivered ($100), then the government’s actual damages are $400 and its trebled damages are $1,200. In other FCA contexts, the damage to the government could be the entire amount paid without claims for offsets. In reverse false claims, damages are the difference between the amount paid to the government and the amount the government should have been paid. If the government collects a duty of $2 on each microwave imported into the United States, and Acme imports 1,000 microwaves but only discloses and pays the duties on the first shipment of 100, then the actual damages are $1,800 and the trebled damages are $5,400. Trebled damages are accompanied by per-claim penalties, which are adjusted annually for inflation. Currently, the adjusted per-claim penalties range from $14,308 per claim to $28,618 per claim. As a result, what is considered a “claim” under the FCA can have significant impacts on potential exposure. The Eighth Amendment’s Excessive Fines Clause In an FCA action, civil penalties may dwarf the government’s actual damages. These situations may implicate the Excessive Fines Clause of the Eighth Amendment which prohibits punitive fines that are excessively disproportionate to an offense. Several courts have applied the Excessive Fines Clause to FCA cases as well as qui tam actions where the government has chosen not to intervene.
February 17, 2026
by Alex Hontos, Chris DeLong, Matthew Gillespie, Annie Boeckers, and Joe Coffey
Falsity
FCA Basics: Elements of a Claim
This is the second 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 introduces the elements of an FCA Claim. The Basic Elements of an FCA Claim There are several theories of liability under the FCA and the elements of each can vary based on the conduct targeted. But five elements are generally applicable. First—presentment. Generally, there must be a claim for payment submitted to the federal government or its agents. A claim can include invoices, requests for reimbursement, or any demand for government funds. An obligation could be royalties due on leases or an overpayment by the government which the contractor has retained. Second—falsity, a claim, a record, or a statement must be false or fraudulent, which can include claims for services not provided or even misrepresentations about compliance with applicable statutes, regulations, or contractual provisions. Third—scienter, the person or entity must have acted “knowingly.” Under the FCA, “knowingly” means actual knowledge, deliberate ignorance, or reckless disregard of the truth or falsity of the information. Fourth—materiality, the falsity must be “material,” meaning it has a natural tendency to influence, or is capable of influencing, the payment or approval of the claim. Fifth, the government must have been damaged. Falsity, scienter, and materiality all deserve a closer look. Falsity—there are two basic kinds of falsity, factual and legal. A claim is factually false when it asserts incorrect information. For example, a claim for payment for five hundred sheets of metal when only five sheets were delivered is factually false. A claim is legally false where a required condition of payment under a statute, a regulation, or contract is not met. For example, a healthcare provider submits a claim for services that must be provided by a licensed professional, but the service was done by a non-licensed professional. Scienter—an individual must knowingly submit, or cause to be submitted, a claim that is false or misleading. The text of the FCA defines knowing and knowingly as “actual knowledge,” “deliberate ignorance,” or “reckless disregard,” and no specific intent to defraud is required. 31 U.S.C. § 3729. Actual knowledge is direct or explicit awareness of a particular fact or situation. Deliberate ignorance is purposeful avoidance of learning the truth despite a risk of falsity. And reckless disregard is acting despite knowing there is a substantial risk of falsity. In United States ex rel. Schutte v. SuperValu Inc., 598 U.S. 739 (2023), the United States Supreme Court recently explained that scienter under the FCA refers to an individual’s subjective beliefs—i.e. whether the defendant actually knew the claim was false—not what an objectively reasonable person should have known or believed. Materiality—a crucial component of liability, a false statement or claim must be “material” to the government’s decision to pay or approve a claim. The falsehood must have a natural tendency to influence, or be capable of influencing, the government’s payment decision. In Universal Health Services, Inc. v. United States ex rel. Escobar, 579 U.S. 176 (2016), the United States Supreme Court explained that materiality is a “rigorous” and “demanding” standard. Materiality cannot be found where noncompliance with federal requirements is minor or insubstantial. Moreover, the government cannot simply create materiality by making compliance with a requirement a condition of payment, especially if the government routinely pays a claim despite knowledge of violations. For example, if the government contracts for health services and adds a requirement that contractors buy American-made staplers, but routinely pays claims on the same contracts fulfilled by contractors using foreign staplers, in all likelihood noncompliance with the stapler provision is not material under the FCA. Elements of an FCA Conspiracy Claim A conspiracy to commit a violation of the FCA can also give rise to liability. Conspiracy requires an agreement between two or more persons to commit a violation of the FCA, such as agreeing to submit or cause the submission of false or fraudulent claims to the government. Moreover, the conspirators must have the intent to achieve the objective of the conspiracy, meaning they knowingly agreed to engage in conduct that would defraud the government. Courts diverge on whether damages are required to demonstrate an FCA conspiracy. Elements of an FCA Retaliation Claim The FCA creates a private right of action for whistleblowers who experience retaliation. Unlike other FCA claims, these retaliation claims attach directly to the whistleblower and are not brought on behalf of the United States. To qualify, the whistleblower must first engage in protected activity, such as investigating, reporting, or taking action in furtherance of a potential or actual FCA violation. Second, the whistleblower’s employer must know the whistleblower engaged in protected activity. Third, the whistleblower must suffer an adverse employment action, such as termination, demotion, harassment, or some other form of discrimination. Fourth, there must be a causal connection between the protected activity and the adverse action, meaning the adverse employment decision is taken because of the individual’s involvement in protected FCA-related conduct.
