Polsinelli

1. Life After Escobar – Recent
Developments in False Claims Act
Litigation and DOJ Guidance
May 10, 2018
Asher Funk, Esq.
afunk@polsinelli.com
Brian McEvoy, Esq.
Bmcevoy@polsinelli.com
Jeffrey Fitzgerald, Esq.
Jfitzgerald@polsinelli.com

2. Brief Overview of Escobar Holding
A claim implicitly states that the provider
complied with the rules entitling it to payment
FCA liability if undisclosed noncompliance is
material to the agency’s payment decision
Material if agency would not have paid the claim
had it known of the noncompliance
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3. Brief Overview of Escobar Holding
 Liability turns on whether compliance with a
regulation is material to government’s decision
to pay the claim
 Little guidance as to what material means
– Rejected DOJ argument that a legal right to deny
payment for noncompliance constitutes material
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4. Brief Overview of Escobar Holding
Not material—No
FCA liability due to
noncompliance
Materiality
Guns didn’t
shoot
Billed DoD under
contract with a
“Buy American”
provision
Contractor used
foreign staplers
Billed Army
for guns
Material—
Noncompliance
creates FCA liability
 Court’s discussion of material: guns and staplers
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5. Recent Trial Court Decisions
 U.S. ex rel. Cressman v. Solid Waste Services
(E.D.Penn. 2018)
– Defendant’s allegedly unlawful discharge of waste water
not material to claims for solid waste removal services to
Federal agencies
 U.S. ex rel. Sloan v. Waukegan Steel (N.D. Ill. 2018)
– Motion to dismiss denied because allegedly fabricated
quality control and weld inspection certifications were
“plausibly” material to payment

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6. Recent Trial Court Decisions
 U.S. ex rel. Schiff v. Norman (M.D. Fl. 2018)
– Court dismissed allegations that dermatologist billed for
unsupervised radiation therapy because complaint failed
to demonstrate that supervision was material to
Medicare payment
 U.S. ex rel. Durkin v. v. County of San Diego (S.D. Ca.
2018)
– Court dismissed allegations that San Diego used FAA
funds for purposes other than described in grant
applications
– “[T]he plaintiff must allege some facts that show that the
government actually does not pay claims if they involve
the [noncompliance] in question”
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7. Continued Payment, Lack of Agency
Action, But Different Results
 D’Agostino v. ev3 Inc. et al. (1st Cir. 2016)
– False statements to FDA were not material
– CMS did not deny payment after qui tam filed, FDA did not initiate
recall or take action
 US ex rel. Petratos v. Genentech, Inc. (3rd Cir. 2017)
– Alleged suppression of drug side effect information from the FDA and
failure to file adverse-events reports not material
– No action by FDA or DOJ, CMS continued to pay for drug
 US ex rel. Campie v. Gilead Sciences, Inc. (9th Cir. 2017)
– Alleged false statements about compliance with FDA regulations were
material
– Defendant argued that continued payment even after notification of
violations showed lack of materiality
– Cert petition filed asking for clarity on apparent Circuit split
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8. Applying the Materiality
Standard is Challenging
 U.S. ex rel. Harman, v. Trinity Industries Inc., (5th Cir. 2017)
– Relator alleged that guardrail manufacturer falsely claims their
products were approved for reimbursement by the FHWA
– Jury returned $660 million verdict against defendant despite letter from
FHWA saying that defendant’s guardrails were eligible for
reimbursement at all relevant times
– 5th Circuit reversed, relators have filed cert. petition
 U.S. ex rel. Ruckh v. Salus Rehabilitation, LLC (M.D.Fla. 2018)
– Relator alleged failure by LTC provider to maintain comprehensive care
plan and non-compliance with signature or documentation
requirements violated the FCA
– Jury returned $350 million verdict against the provider
– District Court overturned the verdict
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9. Applying the Materiality
Standard is Challenging
“The fraud in Escobar — unqualified mental health
providers and substandard mental health care —
profoundly and manifestly affects a government’s
willingness to pay, a fact undoubtedly obvious to the
provider. Also to emphasize and clarify, Escobar offers
the hypothetical but instructive example of a vendor
selling to the government a gun that will not shoot, a
defect that renders the weapon useless and valueless,
as the vendor well knows.”
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10. Applying the Materiality
Standard is Challenging
“But would the result in Escobar differ… if the properly
and currently licensed vendor of the mental health
services was fully qualified and had prescribed and
treated correctly but had failed, say, to attach to each
patient’s file a required proof of current licensure?
Would the result in Escobar’s gun example differ if the
gun actually shot as represented but if the gun
manufacturer failed to retain a required copy of the
results of a required test firing of each weapon (even
though the test occurred and the gun passed the test)?”
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11. Applying the Materiality
Standard is Challenging
“The resulting verdict… cannot stand. The judgments
effect an unwarranted, unjustified, unconscionable,
and probably unconstitutional forfeiture — times three
— sufficient in proportion and irrationality to deter any
prudent business from providing services and products
to a government armed with the untethered and hair-
trigger artillery of a False Claims Act invoked by a
heavily invested relator.”
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12. Role of Medical Necessity and Clinical
Judgement
 U.S. v. GGNSC Administrative Services et al. (AseraCare)
– Hospice provider allegedly admitted patients without terminal illness
– Difference of opinion between government’s expert and treating
physician as basis for FCA liability
– Case on appeal to 11th Circuit
 U.S. v. Paulus
– Criminal case with FCA implications, jury’s conviction overturned by
District Court
– Cardiologist alleged to have performed unnecessary stent procedures
based on single expert’s testimony
– DOJ claimed that anything more than 20% variation when calling
angiogram results was unreasonable
– No alleged falsification of records or false statements
– Case on appeal to the 6th Circuit
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13. Areas of Future Litigation
 What the government knew
– Actual v. constructive knowledge
– Publically available information
– Impact of filed FCA lawsuit
 What the government did (or did not do)
– Continued reimbursement
– Any acknowledgment or position on potential noncompliance
 Importance of underlying statute, regulation, or
requirement
– Condition of payment / condition of participation
– Does requirement go to core of the bargain
– Defendant’s understanding of importance
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14. Factors for Evaluating the Use of DOJ’s
Authority to Dismiss FCA Cases
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“Even in non-intervened cases, the government
expends significant resources in monitoring these
cases and sometimes must produce discovery or
otherwise participate. If the cases lack
substantial merit, they can generate adverse
decisions that affect the government's ability to
enforce the FCA. Thus, when evaluating a
recommendation to decline intervention in a qui
tam action, attorneys should also consider
whether the government's interests are served,
in addition, by seeking dismissal pursuant to 31
U.S.C. § 3730(c)(2)(A).”

