Top False Claims Act Developments
Jeffrey S. Bucholtz, Tamra Moore, Matthew V.H. Noller, King & Spalding LLP
This week’s top False Claims Act (FCA) developments include: Second and Eighth Circuit decisions interpreting the Anti-Kickback Statute (AKS) and the False Claims Act; Fourth and Seventh Circuit decisions affirming the dismissals of qui tam lawsuits under Fed. R. Civ. P. 9(b); and a notable settlement of a healthcare-related qui tam action.
1. Second and Eighth Circuits issue important decisions interpreting the AKS and FCA
Overview: Last week, the Second and Eighth Circuits released opinions that could have significant implications for FCA lawsuits premised on violations of the AKS. The Second Circuit held that the AKS prohibits any knowing and willful payment of remuneration to induce a purchase of federally reimbursable medical services, whether or not that payment is made with corrupt intent. The Eighth Circuit held that, to prove that a defendant violated the FCA by submitting a claim containing “items or services resulting from” an AKS violation, a plaintiff must prove that the AKS violation was a but-for cause of the items or services included in the claim.
The Decisions: In Pfizer, Inc. v. U.S. Dep’t of Health and Human Services, the Second Circuit held that the AKS would prohibit Pfizer’s proposed program for covering the Medicare co-pays of certain patients prescribed Pfizer’s drug tafamidis. The Department of Health and Human Services had issued an advisory opinion, concluding that the proposed program would violate the AKS if implemented with the intent specified in the statute. Pfizer challenged that opinion in district court, and the court ruled in HHS’s favor, concluding that the agency’s interpretation was not contrary to law.
The Second Circuit affirmed the district court’s decision. The AKS prohibits “knowingly and willfully offer[ing] or pay[ing] any remuneration (including any kickback, bribe, or rebate)” to “induce” an individual to purchase a federally reimbursable healthcare product. 42 U.S.C. § 1320a-7b(b)(2)(B). Pfizer argued that the AKS should apply only to payments made with “corrupt intent.” The Second Circuit disagreed, holding that the AKS prohibits any payment of remuneration intended to persuade a third party to purchase federally reimbursable medical goods or services—regardless of the existence of corrupt intent—as long as the payor knows that the payment is prohibited by law, as is required by the statute’s mens rea element. In the course of rejecting Pfizer’s argument, the court noted that the AKS “does not apply to those who are unaware that such payments are prohibited by law and accidentally violate the statute.”
Although the case did not arise under the FCA, the Second Circuit’s decision potentially bears on the scope of liability in FCA cases because the AKS provides that any “claim that includes items or services resulting from a violation of” the AKS “constitutes a false or fraudulent claim” under the FCA. 42 U.S.C. § 1320a-7b(g). In U.S. ex rel. Cairns v. D.S. Medical LLC, the Eighth Circuit interpreted that language and held that the phrase “resulting from” creates a “but-for causal requirement between an anti-kickback violation and the ‘items or services’ included in the claim.” Accordingly, an FCA plaintiff cannot succeed on a claim premised on an AKS violation without proof that the defendant would not have included particular “items or services” in its claim “but for the illegal kickbacks.” The Eighth Circuit acknowledged that its decision conflicts with an earlier decision by the Third Circuit, which held that the AKS does not impose a but-for causation requirement.
Our Take: Because the FCA applies to any claim for payment “resulting from” an AKS violation, decisions interpreting the AKS can be important to the scope of liability under the FCA. The Eighth Circuit’s decision also creates a circuit split with the Third Circuit, which could trigger a petition for certiorari to the Supreme Court.
2. Fourth and Seventh Circuits affirm dismissals of qui tam actions under Rule 9(b)
Overview: During the last two weeks of July, the Fourth and Seventh Circuits both affirmed district court decisions dismissing qui tam actions for failure to plead fraud with particularity under Rule 9(b).
The Decisions: As we have discussed in previous posts, the federal circuits are divided over how Rule 9(b) applies to FCA claims. Some circuits require FCA plaintiffs to plead details of specific claims with particularity, while others do not. Three petitions for certiorari raising this split are now pending before the Supreme Court, including two in which the Court has requested the views of the Solicitor General. Recent decisions from the Fourth and Seventh Circuits, which applied Rule 9(b) to affirm the dismissals of two qui tam actions, deepen the existing circuit split.
