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  • 1. PRACTICAL CONSIDERATIONS IN DEFENDING AGAINST HEALTHCARE FRAUD AND ABUSE ACTIONS STARK LAW, THE ANTI-KICKBACK STATUE, THE FALSE CLAIMS ACT/QUI TAM ACTIONS _____________________________________ MartinMerritt PLLC 100 Crescent Court Suite 700 Dallas, Texas 75201 (214) 459-3131 (214) 459-3010 (Fax) (214) 952-1279 (Cell) Martin@DallasPhysicianLaw.com ____________________________________ DALLAS BAR ASSOCIATION HEALTH LAW SECTION January 18, 2012MartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 1
  • 2. Martin MerrittAttorney At LawMartinMerritt PLLC100 Crescent CourtSuite 700Dallas, Texas 75201(214) 459-3131(214) 459-3010 (Fax)(214) 952-1279 (Cell)Practice Focus: Martin Merritt is a member of the Health Law Section of the Dallas Bar Association and the HealthLaw Section of the State Bar of Texas. MartinMerritt PLLC is a boutique practice, which focuses on the needs ofPhysicians in Stark Law/Anti-Kickback Statute Compliance, False Claims Act Litigation, Contracts and Leases,Medical Business Law, Malpractice Defense, Medical Ethics, Business Litigation, Pharmaceutical Litigation, MDLActions. Lead counsel in over 2000 medical cases. Over 100 first-chair jury trials and administrative law hearingsinvolving ethics, benefit reviews, eligibility, and whether a physician’s course of treatment was reasonable andnecessary, met the applicable standard of care, the amount charged was usual and customary in Dallas County and/orthat the coding was appropriate for the treatment provided. Cases include defense of physicians in medicalmalpractice, ethics violations, and pharmaceutical defense in MDL class action opt-out cases. As a witness, Martinhas testified in open court over 100 times on behalf of clients. First Chair Jury Trial experience in MedicalMalpractice, Wrongful Death, Paralysis Injury, Products Liability, Contracts, Negligence, Premise Liability, DTPA,Breach of Contract, Breach of Warranty, Personal Injury, Workers Compensation, Federal Statutory Law, StateRegulatory Law, Real Estate. At least a dozen $1 million and multi million dollar (net present value) recoveriesactually received on behalf of clients. Over $500 million dollars in medical malpractice and Pharmaceutical claimsdefended. Volunteer Legal Director of StarkLaw.org, a national website devoted to helping healthcare providers findanswers to compliance issues, or referral to a health lawyer in their state. Martin has also served as a Prosecutor forthe Texas Commission for Lawyer Discipline.Books Authored:Texas Motion Practice Handbook, Vols. I-II, 1600 pp., (updated annually), Knowles Publishing Co., Fort Worth,Texas (1992-2005)(Best-selling treatise and form book, Texas Civil Trial Procedure and Evidence. Chapters includeSummary Judgment, Default Judgment, Motions to Recuse Judges, Motions to Disqualify Counsel, New Trials,Dismissal for Want of Prosecution, Sanctions, Discovery Motions.) This book and the annual updates requiredreporting on every major development in civil procedure each year during the publication run.Texas Bar Journal Articles and MCLE Presentations:“Practical Considerations in Defending Stark Law, Anti-Kickback, False Claims Act, and Qui Tam Actions,” Dallas BarAssociation, Health Law Section, (Jan. 2012) “Medicare Set-Asides Under the Secondary Payor Act,” National BusinessInstitute, (Dec. 2010); “Federal Practice Update,” National Business Institute (Feb. 2001) “Fry is Out, But What is the Test?The Foundation for Expert Testimony in Federal Trials after Daubert”, 57 Tex. Bar. J. Vol. 7, pp. 710-715, (July 1994);“TexasSummary Judgment Evidence,” 53 Tex. B. J. Vol. 1, p. 24, (January 1990); “Prejudgment interest in Wrongful Death, PersonalInjury and Property Damage Actions,” Texas Trial Lawyer’s Forum, Vol. 2., No. 2 p 21-23 (1992); “A Critical Analysis of IrvingYounger’s Ten Commandments of Cross Examination,” Texas Trial Lawyers Forum Vol. 28, No. 1. pp.11-16 (1994); “Rule165a. Dismissal for Want of Prosecution” 60 Tex. Bar.J. Vol 6, pp. 555-559 (June 1997);” Summary Judgments in Texas,”MartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 2
  • 3. Dallas Bar Assn. Friday MCLE Clinic, (May 1990); “Responding to Adverse Pretrial and Trial Motions,” Texas Trial LawyersAssociation MCLE Seminar, Dallas and San Antonio, (Feb. 1994); “Demonstrative Aides in Civil Trials,” National BusinessInstitute Seminar, (Feb. 1994); “Motion Practice Pointers,” Plano Bar Association, (July 1995); “Case Intake and Investigation,”Institute for Paralegal Education, Seminar, (Sept. 1994) “Cross Examination, Getting the Most out of Depositions,” Texas TrialLawyers Assoc., Seminar, (Sept 1996); Guardian Ad Litem Practice and Procedure,” University of Houston Bar Foundation. shareholders, as we have seen with decisionsPart I: Government made by CEO’s of managed care organizations. Fifty years ago, the AMA didn’t really need toEnforcement of Health Care choose which was worse– Scylla or Charybdis– inFraud and Abuse Laws. the 1950s the AMA had fairly well erasedBy Martin Merritt capitalism from the picture. Both theMartin@DallasPhysicianLaw.com pharmaceutical industry and the health care delivery industry had come to respect the AMA’s1. Fraud vs. Abuse. Sources of Federal Health power to enact state laws which made theCare Fraud and Abuse Laws: The AMA Code corporate practice of medicine a crime, or simplyof Medical Ethics made it impossible, by negative implication, for corporations to qualify for a license to deliver The health care system in the United health care. See, Claymon, Jennifer, “CorporateStates has been described as the world’s largest, Practice of Medicine and Non-Profits,” UT Schoolcostliest health care bureaucracy, engulfed by red of Law Health Law Conference, (April 2009.) See,tape and maddening complexity, in which Garcia v. Texas State Board of Medical“[i]nsurers cheat patients and doctors; patients Examiners, 384 F. Supp. 434, 437-38 (W.D. Tex.cheat doctors and insurers; doctors cheat insurers 1974). So powerful was the AMA, evenand patients; and all cheat the federal and state Pharmaceutical companies didn’t dare advertisegovernments.” See, Bartlett, Donald; Steele, directly to consumers, as the AMA did not wantJames, Critical Condition– How Health Care in anyone, other than a physician, telling patientsAmerica Became Big Business and Bad Medicine, what drug to buy.New York: Doubleday (2004.) This wasn’talways the case. Medicare “Fraud and Abuse” regulations are the bane of physicians and the healthcare In America, throughout most of the 20th industry. Not only are the regulations impossiblecentury, the nation’s physicians held virtually to find for the average physician, the frustration isunchallenged economic, moral, and political sway compounded by the seemingly inescapableover the regulation what we now call the “health conclusion that the federal government is morecare industry.” See, e.g., Mahar, Maggie, Money interested in the appearance of reform, than inDriven Medicine, New York: Harper -Collins actually enforcing a code which in any way2006. Gazing out over the horizon, physicians reduces the deficit. Consider, as a stunningsaw trouble in the form of both government example, that in 2003, when Medicare Part D was(socialist) and corporate (capitalist) takeover of passed, the pharmaceutical industry was able tomedicine. The problem with socialist medicine is secure a provision that forbids CMS (Medicare)that it is thought to kill both innovation and the from negotiating volume discounts whenhuman spirit, as we observed in the case of the purchasing drugs. Hence, the Veteran’sSoviet Union, while corporations were thought to Administration (and virtually everyone else) paysplace too much emphasis on the needs of on average, 58% less than Medicare for the sameMartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 3
  • 4. drugs. While physicians and providers spend incentive,” to perhaps over-treat. In fact the onlycountless resources attempting to comply with thing standing in the way, would be the state-by-fraud and abuse laws, Every nickle that the US state versions of the AMA Code of MedicalTreasury has ever recovered under the FCA has Ethics.been squandered in a single year by operation of As federal spending on Medicare doubled,this “no haggle” provision in Medicare Part D. In then tripled, over the decade between the 70s andother words, all this effort is wasted. 80s, the federal government snatched the AMA Code of ethics from the hands of doctors, and To be sure in the formative years of both turned a few sections into a multi-billion dollarprivate and public health insurance, just like the civil and criminal litigation leviathan calledpharmaceutical industry, the AMA insisted neither “fraud and abuse.” (State laws, based uponcorporate “Blue Shield” plans, nor the new federal law, are used to enforce Medicaid and inMedicare program should attempt to extract some cases, private health plan fraud and abuse.“purchasing power” discounts. See, Mahar, Although important, state laws are not covered inMaggie, Money Driven Medicine, New York: this paper.)Harper-Collins (2006). The difference is this,while there were those in 1965 who thought we Today, physicians and providers stand incould actually afford to pay full sticker price for the eye of the storm. In their reception areas, alleverything, by 2003, no one was under any such may seem calm– but behind the scenes, everymisapprehension about our ability to pay full price medical decision, and every business decision,for Medicare Part D. Yet we did it anyway. every medical office lease, equipment rental, medical supply contract, employment contract, In 1965, (as Congress debated enacting partnership, joint venture, real estate transaction,Titles XVIII and XIX of the Social Security Act,) every investment, gift, discount, as well as everythe AMA turned its full attention toward what code entered, and every waiver of co-payment–would happen if the federal government got into carries with it the threat of a federalthe business of providing for, (and regulating) investigation, and potential liability of millions ofthe practice of medicine. The AMA was dollars, (and possibly a felony conviction.)particularly concerned not only that their members Meanwhile, the real criminals are hauling freightcontinue to be paid a “reasonable” fee for loads of government cash out of the treasury, with“necessary” services, but also about government little fear of being caught (under the government’sregulators (who were laymen) instructing or p l a n o f “ p a y, t h e n c h a s e . ” ) S e e ,second-guessing the reasonableness and necessity http://oig.hhs.gov/fraud/fugitives/of medical services. index.asp. “Failure” is not, as JFK opined, always To say that the rules and regulationsand “orphan.” When spending got out of control, against healthcare fraud and abuse are “difficult tocongress had no trouble figuring out who, or what master,” would be a gross understatement.(other than congress,) we should blame– fraud Because regulators are being asked to regulateand abuse. It is fair to say the AMA saw this something they don’t understand, they tend tocoming– but not in their wildest dreams did they over write. It also appears the W.H.O. is destinedimagine the true scope of the storm which was to to write a ICD code for every cell in the humanbecome modern federal “fraud and abuse” law. To body. This tendency to overwrite is especiallysome extent, the AMA succeeded in preserving noticeable, as one begins to delve into the(for a while) the “fee for service” model of provisions of 42. U.S.C., and 42 C.F.R, whichreimbursement. However, with that came the have been described as “among the mostrecognition that physicians had a “perverse completely impenetrable texts within humanMartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 4
  • 5. experience.” See, Rehab’h Ass’n of Va. v. know which law actually applies.)Kozlowski, 42 F.3d 1444, 1450 (4th Cir. 1994.)See, Baumann, et al., Healthcare Fraud and I will tell you this, no “official” (orAbuse, p. 200, ABA Health Law Section Press, unofficial) compendium of federal fraud and2002. abuse regulations exists. See, Tully, Federal Anti- Kickback Law, 1500:0607 (BNA’s Health and Yet, RAC auditor/bounty hunters, with Business Series, 2001.) In fact we Stark lawyerscomparatively little more training that one might have learned to become our own book binders,gain from a cereal box are being asked to review (with three-ring binders as our chief weaponrymedical charts of physicians with years of medical against chaos.)training and experience. (RAC auditors are This isn’t to say that the government issupposed to be looking for “over” and “under” hiding the ball, or trying to keep the rules a secret.payment errors. Not surprisingly, – 96% of the Far from it– they simply cannot write a rule thaterrors found by RAC auditors favor the also effectively takes everything into account.government.) See, http://www.ahima.org/resources/rac.aspx. Recognizing this, CMS and the OIG do attempt to set out what will be prosecuted by the government on their respective web sites. But “the government” is not one entity. It is a collection of(a) The Five Primary Federal Fraud and agencies and offices. Not every agency agrees onAbuse Prevention Statutes. enforcement, nor do they necessarily talk to one another. Personnel vary widely from region to The 4th Circuit’s observation that “Fraud region with regard to knowledge on the subjectand Abuse” rules constitute an “impenetrable being regulated. The government bridged the gaptext,” is a bit misleading. There is no “text.” In in knowledge between regulators, and thefact, the landscape looks as if we handed a regulated by producing operational manualsmachine gun to a group of regulators who have which guide agents in day-to-day operations.never seen a gun before, and told them to shootanything they don’t recognize as harmless. The The trouble is, these operational manuals“rules” against fraud and abuse are literally are not statutes, which are written after publicscattered out everywhere. The rules are found in hearings, debate and input from the industry.actual statutes, under 42 U.S.C. and in regulations Often, the people in charge of enforcement havefiled under 42 CFR. Then there are the Bulletins, never read the actual statutes, and certainly noFraud Alerts (“Special” and un-Special) idea what constitutes reasonable and necessaryMemoranda, Opinion Letters, regular letters, medical practices. This is not to impugn the(“Open” and un-Open,) some of which end up in integrity of employees of HHS, CMS, or OIG.the Federal Register, some of which end up in Many are highly skilled, highly trained and highlythe OIG, HHS and CMS websites, and others are knowledgeable. Even those who are lesssimply tucked away in some manual– calling to experienced are good, sincere, hard-workingmind the final scene of Raiders of the Lost Ark. people doing the best they can, given the fact thatThe rest, are what I call “Legend and Lore,” based they are non-physicians, who have been given theupon what someone thought they understood, or task of enforcing the AMA Code of Medicaleven heard a government official say in a town Ethics against licensed physicians who are oftenhall meeting on the subject of what would lead to faced with the impossible task of treating patientsenforcement activity. (This all tends to explain who, themselves, are not always forthright inwhy most of my clients simply call the whole relaying their own histories . (In further defense ofcollection, “Stark Law,” and leave it to me to these federal agents, they do see some fairlyMartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 5
  • 6. outrageously bad actors, which tends to erode for two reasons (1) in response to the ballooningblind faith that absent a firm hand, mankind will federal budget, (2) growing public awareness thatbehave itself.) defense and medical contractors were “gaming” the system. Contractors with less than stellar Add to this, the army or RAC auditors, abilities, services, or products were jumping inand qui tam relators, who are paid a percentage front of higher quality providers simply by payingbounty to find even the slightest error (which may the highest kickbacks. The AKS was at first adisqualify billions of dollars in reimbursements,) misdemeanor criminal statute, then upgraded to aand an environment of KGB-style terror reigns. felony, and finally, a civil money penaltyBecause qui tam actions are filed under seal, provision was added. Although the AKS appliedmedical providers have no idea, (sometimes for to any government contractor, its major provisionsyears,) that they have been sued, what they may were taken from AMA Ethics Code provisions onbe accused of, when unsealing will happen, or “Fee Splitting” (Rules 6.02-6.04.) In the 1980swhich of their employees, suppliers, neighbors or the spirit of deregulation caused the OIG to craftfriends have turned them in.) a number of Safe Harbors, under 42 CFR 1001.952 (a)-(u) which apply to the most common Nevertheless, the OIG lists on its website types of arrangements.and its “Roadmap for Physicians,” the fiveprimary Medicare fraud and abuse preventionstatues, that will be the subject of enforcement First, the AKS prohibits paying cash oractions: (1) the False Claims Act, 31 U.S.C.§§ items of value for referrals. Second, the AKS prevents “in kind” kickbacks by outlawing3729–3733, (2) the Anti-kickback Statute, 42 referrals between providers who have any kind ofU.S.C.§ 1320a-7b(b), (3) the Physician Self- financial relationship with one another.Referral (Stark) Law,42 U.S.C.§ 1395nn (4) the Obviously, not every relationship contains aCivil Monetary Penalty Statute , 42 U.S.C.§ “kickback,” and cost savings can be realized from1320a-7a and (5) the Exclusionary Statute 42 pooling of capital. The safe harbors were designedU.S.C.§ 1320a-7 . These statues and rules work to permit relationships which carried little risk oftogether, both by cross-reference, cross abuse. It would be very difficult to write a safeincorporation, and with a great deal of overlap. harbor for every possible arrangement, just as itUnderstand, there are actually more than 50 would be difficult to write a product liability rulefederal statues which could be employed– and if for each individual product manufactured. Instead,a client does something really dishonest, he may if a relationship is subject to a safe harbor,have every federal agency from the FBI, the postal providers must meet the requirements. If aninspector to the department of defense in his arrangement doesn’t have a published safe harbor,lobby– but for the OIG, more than 5 is simply that doesn’t mean the AKS has been violated.overkill. The five are: Instead, the parties would likely be required to(1) The False Claims Act Congress passed the demonstrate by analogy, that no kickback isFalse Claims Act on March 2, 1863, 12 Stat. 696. involved, (usually by comparing the FMV of the(31 U.S.C. §§ 3729–3733, also called the "Lincoln thing involved, and the amount paid for it. If theLaw.") The FCA imposes liability on persons and two are not equal, there may be a kickback.)companies (typically federal contractors) who (3) “Stark Law.” The Prohibition Againstdefraud governmental programs. A false claim Physician Self-Referral,42 U.S.C.§ 1395nn. Inmay be a “reverse false claim”– meaning a false 1989, Congressman Pete Stark sponsored a specialstatement about how much one owe’s the rule prohibiting certain Medicare referrals, whichgovernment (IRS matters are excluded.) only applied to physicians, and only to certain(2) The Anti-kickback Statute, 42 U.S.C.§ specific items of expense. In order to understand1320a-7b(b). Congress passed the AKS in 1972 why this was thought necessary, given the obviousMartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 6
  • 7. overlap between Stark Law and the AKS, (and soon found out how difficult it is to “un-ring awhy most physicians feel betrayed by continued bell,” (for had they not, themselves declared itenforcement of the rule,) we must pull back the unethical for a physician to earn income fromlense, in order to gain a broader historical outside referrals.) As a consequence, (and in aperspective. twist of fate too strange for fiction,) the Over the course of the 20th century, government passed the Stark Act, whichAmerican physicians, through the AMA, tried essentially declared that physicians are the onlymightily to fend off not only the government, but entrepreneurs who may not earn passive incomealso corporate intrusion– which they termed, the from the investment in outside diagnostic“corporate practice of medicine.” (Little realizing facilities.one would lead directly to the other, as spending Unlike the AKS, the Stark Act is a stricton health care tripled between 1970 and 1980, liability statute, which applies only to physiciansthanks to Medicare.) What the AMA objected to and only to referrals for Designated Healthwas “for anyone else, such as an investor, to make Services to providers where they, or a close familya return from a physician’s labor.” See, Starr, Paul member has a financial relationship. Stark LawThe Social Transformation of American Medicine has safe harbors found in the main statute and as(New York: Basic Books, 1982.) So the AMA constantly tinkered with by the OIG and HHS indecided to erase capitalism from the picture. If 42 C.F.R. § 411.351, et seq., and a variousmedicine required capital beyond that which assortment of bulletins and advisories.doctors could provide, it would have to be (4) the Civil Monetary Penalty Statute , 42contributed gratis by the community, (instead of U.S.C.§ 1320a-7a. Civil penalties range frominvestors looking for a profit.) Id. Nonetheless, the $10,000 to $50,000 and may be assessed on a perAMA was wise enough to realize, as the legal incident, per person, or per day of non-ompliance,maxim goes: he who seeks equity, must do equity. as set forth in the Act. If the AMA were to have any credibility againstcritics who charged the AMA’s lofty ideals were (5) The Exclusionary Statue. 42 U.S.C.§ 1320a-“financially convenient,” physicians would need 7. Under the Social Security Act, exclusion isto “practice what they preached.” And so the mandatory for certain acts, and permissive inAMA adopted rules prohibiting their own others. Conviction for Criminal offenses, for fraudmembership from earing passive income from in billing, or the criminal neglect or abuse offinancial investment of capital. This was patients can result in automatic exclusion for fiveaccomplished by AMA Rule 8.03, which declared years. The government is mindful that exclusionit “unethical” for a physician to earn a profit from may have a detrimental effect upon thethe referral of a patient to an outside clinic, which availability of health care. Often, solutions aimedthe physician also owned. Physicians happily at compliance are employed specifically to avoidaccepted this trade-off, but only for so long as the harsh remedy of exclusion. If a person haseveryone played by the rules. But in the 70s and been excluded, OIG regulations state that an80s, the walls which held corporate interests at excluded person may not be employed by abay was finally breached. Private investors provider, if any federal dollars are used to(often by pretending to be “non-profit” entities,) compensate the excluded person. Thus, it isbegan earing a profit from physician’s referrals. extremely important for providers to carefully screen employees. Physicians responded (rightly orwrongly,) by taking the position that because thegoal posts had been moved, they were free to (b) Is it “Fraud,” or “Abuse.”disregard their own rules– with impunity. Whether a practice is “fraudulent” orPractically overnight, it seemed, every physician merely “abusive,” goes hand in hand with thealso owned a diagnostics laboratory. The AMA question: will a pattern of conduct result inMartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 7
