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Difference between revisions of "False Claims Act"
→Stark Act Violations or Kickbacks Can Violate the False Claims Act
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For more information about the False Claims Act, Anti-Kickback Statute, Physician Self-Referral Law, and Exclusion Statute, see the HHS OIG’s [https://oig.hhs.gov/compliance/physician-education/fraud-abuse-laws/ roadmap for physicians about fraud and abuse laws.] | For more information about the False Claims Act, Anti-Kickback Statute, Physician Self-Referral Law, and Exclusion Statute, see the HHS OIG’s [https://oig.hhs.gov/compliance/physician-education/fraud-abuse-laws/ roadmap for physicians about fraud and abuse laws.] | ||
==='''Kickback Whistleblower Need Not Prove “but for” Causation'''=== | |||
Recently the Third Circuit rejected a provider’s contention that a kickback is actionable under the FCA only where the relator provides that the kickback actually influenced a patient’s or medical professional’s decision to use a particular provider. In Steve Greenfield v. Medco Health Solutions Inc., the Third Circuit held that a kickback qui tam can be proven by showing that a claim was submitted for reimbursement for medical care that was provided in violation of the Anti-Kickback Statute (as a kickback renders a subsequent claim ineligible for payment). But the court noted that “[a] kickback does not morph into a false claim unless a particular patient is exposed to an illegal recommendation or referral and a provider submits a claim for reimbursement pertaining to that patient.” | |||
In June 2019, Rialto Capital Management LLC (Rialto) and its former affiliate RL BB-IN KRE LLC (RL BB) agreed to pay $3.6 million to resolve allegations that Rialto and the Kentuckiana Medical Center (KMC), an Indiana-based hospital owned by RL BB, violated the Anti-Kickback Statute, the Stark Law, and the False Claims Act by engaging in illegal financial arrangements with two doctors who referred patients to KMC. According to the DOJ’s press release, “KMC, under the direction of Rialto, provided personal loans to two referring doctors and then repeatedly forbore from requiring repayment of those loans” and “the hospital’s failure to collect on loans to key referral sources constituted a form of remuneration prohibited by both the AKS and the Stark Law.” | |||
==='''Fraudulent Inducement of a Contract and False Claims Act Liability'''=== | |||
Where a contract was “procured by fraud,” False Claims Act liability flows from fraudulent inducement. Examples of fraudulent inducement include: | |||
*the contractor knowingly provides the government with price lists and discounts containing false information in order to induce it to enter into the contract; | |||
*the contractor makes an initial misrepresentation about its capability to perform the contract in order to induce the government to enter into the contract; or | |||
*a party makes promises at the time of contracting that it intends to break. | |||
Where a defendant causes a contract to be procured by fraud, all claims for payment made under that contract are deemed false for purposes of the False Claims Act, even if the claims do not themselves contain a false statement. U.S. ex rel. Marcus v. Hess, 63 S. Ct. 379, 384 (1943)(holding the initial act of fraud to induce government contract “tainted” every subsequent claim for payment); see also U.S. ex rel. Main v. Oakland City Univ., 426 F.3d 914, 917 (7th Cir. 2005). The core issue is whether the defendant entered into a government contract with the intent not to perform or with the knowledge that it could not perform as promised.” U.S. ex rel. Blaum v. Triad Isotopes, Inc., 104 F. Supp. 3d 901, 914 (N.D. Ill. 2015). | |||
=='''Materiality and the False Claims Act'''== | |||
The False Claims Act (FCA) defines “material” as “having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property.” 31 U.S.C. § 3729(b)(4). In [https://www.supremecourt.gov/opinions/15pdf/15-7_a074.pdf United States ex rel. Escobar v. Universal Health Servs., Inc.,] the Supreme Court held that FCA liability can attach for violating statutory or regulatory requirements, whether or not those requirements were designated in the statute or regulation as conditions of payment. | |||
