Intervention
Eight Years Later: “Speculative” and “Straightforward” FCA Allegations Against Walmart Dismissed
Walmart successfully ended eight years of protracted litigation under the False Claims Act (“FCA”) on June 4, 2021, when the Sixth Circuit affirmed dismissal of Medicare and Medicaid fraud allegations against the major retailer. The case was first filed in February 2013. See United States ex rel. Sheoran v. Wal-Mart Stores E., No. 13-10568, 2019 U.S. Dist. LEXIS 140710, at *2 (E.D. Mich. Aug. 20, 2019). The case was originally filed by Ashwani Sheoran, a former Walmart pharmacist. See United States v. Wal-Mart Stores E., LP, No. 20-2128, 2021 U.S. App. LEXIS 16763, at *2 (6th Cir. June 4, 2021). The basis for Sheoran’s allegations stemmed from observing a Michigan physician (and co-defendant) writing what Sheoran believed were improper prescriptions for high doses of opioid pain medications. Id. at *3. Sheoran alleged that filling those prescriptions violated the FCA and the Michigan Medicaid False Claims Act due to their purportedly excessive doses. Id. The case was finally unsealed in September 2018 after the United States government and the state of Michigan declined to intervene. In August 2019, Walmart’s motions to dismiss were granted. Wal-Mart, 2019 U.S. Dist. LEXIS 140710 at *14. Sheoran moved for reconsideration, which was denied. United States v. Wal-Mart Stores E., LP, No. 13-10568, 2020 U.S. Dist. LEXIS 177251, at *9 (E.D. Mich. Sep. 28, 2020). Sheoran then appealed. On appeal, Sheoran argued that the district court granted the motions to dismiss in error; that it was error for the lower court to exclude his Medicaid False Claims Act claims in its summary of claims; and that the court abused its discretion by waiving oral argument on the motions. Wal-Mart, 2021 U.S. App. LEXIS 16763 at *4. To establish a claim under the FCA, Sheoran was required to allege that “(i) the defendant presented a claim of payment to the government, (ii) the claim was false or fraudulent, (iii) the defendant knew it was false or fraudulent, and (iv) the false claim was material to the government’s payment.” Id. at *5. Because FCA claims necessarily involve allegations of fraud, a plaintiff must also meet the particularity requirements under Federal Rule of Civil Procedure 9(b) by alleging the “time, place, and content of the alleged misrepresentation . . . [;] the fraudulent scheme; the fraudulent intent of the defendants; and the injury resulting from the fraud.” Id. at *4–5 (internal quotations and citations omitted). Focusing on particularity, the Sixth Circuit determined that Sheoran failed to sufficiently plead each of the four elements of an FCA violation. First, the Court held Sheoran failed to allege that a claim for payment was presented to the government. Id. at *5. To support the claim, Sheoran submitted a document that listed all opioid payments with a $1-2 copay. Id. at *6. Based on the low copay value, Sheoran argued that the government must have provided reimbursement through Medicaid or Medicare. Id. The Court rejected that assumption, noting that many other reasons could explain a low copay. Id. The Court concluded that alleging presentment effectively requires more than “mere speculation.” Id. Second, the Court held Sheoran was unable to effectively plead that any of the alleged claims were “false or fraudulent.” Id. See 31 U.S.C. § 3729(a)(1)(A), (B). Although Sheoran had alleged the prescriptions were written for “high doses” of opioid pain medications that “would kill the person” if taken as prescribed, Sheoran provided no information about the patient’s medical history or needs to help the Court evaluate whether the doses were too high. Id. *7. Accordingly, the Court could not accept that falsity was supported. Third, the Court held the pleadings failed to allege that Walmart “knowingly” presented false claims to the government. Id. In order to establish knowledge, a defendant must “know[] of, or ‘act[] in deliberate ignorance’ or ‘reckless disregard’ of, the fact that he is involved in conduct that violates a legal obligation to the United States.” Id. (internal quotations and citations omitted). The Court determined that Sheoran’s mere assumption that payment was submitted to the government was insufficient, and that the pleadings lacked allegations indicating that Walmart even suspected the claims were illegal, false, or fraudulent. Id. Finally, the Court concluded that materiality was also insufficiently alleged. To meet this “demanding” standard, the alleged misrepresentation must have been “material” to the government’s decision to reimburse the claim. Id. at *8. The Court reasoned that if all of the claims had indeed been submitted to the government, the government had the same knowledge about the allegedly “high doses” and yet still paid those claims. Id. This evidence of payment was considered to be “very strong evidence that the requirements were not material.” Id. (citing Universal Health Servs., Inc. v. United States, 136 S. Ct. 1989, 2001 (2016)). The Sixth Circuit summarily dismissed Sheoran’s remaining arguments. In regards to the denial of oral argument, the Court reasoned that “this was a straightforward FCA case that was properly decided on the briefs.” Id. at *12. Unfortunately for Walmart and its co-defendants, this “straightforward” case required eight years of protracted litigation and expense that finally concluded due to the FCA’s exacting pleading standard.
