On December 26, 2018, the U.S. Court of Appeals for the Fourth Circuit issued an opinion in United States ex rel. Grant v. United Airlines affirming dismissal of the relator’s False Claims Act (FCA) allegations on the grounds that the complaint failed to plead presentment of a false claim with sufficient particularity under Rule 9(b). In the same opinion, however, the court revived the relator’s retaliation claim on the grounds that the relator satisfied the lower standard of Rule 8(a) applicable to retaliation claims, which are not claims of fraud.

Presentment Must Follow from Conduct Alleged in Complaint

The court affirmed dismissal of the relator’s substantive FCA claims because it held that the relator failed to adequately plead presentment under Rule 9(b) in either of the two ways that the Fourth Circuit has recognized as acceptable:

  1. By alleging with particularity that specific false claims actually were presented to the government for payment, including by describing the time, place, and contents of the false representation; the person making the false representation; and what was obtained by making this representation
  2. By alleging a pattern of conduct that would “necessarily have led to a false claim being submitted”

The court focused its analysis on whether the complaint was adequately pleaded under the latter of those two options. The relator was a former maintenance technician of United Airlines who was a second-tier subcontractor on a government contract for the repair and maintenance of military aircraft. His complaint alleged that United Airlines was specifically subcontracted to repair, overhaul and inspect certain airplane engines and was required to do its work in compliance with certain regulations. The complaint alleged that United Airlines violated the FCA by failing to comply with the required regulations in completing work on these airplane engines. Continue Reading Fourth Circuit Weighs in on Standards for Pleading Presentment and Retaliation

Download Annual Healthcare Fraud & Abuse ReviewBass, Berry & Sims is pleased to announce the release of its seventh annual Healthcare Fraud and Abuse Review. The Review, compiled by the firm’s Healthcare Fraud Task Force, is an in-depth and comprehensive review of enforcement settlements, court decisions and developments affecting the healthcare industry.

The Review is intended to assist healthcare providers in developing a greater understanding of the civil and criminal enforcement risks they face during a time of great uncertainty for the healthcare industry.  Without question, understanding the key developments during the prior year is an important step in implementing necessary safeguards designed to minimize enforcement risks for healthcare providers.

Our Healthcare Fraud and Abuse Review covers:

  • Healthcare fraud issues to watch in 2019
  • Noteworthy FCA settlements from 2018
  • Comprehensive coverage of significant FCA decisions
  • Analysis of key AKS and Stark settlements and litigation
  • Discussion of pharmaceutical and medical device risk areas

Click to download Healthcare Fraud and Abuse Review

In December 2018, the Department of Justice (DOJ) updated its Justice Manual to add Title 1-20.000 et seq., Limitation on Use of Guidance Documents in Litigation. This addition formalizes guidance provided in two previous internal DOJ memoranda—the Sessions Memo and the Brand Memo—each discussing limiting the use of guidance documents and advisory opinions in both criminal and civil enforcement actions.

The Sessions and Brand Memos

The Sessions Memo, authored by then-Attorney General Jeff Sessions in November 2017, prohibited the DOJ from promulgating guidance documents “that purport to create rights or obligations binding on persons or entities outside the Executive Branch[.]” It also prohibited the DOJ from creating binding standards that could then be used to determine a person or entity’s compliance with applicable federal statutes or regulations. Importantly, the memo noted that such guidance documents were not produced through a notice-and-comment rulemaking process and were not promulgated by the agency charged with the constitutional authority to do so.

Continue Reading DOJ Formalizes Previous Directives Regarding Limiting Use of Guidance Documents to Prove Violations of Law

In 2016, the U.S. Supreme Court handed down its decision in Universal Health Services, Inc. v. U.S. ex rel. Escobar confirming the viability of the implied false certification theory in False Claims Act (FCA) cases and mandating that claims brought pursuant to that theory satisfy “demanding” materiality and scienter requirements.  As discussed in a prior post, since Escobar, the U.S. Courts of Appeals have wrestled with analyzing and applying the materiality and scienter requirements discussed in the Supreme Court’s opinion, resulting in a number of recent petitions for writ of certiorari filed with the Supreme Court seeking clarification of the Escobar mandates.

