Monthly Archives: September 2014

Claims Against Healthcare Providers in New Mexico Survive Summary Judgment (Part I-Falsity)

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Previously in United States ex rel. Baker v. Community Health Systems, Inc. (D.N.M. May 16, 2014), the court partially granted summary judgment in favor of the government, holding that the defendants lacked the evidence necessary to prove a good-faith reliance defense but permitting them to proceed with a government-knowledge defense (a decision reported here earlier).

More recently, the court sustained the intervened claims against a summary judgment motion from defendants challenging the government’s ability to prove the essential elements of its case, including falsity, materiality, scienter, and causation. (The plaintiffs cross-moved on falsity and materiality, which was also denied.) However, the court did dismiss the plaintiffs’ non-intervened claims.

Although the fraud allegations are complex, the crux of the allegations are that the defendant hospitals caused New Mexico to submit false statements to the federal government as part of the Medicaid program—which is a program jointly funded by the states and the federal government—because the reports included donations made by the hospitals to the state. The complaint alleges that because these donations had a “direct or indirect relationship” to the Medicaid payments received by the hospitals from the Medicaid program, they should not have been counted as part of New Mexico’s contribution to the Medicaid program.

Falsity: The Tenth Circuit follows the conventional recognition of two types of false claims: “factually false claims and legally false claims.” (citing United States ex rel. Conner v. Salina Regional Health Ctr., Inc., 543 F.3d 1211, 1217-18 (10th Cir. 2008)). The Tenth Circuit likewise recognizes both “express [and] implied certification[s] of compliance with a statute, regulation, or contract provision that is a condition of Government payment” as basis for legal falsity. (citing id.) In Baker, the plaintiffs alleged both factual and legal falsity.

On the issue of falsity, the court applied a test set forth in the applicable regulations (43 CFR § 433.54(c)) to determine whether the defendant hospitals’ donations were directly or indirectly related to their receipt of Medicaid funds. The court held that numerous pieces of evidence were sufficient to raise a triable issue of fact, including numerous statements from representatives of defendant hospitals and the counties tying the donations to Medicaid payments. While the court acknowledged defendants had voluminous evidence suggesting that any reporting error to the federal government about the donations was wholly the state’s, the court found the evidentiary contradictions sufficient to warrant a jury trial.

Of note, the court never resolved whether the evidence would support either or both theories of falsity alleged: factual or legal. On its face, this appears to be yet another case where the analytical dichotomy between different “types” of fraud—“legal falsity” versus “factual falsity”—does more harm than good. The distinction between factual falsity and legal falsity has no analog in traditional fraud concepts and is nowhere found in the text of the False Claims Act. Doctrinal categories should aid analysis and decision making, but often it appears the factual versus legal falsity distinction serves to obfuscate rather than illuminate.

10th National Institute on the Civil False Claims Act-American Bar Association – Day 3 – June 6, 2014

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Panel Topic: Settling Procurement Cases under the False Claims Act

 Relators’ View: Get an understanding early in the case what the government’s parameters are and where the government is in terms of case value. As soon as relators and defendants begin discussing settlement, they need to alert Department of Justice and bring them into the discussions. Early settlement discussions can be helpful because it is the first time the relator can share information with defendants, including information the government did not adequately convey to the defendants when the case was sealed. Relators need to ask the government lawyers why they have declined an intervention: (1) lack of resources and time, or (2) something the affected agency told them that makes the case unwinnable?

Defense View: The bad press that often accompanies the unsealing of a False Claims Act complaint can the motivate a defendant to settle early. Defendants can often utilize the Department of Justice to help open settlement discussions with the relator. Defendants have to be concerned about the government intervening later in non-intervened case—sometimes an early settlement in a non-intervened case, where there is merit to the case, is very important because it will stop the government from digging further.

Government View: Involving the government early in settlement discussions in non-intervened cases can be very helpful because the government can help push the parties to the middle ground. The government can often be the honest broker between two extremes. Going to the Assistant U.S. Attorney assigned to the case is probably the best place to start discussions about settlement. The government will never agree to dismissal with prejudice in nuisance-value settlement cases. The government will also never agree to a confidentiality provision in a settlement agreement, although press releases are not required in non-intervened cases. The government has an interest is helping a relator understand why their case lacks merit. On the other side, the government has an interest in assisting meritorious cases, even when non-intervened. The Department of Justice insists upon certain language in settlement agreements in procurement cases: for example, they cannot address taxability issues, must include a cost disallowance provision (exclusion of costs from contracts), and cannot include a release of administrative liability.

Government Agency View (Suspension and Debarment): The government agency wants to act early on suspension and debarment issues—it does not want to wait for the False Claims act case to be resolved. Often the coordination of fraud remedies does not happen due to failure of the Assistant U.S. Attorney to notify the pertinent agency. The agency can only take meaningful action if the issue timely reported—otherwise the procurement window is often expired and it is too late for the agency to do anything about it.

10th National Institute on the Civil False Claims Act-American Bar Association – Day 3 – June 6, 2014

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Panel Topic: State Enforcement Efforts

 State Attorney General View: State attorneys general have formed a national association for centralized and coordinated action on Medicaid fraud cases. Lawyers who have Medicaid cases need to understand that they cannot recover for the states’ share of Medicaid fraud without the involvement of the states—they are separate sovereigns. Relators should consider involving the state AG offices early in Medicaid fraud cases. The national association appoints steering committees to review cases and make determinations about proceedings and also to conduct and coordinate investigations. A declination does not necessarily mean that the case does not have merit—is often an issue with limited resources and state AG offices having to pick and choose between meritorious cases.

Relators’ View: Where possible, consider collaborating with state AGs to pursue Medicaid cases—try to find a state with a unique interest and good law. Let the state AG lead the investigation and prosecution if possible. Consider not including the state claims in a federal case and instead bringing them independently, particularly where the federal government may move slowly. Even if the Department of Justice the case declines, state AG offices offer a lot of opportunities.

Defense View: The traditional model was a federal case that addressed the states’ interest in the course of the litigation. That model was better for defendants because they were more “orderly” for the defendant—they had a single party on the other side to achieve global resolution. Now that states are more active, defendants are having to deal with multiple parties, which can be difficult. However, this situation gives defendants an opportunity to find the lawyer on the other side who is the most reasonable to deal with. Involvement of the states seriously changes the dynamic of the lawsuit. The involvement of the states makes the case much more difficult for defendants. Defendants really prefer to achieve global settlements—partial settlements are not really settlements. Although aggregation can sometimes work against defendants, generally defendants prefer global resolution rather than piecemeal settlement.