In particular, the Escobar Court held that “liability can attach when the defendant submits a claim for payment that makes specific representations about the goods or services provided, but knowingly fails to disclose the defendant’s noncompliance with a statutory, regulatory or contractual requirement. In these circumstances, liability may attach if the omission renders those representations misleading.” 136 S. Ct. 1989, 1995 (2016). The Court articulated the following factors governing the materiality analysis, with no one factor being necessarily dispositive: | |||
*whether compliance with a statute is a condition of payment; | |||
*whether the violation goes to “the essence of the bargain” or is “minor or insubstantial”; | |||
*whether the government consistently pays or refuses to pay claims when it has knowledge of similar violations; and | |||
*whether the government would likely refuse payment had it known of the regulatory violations. | |||
As Escobar addresses only an implied certification theory, Escobar’s materiality requirement should not extend to all types of FCA claims. For example, an express misrepresentation, e.g., a health insurer expressly agreeing to comply with Medicare rules and regulations when it does not, would violate the FCA. See, e.g., U.S. ex rel. McCarthy v. Marathon Techs., Inc., No. 11 C 7071, 2014 WL 4924445 (N.D. Ill. Sept. 30, 2014). | |||
==='''Examples of Material False Claims'''=== | |||
Examples of material false claims include: | |||
*A drug company Seeking and obtaining payment for off-label uses of certain drugs. See U.S. ex rel. Brown v. Celgene Corp., 226 F. Supp. 3d 1032 (C.D. Cal. 2016). | |||
*A private security company submitting false weapons qualifications for the services of protective services personnel who had not fulfilled the required weapons training. United States ex rel. Beauchamp v. Academi Training Center, Inc., 220 F. Supp. 3d 676 (E.D. Va. 2016). | |||
*Submitting a false hospice certification. See, e.g., Druding v. Care Alternatives, Inc., 164 F. Supp. 3d 621, 629 (D.N.J. 2016); United States ex rel. Fowler v. Evercare Hospice, Inc., No. 11-CV-00642-PAB-NYW, 2015 WL 5568614, at *7 (D. Colo. Sept. 21, 2015) (“the requirement that physicians’ certifications are accompanied by clinical information and other documentation that support a patient’s prognosis is a condition of payment under applicable Medicare statutes and regulations.”); see also, e.g., United States ex rel. Hinkle v. Caris Healthcare, L.P., No. 3:14-CV-212-TAV-HBG, 2017 WL 3670652, at *9 (E.D. Tenn. May 30, 2017) (“the government’s complaint alleges that defendants’ written certifications were false, in that the documentation for certain patients did not support a prognosis of terminal illness.”). | |||
The federal government’s payment of a claim after it learns of untruthful certifications or attestations about compliance with regulatory or contractual duties is not a shield from liability. See Campie v. Gilead Sciences, Inc., 862 F.3d 890, 906 (9th Cir. 2017). | |||
=='''False Claims Act Statute of Limitations'''== | |||
The statute of limitations for a qui tam action is the longer of 1) six years from when the fraud is committed; or 2) three years after the United States knows or should know about the material facts, but not more than 10 years after the violation. In Cochise Consultancy Inc. v. United States, ex rel. Hunt, the Supreme Court held that both Government-initiated suits under § 3730(a) and relator-initiated suits (qui tam actions) under § 3730(b) are civil actions under section 3730 and therefore the longer limitations period applies in non-intervened qui tam actions. | |||
The statute of limitations for a False Claims Act whistleblower retaliation case is three years. | |||
=='''False Claims Act Authorizes Treble Damages'''== | |||
The False Claims Act provides that any entity violating 31 U.S.C. § 3729(a)(1) is liable for three times the amount of damages which the Government sustains because of the fraud. | |||
=='''Pleading Qui Tam False Claims Act Case in Detail'''== | |||