  • 8. criminal action, or simply civil money penalties? example, a physician may perfectly fit the AKSThe answer isn’t entirely simple to provide. A “safe harbor” for referrals of patients to a hospitalpractice or scheme will normally fall within a where he has ownership interest in the entirecontinuum, or range of mental states– from hospital. However, if it can be shown that theinnocence, to negligence, gross negligence, intent behind the practice was to refer patientsconscious indifference, willful ignorance, who don’t really need the treatment, then that isknowing, or intent to defraud. It is usually not “fraud,” even though he has complied with a safenecessary that a provider “know” or “intend” to harbor.violate a law, it is sufficient that the providerknowingly engage in an act that is forbidden. 2. What is the government trying to prevent? Some behavior is designated a “crime,” The government is primarily concerned with two(malum prohibitum) even though it isn’t actually things: (a) “Fee Splitting,” or receivingimmoral, or “fraud,” (malum in se.) One example “Kickbacks” for referrals, including “self-is taking kickbacks (especially “in-kind”) for referrals,” and (b) billing the government forreferrals, where the patient did actually need the things, when you don’t have a right to be paid.treatment. This isn’t so much immoral as it is,simply a crime, because congress, through the (a) Fee Splitting, Kickbacks and SelfAKS says it is. Perhaps in recognition of the fact Referrals.that some behaviors are always morally wrong, Fee Splitting and Kickbacks have always been(stealing) while others are wrong because a statute medically unethical. See, AMA Code of Medicalsays so, (accepting office space at below market Ethics Rule 6.02 (Doctors can’t pay for referrals);rates, then referring cases to the landlord); Rule 6.03 (“Clinics, laboratories, hospitals, orwhether a provider will be prosecuted criminally other health care facilities that compensatevs. civilly under a statute like the AKS, (which physicians for referral of patients are engaged incalls for either,) often depends upon the evidence, fees splitting which is unethical; Rule 6.04 (A(including past “run-ins” with enforcement) that physician may not accept any kind of payment ordemonstrates the provider knew his activity was compensation for prescribing drugs or devicesillegal, but did it anyway. While the violation is from the manufacturer.) Fee splitting is not illegalcomplete by knowingly engaging in behavior, in other businesses. As stated in the main rule:(thus, legally sufficient) juries are often slow to “Rule 6.02: Payment by or to a physician solelyconvict doctors and professionals of a crime, for the referral of a patient is fee splitting and isabsent such aggravating factors,(only then is the unethical. A physician may not accept payment ofcharge factually sufficient to support conviction.) any kind, in any form, from any source, such as a It is up to a prosecutor to decide which pharmaceutical company or pharmacist, an opticalcharge, or allegation to bring, based upon the company, or the manufacturer of medicalstrength of the evidence. It is up to the jury to appliances and devices, for prescribing ordecide if the charge or allegation is true. referring a patient to said source. In each case, the In practice, “Fraud or Abuse” is usually payment violates the requirement to deal honestlyprosecuted as a crime for behaviors which are with patients and colleagues. The patient reliesfairly close to “stealing.” See, Hooper, Patrick, upon the advice of the physician on matters ofHealth Care Fraud And Abuse, Los Angeles: referral. All referrals and prescriptions must beABA Health Law Section, pp. 197-251 (2001) based on the skill and quality of the physician to“Abuse,” is more or less synonymous with whom the patient has been referred or the quality“medically unethical”. . . but without the intent to and efficacy of the drug or product prescribed.defraud or steal. Further, even a practice thatfalls within a “safe harbor” could still be“fraudulent,” depending upon “intent.” For Self Referral (Stark Law) Stark Law is takenMartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 8
  • 9. from AMA “Conflict of Interest” Rule 8.032 (and the Amgen case cited in Part II. This includes:its predecessors) which held, “In general, a (1) charging for services that were neverphysician should not refer a patient to a facility performed, (if intentional, this is just plainoutside of their office, where they do not provide fraud,”)the service or care, when they have an ownershipor investment interest in the facility.” A major (2) “Upcoding,” which can be a form of fraud,difference between Stark Law and the AKS, lies (depending upon intent,) in which a providerin the fact that under Stark Law, any referral for deliberately assigns a higher reimbursement codeDHS’s (where a financial relationship exists than it deserves,involving a referring physician,) is per se illegal– (3) “Unbundling,” which is abusive, because thethere need not be a colorable “kickback” involved. government says it is: charging for a service thatA defendant (who need not be a physician) under should have been included in a bundle, rather thanthe AKS may escape liability by proving there separately, (Although note: In U.S. v. Krizek , aactually was no kickback, (either under a safe psychiatrist was sued for $80 million, $245k inharbor, or simply as a matter of mathematical alleged actual damages, because he did notfact.) Because Stark Law has its basis in both “fee unbundle an hours worth of time into smallersplitting” and “conflict of interest” ethical rules, units.)physicians are simply held to the higher ethical (4) Failing to disclose discounts or pricestandard– this is also true because of a peculiar reductions, either when the government is basingcircumstance: the patient’s limited concern over payment on the belief a provider paid full pricethe cost of treatment authorized. for supplies, or if the if a physician routinely The OIG explains this in its “Roadmap waives 20% co-pays. This often consideredfor Physicians,” because the government (and not “fraud,” and not simply abuse.the patient) is paying the bill, the usual market (5) Claiming expenses when they weren’tforces do not apply. (Patients simply do what they incurred, including selling free samples ofare told without regard to cost.) Both the patient prescriptions, then billing the government asand the government must be assured that the though the provider actually purchased the drugsreferral is being made solely on the basis of for resale.reasonable medical necessity, (not because the (6) Billing for work done by an excluded provider.physician owns the imaging center) and to themost capable provider– not simply to the provider (7) And the catch all– “false certification.” Thiswho is the “highest bidder.” occurs when the provider falsely certifies to the government that the provider has complied with all laws and regulations entitling the provider to a payment (Stark Law and the AKS for starters,(b) Billing the Government, When Provider and more and more so, the Civil MonetaryDidn’t Have a Right to Payment. Penalties Statute and the Exclusionary State have Under this broad heading falls almost added false certification definitions ) when if fact,everything else that will get you in trouble with the provider has not.the government, subjected to a RAC audit claim 3. Damages and Penalties.for reimbursement, (or sued by a qui tam relator Violations of “fraud and abuse”on behalf of the government.) Items in this regulations carry heavy penalties, which oftencategory may either be forbidden by a federal rule, bear no relationship to the damage done. If the(which for the most part are made unethical under government is billed for services for a patient whoAMA Rules 2.035, 2.09, 2.19, 4.04, 4.06, 8.03) or has been referred in violation of Stark Law or themay be something that smacks of fraud, (even if AKS, then every single bill can be considered aHHS is yet to pass a rule on the subject,) such as “False Claim” under the False Claims Act, andMartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 9
  • 10. subject to a penalty for each claim submitted. This (i.e., “knows” about the claim), the provider mustis how in the Krizeck case, a physician earing return the payment within (a) 60 days, or (b) the$100,000.00 per year ended up with a lawsuit for date the corresponding cost report is due.$82 million. ($10,000 fine for each of 8,000claims submitted.) In addition, a provider may beexcluded from the program under the 5. The Holder Memorandum.“Exclusionary Statute.” It is worthy of note, the To the actual participants, how one feltgovernment does not need to prove that the about the Fall of Jericho might largely haveservices were not reasonably necessary. It is depended up which side one was standing whenenough that the referral was poisoned in some the walls crumbled. As for the rest of us, weway, and if so, the patient receives the care for would really rather see disputes resolved beforefree, the government receives the benefit of the they become a war of annihilation. Thetreatment without paying for it, and the provider government, unlike qui tam relators, also has amust pay a substantial penalty for each claim vested interest in the survival of the regulated, andsubmitted. is therefore, often more interested in compliance, than convictions. (CMS simply cannot shut down the only hospital in a region, no matter how badly4. FERA it is mismanaged. See, e.g., The problem withWith the Fraud Enforcement and Recovery Act of D a l l a s ’ P a r k l a n d .2009 (“FERA”), the federal government’s “most http://dallashealthcare.blogspot.com/)potent weapon” to fight fraud against the United As for smaller providers, in 1999, theStates became even stronger. Since its inception, “Holder Memorandum” was issued by the Deputythe False Claims Act has punished anyone who Attorney General, Eric Holder, to all Unitedknowingly submits a “false” claim for payment to States Attorneys, and government civilthe United States. A claim is “false” when the enforcement lawyers, aimed at providing guidanceperson or entity who submits the claim is not for both US Attorneys and trial attorneys in theentitled to be paid. In the healthcare context, the Civil Division of the US Government. Themost basic example of a false claim is a provider Holder Memorandum instructed governmentwho intentionally submits claims for services that lawyer to use the “sledge hammer” of fraud andwere never provided. Penalties under the False abuse laws under the FCA in a fair andClaims Act are severe, and include treble damages responsible manner. The gist of the Holder(three times the amount of claims improperly Memorandum was to encourage governmentpaid), administrative sanctions, and potential lawyers to (1) not treat everyone as unrepentantexclusion from participation in federal healthcare felons, unless they act like unrepentant felons, (2)programs. In some cases, criminal liability is also remember the difference between “knowingly”a possibility. false statements, (which are illegal) and false “Unknowingly” submitting a false claim statements by mistake, (which are not) (3) takedoes not violate the False Claims Act – at least not into account how much notice was provided of aprior to FERA. With FERA, Congress amended position taken by the government, (was thethe False Claims Act to cover the knowing provider they warned? Had the government beenretention of payments received pursuant to a false prosecuting prior to the enforcement in aclaim (a “reverse” false claim), even when the particular case) (4) consider how bad the conductfalse claim was not knowingly submitted. The was, and was it institution-wide, or just one badPatient Protection and Affordable Care Act of actor? (5) consider cooperation and willingness to2011 further strengthened FERA by adding the comply in assessing punishment, (6) try to resolve“60 Day Rule.” Under the rule, once a provider the case by “contact letters” rather than sue first,“identifies” a payment to which it is not entitled (7) consider alternative remedies tailored to theMartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 10
  • 11. situation, (8) consider ability to pay in accessing following are examples of questionable features,civil money penalties, and fines (8) don’t railroad which separately or taken together may result in apeople who can’t afford attorneys, just because it business arrangement that violates the anti-is easy, (9) don’t shut peoples business down kickback statute. Please note that this is not(unless they really deserve it) while attempting to intended as an exhaustive list, but rather givesinvestigate and ferret out abuse. examples of indicators of potentially unlawful To be consistent with my observation activity.regarding those memoranda I consider “bad” for (1) Investors are chosen because they are in amy clients, note that the Holder Memorandum, position to make referrals.(though “good” for clients,) is not a statute or (2) Physicians who are expected to make a largeeven a regulation. It is an internal memo, number of referrals may be offered a greatercirculated within the government, which was then investment opportunity in the joint venture thanrepublished in the appendicies to books, such as those anticipated to make fewer referrals.Health Care Fraud and Abuse, Bauman, L. ABABooks, (2002.) The point being, we health (3) Physician investors may be activelylawyers literally hang on every word published by encouraged to make referrals to the joint venture,the government. and may be encouraged to divest their ownership interest if they fail to sustain an ``acceptable I include the Holder Memorandum also to level of referrals.compare and contrast government actions fromqui tam lawsuits. Notice that the government will (4) The joint venture tracks its sources ofnotify a defendant and take into account various referrals, and distributes this information to thesocial concerns, before imposing penalty. In qui investors.tam actions, there is no pre-lawsuit discussion, in (5) Investors may be required to divest theirfact a defendant may not know he has been sued ownership interest if they cease to practice in thefor years. Qui tam relators do not have any service area, for example, if they move, becomeinterest in the continued viability of a target– they disabled or retire.don’t care if they kill the host. Therefore, if apotential defendant gets wind of the fact he may The point of this is not to provide anbe sued, he may wish to consider the value of self exhaustive treatise on what the government isreporting– whatever the government might do, it looking for, but to give you an idea that a greatis certainly preferable to total war. deal of information is out there, which you need to know if you advise clients in federal fraud and6. OIG Bulletins, Open Letters, and abuse compliance.Memoranda In the decade of the 2000s, the OIG 7. Steps for Staying out of Trouble with theissued a number of internal bulletins and Governmentmemoranda which were eventually published afterthe fact, to help guide providers as to what thegovernment is looking for, when it comes to As attorneys advising clients in the areacertain practices, such as “joint ventures,” office of healthcare fraud and abuse, Rule #1 : Anyspace, etc, under the title, “What to look for” for advice you provide a client, based upon the factsexample, with Joint Ventures; he has given you, may provide a defense to a(See,http://oig.hhs.gov/fraud/docs/alertsandbulle “knowing” violation. Ordinarily, communicationstins/121994.html): between attorney and client are privileged. However, that privilege belongs to the client, and“Suspect Joint Ventures: What To Look For To he may (and likely will) waive it. In fact, as thehelp you identify these suspect joint ventures, theMartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 11
  • 12. U.S. v. Campbell case, (Cited in Part II) alleged wrongdoing compared with the rule beingdemonstrates, one of the first things a client will enforced.do is report to the government that “my lawyer (B) Do whatever the “Safe Harbor,” thesaid this was legal.” In the Campbell case, the regulation, fraud alert, or bulletin says you areattorneys responded, “the client didn’t tell us supposed to do.everything.” We don’t need to look at thecrime/fraud exception to privilege, because the (C) Document efforts to comply. If theclient just waived privilege. Knowing this, regulation requires payment of “Fair MarketRule#2: Document everything. Your opinion Value” for something, hire a consultant to tell youletter should state in clear terms every fact upon what FMV is. Don’ t just pick a number out ofwhich your opinion is based, and that no other thin air.facts have been given or considered. Doctors have (D) Haggle. The opposite of just picking along held to the heuristic maxim: “If it didn’t get number out of the clear blue sky, as a “give andwritten down, it didn’t happen.” What you must take” negotiation. This includes not only the price,not do is get caught in this trap: If you “lie, and for example, of office space, but also theagree with the client,” as to what he now claims amenities, and use of common areas and facilities.he told you– he gets off the hook for millions of This can sometimes be difficult where the sellerdollars, but if you tell the truth, (he didn’t give me doesn’t really care what it is paid. (For example,all the facts) the opposite result happens. If you where a lessor of office space would be happyfind yourself in this dilemma, the best advice I can with $1 a year in lease payment.)give you is , (1) Do not lie to the FBI, (2) Hire thebest ethics lawyer you can find. (E) Be prepared to defend the number. The Advising clients is “art” not “science.” dollar amount of and arms length transaction isEven the official OIG bulletins carry a disclaimer, usually a range of numbers between x and y. Be“Don’t rely on us to know what we are talking prepared to show why the number is what it is.about. The statutes and regulations are the law. For example, if more fringe benefits are included,You are responsible for following the law, not the number should reflect that.what we say the law is. ” (Well, that’scomforting!) The point being, you must know all (2) Drafting the Contract. Track the language ofthe rules and regulations, as well as anything the the regulation or Safe Harbor in the contract.government has written on a subject. With that Legally, it may make no difference what thewarning in mind, here are a few ideas I think we contract says. However, putting the language incan all agree on. the contract does show that the parties where trying to comply, and more importantly, may be of(1) Before an arrangement is in place. If you are great evidentiary value in negating the “scienter”fortunate enough to be involved before an or “knowing violation” element of thearrangement is in place: government’s case. Therefore, for example, if the(A) Read and understand not only the statues, regulation requires that the price struck in thebut also everything the government has written on bargain does not include the “value of referrals,”a particular practice or arrangement. As the contract should expressly state that the partiesmentioned earlier, the rules and regulations are agree to this very thing.difficult to locate or digest. This problem is (3) Post Contract Behavior. After the contractcompounded by the fact that congress, and is in place, educate the client in the followingvirtually every lesser agency (from a problem areas:Constitutional law standpoint) is constantlytinkering with the questions of what is actually (A) Conversations Kill. Particularly in myillegal. If your client is facing enforcement practice, which is restricted to physicians– no oneaction, pay very close attention to the dates of the needs to know the doctor’s business, except theMartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 12
  • 13. doctor, and maybe the office manager. Instruct that the doctor may have been paid above the fairyou clients to keep the circle of people who know market value for the services actually renderedyour client’s business to a “need to know,” and the excess payments could violate the self-absolute minimum. Instruct those people to keep referral constraints of the Stark Act. The violationtheir mouths shut! Qui tam relators are of Stark caused the Medicare claims to be false,everywhere. Especially disgruntled former thus exposing the hospital and doctor to Falseemployees. They cannot blow the whistle on what Claims Act liability. While the doctor wasthey don’t know. I am not saying, “actively ultimately exonerated in a jury trial, this caseencourage fraud.” That is illegal. What I am nonetheless demonstrates the risks associated withsaying, is if there is open talk about everything the employment, and agreements that are notpractice does, but there is a “black box” around a operationally enforced.particular transaction, people notice, and what toinvestigate. Better to keep quiet about all financialrelationships. Part II: Qui Tam Actions(B) Educate the Sales Team. Physicians and Under the False Claims Act,licensed healthcare professionals all know theAMA Code of Ethics. Licensed professionals 2011 Judicial Year in Review.know in their bones when something is when The False Claims Actsomething is wrong. Don’ t assume the sales teamdoes. It is amazing the number of qui tam caseswhich reveal the marketing team has no concept A. Introduction:about medical ethics. Reign them in early and Congress passed the False Claims Act onoften. March 2, 1863, 12 Stat. 696. (31 U.S.C. §§(C) That’s Not Funny! There should be a “no 3729–3733, also called the "Lincoln Law.") Thejokes” policy in place. Especially in emails. In the FCA imposes liability on persons and companiesera of Electronic Discovery, and entire cottage (typically federal contractors) who defraudindustry has sprung up, with providers, such as governmental programs. The law includes a "quiHudson Legal, who will assemble and army of tam" provision that allows people who are notlawyers, many recent graduates of law schools, at affiliated with the government to file actions ona rate of $20 per hour to pour over emails, looking behalf of the government (informally calledfor something that constitutes a “Hot Doc.” The "whistleblowing"). Persons filing under the ActNeurontin case, cited below in Part II, might have stand to receive a portion (usually about 15–25been a little easier to defend, if the marketing percent) of any recovered damages. Claims underteam hadn’t taken to calling the drug, “Snake the law have typically involved health care,Oil.” military, or other government spending programs.(D) Do the Work Called for Under the The government has recovered nearly $22 billionContract. For example, if the a clinic or hospital under the False Claims Act between 1987 (afterretains a physician as a medical director, and the the significant 1986 amendments) and 2008.contract price is based upon, say 5 hours a month, The Justice Department secured morethen the physician and the clinic or hospital must than $3 billion in settlements and judgments indocument the time was actually worked. In U.S. civil cases involving fraud against the governmentv. Campbell, a case in federal court in New Jersey, in the fiscal year ending Sept. 30, 2011.the court ruled that a False Claims Act suit could http://www.justice.gov/opa/pr/2011/December/1proceed against a doctor who entered into a part- 1-civ-1665.html. This is the second year in a rowtime employment relationship with a hospital but that the department has surpassed $3 billion inwas not required to actually perform the services recoveries under the False Claims Act, bringingidentified in the contract. Thus, the court decidedMartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 13
