On Tuesday, November 20, 2018, Defendants-Petitioners Brookdale Senior Living Communities, Inc. et al. (Brookdale) filed a petition for a writ of certiorari with the U.S. Supreme Court asking the Court to resolve circuit splits regarding enforcement of the materiality and scienter elements of the False Claims Act (FCA) in cases involving the implied false certification theory of liability. The relator in the case, styled Brookdale Senior Living Communities, Inc. v. U.S. ex rel. Prather, is a former Brookdale utilization review nurse who alleges that Brookdale did not obtain physician signatures on home health certifications as soon as possible after the physician established a plan of care, in violation of Medicare regulations. The U.S. District Court for the Middle District of Tennessee previously dismissed the lawsuit for failure to plead falsity, but the case was revived on appeal by a divided panel of the Court of Appeals for the Sixth Circuit, which held that the relator adequately pleaded a regulatory violation. After the relator amended her complaint in light of the Supreme Court’s 2016 decision in Universal Health Services, Inc. v. U.S. ex rel. Escobar, which addressed the FCA’s materiality requirement, the district court dismissed the case for failure to plead materiality. On appeal, however, the Sixth Circuit again reversed in a 2-1 decision, finding that the relator adequately pleaded materiality and scienter. Continue Reading Supreme Court Review Sought on FCA Materiality, Scienter Elements
In recent years, healthcare providers have increasingly faced civil and criminal enforcement actions premised on the allegation that services billed to government healthcare programs were not medically necessary. As a result, those claims allegedly have constituted fraud in violation of the civil False Claims Act (FCA) and/or various criminal statutes.
These actions – whether brought by the government in civil or criminal proceedings or qui tam relators in civil FCA cases – pose significant issues for providers. Often, disputing clinical judgments related to care or services provided many years in the past can be particularly challenging when efforts are made by the government or relators to use statistical sampling to establish civil liability and/or damages across a vast universe of claims. Given the risks associated with these cases, it is not surprising that there have been a number of high-dollar civil settlements involving medical necessity allegations against providers, including hospitals, physicians and providers of hospice, home health and therapy services. In criminal cases, the government likewise has secured a number of high-profile convictions and guilty pleas in cases challenging billing associated with allegedly unnecessary medical procedures.
Recently, in United States ex. rel. Ibanez v. Bristol-Meyers Squibb Co., No. 16-3154 (Oct. 27, 2017), the Sixth Circuit Court of Appeals affirmed a decision by the U.S. District Court for the Southern District of Ohio to dismiss an FCA complaint brought by two relators on behalf of the government, finding that the complaint lacked the particularity required under Rule 9(b) of the Federal Rules of Civil Procedure.
Former Employees Accused Company of Improperly Promoting Medication
The qui tam action was brought by two former employees of Bristol-Meyers Squibb Co., who alleged that the company, along with co-defendant Otsuka America Pharmaceutical, Inc., had engaged in a scheme to encourage healthcare providers to prescribe the antipsychotic drug Abilify for certain unapproved or “off-label” uses and that some of the resulting prescriptions were paid for by government programs.
The U.S. Court of Appeals for the Sixth Circuit recently heard oral argument in connection with a decision by the U.S. District Court for the Eastern District of Tennessee that primarily raised two FCA questions:
- Did the relator’s amended complaint satisfy the FCA’s first-to-file rule?
- Did the amended complaint adequately plead fraud under Rule 9(b) of the Federal Rules of Civil Procedure? U.S. ex rel. Armes v. Garman, 2016 WL 3562062 (E.D. Tenn. June 24, 2016).
On August 18, 2017, the U.S. Court of Appeals for the Sixth Circuit reversed the denial of a FCA defendant’s request for attorney’s fees and expenses under the Equal Access to Justice Act (EAJA) and held the government accountable for an unreasonable damages demand.
In U.S. ex. rel. Wall v. Circle C Construction, LLC, a subcontractor for the defendant, Circle C Construction, failed to pay $9,900 in wages for electrical work performed in the construction of warehouses. The subcontractor’s paid wages thus failed to meet the requirements of the Davis-Bacon Act. As a result, Circle C Construction’s subsequent statements of compliance with federal regulations, including the Davis-Bacon Act, were false.