June 16, 2021
by Donna Reuter
Intervention
Omnicare and CVS’s “Novel” Argument Fails to Defeat FCA Claims
On March 19, 2021, a Southern District of New York judge denied a motion to dismiss a False Claims Act (“FCA”) suit alleging that Omnicare—a subsidiary of CVS Health Corp.—“dispensed drugs based on invalid prescriptions to potentially tens of thousands of individuals living at more than 3,000 residential facilities.” See United States ex rel. Bassan v. Omnicare, Inc., No. 1:15-cv-4179 (CM), 2021 U.S. Dist. LEXIS 52323 *3 (S.D.N.Y. Mar. 19, 2021). The long-pending suit, which was originally brought by qui tam relator Uri Bassan in 2015, alleges that Omnicare consistently issued prescriptions to individuals in long-term care facilities that were not supported by valid prescriptions between 2010 and 2018. The Court explained that the defendants’ motion “present[ed] what can only be described as a novel reason why the Government’s pleading is insufficiently particular.” Id. at *27. The “novel” argument was that the regulation upon which the Government relied to demonstrate that filling invalid prescriptions was illegal took effect on January 1, 2013, rendering the prior alleged conduct of dispensing prescription drugs without a prescription legal. The Court denied the motion on three bases. First, the Court explained that the Government’s pre-2013 claims arose under three different government insurance programs and the regulation at the core of the defendants’ argument only concerned one. As a result, the Court determined that the allegations related to the two other programs precluded dismissal of the pre-2013 claims. Second, the court reasoned that because the Government was able to show in detail that Omnicare’s Medicare reimbursements after January 1, 2013 were also the product of alleged false claims, the claim could not be dismissed in full. Third, the Court, relying on several regulations and guidance materials, “reject[ed] Omnicare's suggestion that it was perfectly legal to dispense drugs paid for by Medicare without a valid prescription prior to 2013.” Id. at *28-29. To do so, the Court first cited to Centers for Medicare and Medicaid Services regulatory guidance pre-dating 2013 which provided that "we have consistently maintained that drugs cannot be eligible for [Medicare] coverage unless they are dispensed upon prescriptions that are valid under applicable State law." Id. at 28-29 (citing 76 Fed. Reg. 63,018, 63,059 (Oct. 11, 2011). The Court also relied on other federal statutory schemes such as the Federal Food Drug and Cosmetic Act, which described a prescription drug as one that can only be dispensed upon a valid prescription. See 21 U.S.C. § 353(b)(1). This case is a reminder that the litigation of alleged false claims spanning several years can often be impacted by the different statutory schemes and regulations that are in effect, or not in effect, over the course of the alleged false claims.
