False Claims Act Update

Transcription

1 False Claims Act Update Jeremy Kernodle and Sean McKenna May 20, 2015

2 False Claims Act A false claim for payment to the United States, 31 U.S.C. 3729(a) Includes conspiracy and reverse false claims provisions Claim must be submitted knowingly Actual knowledge Deliberate ignorance Reckless disregard No specific intent to defraud required Other state/federal law violations may be bases for FCA liability 2

3 FCA cont. Six-year statute of limitations Three years from date material facts are known or reasonably should be known by responsible official Not more than 10 years after the violation Remedies Damages not required $5,500 - $11,000 penalty per false claim If found liable, mandatory treble damages, if any, and penalties Attorneys fees and costs 3

4 Qui tam Provisions Relator files case on behalf of government Under seal for at least 60 days as DOJ reviews May pursue without DOJ involvement Protected from retaliation under section 3730(h) Plead with particularity under Rule 9(b) Relator entitled to share of proceeds Procedural defenses Public disclosure bar First-to-file rule 4

5 Possible FCA Outcomes Suspension of payments Termination from gov t programs Civil recoveries from responsible parties Exclusion/debarment/revocation license Cost of responding Loss of business/goodwill/morale 5

6 Healthcare Fraud and DOJ Commitment to prosecute healthcare fraud Criminal/Civil/Antitrust Divisions Consumer Protection Branch Health care fraud coordinators within 94 United States Attorneys Offices Federal Bureau of Investigation Drug Enforcement Agency Distinct funding sources 6

7 2014 Activity DOJ recovered more than $5.6 billion in FY 2014 First time recoveries exceeded $5 billion Up from $3.8 billion in 2013 Of $5.6 billion $3.1 billion related to financial institutions $2.3 billion related to healthcare $3 billion from qui tam cases Number of qui tam suits exceeded 700 for second year in row Up from only 30 in 1987 Whistleblowers received approximately $435 million in

8 2014: Notable Settlements $1.8 billion settlement by B of A to settle claims re: mortgages sold to U.S. $1.1 billion settlement by Johnson & Johnson to settle claims re: unapproved drugs $32.5 million settlement by Hewlett-Packard to settle claims re: IT products sold to USPS. 8

9 State False Claims Acts CA WA* NV MT CO* MN IA* WI* IL IN MI* TN DC VI NC NY NH MA RI CT* NJ DE MD* NM GA TX* LA* FL HI Source: Taxpayers Against Fraud Education Fund * denotes states with Medicaid only FCAs 9

10 2014: Legislative Action United States: no action but reforms urged CMS Rule implementing report-and-return requirement Georgia: aligned penalty provisions of GA False Medicaid Claims Act with federal FCA Connecticut: expanded state FCA to cover all state healthcare programs 10

11 RECENT SIGNIFICANT JUDICIAL DECISIONS 11

12 Rule 9(b) Circuit split continues. Supreme Court: Rejected request to resolve issue (Takeda) Seventh Circuit: Must provide at least 1 example of actual false claim (Grenadyor) Third Circuit: Rejected rigid pleading standard and embraced more nuanced approach (Foglia) 12

13 Rule 9(b) Eighth Circuit: Abandoned requirement of representative examples; detailed scheme enough, especially where relator had personal knowledge of false claims (Planned Parenthood) Eleventh Circuit: Plead indicia of reliability that false claims submitted, including that relator personally was in a position to know (HMS) 13

14 Rule 9(b) cont. E.D. Ky.: complaint alleging scheme to defraud and including representative sample of false claims satisfied Rule 9(b). (Assocs. in Eye Care) M.D. Ga.: complaint quoting conversations by defendant admitting fraudulent billing satisfied Rule 9(b), even though no false claims identified. (Willis) D.N.J.: complaint relying on statistical inferences (6% of patients are Medicare beneficiaries) satisfied Rule 9(b), even though it identified no representative samples. (Greenfield) 14

15 Public Disclosure Defense 31 U.S.C. 3730(e)(4): court must dismiss if qui tam complaint based upon publicly disclosed allegations When do 2010 amendments apply? D. Mass., E.D. Va.: apply to conduct before 2010 if complaint filed after 2010 E.D. Cal., D.S.C.: do not apply to old conduct 15

16 Public Disclosure cont. What is a public disclosure? Ninth Circuit: disclosure made to just one person may qualify if person is member of the public (Malhotra) Eighth Circuit: response to single FOIA request, even if not widely disseminated, may be public disclosure (Kraxberger) E.D. Va.: only disclosure made to general public, placed in public domain, or made available to stranger of the fraud is public disclosure (Saunders) 16

17 Public Disclosure cont. What must be disclosed? N.D. Ill.: critical elements of the fraud (Veluchamy) E.D. Cal.: core allegations, even if not as detailed (Millennium Pharms.) N.D. Ill., E.D. Va.: simply alleging negligent or unethical billing not enough because did not disclose fraud (Veluchamy, Saunders) 17

18 Original Source How does a relator qualify as an original source? Eighth Circuit: must provide new information (Paulos) Fifth Circuit: must acquire knowledge by own efforts rather than learned second-hand (Lockey) Fourth Circuit: must have been employed at time of fraud (Ahmuda) Ninth Circuit: must also have a hand in the public disclosure (Millennium Pharmaceuticals) 18

19 First-to-File Rule 31 U.S.C. 3730(e)(4): Bars relators from bringing related action based on facts underlying pending action Fifth Circuit: bars actions based on the same material or essential facts (Planned Parenthood) Courts are taking more liberal approach, finding more suits barred under statute. 19

