FCA Now

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.

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.

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.

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.

On February 22, 2021, the United States Supreme Court declined to resolve a circuit split regarding the proper standard under which False Claims Act (“FCA”) claims in the medical context should be reviewed. See Care Alternatives v. United States, No. 20-371, 2021 U.S. LEXIS 915 (Feb. 22, 2021). The Court’s decision leaves open the question of what constitutes “falsity” under the FCA and opens the door to further expansion of the circuit split as additional appeals reach jurisdictions that have not yet determined this question of law. In United States ex rel. Druding v. Druding, the Third Circuit Court of Appeals considered whether the district court properly concluded relators were required to demonstrate “objective falsity” in order to satisfy the falsity element of an FCA claim. 952 F.3d 89 (3d Cir. 2020). There, relators alleged that Care Alternatives, a palliative care provider, submitted false hospice-reimbursement claims to Medicare and Medicaid for care provided to patients that were not sufficiently ill to qualify for hospice care. Id. at 93. The relators’ case relied heavily upon the expert report of a geriatric care physician, who examined the records of dozens of hospice-admitted patients and opined that 35 percent (35%) of the patients did not qualify for hospice care under the federal guidelines. Id. at 94. Care Alternatives’ expert, also a physician, concluded the opposite, finding that a physician could have reasonably determined that each patient was near the end of life and appropriately admitted to hospice care. Id. After extensive discovery, including the dueling expert opinions, Case Alternatives moved for summary judgment, arguing inter alia that relators had not produced sufficient evidence of falsity. Id. The district court agreed with Case Alternatives, holding that the “mere difference of opinion between physicians, without more, is not enough to show falsity” because “medical opinions are subjective and cannot be false.” Id. In so holding, the district court embraced the “objective falsehood” standard for falsity under the FCA articulated by the Eleventh Circuit Court of Appeals in United States v. AseraCare, Inc., 938 F.3d 1278 (11th Cir. 2019). On appeal, the Third Circuit reversed, finding that the district court’s reliance upon an “objective falsity” standard “improperly conflates the elements of falsity and scienter, inconsistent with the application of the FCA.” Druding, 952 F.3d at 95. Turning to the text of the statute, the court noted the FCA provides that “any person who ‘knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval’ is liable to the United States…” Id. (emphasis in original). Based on that statutory text, and the lack of a definition within the statute for the terms “false” or “fraudulent,” the court determined that, under common law principles, an “opinion can be considered ‘false’ for purposes of liability” and therefore medical opinions may supply a basis for finding falsity under the FCA. Id. The court further noted that the scienter element of an FCA claim, distinct and separate from the falsity element, served to limit the possibility that hospice providers would be “exposed to liability under the FCA any time the Government could find an expert who disagreed with the certifying physician’s medical prognosis.” Id. at 96. Thus, “[b]y requiring ‘factual evidence that Defendant's certifying doctor was making a knowingly false determination,” the court determined the lower court’s “‘objective’ falsity standard conflates scienter and falsity” by “incorporat[ing] a scienter element into its analysis regarding falsity.” Id. at 96. The court explained that the correct standard for falsity under the FCA “simply asks whether the claim submitted to the government as reimbursable was in fact reimbursable, based on the conditions for payment set by the government.” Id. at 97. Following its defeat at the Third Circuit Court of Appeals, Care Alternatives sought to appeal the decision to the Supreme Court. In its petition, Care Alternatives noted the need for the Court to resolve the “square circuit split” between the Third and Eleventh Circuits which “creates the untenable prospect that hospices in New Jersey will face treble damages for the same difficult medical judgments that cannot be second-guessed in Florida.”  Care Alternatives also emphasized the importance of the legal issue, contending that “the Third Circuit’s decision opens up hospices and physicians to crushing financial liability and reputational harm, notwithstanding near universal acknowledgment that determinations about life expectancy are notoriously difficult and inexact.” On February 22, 2020, the Supreme Court declined to hear Care Alternatives’ appeal without comment, leaving unresolved a growing circuit split between the Fourth, Seventh, Tenth, and Eleventh Circuits, which have adopted the objective falsity standard, and the Third and Ninth Circuits, which have embraced the more lenient standard for falsity. Given the prevalence of FCA claims premised upon medical reimbursements, the circuit split is likely to expand. Although the Third and Ninth Circuits have established a lower bar for relators to establish the falsity element for a claim—perhaps eliminating a pathway for defendants to resolve FCA claims at the summary judgement stage—both courts have stressed that the scienter requirement under the FCA, i.e., the requirement that Defendant knows “the treatment was not medically necessary,” Winter ex rel. United States v. Gardens Reg'l Hosp. & Med. Ctr., Inc., 953 F.3d 1108, 1114 (9th Cir. 2020), should serve to appropriately limit liability. Whether and to what extent this circuit split bears on the outcomes of FCA cases is an issue for FCA practitioners and their clients to monitor.

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.