False Claims Act qui tam actions must meet the heightened pleading requirement set forth in Federal Rule of Civil Procedure 9(b). In other words, a qui tam relator must “state with particularity the circumstances constituting fraud.” Fed. R. Civ. P. 9(b). The complaint must “identify ‘the who, what, when, where, and how of the misconduct charged,’ as well as ‘what is false or misleading about [the purportedly fraudulent] statement, and why it is false.’” Cafasso ex rel. United States v. General Dynamics C4 Systems, Inc., 637 F.3d 1047, 1055 (9th Cir. 2011) | |||
Note though that in the Ninth Circuit, the relator need not “identify representative examples of false claims to support every allegation.” Ebeid ex rel. U.S. v. Lungwitz, 616 F.3d 993, 998 (9th Cir. 2010). Similarly, in the Eleventh Circuit, there is no requirement for a qui tam relator to provide exact billing data. Clausen v. Lab. Corp. of Am., Inc., 290 F.3d 1301, 1312 & n.21 (11th Cir. 2002). Rather, a complaint must contain “some indicia of reliability” that a false claim was actually submitted. Clausen, 290 F.3d at 1311. “For instance, a relator with first-hand knowledge of the defendant’s billing practices may possess a sufficient basis for alleging that the defendant submitted false claims.” United States ex rel Patel v. GE Healthcare, Inc., No. 8:14-cv-120-T-33TGW, 2017 WL 4310263, at *6 (M.D. Fla. Sept. 28, 2017). | |||
“An FCA claimant is not required to show `the exact content of the false claims in question’ to survive a motion to dismiss, as `requiring this sort of detail at the pleading stage would be one small step shy of requiring production of actual documentation with the complaint, a level of proof not demanded to win at trial and significantly more than any federal pleading rule contemplates.'” United States v. Executive Health Resources, Inc., 196 F.Supp.3d 477, 492 (E.D.Pa. 2016) (citing Foglia, 754 F.3d at 156); Gohil, 96 F.Supp.3d at 519 (“[A relator] is not required to plead the details of any false claim submitted for payment[.]”) | |||
But it is critical to connect the fraud scheme to the submission of false claims. In United States ex rel. Booker v. Pfizer, Inc., 847 F.3d 52, 58 (1st Cir. 2017), the First Circuit held that “aggregate [information] reflecting the amount of money expended by Medicaid” on off-label prescriptions was “insufficient on its own to support a[] [False Claims Act] claim” because it did not show “an actual false claim made to the [G]overnment.” | |||
To satisfy Rule 9(b), the whistleblower “must provide ‘particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted’”; “[d]escribing a mere opportunity for fraud will not suffice.” See Foglia v. Renal Ventures Mgmt., 754 F.3d 153, 157-58 (3d Cir. 2014). | |||
As summarized in United States of America ex rel. Donna Rauch v. Oaktree Medical Centre, P.C., No. 6:15-cv-01589 (D.SC March 5, 2020), the Fourth Circuit applies the following Rule 9(b) standard: | |||
“To satisfy Rule 9(b), a plaintiff asserting a claim under the [FCA] `must, at a minimum, describe the time, place, and contents of the false representations, as well as the identity of the person making the misrepresentation and what he obtained thereby.'” Nathan, 707 F.3d at 455-56 (quoting United States ex rel. Wilson v. Kellogg Brown & Root, Inc., 525 F.3d 370, 379 (4th Cir. 2008)). The Fourth Circuit has held that “allegations of a fraudulent scheme, in the absence of an assertion that a specific false claim was presented to the government for payment” are insufficient to meet Rule 9(b)’s heightened pleading standard. Id. at 456. “Instead, the critical question is whether the defendant caused a false claim to be presented to the government, because liability under the [FCA] attaches only to a claim actually presented to the government for payment, not the underlying fraudulent scheme.” Id. (citing Harrison, 176 F.3d at 785). In the event a relator does not plead with particularity that specific false claims actually were presented to the government for payment, a relator’s complaint may still survive a Rule 9(b) challenge only if it “allege[s] a pattern of conduct that would `necessarily have led[ ] to submission of false claims’ to the government for payment.” Grant, 912 F.3d at 197 (quoting Nathan, 707 F.3d at 457) (alteration and emphasis in original). | |||
