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 joint announcement by the Department of Health and Human Services (HHS) and the Department of Justice (DOJ) touting the federal government’s recovery of more than $5.0 billion in healthcare fraud judgments and settlements in fiscal year 2021; a federal court decision denying a motion to dismiss a qui tam action; and three recent government settlements of FCA claims.
1. HHS and DOJ announce more than $5.0 billion in healthcare fraud recoveries in FY 2021
Overview: On July 11, HHS and DOJ released a report announcing that in FY 2021, the federal government recovered judgments totaling more than $5 billion in healthcare fraud proceedings, including FCA actions.
The Announcement: The report was issued as part of the Health Care Fraud and Abuse Control Program, which “coordinate[s] federal, state, and local law enforcement activities with respect to health care fraud.” The report announced that in FY 2021, the federal government “won or negotiated” more than $5 billion in healthcare fraud cases. Of that $5 billion, almost $1.9 billion was deposited with the Department of the Treasury and HHS’s Centers for Medicare & Medicaid Services, transferred to other federal agencies administering healthcare programs, or paid to private persons, including through FCA actions.
HHS and DOJ touted the government’s “Health Care Fraud Strike Force Teams,” described as inter-agency teams of “investigators and prosecutors that focus on the worst offenders in regions with the highest known concentration of fraudulent activities.” Among the government’s enforcement priorities, according to the report, were fraud related to COVID-19, telemedicine, substance-abuse treatment facilities, and opioids. HHS and DOJ said that these results “confirm the soundness of a collaborative approach to identifying and prosecuting” healthcare fraud.
Our Take: As we have discussed in a previous post, actions involving allegations of healthcare fraud make up the overwhelming majority of the government’s FCA recoveries. Earlier this year, DOJ announced that it had recovered more than $5 billion in FCA actions related to healthcare in FY 2021. HHS and DOJ’s report is no surprise; it confirms that alleged healthcare fraud remains a priority for government investigations and enforcement actions.
2. Georgia federal district court denies motion to dismiss qui tam action
Overview: On July 8, a federal district court in Georgia denied the defendant’s motion to dismiss a qui tam complaint alleging that the defendant defrauded the State Department when providing security services in Afghanistan. The court held that the FCA’s public-disclosure bar did not apply and that the relator had adequately alleged fraud.
The Decision: The relator alleged that the defendant received State Department contracts to provide security in Afghanistan, including for the U.S. Embassy in Kabul. The contracts allegedly imposed certain testing and training requirements on the defendant’s employees. The relator alleged that the defendant billed the government for employees who had not completed the required tests or training, then fabricated documents that it submitted to the government to cover up the fraudulent scheme.
The defendant moved to dismiss the relator’s complaint, arguing that the public-disclosure bar applied and that the relator had not adequately alleged fraud. The court rejected both arguments.
Addressing the public-disclosure bar, the court held that the defendant had not identified any judicially noticeable documents that disclosed the same fraud alleged by the relator. The defendant cited documents including government audits, congressional hearings, news articles, and anonymous employee reviews of the defendant from GlassDoor.com. But most of those documents, the court held, addressed different time periods, different contracts, or different conduct. And while the GlassDoor reviews did include similar allegations as the relator’s, the court held that these anonymous posts were not sufficiently trustworthy to be judicially noticed on a motion to dismiss. Those posts could potentially be considered at a later stage in the case.
Next, the court held that the relator adequately alleged fraud, scienter, and materiality under Fed. R. Civ. P. 8 and 9(b). Although the court identified several “weaknesses” in the relator’s claims, it held that the relator’s allegations were entitled to “more tolerance” because he allegedly had firsthand knowledge of the alleged fraud. Viewed with that tolerance, the court held, the relator adequately alleged that the defendant carried out a fraudulent scheme to violate contractual testing and training requirements and to cover up those violations by falsifying documents that it submitted to the government. The court also held that the relator adequately alleged that the defendant acted knowingly and that the alleged fraud was material to the government’s decision to pay the defendant.
Our Take: This decision highlights the limits of the FCA’s public-disclosure bar and the importance of federal pleading requirements in FCA actions. As we have discussed in previous posts, three pending petitions for certiorari ask the Supreme Court to resolve a circuit split over how Rule 9(b) applies to FCA claims.
In the News:
Hospital agrees to pay $1.5 million to settle allegations of impermissible financial relationships with referring physicians. On July 7, the government announced a $1.5 million settlement with a West Virginia hospital accused of submitting claims to Medicare in violation of the Stark Law, which prohibits billing Medicare for certain services referred by physicians with whom the hospital has a financial relationship. The government alleged that the hospital illegally paid compensation to referring physicians that allegedly exceeded fair market value or took into account the volume or value of the physicians’ referrals to the hospital.
Insurance company agrees to pays $4.2 million to settle FCA and kickback allegations. On July 1, the government announced a $4.2 million settlement with a Puerto Rico insurance company that allegedly violated the FCA by implementing a gift card incentive program that violated the Anti-Kickback Statute. The government alleged that the company illegally provided gift cards to administrative assistants of healthcare providers to induce the assistants to refer, recommend, or arrange for enrollment of new beneficiaries.
Spinal device distributor agrees to pay $1 million to settle FCA and kickback allegations. On July 1, the government announced a $1 million settlement with a Utah distributor of spinal implant devices accused of paying physicians to use the company’s devices in spinal surgeries. The government alleged that the defendants operated supposed physician-owned distributorships that were actually vehicles to pay kickbacks to physicians who used the company’s devices.
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.