The Department of Justice’s (“DOJ”) most recent settlement with Indivior Solutions, Inc., Indivior Inc., and Indivior plc (together, “Indivior”) demonstrates not only that the DOJ is continuing its pursuit of claims and settlements related to the opioid crisis, but also that the DOJ is searching for creative penalties beyond large monetary payouts. In a July 24, 2020 press release, the DOJ announced a $600 million civil and criminal settlement against Indivior related to marketing the opioid-addiction-treatment drug Suboxone. This settlement follows a larger, $1.4 billion settlement with Rickeitt Benckiser Group PLC, Indivior’s former parent company, inked in 2019. The DOJ touts the combined $2 billion value of the 2019 and 2020 settlements as the largest-ever resolution in a case brought by the DOJ involving opioid drugs. The civil settlement resolves claims from six qui tam lawsuits brought against various combinations of the Indivior entities under the False Claims Act (“FCA”). United States ex rel. Finkelstein v. Reckitt Benckiser Pharms., Inc., No. 14-cv-00059 (W.D. Va.); United States ex rel. Williams v. Reckitt Benckiser, Inc., No. 13-cv-00036 (W.D. Va.); United States ex rel. Lemons v. Reckitt Benckiser Pharms., No. 15-cv-00016 (W.D. Va.); United States ex rel. Kruszewski v. Reckitt Benckiser Pharms., Inc., No. XX-cv-XXXX [UNDER SEAL] (D.N.J.); United States ex rel. Scott v. Reckitt Benckiser Pharms, Inc., No. XX-cv-XXXX [UNDER SEAL] (N.D.J.); United States ex rel. Greene v. Indivior PLC, No. XX-cv-XXXX [UNDER SEAL] (D.N.J.). Under the civil settlement, Indivior Inc. and Indivior plc agreed to pay $300 million, with $209.3 million going to the federal government and $90.7 million going to certain participating states. The amount awarded to the individual whistleblowers has yet to be determined. While Indivior did not admit fault in its civil settlement, the settlement resolves three main allegations. First, the DOJ alleged Indivior knowingly promoted the sale and use of Suboxone to physicians who were writing prescriptions not for a medically-accepted indication, lacked a legitimate medical purpose, were issued without counseling or psychosocial support, were for unsafe, ineffective, and medically-unnecessary uses, or were often diverted. Second, the DOJ alleged that Indivior knowingly promoted the sale or use of Suboxone Film to physicians and state Medicaid agencies using false and misleading claims that Suboxone Film was less susceptible to accidental pediatric exposure than Suboxone Tablets. And third, the DOJ alleged that Indivior tried to delay the entry of generic competition to control the price of Suboxone—including pricing to federal healthcare programs. Such actions allegedly included the improper submission of a petition to the Food and Drug Administration (“FDA”) claiming that Suboxone Tablet had been discontinued “due to safety concerns” about the tablet formulation of the drug. As part of the criminal resolution, Indivior Solutions pleaded guilty to a one-count felony criminal information charging false statements related to health care matters, in violation of 18 U.S.C. § 1035. See United States v. Indivior Solutions, Inc., 19-cr-00016-JPJ-PMS (W.D. Va.). The plea included an admission that Indivior Solutions made false statements to promote the film version of Suboxone to the Massachusetts Medicaid programs regarding the safety of Suboxone Film around children. The settlement includes a criminal fine, forfeiture, and restitution in the combined amount of $289 million. The criminal resolution also includes novel, non-monetary components, requiring that Indivior Inc. permanently disband its entire Suboxone sales force and a prohibition from using data obtained from surveys of health care providers for marketing, sales, or proposal purposes. Indivior’s CEO will also be required to annually certify—under penalty of perjury—either that: (1) Indivior was complaint with the Food, Drug, and Cosmetic Act and did not commit health care fraud; or (2) list all of Indivior’s non-compliant activity and the steps taken to remedy it. Finally, Indivior Inc. is also required to remove health care providers from its promotion programs at high risk of inappropriate prescribing. Neither the press release nor settlement materials explain how Indivior is supposed to identify high-risk providers. Failure to meet the above requirements will cause contempt sanctions and a reinstatement of the dismissed charges. Besides the civil and criminal settlements, Indivior also agreed to a five-year Corporate Integrity Agreement with the Department of Health and Human Services Office of Inspector General, under which Indivior will implement numerous accountability and auditing provisions, including a yearly compliance certification by Indivior executives and Board of Directors, annual risk assessments and other monitoring, and multi-faceted audits conducted by an independent review organization. These cases serve as a reminder that the DOJ continues to aggressively pursue both civil and criminal claims related to the opioid crisis and provides insight into the non-monetary, compliance-based penalties the DOJ may pursue as part of global civil and criminal resolutions. As the stated by Elton Malone, Assistant Inspector General for Investigations with the Office of Inspector General of the U.S. Department of Health and Human Services, “[t]his resolution, along with our law enforcement partners’ work, should serve as a warning that large companies will face prosecution if they break the law.”

Shortly before COVID-19 halted jury proceedings across the United States, a Mississippi jury sided with the Government to return a $10.8 million verdict against Stone County Hospital and several affiliates for what the jury found were false Medicare claims submitted in violation of the False Claims Act (“FCA”). United States ex rel. Aldridge v. Corporate Management, Inc., et al., Case No. 1:16cv369-HTW-LRA (S.D. Miss.). In May 2007, James Aldridge, the former Chief Operating Officer of Stone County Hospital, filed a qui tam action against the hospital and several defendants involved in its management and operation, including Ted Cain, Julie Cain, Tommy Kuluz, and Corporate Management, Inc. (the “Defendants”). The complaint alleged the Defendants submitted false records to secure payment under Medicare for services not actually performed and otherwise conspired to submit false claims in violation of the FCA. The Government investigated for nearly eight years before intervening in the lawsuit in 2015. The intervening complaint contained detailed allegations that the Defendants and others abused the special Medicare rules for Critical Access Hospitals from 2004 through 2015 by improperly claiming expenses for work not performed. Such false claims allegedly included the excessive and unwarranted compensation of Mr. Cain—who owned both Stone County Hospital and Corporate Management—as well as claims submitted for Mr. Cain’s personal luxury automobiles. The Government further alleged that Stone County Hospital’s Medicare cost reports misallocated expenses of Corporate Management to the hospital and contained inflated, unnecessary, and duplicative costs purportedly incurred by Corporate Management and related businesses owned by Mr. Cain. The Government alleged the Defendants submitted false records and statements to Medicare seeking reimbursement for these false and fraudulent expenses. After a nine-week trial, a Mississippi jury returned a $10.8 million guilty verdict against Ted Cain, Julie Cain, Stone County Hospital, Corporate Management, and Tommy Kuluz on March 12, 2020. The jury found the sixth defendant—Starann Lamier, the Chief Operating Officer of Corporate Management—not guilty. The 33-page verdict allocated the majority of the damages—$9.6 million—to Mr. Cain’s salary billed to Medicare through Stone County Hospital and Corporate Management. Under special reimbursement policies for critical access hospitals that service rural, underserved areas, Corporate Management passed on the vast majority of Mr. Cain’s multi-million dollar compensation to Stone County Hospital, which Medicare had reimbursed at 101% from 2004 to 2013 and 90% from 2013 to 2015. In addition, the jury awarded the Government over $850,000 in damages for fraudulent compensation paid to Julie Cain, who allegedly received compensation both for her work at Stone County Hospital and Corporate Management, although the jury found she rarely worked at the hospital and could not provide evidence of any consulting work performed for the hospital. The jury also awarded the Government over $380,000 for home office costs improperly submitted to Medicare. The Court scheduled oral argument on the imposition of penalties for March 26, 2020, but postponed the argument to May 6, 2020 due to the COVID-19 pandemic. In light of this delay—and the Government’s desire to quickly attach a judgment to the Defendants’ assets to secure future payment—the Government moved for immediate entry of judgment consistent with the jury’s verdict, seeking to apply the mandatory treble damages under the FCA to each Defendant, and recommended that the Court impose the minimum penalty permitted by law for the 12 claims at issue. On May 10, 2020, the Court entered judgment and calculated damages and penalties consistent with the jury verdict, the FCA, and the Government’s requested relief, applying the mandatory treble damages under FCA and the minimum penalty for each false claim found by the jury. Once trebled, the judgment held each Defendant jointly and severally liable for the amounts up to their respective liability, ranging from $27 to $32 million, as well as statutory penalties ranging from $66,000 to $71,000. The Court’s judgment also continued its prior order forbidding the Defendants from transferring, dissipating, selling or disposing of any of their assets. This case is noteworthy for several reasons. First, FCA cases rarely proceed to trial—or, at least, last the length of a trial to verdict. This case, however, resulted in a verdict after nine weeks. This case also exemplifies the criminal prosecution of individuals under the FCA. Although the Yates memorandum has placed an emphasis on individuals in FCA investigations and prosecutions since 2015, the majority of FCA prosecutions remain directed at corporate defendants. Next, this case demonstrates the significant duration of many FCA investigations. Although the relator originally filed his sealed complaint in 2007, the Government did not intervene until 2015. In the interim, Defendants were found to have continued submitting false claims for which they were ultimately held liable. Finally, this case is an important reminder about joint and several liability under the FCA and the significant and mandatory statutory penalties and damages in FCA cases. As exemplified by the verdict form in this case, juries are asked only to find the number and monetary amount of each false claim. Only after receiving the jury verdict does the court treble the amount of false claims to represent total damages and add statutory penalties based on the number of false claims. This two-step process emphasizes the risk of significant monetary liability under the FCA for both individual and corporate defendants, which, of course, is likely one reason most FCA cases resolve prior to jury verdict.