A recent Sixth Circuit opinion in U.S. ex rel. Hirt v. Walgreen Co. should come as welcome news for FCA defendants concerned about the implications of the Sixth Circuit’s application last year, for the first time, of a “relaxed” standard for pleading false claims under Rule 9(b) in U.S. ex rel. Prather v. Brookdale Senior Living Communities, Inc.
The U.S. Court of Appeals for the Sixth Circuit recently upheld a district court’s grant of summary judgment in favor of Abbott Laboratories in an action alleging that Abbott terminated a sales representative in retaliation for reporting a potential FCA violation. The appeals court held that the case should not proceed because the sales representative failed to show she reasonably believed an FCA violation had occurred. The holding potentially is helpful to FCA defendants facing retaliation allegations, but its precedential value may be limited because the court issued the unpublished opinion per curiam and with one judge dissenting.
The FCA continues to be the federal government’s primary civil enforcement tool for investigating allegations that healthcare providers or government contractors defrauded the federal government. In the coming weeks, we will take a closer look at recent legal developments involving the FCA. This week, we examine the requirement that the conduct alleged to have resulted in a false claim must be material to the government’s decision to pay that claim and how courts have evaluated this issue in recent cases.
FCA claims should fail when the regulations allegedly violated are immaterial to the government’s decision to pay a claim. Where the theory of FCA liability turns on compliance with statutes and regulations in the healthcare context, courts continue to distinguish between regulations that are conditions of participation in the federal healthcare program and regulations that are conditions of payment, holding only violations of the latter can underpin FCA liability. As the Sixth Circuit has explained, violations of condition of participation are best addressed through administrative sanctions, not the “extraordinary remedies” of the FCA. See U.S. ex rel. Hobbs v. MedQuest Assocs., 711 F.3d 707 (6th Cir. 2013).
The Sixth Circuit recently became the first appellate court to consider and reject FCA liability based on a healthcare provider’s alleged false attestation of compliance with the Health Information Technology for Economic and Clinical Health Act (HITECH) Act’s meaningful use objectives. U.S. ex rel. Sheldon v. Kettering Health Network, 2016 WL 861399 (6th Cir. March 7, 2016). The HITECH Act was designed to encourage the adoption of Electronic Health Record (EHR) technology by healthcare providers through the creation of incentive payments for eligible providers. As a condition of receiving those incentive payments, the HITECH Act requires healthcare providers to meet meaningful use objectives and compliance measures concerning the adoption of EHR technology.
For the first time since August 2011, the Sixth Circuit examined the standard for pleading False Claims Act (FCA) violations with particularity under Federal Rule of Civil Procedure 9(b)—in particular, when the requirement that a relator plead an actual false claim submitted to the government can be “relaxed,” if at all. The case, U.S. ex rel. Eberhard v. Physicians Choice Laboratory Services, LLC (PCLS), No. 15-5691 (6th Cir. Feb. 23, 2016), involved allegations that PCLS, a medical testing services provider, submitted false claims to Medicare and Medicaid as a result of a purported scheme by PCLS to pay kickbacks—in the form of a commission on sales of PCLS products and services—to an independent sales force to induce them to solicit the referral of samples to PCLS for testing, in violation of the Anti-Kickback Statute. The relator, a former sales employee of PCLS, appealed the district court’s dismissal of his complaint for failure to plead any actual false claims submitted to the government with particularity under Rule 9(b), arguing that the district court should have applied a “relaxed” Rule 9(b) standard because of the relator’s purported “personal knowledge” of the false claims.
In affirming the district court’s ruling, the Sixth Circuit explained at the outset that unlike “some circuits hold[ing] that it is sufficient for a plaintiff to allege particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted, we have joined the Fourth, Eighth, and Eleventh Circuits in requiring ‘representative samples’ of the alleged fraudulent conduct.” Solely based on the relator’s failure to plead any false claims submitted in connection with the alleged kickback scheme, the Sixth Circuit ruled that the relator could not meet the pleading requirements of Rule 9(b).