Why it matters: The last months of 2015 saw much activity involving the False Claims Act, including myriad DOJ enforcement actions and the U.S. Supreme Court granting certiorari in an implied certification case. Judging from the amount of money the DOJ announced that it had collected from False Claims Act cases in the fiscal year ended September 30, 2015—in excess of $3.5 billion, for the fourth year in a row—it is safe to say that the False Claims Act will remain a top weapon in the DOJ's 2016 arsenal. Read on for a recap.
Detailed discussion: On December 3, 2015, Principal Deputy Attorney General Benjamin C. Mizer, head of the DOJ's Civil Division, announced that the DOJ had collected more than $3.5 billion in settlements and judgments from False Claims Act (FCA) cases in the fiscal year ended September 30, 2015. According to the government, this was the fourth year in a row that the DOJ collected over $3.5 billion from FCA cases, bringing total FCA recoveries to $26.4 billion during the period beginning January 2009 through September 30, 2015. Per the press release, in fiscal year 2015, (1) of the $3.5 billion collected, the largest recoveries came from the healthcare industry ($1.9 billion), followed by resolutions in connection with government contracts ($1.1 billion), and (2) 638 of the cases—the majority—were filed under the FCA's whistleblower, or qui tam, provisions (which allow individuals—a.k.a. "relators"—to file lawsuits alleging false claims on behalf of the government and receive up to 30% of the recovery if the government prevails in the action), pursuant to which whistleblower awards to individuals totaled $597 million. According to Mizer, "The False Claims Act has again proven to be the government's most effective civil tool to ferret out fraud and return billions to taxpayer-funded programs."
If the last months of 2015 and this month are any indication, the DOJ will continue apace with its FCA push in fiscal year 2016—we recap the 11 FCA resolutions announced by the DOJ in November and December 2015 and to date in January 2016 below (we previously reported on five FCA resolutions announced in October 2015 in our December 2015 newsletter). But first we discuss two important developments in FCA court cases that were announced in late 2015:
- U.S. ex rel. Escobar v. Universal Health Services, Inc.: On December 4, 2015, the U.S. Supreme Court granted certiorari inEscobar to review the question of implied certification of compliance under the FCA. Briefly, the case arose out of the care provided to a teenage girl at Arbour Counseling Services (owned and operated by Universal Health Services) in Lawrence, Massachusetts that, according to the relators, ultimately led to her death in 2009. In February 2013, the girl's parents filed qui tam lawsuits under the FCA and its Massachusetts counterpart alleging that Arbour, in submitting claims to Medicare and MassHealth for reimbursement, had engaged in fraudulent billing by misrepresenting that it and its staff members were in compliance with the requisite legal health standards and were properly licensed and/or supervised as required by relevant law. The district court dismissed the case in its entirety, holding that the relators had not established the requisite falsity to sustain the claims. On appeal, the First Circuit reversed, finding that the relators had stated a claim for "legal falsity" under the FCA because Arbour impliedly certified its compliance with applicable law when it submitted its claims for reimbursement to the government agencies, even though the specific statutory/regulatory language did not require an express statement of compliance as a condition of payment. The Court granted certiorari to resolve the issues of implied certification and legal falsity in an FCA context because the First Circuit's ruling inEscobar created a multicircuit split—as illustrated by the questions the Court will be considering when it hears the case: (1)"Whether the 'implied certification' theory of legal falsity under the FCA—applied by the First Circuit below but recently rejected by the Seventh Circuit—is viable"; and (2) "If the 'implied certification' theory is viable, whether a government contractor's reimbursement claim can be legally 'false' under that theory if the provider failed to comply with a statute, regulation, or contractual provision that does not state that it is a condition of payment, as held by the First, Fourth, and D.C. Circuits; or whether liability for a legally 'false' reimbursement claim requires that the statute, regulation, or contractual provision expressly state that it is a condition of payment, as held by the Second and Sixth Circuits (emphasis original)."