I. Introduction The CARES Act allocated $100 billion in relief funds to hospitals and other healthcare providers, to be distributed by the Department of Health and Human Services (“HHS”) through the Public Health and Social Services Emergency Relief Fund (or “Provider Relief Fund”). Many healthcare providers across the country have received payments from the Fund, beginning with an initial tranche of $30 billion distributed in mid-April, and many more will be receiving additional funding in coming weeks. These funds provide critical support to hospitals, physician-owned practices, and other providers who face significant financial challenges caused by the dual shocks of preparing to treat COVID-19 patients while simultaneously losing revenue because of suspension of elective procedures. But the relief funds are subject to extensive terms and conditions, and with those conditions comes exposure to potential liability under the False Claims Act (“FCA”). This exposure is particularly acute given the broad and ambiguous language of some of the terms and conditions, the expectation of intensive government enforcement efforts following distribution of relief funds, and the economic incentives for private relators to commence FCA lawsuits. Although many providers are understandably rushing to obtain relief funds immediately, it is critical to pay attention to the strings attached to those funds. Prudent providers can and should take steps now to mitigate the risk of potentially costly FCA claims that could arise later. II. FCA Basics The False Claims Act, enacted in 1863 to “stop[] the massive frauds perpetrated by large contractors during the Civil War,” Universal Health Servs., Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989, 1996 (2016), imposes liability where a defendant “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval” to the Government. 31 U.S.C. § 3729(a)(1). A person “knowingly” presents a false claim if he “(1) has actual knowledge of the information,” i.e., actually knows the claim is false; “(2) acts in deliberate ignorance of the truth or falsity of the information; or (3) acts in reckless disregard of the truth or falsity of the information.” 31 U.S.C. § 3729(b)(1); see United States v. Munoz-Escalante, 2015 U.S. Dist. LEXIS 142167, at * 6 (D.S.D. 2015) (citing United States ex rel. Quirk v. Madonna Towers, Inc., 278 F.3d 765, 767 (8th Cir. 2002)). Upon proving a violation, the Government can recover treble damages plus civil penalties. 31 U.S.C. § 3729(a)(1). The Government itself may commence an FCA action, or a private relator may do so on behalf of the Government, in which case the Government may or may not choose to intervene in the case. In either case, damages recovered belong to the Government, but the relator is entitled to a share of the proceeds. See generally United States ex rel. Hunt v. Cochise Consultancy, Inc., 887 F.3d 1081, 187 (11th Cir. 2018). Where, as here, the Government’s payment of funds is conditioned on compliance with certain requirements, FCA exposure can arise if the recipient of funds is alleged to have “falsely” certified compliance with the terms and conditions of payment. See, e.g., Escobar, 136 S. Ct. at 1995 (confirming the “implied false certification theory can be a basis for liability” under the FCA). III. Terms & Conditions of Provider Relief Fund Payments Providers who receive disbursements from the Provider Relief Fund are required to sign an attestation agreeing to the Government’s terms and conditions for receipt of the funds. In addition to a prohibition on using relief funds for expenses or losses reimbursed by other sources (i.e., no “double dipping”), and numerous other specific provisions, the terms and conditions prohibit “balance billing” out-of-network patients for “all care for a presumptive or actual case of COVID-19.”[1] The terms and conditions also impose a broad limitation on the purposes for which relief funds may be used: The Recipient certifies that the Payment will only be used to prevent, prepare for, and respond to coronavirus, and that the Payment shall reimburse the Recipient only for health care related expenses or lost revenues that are attributable to coronavirus. The latter two conditions in particular engender the potential for FCA litigation because they are both broadly applicable and ambiguous. For example, the prohibition on balance billing extends to “presumptive” cases of COVID-19, but fails to define a “presumptive” case. As experience with COVID-19 rapidly evolves, providers and public health agencies continually update clinical signs and symptoms of the disease, many of which are nonspecific. Virus test kits remain in short supply. Absent a test confirming a patient’s infection with the novel coronavirus, how is a provider to define “presumptive” cases of COVID-19 so as to comply with this condition? The Provider Relief Fund website states that “providers must agree not to seek collection of out-of-pocket payments from a COVID-19 patient that are greater than what the patient would have otherwise been required to pay if the care had been provided by an in-network provider” (emphasis added). This suggests that the out-of-pocket limitation applies only to COVID-19-related diagnosis and care, but ambiguity remains due to the lack of specific guidance. The broad limitation on use of relief funds is similarly problematic. Given the devastating breadth of the COVID-19 pandemic’s medical, economic, and social effects, how are providers to distinguish “expenses or lost revenues” that are “attributable to the coronavirus” as opposed to some other cause? For example, do “health care related expenses . . . attributable to the coronavirus” include only the direct costs of purchasing additional personal protective equipment, ventilators, and other supplies necessary to treat COVID-19 patients? Or does this category include associated administrative costs, costs of training, etc.? Do “lost revenues . . . attributable to the coronavirus” include only revenues from elective procedures cancelled pursuant to government order or by medical necessity? Or could this category also include, for example, procedures that could have gone forward but were cancelled by patients because of perceived infection risk? Could it include loss of business opportunities that are shelved or cancelled because of the broader effects of the pandemic? The Government’s decision to distribute a portion of the funds immediately and broadly to all providers that received Medicare fee-for-service reimbursement in 2019 suggests that “attributable to the coronavirus” should include lost revenue caused by the economic downturn attributable to the coronavirus. But again, a lack of guidance on how directly lost revenue must be attributable to the coronavirus pandemic creates ambiguity. So-called “subregulatory guidance,” that thicket of agency memoranda, website “FAQs,” and other directives not promulgated through notice-and-comment rulemaking or legislation, compounds the problems raised by ambiguous terms and conditions. Agencies are scrambling to issue new rules, directives, and direction as the COVID-19 pandemic evolves. This scramble is understandable, but it creates significant pressure for agencies to do something—fast—and that urgency does not lend itself to legislative action or the ordinary notice-and-comment rule-making process. From an administrative perspective, Department of Justice trial attorneys have been directed to not pursue FCA cases premised on violations of “sub-regulatory guidance”—this is the so-called “Brand Memo” of January 2018, which was later memorialized in section 1-20.000 of the Justice Manual. Likewise, the Courts have started to express some hostility to FCA cases premised on such violations, particularly in the wake of the June 2019 Supreme Court decision in Azar v. Allina Health Services, 139 S. Ct. 1804 (2019), which underscored the importance of notice-and-comment rulemaking to create substantive