April 1, 2021
by Leyla Bari
Intervention
An Ambulance Provider’s Long Road to Settlement
On June 20, 2019, more than six years after the case was first set into motion by the Relator, the U.S. Attorney's Office for the District of Maryland announced in a press release that Hart to Heart Ambulance Services, Inc. (“Hart to Heart”) settled a false claims act case—which alleged that it submitted false claims to Medicare for ambulance transports that were not medically necessary—for $1.25 million. The road to settlement was a long one. The Relator, a former Hart to Heart employee, filed the original complaint under seal on March 29, 2013. United States, et al. ex rel. Arvey v. Hart to Heart Transp. Servs., Inc. et al., No. 13-cv-01554-RDB (D. MD March 29, 2013) (ECF Nos. 1-3). After the complaint was filed, the United States secured multiple extensions of time to make an intervention decision. Id., ECF Nos. 5-11. Two-and-a-half years later, the United States still had not made a decision, and the court denied further requests for an extension of time, presumably because it decided the case needed to move forward. Id., ECF No. 14. Forced to make a decision, the United States declined to intervene on October 19, 2015, because it had not completed enough of its investigation to prosecute the case. Id. The United States continued to investigate after the case was unsealed and even engaged with Hart to Heart in settlement negotiations. Id., ECF Nos. 49-50, 53, 58. The parties began moving through the pleadings stage, id., ECF Nos. 14-51, but before the case could get off the ground, the parties negotiated and requested a stay, which the court granted on August 23, 2016, id., ECF No. 52. The stay ultimately continued until November 30, 2018, the same day the United States intervened against Hart to Heart, EMS Billing Solutions, Inc. (“EMS”) (Hart to Heart’s billing arm), and the companies’ owners and operators. Id., ECF Nos. 64-66. The complaint filed by the United States alleged that Hart to Heart fraudulently received millions of dollars of Medicare payments by submitting claims for ambulance transportation for patients who could sit, stand, walk, or otherwise did not need to be transported by ambulance. Id., ECF. No. 66 at ¶¶ 1-2. The United States further alleged that from 2010-2018, the owners and operators of Hart to Heart trained, threatened, and coerced its employees as well as EMS’s billing employees to transport patients by ambulance unnecessarily and to falsify records to make it appear as though it was medically necessary. Id. at ¶ 3. When that did not work, the United States alleged that Hart to Heart and EMS falsified the billings directly. Id. Despite the slow start, the case settled seven months after the United States filed its Intervention Complaint, and the parties never got passed the pleadings stage. Hart to Heart did not admit any of the allegations, but did resolve all claims from January 2, 2010 to December 31, 2017 to the tune of $1.25 million. See DOJ Press Release. The Relator will receive approximately $251,000 from the settlement. Id. Government investigations can take a long time and settlements even longer. Even when the government initially declines to intervene, it may later change course and intervene upon a showing of good cause under 31 USC § 3730(c)(3) because, as Yogi Bera famously said, “it ain’t over ‘till it’s over.”