In one of its first actions of 2019, the Supreme Court recently denied petitions in two closely-watched FCA cases, U.S. ex rel. Harman v. Trinity Industries, Inc., and Gilead Sciences Inc. v. U.S. ex rel. Campie.

$660 Million Reversal Stands in Harman

The plaintiff-relator in Harman sought review from the Supreme Court after the U.S. Court of Appeals for the Fifth Circuit reversed a $660 million jury verdict, holding that the relator failed to prove that the defendant’s alleged misrepresentations were material to government’s payment decisions.  The relator in Harman claimed that the defendant produced and sold defective highway guardrails to various states, causing them to submit fraudulent claims for reimbursement to the federal government.  However, evidence was presented that the Federal Highway Administration was aware of the alleged defects but continued to pay for the guardrails despite their non-compliance.  Relying on Escobar, the Fifth Circuit held that relator failed to overcome such “strong evidence” that the requirements at issue were not material.   The Supreme Court’s recent denial of the relator’s petition leaves intact the Fifth Circuit’s judgment and precedential opinion, providing a potential defense to FCA defendants in cases where the government was aware of certain conduct but continued to pay claims.

Continue Reading With Widening Circuit Splits and Mounting Pressure, Will 2019 See a Post-Escobar Decision from the Supreme Court?

On December 11, 2018, the United States announced that it has elected to intervene in a False Claims Act (FCA) lawsuit filed against Sutter Health and its affiliated entity Palo Alto Medical Foundation (PAMF) alleging that the defendants defrauded the Medicare Advantage program by submitting false patient information to the government. The whistleblower, a former employee of PAMF, alleges that Sutter “has taken and continues to take hundreds of millions of dollars in inflated capitation payments” by submitting “risk adjustment data Sutter knows to be inaccurate, incomplete or false.”

Medicare Advantage Plans

Medicare Advantage, formally known as Medicare Part C, allows private insurance companies, acting as “Medicare Advantage Organizations (MAOs),” to offer insurance plans and administer Medicare benefits. MAOs contract with healthcare providers such as Sutter to provide Medicare services to the plans’ enrollees. Instead of receiving reimbursement on a traditional fee-for-service basis, MAOs provide benefits under a capitated payment system, whereby government reimbursement is based on each individual beneficiary’s risk adjustment data.

Continue Reading DOJ Intervenes in Another Medicare Advantage Risk Adjustment FCA Suit

Perhaps the single most appropriate word to describe the current state of the civil and criminal healthcare fraud enforcement environment is uncertainty.  From changes in personnel and policy at the highest levels of government to a myriad of state and federal legislative developments, healthcare providers face an unsettled landscape as they move into the coming year.

Healthcare Fraud Recoveries Again Exceed $2B

To be sure, statistics would suggest that it was business as usual for the government’s healthcare fraud enforcement efforts.  While civil fraud recoveries by the Department of Justice (DOJ) dipped to more than $2.8 billion in the fiscal year ending September 30, 2018 (FY 2018) as compared to $3.7 billion in FY 2017, recoveries attributable to the healthcare industry were $2.5 billion in FY 2018 – up from $2.1 billion in FY 2017.  This is the ninth consecutive year where recoveries associated with the healthcare industry exceeded $2 billion.

Continue Reading Healthcare Fraud & Abuse Year End Review: A Look Back…A Look Ahead

In a remarkable move, the Department of Justice (DOJ) recently sought dismissal of 11 False Claims Act (FCA) cases, each of which assert that patient assistance services supplied by pharmaceutical manufacturers constitute unlawful kickbacks. The 11 complaints were brought against various pharmaceutical companies by what DOJ described as “shell companies” backed by the National Healthcare Analysis Group, a company formed for the purpose of filing FCA cases. In seeking dismissal, DOJ argued that the suits ran counter to government interests and wasted “scarce government resources.”

According to the DOJ, the 11 lawsuits involved “essentially the same theories of FCA liability” concerning “white coat marketing,” free “nurse services,” and “reimbursement support services.” Specifically, in a motion to dismiss filed on December 17, 2018, in the Eastern District of Texas, DOJ seemingly defended these manufacturer programs noting the government’s “strong interest” in ensuring that “patients have access to basic product support related to their medication, such as access to a toll-free patient-assistance line or instructions on how to properly inject or store their medication.” The government further argued that the allegations “conflict with important policy and enforcement prerogatives” of federal healthcare programs, and asserted that the relators “should not be permitted to indiscriminately advance claims…against an entire industry that would undermine common industry practices the federal government has determined are, in this particular case, appropriate and beneficial to federal healthcare programs and their beneficiaries.”

