On June 30, 2016, a three-judge panel of the First Circuit Court of Appeals in Boston issued a ruling in United States ex rel. Winkelman and Martinsen v. CVS Caremark Corp., affirming the district court dismissal of a qui tam suit (in which the United States had declined to intervene) on public disclosure grounds.
The relators had sued CVS in August 2011 under the FCA and several analogous state statutes, claiming CVS’ “Health Savings Pass” program was designed to defraud Medicare and Medicaid by failing to pass along discounts offered to certain customers. CVS moved to dismiss, arguing that significant publicity in 2010 (during which labor unions and state officials alleged the Health Savings Pass program overcharged the government) was sufficient to bar the suit.
The FCA states, in relevant part, that qui tam actions cannot stand “if substantially the same allegations or transactions as alleged in the action . . . were publicly disclosed.” 31 U.S.C. § 3730(e)(4)(A). The relators argued that their allegations were not substantially the same as the 2010 allegations because the latter described a “price gouging scheme,” as opposed to fraud. Characterizing this as “quibbling” and an elevation of “form over substance,” the First Circuit noted that the FCA does not require public disclosures to “specifically label disclosed conduct as fraudulent,” adding that a subsequent qui tam complaint is barred “even if it offers greater detail about the underlying conduct.” Responding to the relators’ argument that the public disclosure addressed a different state than the ones addressed in their complaint, the court held:
When it is already clear from the public disclosures that a given requirement common to multiple programs is being violated and that the same potentially fraudulent arrangement operates in other states where the defendant does business, memorializing those easily inferable deductions in a complaint does not suffice to distinguish the relators’ action from the public disclosures.
Similarly, in the context of rejecting the relators’ argument that they were original sources, the court held that “asserting a longer duration for the same allegedly fraudulent practice,” “[o]ffering specific examples of that conduct,” or “add[ing] detail about the precise manner” in which a scheme operated were all insufficient to overcome the public disclosure bar.
The takeaway for practitioners attempting to defeat relators’ complaints on the pleadings is that the FCA’s public disclosure bar does not require allegations to be even close to identical. Because the “ultimate inquiry,” according to the First Circuit, is “whether the government has received fair notice . . . about the potential existence of the fraud,” so long as there has been public disclosure of the general allegation, qui tam FCA suits should fail.