20 First-to-File cont. What is a related action? First and Fifth Circuits: cases are related if investigation in first case would have uncovered same fraud alleged in second case (Planned Parenthood, Ven-a- Care) D.S.C.: cases can be related even if not all of the defendants are the same (Szymoniak) 20

21 First-to-File cont. What is a pending action? Split: presently pending v. was pending Carter: Supreme Court will address the split Fourth Circuit: if no longer pending, first-to-file bar does not apply Solicitor General: agreed and makes sense because bar is intended to protect first relator from diluting recovery by follow-on suits while protecting defendants from simultaneous suits 21

22 Statute of Limitations Ordinarily, 6 years from violation. Wartime Suspension of Limitations Act may suspend this period even to qui tams because of hostilities in Iraq. (4th Cir., SDNY, W.D. Mo.) Carter: Supreme Court to decide 22

23 Penalties 31 U.S.C. 3729(a): $5,500 to $11,000 per false claim M.D. Fla.: no constitutional issue even when penalties prosecuted by private relator (Halifax Hosp.) D.D.C.: amount is within court s discretion depends on scienter, harm, and seriousness of conduct, but does not depend on amount of damages (Purcell) 23

24 Settlement Eighth Circuit: relators may share in proceeds of settlement between government and unnamed party, where settlement required dismissal of relators action (Rille) E.D. Mo.: relator bound by settlement, even though parties never agreed how to divide recovery, where relator did not oppose language of dismissal (Peterson) 24

25 Scienter 31 U.S.C. 3729(a)(1): defendant must have knowingly submitted false claim What if the contract or law is ambiguous? Third Circuit: as matter of law, defendant did not act knowingly when key provision of government contract is ambiguous (Arnold) COFC: defendant s interpretation must border on the frivolous, even if erroneous (Ulysses) C.D. Cal.: interpretation must be so clearly incorrect as to infer that defendant acted with scienter (Honeywell) 25

26 Attorneys Fees 31 U.S.C. 3730(d)(4): defendant may recover fees where it prevails and relator s claim was clearly frivolous D. Colo.: defendant is prevailing only if there is a judicially sanctioned change in the legal relationship of the parties (Todd) S.D. Tex.: defendant cannot recover attorneys fees incurred before suit filed, or any fees/costs from defending government investigation (Roe) 26

27 Person 31 U.S.C. 3729(b): FCA prohibits any person from submitting false claims Supreme Court: states are not persons Various tests to determine whether other entities are persons Eleventh Circuit: water district is arm of state and thus not a person (Lesinski) Fourth Circuit: student loan authority is arm of state and thus not a person (Oberg) 27

28 Defendant v. Relator Can a defendant file a counterclaim against a relator? E.D. Pa.: yes, where counterclaim was for breach of confidentiality agreement and defendant was not seeking to lower FCA liability (Walsh) D.N.J.: yes, where counterclaim was for breach of contract (Boston Scientific) 28

29 Stark Law Stark: prohibits physician referrals of designated health services for Medicare and Medicaid patients if physician has a financial relationship with that entity Two Updates: Halifax Hospital: FCA liability arising from alleged Stark violations Sought $1 billion in damages and penalties Settled on eve of trial for $85 million Tuomey: FCA liability arising from alleged Stark violations (19 part-time employment agreements) Trial in 2013 with $238 million verdict Appeal now pending in Fourth Circuit (oral argument in Oct. 2014) 29

30 Worthless Services Momence Meadows case 2013: jury verdict for $28 million against nursing home for worthless services 2014: Seventh Circuit reversed and rendered for nursing home Narrowed worthless services theory Must be so deficient that it is the equivalent of no performance at all 30

31 Jeremy D. Kernodle 2323 Victory Avenue Suite 700 Dallas, Texas T F Jeremy Kernodle is a litigator who focuses on government litigation and appeals. He has successfully litigated cases against various federal agencies, including bid protests in the U.S. Court of Federal Claims. His experience covers a range of substantive legal areas, including healthcare, False Claims Act claims, constitutional and administrative law, and government contract disputes. Before joining Haynes and Boone, Jeremy served as an attorney-adviser in the Office of Legal Counsel at the U.S. Department of Justice, where he was among a small number of lawyers advising the White House and other senior Executive Branch officials on constitutional and other significant legal issues. He previously worked at Covington & Burling in Washington, D.C., and served as a law clerk to the Honorable Gerald B. Tjoflat of the U.S. Court of Appeals for the Eleventh Circuit. 31

32 Sean McKenna 2323 Victory Avenue Suite 700 Dallas, Texas T F Sean McKenna is Co-Chair of the firm s Healthcare Practice Group and a partner in the white collar defense section and has 16 years of enforcement and healthcare experience. Sean worked most of that time in the federal government, investigating and resolving hundreds of civil, criminal, and administrative health care and white collar fraud investigations, matters, and cases. He focuses his current practice on defense of healthcare fraud and abuse, false claims act/qui tams, white collar, government contracts, and healthcare regulatory matters. He regularly advises providers on fraud and abuse risks as well as compliance-related issues. During his ten years as an Assistant U.S. Attorney, Sean investigated and prosecuted criminal health care, pension, wire fraud, money laundering, illegal kickbacks, and forfeiture cases, resulting in significant sentences and judgments. 32

33 False Claims Act Update Jeremy Kernodle and Sean McKenna May 20, 2015