Top False Claims Act Developments

October 13, 2022

Jeffrey S. Bucholtz, Jamie Allyson Lang, Matthew V.H. Noller, King & Spalding LLP

OVERVIEW

This week’s top False Claims Act (FCA) developments include: two federal district court decisions enforcing the Eleventh Circuit’s interpretation of Fed. R. Civ. P. 9(b) in FCA actions; and a federal district court decision denying a Medicare Advantage insurer’s motion to dismiss, on materiality grounds, an FCA action brought by the United States.

1. Federal district courts in the Eleventh Circuit dismiss two qui tam actions under Fed. R. Civ. P. 9(b)

Overview: On September 27 and 30, federal district courts in Florida and Georgia dismissed two qui tam actions for failure to plead fraud with particularity under Rule 9(b). The courts applied the Eleventh Circuit’s relatively strict interpretation of Rule 9(b), which requires FCA relators to plead details of actual claims submitted to the government.

The Decisions: In the first case, the relator alleged that the defendant healthcare provider submitted fraudulent Medicare claims for “unnecessary, non-covered, upcoded, and/or non-rendered services.” The court held that the relator’s allegations were inadequate to satisfy the Eleventh Circuit’s interpretation of Rule 9(b), which requires relators to “allege with particularity that false claims were actually submitted to the government.” The court held that although the relator had alleged that the defendant engaged in “improper practices,” she had not “connected the alleged fraudulent practices to an actual claim submitted to the government.”

In the second case, the relator alleged that the defendant, a manufacturer of medical equipment, had engaged in five schemes to defraud the government: (1) charging the government for medically unnecessary services, (2) failing to disclose discounts that it provided on its equipment, (3) operating without a valid license, (4) paying kickbacks to healthcare providers, and (5) illegally referring patients to itself. In holding that the relator’s allegations did not satisfy the Eleventh Circuit’s interpretation of Rule 9(b), the court pointed to her failure to “point to even one specific example of a false claim.” The relator also failed to allege that she had first-hand knowledge of the submission of any particular false claim. As noted by the court, it was not sufficient for her to “rely on mathematical probability to conclude that the Defendants surely must have submitted a false claim at some point.”

Our Take: As we have discussed, the Eleventh Circuit’s interpretation of Rule 9(b) is the subject of a petition for certiorari that is currently pending before the Supreme Court. The Supreme Court will consider whether to grant that petition (and two other petitions raising similar Rule 9(b) issues) at its conference on October 14.

2. New York federal district court denies motion to dismiss, for lack of materiality, government’s FCA action against Medicare Part C health insurance plan sponsor

Overview: On September 30, a federal district court in New York denied a Medicare Part C insurer’s motion to dismiss the government’s FCA action against it, rejecting (at least at this early stage of the litigation) the defendant’s argument that the government had failed to allege materiality.

The Decision: The government alleged that Anthem Inc. violated regulations issued by the Centers for Medicare and Medicaid Services (CMS) requiring Medicare Advantage Organizations (MAOs) to ensure the accuracy of diagnosis data that they submit to the government. According to the complaint, Anthem submitted inaccurate diagnosis codes, which led the government to overpay Anthem for medical services.

Anthem moved to dismiss the government’s complaint, and the district court denied the motion. Anthem argued that its alleged regulatory violations were not material because the government had not established that it would have refused payment if it had known about the violations. The court disagreed, interpreting the Supreme Court’s decision in Universal Health Services v. Escobar to impose a three-factor test for materiality, which requires attention to “(1) whether the government expressly designates compliance with a particular statutory, regulatory, or contractual requirement as a condition of payment; (2) the government’s response to noncompliance with the relevant contractual, statutory, or regulatory provision; and (3) whether the defendants’ alleged noncompliance was ‘minor or insubstantial.’”  Escobar described the FCA’s materiality standard as “demanding.”

The district court held that the government had adequately alleged that the alleged violations were material. First, the court concluded that although it agreed with Anthem that compliance with CMS regulations was not an express condition of payment, that factor was not dispositive. Second, the court concluded that the complaint alleged that the government had not acquiesced in Anthem’s alleged violations but had, instead, sued other companies for similar violations. Third, the court concluded that Anthem’s alleged violations were not “minor or insubstantial” because they had allegedly cost the government more than $100 million.

Our Take: This decision illustrates one example of how Escobar’s discussion of materiality is being applied by lower courts. As the application of Escobar to materiality questions is often hotly contested by FCA litigants, it would not be surprising to see further percolation on this issue, in the context of this particular case, in a future appeal.

In the News:

Department of Justice expands its Transnational Elder Fraud Strike Force. On October 4, DOJ announced that it is adding fourteen U.S. Attorney’s Offices to its “Transnational Elder Fraud Strike Force,” which investigates and prosecutes “sophisticated fraud schemes that target or disproportionately impact older adults.”

Massachusetts consulting company agrees to pay $2.5 million to settle FCA claims. On September 27, the government announced a $2.5 million settlement with a Massachusetts consulting company accused of defrauding Medicare in its role as the administrator of New Jersey’s Special Education Medicaid Initiative, a program under which state and local school districts receive federal funding for providing certain medical services to Medicaid-eligible students. The government alleged that the defendant caused school districts to submit claims for services that the defendant knew or should have known were not covered by Medicaid.

Michigan farmer agrees to pay $1.2 million to settle FCA claims. On September 28, the government announced a $1.2 million settlement with a Michigan farmer accused of submitting fraudulent claims for federal crop insurance and federal farm benefit payments. The government alleged that the defendant avoided payment limitations by instructing his employees to falsely claim that they owned the defendant’s farmland and crops, and to then transfer the payments they received to the defendant.

Jeffrey S. Bucholtz is a partner on the Appellate, Constitutional and Administrative Law team in the Washington, D.C. office of King & Spalding LLP, 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.