legal standards. Nevertheless, agencies will continue to promulgate subregulatory guidance, and it will continue to play a role in litigation, in one form or another. IV. The Risks of Ambiguous Payment Conditions As the foregoing examples suggest, there is room for interpretation and debate over the meaning of the broad language used in the terms and conditions attached to the Provider Relief Fund. And where there is room for debate, the potential for litigation increases considerably. This is particularly true where the Government is expected to ramp up enforcement efforts following disbursement of stimulus funds. Indeed, in announcing the allocation of additional funds, HHS Secretary Azar promised “significant anti-fraud and auditing work . . . by HHS, including the work of the Office of the Inspector General,” to enforce the conditions imposed on the disbursements. The Government’s efforts likely will focus on clear cases of willful fraud, rather than good-faith disputes over the meaning of ambiguous language in the terms and conditions. But recipients of relief funds cannot rely on good faith and prosecutorial discretion alone, because private relators still have significant financial incentives to pursue FCA claims. Ambiguous terms and conditions provide relators (and creative attorneys) a potential path to generate claims the Government probably would not pursue. Fortunately for recipients of Provider Relief Fund payments, the federal courts generally hold that a defendant will not face FCA liability for violating a vague or ambiguous law, regulation, or contractual condition if the defendant’s interpretation of the condition was objectively reasonable. See, e.g., United States ex rel. Donegan v. Anesthesia Assocs. of Kansas City, 833 F.3d 874, 879 (8th Cir. 2016); United States ex rel. Purcell v. MWI Corp., 807 F.3d 281, 288 (D.C. Cir. 2015); United States v. Southland Mgmt. Corp., 326 F.3d 669, 684 (5th Cir. 2003) (en banc) (Jones, J., concurring) (“Where there are legitimate grounds for disagreement over the scope of a contractual or regulatory provision, and the claimant’s actions are in good faith, the claimant cannot be said to have knowingly presented a false claim.”). This principle, which functions as a particularized application of the knowledge or scienter requirement of an FCA claim, “helps to ensure that innocent mistakes made in the absence of binding interpretive guidance are not converted into FCA liability, thereby avoiding the potential due process problems posed by ‘penalizing a private party for violating a rule without first providing adequate notice of the substance of the rule.’” Purcell, 807 F.3d at 287 (quoting Satellite Broad. Co. v. Fed. Commc’ns Comm’n, 824 F.2d 1, 3 (D.C. Cir. 1987)). There is an additional nuance, however: Even if a defendant received funds on the basis of an objectively reasonable interpretation of applicable conditions, the defendant still may be liable “if a Relator (or the United States) produces sufficient evidence of government guidance that ‘warned [the defendant] away from an otherwise reasonable interpretation’ of an ambiguous regulation.” Donegan, 833 F.3d at 879 (quoting Purcell, 807 F.3d at 290). V. Mitigating FCA Risk Associated with Provider Relief Fund Payments The foregoing case law should provide a viable defense for Provider Relief Fund recipients who use funds in accordance with good-faith, objectively reasonable interpretations of HHS’s terms and conditions. But providers should not simply hope to win the interpretive battle after an FCA claim is filed; there are steps providers can take now to bolster the likely strength of their defenses if litigation occurs. First, recipients of Provider Relief Fund Payments should carefully monitor and track the uses of these funds, so they can demonstrate compliance with the terms and conditions. (Relatedly, note that the terms and conditions expressly require compliance with federal financial management and record retention regulations, including 45 C.F.R. §§ 75.302 and 75.361-365). Second, recipients should carefully consider, articulate, and document how particular uses of relief funds meet the HHS conditions. Having supportable financial data to show that the recipient suffered an abnormal loss of revenue that can be attributable to coronavirus will likely be important to defend a recipient’s use of relief funds to support its operating expenses during the public health emergency. With respect to uses that may be debatable, providers should think critically and actively now about how those uses fit within the conditions, rather than waiting to generate a post hoc explanation after litigation arises. For example, in United States ex rel. Donegan v. Anesthesia Associates of Kansas City, the court ascribed some significance to the defendant’s reasonable definition of a vague regulatory term, adopted by the defendant’s Professional Practice Committee and documented in its Corporate Compliance Plan. 833 F.3d at 879. Thoughtful and deliberate development of internal definitions and processes not only helps generate more defensible interpretive positions; it also should help to demonstrate that the recipient is acting thoughtfully and in good faith. While there is some disharmony in the case law regarding the legal significance of a recipient’s subjective good faith, see, e.g., John T. Boese & Douglas W. Baruch, Civil False Claims & Qui Tam Actions § 2.06 (4th ed.), a defendant’s good faith will almost always be relevant to the Government’s exercise of prosecutorial discretion, and to the judges and juries who ultimately decide cases. Third, fund recipients should continue to monitor communications and guidance from HHS regarding the terms and conditions and use of funds. Even where agency guidance may not be legally binding, it often remains important as a practical matter and, even if not dispositive, it can play an evidentiary role in FCA litigation. Fourth, recipients must be vigilant about understanding the nature and purpose of any deposits of Government funds. It is a mistake to take the view that “if HHS deposited the funds in our account, my organization was entitled to them.” The FCA’s reach is very broad—it is not just limited to affirmative requests for funds, but extends also to the knowing retention of overpayments and so-called “reverse” false claims. See 31 U.S.C. § 3729(a)(1)(G). Finally, recipients should seek the advice of counsel regarding appropriate uses of Provider Relief Fund payments and other applicable conditions and regulatory requirements. Good, proactive legal advice can help mitigate the risk of facing FCA claims, and under certain circumstances can even provide a defense to an FCA claim if litigation occurs. See, e.g., United States ex rel. Bidani v. Lewis, 2001 U.S. Dist. LEXIS 260, at *24 (N.D. Ill. 2001) (citing United States v. Cheek, 3 F.3d 1057, 1061 (7th Cir. 1993)). It should be noted, however, that the advice-of-counsel defense may not be available to a defendant who “shops around” for a favorable legal opinion or otherwise does not act in good faith. See United States ex rel. Drakeford v. Tuomey Healthcare Sys., Inc., 792 F.3d 364, 380 (4th Cir. 2015). VI. Conclusion The Provider Relief Fund offers crucial support to hospitals, clinics, and other providers who face dire and immediate financial need. Providers in need of assistance certainly should avail themselves of this support as appropriate, but should be conscious of the attendant risks. Proactive, deliberate compliance actions are the best way to mitigate the risks of costly litigation likely to sweep through the healthcare industry on the heels of the COVID-19 pandemic.   [1] “[F]or all care for a presumptive or actual case of COVID-19, Recipient certifies that it will not seek to collect from the patient out-of-pocket expenses in an amount greater than what the patient would have otherwise been required to pay if the care had been provided by an in-network Recipient.”  