Continue Reading DOJ Moves to Dismiss 11 Patient Assistance Services FCA Cases

On December 6, Bass, Berry & Sims and the Tennessee Hospital Association hosted more than 120 attendees at the annual Nashville Healthcare Fraud Conference, a full-day seminar focusing on fraud and abuse enforcement issues in the healthcare industry.

Panelists included a number of government attorneys and compliance personnel and in-house counsel from various healthcare providers from across the country, including University of Missouri Health Care (Columbia, Missouri), Children’s National Health System (Washington, D.C.), LifePoint Health (Brentwood, Tennessee), VNA Health Group (Holmdel, New Jersey), OhioHealth Corporation (Columbus, Ohio), Atrium Health System (Charlotte, North Carolina), Adrent Health Services (Nashville, Tennessee), and Vanderbilt University Medical Center (Nashville, Tennessee), among others. Continue Reading Bass, Berry & Sims and THA Host 4th Annual Nashville Healthcare Fraud Conference

The Delaware Supreme Court recently affirmed a decision by the Delaware Court of Chancery addressing a plaintiff’s ability to acquire key documents from a defendant company based on allegations against that company in an ancillary False Claims Act (FCA) complaint.  See UnitedHealth Group Incorporated v. Amalgamated Bank as Tr. for Longview Largecap 500 Index Fund, 2018 WL (Del.).

The Underlying FCA Allegations

In two separate federal districts, UnitedHealth Group Incorporated (United) faced unsealed, factually similar FCA complaints brought by two different relators. See United States ex rel. Swoben v. Secure Horizons, No. CV 09-5013 (C.D. Cal.) (Swoben Action); United States ex rel. Poehling v. UnitedHealth Group, Inc., No. CV 16-08697 (W.D.N.Y.) (Poehling Action). (The Swoben and Poehling Actions previously were discussed here, here, here and here.)

 Both relators alleged that United engaged in a scheme whereby it overbilled Medicare through the use of improper diagnostic codes that were not supported by patients’ medical charts and failed to reimburse Medicare once learning of improper diagnostic coding. After its investigation, the government filed complaints in intervention in both the Swoben and Poehling Actions.

Based on the government’s complaints, several shareholders of United brought suit under Delaware law (8 Del. C. § 220) seeking corporate books and records from United relating to the fraud alleged in the government’s complaints. To inspect corporate books and records under Delaware law, a plaintiff must show, among other things, “a proper purpose for conducting the inspection.” One “proper purpose” for an inspection of books and records is “to investigate wrongdoing or mismanagement,” but that purpose must be supported by a “credible basis” to infer possible wrongdoing or mismanagement warranting further investigation.

Continue Reading Adding Insult to Injury: When an FCA Complaint Begets Follow-On Corporate Litigation

On November 30, 2018, the Solicitor General of the United States filed an amicus curiae brief in the closely watched False Claims Act (FCA) lawsuit, Gilead Sciences Inc. v. U.S. ex rel. Campie. In what appears to be an unprecedented move, the Solicitor General stated in an amicus brief filed with the Supreme Court – without any prior indication – that the Department of Justice (DOJ) will move to dismiss the relator’s complaint if the case is remanded back to the district court because allowing the case to proceed “would impinge on agency decision making and discretion and would disserve the interests of the United States.”

Defendant Gilead Seeks Review of Ninth Circuit Decision

Two relators filed an FCA lawsuit against Gilead Sciences, Inc. in 2010 alleging that the pharmaceutical manufacturer misrepresented to the government that it obtained an active ingredient in three of its HIV drugs from specifically approved facilities. The relators also allege that Gilead provided false or inaccurate information to the Food and Drug Administration (FDA) in an attempt to gain approval to receive ingredients from an alternate facility. The relators argue that the government would not have reimbursed Gilead for the drugs at issue had it known the truth about the source of the drugs’ active ingredients. Continue Reading DOJ Informs Supreme Court that It Will Dismiss FCA Case if Remanded to District Court