In the Fourth Circuit, the relator alleged that a skin graft manufacturer violated the FCA by paying kickbacks to induce the purchase of grafts by Veterans Administration hospitals. The district court dismissed the relator’s complaint under Rule 9(b), and the Fourth Circuit affirmed. It held that, under Fourth Circuit precedent, Rule 9(b) requires FCA plaintiffs either to identify a “representative example” of a false claim or “allege a pattern of conduct that would necessarily have led to submission of false claims to the government.” The relator failed to meet this threshold burden. His complaint contained merely conclusory allegations; it lacked specific factual details about any alleged false claim or kickback.
In the Seventh Circuit, the relator alleged that a county public health department violated the FCA when seeking reimbursement from federal programs. Specifically, the relator claimed that the county failed to track or segregate reimbursable expenses and violated recordkeeping regulations. The district court dismissed the relator’s complaint under Rule 9(b), and the Seventh Circuit affirmed. Although the Seventh Circuit does not require relators to plead details of specific claims, it still held that the relator had not pleaded with particularity the submission of any false claim to the government. At most, the court held, the relator had alleged that the county improperly stored or documented federal funds after it received them. But the relator had not alleged that the county made any false or fraudulent statements in order to receive those funds in the first place.
Our Take: These decisions illustrate the deepening circuit split over how Rule 9(b) applies to FCA claims. The pending cert petitions all identify the Fourth Circuit’s interpretation of Rule 9(b) as an example of the split, and one of the petitions asks the Supreme Court to review the Seventh Circuit’s interpretation.
3. Biotechnology company settles qui tam lawsuit for $900 million
Overview: On July 20, Biogen Inc. agreed to pay $900 million to settle a decade-old qui tam lawsuit alleging that it violated the FCA by paying kickbacks to doctors to discourage them from prescribing the products of Biogen’s competitors.
The Settlement: The relator alleged that Biogen paid kickbacks, disguised as speaking and consulting fees, to doctors who prescribed Biogen products. The relator’s complaint was filed in 2012 and unsealed in 2015. The district court largely denied Biogen’s motion to dismiss in 2018, holding that the relator had adequately pleaded both the payment of kickbacks and the submission of false claims to the government. The government declined to intervene in the case.
The relator and Biogen announced the settlement on the eve of trial, which was scheduled to begin on July 26. The relator’s counsel described the $900 million settlement, which includes no admission of liability by Biogen, as the largest one ever recovered in a FCA case in which the government declined to intervene.
Our Take: This large settlement in a high-profile healthcare fraud case is notable for the government’s decision not to intervene. Although cases involving allegations of healthcare fraud make up the majority of FCA recoveries, substantial recoveries are unusual in cases in which the government declines to intervene. According to the government, less than 10% of the more than $8 billion recovered by the government in FCA actions since 1987 came from declined actions.
In the News:
Medical device manufacturer agrees to pay $12.95 million to settle FCA and kickback allegations. On July 22, the government announced a $12.95 million settlement with an Oregon-based medical device manufacturer accused of paying kickbacks to physicians to induce their use of the defendant’s implantable cardiac devices. The government alleged that the defendant paid kickbacks in the form of excessive payments for conducting new employee trainings and reimbursements for holiday parties, winery tours, meals, and business-class airfare.
Genetic testing laboratories agree to pay $5.7 million to settle allegations that it violated the FCA by submitting false claims to Medicare. On July 2022, the government announced a $5.7 settlement with Mississippi and Texas labs accused of paying kickbacks in return for genetic testing samples. The government alleged that the labs conspired with marketers to solicit doctors to request medically unnecessary tests, which the labs would then perform and use to submit claims for reimbursement to Medicare.
Apparel company agrees to pay $7.6 million to settle FCA lawsuit. On July 21, a New Jersey-based apparel company settled an FCA lawsuit brought by the government for $7.6 million. The government alleged that the company fraudulently secured federal contracts to provide aprons and coveralls by falsely claiming that it was owned and controlled by a service-disabled veteran.
Clinical laboratory agrees to pay $16 million to settle FCA allegations. On July 20, the government announced a $16 million settlement with a Massachusetts lab accused of billing federal healthcare programs for medically unnecessary tests. The government alleged that the lab routinely conducted unnecessary tests on biopsy samples, then submitted those unnecessary tests for payment.
Jeffrey S. Bucholtz is a partner on the Appellate, Constitutional and Administrative Law team in the Washington, D.C. office of King & Spalding LLP, Tamra Moore is a partner in the Special Matters and Government Investigations 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.