10th National Institute on the Civil False Claims Act – American Bar Association, Day 2 – June 5, 2014

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Panel Topic: Recent Developments on Liability

Conditions of Payment: Involve false certifications of compliance with regulations that are a condition of payment. This issue relates to “legally false” claims as opposed to “factually false” claims. (See earlier post for a discussion of this issue.)

The issue further involves the difference between “express certifications” and “implied certifications.” Circuit courts have split on whether implied certifications are actionable and to what extent. Some circuits require that the certification of compliance be explicit; others will look more broadly at the requirements for submitting payments.

Relators’ View:
• The courts appear to be taking a broader view look at whether compliance with a particular regulation was material to the government’s decision to pay.
• If “condition of payment” is going to become a requirement of falsity, courts need to flesh out what it means.

Defense View:
• Falsity, materiality, and causation are overlapping elements in the FCA context. Defense lawyers are concerned about “element creep”—many believe it is important to maintain the distinctions between the essential elements of an FCA case.

Government View:
• Courts are starting to explain what a “condition of payment” is in various contexts.
• Some key questions remain, like whether violations of so-called “permissive conditions of payment” can raise an FCA issue or whether only “mandatory conditions of payment” count. Some courts have said permissive conditions count, which is consistent with definition of “materiality” under FERA amendments.
• How to interpret whether a regulatory or contractual requirement is a “condition of payment”? Totality of circumstances should be used.
• Another issue is the distinction some courts have drawn between “conditions of participation” and “conditions of payment.” Courts have started to recognize this is a false dichotomy and that core conditions of participation may also be a condition of payment.

Causation: There are really two issues from a liability perspective—causing the claim to be false and causing the claim to be submitted to the government; there is also the issue of causation with respect to damages.

Causation with respect to the submission of a claim does not require actual knowledge, but rather foreseeability—was it foreseeable that a claim would be submitted that was false.

Affordable Care Act changes making Anti-Kickback Statute (AKS) violations actionable under the FCA raise a host of causation issues—are all claims after the AKS violation actionable or only those that would not have happened but-for the AKS violation? No clear answer from the courts yet.

Defense View:
• Legal standards for pleading these elements can be understandably loose, but it is important that stricter standards are applied post-pleading.

Extrapolation: Hot topic! Is the use of sampling to prove liability proper? There is very little case law on this, but the issue is looming, particularly in healthcare cases where tens of thousands of claims may be at issue.

Government’s View:
• Sampling necessary in very large, broad fraud schemes.
• If sampling is not permissible, defendants will be able to escape liability simply because the fraud scheme was so massive as to be impractical to prove on a claim-by-claim basis.
• Sampling should be able to establish liability and scope, but not scienter.
• Sampling is allowed in many other types of cases—overpayment cases and criminal cases, for example.
• Quality of evidence is really the key issue—that is, whether liability can be established by sampling depends on how good the statistical analysis is.
• Sampling is circumstantial evidence and should be treated as such—it is admissible but its probative value is open to attack like any other circumstantial evidence.

Defense View:
• Defendants object to the use of sampling to prove liability based on due process grounds (among others).
• Defense bar is concerned that forcing them to challenge the use of sampling for liability purposes—not for damages purposes—will undermine their ability to use sampling to value cases for settlement. Will shareholders now object to the use of sampling to value cases for settlement if defendants are forced to mount a challenge to sampling for liability purposes?