A good example of meeting the Rule 9(b) requirement without pleading actual submission of invoices to the government is United States ex rel. Saldivar v. Fresenius Med. Care Holdings, Inc., 906 F. Supp. 2d 1264, 1269 (N.D. Ga. 2012), a case in which the relator worked for a dialysis service provider and managed the facility’s inventory of two drugs. Based upon the relator’s observations of the inventory, he believed the facility submitted “fraudulent reimbursement claims” by “bill[ing] the government for doses of [drugs] that it received for free.” Id. Although the relator did not work in the billing department, the court found the relator satisfied Rule 9(b) because his belief was based upon his observation of the facility’s inventory documents and a conversation with “his clinical manager inform[ing] him that those documents were used as the basis upon which [the facility] billed for reimbursement.” Id. at 1277. | |||
=='''Elements of a False Claims Act Qui Tam Case'''== | |||
A qui tam relator must plead: | |||
#a false statement or fraudulent course of conduct; | |||
#made with scienter (intent); | |||
#that was material; | |||
#causing the government to pay out money or forfeit moneys due. | |||
==='''False Claims Act Public Disclosure Bar'''=== | |||
The public disclosure bar prohibits a relator from bringing a False Claims Act lawsuit based on a fraud that has already been disclosed through certain public channels, unless the relator is an “original source” of the information. 31 U.S.C. § 3730(e)(4)(A). An original source is “an individual who has direct and independent knowledge of the information on which the allegations are based and has voluntarily provided the information to the Government before filing [suit].” § 3730(e)(4)(B). | |||
The public disclosure bar asks whether the relator’s allegations are “substantially similar” to publicly available information. United States ex rel. Davis v. District of Columbia, 679 F.3d 832, 836 (D.C. Cir. 2012). “Where a public disclosure has occurred, [the government] is already in a position to vindicate society’s interests, and a qui tam action would serve no purpose.” United States ex rel. Feingold v. AdminaStar Federal, Inc., 324 F.3d 492, 495 (7th Cir. 2003). | |||
But the public disclosure bar does not dictate that a relator must “possess direct and independent knowledge of all of the vital ingredients to a fraudulent transaction.” United States ex rel. Springfield Terminal Railway Co. v. Quinn, 14 F.3d 645, 656 (D.C. Cir. 1994). Rather, “direct and independent knowledge of any essential element of the underlying fraud transaction” is sufficient to give the relator original-source status under the Act. Id. at 657. | |||
In Springfield Terminal, the D.C. Circuit set forth specific criteria to evaluate whether the public disclosures bars a qui tam action: | |||
#The government has “enough information to investigate the case” either when the allegation of fraud itself has been publicly disclosed, or when both of its underlying factual elements—the misrepresentation and the truth of the matter—are already in the public domain. | |||
#“[I]f X + Y = Z, Z represents the allegation of fraud and X and Y represent its essential elements. In order to disclose the fraudulent transaction publicly, the combination of X and Y must be revealed, from which readers or listeners may infer Z, i.e., the conclusion that fraud has been committed.” Id. at 654. Because the publicly disclosed pay vouchers reflected only the false statement (the arbitrator’s claim for payment) and not the true facts (the services actually rendered), we held that the public disclosure bar did not apply. Id. at 655-56. That said, we stressed that a qui tam action cannot be sustained where both elements of the fraudulent transaction—X and Y—are already public, even if the relator “comes forward with additional evidence incriminating the defendant.” | |||
A September 2018 Third Circuit decision in Pharamerica clarifies that the FCA’s public disclosure bar is not triggered when a relator relies upon non-public information to make sense of publicly available information, where the public information — standing alone — could not have reasonably or plausibly supported an inference that the fraud was in fact occurring. Similarly, the D.C. Circuit has held that the public disclosure bar is not triggered where the relator “supplied the missing link between the public information and the alleged fraud” by “rel[ying] on nonpublic information to interpret each [publicly disclosed] contract,” and where “[w]ithout [relator’s] nonpublic sources . . . there was insufficient [public] information to conclude” that the defendant actually engaged in the alleged fraud. United States ex rel. Shea v. Cellco P’ship, 863 F.3d 923, 935 (D.C. Cir. 2017). | |||