  • 14. the total since January 2009 to $8.7 billion – the presented a false claim for payment or approval;largest three-year total in the Justice Department’s (2) Knowingly making, using, or causing to behistory. Id. made or used, a false record or statement material to a false or fraudulent claim; “Qui tam” is an abbreviated form of the (3) Conspiring to commit any violation of theLatin legal phrase qui tam pro domino rege quam False Claims Act;pro se ipso in hac parte sequitur ("he who brings (4) Falsely certifying the type or amount ofa case on behalf of our lord the King, as well as property to be used by the Government;for himself") In a qui tam action, the citizen filingsuit is called a "relator." As an exception to the (5) Certifying receipt of property on a documentgeneral legal rule of standing, courts have held without completely knowing that the informationthat qui tam relators are "partially assigned" a is true;portion of the governments legal injury, thereby (6) Knowingly buying Government property fromallowing relators to proceed with their suits. an unauthorized officer of the Government, and; The private plaintiff qui tam provisions (7) Knowingly making, using, or causing to bewere thought necessary because the federal made or used a false record to avoid, or decreasegovernment lacked the resources to detect and an obligation to pay or transmit property to thedeter fraud. (On the other hand, it seemed Government.blissfully simple to “fight greed with greed.”) See, 31 U.S.C. § 3729.One small tweak in the law was necessary To establish a violation, a plaintiff "musthowever, and is one which has become significant show that defendants (1) made a claim, (2) to thein the defense of qui tam cases in modern times. United States government, (3) that is false orThe problem simply was there was no prohibition fraudulent, (4) knowing of its falsity, and (5)against the “parasitic” practice of filing a claim seeking payment from the federal treasury." U.S.for a part of the recovery after the qui tam relator ex rel. Mikes v. Strauss, 274 F.3d 687, 695 (2dlearned of the fraud from sources such as reading Cir. 2001) The FCA defines "knowingly" asreports of criminal indictments by the federal having "actual knowledge," or acting ingovernment. (Remember the whole point of a qui "deliberate ignorance" or with "recklesstam provision in the FCA was that the government disregard" of truth or falsity. 31 U.S.C. § 3729(b)lacked the resources to detect the fraud in the first (2005). Thus, the requisite intent is more thanplace.) Today, the “Public disclosure” rule bars negligence or innocent mistake. Mikes, 274 F.3dthe filing of a qui tam action if the government, or at 703 . Put another way, "knowingly" presentingthe public, is already aware of the practice, unless a false claim "does not mean the claim is incorrectthe relator was the original source of the as a matter of proper accounting, but rather meansinformation. The defense forms a major part of it is a lie." Id. (citation omitted).the body of cases in 2011 cited below. The PatientProtection and Affordable Care Act, 124 Stat. Most, if not all of the opinions cited here119, amended the public disclosure bar, as are qui tam actions. The most important thing, (ordiscussed in Shindler Elevator v. US ex rel Kirk, things) to understand about the False Claims Act131 S.Ct. 1885 (2011). is (1) the United States government does not need the False Claims Act in order to recover The False Claims Act establishes liability damages or penalties and usually doesn’t use thewhen any person or entity improperly receives courts. (There are literally dozens of federalfrom or avoids payment (reverse false claims) to statutes that can accomplish this, including thethe Federal government (tax fraud is excepted). exclusionary statute and the civil monetaryThe Act prohibits: penalties statute,) usually the government handles(1) Knowingly presenting, or causing to be enforcement administratively, and will often useMartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 14
  • 15. the courts as a last resort. (2) qui tam relators must court for “good cause” may, (and normally)use the False Claims Act and meet the grants a number of extensions that can last years.requirements of the Act, or the claim and the (Thus, a defendant may be the target of a hundredlawsuit must fail. This is important because any million-dollar lawsuit, and be completely unawaredefense which is valid and results in dismissal of it for years.) How long does the governmentagainst the first relator to file, is a bar against any have to decide? Case law construing the "goodother relator. cause" requirement of 31 U.S.C. § 3730(c)(3) is scarce. At least one court has found that the requirement was implemented to protect the interest of relators. In U.S. ex rel. Stone v. Rockwell Intern. Corp., 950 F.Supp. 1046 (D.Col. 1996), the Court reviewed the Senate Report regarding the 1986 amendment to the FalseB. Procedure Claims Act, which implemented the "good cause" requirement for government intervention. The(1) Sealing. Qui tam relators suits are filed under 1986 amendments altered the reward provisions ofseal, and may remain under seal for years, pending the False Claims Act, permitting relators tothe government’s decision to intervene. Under 31 recover 25 to 30 percent of the alleged fraud ifU.S.C. §§ 3730(b)(4) and (c)(3), if the they proceeded alone, but only 15 to 25 percent ifGovernment elects not to proceed by taking over the government intervened. Id. at 1048-49. Givena qui tam action, the Plaintiffs-Relators "shall the new reward provisions, the Stone court noted,have the right to conduct the action." Although the "[g]overnment intervention late in the proceedingsGovernment is entitled under such circumstances may be unfair to a relator who has expendedto be served with copies of all pleadings and considerable resources to advance the case andcertain discovery material, there is no express then loses up to half of the reward for bringing theright to keep files sealed from the Defendant action." Id. at 1049.indefinitely. U.S. v. CACI International Inc., 885F. Supp. 80, 81 (S.D.N.Y. 1995). That being said, (3) The “First to File Rulethe statute does not specifically address whetherfile materials beyond the complaint are to be "When a person brings an action under [the quiunsealed once the Court enters its order. Several tam] subsection, no person other than thecourts, after having considered this issue, have Government may intervene or bring a relatedfound that a court has the authority to retain the action based on the facts underlying the pendingfiled documents under seal, or conversely, to action." 31 U.S.C. § 3730(b)(5). This rule carriesmake them fully available to the parties. See e.g., hidden implications. Unlike class action cases,U.S. ex. Rel. Howard v. Lockheed Martin Corp., there is no hearing to determine the relator’sNo. 1:99-285, 2007 WL 1513999, *2 (S.D. Ohio ability to represent the government. Even where aMay 22, 2007); U.S. ex rel. Yannacopolous v. case may have merit, if the relator fails to selectGeneral Dynamics, 457 F. Supp.2d 854, 858 experienced counsel, there may be only one qui(N.D. Ill.2006); U.S. ex rel. Health Outcomes tam action. Thus, motions to dismiss becomeTechnologies v. Hallmark Health System, Inc., crucial.349 F. Supp. 2d 170, 173 (D. Mass. 2004). (4) Motions to Dismiss.(2) The Decision to Intervene. Although the Statue allows the Once the government makes a decision ongovernment 60 days to decide to intervene, the intervention, (“yes,” or “no,”) then the case isMartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 15
  • 16. unsealed and the defendant is served. The first to weigh mixed fact and law issues in a 12.b.1responsive pleading will normally contain the motion to a greater degree than under 12.b.6. See,12.b.1, an Iqbal/Twombly 12.b.6 motion and/or a Osborn v. United States, 918 F.2d 724, 729-30 &Rule 9.b motion, although subject matter n.6 (8th Cir. 1990) ("Because at issue in a factualjurisdiction. None of these allege the defendant 12(b)(1) motion is the trial courts jurisdiction —“didn’t do it.” Instead, these motions seek its very power to hear the case — there isdismissal because the plaintiff didn’t plead substantial authority that the trial court is free toenough facts to remain in court. weigh the evidence and satisfy itself as to the existence of its power to hear the case.") (ii) Rule 9(b) Pleading Fraud with Particularity It is well established that the heightened pleading requirements of Fed. R. Civ. P. 9(b) apply to claims brought under the False Claims Act. This requires pleading “who, what when,(i) 12.b.1 Motion to Dismiss for Lack of Subject where.” See Gagne, 565 F.3d at 45. AlthoughMatter Jurisdiction Rule 9(b) may be satisfied where "some questions remain unanswered [but] the complaint as a whole is sufficiently particular to pass muster under theUnder the False Claims Act ("FCA"), federal FCA," id. at 46, quoting United States ex rel. Rostcourts lack jurisdiction over a qui tam action if the v. Pfizer, Inc., 507 F.3d 720, 732 (1st Cir. 2007),allegations in a relators complaint have been "Karvelas requires the complaint to provide,publicly disclosed in a federal hearing, in a federal among other fraud specifics, `details concerningreport or audit, or in the news media — unless the the dates of the claims, the content of the forms orrelator is an original source of the information. bills submitted, their identification numbers, [and](The relator does not lose the ability to sue, by the amount of money charged to the government."going to the government agency before filing Gagne, 565 F.3d at 46, quoting Karvelas, 360suit.) See,31 U.S.C. § 3730(e)(4)(A), which F.3d at 233.provides: (iii) Rule 12.b.6. Iqbal/Twombly“No court shall have jurisdiction over an action Before 2009, the only reason to file a 12.6.bunder this section based upon the public motion would have been if the Complaint weredisclosure of allegations or transactions in a perhaps written in crayon, or otherwise,criminal, civil, or administrative hearing, in a embarrassingly childlike. That all changed withcongressional, administrative, or Government Iqbal. To satisfy Fed. R. Civ. P. 12(b)(6), "aAccounting Office report, hearing, audit, or complaint must contain sufficient factual matter,investigation, or from the news media, unless the accepted as true, to `state a claim to relief that isaction is brought by the Attorney General of the plausible on its face." Ashcroft v. Iqbal, 129 S. Ct.person bringing the action is an original source of 1937, 1949 (2009); Bell Atlantic Corp. v.the information. Twombly, 550 U.S. 544, 570 (2007). Iqbal and Tombly mark a dramatic departure from prior On March 23, 2010, 31 U.S.C. § federal practice, (for example, the 2002 version3730(e)(4) was amended, but the legislation is of the Federal Procedure Hornbook by Wrightsilent as to retroactivity. See Section 10104(j)(2) & Miller dismissed as “insignificant,” andof the Patient Protection and Affordable Care Act, devoted less than a page to the subject ofPub. L. 111-148, 124 Stat. 119; Schindler dismissal for failure to state a claim upon whichElevator Corp. v. United States ex rel. Kirk, 131 relief could be granted.)S. Ct. 1885, 1889 n.1 (2011). Courts are permitted Why the sudden change? TheMartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 16
  • 17. Iqbal/Twombly decisions were specifically Cases?designed to address growing concerns that (1) Notwithstanding the practical benefits ofabsent a strengthened rule 12(b)(6), summary a strengthened dismissal practice, k,.Whistlejudgment would be the first chance a court might blower relators may have particular difficultyhave to dismiss a claim, (2) summary judgment meeting the “who, what , when, where” standardnormally could only be determined after under rule 9, and the “plausibility” standard underdiscovery had been fully developed, (3) given the Iqbal, because the relator may either be amodern practice of electronically saving every “stranger” to the transaction, or a formerdocument which would then be discoverable, (4) employee who has no access to the records. Therethe costs of discovery, even if the defense were to may also be confidentiality issues under ethicsbe successful, would constitute at best, a Pyrrhic rules and HIPAA. Courts are still in the processvictory. Thus, Iqbal/Twombly motions have of figuring out how to comply with the Supremebecome a powerful tool for defendants who seek Court’s opinions in Iqbal/Twombly and Congress’dismissal of cases, before the keys to discovery express instructions that the False Claims Act is tohave been handed over. be treated as an important tool of government. One of the most abrupt paradigm shifts Some solutions have been to relax the standard forfrom the old “notice pleading” rules, under pleading where the relator has no way to comply,Iqbal/Twombly is the new concentration upon the or to permit limited discovery. The Fifth Circuitdistinction between pleading facts vs. conclusions. recently noted that the standard for stating a claimAny litigator worth his salt, is familiar with for relief with particularity is lower in the FCAevidentiary prohibitions against conclusory context than it is in the securities or common lawtestimony. After Iqbal/Twombly parties must also fraud contexts. See, United States ex rel. Grubbsapply the same standard to pleadings. The v. Kanneganti, 565 F.3d 180, 185 (5th Cir.Supreme Court has declared post Iqbal/Twombly 2009)(Noting that in medical FCA cases, thethat the trial court is to disregard any conclusions Defendant will often be in sole possession of thecontained in the pleadings when determining necessary medical records.)whether the Complaint states a plausible claim for If dismissal is granted, the relator may berelief. Compliance with Iqbal/Twombly, in most permitted to replead, depending upon a number ofcases, is not so much a matter of substance, as it factors, as set out in Rule 15 and the cases thatis a matter of form, but in FCA cases, the burden follow.can be quite difficult to overcome. The most striking difference between government initiated enforcement and qui tam Why? Because the “one-two-punch” of actions lies the fact that the government has greatthe application of Iqbal/Twombly– plus the need to ensure the continued survival of theheightened pleading standard under Rule 9(b)– , industry being regulated, and a great deal ofeven where the evidence of a fraudulent scheme is concern, as set out in the Holder Memorandum,so strong that “fraud must be occurring” courts whether or not jobs will be lost due to anhave dismissed FCA cases where the relator could excessive penalty. Qui tam relators have no suchnot state with specificity “who, what, when, and concern or duty.where” false clams were actually presented. See, (5) Issues related to Settlement.US ex rel NATHAN v. Takeda Pharmaceuticals(ist. Court, ED Virginia, Case No. 1:09-cv-1086 Unlike Class Action lawsuits, the(September 6, 2011)(Discussed in Part II) plaintiff/relator need not prove fitness to represent the government. This does not imply that the relator is free to settle a case as it sees fit. Under the federal False Claims Act, a person may bring(iv.) A Reduced Burden in Whistle Blower an action "in the name of the Government"MartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 17
  • 18. seeking civil remedies for fraud against the United became one of the top selling drugs in the world.States. 31 U.S.C. § 3730(b)(1). Id. "The action Sales rose from fewer than 50,000 prescriptions inmay be dismissed only if the court and the 1995 to more than 1.4 million in 2004. TheAttorney General give written consent to the success of the drug was due to the illegal activitiesdismissal and their reasons for consenting." . of Parke-Davis, Warner-Lambert and Pfizer,Thus, the government has "an absolute veto power companies that undertook a nationwide effort toover voluntary settlements in qui tam False unlawfully market this drug for off-label uses forClaims Act suits." Searcy v. Philips Elecs. N. Am. which there was little or no scientific evidence ofCorp., 117 F.3d 154, 158 (5th Cir. 1997); accord efficacy. The Food, Drug and Cosmetic ActUnited States v. Health Possibilities, P.S.C., 207 (FDCA) prohibits such off-label marketing byF.3d 335, 339 (6th Cir. 2000). This veto power is pharmaceutical companies. See 21 U.S.C. §necessary because: 355(a). Dubbed "snake oil" by Pfizers own sales team, “relators can manipulate settlements in ways Neurontin was promoted through a publicationthat unfairly enrich them and reduce benefits to strategy that suppressed negative clinical trialsthe government . ... In qui tam litigation, [ there is and showcased positive ones. Pfizer alsoa danger that a relator can boost the value of sponsored continuing medical education programssettlement by bargaining away claims on behalf of and detailed doctors to promote off-label uses ofthe United States . ... If the government decides the drug. Eventually Warner-Lambert pled guiltythe settlement isnt worth the cost, § 3730(b)(1) to criminal violations of the FDCA and paid civilallows the government to resist these tactics and fines and criminal penalties totaling $430 million.protect its ability to prosecute matters in the Multi-district litigation (MDL) that consolidatesfuture. for pretrial purposes Neurontin-related civilSearcy, 117 F.3d at 160. Without this veto power, lawsuits brought nationwide. One group of MDLthe public relator would "retain sole authority to cases consists of products liability actionsbroadly bargain away government claims." Health claiming that Neurontin caused someone toPossibilities, 207 F.3d at 340. The government commit or attempt to commit suicide. Anothermay veto a settlement agreement that it believes group of cases involves lawsuits related to theprovides too broad a release by refusing to sales and marketing of Neurontin. Kaiserconsent pursuant 31 U.S.C. § 3730(b)(1). Foundation Health Plan and Kaiser Foundation Hospitals (collectively, "Kaiser"), bring this case against Pfizer, Inc. and Warner-Lambert CompanySELECTED CASES REPORTED IN 2011: (collectively, "Pfizer"), alleging violations of the Racketeer Influenced and Corrupt Organizations Act (RICO) and the California UnfairIN RE NEURONTIN MARKETING AND Competition Law ("UCL"). See 18 U.S.C. §SALES PRACTICES LITIGATION 1962(c) (RICO); Cal. Bus. & Prof. Code § 17200THIS DOCUMENT RELATES TO: KAISER (UCL). Kaiser spent about $200 million onFOUNDATION HEALTH PLAN, INC., et al. Neurontin from 1996 to 2004. After a five-weekv. PFIZER, INC., et al. Civil Action No. trial, on March 25, 2010 a federal jury found that04-cv-10739-PBS. U. S. District Court, D. Pfizer engaged in a RICO enterprise thatMassachusetts. (August 31, 2011.) committed mail and wire fraud by fraudulently marketing Neurontin for off-label conditions such as bipolar disorder, neuropathic pain, andOpinion Excepts: Approved by the Food and migraine, and at doses greater than 1800 mg/day.Drug Administration (FDA) in 1993 as a The jury found for defendants with respect tosecondary treatment for epilepsy, Neurontin plaintiffs claims of fraudulent promotion ofMartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 18
  • 19. Neurontin for nociceptive pain. The jury rendered the Information are true.").) As a result of itsa verdict in plaintiffs favor on the remaining guilty plea, Warner-Lambert agreed to pay a $240claims in the amount of $47,363,092. The statute million criminal fine. (Id.) The guilty plearequires the Court to treble the award to included an admission that the company promoted$142,089,276. 18 U.S.C. § 1964(c). the sale and use of Neurontin for the off-labelIn 1994, Parke-Davis estimated that Neurontin indications of neuropathic pain, bipolar disorder,would generate $500 million in profits over the and migraine through the use of salesduration of its patent. In a memorandum representatives, medical liaisons, advisory boardcirculated within Parke-Davis, one executive meetings, consultants meetings, andsuggested a "strategic swerve" to increase the teleconferences.earning potential of Neurontin. Some of the As early as 1994, Parke-Davis identified Kaiser asstrategies explored included marketing the drug a potentially lucrative target for its marketingfor epilepsy monotherapy, bipolar disorder and campaign. Defendants conducted marketingsocial phobia, and neuropathic pain. Defendants largely through three tactics: direct marketing toadopted these new strategies, which turned out to physicians, publication of positive Neurontinbe stunningly successful: in 2003 alone, articles in medical journals and suppression ofNeurontin sales exceeded $2 billion. Beginning in negative trials, and the sponsorship of CME1995, Parke-Davis began developing strategies to events attended by physicians.market Neurontin for off-label conditions, that is, The Court finds that fraudulent marketingconditions not included on the official label activities took place during the following timeapproved by the FDA. The company was periods for each indication: (1) bipolar disorder:interested in Neurontins potential psychiatric July 1998 through December 2004; (2)uses, despite the uncertainty about its efficacy in neuropathic pain: November 1997 throughtreating bipolar disorder. December 2004; (3) migraine: April 1999 through December 2004; and (4) doses greater than 1800Dr. David Franklin, the whistleblower in the mg/day: November 1997 through December 2004.initial Neurontin litigation in 1996, testified about Beginning in July 1998 when Parke-Davisthe direct marketing of Neurontin to physicians obtained (and began to suppress) the negativefor off-label uses. Dr. Franklin was hired in 1996 results of the Pande trial, the defendants engagedas a medical liaison for Parke-Davis. As part of in the fraudulent marketing of Neurontin for thehis job he was provided training on off-label treatment of bipolar disorder. In addition tomarketing of Neurontin. ("[I]t was our job to . . . fraudulent detailing, Pfizer sponsored at least twoactually talk to physicians and sell Neurontin for fraudulent supplements, engaged in a fraudulentoff-label indications.").) His job was "99 percent publication strategy by publishing only positivefocused on off-label promotion." On May 13, information and suppressing negative; conducted2004 the Department of Justice filed a criminal at least two fraudulent continuing medicalinformation charging Warner-Lambert with illegal education programs; and made a fraudulentoff-label promotion of Neurontin. The same day, misrepresentation, through a half-truth, inPfizer caused Warner-Lambert (which it owned) published reviews.to plead guilty to two felony counts of marketingNeurontin for various unapproved uses, includingpainful diabetic neuropathy, bipolar disorder, Holding: On the one remaining claim (areflex sympathetic dystrophy (RSD), and migraine particular California statute) the court held Theheadaches. (stating that "Warner-Lambert Court finds the defendants liable under theexpressly and unequivocally admits that it California Unfair Competition Law for conductcommitted the crimes charged in the Information. related to the following off-label conditions: (1)Warner-Lambert agrees that the facts set forth in bipolar disorder; (2) neuropathic pain; (3)MartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 19
