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 grant of certiorari by the Supreme Court in a case concerning the scope of the government’s authority to dismiss FCA suits; a federal district court decision denying a qui tam relator’s request for a share of the government’s recovery in separate criminal proceedings; and recent government enforcement actions related to allegations of healthcare fraud.
1. Supreme Court Agrees to Decide Standard for Reviewing Government Requests to Dismiss qui tam suits
Overview: On June 21, the Supreme Court granted the petition for a writ of certiorari in U.S. ex rel. Polansky v. Executive Health Resources. The question presented by the Polansky petition is “[w]hether the government has authority to dismiss an FCA suit after initially declining to proceed with the action, and what standard applies if the government has that authority.”
The Case: When a relator brings a private FCA action, the government “may dismiss the action notwithstanding the objections of the [relator] if the [relator] has been notified by the Government of the filing of the motion and the court has provided the [relator] with an opportunity for a hearing on the motion.” 31 U.S.C. § 3730(c)(2)(A). The federal courts of appeal disagree regarding the burden, if any, that this statutory language places on the government to justify its dismissal. The Ninth Circuit has held that the government must identify “a valid government purpose” and show “a rational relation between dismissal and accomplishment of the purpose.” The Tenth Circuit has agreed with the Ninth. In contrast, the D.C. Circuit has held that the government has an essentially “unfettered right to dismiss an action,” and the First Circuit has adopted a standard very similar to the D.C. Circuit’s.
The Seventh, and Eleventh Circuits, for their part, have held that the government may dismiss the action only under Fed. R. Civ. P. 41(a)(2), which requires a “court order, on terms that the court considers proper.” The Seventh Circuit has also held that the government may not dismiss the action without first showing good cause to intervene. The Ninth, Tenth, Eleventh, and D.C. Circuits all disagree with that holding.
In Polansky, the Third Circuit affirmed a district court decision granting the government’s motion to dismiss. The Third Circuit joined the Seventh Circuit to hold that the government must intervene in an action before moving to dismiss it. It then held that Rule 41(a) provides the “proper” standard for evaluating the government’s motion to dismiss.
The relator filed a cert petition, asking the Supreme Court to decide “whether the government has authority to dismiss an FCA suit after initially declining to proceed with the action, and what standard applies if the government has that authority.” The relator argues that the government may never dismiss a qui tam action after declining to take over the action. Opposing the petition, the government argued that “[t]he modest differences among the standards by which various circuits have evaluated [dismissal] motions … should very rarely be outcome-determinative,” that “the Third Circuit’s decision was correct under any standard,” and that “[n]o court of appeals has accepted petitioner’s” argument.
The Supreme Court granted the relator’s petition. It will hear the case sometime during its 2022-2023 term, which begins in October 2022.
Our Take: The Court’s decision in Polansky will likely resolve a long-standing circuit split over the government’s power to dismiss qui tam actions.
2. Mississippi federal district court denies qui tam relator a share of the government’s recovery in separate criminal proceedings
Overview: On June 9, a federal district court in Mississippi denied a qui tam relator’s motion for a share of the government’s recovery in separate criminal proceedings. The court held that the criminal proceedings were not sufficiently related to the qui tam action for the relator to share in the government’s recovery.
The Decision: The relator filed a qui tam suit against a pharmacy, alleging that the pharmacy violated the FCA by submitting reimbursement claims that were tainted by a scheme to pay kickbacks to prescribing doctors. At the same time, the government prosecuted several different defendants associated with the pharmacy, and recovered forfeiture and restitution payments in those proceedings.
The relator moved to receive a share of those restitution and forfeiture payments. The FCA provides that the government, as an alternative to intervening in a relator’s qui tam action, “may elect to pursue its claim through any alternate remedy available to the Government, including any administrative proceeding to determine a civil money penalty.” 31 U.S.C. § 3730(c)(5). When the government pursues alternate remedies, a relator “shall have the same rights” as when the government intervenes in a qui tam action, including the right to receive a share of the government’s recovery. In this case, the relator argued that the government’s criminal restitution and forfeiture payments constituted alternate remedies under the FCA.
The district court denied the relator’s motion. As recognized by the district court, there is a split as to whether criminal restitution and forfeiture payments can qualify as alternate remedies under the FCA -- at least one district court has held that they do so qualify, while other district courts have held that they cannot. Ultimately, however, the court did not take sides on this issue, because it held that the relator’s qui tam action alleged different conduct by different defendants than the government’s criminal prosecutions. While the relator alleged a kickback scheme carried out by one set of defendants, the government alleged a scheme by another set of defendants to prescribe medically unnecessary drugs. The relator alleged that the kickback scheme occurred before early 2014, while the government alleged that the prescription scheme occurred after mid-2014.
The government also claimed that the relator did not provide the government any useful information related to the prescription scheme. Because the court found that “the parties and the alleged activities” in the qui tam and criminal proceedings “are plainly not the same and the overlap, if any, is minimal,” the court concluded that the relator was not entitled to any share of the government’s recoveries.
Our Take: This case contributes to the body of law interpreting the FCA’s “alternate remedies” provision and addressing when relators may receive a share of government recoveries under that provision.
3. The government files a lawsuit and announces settlements of FCA claims related to alleged healthcare fraud
Overview: In the first half of June, the Department of Justice announced a series of actions under the FCA that targeted alleged healthcare fraud. Those actions, which included the filing of one FCA lawsuit and the settlement of five others, reflect the high priority that the government continues to place on FCA enforcement in healthcare.
The Actions: On June 14, the government sued a collection of Pennsylvania nursing home operators, alleging that the defendant provided “non-existent and grossly substandard nursing home services to Medicare and Medicaid beneficiaries” at three facilities. “As a result,” the government alleged, “the Defendants caused or risked causing serious physical and emotional harm to their residents, who were elderly, disabled, and otherwise highly vulnerable.”
Two days later, the government announced a settlement with two Philadelphia podiatrists, who agreed to pay $181,758 to settle allegations that they violated the FCA by improperly billing Medicare for uncovered services.
Similarly, between June 6 and 10, the government announced: (1) a $3.5 million settlement with a Chicago home sleep testing company accused of paying kickbacks to doctors and billing the government for medically unnecessary services; (2) a $600,000 settlement with a New York podiatrist accused of billing Medicare and Medicaid for unnecessary or non-existent procedures; (3) a $500,000 settlement with a Michigan doctor accused of billing the government for controlled substances that she allegedly prescribed without a legitimate medical purpose and outside the usual course of professional practice; and (4) a $9.5 million settlement with a Los Angeles doctor accused of billing Medicare for procedures and tests that were never performed.
Our Take: As we discussed in a previous post, actions involving alleged healthcare fraud make up the overwhelming majority of the government’s FCA recoveries. These lawsuits and settlements illustrate several of the government’s key priorities in this space, including nursing homes, kickbacks, and medically unnecessary services.
In the News:
Government contractor pays $13.67 million to settle FCA and kickback allegations. On June 14, the government announced a $13.67 million settlement with a government contractor accused of violating the FCA in connection with a contract to provide logistics support to U.S. Army forces in Iraq. The government alleged that certain employees of the contractor rigged the bidding process for awarding subcontracts in exchange for kickbacks, which resulted in the United States’ being billed inflated costs for those subcontracts.
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.