=='''Scienter Under the FCA Does Not Require Proof of Specific Intent'''== | |||
An ordinary breach of a government contract caused by an honest mistake ordinarily does not give rise to False Claims Act liability. To prevail in a qui tam action, a relator must prove the defendant acted knowingly, i.e., that the defendant “(i) has actual knowledge of the information; (ii) acts in deliberate ignorance of the truth or falsity of the information; or (iii) acts in reckless disregard of the truth or falsity of the information.” 31 U.S.C. § 3729(b). But proof of specific intent to defraud is not required. Therefore, a person who acts in deliberate ignorance or reckless disregard of a false or fraudulent claim can be liable under the False Claims Act. | |||
As amended by the Fraud Enforcement and Recovery Act of 2009, a person is liable under the False Claims Act if he “knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim.” '''There is no requirement to prove that a false statement was made with the intent that it would result in the federal government paying the claim.''' | |||
=='''False Claims Act Qui Tam Relators Need Not Demonstrate Intent'''== | |||
The Department of Justice takes the position that qui tam relators need not prove intent. In a Statement of Interest filed on September 19, 2017 in United States ex rel. Daniel Hamilton, Plaintiff, v. Yavapai Community College District, et al., CV-12-08193-PCT-GMS, the Department argued: | |||
'''Despite defendants’ endorsement of an intent requirement, no such requirement exists.''' Instead, the FCA provides an action for “knowing” violations and defines “the terms ‘knowing’ and ‘knowingly’ [to] mean that a person, with respect to information has actual knowledge of this information; acts in deliberate ignorance of the truth or falsity of the information; or acts in reckless disregard of the truth or falsity of the information; and require no proof of specific intent to defraud[.]” 31 U.S.C. § 3729(b)(1) (emphasis added). This is made clear not only by the FCA itself, but also by several Ninth Circuit cases. See Hooper v. Lockheed Martin Corp., 688 F.3d 1037, 1049 (9th Cir. 2012) (district court applied the wrong standard in requiring relator to show defendant acted with “the intent to deceive”); see also U.S. v. Bourseau, 531 F.3d 1159, 1167 (9th Cir. 2008); U.S. ex rel. Plumbers and Steamfitters Local Union No. 38 v. C.W. Roen Const. Co., 183 F.3d 1088, 1092-93 (9th Cir. 1999); U.S. ex rel. Hagood v. Sonoma County Water Agency, 929 F.2d 1416, 1421 (9th Cir. 1991). | |||
=='''The False Claims Act Protects Whistleblowers from Retaliation'''== | |||
The False Claims Act (“FCA”) protects employees, contractors, and agents who engage in protected activity from retaliation in the form of their being “discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment.” 31 U.S.C. § 3730(h)(1). | |||
False Claims Act whistleblower protection extends not only to employees and contractors, but also to partners. See U.S. ex rel. Kraemer v. United Dairies, L.L.P., 2019 WL 2233053 (D. Minn. May 23, 2019); Munson Hardisty, LLC v. Legacy Point Apartments, LLC, 359 F. Supp. 3d 546, 558 (E.D. Tenn. 2019) (LLC that was general contractor on defendant’s construction project was proper FCA plaintiff). In addition, the False Claims Act whistleblower protection law extends to physicians with staff privileges at a hospital. Powers v. Peoples Cmty. Hosp. Auth., 455 N.W.2d 371, 374 (Mich. Ct. App. 1990); [https://scholar.google.com/scholar_case?case=7152881440929489314&hl=en&as_sdt=20000006 El-Khalil v. Oakwood Healthcare], Inc., No. 19-12822, E.D. Mich. April 20, 2020. | |||
==='''Prohibited Acts of Retaliation by the False Claims Act Anti-Retaliation Provision'''=== | |||
The False Claims Act prohibits an employer from discharging, demoting, suspending, threatening, harassing, or in any other manner discriminating against a whistleblower. Prohibited retaliation includes: | |||
*oral or written reprimands; | |||
*reassignment of duties; | |||