- U.S. ex rel. Purcell v. MWI Corp.: On November 24, 2015, the D.C. Circuit in this long-running case (the qui tam complaint was filed in 1998; the government intervened in 2002) reversed a federal jury's verdict against MWI, holding that there was insufficient evidence to find that MWI "knowingly" made a false claim under the FCA when it made certifications to the Export-Import Bank in 1992 in order to secure loan financing for the sale of water pumps to Nigeria. The case turned on the undefined term "regular commissions" in the applicable regulatory provision, as to which the government claimed, and the jury found, MWI allegedly falsely certified. The Court held that, in this context, the term "regular commissions" was "undefined and ambiguous" (its connotations could relate to "industry-wide, intra-firm, or individual-agent") and that—absent any evidence that MWI was notified of another interpretation used by the bank or the government—MWI's interpretation of the term was "facially reasonable." The Court thus found that "the FCA's objective knowledge standard … did not permit a jury to find that MWI 'knowingly' made a false claim."
As of this writing, oral argument had not yet been scheduled before the U.S. Supreme Court in Escobar. We will keep an eye out and report back. Back to the DOJ—briefly recapped below are the healthcare and non-healthcare FCA resolutions announced by the DOJ as of this writing in November and December 2015 and January 2016:
Healthcare FCA resolutions:
- January 8, 2015—Former owner of Bostwick Laboratories agreed to pay up to $3.75 million to resolve FCA allegations of unnecessary testing and kickbacks to physicians: The settlement resolved allegations (neither admitted or denied) that Dr. David G. Bostwick (the owner and CEO of Virginia-based pathology lab Bostwick Laboratories) billed Medicare and Medicaid for medically unnecessary cancer detection tests and offered incentives to physicians to obtain Medicare and Medicaid business. Bostwick Laboratories previously agreed to pay the government over $6.5 million to resolve the same FCA allegations in 2014. Qui tamwhistleblower to receive award of $2.5 million.
- December 18, 2015—21st Century Oncology agreed to pay $19.75 million to resolve FCA allegations related to unnecessary laboratory tests: The settlement resolved allegations (not admitted or denied) that the Florida-based cancer care services provider submitted claims to Medicare for "FISH" tests that were not medically necessary. Qui tam whistleblower to receive award of $3.2 million.
- December 18, 2015—32 hospitals agreed to pay $28 million to resolve FCA allegations related to kyphoplasty billing: The 32 hospitals, located in 15 states, agreed to pay $28 million to settle allegations (neither admitted nor denied) that they submitted false claims to Medicare charging inpatient costs for minimally invasive outpatient kyphoplasty procedures. With this resolution, the DOJ said that it had now reached settlements with more than 130 hospitals totaling $105 million in connection with the same issue. All but three of the settling hospitals were named as defendants in a qui tamlawsuit. Qui tam whistleblowers to split award of $4.75 million.
- December 18, 2015—Splint supplier and its president to pay over $10 million to resolve FCA allegations: Maryland-based splint supplier Dynasplint Systems, Inc. and its founder agreed to pay $10.3 million to resolve allegations (neither admitted nor denied) that they violated the FCA by improperly billing Medicare separately for splints provided to patients in skilled nursing facilities when the cost of the splints was already included in the bundled price Medicare was paying to the facilities. Qui tam whistleblower to receive award of $1.98 million.
- November 20, 2015—Novartis Pharmaceuticals agreed to pay $390 million in fines and forfeiture to settle civil FCA and state false claim charges and charges under the Anti-Kickback Statute:Novartis allegedly gave kickbacks (in the form of non-permissible discount arrangements) to specialty pharmacies in return for recommending two of its drugs, Exjade and Myfortic. As part of the settlement, Novartis made factual admissions about its relationships and interactions with specialty pharmacies in connection with distribution of the two drugs and accepted responsibility for those admissions. Per the press release, this is the third settlement in this lawsuit—in January 2014 and April 2015 two specialty pharmacies agreed to pay a total of $75 million to resolve federal and state claims against them based on the same allegations. Together with the settlement announced on November 20, 2015, the federal and state governments will recover a total of $465 million from this lawsuit. The case was initiated by a qui tam whistleblower (no award announced) and the government first intervened in 2013.
Non-healthcare FCA resolutions:
- January 6, 2016—URS E & C Holdings, Inc. agreed to pay $9 Million to resolve FCA allegations: URS E & C Holdings, Inc., the successor in interest to global design and construction company Washington Group International, Inc. (WGI), agreed to pay $9 million to settle allegations (neither admitted nor denied) that WGI submitted false claims in connection with United States Agency for International Development contracts. No qui tam case reported.
- December 21, 2015—Two Texas-based import companies agreed to pay $15 million to resolve FCA charges in connection with evasion of customs duties: The settlement resolved allegations (neither admitted nor denied) that University Furnishings L.P. and its general partner Freedom Furniture Group, Inc. made false statements and misclassifications to avoid paying duties on wooden bedroom furniture (for student housing) imported from China. Qui tamwhistleblower to receive award of $2.25 million.