November 24, 2025
by Alex Hontos, Chris DeLong, Matthew Gillespie, Annie Boeckers, and Joe Coffey
Falsity
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
Falsity
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
Falsity
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
Falsity
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
Falsity
Eight Years Later: “Speculative” and “Straightforward” FCA Allegations Against Walmart Dismissed
Walmart successfully ended eight years of protracted litigation under the False Claims Act (“FCA”) on June 4, 2021, when the Sixth Circuit affirmed dismissal of Medicare and Medicaid fraud allegations against the major retailer. The case was first filed in February 2013. See United States ex rel. Sheoran v. Wal-Mart Stores E., No. 13-10568, 2019 U.S. Dist. LEXIS 140710, at *2 (E.D. Mich. Aug. 20, 2019). The case was originally filed by Ashwani Sheoran, a former Walmart pharmacist. See United States v. Wal-Mart Stores E., LP, No. 20-2128, 2021 U.S. App. LEXIS 16763, at *2 (6th Cir. June 4, 2021). The basis for Sheoran’s allegations stemmed from observing a Michigan physician (and co-defendant) writing what Sheoran believed were improper prescriptions for high doses of opioid pain medications. Id. at *3. Sheoran alleged that filling those prescriptions violated the FCA and the Michigan Medicaid False Claims Act due to their purportedly excessive doses. Id. The case was finally unsealed in September 2018 after the United States government and the state of Michigan declined to intervene. In August 2019, Walmart’s motions to dismiss were granted. Wal-Mart, 2019 U.S. Dist. LEXIS 140710 at *14. Sheoran moved for reconsideration, which was denied. United States v. Wal-Mart Stores E., LP, No. 13-10568, 2020 U.S. Dist. LEXIS 177251, at *9 (E.D. Mich. Sep. 28, 2020). Sheoran then appealed. On appeal, Sheoran argued that the district court granted the motions to dismiss in error; that it was error for the lower court to exclude his Medicaid False Claims Act claims in its summary of claims; and that the court abused its discretion by waiving oral argument on the motions. Wal-Mart, 2021 U.S. App. LEXIS 16763 at *4. To establish a claim under the FCA, Sheoran was required to allege that “(i) the defendant presented a claim of payment to the government, (ii) the claim was false or fraudulent, (iii) the defendant knew it was false or fraudulent, and (iv) the false claim was material to the government’s payment.” Id. at *5. Because FCA claims necessarily involve allegations of fraud, a plaintiff must also meet the particularity requirements under Federal Rule of Civil Procedure 9(b) by alleging the “time, place, and content of the alleged misrepresentation . . . [;] the fraudulent scheme; the fraudulent intent of the defendants; and the injury resulting from the fraud.” Id. at *4–5 (internal quotations and citations omitted). Focusing on particularity, the Sixth Circuit determined that Sheoran failed to sufficiently plead each of the four elements of an FCA violation. First, the Court held Sheoran failed to allege that a claim for payment was presented to the government. Id. at *5. To support the claim, Sheoran submitted a document that listed all opioid payments with a $1-2 copay. Id. at *6. Based on the low copay value, Sheoran argued that the government must have provided reimbursement through Medicaid or Medicare. Id. The Court rejected that assumption, noting that many other reasons could explain a low copay. Id. The Court concluded that alleging presentment effectively requires more than “mere speculation.” Id. Second, the Court held Sheoran was unable to effectively plead that any of the alleged claims were “false or fraudulent.” Id. See 31 U.S.C. § 3729(a)(1)(A), (B). Although Sheoran had alleged the prescriptions were written for “high doses” of opioid pain medications that “would kill the person” if taken as prescribed, Sheoran provided no information about the patient’s medical history or needs to help the Court evaluate whether the doses were too high. Id. *7. Accordingly, the Court could not accept that falsity was supported. Third, the Court held the pleadings failed to allege that Walmart “knowingly” presented false claims to the government. Id. In order to establish knowledge, a defendant must “know[] of, or ‘act[] in deliberate ignorance’ or ‘reckless disregard’ of, the fact that he is involved in conduct that violates a legal obligation to the United States.” Id. (internal quotations and citations omitted). The Court determined that Sheoran’s mere assumption that payment was submitted to the government was insufficient, and that the pleadings lacked allegations indicating that Walmart even suspected the claims were illegal, false, or fraudulent. Id. Finally, the Court concluded that materiality was also insufficiently alleged. To meet this “demanding” standard, the alleged misrepresentation must have been “material” to the government’s decision to reimburse the claim. Id. at *8. The Court reasoned that if all of the claims had indeed been submitted to the government, the government had the same knowledge about the allegedly “high doses” and yet still paid those claims. Id. This evidence of payment was considered to be “very strong evidence that the requirements were not material.” Id. (citing Universal Health Servs., Inc. v. United States, 136 S. Ct. 1989, 2001 (2016)). The Sixth Circuit summarily dismissed Sheoran’s remaining arguments. In regards to the denial of oral argument, the Court reasoned that “this was a straightforward FCA case that was properly decided on the briefs.” Id. at *12. Unfortunately for Walmart and its co-defendants, this “straightforward” case required eight years of protracted litigation and expense that finally concluded due to the FCA’s exacting pleading standard.