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.”

On February 5, the U.S. District Court for the Eastern District of Pennsylvania rejected a defendant’s public disclosure bar defense, allowing the relators to proceed with their qui tam action under the False Claims Act. Sturgeon, et al., v. PharMerica Corp, No. 15-cv-6829, 2020 WL 586978, at *1 (E.D. Pa. Feb. 5, 2020).  In denying defendant PharAmerica’s motion to dismiss, the Court explained why the FCA’s public disclosure bar under 31 U.S.C. § 3730(e)(4)(A)—which generally shields defendants from liability when a relator’s allegations have already been publicly disclosed elsewhere—was inapplicable. PharMerica is a long-term care pharmacy that processes prescriptions from nursing home physicians.  As alleged by the relators, PharMerica defrauded Medicare and Medicaid by billing for prescriptions with altered dosages, form (i.e., tablet vs. capsule), and kind (i.e., brand name vs. generic).  More specifically, the relators’ complaint alleges that when PharMerica technicians manually entered data, they did so in a way that did not match the prescription authorized by the physicians.  This conduct allegedly enhanced PharMerica’s profit margins by increasing reimbursements from suppliers. PharMerica moved to dismiss the relators’ allegations under the FCA’s public disclosure bar.  This bar, created by Congress to prevent parasitic lawsuits, generally requires the dismissal of FCA claims when the allegations are “substantially the same” as allegations made public through earlier litigation.  At the time the lawsuit commenced, PharMerica had previously litigated fraud allegations in United States ex rel. Denk v. PharMerica, No. 09-720, (E.D. Wis. July 23, 2009).  Because both lawsuits involved allegations of prescription fraud, PharMerica argued that the allegations are “substantially the same” warranting dismissal. The Court disagreed.  Cautioning against a generalized inquiry, the Court recognized that “a careful look at the details of each alleged fraud” does not demonstrate “substantially the same fraud.”  In particular, the Court noted that although the Denk litigation alleged a number of prescription fraud schemes, each scheme involved the absence of a prescription.  By contrast, the allegations at issue in Sturgeon include the altering of valid prescriptions in a way that maximizes reimbursements.  In other words, the fact that both matters alleged fraudulent prescriptions was not sufficient to trigger the public disclosure bar and preclude liability.  Instead, the Court explained, the relevant inquiry is whether the way each fraudulent scheme is effectuated is “substantially the same.” This decision serves as a reminder that the public disclosure bar requires something more than generic or superficial similarity: it requires a similar “mode and means” of allegedly fraudulent conduct.  Thus, FCA defendants seeking to trigger the public disclosure bar should strive to connect the alleged misconduct to the “how” and “why” of previously disclosed schemes.

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.

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).

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.

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.

