Top False Claims Act Developments

March 31, 2022

Ethan P. Davis, Jamie Allyson Lang, Matthew V.H. Noller, King & Spalding LLP

OVERVIEW

This week’s top False Claims Act (FCA) developments include: two recent federal decisions analyzing FCA claims under Fed. R. Civ. P. 9(b) and two government settlements of FCA claims.

1. Tennessee federal court mostly denies motion to dismiss government’s FCA claims involving hospice billing

Overview: On March 21, a Tennessee federal court denied a motion to dismiss the government’s claims that a group of hospice providers fraudulently billed Medicare and Medicaid for hospice services for patients who were not terminally ill. The court held that the government had adequately pleaded fraud, even under the Sixth Circuit’s strict interpretation of Rule 9(b).

The Decision: To be eligible for hospice care under Medicare or Medicaid, a patient must be terminally ill.  Giving a few patient examples, the relators alleged that the hospices falsely certified that patients were terminally ill in order to receive Medicare and Medicaid payments to which they were not entitled. After a seven-year investigation, the government intervened.

The defendants moved to dismiss under Rule 9(b), arguing that the government’s claims should be limited to the example patients identified in the complaints.  The court denied the motion. The court acknowledged that Sixth Circuit precedent requires pleading representative examples of false claims.  But the court thought that a complaint should not be limited to those examples.  To hold otherwise, the court thought, would be “impossible to reconcile with the general policy of simplicity and flexibility in pleadings” that Rule 9(b) “does not negate.”

On the other hand, the court dismissed two relators’ claims regarding alleged kickbacks to assisted-living facilities because the relators did not identify any specific patient whose treatment was induced by a kickback.  The court reasoned that Rule 9(b) requires “pleading at least one exemplary claim.”

Finally, the court addressed the defendants’ argument that the government could not state an FCA claim based on a mere difference of opinion between medical experts. This issue has generated a circuit split, but the court did not squarely take sides.  Instead, after suggesting that a “good-faith” medical disagreement “probably” could not support an FCA claim, the court held the government had alleged more than “a difference in clinical judgment.”

Our Take: This decision further illustrates the importance of the circuit split over Rule 9(b)’s application to FCA claims, which we have discussed in previous posts. The pending petition for certiorari in Owsley v. Fazzi Associates asks the Supreme Court to review the Sixth Circuit’s approach to Rule 9(b) in the FCA context.

2. Georgia federal court grants in part and denies in part motion to dismiss qui tam action against telecommunications companies

Overview: On March 17, a Georgia federal court resolved a motion to dismiss a qui tam action alleging that the defendants committed fraud in connection with (1) a federal grant awarded under the American Recovery and Reinvestment Act of 2009, and (2) payments to the federal Universal Service Fund. The court dismissed all but one of the relator’s claims under the Eleventh Circuit’s rigorous interpretation of Rule 9(b), leaving only a claim for reverse false claims against one defendant.

The Decision: The relator alleged that the defendants committed fraud when applying for and performing a federal grant to expand the fiber optic network in North Georgia. The grant required that any funds be used only for work performed between December 2009 and 2012. The relator alleged that one defendant, North Georgia Network Cooperative (“NGN”), fraudulently sought and retained funds for a portion of work that had been completed before December 2009 by the other defendant, Blue Ridge Mountain Electric Membership Corporation (“Blue Ridge”). The relator separately alleged that the defendants had not made necessary payments to the Universal Service Fund, to which certain telecommunications companies must pay a portion of their revenues.

The court dismissed the bulk of the relator’s complaint under Rule 9(b). In the Eleventh Circuit, Rule 9(b) generally requires FCA plaintiffs to identify actual false claims for payment. Applying this interpretation, the court held the relator had not identified any materially false claims for payment related to NGN’s grant, had not alleged facts showing that NGN knowingly made false statements in its grant application, and had not alleged that any defendant made a false statement to the Universal Service Fund with scienter.

However, the court denied the motion to dismiss with respect to the relator’s allegations of a reverse false claim, namely, that NGN had sought to avoid making necessary payments to the government. The court held that the relator had alleged specific statements in which NGN falsely told the government that it had used all of its grant funds between December 2009 and 2012, in order to avoid repaying the funds allocated for the work Blue Ridge had completed before December 2009. The court allowed this claim to proceed only against NGN, rejecting the relator’s arguments that Blue Ridge was NGN’s alter ego or co-conspirator.

Our Take: This decision also implicates the circuit split over Rule 9(b). The pending petition for certiorari in Johnson v. Bethany Hospice asks the Supreme Court to review the Eleventh Circuit’s approach to Rule 9(b). The Supreme Court has invited the Solicitor General to express the United States’ views on the Bethany Hospice petition.

In the News:

Texas doctors agree to pay $1.68 million to settle FCA allegations of illegal kickbacks - On March 22, the government announced a $1.68 million settlement with ten Texas doctors who allegedly ordered laboratory tests in exchange for kickbacks. This settlement relates to a broader investigation into the testing labs that allegedly paid the kickbacks, which has led to more than $29.6 million in settlements so far. We previously reported on another settlement resulting from the same investigation.

Freight carriers agree to pay $6.85 million to resolve allegations that they systematically overcharged the Department of Defense - On March 14, the government announced a $6.85 million FCA settlement with YRC Freight Inc., Roadway Express Inc., and Yellow Transportation Inc. The defendants had contracted with DOD to ship military freight across the country, and they were paid based in part upon a shipment’s weight. The government alleged that the defendants fraudulently overstated the weights of shipments in order to inflate their payments under the contract. These allegations were originally made in a qui tam complaint in which the government intervened.

Ethan P. Davis is a partner in the Special Matters and Government Investigations Practice Group in the firm’s San Francisco office, Jamie Allyson Lang is a partner in the Special Matters and Government Investigations Group in the firm’s Los Angeles 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.