June 16, 2021
by Donna Reuter
Falsity
District of New Jersey Rules Prescription Drug Events Tainted By Alleged Kickback Schemes Constitute False Claims
A federal judge recently ruled that submission of electronic data to the government can, under appropriate circumstances, give rise to liability under the False Claims Act. In U.S. ex rel. Marc Silver et al. v. Omnicare Inc. et al., 1:11-cv-01326 (D.N.J. Apr. 13, 2021), U.S. District Court Judge Noel C. Hillman granted a relator’s motion to amend his complaint to assert FCA claims premised on the submission of patient prescription data to state and federal agencies administering Medicaid and Medicare reimbursements. Order, ECF No. 544. According to the amendments, the lawsuit arose out of an alleged “swapping” scheme. See generally Fourth Amend. Compl. (“Amended Complaint”), ECF No. 548. Defendants, providers of pharmacy services to nursing homes, allegedly offered commercially unreasonable prices to nursing homes for their Medicare Part A patients’ prescription drugs in exchange for the opportunity to provide the same drugs—at significantly higher cost—to the nursing homes’ Medicaid and Medicare Part D patients. Id. ¶¶ 4-8. Relator alleged that defendants’ conduct was an illegal “swapping” arrangement prohibited by the Anti-Kickback Statute, among other laws. Id. The “swapping” scheme framed the alleged false claims. The Amended Complaint alleged that when defendants dispensed drugs to Medicare Part D beneficiaries, they submitted claims to those beneficiaries’ Part D Plan Sponsors. Id. ¶¶ 59-87. Defendants also certified that (1) they knew their claims would be used to seek federal funds and (2) they had complied with applicable laws. Id. The Part D Plan Sponsors then allegedly used defendants’ claims to notify CMS that prescriptions had been dispensed by submitting a document known as a “prescription drug event” (“PDE”). Id. CMS relied on those PDEs to reimburse the Part D Plan Sponsors, which reimbursed the defendants. Id. Medicaid has a similar reimbursement structure involving state agencies. Id. ¶ 244. Against that alleged factual backdrop, the defendants argued Relator’s amendments were futile and his motion to amend should be denied because Relator could not prove that defendants presented a claim, let alone a false claim. The court disagreed, issuing an Opinion that found the PDEs were “claims for payment” under the False Claims Act. Order at 17-20. The court began by observing that other courts had concluded that PDEs “clearly” were claims for payment because they were the “only record . . . that triggers CMS’s payment obligation” for reimbursement of Medicare Part D patients’ prescriptions drugs. Id. at 18 (citations omitted). The court concluded that the same analysis applied to data submissions to state agencies in connection with Medicaid reimbursement. Id. at 19-20. Next, the court ruled that PDEs allegedly tainted by kickbacks were “false” claims that could give rise to liability under the False Claims Act. Id. at 20-23. The court rejected the defendants’ argument that the PDEs were not “false” because they contained accurate information regarding the underlying drug prescriptions. Id. at 22-23. The court observed that “[a] claim is ‘legally false’ when the claimant misrepresents that he or she has complied with ‘statutory, regulatory, or contractual requirement[s].’” Id. at 20 (citation omitted). Since Relator alleged that the defendants had made that representation—while simultaneously participating in an allegedly illegal “swapping” scheme—Relator sufficiently alleged the PDEs were “false” claims under the FCA. Id. at 23. The case serves as a reminder of the often contentious battles between parties in FCA litigation over whether claims for payment have truly been presented and, if so, whether such claims are indeed false. Moreover, the Opinion emphasizes that the submission of records and data—like PDEs—may constitute claims even if they are not labeled as such, and, according to the court, claims tainted by kickback schemes can be false.
April 30, 2021
by Alan J. Iverson
