Top False Claims Act Developments
Ethan P. Davis, Jamie Allyson Lang, Matthew V.H. Noller, King & Spalding LLP
This week’s top False Claims Act (FCA) developments include: a federal decision addressing a question of first impression related to Fed. R. Civ. P. 9(b), two recent government settlements of FCA claims, and a state court decision denying a motion to dismiss a claim under New York’s FCA.
1. Ohio federal court holds that Rule 9(b) requires relators to identify specific false claims connected to each defendant in multi-defendant actions
Overview: On April 21, an Ohio federal court partially dismissed a qui tam action alleging FCA violations by multiple dental care providers. Deciding a question of first impression, the court held that a relator suing multiple defendants must identify specific false claims connected to each separate defendant.
The Decision: The relator alleged that the defendants violated the FCA by billing Medicaid for dental procedures that were either not medically necessary or not performed by properly licensed practitioners. The defendants moved to dismiss, arguing in part that the relator had not satisfied Rule 9(b) because he did not identify specific false claims submitted by every defendant. The relator argued that he needed only to identify a false claim submitted by some defendants, and then to allege that the other defendants were part of the fraudulent scheme.
The district court agreed with the defendants. As we have previously discussed, the Sixth Circuit has held that Rule 9(b) requires relators to identify a specific false claim that the defendant allegedly submitted to the government. The district court held, as a matter of first impression, that this requirement applies separately to each defendant, meaning that “to state a claim against a given defendant, a complaint must identify a specific false claim submitted, or caused to be submitted, by that defendant.” Applying this rule, the court dismissed the relator’s claims against eight defendants.
The district court denied the motion to dismiss with respect to the two remaining defendants, holding that the relator had identified specific false claims submitted by those defendants for medically unnecessary or unlicensed dental procedures. In so doing, the court rejected the defendants’ argument that the relator’s allegations were based on a mere difference of medical opinion, an issue that has generated a circuit split. The court did not address that split, holding instead that the relator plausibly alleged that the defendants did not honestly believe that the procedures were appropriate.
Our Take: This decision is an important contribution to the circuit split over Rule 9(b)’s application to FCA claims, which we have discussed in previous posts. The district court relied heavily on the Sixth Circuit’s decision in Owsley v. Fazzi Associates, which is subject to a pending petition for certiorari asking the Supreme Court to review the Sixth Circuit’s approach to Rule 9(b) in the FCA context.
2. DOJ settles FCA claims against healthcare company based on allegations of unnecessary testing, improper doctor compensation, and COVID-19 relief fraud
Overview: On April 12, the government announced a $24.5 million settlement with Physician Partners of America LLC (PPOA), a medical practice management company, its founder, and its former chief medical officer. The settlement resolved allegations that PPOA billed the government for unnecessary medical tests, improperly paid its physicians a percentage of the profits from the unnecessary tests, and committed fraud when applying for COVID-19 relief.
The Settlement: The government alleged as follows: PPOA performed and billed federal healthcare programs for medically unnecessary urine drug testing, genetic testing, and psychological testing; scheduled patients for unnecessary appointments; and paid doctors a percentage of the profits from the aforementioned drug tests in violation of the Stark Law, which generally prohibits physicians from referring patients to entities with which they have a financial relationship. The government further alleged that PPOA applied for a Paycheck Protection Program while falsely certifying that it was not engaged in unlawful activity.
Our Take: This case reflects an overlap in two of the government’s highest priority areas of FCA enforcement: healthcare fraud and COVID-19 relief fraud. The statements in DOJ’s announcement confirm that the government intends to continue aggressively pursuing alleged fraud in these areas.
3. DOJ settles FCA and kickback allegations with anesthesia companies
Overview: On April 13, the government announced a $7.2 million settlement with Care Plus Management LLC, its two founders, and eighteen anesthesia entities it owned and operated. The settlement resolved allegations that Care Plus paid kickbacks to doctors who referred patients for anesthesia services.
The Settlement: According to DOJ’s announcement, Care Plus allegedly induced the physician owners of outpatient surgery centers to award Care Plus exclusive contracts for anesthesia services by offering them partial ownership interests in Care Plus’s anesthesia entities. As a result, the physicians allegedly received a portion of the revenue from the anesthesia services for which they referred their patients, in violation of the Stark Law. The government also alleged that Care Plus subsidized the surgery centers’ costs for drugs, supplies, and equipment. The government claimed that these arrangements violated the Anti-Kickback Statute (AKS) and caused the submission of false claims to federal healthcare agencies.
DOJ’s announcement included statements from a U.S. Attorney, a representative from the Department of Health and Human Services Office of Inspector General, and a representative of the FBI. These statements make clear the government’s continued intent to investigate and take enforcement action against healthcare providers who allegedly pay or receive kickbacks.
Our Take: This case is another example of how DOJ frequently uses the AKS in conjunction with the FCA to pursue allegations of healthcare kickbacks.
4. New York state court denies motion to dismiss state-law qui tam action against telephone companies
Overview: On March 30, a New York state trial court denied the defendants’ motion to dismiss a state-law FCA claim in Phone Administrative Services Inc. ex rel. New York v. Verizon New York, Inc. The court held that the relator had adequately alleged that the defendants, a group of telephone companies, had violated the New York FCA by undercalculating payments they owed to New York municipalities.
The Decision: The relator’s allegations relate to New York state and local laws requiring telephone companies to pay surcharges to subsidize New York municipalities’ emergency telephone services. The relator alleged that the defendants violated New York’s FCA, which generally mirrors the federal FCA, by underpaying the required surcharges and submitting false information to local governments to conceal their underpayments. The defendants moved to dismiss on three grounds: (1) the state, as represented by the relator, lacked standing to file FCA claims based on payments to local governments; (2) public reporting about the defendants’ surcharges triggered the FCA’s public-disclosure bar; and (3) the relator failed to state a claim that the defendants submitted false information to local governments.
The trial court rejected these arguments. First, the court held that the relator had standing because the New York FCA authorizes the state to bring claims on behalf of local governments. Second, the court held that the public reporting on the surcharges was not specific enough to trigger the public-disclosure bar because it did not identify most of the defendants and did not “discuss the precise mechanism by which the telephone companies allegedly committed fraud.” Third, the court held that the relator had alleged sufficient facts to plausibly plead that the defendants “knowingly made, used, or caused to be made or used, false records or statements” to underpay their surcharges.
Our Take: This case is an example of how relators can use state FCAs to pursue qui tam actions. It also reflects how courts can construe state FCAs’ grants of standing to private relators as well as their public-disclosure bar provisions.
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.