  • 20. migraine; and (4) doses greater than 1800 mg/day. unapproved uses, including painful diabetic neuropathy, bipolar disorder, reflex sympathetic dystrophy (RSD), and migraine headaches. In thatNotes: plea, "Warner-Lambert expressly and1. The pharmaceutical industry has been so unequivocally admits that it committed the crimessuccessful controlling members of congress (and charged in the Information. Warner-Lambertthe FDA, by calling upon members of congress to agrees that the facts set forth in the Informationreign in the FDA) See, Mundy, Alice Dispensing are true." Although this is not a FCA case,with the Truth, The Dramatic Story Behind the (because the Federal Government did not pay thisBattle over Fen-Phen, New York: St. Martin’s claim for drug benefit,) the Neurontin scandalPress (2001), that the industry seems to have been illustrates the growing tendency of privatetotally blind-sided by the fact that law companies, such as the Kaiser Family of HMO’senforcement (OIG) play by a different set of rules. to file suit on state whistleblower grounds. (ThereUnlike virtually every other health care enterprise, were two classes of Neurontin cases, the product(most of whom are scared to death of the federal liability MDL cases relating to suicide, and thisgovernment) the pharmaceutical industry seems type of case, for false marketing claims. Here, theastonished that they cannot do anything they wish, whistleblower was a doctor hired to market theregardless of the rules. To be fair, the interests of drug.) While lacking the federal statutes and civilthe pharmaceutical industry is not easily separable monetary penalty provisions, these companies arefrom the interests of everyday working filing state law claims alleging they wereAmericans. Teacher’s retirement plans, municipal fraudulently induced to pay claims which wereworker’s plans, mutual funds, and almost every false or fraudulent, and they want there moneyother individual American investor are the actual back. This is the “findings of fact andowners of pharmaceutical companies. We cannot conclusions of law” memorandum supporting thecomplain about “them,” without complaining order of payment of $95 million in restitution toabout “us.” Kaiser, (in addition to the treble damages of $147Questions: million awarded by the jury) who was bilked into paying for a drug referred to as “snake oil.”Kaiser sought to prove that it spent too much money on1. Is the Federal False Claims Act the only the off-label prescription of the drug. Defensemeans by which a whistleblower could bring countered the physician’s prescription could beaction against a billion dollar industry? due to any of a number of factors. The defense2. For the Plaintiffs’ bar, what advantages do Qui also countered that the drug actually was effectiveTam whistleblower cases have over traditional for off-label use. Further, the defense argues theclass action and MDL mass tort lawsuits? statute of limitations precluded recovery.3. How important is it to a Defendant to knock The Court order defendants to pay restitution toout the Qui Tam relator from any case that could the Kaiser Foundation Health Plan in the amountbe brought by the government? of $95,286,518.Notes: 2. The advantage of FCA cases over class action and mass tort cases lies in the fact that there is only one plaintiff (not thousands.) The damages1. This case illustrates that you do not need awarded often bear no relationship to the harm(though it certainly helps) a federal statute to win done. (A technical defect in the provision ofhundreds of millions of dollars in a whistleblower services and products may result in huge awards,case. Pfizer caused its subsidiary, even if the services or product was good for theWarner-Lambert to plead guilty to two felony patient.) Further, the United States is the realcounts of marketing Neurontin for various party in interest, and the injury is complete by theMartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 20
  • 21. payment of a claim, there is no affirmative and for under performance of procedures.defense that the plaintiff contributed to his own Following his termination, a federal monitorinjury, or failed to mitigate loss. conducted an investigation of UMDNJs cardiology program and determined that it was an illegal scheme to pay cardiologists for patient3. The defendant cannot escape responsibility on referrals in order to maintain UHs cardiacthe grounds that as co-defendant talked them into services and Level One Trauma Center licenses.the violation. (There is no “trying the empty CAP physicians were rarely required to performchair.” As the Campbell case below the delineated duties and were in essence paid fordemonstrates.) their cardiology patient referrals to UMDNJ.US v. CAMPBELL, Following this investigation, UMDNJ entered into2011 WL 43013, No. 08-1951 a settlement agreement with the federal government in September 2009, paying(D. N.J., Jan. 4, 2011.) approximately $8.33 million to the United States to settle the FCA claims against it.Facts: In this case, the University of Medicineand Dentistry of New Jersey (UMDNJ) and its On January 4, 2011, the U.S. District Court ofaffiliated medical teaching facilities, New Jersey issued a ruling2 that held that: (1)UMDNJ-New Jersey Medical School (NJMS) and summary judgment is not appropriate forUMDNJ-University Hospital (UH), sought to determining the scienter element under the federalemploy cardiologists under part-time employment FCA; and (2) absent misrepresentation or fraudarrangements in an effort to obtain patient that is independent from FCA liabilities claims, anreferrals that would maintain the requisite number FCA defendant cannot seek indemnification andof cardiac procedures needed for UHs Level One contribution against third-party defendants.Trauma Center license. One of these physicians Therefore, Dr. Campbell may not re-join thewas Dr. Campbell. Campbell, among others, was hospital as a defendant.hired as a Clinical Assistant Professor (CAP) toperform duties related to this cardiology program.Under the arrangement, Campbell was to receive Questions.$75,000 in annual compensation as a CAP. Priorto signing his employment agreement, UMDNJ 1. Recall that the reason the government sayslegal counsel assured Campbell that the kickbacks and self referrals are illegal, is thatemployment arrangement met applicable there should be no other consideration thanAnti-Kickback and Stark exceptions. Campbell “patients needs” in prescribing care. Here could itclaimed to have relied on this assurance of legality not be said the government has created awhen he signed the agreement. He did not seek “perverse incentive”, and an conflict of interest.independent counsel. 2. Often defendants wish to argue that the other party talked them into a scheme, or that a law firmDuring his CAP employment, Campbell did not cleared the plan, but here, does it not appear thatperform any of the duties required under the the scheme was legal at the time Dr. Campbellagreement, nor did UMDNJ demand that he do so. was hired, except for the fact that no servicesHe was allegedly suspended multiple times for were performed after the contract was signed,failing to prepare adequate medical charts for his (which naturally the legal department would notprocedures performed at UH, and he was have known at the outset, but Dr. Campbellultimately terminated for continual suspension certainly would.)MartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 21
  • 22. Programs: Fraud and Abuse; OIG Anti-Kickback2. False Certification and “Implied” False Provisions, 56 Fed. Reg. 35952, 35955 (July 29,Certification 1991) (citing Bay State Ambulance, 874 F.2d at 29); see Shaw, 106 F. Supp. 2d at 114 ("[T]he fundamental analysis required of a trier of fact isTHE UNITED STATES OF AMERICA ex rel. `to recognize that the substance rather than simplyKASSIE WESTMORELAND v.AMGEN, the form of the transaction should be controlling."INC.; INTERNATIONAL NEPHROLOGY (quoting 56 Fed. Reg. at 35957)). "The reasonNETWORK renamed INTEGRATED behind the transaction and the requisite state ofNEPHROLOGY NETWORK, a d/b/a of mind underlying the criminal act are moreDIALYSIS PURCHASING ALLIANCE, INC.; significant than form and label." Shaw, 106 F.and ASD HEALTHCARE, Civil Action. No. Supp. 2d at 116. If the requisite intent to willfully06-10972-WGY. United States District Court, D. or knowingly solicit or offer a kickback is present,Massachusetts.September 15, 2011.• formal compliance with a safe harbor is not sufficient to avoid liability under the Anti-Kickback Statute. Cf. Medicare and State[Introductory note: The Amgen defendants Health Care Programs: Fraud and Abuse;apparently were overfilling single-vial doses of Clarification of the Initial OIG Safe HarborAmgen, encouraging doctors to harvest the Provisions and Establishment of Additional Safeoverfill, and when enough had been pooled for a Harbor Provisions Under the Anti-Kickbackpatient dose, to administer the free dose, but bill Statute, 64 Fed. Reg. 63518, 63530 (Nov. 19,the government as if the clinic had actually paid 1999).full price for the free dose. Among the manydifferent regulations violated, the governmentthrough relator, Westmoreland, alleged this Notes: A substantial bulk of the opinion ispractice violated the AKS Discount Safe Harbor.] devoted to the treatment of 42 C.F.R. § 424.510(d)(3),] when a provider signs the Provider Agreement, he or she "attests that theOpinion excerpts. Safe Harbor. “To receive information submitted is accurate and that [he orprotection, a business arrangement must fit she] is aware of, and abides by, all applicablesquarely within a safe harbor; substantial statutes, regulations, and program instructions."compliance is not enough, although compliance is The regulation states that a provider who signs thevoluntary and failure to comply is not a per se Provider Agreement is certifying that he is inviolation of the statute.” OIG Compliance compliance with "all applicable statutes." 42Program for Pharmaceutical Manufacturers, 68 C.F.R. § 424.510(d)(3) (emphasis added). TheFed. Reg. 23731, 23734 (May 5, 2003). "Whether Anti-Kickback Statute being one such “applicablea particular payment practice violates the statute statute.”is a question that can only be resolved by ananalysis of the elements of the statute as applied Most damning was the fact Amgen and INNto that set of facts." Medicare and State Health developed spreadsheets comparing (1) theCare Programs: Fraud and Abuse; Clarification of reimbursement cost of Aranesp including overfillthe OIG Safe Harbor Anti-Kickback Provisions, versus excluding overfill, and (2) the59 Fed. Reg. 37202, 37203 (July 21, 1994). reimbursement cost advantage of Aranesp versus"[T]he gravamen of a violation of the statute is the competitor drug Procrit when overfill was`inducement and not necessarily the structure of included. Id. ¶¶ 20, 29. These spreadsheets werethe arrangement," such that "case by case shown to medical providers. Id. Amgens seniorinquiries must necessarily focus on the intent of finance manager referred to overfill as "a type ofthe parties." Medicare and State Health Care hidden discount to customers."MartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 22
  • 23. This case is noteworthy because of the court’s defraud Medicare.treatment of the legal issues surrounding “Implied Amgen Petition for Writ of Certiorari to theCertification” and a defendant’s “knowing” U.S. Supreme Court. The Amgen defendantsviolation of the Anti-kickback Statute where CMS have applied for a Writ of Certiorari to the U.S.is in the process of forbidding the practice in Supreme Court, noting the U.S. Courts of Appealsquestion, but had not yet passed a rule. Factually, have been wrestling with the reach of the Falsesingle dose vials of a drug often contain overfill (a Claims Act when the actual claim submitted to the1 mil. vial may contain 1.1 mil. This is done to government is not “factually false.” Some courtsaccount for spills and medicine sticking to the have adopted a framework in which a claim that isvial. Overfill ensures that the patient actually true on its face can be considered “legally false”receives the full 1 mil. dose.) Evidence in this where a party somehow involved in the goods andcase shows that the manufacturer encouraged services provided failed to comply with certainclinics to harvest the excess and when enough statutory, regulatory or contractual obligations,product had been pooled from the excess, the despite never expressly certifying that it didclinic could administer and bill CMS for the dose, comply with these obligations. This is called theas though the clinic had paid for the product, “implied certification” theory of liability. In itswhen it had not. At a bare minimum, clinics must Petition for a Writ of Certiorari to the U.S.report to CMS that the overfill was being used and Supreme Court, Amgen contends that “[t]hethe dose was free of charge to the clinic. After Circuits have applied a dizzying array of different5 years of litigation, and 350 ECF filings, this Qui tests in deciding whether claims like this qualifyTam case finally reached the posture that it is ripe as ‘false or fraudulent’ within the meaning of thefor a 12(c) motion for judgment on the pleadings FCA.”and motions for partial summary judgment. Thecentral allegation is that an illegal kickback was In its Writ, Amgen describes some of the varyinggiven by free- of- charge overfilling of vials of a positions taken by the Circuits regarding thedrug with $23 billion in worldwide sales (2001- implied certification theory of liability:2010.) The Defendants had a very strong casethat a safe harbor should have protected them, and 1st Circuit: dispensing with the “certification”even if it didn’t, it would be hard to demonstrate framework, and holding that liability can bea knowing violation, as CMS had not outlawed premised on failure to comply with a contractual,the practice and has never prosecuted a case for regulatory or statutory obligation whenever theoverfill on the grounds that it is an illegal government could theoretically reject a claim forkickback. However, one of the defendants created non-compliance. See New York ex rel.a paper trail in which it appears to have included Westmoreland et al. v. Amgen, Inc. et al., 2011extra overfill in each vial, and expressly stated WL 2937420 (1st Cir. July 22, 2011); Unitedthat an illegal kickback is exactly what was States ex rel. Hutcheson et al. v. Blackstoneintended by the overfill. The email stated that the Medical, Inc., 2011 WL 2150191 (1st Cir. June 1,company’s product had a competitive advantage 2011). For further details on the First Circuitbecause of the intentional overfill, the decisions, click here, here, and here.purchaser/clinic will be able to bill Medicare fora drug expense that was not incurred. The opinion 7th, 4th, and 5th Circuits: have taken positionscites a great deal of authority on overfill rules, that are incompatible with an implied certificationincluding false labeling regulations. The opinion theory. See United States ex rel. Yannacopoulosconcluded that where a defendant has encouraged v. General Dynamics, 2011 WL 3084932, at *3a fraudulent billing practice, the defendant may be n.4. (7th Cir. July 26, 2011); Harrison v.liable, even if a safe harbor applies, where there is Westinghouse Savannah River Co., 176 F.3d 776,evidence of actual intent to encourage another to 786-87 n.8 (4th Cir. 1999); United States ex rel. Marcy v. Rowan Cos., 520 F.3d 384, 389 (5th Cir.MartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 23
  • 24. 2008). to reap a windfall in anti-kickback cases, (where2nd, 3rd, and 8th Circuits: implied certification the patient received treatment which wastheory limited to where there is a statute or reasonably necessary, and highly beneficial,) butregulation that is a condition of payment. See due to some technical violation of the discountMikes v. Straus, 274 F.3d 687 (2d Cir. 2001); rules under the AKS, the patient gets the drug forUnited States ex rel. Wilkins v. United Health free and the government does not have to pay forGroup, Inc., 2011 WL 2573380, at *9 (3d Cir. the treatment? Should there be some commonJune 30, 2011); United States ex rel. Vigil v. sense mitigation of the damages awarded?Nelnet, Inc., 639 F.3d 791, 795–96 (8th Cir. 5. How many times should the government be2011). allowed to fine a defendant for a single act, by11th Circuit: implied certification theory can be simply terming the fine a civil monetary penalty?based on either a condition of payment or acondition of participation in the federal program. 1 THE COMMONWEALTH OFSee McNutt ex rel. United States v. Haleyville MASSACHUSETTS, v. SCHERING-PLOUGHMedical Supplies, Inc., 423 F.3d 1256, 1259 (11th CORPORATION, SCHERINGCir. 2005). CORPORATION, & WARRICK PHARMACEUTICALS CORPORATION, CivilD.C. Circuit: holding that a violation of a Action No. 03-11865-PBS. United States Districtcontractual obligation that was “material” to the Court, D. Massachusetts.government’s obligation to pay a claim can form (September 23, 2011.)the basis for FCA liability. See United States v. Opinion Excerpts: The Commonwealth ofScience Applications Int’l Corp., 626 F.3d 1257, Massachusetts claims that Schering-Plough1261 (D.C. Cir. 2010). Corporation, Schering Corporation, and Warrick Pharmaceuticals Corporation caused theQuestions: Massachusetts Medicaid Program to overpay for the generic drug Albuterol by fraudulently1. What does the first quoted sentence on “Safe inflating the "Wholesale Acquisition Cost"Harbors” actually mean? Is it not possible in the ("WAC") of the drug. The Commonwealth arguesattempt to say everything, the court has said that the spreads between defendants reportednothing at all? prices and "true" WACs ranged from 100% to2. The “False Certification” claim is designed to 700%. Albuterol is a drug used to prevent andcure what problem in prosecuting False Claims treat respiratory problems caused by lung diseasesAct Cases? such as asthma.3. Is it fair for HHS or CMS to require a After a lengthy trial, the jury returned a verdict inDefendant to certify that it has complied with favor of the Commonwealth, finding thatevery possible regulation and rule of any kind, or defendants committed fraud and violated thebe subject to civil monetary penalties and Massachusetts False Claims Act ("MFCA")andrepayment of every Medicare dollar it received in the Massachusetts Medicaid False Claims Actcompensation? ("MMFCA"). (See Jury Verdict, Docket No. 934.)4. In the Neurontin case, Kaiser filed suit After trial, defendants filed a motion seekingclaiming that the drug it purchased was worthless. judgment as a matter of law in their favor or,Here the claim is not that the drug was worthless, alternatively, a new trial. "Not all fraudulentbut that the marketing scheme violated the conduct gives rise to liability under the FCA.“discount” provisions of the AKS. Is it not a [T]he statute attaches liability, not to thefundamentally unfair scheme for the government underlying fraudulent activity or to the governments wrongful payment, but to the claimMartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 24
  • 25. for payment." (internal citations and quotations for payment." Here the pharmacists claims weremarks omitted). The touchstone must still be a factually false because the reported Usual andfalse claim. Customary prices (different pricing benchmarks Here the pharmacists claims were from WACS) were inaccurate, but defendants hadfactually false because the reported Usual and "no role in causing [the claim to be filed]."Customary prices (different pricing benchmarksfrom WACS) were inaccurate, but defendants had"no role in causing that independent falsehood."Schering-Plough Corp., 2011 WL 1575198, at *6. 3. The Fifth Circuit View of Using the FalseThe independently false representations made by Claims Act as a “Blunt Instrument” to enforcedefendants—the false WACs—were not presented every federal law.to MassHealth with the pharmacists claims andthe pharmacists had never made any UNITED STATES OF AMERICA, ex rel,representations about WACS. Instead, the WACs BRADLEY SLOAN WRIGHT,were published in First DataBank and, v.subsequently, were one of four prices contained inthe states regulatory pricing file used to determine COMSTOCK RESOURCES,the reimbursement price. Id. at *4. Therefore, INCORPORATEDunder Prong 1, defendant is not liable for causing No. 10-40785.the submission of a false or fraudulent claim United States Court of Appeals, Fifth Circuit.based on the WAC unless the Court determinesthe regulatory pricing file to be part of the claim (Filed December 15, 2011.)presented to the government by the pharmacist. Opinion Excepts: The False Claims Act providesThe Court has already considered and rejected this that "any person who . . . knowingly presents, orargument by the Commonwealth, and nothing in causes to be presented, a false or fraudulent claimHutcheson or Westmoreland affects the Courts for payment or approval . . . is liable to the Unitedprevious factual ruling. States Government for a civil penalty." 31 U.S.C. § 3729(a)(1). In determining whether liability attaches under the FCA, we ask "(1) whether thereNotes: As with the Amgen Cases, the question is was a false statement or fraudulent course ofa tricky one, “When is bad behavior actionable conduct;[2] (2) made or carried out with theunder the False Claims Act?” This case is similar requisite scienter; (3) that was material; and (4)to/ a companion of Massachusetts v. that caused the government to pay out money or toSchering-Plough Corp., ___ F.Supp. 2d ___, 2011 forfeit moneys due (i.e., that involved a claim)."WL 1575198 (D. Mass. Apr. 27, 2011); United States ex rel. Longhi v. Lithium PowerMassachusetts v. Mylan Labs., Inc., 608 F. Supp. Techs., Inc., 575 F.3d 458, 467 (5th Cir. 2009)2d 127 (D. Mass. 2008). The narrow issue in this (quoting United States ex rel. Wilson v. Kelloggcase is whether the fraudulent activity alleged can Brown & Root, Inc., 525 F.3d 370, 376 (4th Cir.support a False Claims Act violation, where there 2008)) (internal quotation marks omitted). By itsis no evidence the other defendant played a part in own terms, the FCA imposes no liability unlessthe submission of the claims. Here, pharmacists the alleged violator "(1) has actual knowledge ofacted independently of the defendant when they the information; (2) acts in deliberate ignorance ofallegedly submitted the false claims. The court, in the truth or falsity of the information; or (3) actsruling against the commonwealth observed: "Not in reckless disregard of the truth or falsity of theall fraudulent conduct gives rise to liability under information." 31 U.S.C. § 3729(b)(1)(A). As wethe FCA. [T]he statute attaches liability, not to the explained in United States ex rel. Taylor-Vick v.underlying fraudulent activity or to the Smith, 513 F.3d 228 (5th Cir. 2008), this meansgovernments wrongful payment, but to the claimMartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 25
  • 26. that "the evidence must demonstrate `guilty Opinion Excerpts: This case is one of a numberknowledge of a purpose on the part of [the raising the question of when a manufacturersdefendant] to cheat the government, or promotion of a medical device for an "off-label"`knowledge or guilty intent." Id. at 231 (citations use may provide the basis for a qui tam action byomitted).[3] Thus, Relators must raise a fact issue a private plaintiff suing under the False Claimsnot only as to whether Comstock made false or Act.fraudulent claims, but also as to whether it The FDA approves products for specificknowingly committed fraud. indications, which are stated in the label. When a... medical device is approved for one purpose orWhatever violations may have occurred, the FCA indication and used outside this approved purpose,is not a "blunt instrument" for enforcing federal that use is deemed "off label." Off-labelstatutes. See Mikes v. Straus, 274 F.3d 687, 699 promotion may involve disseminating information(2d Cir. 2001); United States ex rel. Thompson v. about product uses the FDA did not approve. TheColumbia/HCA Healthcare Corp., 125 F.3d 899, FDA generally restricts a manufacturer from902 (5th Cir. 1997) (holding that "claims for marketing for off-label purposes but does notservices rendered in violation of a statute do not restrict a hospital from purchasing, or a doctornecessarily constitute false or fraudulent claims from prescribing or using, a medical device for anunder the FCA") (citing United States ex rel. off-label purpose. Off-label use of many devicesWeinberger v. Equifax, Inc., 557 F.2d 456, 461 and drugs is an accepted medical practice.(5th Cir. 1977)); see also Steury, 625 F.3d at 268. Courts recognize that off-label use of aAs we stated at the outset, Relators must not drug or medical device is not the same as amerely raise a fact issue as to statutory medically unnecessary use of that drug or device.compliance; Relators must raise a fact issue as to See Buckman Co. v. Plaintiffs Legal Comm., 121whether Comstock knowingly defrauded the S. Ct. 1012, 1018 (2001) ("`[O]ff-label usage ofGovernment. We conclude that Relators have medical devices . . . is an accepted and necessaryfailed to do so. corollary of the FDAs mission to regulate in thisQuestions: area without directly interfering with the practice of medicine."); Svidler v. United States Dept of1. What difference does it make whether the Health and Human Servs., No. C-03-3593 MJJ,False Claims ct is used to enforce a Federal 2004 WL 2005781, at *5 (N.D. Cal. Sept. 8, 2004)Statute? ("[T]he FDA can restrict a company from marketing off-label uses, but cannot prevent a4. The U.S. Southern District of Texas, doctor from prescribing a device for an off-labelHouston Division view of Using the FCA “False use for any purpose she deems medicallyCertification” to Enforce Federal Laws necessary." (citing Washington Legal Found. v. Friedman, 13 F. Supp. 2d 51 (D.D.C. 1998)); United States ex rel. Polansky v. Pfizer, No.UNITED STATES OF AMERICA, ex rel. 04-cv-0704 (ERK), 2009 WL 1456582, at *6ELAINE BENNETT, Plaintiffs, (E.D.N.Y. May 22, 2009) ("[T]he FDA hasv. acknowledged that `accepted medical practice often includes drug use that is not reflected inBOSTON SCIENTIFIC CORPORATION and approved drug labeling." (citing Food & DrugGUIDANT CORPORATION, Defendants. Admin., Use of Approved Drugs for UnlabeledCivil Action No. H-07-2467. Indications, 12 FDA Drug Bulletin 4, 5 (1982));United States District Court, S.D. Texas, Houston United States ex rel. Stephens v. Tissue Sci. Labs.,Division. Inc., Civil Action No. 1:07-CV-2357-ODE,March 31, 2011. LEXIS 2009 DIST. 101601, at *20 (N.D. Ga.MartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 26