July 2, 2019
by Vanessa J. Szalapski
Intervention
Supreme Court Considers Whether to Extend FCA Statute of Limitation
On Tuesday, March 19, the Supreme Court considered whether to extend the FCA’s alternate 10-year statute of limitations to cases in which the government does not intervene. The case, Cochise Consultancy Inc. v. United States, ex rel. Hunt, involves a whistleblower’s qui tam action alleging that two defense contractors defrauded the government. The case centers on the FCA’s two statutes of limitations. One allows lawsuits to be filed within six years of the alleged fraud. 31 U.S.C. § 3731(b)(1). The other allows lawsuits to be filed three years after the federal government knows of facts “material to the right of action,” but never more than 10 years after the alleged fraud. 31 U.S.C. § 3731(b)(2). In Cochise, the relator filed his complaint in 2013, more than six after the alleged fraud, which took place in 2006 and 2007. The relator argued that his complaint was timely under the 10-year limitations period of § 3731(b)(2) because he filed it within three years after the FBI learned of the fraud in 2010. It was undisputed that if the government had intervened, the 10-year limitations period would have applied. At issue was whether that period can apply in cases where, as in Cochise, the government does not intervene. The Fourth and Tenth Circuits had previously ruled that it could not, but the Eleventh Circuit created a split when it ruled—in the decision on appeal in Cochise, and as previously reported by this blog here—that that period could apply to cases in which the government is not a party. At Tuesday’s argument, defense contractors’ counsel argued that extending the 10-year limitations period would result in increased claims, impose higher evidentiary burdens, and allow relators to “wait in the weeds” while developing their cases. But relator’s counsel argued that, in practice, relators have a strong incentive to file as soon as possible, because otherwise the potential plaintiff risks their claim being dismissed under the “first to file bar,” which is intended to avoid duplicative FCA litigation by prohibiting subsequent FCA actions based upon the same essential facts as a previously filed qui tam action. The Solicitor General’s Office also argued the relator’s position was consistent with the FCA’s purpose because “the majority of any recovery would go to the United States” even where the government does not intervene. Although it is difficult to predict the Court’s decision based on oral argument, it seems at least possible that the Court will extend the FCA’s 10-year statute of limitations to cases where the government does not intervene. That result would likely increase risk and costs for defendants facing FCA claims.
March 22, 2019
by Alan J. Iverson
Intervention
Court Examines Standard for Approval of Settlement of Qui Tam Over a Relator's Objection
The False Claims Act (FCA) allows plaintiffs/relators to bring qui tam actions, in which the government may then elect to intervene. The FCA also provides that “[t]he Government may settle a [qui tam] action with the defendant notwithstanding the objections of the person initiating the action if the court determines, after a hearing, that the proposed settlement is fair, adequate, and reasonable under all the circumstances.” 31 U.S.C. § 3730(c)(2)(B). In United States ex rel. Shepard v. Tippett, a federal court in Colorado recently examined the standard for deciding whether a settlement was “fair, adequate, and reasonable” such that it should be approved over the relators’ objections. 2017 U.S. Dist. LEXIS 27083 (D. Colo. Feb. 27, 2017). The Tenth Circuit had not decided the question, and the Shepard court noted a split among other courts of appeal that had considered the issue. In Shepard, the relators argued that the standards for approving class action settlements were appropriate in the FCA qui tam context. The inquiry, the relators argued, should involve a review of four factors: (1) whether the proposed settlement was fairly and honestly negotiated; (2) whether serious questions of law and fact exist, placing the ultimate outcome of the litigation in doubt; (3) whether the value of an immediate recovery outweighs the mere possibility of future relief after protracted and expensive litigation; and (4) the judgment of the parties that the settlement is fair and reasonable. Id. at *4 (quoting Rutter & Wilbanks Corp. v. Shell Oil Co., 314 F.3d 1180, 1188 (10th Cir. 2002)). Citing a Ninth Circuit case addressing dismissal of an FCA case, the Government argued for a much more deferential standard. That standard includes a two-part test: “(1) identification of a valid government purpose; and (2) a rational relation between dismissal and accomplishment of the purpose.” Id. at *3 (quoting United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Com., 151 F.3d 1139, 1145 (9th Cir. 1998)). In reaching its conclusion that the deferential Sequoia Orange standard is appropriate, the Shepard court considered legislative intent behind 1986 amendments to the FCA that created the current famework for government intervention in qui tam actions. Those amendments allowed a relator to remain involved even after government intervention, thus increasing the relator’s role. At the same time, though, the amendments gave the government greater control over qui tam actions. Id. at *4 (collecting cases). Noting that the government is the real party in interest, the Shepard court concluded that the government should have at least as much authority to settle a qui tam action as to dismiss it. Moreover, “hamper[ing] the government’s ability to settle may run afoul of the separation of powers doctrine.” Id. Requiring only a rational relation to a valid governmental interest, then, is the proper standard. Finding the government had met that standard in this case, the Sherpard court approved the settlement notwithstanding the relators’ objections.
March 14, 2017
by Betsy Sellers