*constructive discharge; and | |||
*retaliatory lawsuits against whistleblowers. | |||
==='''Remedies or Damages Under the Anti-Retaliation Provision of FCA'''=== | |||
A whistleblower who prevails in a False Claims Act retaliation action under the FCA may recover: | |||
*reinstatement; | |||
*double back pay, plus interest; | |||
*special damages, which include litigation costs, reasonable attorney’s fees, emotional distress, and other noneconomic harm from the retaliation. 31 U.S.C. § 3730(h)(2). | |||
Recently, a jury awarded more than $2.5 million to a whistleblower in an FCA retaliation case. As there is no cap on compensatory damages, FCA retaliation plaintiffs can potentially recover substantial damages for the retaliation that they have suffered. | |||
And in 2020, two cardiologists formerly employed by Tenet Healthcare Corporation recovered $11 million in compensatory damages in an arbitration of claims of FCA retaliation, tortious interference with business expectancies, false light, and breach of contract. | |||
==='''Protected Whistleblowing or Protected Conduct under the FCA Retaliation Law'''=== | |||
The FCA protects: | |||
#lawful acts . . . in furtherance of an action under [the FCA]”; and | |||
#“other efforts to stop 1 or more [FCA] violations.” 31 U.S.C. § 3730(h)(1). | |||
Recent cases have interpreted this protected activity to include: | |||
*internal reporting of fraudulent activity to a supervisor; | |||
*steps taken in furtherance of a potential or actual qui tam action; or | |||
*efforts to remedy fraudulent activity or to stop an FCA violation. | |||
FCA whistleblower protection attaches regardless of whether the whistleblower mentions the words “fraud” or “illegal.” The employer need only be put on notice that litigation is a “reasonable possibility.” A reasonableness standard is inherently flexible and dependent on the circumstances; thus, “no magic words—such as illegal or unlawful—are necessary to place the employer on notice of protected activity.” Jamison v. Fluor Fed. Sols., LLC, 2017 WL 3215289, at *9 (N.D. Tex. July 28, 2017). | |||
An FCA retaliation claim does not require proof of a viable underlying FCA claim. The FCA anti-retaliation provisions “do[] not require the plaintiff to have developed a winning qui tam action”; they “only require [] that the plaintiff engage in acts [made] in furtherance of an [FCA] action.” Hutchins v. Wilentz, Goldman & Spitzer, 253 F.3d 176, 187 (3d Cir. 2001). | |||
And because the Supreme Court has held that the FCA “is intended to reach all types of fraud, without qualification, that might result in financial loss to the Government” and “reaches beyond ‘claims’ which might be legally enforced, to all fraudulent attempts to cause the Government to pay out sums of money,” the term “false or fraudulent claim” should be construed broadly. U.S. ex rel. Drescher v. Highmark, Inc., 305 F. Supp. 2d 451, 457 (E.D. Pa. 2004). | |||
==='''FCA Anti-Retaliation Law Protects Efforts to Stop a Government Contractor from Defrauding the Government'''=== | |||
The FCA anti-retaliation law protects whistleblowers who try to prevent one or more violations of the FCA, as long as they have an objectively reasonable belief that their employer is violating, or will soon violate, the FCA. Case law has clarified that efforts to stop an FCA violation are protected even if they are not meant to further a qui tam claim. For example, [https://www.zuckermanlaw.com/false-claims-act-whistleblower-provision-protects-refusal-violate-false-claims-act/ refusing to falsify documentation that will be submitted to Medicare is protected.] | |||
Similarly, a South Carolina district judge held that a relator engaged in protected conduct when she refused her employer’s directive to obtain patient signatures and back-date the signatures, which the relator perceived as an attempt to create fraudulent forms used to secure reimbursement from US health insurance programs. | |||
The second prong (“other efforts to stop FCA violation”) is subject to an “objective reasonableness” standard, which requires only that an employee’s actions be “motivated by an objectively reasonable belief that the employer is violating, or soon will violate, the FCA.” United States ex rel. Grant v. United Airlines Inc., 912 F.3d 190, 200 (4th Cir. 2018). | |||