  • 27. Aug. 13, 2009) (noting that DRG payment may be there is no identified statutory, regulatory, or othermade for hernia care even if noncovered care — prohibition on reimbursement to physicians orthe use of the device at issue — was present). hospitals for using the FlexView system for this Medicare reimbursement for off-label purpose. While Medicare and Medicaid typicallyuses of medical devices is not addressed within do not reimburse off-label prescriptions for drugs,the Medicare Act itself. See generally Yale-New see United States ex rel. Franklin v. Parke-Davis,Haven Hosp. v. Leavitt, 470 F.3d 71, 73 (2d Cir. 147 F. Supp. 2d 39, 44-45 (D. Mass. 2001);2006). Broad wording excludes from Medicare United States ex rel. Hess v. Sanofi-Synthelabocoverage "any expenses incurred for items or Inc., No. 4;05CV570MLM, 2006 WL 1064127, atservices . . . which . . . are not reasonable and *10 (E.D. Mo. Apr. 21, 2006), the relator has notnecessary for the diagnosis or treatment of illness pointed to a similar categorical restriction onor injury or to improve the functioning of a reimbursement for Category B medical devices.[5]malformed body member." 42 U.S.C. § For medical devices, eligibility for reimbursement1395y(a)(1)(A). The Secretary of the Department depends on whether the procedure performed isof Health and Human Services "is responsible for "medically necessary" or "reasonable andspecifying those services that are covered under necessary."the `reasonable and necessary standard" and "has The courts have held that a claim may bewide discretion in selecting the means for doing false or fraudulent under the FCA because itso." Yale-New Haven Hosp., 470 F.3d at 74 (citing includes a certification of compliance with a42 U.S.C. § 1395ff(a); Heckler v. Ringer, 466 federal statute, regulation, or contract that is aU.S. 602, 617 (1984)). Traditionally, the Secretary prerequisite to obtaining the government benefit.has acted through "formal regulations and United States ex rel. Graves v. ITT Educ. Servs.,(informal) instructional manuals and letters." Id. Inc., 284 F. Supp. 2d 487, 497 (S.D. Tex. 2003),Before 1995, the Medicare Hospital Manual, the affd, 111 F. Appx 296 (5th Cir. Oct. 20, 2004).Medicare Carriers Manual, and the Intermediary Such "legally false" certification differs fromManual stated that payment could not be made for "factually false" certification, which involves andevices not approved by the FDA for commercial incorrect description of goods or servicesdistribution because "they were not considered provided or a request for reimbursement for goods`reasonable and necessary under 42 U.S.C. § or services never provided. See Mikes v. Straus,1395y(a)(1)." In re Cardiac Devices Qui Tam 274 F.3d 687 (2d Cir. 2001). The Fifth Circuit hasLitig., 221 F.R.D. 318, 323 (D. Conn. 2004) held that a claim is "legally false" only when a(citing Medicare Hospital Manual § 260.1(B) party affirmatively and explicitly certifies(effective July 15, 1986); Medicare Carriers compliance with a statute or regulation and theManual § 230.1; Intermediary Manual § 3151.1)); certification is a condition to receiving thesee also Yale-New Haven Hosp., 470 F.3d at 74 government benefit. See Thompson, 125 F.3d at(discussing the history of the manual provisions). 902. In addition to express certifications of In 1995, the Secretary of the United States compliance, other circuits have found that FCADepartment of Health and Human Services liability may exist under an "implied theory" ofpublished regulations superseding the manual certification. See Willard, 336 F.3d at 82provisions and allowing Medicare coverage for (discussing cases). "The theory of impliedCategory B investigational devices under the certification rests on the notion that `where the"reasonable and necessary" standard. Yale-New government pays funds to a party, and would notHaven Hosp., 470 F.3d at 71. have paid those funds had it known of a violation of a law or regulation, the claim submitted for those funds contained an implied certification of While there is no FDA approval for using compliance with the law or regulation and wasthe FlexView system to treat atrial fibrillation, fraudulent." United States ex rel. Foster v.MartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 27
  • 28. Bristol-Myers Squibb Co., 587 F. Supp. 2d 805, pleadings standards and issues of “upcoding, ”823 (E.D. Tex. 2008) (citing United States ex rel. and “retaliation.” In sum, the court concludes thatBarrett v. Columbia/HCA Healthcare Corp., 251 the missing element of the relator’s claim is anyF. Supp. 2d 28, 33 (D.D.C. 2003)). For example, allegation that the Defendant misrepresented thatthe Sixth Circuit has found that FCA liability "can the device in question was actually approved forattach if the claimant violates its continuing duty the off label use, when it was not. Nor did theto comply with the regulations on which payment defendant certify compliance with the AKS as ais conditioned." Willard, 336 F.3d at 82 (quoting condition of payment. The court refuses to acceptUnited States ex rel. Augustine v. Century Health the argument that any off label use must not, orServs., Inc., 289 F.3d 409, 415 (6th Cir. 2002)). cannot, be medically necessary, when the exactThe Fifth Circuit has never adopted implied contrary appears to be the rule of law. Even ifcertification as a theory of FCA liability. United FDA rules forbid the defendant from marketingStates ex rel. Marcy v. Rowan Cos., Inc., 520 F.3d for off label use, this is not the same as384, 389 (5th Cir. 2008) (citing Willard, 336 F.3d encouraging another to make a false claim, orat 381-82); United States v. Southland Mgmt. encouraging the physicians to make a false claimCorp., 326 F.3d 669, 679 (5th Cir. 2003) (en when they choose to use the device, evenbanc) (Jones, J. concurring); United States ex rel. experimentally.Steury v. Cardinal Heath, Inc., 625 F.3d 262, 268 5. The U.S. District Court for the Southern(5th Cir. 2010). Instead, the Fifth Circuit has held District (Houston Division) Reminds Us, Isthat "[t]he violation of the statute or regulation Still Possible to Do Something So Rotten thatdoes not create a cause of action under the False You Deserve to be Sued.Claims Act; liability arises only if the defendanthas made a false certification of compliance with UNITED STATES OF AMERICA ex rel.the statute or regulation, when payment is JOHN KING, et al., Plaintiffs,conditioned on that certification." Graves, 284 F. v.Supp.2d at 497. SOLVAY S.A., et al., Defendants. The court dismissed the Complaint, with Civil Action No. H-06-2662.leave to amend. United States District Court, S.D. Texas, HoustonNotes: This is an “implied” False Certification Division.case, among other things, similar to the Neurontin October 12, 2011.and Amgen Cases. The key issue is whether thepromotion of “off-label” use is in and of itself, a Opinion Excerpts: This case is about aFalse Claims Act violation, in the absence of pharmaceutical manufacturer and its affiliates thatevidence that the off label use was not reasonable allegedly made millions of dollars by marketingand necessary. The 5th Circuit has taken a three drugs—Luvox, Aceon, and AndroGel—forconservative view of implied False Certification. conditions other than the conditions for which theThe Fifth Circuit has held that "[t]he violation of drugs were approved by the Food and Drugthe statute or regulation does not create a cause of Administration ("FDA") and by offeringaction under the False Claims Act; liability arises kickbacks to physicians who prescribed the drugs.only if the defendant has made a false certification Relators worked for SPI as district salesof compliance with the statute or regulation, when managers, and they were responsible forpayment is conditioned on that certification. This supervising sales representatives who marketedcase is also extremely valuable to Texas litigants AndroGel, Luvox, and Aceon (collectively, thesimply for the sheer stamina of the court in "Drugs at Issue"). Relators claim that theirwriting at length on a multitude of issues, employment was terminated after they questionedincluding when a litigant should be relieved of the ethics and legality of off-label promotions andsome of the burden of Rule 9s heightened kickbacks.MartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 28
  • 29. Relators contend that Solvay inappropriately and they have provided details of specific types ofmarketed the Drugs at Issue for off-label use by kickbacks provided in different parts of the(1) encouraging its sales representatives to market country, including an internal Solvay audit reportthe drugs to specifically targeted high Medicaid that indicates various types of giftswere given toprescribers who Solvay deemed likely to heavily physicians in Louisiana and Texas, informationprescribe the drugs; (2) "shaping the science" about physicians in West Virginia to whom King,through medical literature by paying influential in his capacity as a sales representative, provideddoctors to research and write about the off-label kickbacks (in the form of speakers fees), anduses that provided the most promise of profit; and information about roundtables atupscale resorts in(3) influencing physician speakers to promote the different areas of the country where Solvaydrugs off label. Id. at 95-107. allegedly paid for physicians and their families rooms, meals and activities, golf, and a show in the evening, as well as specific allegations relatingIn addition to the alleged off-label marketing to physicians receiving kickbacks in Virginia,campaign, Relators claim that Solvay "bribed Georgia, North Carolina, and Alabama.doctors to use its drugs," for on- and off-labeluses, with unlawful kickbacks such as "bogus ...speaker and research fees, resort weekends, cash In sum, the court holds that the 4AC reliablypayments, or Harley Davidson goods," in indicates that Solvays alleged kickback practicesviolation of the AKS. Id. at 122. were crafted with the intent that physicians would write prescriptions for Solvay drugs and that these prescriptions would be reimbursed by Medicaid orHere, the court finds that the allegations relating other government payers.to the off-label promotion scheme for eachoff-label use paired with the examples that show ...that some of the off-label promotion led to Because the details in the 4AC about theprescriptions for some of the off-label uses meets allegations in the 4AC that Solvay engaged in thethat standard. Moreover, the heightened 9(b) alleged marketing schemes with the intention thatpleading standard "stems from the obvious the schemes would have the natural tendency toconcerns that general, unsubstantiated charges of influence the decision of the government to payfraud can do damage to a defendants reputation." the claims resulting from the schemes, SolvaysGuidry v. Bank of LaPlace, 954 F.2d 278, 288 motion to dismiss Relators subsection 3729(a)(2)(5th Cir. 1992). In the courts view, the lack of (2006)/3729(a)(1)(B) (2009) claims because theyexamples for some of the off-label promotion lack Rule 9(b) particularity is DENIED.claims does not threaten SPIs reputation withunsubstantiated charges given the number ofexamples of promotion for off-label uses that are 6. The Question of “Presentment,” thesubstantiated. “Reverse” Flase Claim, and “Indirect Reverse False Claim.” (No, I didn’t Make that Up)Despite the fact that the claims data that the 4ACuses to link specific physicians who allegedly UNITED STATES OF AMERICA, Plaintiff, v.received kickbacks to Medicaid prescriptions for JOSEPH EDELSTEIN, SUZANNEthe Drugs at Issue are all from Texas, Relators EDELSTEIN, THOMAS B. BOND andhave alleged enough details of a geographically HOLLAND PHARMACY, Defendants.diverse kickback scheme to reliably indicate that Civil Action No. 3:07-52. United States Districtthere was a nationwide kickback scheme.[15] Court, E.D. Kentucky, Central Division,They have alleged their own personal knowledge Frankfort.of the kickback scheme as Solvay sales managers,MartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 29
  • 30. September 29, 2011. which the Supreme Court sought to resolve aNotes: Must a defendant actually present the conflict between the Sixth and D.C. Circuit Courtsclaim directly to the government for liability to of Appeals regarding the proper interpretation ofattach under a former version of the FCA, or is subsections (a)(2) and (a)(3) of the FCA.presentation to the government contractor In Allison Engine, the district court had held thatsufficient? In this case, two pharmacists sold free all three sections of former Section 3729(a)samples, and then billed medicaid administration required a showing that the false claim at issuecontractors in Kentucky for the prescription. had actually been presented to the Government forUnder the former version of the False Claims Act, liability to attach. Allison Engine, 471 F.3d 610,the Act expressly states one may not present the 613 (6th Cir. 2006). At trial, the plaintiffs did notclaim to the government or its employees for present any evidence that any invoice was actuallypayment. Here, the defendant’s moved for presented to the Government. Instead, theysummary judgment on the grounds they merely presented evidence that all of the money paid tosubmitted the claim to an intermediary contractor. the defendants ultimately came from theThe Government asserts claims under the version Government. Id. at 613. The district court heldof the FCA that was in effect at the time the that this was insufficient as a matter of law toComplaint was filed. Specifically, the establish liability under each of the threeGovernment asserts claims under 31 U.S.C. §§ subsections of the FCA and granted the3729(a)(1), 3729(a)(2), and 3729(a)(3). Congress defendants motion for judgment as a matter ofamended the FCA in 2009 with the Fraud law. Id. The Sixth Circuit reversed, holding thatEnforcement and Recovery Act ("FERA"). Pub. L. subsections (a)(2) and (a)(3) only requireNo. 111-21, 123 Stat. 1617 (2009). evidence that the false claim at issue was ultimately "paid with government funds." Id. atThus, for a claim under subsection (a)(1), the 615.plaintiff need not present evidence that thedefendant himself presented the false claim to the In reviewing the Sixth Circuits decision inGovernment, but there must be evidence that the Allison Engine, the Supreme Court stated that itdefendant submitted a false claim and that the conflicted with the D.C. Circuits holding inclaim was ultimately submitted to the Government United States ex. rel. Totten v. Bombardier Corp.,for payment or approval. See Marlar v. BWXT 380 F.3d 488 (D.C. Cir. 2004). 553 U.S. at 668. InY-12, LLC, 525 F.3d 439, 445 (6th Cir. Totten, the district court dismissed the complaint2008)(citing Allison Engine Co., 471 F.3d at 614). alleging that the defendants violated subsection (a)(1) by submitting false invoices to Amtrak.In Count I of its Complaint, the Government Totten, 380 F.3d at 490. The D.C. Circuitasserts a claim under former subsection affirmed, finding that "Amtrak is not the3729(a)(1) against Bond, Edelstein, and Holland Government," and that, under the plain languagePharmacy. That subsection prohibits any person of 3729(a)(1), "claims must be presented to anfrom "knowingly present[ing], or caus[ing] to be officer or employee of the Government beforepresented, to an officer or employee of the United liability can attach." Id. at 490.States Government . . . a false or fraudulent claimfor payment or approval. . . ." 31 U.S.C. §3729(a)(1)(emphasis added). With Allison Engine, the Supreme CourtTo understand this argument, it is necessary to undertook to resolve this conflict. 553 U.S. at 668.explore the case law leading up to Congresss It concluded that "it is insufficient for a plaintiffdecision to amend the FCA with FERA. That asserting a §3729(a)(2) claim to show merely thatdecision was in direct response to the Supreme `[t]he false statements use . . . result[ed] inCourts decision in Allison Engine Co. v. United obtaining or getting payment or approval of theStates ex rel. Sanders, 553 U.S. 662 (2008) by claim, or that `government money was used toMartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 30
  • 31. pay the false or fraudulent claim" as the Sixth Caremark said was false. The 5th Circuit, refusingCircuit had held Id. at 665 (citations omitted). to overtly disagree with the 9th Circuit, limited itsInstead, the Supreme Court held that the focus holding to the simple observation, “Since false isshould be on the defendants intent. Thus, for a the opposite of true, statements that are factuallyclaim under subsection (a)(1), the plaintiff need true are not false statements about the facts.” Thenot present evidence that the defendant himself court left open the possibility that Caremark, hadpresented the false claim to the Government, but it done more, (which facts were not in the record,)there must be evidence that the defendant then the claims “we don’t owe the governmentsubmitted a false claim and that the claim was money” might have been proven false.)ultimately submitted to the Government for Opinion Excerpts: Some people who are eligiblepayment or approval. See Marlar v. BWXT Y-12, under a plan administered by a PBM are alsoLLC, 525 F.3d 439, 445 (6th Cir. 2008)(citing eligible for Medicaid. These individuals, referredAllison Engine Co., 471 F.3d at 614). to as dual-eligible individuals, sometimes identify themselves at a pharmacy as Medicaid recipients[Here, summary judgment was denied because the instead of privately-insured individuals, thusgovernment failed to introduce evidence that the resulting in a state Medicaid agency paying thecontractor passed the claim on to the government bill. However, if the state Medicaid agencyfor payment.] discovers that a Medicaid recipient is a dual-eligible individual, the agency must seek reimbursement from the private insurer (known asUNITED STATES of America, a "third party") under federal law. 42 U.S.C. §Plaintiff-Appellant, 1396(a)(25). In addition to requiring statev. Medicaid agencies to seek reimbursement from third parties, federal law directs the States to enactCAREMARK, INC.; Caremark International, laws that require Medicaid recipients to assignInc. Et al their rights to receive payments from any thirdNos. 09-50727, 09-51053. party to the state Medicaid agency. 42 C.F.R. §§United States Court of Appeals, Fifth Circuit. 433.137-.254 (2009).February 24, 2011. State Medicaid agencies receive substantial funding from the Government. See 42 C.F.R. §Notes: A “False Claim” is the intentional 433.140; Ark. Dept of Health & Human Servs. v.misrepresentation of how much the government Ahlborn, 547 U.S. 268, 275, 126 S.Ct. 1752, 164should pay. The “Reverse False Claim,” is the L.Ed.2d 459 (2006) ("The [Medicaid] program isintentional misrepresentation of how much is a cooperative one; the Federal Government paysowed to the government. Here, Caremark finds between 50% and 83% of the costs the Stateitself sued for an “indirect reverse false claim,” incurs for patient care . . . ."). However, thebecause the defendant allegedly knowingly made Government does not provide federal fundinga false statement to a third party, knowing that its (known as federal financial participation orstatement would "conceal, avoid, or decrease" an "FFP") if a State is able to recover funds from aobligation to the Government. 31 U.S.C. § third party. 42 C.F.R. § 433.140; Ahlborn, 5473729(a)(7). What Caremark actually did was act U.S. at 289, 126 S.Ct. 1752. Additionally, if thelike a “claims adjuster.” It told and intermediary, Government provides FFP and the State laterwho then told the government, Caremark had recovers from a third party, federal law requiresreviewed the claims for repayment and determined the State to return a portion of the reimbursementCaremark did not owe the government. At least in to the Government. 42 C.F.R. § 433.140(c).the record, there is no evidence that whatMartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 31
  • 32. In 1999, the relator, a former Caremark employee, that "courts decide whether a claim is false orfiled a qui tam action on her own behalf and on fraudulent by determining whether a defendantsbehalf of the United States, Arkansas, California, representations are accurate in light of applicableFlorida, Illinois, Louisiana, Tennessee, and Texas, law." Id. at 1164.claiming that Caremark violated the FCA andsimilar state laws by making false statements toavoid liability to the Government and state We need not decide whether we agree withMedicaid agencies. Bourseaus analysis because we decline to go farther than the matter addressed by the districtClaims under 31 U.S.C. § 3729(a)(7) require court—whether stating that a request was deniedproof that the defendant "knowingly makes, uses, for a reason stated in a clients plan is a "falseor causes to be made or used, a false record or statement." We conclude it is not. If, indeed,statement to conceal, avoid, or decrease an Caremark went further and stated that its conductobligation to pay or transmit money or property was in compliance with the law or otherwiseto the Government." 31 U.S.C. § 3729(a)(7).[6] certified the legal effect of its actions, that mayThis is known as a reverse false claim because the present a different question, one we do not reach.effect of the defendants knowingly false Therefore, we reject the State Appellants and thestatement is a failure to pay the Government when Governments argument that the district courtpayment is required. A direct claim, on the other erred in holding factually true statements, withouthand, occurs when a false claim for payment is more, were not false for purposes of the FCA.submitted to the Government. United States ex rel.Bain v. Ga. Gulf Corp., 386 F.3d 648, 652 (5thCir.2004). In this case, the Government contends II. Defensive Use of the Federal Rules of Civilthat Caremark made false statements to the state Procedure and Procedural Rule of the FCAMedicaid agencies—who receive over half of 1. The “Public Disclosure” Bar and the “Firsttheir funding from the Government—that allowed to File” RuleCaremark to fraudulently avoid making payments 131 S.Ct. 1885 (2011)to the state Medicaid agencies. This is known asan indirect reverse false claim because the SCHINDLER ELEVATOR CORPORATION,defendant allegedly knowingly made a false Petitioner,statement to a third party, knowing that its v.statement would "conceal, avoid, or decrease" an UNITED STATES ex rel. Daniel KIRK.obligation to the Government. 31 U.S.C. §3729(a)(7). No. 10-188.... Supreme Court of United States.Since false is the opposite of true, statements that Argued March 1, 2011.are factually true are not false statements about Decided May 16, 2011.the facts. Indeed, neither the State Appellants northe Government argue that the statements at issuein this appeal were factually incorrect. Instead, Opinion Excerpts: The False Claims Act (FCA),they argue that Caremarks true statements that it 31 U.S.C. §§ 3729-3733, prohibits submittingdenied requests for reimbursement because the false or fraudulent claims for payment to theparticipants plans did not have a paper claims United States, § 3729(a), and authorizes qui tamprovision were untrue because Caremark was not suits, in which private parties bring civil actions inlegally permitted to deny those requests. The State the Governments name, § 3730(b)(1). This caseAppellants rely on United States v. Bourseau, 531 concerns the FCAs public disclosure bar, whichF.3d 1159 (9th Cir.2008), to support their generally forecloses qui tam suits that are "basedargument. In Bourseau, the Ninth Circuit noted upon the public disclosure of allegations orMartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 32
