Top False Claims Act Developments
Jeffrey S. Bucholtz, Tamra Moore, Matthew V.H. Noller, King & Spalding LLP
This week’s report on top False Claims Act (FCA) developments includes: DOJ’s announcement that it recovered more than $5.6 billion from FCA actions during fiscal year 2021; two recent settlements reflecting the government’s ongoing use of the FCA to pursue allegations of healthcare fraud; an unpublished Ninth Circuit decision reversing the dismissal of a qui tam action under the public-disclosure bar; and a petition for certiorari seeking review of a Seventh Circuit decision in an FCA case raising questions concerning Fed. R. Civ. P. 9(b) and the scope of implied certification liability under the FCA.
1. Department of Justice announces $5.6 billion in FCA recoveries in FY 2021
Overview: On February 1, 2022, the Department of Justice announced in a press release that it recovered more than $5.6 billion in settlements and judgments from civil FCA claims in fiscal year 2021.
The Announcement: DOJ’s press release states that it recovered “more than $5.6 billion” in fiscal year 2021 (October 1, 2020 – September 30, 2021), “the second largest annual total in False Claims Act history, and the largest since 2014.” In DOJ’s words, these recoveries reflect the government’s view of the FCA as “one of the most important tools available to the department both to deter and to hold accountable those who seek to misuse public funds.”
DOJ announced that more than $5 billion—around 90% of the total—came from “matters that involved the health care industry.” Allegations of healthcare fraud were “once again the leading source of the department’s False Claims Act settlements and judgments.” As commentators have observed, these statistics reflect “a health care enforcement surge that has been building for years and shows few signs of cresting, much less receding.”
Other areas of FCA enforcement that DOJ identified as significant included fraud in government procurement contracts and COVID-19–related fraud. DOJ also emphasized the importance of the FCA to DOJ’s Civil Cyber-Fraud Initiative, which we discussed in a previous blog post.
Our Take: This announcement makes clear DOJ’s continued intent to aggressively pursue FCA litigation, particularly in the healthcare industry. As further discussed below, there is every reason to believe that DOJ’s enforcement activity will continue at least at a similar level for the foreseeable future.
2. Department of Justice announces settlements of healthcare fraud claims
Overview: In late January 2022, DOJ announced two settlements of FCA claims related to alleged healthcare fraud. On January 28, 2022, the U.S. Attorney’s Office for the Eastern District of Wisconsin announced a settlement of slightly over $2 million with Hayat Pharmacy related to allegations that Hayat submitted false claims for prescription medications. On January 31, 2022, the U.S. Attorney’s Office for the District of Massachusetts announced a $13.1 million settlement with Cardinal Health related to alleged violations of the FCA and Anti-Kickback Statute. These settlements are further evidence that the government will continue aggressively pursuing allegations of healthcare fraud under the FCA.
The Settlements: In the Hayat Pharmacy settlement, the government alleged that Hayat submitted false claims for a prescription cream and multivitamin. The government alleged that Hayat switched Medicare and Medicaid patients from lower-cost medications to the prescription medications without any medical need or valid prescriptions. As part of the government’s announcement, an FBI representative said the FBI “will continue to hold accountable pharmacies and other medical providers who misuse Medicare and Medicaid dollars.”
In the Cardinal Health settlement, the government alleged that Cardinal Health violated the AKS by providing illegal discounts to purchasers of its products. The allegations were originally raised in qui tam lawsuits. In the government’s announcement, an HHS representative said that the government “will continue to investigate kickback schemes that threaten the integrity of our federal health care system,” while an FBI representative said that “health care fraud is a priority for the FBI, and we will pursue anyone trying to profit from this country’s vital health care system.”
Our Take: These settlements indicate that the government will maintain its aggressive use of the FCA to pursue allegations of healthcare fraud in 2022 and beyond.
3. Ninth Circuit reverses dismissal of qui tam action under public-disclosure bar
Overview: On February 3, 2022, the Ninth Circuit issued an unpublished decision reversing the dismissal of the relator’s qui tam action in Mark ex rel. United States v. Shamir USA, Inc. The court held that the FCA’s public-disclosure bar does not apply when the public disclosure is too “generalized” or “innocuous” to reveal specific instances of fraud.