15. Factors for Evaluating the Use of DOJ’s
Authority to Dismiss FCA Cases
 Under Section 3730(c)(2)(A) of the FCA, DOJ has
the authority to dismiss an action, even over the
relator’s objection
 Typically DOJ has used its authority sparingly
based on the monetary benefit derived from
relators recovering settlements in non-intervened
cases
 Memo outlined seven non-exhaustive factors for
the DOJ to consider when deciding if it should
exercise dismissal authority
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16. Factors for Evaluating the Use of DOJ’s
Authority to Dismiss FCA Cases
 Curbing meritless qui tams
 Preventing parasitic or opportunistic qui tam actions
 Preventing interference with agency policies and
program
 Controlling litigation brought on behalf of the United
States
 Safeguarding classified information and national
security interests
 Preserving government resources
 Addressing egregious procedural errors
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17. Factors for Evaluating the Use of DOJ’s
Authority to Dismiss FCA Cases
 How DOJ’s memo will be implemented in
practice remains to be seen:
– Further reinforcement and guidance by Main
Justice and USAOs to line attorneys?
– Potential for different treatment by the various
USAOs
– Role of USAOs in getting relators to dismiss on
their own following declination
– Will it be like Yates, or just another piece of
paper?
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18. Limiting the Use of Guidance Documents
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“Guidance documents cannot create binding
requirements that do not already exist by
statute or regulation. Accordingly, effective
immediately for ACE cases, the Department
may not use its enforcement authority to
effectively convert agency guidance documents
into binding rules. Likewise, Department
litigators may not use noncompliance with
guidance documents as a basis for proving
violations of applicable law in ACE cases.”

19. Limiting the Use of Guidance Documents
 Originated with November 2017 DOJ memo prohibiting the use
of “improper guidance documents”
 January 2018 memo expanded and clarified application of the
prior memo by instructing DOJ on the use of improper guidance
documents (promulgated by other agencies) during affirmative
litigation
 Noncompliance with agency guidance is not presumptive or
conclusive evidence of a violation of the underlying statute or
regulation
 Guidance documents cannot create additional legal obligations
 Memo specifically mentions FCA enforcement
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20. Limiting the Use of Guidance Documents
 Examples of guidance documents that could be
impacted:
– OIG fraud alerts or special bulletins
– CMS manuals and transmittals
– Any other agency statement of general applicability and
future effect
 Analysis should focus on requirements and obligations
imposed by plain language in underlying regulation or
statute
 Can still use guidance documents for clarification,
explanation, or if they directly reference the statute or
regulation
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21. Life After Escobar – Recent
Developments in False Claims Act
Litigation and DOJ Guidance
May 10, 2018
Asher Funk, Esq.
afunk@polsinelli.com
Brian McEvoy, Esq.
Bmcevoy@polsinelli.com
Jeffrey Fitzgerald, Esq.
Jfitzgerald@polsinelli.com