  • 33. transactions . . . in a congressional, administrative, 3730(e)(4)(A). That question has divided theor Government Accounting Office report, hearing, Courts of Appeals, and we do not resolve it here.audit, or investigation." § 3730(e)(4)(A) (footnote See Glaser v. Wound Care Consultants, Inc., 570omitted). During the pendency of this case, the F.3d 907, 915 (C.A.7 2009) (describing the splitPatient Protection and Affordable Care Act, 124 in authority). It may also be that such a relatorStat. 119, amended the public disclosure bar. qualifies for the "original source" exception.Because the amendments are not applicable to Questions:pending cases,” [[ the court answers the pendingquestion] ] We must decide whether a federalagencys written response to a request for records 1. Why does the Supreme Court take the unusualunder the Freedom of Information Act (FOIA), 5 step of writing on a subject which has beenU.S.C. § 552, constitutes a "report" within the mooted by Congress?meaning of the public disclosure bar. We hold that 2. Is the Court really so concerned with theit does. method by which a relator discovers wrongdoing, or is the Court more concerned with expressingThe drafting history of the public disclosure bar concern that left unchecked, Qui Tam cases willdoes not contradict our holding. As originally take down a major sector of the US Economy,enacted in 1863, the FCA placed no restriction on while doing very little to actually address the realthe sources from which a qui tam relator could issue– that Medicare is unsustainably expensive.acquire information on which to base a lawsuit.See Graham County, 559 U.S., at ___, 130 S.Ct., Notes: This case is ostensibly about whether theat 1411. Accordingly, this Court upheld the government’s response to a Freedom ofrecovery of a relator, even though the Government Information Act Request triggers the “Publicclaimed that he had discovered the basis for his Disclosure” bar to the Relator’s Qui Tam action;lawsuit by 1894*1894 reading a federal criminal and more to the point the Court seems to wish toindictment. See United States ex rel. Marcus v. address: a case about whether it is wise to unleashHess, 317 U.S. 537, 63 S.Ct. 379, 87 L.Ed. 443 the public on every corporation which does(1943). In response, Congress amended the statute business with the government. As to the firstto preclude such "parasitic" qui tam actions based question, The Supreme Court ruled in theon "evidence or information in the possession of affirmative. However, Congress mooted thisthe United States . . . at the time such suit was question before the case was decided, with thebrought." 559 U.S., at ___ 130 S.Ct. at 1411 passage of the Patient Protection and Affordable(internal quotation marks omitted). Then, in 1986, Care Act, 124 Stat. 119, when it amended theCongress replaced the so-called Government public disclosure bar. However, the Supremeknowledge bar with the narrower public Court seems to be more interested in writing todisclosure bar. Id., at ___, 130 S.Ct. at 1411. foreshadow what will happen when the plaintiffs’We also are not concerned that potential bar fully begins to appreciate the opportunities fordefendants will now insulate themselves from windfall lawsuits on behalf of those wholiability by making a FOIA request for randomly file Freedom of Information Actincriminating documents. This argument assumes inquiries, for the purposes of identifying somethat the public disclosure of information in a basis for a lawsuit. The court stopped short ofwritten FOIA response forever taints that terming the modern practice, “parasitic.” Butinformation for purposes of the public disclosure clearly, the Court is deeply concerned that thebar. But it may be that a relator who comes by that False Claims Act is simply too broad to beinformation from a different source has a enforced by the general public perusinglegitimate argument that his lawsuit is not "based government documents, looking for somethingupon" the initial public disclosure. 31 U.S.C. § over which to file a billion dollar suit.MartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 33
  • 34. UNITED STATES of America ex rel. Thomas 447, 450 (5th Cir.1995).F. JAMISON, Plaintiff-Appellant, We need not follow the three steps rigidly,v. however. See, e.g., United States ex rel. Fried v.McKESSON CORPORATION; McKesson W. Indep. Sch. Dist., 527 F.3d 439, 442 (5thMedical-Surgical Medinet, Inc.; GGNSC Cir.2008) (combining the first two steps). Indeed,Holdings, L.L.C.; combining the first two steps can be useful, because it allows the scope of the relators action649 F.3d 322 (5th Cir. 2011) in step two to define the "allegations orOpinion Excerpts: The public disclosure bar of transactions" that must be publicly disclosed inthe False Claims Act ("FCA") deprives the district step one. That is, for the public-disclosure bar tocourt of jurisdiction whenever qui tam relators apply, the publicly disclosed allegations orbring a suit based on publically available transactions need only be as broad and as detailedinformation. The district court held that it lacked as those in the relators complaint, because that isjurisdiction. Because the relators action included all that is needed for the action to be "based on"no allegations specific to the defendants, but the publically disclosed allegations.merely repeated a general description of fraud Were we to rule otherwise, a qui tam relator couldeasily available in several government documents, arbitrarily select a large group of defendants inwe affirm. any industry in which public disclosures haveBefore the 2010 amendments, the public revealed significant fraud, in hopes that hisdisclosure provisions of the FCA provided that allegations will prove true for at least a few(A) No court shall have jurisdiction over an action defendants. We do not countenance such relatorunder this section based upon the public lotteries, which are quintessentially "parasiticdisclosure of allegations or transactions in a suits by opportunistic late-comers who addcriminal, civil, or administrative hearing, in a nothing to the exposure of fraud" and which thecongressional, administrative, or Government public disclosure bar is designed to prevent.Accounting Office report, hearing, audit, or Reagan, 384 F.3d at 174. We thus conclude thatinvestigation, or from the news media, unless the Jamisons action was based upon publiclyaction is brought by the Attorney General or the disclosed allegations or transactions.person bringing the action is an original source ofthe information. UNITED STATES OF AMERICA, EX REL. SHELDON BATISTE, Appellant,(B) For purposes of this paragraph, "original v.source" means an individual who has direct and SLM CORPORATION, Appellee.independent knowledge of the information onwhich the allegations are based and has No. 10-7140.voluntarily provided the information to the United States Court of Appeals, District ofGovernment before filing an action under this Columbia Circuit.section which is based on the information. Argued September 16, 2011.31 U.S.C. § 3730(e)(4) (2006). We have distilled Decided November 4, 2011.those provisions into a three-part test, asking "1)whether there has been a `public disclosure ofallegations or transactions, 2) whether the qui tam Notes: This is a fascinating “First to File” case inaction is `based upon such publicly disclosed which the relator blew the whistle against theallegations, and 3) if so, whether the relator is the defendant, alleging dirty tricks in student loan`original source of the information." Fed. financing which increased the bank’s return onRecovery Servs., Inc. v. United States, 72 F.3d loans at the government’s expense. The case hadMartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 34
  • 35. previously been filed by a different relator, but action." 31 U.S.C. § 3730(b)(5). The district courtdismissed under rule 12.b.1. Often, court’s refer found that the Batiste Complaint alleged theto the effect of a nonsuit or a dismissal without "same material elements" of fraud as the Zaharaprejudice as placing the parties in the same Complaint, and thus was barred by theposition as if the case had never been filed. This earlier-filed complaint. Batiste, 740 F. Supp. 2d.result is all the more satisfying where dismissal is at 102. The district court rejected Batistesfor want of subject matter jurisdiction under Rule argument that the Zahara case was not a "pending12 b.1. Clearly, a judgment where the court action" for first-to-file purposes because thelacked jurisdiction is void. Quaintly put, a void Zahara Complaint did not meet heightenedjudgment is “good nowhere and bad everywhere.” pleading standards for fraud allegations under This is all fine and good, unless the case arises Federal Rule of Civil Procedure 9(b). Id. at 104.under the False Claims Act, where the “first to [We arffirm.]file” rule is a bar to any of the remaining 7 billionpeople on the planet from filing the same case.What is the effect of filing an FCA case, where 2. Iqbal/Twombly Rule 12(b)(6) Motions tothe court lacked jurisdiction to hear it? Here, the Dismiss and Rule 9(b)’s Heightened PleadingCourt of Appeals affirmed dismissal on the Standard.ground that this whistle had previously beenblown, even though the first case was dismissed UNITED STATES OF AMERICA, et al. ex rel.on jurisdictional grounds. Also, the court MISTY WALL, Relator, Plaintiffs,declined to accept the relator’s interesting v.argument that because the first complaint failed tomeet Rule 9s heightened pleading standard, the VISTA HOSPICE CARE, INC. d/b/afirst complaint should not count as the “first to VISTACARE, VISTACARE, INC. andfile.” In other words, even a poorly filed and ODYSSEY HEALTHCARE, INC., Defendants.prosecuted Complaint– in a court that did not Civil Action No. 3:07-CV-604-M.have jurisdiction to hear it, nevertheless meets the“first to file rule.” ] United States District Court, N.D. Texas, Dallas Division.Opinion Excerpts: On November 9, 2005, over March 9, 2011.two years before Relator Batiste filed hiscomplaint, Michael Zahara filed a qui tam caseagainst, inter alia, SLM and his employer, Student Notes: This is a Dallas Iqbal/Twombly, Rule 12Assistance Corporation ("SAC"), a wholly-owned (b)(6) and Rule 9 case, which addresses theSLM subsidiary. The district court dismissed question of whether the relator has met theBatistes complaint with prejudice on September heightened pleading standard for FCA cases.24, 2010, for lack of subject matter jurisdiction Here, the allegation centers around the allegationunder Federal Rule of Civil Procedure 12(b)(1). that the Defendant had been playing fast and looseUnited States ex rel. Batiste v. SLM Corp., 740 F. with the Medicare Hospice Benefit rules, (MHB),Supp. 2d 98, 101-02 (D.D.C. 2010). The court forwhich eligibility generally requiresheld that under the FCAs first-to-file rule, the certification that a person is not expected to liveZahara Complaint barred the courts consideration longer than 6 months. In addressing the Rule 9(b)of the Batiste Complaint. The first-to-file rule pleading standard, the court first explains atprovides, "When a person brings an action under length the various definitions of “legally false”[the qui tam] subsection, no person other than the and “factually false” claims, and the pleadingGovernment may intervene or bring a related requirements for each. The court finds that theaction based on the facts underlying the pending relator has sufficiently plead some of the claims,MartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 35
  • 36. such as the forging of physician certification of MCARDLE, Plaintiffs,terminal illness, but dismissed with leave to v.replead the remaining “who, what, when andwhere” allegations. AARS FOREVER, INC., and THH ACQUISITION LLC I, Defendants.Opinion Excerpts: Defendants now move todismiss the Amended Complaint pursuant to No. 09 C 1215.Federal Rules of Civil Procedure 12(b)(6) and9(b). FCA allegations must also satisfy Rule 9(b), United States District Court, N.D. Illinois,which requires that a party "alleging fraud or Eastern Division.mistake . . . must state with particularity the November 4, 2011.circumstances constituting fraud or mistake." TheFifth Circuit has interpreted Rule 9(b) to require,at a minimum, that a plaintiff set forth the "who, Notes: Rule 9(b) requires the pleading withwhat, when, where, and how" of the alleged fraud. particularity of specific acts of False Claim filing.However, the Fifth Circuit has also stated that the This usually means the relator must plead the"time, place, contents, and identity standard is not familiar specific “who, what , when, where” factsa straitjacket for Rule 9(b)," concluding that Rule as to which claims presented to the government9(b) is context-specific and flexible. The Fifth for payment were in fact false. What if the actualCircuit recently noted that the standard for stating claims for payment were not false, but there wasa claim for relief with particularity is lower in the fraud in the inducement of the contract which ledFCA context than it is in the securities or common to the claim being presented for payment? Statelaw fraud contexts. See, United States ex rel. another way, there is fraud, but I t is impossibleGrubbs v. Kanneganti, 565 F.3d 180, 185 (5th Cir. to meet the “who, what, when, where” test. Here2009)(Noting that in medical FCA cases, the the court held the FCA (as well as Stark Law andDefendant will often be in sole possession of the the Anti-Kickback statute ) do contemplate thatnecessary medical records.) intent to defraud, or fraud in the inducement of aWall alleges VistaCare improperly enrolled government contract will give rise to FCApatients into hospice and billed the government liability, even though there was no irregularity infor hospice services to be paid by Medicare and the actual presentment of the claim for payment,Medicaid, in violation of the FCAs presentment after the contract was fraudulently induced. Thisand false record provisions. VistaCare contends is similar to holdings under the Anti-KickbackWall does not show the "who, what, when, where, statute in which the defendant has technicallyand how" of the alleged fraud for her presentment complied with a safe harbor, but there is evidenceand false record theories of improper enrollment that the scheme was actually a kickback forof hospice patients. The court, after a lengthy referrals. Courts often, though not uniformly, holddiscussion of the counts in the Complaint, agreed that fraudulent intent trumps any defense that thethat some of the allegations are inadequate and scheme was technically compliant.must be dismissed. The court further held relatormay amend her Complaint in accordance with this Opinion Excerpts: The district court dismissedOpinion on or before twenty-eight days from the the complaint under Rule 12(b)(6) "because thedate of this Opinion. false statements and fraud `were not made in connection with the presentation of a claim." Id.UNITED STATES OF AMERICA ex rel. at 783. According to the Fourth Circuit: "TheCATHY WILDHIRT AND NANCY district court reasoned that the False Claims ActMCARDLE, and STATE OF ILLINOIS ex rel. does not reach false statements in submissions toCATHY WILDHIRT AND NANCY the Government to gain approval forMartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 36
  • 37. subcontracting decisions. In the district courts of evidence that the claims were fraudulent inview, the False Claims Act reaches only situations themselves."); United States ex rel. Hagood v.in which a `claim [i.e., the demand for payment Sonoma Cnty. Water Agency, 929 F.2d 1416,from the government] . . . is itself false or 1420-21 (9th Cir. 1991) (holding that "a contractfraudulent." id. (brackets in original); see also id. based on false information is a species of falseat 785 ("The district court would only find a false claim," and finding that an FCA claim wasclaim where a demand for payment is itself false properly stated where the complaint alleged thator fraudulent (presumably for services not the defendant "played an active part in havingperformed or for an incorrect amount). The presented for signature a contract that thedistrict court flatly rejected the possibility that [defendant] knew was based on falseFalse Claims Act liability could rest on false information").statements submitted to the government to gainapproval for a subcontract."). UNITED STATES OF AMERICA and C O M M O N W E A L T H O F ,The Fourth Circuit rejected the district courts MASSACHUSETTS ex rel. DONNA MARIEview, holding that the FCA recognizes a GLYNN,fraud-in-the-inducement theory, under which v.liability attaches "for each claim submitted to thegovernment under a contract, when the contract or COMPASS MEDICAL, P.C., PARTNERSextension of government benefit was obtained COMMUNITY, HEALTHCARE, INC., andoriginally through false statements or fraudulent JOHN DIORIO.conduct." Id. at 787 (citing United States ex rel. Civil Action No. 09-12124-RGS.Marcus v. Hess, 317 U.S. 537, 543-44 (1943)). United States District Court, D. Massachusetts.That is, even where "the claims [for payment] that November 10, 2011were submitted were not in and of themselvesfalse" and "the work contracted for was actually Opinion Excerpts: On December 16, 2009,performed to specifications at the price agreed," plaintiff/relator Donna Marie Glynn, a nurseFCA liability arises "because of the fraud practitioner formerly employed by Compasssurrounding the efforts to obtain the contract or Medical, P.C. (Compass), brought this actionbenefit status." Ibid. Other circuits are in accord. under the federal False Claims Act (FCA), 31See United States ex rel. Longhi v. Lithium Power U.S.C.§ 3729 (a)(1)-(2).[1] Glynn alleges thatTechs., Inc., 575 F.3d 458, 468 (5th Cir. 2009) Compass Medical, P.C. (Compass), Partners("Under a fraudulent inducement theory, although Community Healthcare, Inc. (Partners), and Johnthe Defendants subsequent claims for payment Diorio violated the FCA (Count I), subjected hermade under the contract were not literally false, to a retaliatory termination in violation of 31[because] they derived from the original U.S.C. § 3730(h) (Count II). Glynn alleges thatfraudulent misrepresentation [in the grant Diorio, a physician with whom she worked atproposals], they, too, became actionable false Compass, fraudulently filled out patient billingclaims.") (brackets in original; internal quotation sheets in order to bill Medicare and Medicaid formarks omitted); United States ex rel. Bettis v. fictional visits to nursing home patients, care thatOdebrecht Contractors of Cal., Inc., 393 F.3d was not medically necessary or appropriate, and1321, 1326 (D.C. Cir. 2005) ("Although the focus improper patient discharges and pronouncementsof the FCA is on false `claims, courts have of death.employed a `fraud-in-the-inducement theory to It is well established that the heightened pleadingestablish liability under the Act for each claim requirements of Fed. R. Civ. P. 9(b) apply tosubmitted to the Government under a contract claims brought under both subsections. Seewhich was procured by fraud, even in the absence Gagne, 565 F.3d at 45. Although Rule 9(b) mayMartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 37
  • 38. be satisfied where "some questions remain Cir. 2006), quoting United States ex rel. Kinney v.unanswered [but] the complaint as a whole is Stoltz, 327 F.3d 671, 674 (8th Cir. 2003) ("Thesufficiently particular to pass muster under the [FCA] is intended to encourage individuals whoFCA," id. at 46, quoting United States ex rel. Rost are either close observers or involved in thev. Pfizer, Inc., 507 F.3d 720, 732 (1st Cir. 2007), fraudulent activity to come forward, and is not"Karvelas requires the complaint to provide, intended to create windfalls for people withamong other fraud specifics, `details concerning secondhand knowledge of the wrongdoing.").the dates of the claims, the content of the forms or While in this one instance, it might be possible tobills submitted, their identification numbers, [and] match a billing code on behalf of a named patientthe amount of money charged to the government." with Glynns allegations, she has no actualGagne, 565 F.3d at 46, quoting Karvelas, 360 knowledge that Diorio did not in fact see MarottiF.3d at 233. Defendants argue that Glynn has on this occasion.For the foregoing reasons,failed to plead her FCA claims with any of the defendants motions to dismiss Glynns federalrequisite particularity. The court agrees. claims (Counts I and II) are ALLOWED with prejudice.For Glynn to make out her subsection (a)(1) Notes: Here, the court deals with the thorny issueclaim, she must show that a false claim was of the heightened pleading standard under Ruleactually presented to the government. See Gagne, 9(b) and Iqbal/Twombly. The heightened565 F.3d at 45-46, citing Allison Engine, 553 U.S. pleading standard under rule 9 requires that theat 669-671. Glynn has not alleged any particulars Relator plead False Claims facts withregarding the "presentment" of any specific claim particularity. Iqbal and Twombly contemplateto the government. She alleges only that Compass that the ‘keys to discovery” will not be turnedand Partners employees submitted claims based over unless the Relator states a plausible cause ofon Diorios billing statements to the government action. This can place the Relator in a bind. Ondespite knowing or having reason to know that in the other hand, unlimited discovery can be assome respects they were fraudulent. Glynn does expensive to the defendant as the damagesnot allege specific billing codes, dates, claim claimed. Often, to address these concerns, thenumbers, or patients associated with such false Relator will be granted limited discovery in orderclaims, or even the name of the government to meet the heightened rule 9 requirements, whichagency to which the claims were allegedly will be strictly enforced.submitted. Because Glynn has failed to allege UNITED STATE EX REL. NATHANwith particularity the actual presentment of any v. TAKEDA PHARMACEUTICALS NORTHindividual claim, her subsection (a)(1) cause of AMERICA, INC.action fails. Dist. Court, ED Virginia, Case No. 1:09-cv-1086 (AJT) (September 6, 2011)•With respect to Glynns subsection (a)(2) claim, Opinion Excerpts: Relator alleged Takedaher footing is no more firm. On a given weekend Pharmaceuticals conspired to create false claimsin May of 2009, Diorio claimed to have seen sixty through Medicare, Medicaid, TRICARE,nursing home patients, among whom he listed CHAMPVA and Federal Employee HealthMarotti, when according to a statement Glynn Benefit programs, by encouraging the "off-label"attributes to Marottis daughter, no doctor had prescriptions of Takedas drug Kapidex. Relatorstreated her mother. This double-hearsay allegation Third Amended Complaint must satisfy both Fed.(mother to daughter to Glynn) does not comprise R. Civ. P. 12(b)(6) and 9(b). To satisfy Fed. R.the personal knowledge of fraud that the FCA is Civ. P. 12(b)(6), "a complaint must containintended to extract. See United States ex rel. Joshi sufficient factual matter, accepted as true, to `statev. St. Lukes Hosp., Inc., 441 F.3d 552, 561 (8th a claim to relief that is plausible on its face."MartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 38