The Decision: The relator alleged that the defendants violated the FCA by using kickbacks to inflate government insurance claims for eyeglass lenses. Specifically, the relator alleged that the defendants provided kickbacks in the form of discounts and then caused the submission of undiscounted insurance claims. The district court dismissed the relator’s complaint under the FCA’s public-disclosure bar, which generally bars FCA claims based on “allegations or transactions” that were “publicly disclosed” before the relator filed suit. 31 U.S.C. § 3730(e)(4). The district court held that promotional materials publicly distributed by the defendants revealed that their rebates would not be deducted from insurance reimbursements.
The Ninth Circuit reversed. The court found that the defendants’ promotions merely provided “a generalized description of a [rewards] program that could give rise to fraud,” which is not enough to bar “FCA suits identifying specific instances of fraud.” The court described the defendants’ promotions as “so innocuous that there was no public disclosure of a transaction or allegation of fraud in the first instance.”
Our Take: Although unpublished, this decision reflects the limits of the FCA’s public-disclosure bar as it has been interpreted in the Ninth Circuit. In order to trigger the bar in the Ninth Circuit, a public disclosure must specifically reveal the fraud alleged in the relator’s complaint. “Generalized” disclosures of fraud will not suffice.
4. Managed care organization files petition for certiorari seeking Supreme Court review of Seventh Circuit decision raising questions concerning Fed. R. Civ. P. 9(b) and the scope of implied certification theories of FCA liability
Overview: On February 14, 2022, Molina Healthcare, a managed care organization, filed a petition for a writ of certiorari in Molina Healthcare of Illinois, Inc. v. Prose. The petition seeks review of two questions: (1) “Whether Rule 9(b) requires plaintiffs in False Claims Act cases to plead details of the alleged false claims,” and (2) “Whether a request for payment that makes no specific representations about the goods or services provided can be actionable under an implied false certification theory.”
The Decision: We previously wrote about the Seventh Circuit’s opinion in Prose, which reversed a district court decision dismissing an FCA case against Molina Healthcare. The relator alleged that Molina had contracted with Illinois’ Medicaid program to provide managed care services under a “capitation” system in which it was paid fixed amounts for each beneficiary at specific tiers. The relator alleged that Molina sought payment for patients at the highest tier despite not providing one of the services covered by that tier.
Molina’s certiorari petition argues that the Seventh Circuit’s decision exacerbates two circuit splits related to the FCA. Molina first argues that the Seventh Circuit allowed the relator’s claims to proceed despite not pleading with particularity the details of any false claim, which implicates a dispute among the circuits about whether Rule 9(b) requires relators to plead details of false claims. The same Rule 9(b) question is also presented in two other pending certiorari petitions, Johnson v. Bethany Hospice and Palliative Care LLC and Owsley v. Fazzi Associates, Inc. The Supreme Court recently invited the Solicitor General to express the United States’ views on the petition in Bethany Hospice.
Molina argues next that the Seventh Circuit’s decision also implicates a circuit split over whether the “implied false certification” theory of FCA liability can cover claims that do not make any specific representations about the goods and services provided. The Supreme Court held in Universal Health Services, Inc. v. United States ex rel. Escobar that a claim can be false “at least” when (1) “the claim does not merely request payment, but also makes specific representations about the goods or services provided,” and (2) “the defendant’s failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading half-truths.” After Escobar, some circuits have held that a claim cannot be false unless it makes specific representations about the goods or services provided that allegedly constitute “misleading half-truths,” while other circuits have held that specific representations are not necessary and that a false certification of compliance with underlying statutory, regulatory, or contractual conditions can be “implied” into the claim.
Our View: Molina’s petition raises two important questions about the requirements for pleading FCA claims. The Supreme Court’s call for the views of the Solicitor General in response to the Bethany Hospice petition suggests that the Court has taken an interest in the Rule 9(b) question, and the Court may also be interested in clarifying Escobar’s application to the theory of “implied” falsity. The Court likely will act on the petition (as well as the petitions in Bethany Hospice and Owsley) before the Court’s Term ends in late June. (Full disclosure: King & Spalding LLP is counsel for Molina on this certiorari petition.)
Jeffrey S. Bucholtz is a partner in the Trial and Global Disputes Practice Group in the firm’s Washington, D.C. office, Tamra Moore is a partner in the Healthcare Practice Group in the firm’s Washington, D.C. office, and Matthew V.H. Noller is a senior associate in the Trial and Global Disputes Practice Group in the firm’s San Francisco office.