A divided panel of the U.S. Court of Appeals for the Sixth Circuit again revived an FCA suit against home-health services providers premised on the providers’ alleged improper procurement of physician medical necessity certifications supporting Medicare claims. In United States v. Brookdale Senior Living Communities, Inc., --- F.3d ----, 2018 WL 2770598 (6th Cir. June 11, 2018), a nurse alleged she was hired by several related companies that operate senior communities, assisted living facilities, and home health care providers. She claimed these providers sought to enroll as many of their assisted living facility residents in home health care services as possible but failed to keep up with submitting Medicare claims for those services. The nurse asserted she was hired to help clear a backlog of unsubmitted Medicare claims for which the providers had not compiled the appropriate documentation. One document she said was frequently missing was a physician’s certification that the services delivered were medically necessary. Federal regulations require that these physician certifications “be obtained at the time the plan of care is established or as soon thereafter as possible and must be signed and dated by the physician who establishes the plan.” 42 C.F.R. § 424.22(a)(2). The nurse accused the providers of failing to comply with this timing requirement and instead submitting claims without a certification or paying physicians to review outstanding claims and sign certifications long after the care occurred. This dispute has stretched over several years. The nurse filed her case in 2012. After the United States declined to intervene in 2014, the providers successfully moved to dismiss, but the Sixth Circuit reversed in 2016 before the Supreme Court’s decision in Universal Health Services., Inc. v. United States ex rel. Escobar, which clarified the materiality element of an FCA claim. In its 2016 decision, the Sixth Circuit held that submitting a Medicare claim based on a late physician certification is false if the length of the delay is not justified by the reasons the home-health agency provides for it. Following remand, the district court dismissed the nurse’s complaint again, concluding she failed to adequately plead materiality. She appealed. To create FCA liability, a defendant’s false statement to the government that the defendant complied with a statutory, regulatory, or contractual requirement must be material to the government’s decision to pay the claim the statement supports. In Escobar, the Supreme Court called this materiality requirement “demanding” and necessitating a “holistic” analysis, factors relevant to which include (1) whether the government expressly identified the requirement as a condition of payment, (2) whether the government consistently refuses to pay claims based on non-compliance with the requirement, and (3) whether the noncompliance is minor or goes “to the very essence of the bargain.” These factors are neither exhaustive nor dispositive. The Sixth Circuit first held that compliance with the timing requirement for physician certifications was a condition of payment. The court held 42 C.F.R. § 409.41(b) expressly identifies the physician certification as a condition for payment by referencing 42 C.F.R. § 424.22. The preface to § 424.22 provides: “Medicare Part A or Part B pays for home health services only if a physician certifies and recertifies the content specified in paragraphs (a)(1) and (b)(2) of this section, as appropriate.” The court rejected the providers’ argument that because the timing requirement appears in paragraph (a)(2)—not (a)(1) or (b)(2)—it was not a condition of payment. The court reasoned that the use of the word “certifies” in the preface to § 424.22 requires defining “certification” by reference to all of paragraph (a), including the timing requirement in paragraph (a)(2). The Sixth Circuit then held the nurse did not need to allege in her complaint that the government had previously rejected Medicare claims that lacked a physician’s certification. The court determined that the government’s response to similar claims was not relevant because the nurse alleged that the government did not know that the providers’ claims were false. The court also held that the timing requirement went to the essence of the government’s bargain for home health services. It cited administrative guidance from HHS referencing the importance of the timing requirement in deterring fraud. Finally, the court held the nurse’s allegations that she and others raised concerns about the providers’ practices, but that those concerns were dismissed, were sufficient to plead scienter. In a long and detailed opinion, Circuit Judge David W. McKeague dissented from the majority’s conclusion. He argued the nurse should have been required to provide more detail about how and why the providers’ delay in obtaining the physician certifications deceived the government. He highlighted the practical problem for providers created by the Sixth Circuit’s 2016 decision that a physician certification can create FCA liability if the length of the delay is not justified by the reasons the home-health agency provides for it. According to Judge McKeague, the standard forms submitted during the Medicare claims process do not explicitly call for information about when the physician certification was signed. Providers are merely required to warrant that they have the physician certification on file. Thus, a provider is not prompted to explain the reasons why a certification was late, or even indicate that it was late at all. At least two lessons can be drawn from the Sixth Circuit’s decision. First, providers should take a broad view when reading regulations to determine if compliance with a requirement is a condition of payment. To borrow a phrase from the majority, “overly crabbed” interpretations of regulations are unlikely to be successful. Second, providers cannot rely on Medicare claims submission forms to ensure they have met all the requirements for submitting a claim. They need to understand the claim-submission requirements adopted through administrative guidance and court decisions in their jurisdiction and disclose required information whether or not called for explicitly in a Medicare form. The case is far from over—the nurse must now actually prove the allegations in her complaint. But the providers will at minimum face the typically expensive consequence of defending themselves against FCA claims. And if unsuccessful, they may face the draconian penalties for FCA violations. These risks should encourage all providers to proceed with caution when managing physician certifications and other Medicare claims compliance issues.

Federal scrutiny of charities that assist patients with accessing prescription drugs has increased with rising prescription drug prices.  Some prescription drug charities receive funding from medical providers or drug manufacturers, which can raise questions about whether the charities’ funders are using the charities to generate improper recommendations or referrals. In December 2017, the U.S. Department of Health and Human Services Office of Inspector General rescinded a 2006 advisory opinion that had assured a patient-assistance charity that its subsidies for individuals’ prescription drug purchases would not subject it to federal Anti-Kickback Statute liability. The OIG’s rescission could signal shifting federal policy towards increased scrutiny of drug charities funded by drug manufacturers. Amidst these changes, a new decision from the U.S. Court of Appeals for the Third Circuit is a good reminder that AKS compliance issues do not automatically translate into FCA violations. In United States ex rel. Greenfield v. Medco Health Sols., Inc., --- F.3d ‑‑‑‑, 2018 WL 473158, at *1 (3d Cir. Jan. 19, 2018), the court held that an FCA claim premised on an AKS violation must show that a particular patient was exposed to an illegal recommendation or referral and that a claim for payment for care for that patient was submitted to the government. Medco concerned Accredo Health Group, Inc., a specialty pharmacy servicing patients with hemophilia. Accredo supported hemophilia charities, two of which allegedly recommended Accredo as a preferred provider through communications to their members. The relator alleged that this amounted to an AKS violation, which gave rise to an FCA claim because Accredo had certified compliance with the AKS when submitting its reimbursement claims to government payors. Accredo successfully argued to the trial court that the relator’s claim failed because he could not show any evidence that any beneficiaries of federal programs chose Accredo because of its alleged improper payments to the charities. On appeal, the relator argued that this amounted to a requirement that he show each patient subjectively sought Accredo’s care because of Accredo’s charitable donations. The court in Medco set out to identify “what ‘link’ is sufficient to connect an alleged kickback scheme to a subsequent claim for reimbursement: a direct causal link, no link at all, or something in between.” The United States, as amicus curiae in support of neither party, urged the court to hold that no proof of a patient’s subjective intent to utilize Accredo because of the charities’ recommendation was required to establish an FCA violation. The court agreed, holding that proof of an FCA violation required evidence that at least one of Accredo’s claims sought reimbursement for care provided in violation of the AKS, but that a patient’s subjective reason for choosing Accredo need not be proven. Nevertheless, the referral or recommendation that violated the AKS must be the referral or recommendation that resulted in the false claim. The court held the relator had failed to show that any of Accredo’s 24 federally insured patients were exposed to the recommendation of the hemophilia charities or that they were even members of the charities. The court explained that “[a] kickback does not morph into a false claim unless a particular patient is exposed to an illegal recommendation or referral and a provider submits a claim for reimbursement pertaining to that patient.” The court rejected the relator’s request that the court infer the patients were members of the charities based on the relator’s assertion that “[e]ssentially all hemophelics” in the geographic area Accredo served were members of the charities to which Accredo donated. This inference was not enough because it was impossible to rule out the chance that none of the patients was a member and that none was exposed to the charities’ recommendation. Thus, the relator’s evidence failed to “link Accredo’s alleged kickback scheme to any particular claim” and so Accredo did not face FCA liability. The court pointed out several issues it did not address in its opinion. It expressed no view as to whether Accredo’s relationship with the charities was an AKS violation in the first place. Nor did the court reach the issues of whether the relator could satisfy the FCA’s materiality requirement, even if he had shown a link between the patients exposed to the charities’ recommendation and Accredo’s claims. And although not addressed by the court, the low number of federally insured patients at issue—24—means the court did not have an opportunity to address claims against a provider who services a large number of federally insured patients. Medco does not explain what evidence would be sufficient to show at least one of a large number of patients were exposed to an improper referral or recommendation. Still, the Medco decision is a useful reminder that the AKS and FCA have separate elements, and an AKS violation does not automatically translate to FCA liability.  Organizations in the healthcare space--particularly charities--should take heed.

