Among the most important False Claims Act (FCA) issues to understand in discharging one’s obligations to comply with the law is what, if anything, one must do when the underlying regulatory scheme governing payment from the government is ambiguous. For example, if the company simply adopts a reasonable interpretation of the law and seeks payment, will courts, under FCA precedent, find the company liable under the FCA if, upon review, the company’s reasonable interpretation is wrong? Under these circumstances, will the company be deemed to have acted with “reckless disregard” in violation of the FCA if there is no official governmental guidance that would have warned the company away from its reasonable interpretation of law?
I. Stark Law and False Claims Act
The FCA has become the primary enforcement vehicle for the Ethics in Patient Referrals Act, better known as the Stark Law. There are now more than 150 public cases citing to both the Stark Law and the FCA.1 The government and relators have collected several hundred million dollars in FCA judgments or settlements in cases alleging an FCA violation based upon an alleged Stark Law violation.2
The Stark Law prohibits certain types of health care referrals for designated health services (DHS) when a health care entity has a financial relationship with a physician. Services a physician personally performs are not referrals for purposes of the Stark Law. Personally performed professional services are acts that the doctor does for the patient directly, such as performing surgery for which the doctor bills a professional fee. This is distinguished from ancillary services that the physician may refer to the hospital for which the hospital separately bills a facility fee or technical component.
A common issue that any person who conducts business with the government confronts is this: When does a perceived rule violation or contractual breach result in potential FCA violations, subjecting the person to treble damages and substantial civil penalties?
This question is particularly pressing for those participating in Medicare and Medicaid programs. Prior to participation in these programs, health care providers and suppliers must enter into various agreements certifying that they will adhere to various rules and regulations. When submitting claims for payment or cost reports, health care entities must also certify that they complied with various federal and state rules and regulations.
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The FCA is the government’s primary weapon to prevent fraud against the United States. Since Congress substantively amended the FCA in 1986 to facilitate the filing of private whistleblower lawsuits (known as qui tam actions filed by plaintiffs known as “relators”), more than 9,000 qui tam actions have been filed. In fact, over one recent five-year period (2008-2013) alone, more than 3,000 lawsuits were filed, and $20 billion was recovered. These numbers rival or even eclipse securities and antitrust in annual filings and recoveries.1
Throughout 2014, Akin Gump has consistently persevered in multiple high stakes False Claims Act (FCA) cases on behalf of several clients facing qui tam actions.
These victories include:
- U.S. District Court for the District of Delaware decision in United States ex rel. Moore & Company, P.A. vs. Dongwon Industries Company, et al, No. 12-1562 SLR (D. Del. Sept. 23, 2014) holding that plaintiff’s FCA lawsuit was barred under the FCA’s public disclosure bar. This is a complete win for the client in a significant case.
- Fifth Circuit’s decision in United States ex rel. Johnson v. Planned Parenthood of Houston, No. B-20206, 2014 U.S. App. LEXIS 10604 (5th Cir. June 4, 2014) affirming dismissal of FCA complaint alleging that client submitted false Medicaid claims. The ruling in this case was particularly notable as it reinforced the viability of the FCA’s “first to file” doctrine as a bar to duplicative lawsuits, benefitting corporate entities who are or may become targets for multiple, overlapping FCA lawsuits brought by purported whistleblowers.
- U.S. District Court for the District of New Jersey decision in United States ex rel. Portilla v. Riverview Post Acute Care Ctr., 2014 U.S. Dist. LEXIS 44002 (D.N.J. Mar. 31, 2014) dismissing FCA complaint alleging that client, a chain skilled nursing facility operator, submitted false Medicare and Medicaid claims.
On June 10, 2014, a New York federal court dismissed, in part, state and federal False Claims Act (FCA) claims brought against Novartis Pharmaceuticals Corporation and pharmacies to which it distributed (CVS Caremark Corp., Accredo Health Group Inc. and Curascript Inc.) in United States ex rel. Kester v. Novartis Pharmaceuticals Corp., No. 11 Civ. 8196 (CM) (S.D.N.Y.).
A former Novartis employee filed the lawsuit, alleging that Novartis routinely paid kickbacks to the pharmacy defendants as rewards for promoting the following Novartis drugs which the relator alleged caused serious side effects: Myfortic, Exjade, Gleevac, Tasigna and TOBI. The relator further alleged that the pharmacy defendants submitted false reimbursement claims to Medicare, Medicaid, Tricare and other government health coverage providers. Specifically, they allegedly falsified claim forms by certifying compliance with the federal Anti-Kickback Statute (42 U.S.C. § 1320a-7b[b]). According to the complaint, the false anti-kickback representations rendered the claims false under the federal False Claims Act (31 U.S.C. § 3729, et seq.) and similar state False Claims Acts, including those of New York (State Finance Law § 187, et seq.), California (Government Code § 12650, et seq.), Virginia (Code § 8.01-216.1, et seq.), and Texas (Human Resources Code § 32.039, et seq.). The United States intervened April 2013 and New York and California intervened in January 2014. The defendants moved to dismiss.
On October 23, 2013, the US Chamber of Commerce published a paper co-authored by Peter Hutt of Akin Gump proposing a number of reforms to the False Claims Act. The reforms aim to deter genuine fraud while discouraging questionable and abusive lawsuits under the statute. The paper first proposes a model for incentivizing the adoption of voluntary compliance programs that, if adopted, offer companies the benefit of certain proposed False Claims Act reforms. Second, the paper describes eight proposed reforms that would address current inefficiencies in the way the statute operates and is enforced. These reforms seek, in part, to curb excessive and unjustified payments to whistleblowers and their attorneys. A copy of the paper is available here.
On November 12, 2013, the United States Department of Justice announced that CA Technologies (formerly CA, Inc.) will pay the federal government $8 million to settle whistleblower allegations that the company violated the federal False Claims Act by double-billing federal agencies for software maintenance services and preventing Department of Defense customers from utilizing pre-paid software inventory and discounts by directing the customers to purchase more expensive products. The settlement resolves a lawsuit filed by Ann-Marie Shaw, a former CA Technologies employee, in the Eastern District of New York, titled United States of America, and the States of California, Florida, Hawaii, Illinois, Massachusetts, Nevada, Virginia, New York, the District of Columbia, and the State and City of New York ex. rel. Anne-Marie Shaw v. CA, Inc., Civil Action No. 06-3552 (LDW) (WDW) (E.D.N.Y). The lawsuit alleged that CA Technologies asked federal and state customers to renew their software maintenance agreements with CA Technologies several months before the agreements expired. CA Technologies would then allegedly date the renewal as of the date it processed the renewal order, rather than at the end of the current maintenance agreement, thereby double-charging customers for its maintenance services. The Department of Justice’s press release is available here.
CA Technologies also entered into separate settlement agreements totaling $3 million to resolve claims by California, Florida, Hawaii, Illinois, Massachusetts, Nevada, Virginia, New York, the District of Columbia, and the City of New York arising out of related allegations under state and local false claims statutes.