Civil Investigative Demands (CIDs) are powerful pre-litigation tools the government frequently utilizes to investigate potential allegations of FCA liability. CIDs can be broad and invasive, time-consuming and expensive. What’s a company to do upon receipt of a CID? Is there any recourse? Unfortunately, neither case law nor published guidance offers the recipient much in the way of a formal, timely mechanism to challenge the scope or appropriateness of a CID. Nevertheless, there are certain practical steps one can take to reduce a CID’s scope that, in turn, will reduce disruption and expenses associated with CID compliance.
On September 1, 2016, the U.S. Court of Appeals for the Seventh Circuit reversed the dismissal of an FCA lawsuit by the U.S. District Court for the Eastern District of Wisconsin, and in doing so, evaluated the particularity required to survive a motion to dismiss under Rule 9(b) as it relates to both a relator’s obligation to plead specific claims and the specifics of the underlying fraudulent conduct at issue.
The U.S. Court of Appeals for the Fourth Circuit recently affirmed dismissal of an FCA complaint for failure to state a claim under the FCA’s anti-retaliation provision, 31 U.S.C. § 3730(h). In U.S. ex rel. Carlson v. Dyncorp Int’l, LLC, the Fourth Circuit held that the relator failed to establish that he had engaged in protected activity, a required element for a prima facie retaliation case under the FCA. In reaching that conclusion, the Fourth Circuit provided useful guidance on the standards used to assess whether a relator engaged in protected activity.
The United State District Court for the Eastern District of New York recently dismissed an FCA complaint for failing to plead materiality under the standard announced in Universal Health Services, Inc. v. U.S. ex rel. Escobar, the Supreme Court’s landmark FCA opinion issued in June of this year. The case, U.S. ex rel. Lee v. Northern Adult Daily Health Care Center, 13-cv-4933, 2016 WL 4703653 (E.D.N.Y. Sept. 7, 2016), becomes one of the first to substantively apply Escobar and highlights the barrier the FCA’s materiality requirement poses to FCA relators in the wake of the Supreme Court’s ruling. It also suggests ways in which courts already are divided in their interpretation of Escobar.
On August 24, 2016, DOJ announced a $2.95 million settlement with defendants facing FCA liability for allegedly delaying repayment of more than $800,000 in Medicaid overpayments. The settlement amounted to nearly 3.5 times the amount of the improper billings stipulated in the settlement documents.
This is the first FCA settlement involving the Affordable Care Act’s 60-day repayment provision and flows from allegations that the defendants violated the obligation to report and remit overpayments within 60 days of when such payments have been identified. The stipulation accompanying the parties’ settlement of the FCA claims at issue also included language that the defendants “admit[ted], acknowledge[d], and accept[ed] responsibility for” the conduct underlying the government’s allegations regarding the violation of this obligation.
On August 12, 2016, the U.S. Court of Appeals for the Eighth Circuit affirmed summary judgment with respect to FCA claims asserted against an anesthesia practice based on the theory that the practice’s physicians billed Medicare for anesthesia services without being present in the operating room during the patients’ “emergence” from anesthesia. In U.S. ex rel. Donegan v. Anesthesia Associates of Kansas City, PC, the Eight Circuit concluded that the relator failed to establish that the practice acted with the requisite knowledge because the practice’s interpretation of the billing regulation at issue was “objectively reasonable.”
On July 28, 2016, the Department of Justice announced a $17 million settlement in the matter of United States ex rel. Hammett v. Lexington County Health Services District, Case No. 3:14-cv-03653 (D. S.C.).1 The lawsuit resolved allegations that Lexington County Health Services District, Inc. d/b/a Lexington Medical Center (“LMC”) in West Columbia, SC violated the Stark Law and False Claims Act by acquiring physician practices or employing twenty-eight (28) physicians on terms that were in excess of fair market value and on terms that were not commercially reasonable.
The case was filed on September 15, 2014, and DOJ declined to intervene on September 16, 2015. Relator then continued with the case, resulting in the recently announced settlement. As part of the settlement, LMC also entered into a Corporate Integrity Agreement with the Department of Health and Human Services-Office of the Inspector General.
On July 18, 2016, the United States District Court for the Northern District of California issued one of the first post-Escobar decisions addressing a motion to dismiss FCA allegations on grounds that the complaint did not satisfy Rule 9(b)’s pleading standard. In the intervened case, the United States alleged that diagnostic sleep studies were performed in locations that violated federal law and/or were performed by technicians who were not licensed or certified. The United States proceeded on multiple FCA theories (including factual falsity, express false certification, fraud in the inducement, and implied false certification).
The Seventh Circuit’s rejection of the implied certification theory of liability gave rise, in part, to the circuit split resolved by the Supreme Court’s opinion in Escobar. In its first FCA decision since the Supreme Court’s opinion – U.S. ex rel. Sheet Metal Workers International Association v. Horning Investments, LLC, the Seventh Circuit sidestepped the question of whether the relator’s allegations that a government contractor’s certification of compliance with the Davis-Bacon Act amounted to an implied false certification sufficient to give rise to FCA liability. Rather than tackle the implications of Escobar, the Seventh Circuit affirmed entry of summary judgment in favor of the contractor, explaining that the defendant’s conduct amounted to certifying compliance with an ambiguous statutory obligation and, therefore, did not constitute a “knowing” violation of the FCA.
The United States District Court for the Northern District of Texas recently released a noteworthy FCA opinion, one that includes a key ruling on the use of statistical sampling and extrapolation. In United States v. Vista Hospice Care, Inc., No. 3:07-CV-00604-M, 2016 WL 3449833 (N.D. Tex. June 20, 2016), the relator brought claims alleging, among other things, that the defendant violated the False Claims Act by certifying patients as eligible for hospice, when the patients were not terminally ill or their records lacked documentation supporting the requisite six-month life expectancy prognosis. In deciding a motion to strike and a motion for summary judgment, the district court issued two very favorable defense rulings.
The relator relied on the expert testimony of a hospice physician, who reviewed 291 patient files and concluded that a large portion of the patients were not eligible for hospice for at least some of the days. An expert statistician, in turn, extrapolated from the physician’s testimony to conclude that defendants had submitted false claims on approximately 12,000 patients.