If the government does not take action and continues to pay for Medicare/Medicaid claims after it learns of non-compliance related to the claims, is the non-compliance material to the government’s decision to pay?  This is a question being answered in the negative by courts across the country, who have concluded that the government (or a qui tam relator) is not able to proceed under a False Claims Act (FCA) “implied certification” theory if evidence shows that the government did not take action and continued to pay claims after learning of non-compliance with laws associated with those claims.  A Florida Federal Court in United States ex. rel. Ruckh v. Salus Rehabilitation, LLC et. al (Case No. 8:11-cv-1303-T-23TBM), is one of the latest to address this issue and find no FCA violation. Background In 2016, the United States Supreme Court addressed the issue of whether a claim submission without disclosure of a statute or regulation infraction could potentially trigger a FCA violation in Universal Health Services, Inc. v. United States ex rel. Escobar, spawning a new line of cases that have interpreted the new standards the Court set forth for implied certification FCA cases.  Prior to the Escobar decision, the circuit courts across the U.S. were split on the issue.  In these so-called “implied certification” cases, the government alleged that the party submitting a claim to the government impliedly certified that the services were provided in compliance with laws. In Escobar, the Supreme Court analyzed the reach of the FCA in situations in which a party was alleged to have made a misrepresentation in a payment claim to the federal government because the services provided were, in fact, not in compliance with the law.  The Court recognized the implied certification theory, but held, among other things, that under the theory, FCA liability depends on whether the defendant violated a requirement that it knew was material to the government’s decision to pay.  In providing guidance on how to determine “materiality”, the Court noted that, “[t]he materiality standard is demanding.  The False Claims Act is not ‘an all-purpose antifraud statute’ or a vehicle for punishing garden-variety breaches of contract or regulatory violations.”  The Court went on to note: “[I]f the Government pays a particular claim in full despite its actual knowledge that certain requirements were violated, that is very strong evidence that those requirements are not material” and “if the Government regularly pays a particular type of claim in full despite actual knowledge that certain requirements were violated, and has signaled no change in position, that is strong evidence that the requirements are not material.” Analysis In light of the guidance in Escobar, many courts in analyzing “implied certification” allegations under the FCA, have given significant consideration to evidence about how the government acted following a defendant’s non-compliance disclosure.  Courts will make a fact-intensive inquiry into the post-disclosure conduct of the government in order to determine whether a given violation is material to the governments’ payment decision on the related claims.  If the government refused to make further payment or took other action against the provider after learning of the non-compliance, that refusal may help the government or a relator to establish that compliance with the particular law at issue was material to the government’s decision to pay.  However, if the government continues to pay the claims, and takes no other action, it has proven difficult for the government or a relator to succeed. A recent example of the uphill battle Escobar is presenting for relators and the government in these “implied certification” FCA cases is the Salus case.  On January 11, 2018, a federal court in Florida followed a line of post-Escobar cases, denying an implied certification theory case under the FCA based on evidence that the government continued to pay claims related to the subject matter of the relator’s complaint, even after the government learned about the non-compliance.  In Salus, a nurse relator alleged FCA violations against the owners and operators of 53 specialized nursing facilities based on the nursing facility’s alleged failure to maintain a comprehensive care plan for residents required under Medicaid, as well as defects in paperwork required to support claims to the Medicare program, such as unsigned or undated documents. The judge in Salus vacated a $350 million verdict against Salus Rehabilitation, which had been entered less than a year earlier (on March 1, 2017), because the evidence in the case showed that the government knew about the non-compliance, and did nothing about it. In overturning the prior verdict against the nursing homes, the court stated, “[n]ot only did the relator fail to prove that the governments regarded the disputed practices as material and would have refused to pay, but the relator failed to prove that the defendants submitted claims for payment despite the defendants’ knowing that the governments would refuse to pay the claims if either or both governments had known about the disputed practices. In fact, both governments were—and are—aware of the defendants’ disputed practices, aware of this action, aware of the allegations, aware of the evidence, and aware of the judgements for the relator—but neither government has ceased to pay or even threatened to stop paying the defendants for the services provided to patients throughout Florida continuously since long before this action began in 2011.”  The judge noted that the government had never made any complaint or imposed any administrative sanction on the practices alleged by the relator. The judge further wrote, “federal and state governments regard the disputed practices with leniency or tolerance or indifference, or perhaps with resignation to the colossal difficultly of precise, pervasive, ponderous and permanent record-keeping in the pertinent clinical environment.” The Salus decision is another win for health care providers who have long lived in fear of the enormous penalties under the FCA whenever non-compliance is discovered with the highly complex, technical and ever-changing health care regulations. While each case applying the materiality standard must be analyzed on its particular facts and circumstances at issue, the post-Escobar cases analyzing the materiality standard have provided a welcomed, more consistent approach that providers can look to when defending these cases.