- December 9, 2015—Bollinger Shipyards agreed to pay $8.5 million to settle an FCA lawsuit filed against it in the Eastern District of Louisiana: The complaint made allegations (neither admitted nor denied) that Bollinger violated the FCA by misrepresenting the longitudinal strength of patrol boats it delivered to the Coast Guard that resulted in the boats failing once put into service. No qui tamcase reported.
- December 2, 2015—Franklin American Mortgage Company agreed to pay $70 million to resolve allegations that it violated the FCA in connection with mortgage lending insured by the Federal Housing Administration (FHA): As part of the settlement, the Tennessee-based company admitted to knowingly originating and underwriting mortgage loans insured by the FHA that did not meet applicable requirements from 2006 through 2012. No qui tam case reported.
- November 20, 2015—University of Florida agreed to pay $19.875 million to resolve FCA allegations: The settlement resolved allegations (neither admitted nor denied) that the University improperly charged the U.S. Department of Health and Human Services for salary and administrative costs on hundreds of federal grants. No qui tam case reported.
- November 2, 2015—NetCracker Technology Corp. agreed to pay $11.4 million and Computer Sciences Corp. agreed to pay $1.35 million to settle FCA allegations that they used individuals without security clearances on Defense Information Systems Agency (DISA) contracts: The settlement resolved allegations (neither admitted nor denied) that from 2008 through 2013, Massachusetts-based telecom software and services company NetCracker Technology Corp. used employees without required security clearances to perform work on DISA contracts, resulting in Virginia-based technology services company Computer Sciences Corp. submitting false claims for payment to DISA. Qui tam whistleblower to receive award of $2.6 million.
See here to read the DOJ's 12/3/15 press release titled "Justice Department Recovers Over $3.5 Billion From False Claims Act Cases in Fiscal Year 2015."
See here to read the Writ of Certiorari filed on 6/30/15 in Universal Health Services, Inc. (Petitioner) v. United States and Commonwealth of Massachusetts ex rel. Julio Escobar and Carmen Correa (Respondents).
See here to read the D.C. Circuit's 11/24/15 opinion in United States of America ex rel. Robert R. Purcell v. MWI Corporation.
For more on this subject, read the (1) DOJ's press release dated 1/8/15 titled "Former Owner of Bostwick Laboratories Agrees to Pay Up to $3.75 Million to Resolve Allegations of Unnecessary Testing and Illegal Remuneration to Physicians"; (2) DOJ's 12/18/15 press release titled "21st Century Oncology to Pay $19.75 Million to Settle Alleged False Claims for Unnecessary Laboratory Tests"; (3) DOJ's 12/18/15 press release titled "32 Hospitals to Pay U.S. More Than $28 Million to Resolve False Claims Act Allegations Related to Kyphoplasty Billing"; (4) DOJ's 12/18/15 press release titled "Splint Supplier and Its President to Pay Over $10 Million to Resolve False Claims Act Allegations"; (5) DOJ's 11/20/15 press release titled "Manhattan U.S. Attorney Announces $370 Million Civil Fraud Settlement Against Novartis Pharmaceuticals For Kickback Scheme Involving High-Priced Prescription Drugs, Along With $20 Million Forfeiture Of Proceeds From The Scheme"; (6) DOJ's 1/6/16 press release titled "URS E & C Holdings, Inc. Agrees to Pay $9 Million to Resolve False Claims Act Allegations"; (7) DOJ's 12/21/15 press release titled "Texas-Based Importers Agree to Pay $15 Million to Settle False Claims Act Suit for Alleged Evasion of Customs Duties"; (8) DOJ's 12/9/15 press release titled "Bollinger Shipyards Agrees to Settle False Claims Act Suit"; (9) DOJ's 12/2/15 press release titled "Franklin American Mortgage Company Agrees to Pay $70 Million to Resolve Alleged False Claims Act Liability Arising From Federal Housing Administration-Insured Mortgage Lending"; (10) DOJ's 11/20/15 press release titled "University of Florida Agrees to Pay $19.875 Million to Settle False Claims Act Allegations"; and (11) DOJ's 11/2/15 press release titled "Netcracker Technology Corp. and Computer Sciences Corp. Agree to Settle Civil False Claims Act Allegations."