  • 39. Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009); (October 11, 2011).Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570(2007). Relator attempted to rely upon statisticswhich showed, “fraud must be occurring,” rather Opinion Excerpts. The Federal False Claims Actthan specific instances as required by this federal ("FCA") permits nationwide service of process oncircuit. [Held:] Courts in this Circuit have clearly a defendant. See 31 U.S.C. § 3732(a). Whenexplained that a relators allegation that "fraud determining whether a federal court may exercisemust be occurring" is not sufficient to satisfy Rule personal jurisdiction over a defendant in a suit9(b). Relators statistics-based version of this based upon a federal statute that providestheory does not satisfy his obligation to plead his nationwide service of process, the Fifth Circuitclaims under the FCA with specificity. has indicated that so long as the defendant has had minimum contacts with the United States, the DueBlenhem Group, LLC v. JT USA, LLC, Process clause of the Fifth Amendment requiresCivil No. 10-5986 ; Dist. Court, D. New Jersey no further inquiry. See, e.g., Bellaire Gen. Hosp.(JBS-JS).July 26, 2011. v. Blue Cross Blue Shield, 97 F.3d 822, 826 (5th Cir. 1996); Busch v. Buchman, Buchman & OBrien, Law Firm, 11 F.3d 1255, 1258 (5th Cir.Opinion Excerpts: Federal Rule 9s heightened 1994).pleading standard requiring specific allegations incases sounding in “fraud” applies to a § 292 claim Since HCA is an Oklahoma resident, it is byfalse trademark cases. There are four elements to definition a citizen of the United States.a § 292 claim which make it sound in “fraud” : Therefore, HCA has the requisite contacts"(1) a marking importing that an object is patented required to exercise personal jurisdiction over(2) falsely affixed to (3) an unpatented article (4) Defendants under the FCAs provision forwith intent to deceive the public." Clontech Lab. nationwide service of process. Thus, the CourtInc. v. Invitrogen Corp., 406 F.3d 1347, 1351 DENIES HCAs motion to dismiss for lack of(Fed. Cir. 2005) (internal quotations and citations personal jurisdiction.omitted). Rule 9(b) applies to claims brought [As to Venue] The FCA states: "Any action underunder § 292. BP Lubricants USA, 537 F.3d at section 3730 [31 U.S.C. § 3730] may be brought1311. In this case, relator brought a qui tam case in any judicial district in which ... any oneon behalf of the government under the False defendant can be found, resides, transactsClaims Act. The court noted, "every regional business, or in which any act proscribed bycircuit has held that a relator must meet the section 3729 [31 U.S.C. § 3729] occurred." 31requirements of Rule 9(b) when bringing U.S.C. § 3732(a). HCA, being one of the listedcomplaints on behalf of the government.” defendants, resides, transacts business, and can be found in the Western District of Oklahoma, Additionally, some of the alleged violations occurred in that district. [On the issue of whether Oklahoma is a better district] As to location ofUNITED STATES OF AMERICA and STATE documents, "[b]ecause modern technology permitsOF TEXAS, ex rel. L. DAVID PORTER, the rapid transfer, sharing, and copying ofRelator, v. HCA HEALTH SERVICES OF documents, the location of documents andOKLAHOMA, INC., AFZAL NIKAEIN, business records usually receives little weight inMEDICAL CITY HOSPITAL, and TEXAS the transfer analysis." See e.g., Sarmiento v.MEDICAL SPECIALITY, INC., Defendants. Producers Gin of Waterproof, Inc., 439 F. Supp. 2d 725, 732 (S.D. Tex. 2006); E.E.O.C. v. Civil Action No. 3:09-CV-0992. United States Mustang Mobile Homes, Inc., 88 F. Supp. 2d 722,District Court, N.D. Texas, Dallas Division 726 (W.D. Tex. 1999).MartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 39
  • 40. The second private interest factor is the (transfer analysis should consider "those actuallyavailability of compulsory process to secure the affected — directly or indirectly — by theattendance of non-party witnesses. "Since the controversies and events giving rise to a case.")defendant bears the burden to demonstrate that The Court finds the local interest factor weighstransfer is appropriate, the defendant, `must against transfer out of this district.specifically identify the key witnesses and outline The Court finds that HCA has not established thatthe substance of their testimony." Patent the Western District of Oklahoma is a clearlyCompliance Group, Inc. v. Hunter Fqn Co., No. more convenient forum. Instead, the Court3:10-CV-0359-P, 2010 U.S. Dist. LEXIS 108966, concludes that transfer would serve primarily toat *5 (N.D. Tex. 2008) (Solis, J.) (citation shift the inconvenience from one party to another.omitted). HCA has failed to identify any of its HCAs motion to transfer venue is DENIED.non-party witnesses who reside outside of theNorthern District of Texas or more than 100 milesfrom this Court. If HCA is referring to its The 12 b.6 Motion to Dismiss One type of FCAemployees as non-party witnesses, this Court does claim is the "false certification" claim. The termnot recognize employees in that way since they "false certification" generally refers to a case inmay be compelled by their employer to appear. which a defendant who makes a claim forSee Patent Compliance Group, 2010 U.S. Dist. payment from the government submits a documentLEXIS, at *5. For this reason, the Court finds that expressly certifying compliance with the law,this factor does not weigh in favor of transfer. when the defendant did not in fact comply withThe availability and convenience of witnesses has the requirement, rendering the certification, andbeen held to be the most significant factor in therefore, the claim for payment "false". Claire M.deciding a § 1404(a) motion to transfer. See Bush Sylvia, The False Claims Act: Fraud Against thev. Robertson, No. 3:05-CV-2043-L, 2006 WL Government § 4.33 (Apr. 2011). In United States1222031, at *5 (N.D. Tex. May 5, 2006). HCA ex rel. Thompson v. Columbia/HCA Healthcareinsists a transfer to the Western District of Corp, the Fifth Circuit described the "falseOklahoma is for the convenience of all parties certification" theory of FCA liability in this way:involved. "A transfer of venue must not simply when "the government has conditioned payment`shift the expense and inconvenience from one of a claim upon a claimants certification ofparty to the other." See Patent Compliance compliance with, for example, a statute orGroup, 2070 U.S. Dist. LEXIS, at *7. Here, HCA regulation, a claimant submits a false oris one of four Defendants, among which it is the fraudulent legal claim when he or she falselyonly one outside the Northern District of Texas. certifies compliance with that statute orThe Court finds this factor disfavors transfer regulation." 125 F.3d 899, 902 (5th Cir.1997).because it would merely shift the burden from The Thompson court also recognized that "claimsHCA to Porter and the other defendants. for services rendered in violation of a statute do not necessarily constitute false or fraudulentFinally, a change of venue would simply shift the claims under the FCA." Id. Rather, a claimantburden of travel from HCAs witnesses to the submits a false claim where he falsely certifiesother parties witnesses. HCA has not shown that compliance with a statute or regulation, and theOklahoma is a more convenient venue for the government has conditioned payment upon thatwitnesses. In sum, the private interest factors certification. Id.favor the denial of HCAs Motion to TransferVenue to the Western District of Oklahoma. The issue of whether the government hasHere, Plaintiff alleges HCA defrauded the State of conditioned Medicare payment on CLIATexas. Therefore, Texas and its residents have an compliance is a complex one — requiring theinterest in the resolution of this case. See In re Court to go outside the Complaint to extrinsicVolkswagen of Am., Inc., 545 F.3d 304, 318 evidence, such as manuals, testimony, andMartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 40
  • 41. administrative rulings. To consider such evidence regarding the 1986 amendment to the Falseat this time would effectively convert this 12(b)(6) Claims Act, which implemented the "good cause"motion to a summary judgment motion. Because requirement for government intervention. Thethis case is in the motion to dismiss stage, the 1986 amendments altered the reward provisions ofCourt will review the facts and allegations in the the False Claims Act, permitting relators toComplaint in the light most favorable to Porter, In recover 25 to 30 percent of the alleged fraud ifdoing so, the Court concludes there is plausible they proceeded alone, but only 15 to 25 percent ifground on which Porters FCA claim rests. The the government intervened. Id. at 1048-49. GivenCourt will consider summary judgment evidence the new reward provisions, the Stone court noted,at the summary judgment stage. Defendants "[g]overnment intervention late in the proceedingsmotion to dismiss Porters FCA claim is hereby may be unfair to a relator who has expendeddenied. considerable resources to advance the case and then loses up to half of the reward for bringing the action." Id. at 1049. As set forth in the motion, the3. Deadlines for Government Inetervention. Relator in this matter does not oppose theSealing and Unsealing Governments intervention. . . .[ the Defendant’s arguments mostly going to a defense on theUNITED STATES OF AMERICA, ex rel. and merits, are irrelevant.]ELIN BAKLID-KUNZ, Relator, v. HALIFAX UNITED STATES OF AMERICA ex. rel.HOSPITAL MEDICAL CENTER, d/b/a Halifax ALICE C. YANNITY, MAUREEN C. McNABB,Health, a/k/a Halifax Community Health and TRACEE URQUHART, -Relators,v. J&BSystem, a/k/a Halifax Medical Center and MEDICAL SUPPLY COMPANY, INC., aHALIFAX STAFFING, INC., Defendants. Michigan corporation, Defendant. Case No.Case No. 6:09-cv-1002-Orl-31DAB. United States 08-11825. United States District Court, E.D.District Court, M.D. Florida, Orlando Division. Michigan, Southern Division.(September 27, 2011.) (September 27, 2011.)Notes: When is it too late for the Government tointervene? In this Qui Tam case, the government Opinion Excerpts: The Defendant asks thecontinued to decline to intervene, stating it had Court to unseal the entire file in this matter,not completed its investigation, while reserving inasmuch as it — as of November 11, 2010 — hadthe right to intervene. After it had delayed 15 only received copies of (1) the order of October 6,months, the government moved to intervene. 2010, (2) the complaint, and (3) theThe relator did not oppose intervention, but the Plaintiffs-Relators jury demand. It notes that duedefendant did. The court seems to be of the process requires the Court to grant access to theopinion (without precisely deciding) that the complete file in order for the Defendant torelator is the only party who could object to the properly defend itself. Further, it asserts that tolate intervention, because the relator would lose a the extent the Government resists unsealing thepercentage of the award, if intervention were to be documents for fear of jeopardizing its ongoingallowed. investigation, the Court should conduct an inOpinion Excerpts: Case law construing the camera review of any purportedly confidential or"good cause" requirement of 31 U.S.C. § protected documents to assess the propriety of3730(c)(3) is scarce. At least one court has found keeping them sealed.that the requirement was implemented to protectthe interest of relators. In U.S. ex rel. Stone v. Under 31 U.S.C. §§ 3730(b)(4) and (c)(3), if theRockwell Intern. Corp., 950 F.Supp. 1046 (D.Col. Government elects not to proceed by taking over1996), the Court reviewed the Senate Report a qui tam action, the Plaintiffs-Relators "shallMartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 41
  • 42. have the right to conduct the action." Although the investigation, its deliberations, as well as theGovernment is entitled under such circumstances thought processes of its attorneys.to be served with copies of all pleadings and Notwithstanding these assertions, the Courtcertain discovery material, there is no express believes that its decision must be guided by aright to keep files sealed from the Defendant different standard than that suggested by theindefinitely. U.S. v. CACI International Inc., 885 Government. In qui tam actions that are similar inF. Supp. 80, 81 (S.D.N.Y. 1995). That being said, nature to the case at bar, courts are asked tothe statute does not specifically address whether balance the need for disclosure against the harmsfile materials beyond the complaint are to be that could arguably flow from unsealing theunsealed once the Court enters its order. Several documents. See e.g. Yannacopolous, supra at 858;courts, after having considered this issue, have U.S. ex rel. Mikes v. Straus, 846 F. Supp. 21, 23found that a court has the authority to retain the (S.D.N.Y. 1994); U.S. ex rel. OKeefe v.filed documents under seal, or conversely, to McDonnell Douglas Corp., 902 F. Supp. 189, 191make them fully available to the parties. See e.g., (E.D. Mo.1995). Courts routinely take note of theU.S. ex. Rel. Howard v. Lockheed Martin Corp., strong presumption in favor of public access toNo. 1:99-285, 2007 WL 1513999, *2 (S.D. Ohio judicial records in resolving these cases. U.S. v.May 22, 2007); U.S. ex rel. Yannacopolous v. Bon Secours Cottage Health Services, 665 F.General Dynamics, 457 F. Supp.2d 854, 858 Supp. 2d 782, 785 (E.D. Mich. 2008) ("While(N.D. Ill.2006); U.S. ex rel. Health Outcomes public access to judicial records is not absolute,Technologies v. Hallmark Health System, Inc., the strong presumption in favor of public access is349 F. Supp. 2d 170, 173 (D. Mass. 2004). not easily overcome. . . . Significantly, the presumption in favor of public access to courtThe Government opposes the Defendants request filings is especially strong where, as here, thefor relief on grounds of confidentiality relating to filings involve matters of particular concern to theits ongoing investigation. It submits that the public, such as allegations of fraud against thefollowing factors should be considered by the [G]overnment.")) (internal citations andCourt when seeking to determine whether to quotations omitted).disclose specific judicial records: (1) the need for Upon applying this analysis here, the Court findspublic access to the documents at issue; (2) the that the Government has not sufficientlyextent of previous public access to the documents; established the risk of harm it might incur from a(3) if anyone has objected to the proposed disclosure of the sealed records in this matter.disclosure, (4) the identity of the objecting person; Having reviewed the Governments requests for(5) the strength of any asserted property and extensions and the documents that have beenprivacy interests; (6) the possibility of prejudice previously furnished by the Plaintiffs-Relators, theto those persons who have opposed disclosure; Court is not persuaded that an unsealing of theand (7) the purposes for which the documents records would jeopardize its investigation, couldwere introduced during the judicial proceedings. cause harm to any prospective witness, orEEOC v. Natl Childrens Ctr., Inc., 98 F3d 1406, otherwise disclose its confidential methods for1409 (D.C. Cir. 1996). The Government also examining allegations of fraud and, possibly,asserts that (1) the Defendant does not argue that criminal activity. To the contrary, theits request is based on the need by the general investigatory procedures discussed in thepublic to have access to such documents, (2) the Governments motions, as well as thechallenged sealed documents have not been documentary evidence, suggest that it hasdisclosed publicly or to the Defendant, (3) the gathered routine information from entities that aDefendant has not asserted any property interests lay person could readily identify as likely sourcesin the matters under seal, and (4) it has a privacy for a FCA investigation.interest in protecting the integrity of its As to the competing interests of the Defendant inMartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 42
  • 43. this matter, the Court disagrees with the Defendants.Governments view that the Defendant is No. 4:09CV00812 JLH.embarking on "an unwarranted fishingexpedition," or that its request for information is"overly broad and speculative." (Govts. Resp. at United States District Court, E.D. Arkansas,8). As the accused party, it is entitled to explore Helena Division.any relevant defenses and to understand the basis, November 14, 2011.if any, of the allegations being lodged against it.Lockheed Martin, supra at *3. Thus, in theabsence of a showing by the Government thatunsealing the record carries a significant risk of Notes: Here, the court discusses the issue of whatspecific harm to its interests, the Court will grant must be unsealed once the government decides itthe Defendants request to unseal the entire record will not intervene in a qui tam action. Clearly thein this matter. Complaint must be unsealed under 31 U.S.C. §To that end, the Government is directed to provide 3730(b)(3), but what of the remaining documentsthe Court with a written in-camera description of on file? At first blush it would seem natural thatthe items within the currently-sealed file that it anything filed with a United States District courtbelieves contain confidential or sensitive should be made public. The “ghost in theinformation that should be redacted or otherwise machine,” to borrow a phrase from Gilbert Ryle,exempted from disclosure within a period of lies in the fact that the government always seeksfourteen (14) days from the entry of this order. by motion, to show good cause for an extension ofAny failure by the Government to do so within the 60 day period provided for it to decidethis time frame may result in the imposition of whether to intervene, and must have informedappropriate sanctions. the court of the details of its investigation and what else it needs to do before reaching a decisionNotes: This case is noteworthy for its discussion on intervention. Our government is nothing, if notof when and under what circumstances, the court consistent in its desire to keep its investigationshould order the unsealing of a Qui Tam action. under wraps. The government especially does notCivil litigators are intimately familiar with the fact like leaving a paper trail when it declines tothat criminal investigative agencies will not intervene, as it will not be around to defendrelease their files during the pendency of an questions as to its methods. More importantly, theongoing and contemporaneous criminal government does not want to be on record, norinvestigation. However, in a False Claims Act questioned in a subsequent, possibly unrelatedCase, the government is the real party in interest. case, why it did not investigate something theSealing of the government’s files could seriously government had previously advised the court itimpact the defense of a qui tam case against the must investigate before filing an FCArelator. The government alleged it should be intervention. It’s simply a bear trap. While thepermitted to essentially hide the ball, while the statute is silent on the issue, court’s typicallydefendant attempts to defend itself with nothing evaluate the legitimacy of the government’s claimbut the original complaint. to work product-type privileges, balanced against the public’s right to know what the Plaintiff hasUNITED STATES OF AMERICA ex rel. TOM filed with the court. Notice also that the unsealingJACKSON, Plaintiff/RELATOR, issue occurs prior to the service of the case on thev. Defendant. Opinions of this type often reflect that the court is acting on behalf of the public withoutNICK PASLIDIS; DONNA motion by the defendant.SOODALTER-TOMAN; and ARKANSASFOUNDATION FOR MEDICAL CARE,MartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 43
  • 44. Opinion Excerpts: The United States having which authorizes protective orders to protectdeclined to intervene, the Complaint will be against the disclosure of "a trade secret or otherunsealed so that it may served upon the confidential research, development, orDefendants by the Relators, as contemplated by commercial information," the Erickson court31 U.S.C. § 3730(b)(3). described the appropriate analysis:An additional issue exists with regard to whether Resolution of disputes underall other documents filed in this case to date Rule 26(c) is based on ashould remain under seal. The Government has pragmatic balancing of the needtendered a proposed Order, the terms of which for and harm risked by,state that only the Complaint will be unsealed and disclosures sought.specifically require that all other documents filedin the case to date shall remain under seal. Suchan approach appears to conflict with this Courts Where disclosure of confidentialcustomary practice, which requires a showing of investigative techniques, ofgood cause to justify the sealing of documents or information which couldmaterials filed in federal court. That cause was j eopardize an ongoingmade for the United States initially by operation investigation, or of matter whichof the False Claims Act. But, at the point at which could injure non-parties isthe United States declined to intervene, thereby requested, courts havetriggering the unsealing of the Complaint and the recognized the interest of theprosecution of the action by the Relators, the public in denying or deferringquestion arises as to whether good cause remains disclosure.for continuing to keep such documents under seal.Because this issue raises important policy Erickson, 339 F.Supp.2d at 1126.concerns, the Court raises the issue sua sponte. The Erickson court suggested that documentsWhile the False Claims Act makes explicit merely describing the governments routinereference to the lifting of the seal on the relators investigative procedures should not remain undercomplaint, it is silent on the issue of the unsealing seal. In making the decision to unseal the entireof any other documents in the case. Other courts court file, the court concluded:to consider the issue have found that because theFalse Claims Act permits in camera submissions,it necessarily invests a district court with authority This court is satisfied thatto either maintain such filings under seal or to nothing in the documents in thismake them available to the parties. U.S. ex rel. court file would reveal anyErickson v. Univ. of Washington Physicians, et sensitive information as to howal., 339 F.Supp.2d 1124, 1126 (W.D. Wash. an investigation works. The2004)(hereinafter, "the Erickson case")(citing documents contain nocases). This Court agrees. information that could compromise a future investigation, such asThe Court also finds appropriate the approach explanations of specificutilized in the Erickson case for evaluating the techniques employed or specificgovernments request to continue to maintain references to ongoingdocuments under seal after it declines to investigations.intervene. By analogy to Fed. R. Civ. P. 26(c),MartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 44
  • 45. See Lujan v. Hughes Aircraft Co., 67 F.3d 242,[O]nce the government has decided it will not 245 (9th Cir. 1995) (explaining that the sealintervene, it should not be able to handicap the provisions of the FCA recognize the need to allowrelators action by keeping materials under seal the government to fully evaluate the privatewithout some showing of good cause or ample enforcement suit); United States ex rel. Pilon v.justification." U.S. by Dept. of Defense v. CACI Martin Marietta Corp., 60 F.3d 995, 998-1000Inten. Inc., 885 F.Supp. 80, 82 (S.D.N.Y. 1995). (2nd Cir. 1995) (discussing purposes of sealIndependently of whether a relators action will be requirements); United States ex rel. Herrera v.handicapped, courts have a duty to ensure that all Bon Secours Cottage Health Servs., 665 F. Supp.documents filed with the Court remain available 2d 782, 785 (E.D. Mich. 2008) (concluding thatand accessible to the public unless good cause "the seal was intended to allow the Governmentexists for restricting access. That duty arises from an opportunity to adequately investigate thethe "common-law right of access to judicial defendants alleged fraud").records." Nixon v. Warner Communications, Inc.,435 U.S. 589, 597 (1978). UNITED STATES OF AMERICA Ex. Rel.#3 THE UNITED STATES OF AMERICA, et JOYCE RUBLE Plaintiff,al., ex rel. MARY KATHLEEN DANNER, v.Plaintiffs, TROY SKIDMORE, D.O., et al. Defendants.v. Case No. 2:09-cv-549.QUALITY HEALTH CARE INC., et al.,Defendants.Case No. 11-4026-CM-KMH. United States District Court, S.D. Ohio, Eastern Division. November 8, 2011.United States District Court, D. Kansas. Notes: At the outset, the filing under seal providesOctober 18, 2011. the relator some anonymity. This was never intended to permanently shield the relator from Notes: This case explains the proper purpose of public disclosure of whislteblowing activity. Here,“sealing” qui tam complaints. Here the Relator the Relator changed her mind after thesought dismissal without prejudice in order to Government declined to intervene, and soughtconduct more investigation. She feared unsealing dismissal and permanent seal or redaction of herwould allow another to “jump” her claim. The name form the pleadings. At this stage, thecourt denied the motion to reseal the record, Defendant will not have been served, therefore theholding “private investigation” is not the purpose court’s usually take a more active role inof sealing under the qui tam provisions of the protecting the public’s right to access.FCA. Opinion Excerpts: “In Herrera, the Eastern[Opinion Excerpts] Relators concern about District of Michigan determined that thecontinuing her private investigation misconstrues plaintiff-relators "fear of employment-relatedthe purpose of the sealing provisions in the FCA. retaliation [was] not completely unfounded givenThe FCA requires the complaint to be filed under her alleged constructive discharge," butseal t o pr otect t he governments nonetheless held that her fear of retaliation by ainvestigation—not relators private investigation. current or future employer was not "sufficient to overcome the strong presumption in favor ofMartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 45