Until very recently, no case existed in which FCA liability arose from a violation of the Health Insurance Portability and Accountability Act (“HIPAA”). But in United States v. America at Home Healthcare and Nursing Services, Ltd., Judge John Robert Blakely of the United States District Court for the Northern District of Illinois, Eastern Division, allowed an FCA claim premised on a HIPAA violation to survive a motion to dismiss. In America at Home Healthcare, plaintiff Amy O’Donnell filed a qui tam action under the FCA against her previous employer, America at Home Healthcare Nursing Service, Ltd. (“AAH”).  As defendant’s name suggests, AAH is a provider of home health services. Among other allegations of wrongdoing, plaintiff claimed that AAH violated the FCA by unlawfully soliciting patients. More specifically, plaintiff alleged that AAH searched medical charts of individuals who were not AAH patients in order to generate a list of persons to target as new home health patients. In June 2017, Judge Blakely dismissed plaintiff’s solicitation claim because plaintiff failed to allege that defendant’s solicitations were unlawful. However, in July 2017, plaintiff amended her complaint, and this time alleged that defendant’s solicitations violated HIPAA. Section 1320d-6-d(a) of HIPAA criminalizes knowingly using, obtaining, or disclosing an individual’s identifiable health information without authorization. According to Judge Blakely, a violation of § 1320d-6-d(a) can result in FCA liability if: (1) defendant knowingly billed the government for unnecessary medical services after obtaining patients’ information unlawfully; and (2) defendant submitted claims and cost reports to the government that impliedly certified compliance with Medicare laws and regulations, but knowingly failed to disclose its HIPAA violations. With respect to the second basis for FCA liability under HIPAA, defendant argued that plaintiff’s “implied certification” theory failed to satisfy the Supreme Court’s materiality standard from Universal Health Services, Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989, 195 L. Ed. 2d 348 (2016), because HIPAA violations are not material to the government’s decision to pay claims. The FCA defines “material” as having “a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property.” Judge Blakely rejected defendant’s materiality argument. Instead, the court referenced plaintiff’s allegation that HIPAA violations go to the very essence of the bargain between the government and health care providers, because an unlawful solicitation subjects patients to abusive marketing practices. The court further referenced plaintiff’s allegation the government does not knowingly pay claims to providers who violate § 1320d-6(a) of HIPPA. Finally, the court was untroubled by the fact that “no HIPAA-based FCA cases exist.” Instead, Judge Blakely analogized this case to kickback cases, and concluded: “[I]nformation that a home health agency has pilfered protected health data to solicit patients has a good probability of affecting a payment decision. These allegations suffice to keep [plaintiff’s] solicitation theory alive for now.” Judge Blakely’s decision is found at: United States v. America at Home Healthcare and Nursing Services, Ltd., 2018 U.S. Dist. LEXIS 2592 (E.D. Ill. Jan. 8, 2018).

Under 42 U.S.C. § 1320a-7b(b)(1)(A) it is a felony for a physician to solicit or receive a kickback “in return for referring” a Medicaid or Medicare patient to another medical provider. But as a recent decision by the Eighth Circuit in United States v. Iqbal demonstrates, physicians are not the only ones capable of making illegal referrals under the statute—consultants can, too. Defendant Iqbal was a consultant that managed a group of physicians. He approached a medical provider (“PCP,” a home care agency) with a profit-splitting scheme: he would send physicians’ patients to PCP in exchange for fifty-percent of PCP’s profits for serving the patient. PCP contacted authorities about the scheme and thereafter accepted Iqbal’s proposal while working undercover with authorities. The sting operation resulted, at first, in a March 2011 meeting between Iqbal and PCP. At that meeting Iqbal touted his strong relationship with the group of physicians and his ability to refer their patients to PCP, and reiterated his fifty-fifty profit sharing scheme to which PCP agreed. Iqbal’s physicians later referred two patients to PCP, which PCP served and received Medicaid and Medicare reimbursement. PCP sent Iqbal separate payments in June and August for his fifty-percent share of the profits that PCP made from serving the two patients. Iqbal was charged with three counts of illegal kickbacks: One, for soliciting illegal kickbacks during his March 2011 meeting with PCP; Two, for receiving an illegal kickback in June; and Three, for receiving an illegal kickback in August. All three counts were “in return for referring” patients to PCP under § 1320a-7b(b)(1)(A). Iqbal challenged the sufficiency of the evidence, and conceded that the statutory phrase “in return for referring” meant that one must cause or induce the referral. The two-judge majority willingly assumed as much, declined to interpret the statute any narrower, and found the evidence sufficient to affirm his convictions. Although the majority’s reasoning was not surprising, Judge Kelly in a partial dissent and concurrence took up the task of interpreting the statutory phrase, “in return for referring.” The Eighth Circuit had not previously defined the term. Judge Kelly relied on cases from other circuits in similar contexts to adopt the interpretation “that a person refers an individual for a service only when, as a practical matter, the person exercises decision-making control over the selection of the service provider.” As a result, Judge Kelly utilized a narrower definition than Iqbal and the majority. Under that definition, Judge Kelly found insufficient evidence to affirm Iqbal’s convictions for receiving a kickback for referring the two patients, because the government failed to show that Iqbal exercised decision-making control over the physicians’ referrals. Judge Kelly, however, affirmed Iqbal’s conviction for soliciting a kickback during his March meeting with PCP because Iqbal held himself out to PCP as having the ability to make the referrals, regardless of his actual ability to do so. So physicians, consultants, and everyone in between dealing with Medicaid and Medicare patients should keep in mind that while decision-making control over a referral is likely necessary evidence to prove a “referral” in return for an illegal kickback, solicitations do not require such decision-making control. All that is required is representing that one has the ability to do so.

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.

The U.S. District Court for the Southern District of Texas has dismissed an FCA retaliation claim brought by a nurse who claimed to have blown the whistle on misuse of funds at a hospital that received significant federal revenue. In Endicott v. Oakbend Medical Center, the nurse alleged she was fired after she complained that several hospital executives were using hospital employee time to enrich the executives’ private business.  She alleged the hospital and executives “knowingly used Medicaid and Medicare funds that were supposed to be used to pay vendors, physicians, and fund employee salaries” to advance the private business’s interests.  She claimed illegal retaliation under the FCA, asserting she was fired for objecting to the alleged activity. The FCA bars an employer from retaliating against an employee who engages in lawful acts in furtherance of an FCA lawsuit or other efforts to stop FCA violations. But the employee’s acts must be aimed at matters that could reasonably lead to a viable FCA claim.  For an employee’s internal complaints to be protected, they must concern false or fraudulent claims for payment submitted to the federal government.  The employee must allege that she believes in good faith, and a reasonable employee in similar circumstances might believe, that the employer is defrauding the government.  Complaining about an employer’s internal misconduct unrelated to false claims is not enough.  Nor is it sufficient to allege a non-governmental third party was the victim of fraud. The court rejected the premise of the nurse’s FCA claim—the hospital’s receipt of “substantial revenue” from Medicare and Medicaid. The nurse alleged the hospital improperly used this revenue to pay employees who were simultaneously working for the executives’ business.  But she failed to assert that the hospital submitted false claims for payment to the federal government.  The hospital’s alleged use of legitimately obtained funds for improper purposes did not create FCA liability.  The nurse’s subjective belief that the hospital’s activity constituted fraud on the government was thus insufficient to state a claim for retaliation. The court’s decision reaffirms that hospitals may face a host of consequences for misusing legitimately obtained federal revenue, but FCA liability is not typically one of them.