Monthly Archives: June 2014

Statistics About False Claims Act Suits Against the Largest American Companies

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According to a recent press release (a copy is here), almost half of the largest 50 companies  in the United States (by 2014 numbers) have settled claims under the False Claims Act in the past. Beyond the very largest companies, about 20% of the country’s Fortune 500 companies (again, as determined by 2014 numbers) faced allegations under the False Claims Act at one time or another.

 These statistics suggest several trends and issues under the federal False Claims Act.

 First and perhaps foremost, these statistics should be a cautionary tale for all companies that receive money from the federal government in any form or manner. Litigation under the False Claims Act is exploding—the American Bar Association has said that False Claims Act suits are the fastest growing type of federal litigation. Recent amendments to the False Claims Act have made bringing lawsuits easier and dismissing them harder. Companies that do a substantial amount of work for the federal government must redouble their compliance efforts and take measures to uncover internal practices that could be considered fraudulent. Companies should identify particular areas in their work for the government that could expose them to liability under the False Claims Act—particularly the information they provide the government as part of their work—and ensure that that they are complying with contractual and regulatory requirements in all material respects.

 Second, these statistics suggest that the False Claims Act is becoming an increasingly popular vehicle for the government—and relators—to police the conduct of recipients of taxpayer money. According to Department of Justice statistics, last year (2013), 15% more qui tam lawsuits were filed than the year before (2012). Potential defendants and their counsel should expect more lawsuits under the False Claims Act in the next few years and should be thinking about ways both to avoid and minimize liability. There is no substitute for carefully developing and implementing an internal compliance program and creating a corporate culture that encourages whistleblowers to report internally and supports those that do.

 Conversely, the relators’ bar should read these statistics as an indication that there are many more potential whistleblowers out in the world who simply need to find the right lawyer who understands the value of the information they possess and how to use that information to the government’s advantage. These statistics should encourage relators’ counsel to invest more time and energy to identify and locate whistleblowers whose concerns have not been taken seriously by the companies they work for.

 Finally (for this post), these statistics confirm the observations of many that the False Claims Act is being applied in novel ways, to cover new types of conduct, and is being applied with more frequency in these new fields and new areas. The False Claims Act is a flexible remedial statute, and relators and their counsel are always discovering new ways to apply the Act to cover conduct they find objectionable.

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 in Healthcare Law Fraud

Federal Government’s View:
• The government takes the potential effects on patient care very seriously. If the fraud is resulting in procedures being performed that wouldn’t otherwise be or more aggressive procedures being performed, the government will look at those cases very carefully.
• The government is seeking to weigh in in declined cases more through Statements of Interest. Courts have been very receptive to SOIs.
• The recent trend is towards more litigation, though not necessarily more trials. In the past, the cases seemed to settle more quickly.
• Often the fraud schemes do not involve written agreements or evidence, so the assistance of relators is critical to the government’s mission in combatting fraud.
• Given the increasing complexity and breadth of these cases, the government is relying more and more on relators’ counsel to help at the investigative stage.
• The defendants’ focus on the relator is not helpful—the relator’s character is not really going to influence the government’s decision.
• Trend towards more state actions includes the state attorneys general pursuing cases that are too small for the DOJ but are significant for the states involved.

State Attorney Generals Views:
• State attorney general offices are staffing up their Medicaid enforcement divisions—it has become an increasing area of focus for the New York AG’s office, for example.
• There is a national organization of state AG medical fraud lawyers who exchange information and work together. There is a subcommittee of lawyers from states with their own Medicaid False Claims Acts.
• State AGs are coordinating their efforts and attempting to centralize their discussions with defendants. The cases are very large and complex and often involve many states.

Relators’ view:
• For years, the critical mission for relators was obtaining the government’s intervention—a declination was seen as a death knell. But because the government’s resources have not kept pace with the number of cases, relators are taking declined cases forward more frequently and investing significant resources to do so. Relators’ counsel has shown an increased willingness to invest the resources to pursue the case without the government.
• In recent years, there has been additional “partnering” between the government and the relators’ bar—partial intervention is a mechanism for partnering in cases because the burden can be split.
• Relators used to spend more time trying to find a favorable U.S. Attorney, but now the relators are looking for the right judicial forum from a legal perspective. Relators will seek to venue cases in a circuit with better law, especially on Rule 9(b) specificity issues.
• Corporate integrity agreements are a big target for relators’ counsel—they are being reviewed carefully for possible FCA issues.
• A recent trend seems to be that defendants are attempting late-hour and incomplete voluntary disclosures to reduce liability.
• Conventional wisdom of relator’ counsel used to be that the DOJ and state AGs “didn’t play well together,” but that view has changed—there seems to be more of a unified effort by the two. This is a good trend from relators’ perspective.

Defense View:
• Defendants are more willing to litigate the cases—clients are starting to grow weary of being accused of fraud and paying for things that were not really fraud.
• The administration’s focus on the Anti-Kickback Statute seems to have encouraged more cases. The Affordable Care Act has certainly changed the focus.
• Off-label marketing cases—both drugs and devices—seem to be growing. Good manufacturing practice and QSR types of cases are starting to take off.
• Worthless services and quality of care cases are taking off.
• Medical necessity cases are also increasing—they allege that unnecessary care is being provided and that utilization rates and expenditures are higher than normal.
• Defendants understand that relators are willing to take cases forward.
• Trend toward coordination among states is helpful to settling cases—it leads to earlier discussions and resolutions.
• States are also showing a willingness to take cases the DOJ has declined or even leading the investigation and prosecution ahead of the DOJ.
• Mediation is often not successful until the case is fairly mature, particularly when there are significant questions about the state of the law.

District of Colorado Holds General Post-Employment Release Covers False Claims Act Retaliation Claim

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In Vanlandingham v. Grand Junction Regional Airport Authority, the district court of Colorado held that a general release in an employment separation agreement covered the plaintiff’s claims under the anti-retaliation provision of the False Claims Act. (No. 13-cv-03414-RBJ, D. Colorado, June 2, 2014)

The plaintiff, a former security officer at the airport, alleged she was fired after refusing to deceive various entities about the need for a perimeter security fence at the airport. After being demoted and then terminated, she signed a termination agreement that included a general release of any employment claims she may have against the airport.

The plaintiff later brought suit, including claims under the False Claims Act’s anti-retaliation provision, 31 U.S.C. § 3730(h). The airport brought a motion to dismiss the plaintiff’s claim based on the release in the employment agreement.

Plaintiff countered that if the release covered her 3730(h) claim, it violated public policy. But the district court rejected that argument, relying on the holdings in Brown v. City of S. Burlington, Vt., 393 F.3d 337, 343 (2d Cir. 2004) and Coleson v. Inspector Gen. of Dep’t of Def., 721 F. Supp. 763, 765, 769 (E.D. Va. 1989).

The district court held that the employment agreement and release, as well as the circumstances surrounding the agreement, demonstrated that the plaintiff entered into the agreement voluntarily and with full knowledge of it’s consequences. As a result, the court had no trouble concluding that the plaintiff’s retaliation claims were barred by the release.

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?