Top False Claims Act Developments

September 15, 2022

Ethan P. Davis, Tamra Moore, Matthew V.H. Noller, King & Spalding LLP

OVERVIEW

This week’s top False Claims Act (FCA) developments include: an Eleventh Circuit decision affirming a grant of summary judgment for the defendants in an FCA retaliation suit; the Solicitor General’s filing of an amicus brief, at the invitation of the Supreme Court, recommending that certiorari be denied in a case involving FCA pleading requirements; and two government settlements of FCA actions related to country-of-origin statutes.

1. Eleventh Circuit affirms dismissal of FCA retaliation claim for failure to plead FCA violation

Overview: On August 31, the Eleventh Circuit in Simon v. Healthsouth of Sarasota Limited Partnership affirmed the district court’s grant of summary judgment for the defendants in an FCA retaliation lawsuit. The Eleventh Circuit held that the plaintiff could not prove retaliation, because she did not have an objectively reasonable belief that the defendants had committed an FCA violation.

The Decision: The plaintiff, a doctor, filed this action against various entities that operate an inpatient rehabilitation facility in Florida. The plaintiff alleged that the defendants encouraged doctors to diagnose patients with a “fraudulent” disorder, “disuse myopathy,” to qualify for Medicaid reimbursements. According to the plaintiff, she raised her concerns about the “fraudulent” disuse myopathy diagnosis to the defendants, which constructively discharged her in retaliation. She then filed a qui tam action against the defendants, alleging that the defendants had defrauded the government and retaliated against her. The government intervened in the case and settled all of the claims with the defendants except for the retaliation claim.  After further proceedings, the district court granted summary judgment to the defendants on the plaintiff’s retaliation claim.

On appeal, the Eleventh Circuit affirmed the district court’s decision. The Eleventh Circuit held that to prove retaliation under the FCA, a plaintiff must “show that she had an objectively reasonable belief that her employer violated the FCA.” Under the Eleventh Circuit’s decision in United States v. AseraCare, Inc., 938 F.3d 1278 (11th Cir. 2019), a reasonable difference of medical opinion cannot on its own support an FCA claim.  With respect to this latter point, the record before the Eleventh Circuit included statements from other doctors who testified that disuse myopathy is a legitimate and appropriate diagnosis.  The record also included the plaintiff’s admission that “every physician could have a different opinion.”  Based on this record, the Eleventh Circuit affirmed the district court’s conclusion that the plaintiff’s subjective belief about the legitimacy of the diagnosis, without more, does not support an objectively reasonable belief that the defendants had submitted a false claim to the government.

Our Take: This decision reaffirms the Eleventh Circuit’s rationale in AseraCare, which held that a reasonable difference of medical opinion cannot support an FCA claim—a holding that is subject to a circuit split.

2. Solicitor General again recommends denial of certiorari petition in FCA case raising Rule 9(b) issues

Overview: On September 9, the Solicitor General filed a Supreme Court amicus curiae brief in U.S. ex rel Owsley v. Fazzi Associates, Inc. The Supreme Court had requested the Solicitor General’s views on the petition for certiorari in Owsley, which asks the Court to decide how Rule 9(b) applies to FCA actions. The Solicitor General recommended that the Court deny certiorari, arguing that there is no circuit split over the question presented and that the court of appeals’ decision in Owsley does not warrant review.

The Case: As we have previously discussed, the petition in Owsley is one of three current petitions that ask the Supreme Court to resolve a circuit split over whether Rule 9(b) requires relators to plead details of specific false claims. The petitions in those cases argue that some circuits require relators to plead such details, while other circuits hold that the submission of a false claim can be inferred from particularized allegations of a fraudulent scheme. In Owsley, the Sixth Circuit dismissed the relator’s complaint for failure to plead details of false claims.

In her brief, the Solicitor General argued that no actual circuit split exists to be resolved, because “the courts of appeals have largely converged on a … flexible standard, asking whether an FCA relator’s complaint … contains some ‘indicia of reliability’ to support a strong inference that the defendant submitted false claims for payment to the government.” The Solicitor General argued that the Court should not review Owsley’s application of that “fact-driven and flexible Rule 9(b) standard” because “the Court’s review … could not reasonably be expected to produce a bright-line rule or otherwise eliminate all disuniformity among the courts of appeals.” The Solicitor General also noted that because “the United States will typically have access to any claims for payment that the defendant submitted,” “FCA claims litigated by the United States should rarely if ever” present the circumstance “where the plaintiff can describe in detail the defendant’s fraudulent scheme, but is unable to plead details concerning the false claims for payment that the defendant submitted.”

The Solicitor General previously made similar arguments in her amicus brief in Johnson v. Bethany Hospice & Palliative Care LLC, which recommended that the Court deny review of the same Rule 9(b) question presented in Owsley. The Supreme Court has not asked the Solicitor General to file a brief in response to the third pending petition raising the Rule 9(b) question, which was filed in Molina Healthcare of Illinois, Inc. v. Prose. (King & Spalding LLP represents the petitioners in Molina.)

Our Take: The Court’s requests for the views of the Solicitor General in Bethany Hospice and Owsley suggest that it may be seriously considering granting one or more of the petitions raising the Rule 9(b) issue. It will be interesting to see if the Solicitor General’s opposition to a grant influences the Court’s decision.

3. Government settles FCA actions related to violations of country-of-origin statutes

Overview: On August 31 and September 7, the government announced two settlements of FCA actions arising out of allegations that manufacturers violated federal statutes imposing country-of-origin requirements on government purchases.

The Settlements: On August 31, the government announced a $6.3 million settlement with Novo Nordisk Inc. related to alleged violations of the Trade Agreements Act (TAA). The TAA generally requires the United States to purchase only products made in countries that have trade agreements with the United States. The government alleged that Novo Nordisk violated the FCA and TAA by billing the government for medical devices manufactured in unapproved countries.

On September 7, the government announced a $625,000 settlement with a Colorado manufacturer of scientific instruments related to alleged violations of the Buy American Act (BAA), which provides that the United States may buy certain goods only if they were manufactured in the United States. The government alleged that the defendant violated the FCA and BAA by selling, to federal agencies and national laboratories, medical devices that the company had manufactured in China.

Our Take: The TAA and BAA are two of several statutes that impose country-of-origin requirements on government purchases. For example, like the BAA, the 2021 Infrastructure Investment and Jobs Act also provides that the United States may buy certain goods only if they were manufactured in the United States (or are covered by the WTO Government Procurement Agreement or other U.S. trade agreements). Time will tell whether these two settlements signal that the government is placing an enforcement priority on alleged violations of country-of-origin statutes.

In the News:

Philips subsidiaries agree to settle two FCA cases. On August 30 and September 1, the government announced two settlements with subsidiaries of Koninklijke Philips N.V. In the first settlement, Philips North America LLC agreed to pay around $4.2 million to resolve allegations that it substituted key components of a medical device that it sold to military purchasers, without recertifying the device for military airworthiness. In the second settlement, Philips RS North America LLC agreed to pay more than $24 million to resolve allegations that it paid kickbacks to buyers of its durable medical equipment.

New York non-profit organization pays $850,000 to settle FCA claim. On September 1, the government announced a $850,000 settlement with a New York non-profit that provided Medicaid-funded services to individuals with developmental disabilities. The government alleged that the non-profit fraudulently received Medicaid reimbursements for payments that the non-profit unlawfully diverted to its owner, its owner’s for-profit companies, and its owner’s family members.

Ethan P. Davis is a partner in the Special Matters and Government Investigations Practice Group in the firm’s San Francisco office, Tamra Moore is a partner in the Healthcare 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.