False Claim Act: 2013 Year In Review

Last year continued the trend of robust False Claims Act (FCA) enforcement by the U.S. Department of Justice (DOJ) and proliferating qui tam lawsuits brought by whistleblowers on behalf of the United States. In 2012, DOJ recovered a record-breaking $5 billion in civil fraud judgments and settlements. While DOJ's recoveries in 2013 of $3.8 million didn't match that level, they still represent the second-largest total recorded, and few anticipate a downward trend. Like 2012, 2013 saw health care as the industry most affected by FCA recoveries, accounting for $2.6 billion, while procurement matters (primarily from the defense industry) accounted for $890 million. Although the overall amount of recoveries was below that of 2012, the number of qui tam lawsuits filed in 2013 did break records with 752 whistleblower complaints, an increase of 100 from 2012 filings.

While 2013 showed continued aggressive use of the FCA by DOJ and plaintiffs' attorneys representing whistleblowers, legal developments in the courts were more balanced. Expansive interpretation of damages and liability theories under the FCA were common—the $237 million judgment in the Tuomey retrial may be the most obvious example—but other courts expressed a growing unease with the most aggressive FCA theories. Most notably, that unease can be seen in decisions by the Sixth and Eighth U.S. Circuit Courts of Appeal, each of which rejected the FCA as a regulatory compliance tool. Courts also continued to wrestle with recurring FCA issues, including the pleading standard under Rule 9(b), first-to-file issues, and application of the excessive fines provisions within the U.S. Constitution's Eighth Amendment. Below, we summarize the most notable court decisions, settlements, and related developments in the FCA from the past year.

Regulatory Noncompliance as an FCA Violation

U.S. ex rel. Ketroser v. Mayo Foundation, 729 F.3d 825 (8th Cir. 2013).

In Ketroser, the relator (another term for the whistleblower bringing the lawsuit) alleged that the defendant medical center violated the FCA by submitting one pathology report, rather than two, as part of its two-stage analysis of tissue samples taken during surgery. The relator argued that the current procedural terminology (CPT) codes charged by the defendant for the two stages of analysis each required "reporting," and thus the defendant should have created two separate written reports—one for each CPT code charged.

The district court dismissed the case, and the Eighth Circuit affirmed, finding that the defendant had reasonably interpreted the regulatory requirements. Specifically, the court found the requirements ambiguous and the defendant's interpretation reasonable. The court stated, "[The defendant's] reasonable interpretation of any ambiguity inherent in the regulations belies the scienter necessary to establish a claim of fraud under the FCA." Id. at 832. The court further added that the "FCA does not encompass those instances of regulatory noncompliance that are irrelevant to the government's disbursement decisions." Id. at 829.

U.S. ex rel. Hobbs v. MedQuest Assocs., 711 F.3d 707 (6th Cir. 2013).

In an FCA action for filing false reimbursement claims under Medicare Part B, the relator alleged that MedQuest (1) employed supervising physicians who were not approved by Medicare to supervise the range of tests offered at facilities and (2) failed to register a newly acquired testing center with the Medicare program, using instead the former owner's payee ID number.

The district court granted summary judgment in favor of the government on both counts, but the Sixth Circuit reversed. First, the appellate court held that use of non-approved physicians could not form the basis of an FCA false certification claim because such action constitutes simply a violation of a "'condition of participation' in the Medicare program," not a "condition of payment from Medicare funds." As to the registration violation, the court held that under the facts of the case, MedQuest's actions amounted only to a "failure to update enrollment information," which is not a violation of a condition of payment. See also Courts of Appeals Continue to Limit the Government's Aggressive False Claims Act Theories.

Rule 9(b) Pleading Standard

U.S. ex rel Nathan v. Takeda Pharmaceuticals North America, 707 F.3d 451 (4th Cir. 2013), petition for cert. filed (U.S. May 10, 2013) (No. 12-1349).

Indicating that it may soon grant certiorari and resolve a circuit split on the Rule 9(b) pleading requirements to bring FCA claims, on October 7, the U.S. Supreme Court asked the Solicitor General to file a brief on the subject in U.S. ex rel Nathan v. Takeda Pharmaceuticals North America. The case involves allegations that Takeda promoted its pharmaceutical product Kapidex off-label for uses not approved by the Food and Drug Administration (FDA), causing prescriptions of the product to be written for the off-label uses and submitted to the government for reimbursement. The lower courts dismissed the FCA claims for failure to meet the Rule 9(b) standard for pleading fraud with specificity, finding that although the relator provided examples of 98 specific prescriptions, he had not plausibly alleged that any of the 98 prescriptions were written for off-label uses.

Currently, the Fourth, Sixth, Eighth, and Eleventh Circuits require a plaintiff to allege specific false claims with particularity to satisfy 9(b), while the First, Fifth, Seventh, and Ninth Circuits have allowed FCA claims to survive based only on reliable indicia that lead to a strong inference that claims were actually submitted.

U.S. ex rel. Simpson v. Bayer Healthcare, 732 F.3d 869 (8th Cir. 2013).

On October 15, the Eighth Circuit issued a ruling on the Rule 9(b) pleading standard for FCA claims, continuing its alignment with the Fourth, Sixth, and Eleventh Circuits. The relator alleged that Bayer's misrepresentation of the efficacy and safety of its cholesterol product Baycol caused false claims to be submitted both (a) to Medicare/Medicaid and (b) in the context of Bayer's contract with the U.S. Department of Defense...