Why it matters: As we predicted in last month's "Spotlight on the False Claims Act" article, the DOJ has continued to use the False Claims Act as an effective civil tool to combat fraud in calendar year 2016. As of the date of this writing, the DOJ had announced additional significant False Claims Act resolutions in January and February, bringing the total number of such resolutions to 18 since the start of fiscal year 2016 last October. In addition, there are two more court cases to report—both from the Fourth Circuit—one dealing with whether the whistleblower's attorney's knowledge can serve as the basis of a public disclosure bar and the other with whether statistical sampling can be used to establish fraud.

Detailed discussion: Here, we briefly recap two of the significant False Claims Act (FCA) resolutions announced by the DOJ in the weeks since we last covered the topic in our January 2016 newsletter. But first, we discuss two important FCA cases before the Fourth Circuit, one decided and the other pending (up from the district court on interlocutory appeal):

  • United States ex rel. May v. Purdue Pharma L.P.: On January 29, 2016, the Fourth Circuit upheld the district court's dismissal of the relators' qui tam action for lack of subject matter jurisdiction resulting from the application of the pre-2010 version of the FCA's "public disclosure bar." The Court began its analysis by stating that "[t]he FCA allegations at issue have enjoyed a long though not particularly fruitful life, having reached this court now for the third time." The Court pointed out that the FCA allegations against Purdue Pharma L.P. (Purdue) in connection with the pain medication OxyContin were first alleged a decade ago in a qui tam action filed by former district sales manager Mark Radcliffe (Radcliffe) that was dismissed by the Court in 2010 because he had signed a release that barred the action. Later that year, Radcliffe's wife "took up the baton" and, together with another former Purdue employee (relators), filed another qui tamaction against Purdue based on "nearly identical" claims with facts and information provided by the same attorney who filed the first qui tam on behalf of Radcliffe. It was this second qui tam action that was the subject of the Court's ruling. 

    First, the applicable law: Prior to 2010 (when it was amended by Congress), the "public disclosure bar" contained in the FCA provided that "[n]o court shall have jurisdiction over an action under this section based upon the public disclosure of allegations or transactions in a criminal, civil, or administrative hearing … unless the action is brought by the Attorney General or the person bringing the action is an original source of the information." As the allegations in the second qui tam suit stem from activities conducted between 1995 and 2005, the Court ruled that this pre-2010 version of the bar was governing. The Court acknowledged that it interprets the phrase "based upon" in the bar more narrowly than other circuits, holding that the language "precludes actions 'only where the relator has actually derived from [a public] disclosure the allegations upon which his qui tam action is based.' " According to the Court, "[t]his test is satisfied if a relator's claim is 'even partly' derived from prior public disclosure." The relator bears the burden of proof that the public disclosure bar does not apply, and if he fails to do so, the court is divested of subject matter jurisdiction to hear the claim. 

    Applying the law to the facts of this case, the Fourth Circuit affirmed the district court's dismissal. Even though the relators argued that they had never looked at the public documents filed in Radcliffe's qui tam action, and thus their knowledge of the case was not derived from public disclosure, the Court found the fact that they had the same attorney as Radcliffe to be compelling. The question presented was "whether the Relators can sidestep the public disclosure bar when their allegations—though not directly stemming from the docket entries in Mr. Radcliffe's lawsuit—are derived from the facts their attorney learned while representing Mr. Radcliffe and preparing the public filings in his case." The Court held that they couldn't and that the bar precluded their suit, because "the Relators' claims are based on facts their counsel learned in the course of making the prior public disclosure of Purdue's allegedly fraudulent scheme."
  • United States ex rel. Michaels v. Agape: On October 6, 2015, the Fourth Circuit agreed to hear an interlocutory appeal involving the issue of whether statistical sampling can be used as a means of proving large-scale fraud under the FCA. The underlying case concerned allegations that a network of 24 nursing homes throughout South Carolina submitted fraudulent claims to Medicare, Medicaid and Tricare for care that was not medically necessary. Due to the large volume of potentially fraudulent claims (over 50,000 claims were submitted during the relevant time period), the relators sought to prove liability by using statistical sampling—i.e., its experts would review a small percentage of the claims, determine the percentage of those claims that were fraudulent, and extrapolate that determination over the entire universe of submitted claims. The District of South Carolina judge rejected the approach but certified the question for interlocutory appeal. In addition to the question of whether statistical sampling can be used in FCA cases to prove large-scale fraud, the Fourth Circuit also agreed to decide whether the DOJ has absolute veto power over FCA settlements in cases where it has not intervened. Opening briefs were filed with the Fourth Circuit on January 15, 2016, and as of the time of this writing, oral argument had not yet been set. As always, we will be watching and report back.

Following is a brief recap of two recent healthcare and non-healthcare FCA resolutions announced by the DOJ.

  • January 15, 2016—California hospital agreed to pay more than $3.2 million to settle FCA and Stark Law allegations: Oceanside, California-based Tri-City Medical Center (Tri-City) agreed to pay $3,278,464 to resolve allegations that it maintained 97 financial arrangements with community-based physicians and physician groups that violated both the Stark Law and the FCA. As a refresher, the Stark Law prohibits a hospital from billing Medicare for services referred by physicians who have a financial relationship with the hospital unless that relationship falls within enumerated exceptions requiring, among other things, that the financial arrangements do not exceed fair market value, do not take into account the volume or value of any referrals and are commercially reasonable. Additionally, the Stark Law requires that a hospital's contracts with nonemployee physicians be in writing and meet other specified requirements. In this case, Tri-City "self-reported" to the DOJ, voluntarily identifying five arrangements with its former chief of staff from 2008 until 2011 that, in the aggregate, were commercially unreasonable and/or didn't reflect fair market value. The hospital also identified 92 financial arrangements with community-based physicians and practice groups in place between 2009 and 2010 that did not satisfy the Stark Law because, among other things, the written agreements were expired, missing signatures or could not be located. Benjamin C. Mizer, director of the DOJ's Civil Division, gave Tri-City credit for self-reporting, stating that "[t]he settlement of this matter reflects … our willingness to work with providers who disclose their own misconduct." As the hospital self-reported, there is no mention of aqui tam whistleblower.
  • February 1, 2016—Centerra Services International Inc. (formerly Wackenhut Services LLC) agreed to pay $7.4 million to settle FCA allegations related to a wartime contract involving services provided in Iraq: The Florida-based company agreed to pay $7.4 million to resolve allegations (neither admitted nor denied) that its predecessor company violated the FCA by double-billing and inflating labor costs in connection with a contract for firefighting and fire protection services in Iraq. Qui tam whistleblower to receive $1.3 million.

See here to read the 1/29/16 Fourth Circuit opinion in United States ex rel. May v. Purdue Pharma L.P.

See here to read the 6/25/15 District of South Carolina order entitled "Order Resolving Two Interrelated Issues and Certification for Interlocutory Appeal Pursuant to 28 U.S.C. § 1292(b)" in United States ex rel. Michaels v. Agape.

See here to read the DOJ's 1/15/16 press release entitled "California Hospital to Pay More Than $3.2 Million to Settle Allegations That It Violated the Physician Self-Referral Law."

See here to read the DOJ's 2/1/16 press release entitled "Florida-Based Centerra Services International Inc. Agrees to Pay $7.4 Million to Settle False Claims Act Allegations Related to Wartime Contract."