  • 46. access to judicial records." Herrera, 665 F. Supp. Maintain Under Seal [#1] on April 1, 2009. The2d at 785-86. The court explained that "to parties agree that the Motion and case captionconclude otherwise would ignore that [the were publically available on the CM/ECF andplaintiff-relators] amorphous concern is no PACER systems for at least 12 hours after Bernatdifferent from the concern any employee may electronically filed the Motion. At least one of thehave when she sues her employer for whatever Defendants learned of Bernats case by viewingreason." Id. at 786 (quoting United States ex rel. publically available information. The Notice ofPermison v. Superlative Techs., Inc., 492 F. Supp. Electronic Filing on CM/ECF indicates this case2d 561, 564 (E.D. Va. 2007)). The court also was sealed on April 2, 2009 at 2:21 p.m. Whilenoted that, if the plaintiff-relator were to suffer the docket sheet attributes a filing date of April 1,retaliation for filing the qui tam action, the FCA 2009 to the Complaint, the Notice of Electronicwould provide a cause of action. Id. (citing 31 Filing indicates the Complaint was entered intoU.S.C. § 3730(h); Superlative Techs., 492 F. CM/ECF on April 2, 2009 at 2:29 p.m., after theSupp. 2d at 564). case was sealed.THE UNITED STATES OF AMERICA ex rel. Defendants argue Bernats Complaint should beDAVID LEE BERNAT, Plaintiff, dismissed for lack of subject matter jurisdictionv. because Bernat failed to comply with Section 3730(b)s filing requirements. Alternatively,THE BOEING COMPANY, INC., et al., Defendants argue Bernats alleged violation ofDefendants. Section 3730(b) divests him of qui tam status, andCase No. 4:09 CV 517 RWS. as a result, his Complaint should be dismissed.United States District Court, E.D. Missouri, Finally, Defendants argue that if I do not concludeEastern Division. that Section 3730(b)s filing requirements are jurisdictional, do not find that Bernat is withoutDecember 12, 2011. qui tam status, I should apply a balancing test toNotes: Clearly, the False Claims Act Qui Tam conclude that dismissal with prejudice is anprovisions require the Complaint to be filed under appropriate sanction for Bernats alleged violation.seal for 60 days. What happens if the “case gets”out for 12 hours, because of a motion to seal,which itself was not filed under seal? Should, as Section 3730(b) requires the complaint in thisBoeing urges, the case be dismissed, or at least the type of case to be filed under seal and remainplaintiff lose Relator status? The best practice is under seal for 60 days. The parties agree that theto find out from the court how it wishes the Qui case caption and Bernats Motion to Seal wasTam case to be filed in compliance with the available for approximately twelve hours onsealing provisions of FCA. In this case, the court CM/ECF and PACER. However, the statutefound that even though the motion to seal was specifically indicates Bernats Complaint must befiled and the caption available on PACER, the filed under seal. As demonstrated above, theactual Complaint was not filed until the record Complaint in this case was filed after the case waswas sealed. The court refused to deviate from the sealed. The CM/ECF Notices of Electronic Filingexpress language of the FCA, which requires the described above demonstrate that the ComplaintComplaint to be sealed, not the previously filed was entered into CM/ECF after the case wasmotion to seal.] sealed. As a result, Defendants have failed to establish that Bernat violated Section 3730(b).Opinion Excerpts: Bernat initiated this case byfiling a Motion to File Complaint in Camera andMartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 46
  • 47. finds to have been necessarily incurred, plus4. Attorney’s Fee’s reasonable attorneys fees and costs." 31 U.S.C. § 3730(d)(1). "All such expenses, fees, and costs shall be awarded against the defendant." Id. UNITED STATES OF AMERICA ex rel.N A J M U D DI N PERVEZ, v N O R T HSHORE-LONG ISLAND JEWISH HEALTH The Federal Rules of Civil Procedure require "[a]SYSTEM, INC., NORTH SHORE UNIVERSITY claim for attorneys fees and related nontaxableHOSPITAL, LONG ISLAND JEWISH expenses" to be "made by motion unless theMEDICAL CENTER, and ERNST & YOUNG substantive law requires those fees to be proved atLLP, Defendants. trial as an element of damages." Fed. R. Civ. P. 54(d)(2)(A). Such a motion "must be filed no laterNo. 06 Civ. 1114 (DLC).United States District than 14 days after the entry of judgment," absentCourt, S.D. New York. "a statute or a court order provid[ing] otherwise."(July 11, 2011.) Fed. R. Civ. P. 54(d)(2)(B)(i). Unless there is "a statute or order of the court such as a local rule, [a] district court [must] . . . find `excusableNotes: In this FCA/Qui Tam case, the neglect under Rule 6(b)(2) to extend the time toPlaintiff/Relator successfully recovered $560,000 move for attorneys fees after the expiration ofout of a $2.9 million dollar settlement, but failed Rule 54s fourteen-day deadline."[2] Tancredi v.to move the court for an award of attorneys fees Metropolitan Life Ins. Co., 378 F.3d 220, 227-28until 5 months post judgment. The court held that (2d Cir. 2004) (emphasis supplied). [Because nothe motion is time-barred, as the motion must be excusable neglect exists, the court denied thefiled no later than 14 days from the date of the motion for attorneys fees as untimely.]judgment.]Opinion Excerpts: The relator in the 5. Retaliation Casesabove-captioned action, moves for an award ofexpenses, attorneys fees and costs pursuant to 31 JILL POFFINBARGER, Plaintiff,U.S.C. § 3730(d)(1) ("§ 3730(d)(1)") of the FalseClaims Act ("FCA"), 31 U.S.C. § 3729 et seq. The v.defendants have objected to the motion as PRIORITY HEALTH, a Michigan Domesticuntimely under Rule 54(d)(2)(B), Fed. R. Civ. P., Nonprofit Corporation, and PRIORITYand Local Rule 54.1(a).[1] Pervez contends that § HEALTH MANAGED BENEFITS, INC., a3730(d)(1) entitles him to an award of reasonable Michigan Domestic Corporation, Defendants.expenses, attorneys fees and costs. The Case No. 1:11-cv-993.defendants maintain that Pervez cannot recoversuch an award since his application is untimelypursuant to Rule 54(d)(2)(B), Fed. R. Civ. P. United States District Court, W.D. Michigan, Southern Division.Section 3730(d)(1), titled "Award to qui tam December 13, 2011.plaintiff," provides in relevant part that "if theGovernment proceeds with an action," any Notes: What happens, when the plaintiff allegesindividual who is entitled to a share of the she was fired in retaliation for filing a whistleGovernments proceeds "shall also receive an blower case, and also takes issue with threatsamount for reasonable expenses which the court made during the course of the subsequentMartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 47
  • 48. litigation, (such as a counterclaim for damages Notes: What is the statute of limitations on abased on her alleged stealing of trade secrets.) retaliation claim? Congress enacted theHere the Michigan court answers that legal Dodd-Frank Wall Street Reform and Consumerwrangling in the actual lawsuit do not constitute Protection Act of 2010 ("Dodd-Frank Act"), Pub.“retaliation” under the False Claims Act, where L. No. 111-203, 124 Stat. 1376, which amendedthe relator was no longer employed at the time the the FCA to supply an express statute of limitationcounterclaims were made. for § 3730(h) retaliation claims. Consequently, the FCA now provides that "[a] civil action under [ § 3730(h)] may not be brought more than 3 yearsOpinion Excerpts: Defendants argue that these after the date when the retaliation occurred." 31additional retaliation claims should be dismissed U.S.C. § 3730(h)(3).] But what of cases which arebecause they occurred after Plaintiffs termination stuck in the middle? The law is well establishedof employment, and because they do not that if Congress has not supplied a limitationsconstitute an adverse action. The Court agrees. period for a federal cause of action, the courts areThe False Claims Act unambiguously limits to apply the most closely analogous statue ofretaliation claims to adverse actions taken "in the limitations under state law. See, e.g., Reed v.terms or conditions of employment." 31 U.S.C. United Transp. Union, 488 U.S. 319, 323-243730(h)(1). The allegedly retaliatory threats of (1989) (and cases cited therein.) The limitationslegal action and affirmative defense raised by statue sought to be applied, must none-the-less,Defendants clearly are not actions affecting the have been in effect at the time. In this case,terms or conditions of employment. Furthermore, Oregon’s one year limitations period foreven if the FCA did not limit retaliation claims to retaliation claims wasn’t in effect when the claimconditions of employment, the Court finds that arose. Thus, Boeing could not rely on it. Couldneither legal posturing nor the raising of an then, the 3 year period under the FCA be appliedaffirmative defense in . . . litigation initiated by retroactively. The court goes to some length toPlaintiff constitute an adverse action. See Harmar discuss the various interpretations among thev. United Airlines, Inc., 1996 WL 199734 (N.D. courts which have addressed this question.Ill.) ("Raising the affirmative defense did notcause plaintiffs to incur the expense of hiring III. Miscellaneouscounsel to respond to a lawsuit; they were alreadyrepresented and already engaged in litigation . . . 1. Procedure for Nonsuit or Dismissal ofPresenting an affirmative defense, even a Defendants Post Settlement.frivolous one, will not support a retaliationclaim."). UNITED STATES OF AMERICA, PETER C. CURNIN, Relator, v. BALD HEAD ISLANDUNITED STATES OF AMERICA ex rel, LIMITED, MARK D. MITCHELL, MICHAELCLIFF BERGLUND, Plaintiff, K. MITCHELL, No. 7:03-CV-174-F(1).v. United States District Court, E.D. North Carolina,THE BOEING COMPANY, Defendant. Southern Division.No. 03:02-cv-193-AC. (September 26, 2011.)United States District Court, D. Oregon, Portland Notes: This case illustrates the method by whichDivision. a Qui Tam/FCA case must be dismissed, whereDecember 13, 2011. the relator no longer wished to prosecute pursuant to FRCP Rule 41 (a)(1)(A)(I). A Qui Tam action "may be dismissed only if the court and theMartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 48
  • 49. Attorney General give written consent to the THE UNITED STATES OF AMERICA, ex rel.dismissal and their reasons for consenting." 31 NORMAN RILLE and NEAL ROBERTS v.U.S.C. § 3730(b)(l). ACCENTURE LLP, et al.No. 4:04CV00985-BRW. United States District Court, E.D. Arkansas, Western Division. October 11,Opinion Excerpts: “A voluntary dismissal 2011.pursuant to Rule 41 (a)(1)(A)(i) generally isself-executing, and operates to dismiss acomplaint without any action by the court. Marex [Martin Merritt’s notes/comments: ProcedureTitanic, Inc. v. Wrecked & Abandoned Vessel, 2 upon settlement. Following settlement, the courtF.3d 544, 546 (4th Cir. 1993). Under the False dismissed with prejudice the main case againstClaims Act, 31 U.S.C. § 3729 et seq., however, a the defendant with prejudice, while retainingqui tam action such as this one "may be dismissed jurisdiction over the question of how the relatorsonly if the court and the Attorney General give shall divide the settlement and the amount ofwritten consent to the dismissal and their reasons attorney’s fees.]for consenting." 31 U.S.C. § 3730(b)(l). See alsoU.S. ex rel. Littlewood v. King Pharmaceuticals,Inc., ___ F.Supp.2d ___, 2011 WL 3805607 at Opinion Excerpts: The parties have reached an*11 (D. Md. Aug. 29, 2011). agreement to settle this litigation. The United States and Accenture agree that each will bear its own costs, expenses and attorneys fees. TheHere, the consent of the United States Attorney Relators, Norman Rille and Neal Roberts, andfor the Eastern District of North Carolina, via an Accenture have not yet reached agreement as toAssistant United States Attorney, appears in the payment of attorneys fees, costs and expenses ifNotice of Dismissal [DE-60] itself. The any, pursuant to 31 U.S.C. § 3730(d). The UnitedGovernment indicates that it consents to the States and the Relators have not yet reacheddismissal of the action because agreement as to the relators share of the proceeds of the settlement of this matter pursuant to 31 U.S.C. § 3730(d). Accordingly, in light of the “[t]his case has an extensive Settlement Agreement, the Court rules as follows: procedural history, and questions have been raised about whether service of process was properly IT IS ORDERED that this case is DISMISSED or timely effected. The interests without prejudice as to Relators with respect to of justice would be best served the determination of relators share or relators by allowing this case to be attorneys fees, costs and expenses and otherwise dismissed without prejudice. with prejudice as to Relators and with prejudice as to the United States to the extent of the "Covered Conduct" in the Settlement Agreement betweenNotice of Dismissal [DE-60] at p. 2 ("Consent of the United States, Relators and Accenture andthe Government"). otherwise without prejudice as to the United States. The Court retains jurisdiction over thisFor the reasons stated by the Government, the matter to enforce the terms of the Settlementcourt consents to the dismissal ofthis action. See Agreement.31 U.S.C. § 3730(b)(1). This case is thereforeDISMISSED and the Clerk of Court is The Court also retains jurisdiction over this matterDIRECTED to close this case. for purposes of determining appropriate attorneys fees, costs and expenses, if any, to be paid toMartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 49
  • 50. Relators by Accenture pursuant to 31 U.S.C. § and is estopped from now arguing now [sic] that3730(d), and for purposes of determining an Villaspring violated the False Claims Act."appropriate relators share of the proceeds of the [Record No. 8-1, pp. 26-27] As the United Statessettlement of this case pursuant to 31 U.S.C. § points out, however, the "statutory basis for an3730(d). The United States and Accenture each FCA claim is the defendants knowledge of thewill bear its own costs, expenses, and attorneys falsity of its claim, which is not automaticallyfees. exonerated by any overlapping knowledge by government officials." United States ex rel. Kreindler & Kreindler v. United Tech. Corp., 9852. Estoppel F.2d 1148, 1156 (2d Cir. 1993); see also A+ Homecare, Inc., 400 F.3d at 454 n.21 (rejectingUNITED STATES OF AMERICA, Plaintiff, the defendants argument that the governments knowledge of a false accrual did not preclude hisv. liability under the FCA for submitting a falseVILLASPRING HEALTH CARE CENTER, claim).INC., et al., Defendants.Civil Action No. 3:11-43-DCR. Nonetheless, the defendants press forward with their second argument, which essentially contendsUnited States District Court, E.D. Kentucky, that CMSs failure to bring charges or discontinueCentral Division, Frankfort. payments negates the scienter element of the United States FCA claim. They maintain that theDecember 19, 2011. government "must prove intentional, knowing misconduct,[] and in a case such as this where theNotes: In this case, the Defendant makes the government did not give notice of false claimsinteresting claims that the Government should be when reviewing and assessing penalties for theestopped from arguing the Defendant made false care provided, the provider. . . is entitled toclaims, because the government paid the claims reasonably rely on the governmentswithout objection. The court makes short shrift of representations." [Record No. 27, p. 7 (replying tothe estoppel argument, observing that to adopt the Record No. 23, p. 18)] As an initial matter, theDefendant’s reasoning, would eliminate any fact that CMS did not "declare the services to bepossibility of any successful False Claims Act worthless" does not constitute a representationcase. from the government that the claims submitted by Villaspring were not false. [Id.] Additionally, however, this argument conflates the element of scienter under the FCA with the issue of estoppel,Opinion Excerpts: The defendants estoppel resulting in an untenable reading of the FCA. Theargument can be broken down into three separate rule espoused by the defendants would essentiallyarguments, all of which are unconvincing. First, eviscerate the FCA, most importantly because itthe defendants assert that the United States is ignores the fact that the term "knowingly" in theprecluded from bringing this claim because of its statute also encompasses intentional acts. Thisknowledge of the deficient care provided by interpretation would have the effect of shieldingVillaspring. According to this argument, because defendants who engaged in intentional andCMS was aware of "alleged deficiencies in the purposeful fraud on the United States just becauseconditions of participation," but still allowed the government did not inform them that theirVillaspring to continue submitting claims and claims were false before bringing an action. Thereceiving payments, "the government had actual Court declines to adopt a rule that would haveknowledge of the care provided by Villaspring such an anomalous result.MartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 50
  • 51. 3. The 5th Amendment Privilege Trap. A party may assert the Fifth Amendment in a civil proceeding where answers might incriminate him in future criminal proceedings. Lefkowitz v.RUTH L. RUCKMAN, United States of Turley, 414 U.S. 70, 77 (1973). The Court may,America, Ex Rel, Plaintiff, however, "draw adverse inferences from theirv. failure of proof." S.E.C. v. Colello, 139 F.3d 674,ALFRED H. CHAN, M.D. and JUDY H. 677 (9th Cir. 1998) citing Baxter v. Palmigiano,CHAN, Defendant. 425 U.S. 308, 318 (1976). "Levkowitz and Baxter require that there be evidence in addition to theCase No. C08-5532 RBL. adverse inference to support a courts ruling." Colello, 139 F.3d at 678.United States District Court, W.D. Washington,Tacoma. 4. The Pro Se qui tam RelatorDecember 8, 2011. KIONNA K. FOX, Plaintiff, Opinion Excerpts: The United States moves the v. SELECT MEDICAL CORPORATION, etCourt to either enter a default judgment as a al., Defendants.sanction for the Chans refusal to providecourt-ordered discovery or grant partial summary No. 4:11CV02037 TCM.judgment in their favor as a result of the unrefutedevidence put forth by the United States. They seek United States District Court, E.D. Missouri,an award of $4,861,236 in damages and an order Eastern Division.precluding Alfred and Judy Chan from contestingthe Governments allegations of the Chans December 9, 2011.fraudulent transfers. The Chans argue that neitherremedy is appropriate because they have lawfully Opinion Excerpts: The United States is the "realasserted their Fifth Amendment rights in response party of interest" in an action under the FCA, andto the United States discovery requests. For the actions under the FCA may be brought only byreasons that follow, the United States Motion is licensed attorneys. See, e.g., U.S. ex rel. MergentGRANTED in so far as it seeks partial summary Servs. v. Flaherty, 540 F.3d 89, 93 (2nd Cir.judgment. 2008); United States v. Onan, 190 F.2d 1, 6 (8th Cir. 1951) ("[W]e do not think that CongressOn September 29, 2010, this Court issued Ex could have intended to authorize a layman to carryParte Pre-Judgment Writs of Garnishment on on ... as attorney for the United States but mustcertain of the Chans property and financial have had in mind that such a suit would be carriedaccounts under the Fair Debt Collection Practices on in accordance with the established procedureAct, 28 U.S.C. §§ 3001 et. seq. The Writs were which requires that only one licensed to practiceissued based upon the Courts finding that there law may conduct proceedings in court for anyonewas sufficient facts supporting the reasonable other than himself."). Plaintiff, as a pro se litigant,probability of the United States right to recover, therefore, may not bring any FCA claims in thisand reasonable cause to believe that the Chans Court.were about to dispose or conceal their assets insuch a way as to hinder the United States ability 5. The State as qui tam Defendantto recover the debt. WEIHUA HUANG, Plaintiff,MartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 51
  • 52. v. 6. Opinions are not ActionableTHE RECTOR AND VISITORS OF THEUNIVERSITY OF VIRGINIA, ET AL., W. HOWELL; DR. ANUPAM BISHAYEEDefendants. Dr. Helene Z. Hill, App UNITED STATES OFCase No. 3:11-cv-00050. AMERICA, EX REL. DR. HELENE Z. HILL, v.United States District Court, W.D. Virginia, UNIVERSITY OF MEDICINE &Charlottesville Division. DENTISTRY OF NEW JERSEY; DR.December 19, 2011. ROGER ellant. No. 10-4364.Notes: Is a state liable under the FCA in a qui tam United States Court of Appeals, Third Circuit.action? No. See, In Vermont Agency of Natural Argued: September 13, 2011.Resources v. United States ex rel. Stevens, 529 Filed: October 20, 2011.U.S. 765, 781-82 (2000)Opinion Excerpts: [Opinion Excerpts] At issue is whether theOfficial-Capacity FCA Claim for Damages In District Court erred in granting summaryWill v. Michigan Department of State Police, 491 judgment for defendants, the University ofU.S. 58, 71 (1989), the Supreme Court held that Medicine & Dentistry of New Jersey, Howell, and"a suit against a state official in his or her official Bishayee, in this qui tam action under the Falsecapacity is not a suit against the official but rather Claims Act. 31 U.S.C. § 3729 et seq. We willis a suit against the officials office." Therefore, affirm the judgment of the District Court. Thefor the purposes of FCA liability, Dr. Li and Dr. University of Medicine & Dentistry of New JerseyJohnson are, in their official capacities, (UMDNJ) employed both the appellant, Dr.synonymous with UVa. And UVa is Helene Hill, and the appellees, Dr. Robert Howellunquestionably an instrumentality of the and Dr. Anupam Bishayee in its radiologyCommonwealth of Virginia. See Jones v. department where they all collaborated onCommonwealth, 267 Va. 218, 224, 591 S.E.2d 72, preliminary research to support a grant application76 (2004) ("The University is a governmental to the National Institutes of Health (NIH) to fundentity. Its powers and duties, exercised by the further investigation into the "bystanderRector and Visitors of the University, are created effect."[1] The crux of Dr. Hills complaint is thatby statute and are controlled by the General data used in support of this grant application wasAssembly."). As a general matter, in order for an fabricated.agency of the state like UVa to be liable under theFCA, it must be a "person." See 31 U.S.C. §3729(a) (subjecting to liability "any person" who, To establish a prima facie case under the Falseinter alia, "knowingly presents, or causes to be Claims Act (FCA) a plaintiff must prove: (1) thepresented, to an officer or employee of the United defendant presented or caused to be presented toStates Government . . . a false or fraudulent claim an agent of the United States a claim for payment;for payment or approval"). In Vermont Agency of (2) the claim was false or fraudulent; and (3) theNatural Resources v. United States ex rel. defendant knew the claim was false or fraudulent.Stevens, 529 U.S. 765, 781-82 (2000), a qui tam Hutchins v. Wilentz, Goldman & Spitzer, 253 F.3daction, the Supreme Court held that the term 176, 182 (3d Cir. 2001). Because "[e]xpressions"person" as used in the FCA did not include states of opinion, scientific judgments or statements asor state entities, thus barring the relators claim to conclusions which reasonable minds may differ cannot be false," United States ex rel. Jones v.MartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 52
  • 53. Brigham and Womens Hosp., 750 F. Supp. 2d358, 366 (D. Mass. 2010), FCA liability will notattach.MartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 53

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