The FCA continues to be the federal government’s primary civil enforcement tool for investigating allegations that healthcare providers or government contractors defrauded the federal government. In the coming weeks, we will take a closer look at recent legal developments involving the FCA. This week, we examine recent court decisions considering the requirement that a relator plead and prove falsity to establish an FCA claim and evaluate the different theories of falsity that have emerged during the last several years.
Use of Statistical Sampling to Establish Falsity
Following last year’s landmark ruling in U.S. ex rel. Martin v. LifeCare Centers of America, Inc., 2014 U.S. Dist. LEXIS 142657 (E.D. Tenn. Sept. 29, 2014), statistical sampling has become an increasingly important issue in FCA cases. This year, decisions by the district court in U.S. ex rel. Paradies v. AseraCare, Inc., 2015 WL 8486874 (N.D. Ala. Nov. 3, 2015), reiterated this fact. AseraCare faced allegations that it falsely billed the government for hospice patients that failed to satisfy requirements that patients be terminally ill and have a life expectancy of six months or less. Anticipating lengthy trial testimony concerning the statistical sample of 233 claims, the district court bifurcated the trial for the FCA’s falsity element from trial for all other elements. In arriving at its novel decision, the district court rejected the government’s objections that bifurcation would result in juror confusion and duplicative evidence.
Later in the year—after the jury returned a verdict for the government on falsity—the district court vacated the verdict and ordered a new trial because the district court determined that it had erred in instructing the jury on the issue of falsity. The district court concluded that it should have instructed the jury that the FCA requires proof of an “objective” falsehood and that a difference in clinical judgment, without more, is insufficient to show that a Medicare hospice claim is false. The district court also reopened summary judgment, noting that many key issues regarding the FCA are still developing, particularly in the hospice industry. Given its clarified legal standard for falsity, the district court remarkably questioned whether the government had sufficient admissible evidence, beyond a difference of expert opinion, to show that the claims at issue are objectively false. AseraCare’s motion for summary judgment remains pending.
Express and Implied False Certification
The circuit split regarding the implied certification theory of liability has continued to broaden in recent cases. In U.S. ex rel. Escobar v. Universal Health Services, Inc., 780 F.3d 504 (1st Cir. 2015), the First Circuit embraced the implied certification theory of falsity under the FCA. After a young woman died of a seizure at a mental health clinic operated by the defendant, her parents alleged that the clinic violated state regulations by employing unlicensed staff and failing to properly supervise its staff. The district court dismissed the relators’ FCA claims, holding that compliance with the regulations was not a condition of payment. The First Circuit reversed the district court’s decision, stating that “[a]lthough the record [was] silent as to whether [the clinic] explicitly represented that it was in compliance with conditions of payment . . . we have not required such ‘express certification’ in order to state a claim under the FCA.” The First Circuit held that the clinic implicitly communicated compliance with the regulations at issue whenever it submitted claims for reimbursement. Thus, the First Circuit held that a claim is legally false if it knowingly misrepresents compliance with a material precondition of payment contained in a statute, regulation or contract, even if not expressly designated. The U.S. Supreme Court has granted the defendants’ petition for writ of certiorari regarding the First Circuit’s decision and a decision is expected later this year.
In U.S. ex rel. Badr v. Triple Canopy, Inc., 775 F.3d 628 (4th Cir. 2015), the Fourth Circuit also adopted the implied certification theory of falsity under the FCA. In Triple Canopy, the defendant allegedly sought payment after hiring airbase security guards who did not satisfy the government contract’s marksmanship requirement. The complaint also alleged that the defendant falsified marksmanship evaluations to hide the deficiencies. The district court dismissed the complaint for failing to allege a payment request that contained an objectively false statement. The Fourth Circuit reversed the district court and determined that an FCA violation was sufficiently pleaded. The Fourth Circuit found that allegations suggesting a contractor sought payment while withholding information about its failure to satisfy material contract provisions are sufficient to state an FCA claim.
On the other hand, in United States v. Sanford-Brown, Ltd., 788 F.3d 696 (7th Cir. 2015), the Seventh Circuit declined to adopt the implied certification theory as a basis for FCA liability. The Seventh Circuit affirmed summary judgment for the defendant colleges on allegations that the colleges violated federal regulations regarding recruiting and retention practices in compliance with Title IV of the Higher Education Act. The Seventh Circuit found that the government’s administrative mechanisms, not the FCA, are the proper forum for addressing the type of regulatory violations alleged. Notably, the court stated that it would be unreasonable to hold that compliance with thousands of pages of federal statutes and regulations, merely incorporated by reference, are conditions of payment under the FCA.
In U.S. ex rel. Hanna v. City of Chicago, 2015 WL 5461664 (N.D. Ill. Sept. 16, 2015), the district court dismissed the relator’s allegations that the City of Chicago falsely certified that it would comply with federal fair housing laws in order to receive federal funds. The relator alleged that the City violated its express certification when it did not comply with the housing laws, but did not allege that the City had no intention of complying with the housing laws at the time of the certification. The district court concluded that forward-looking commitments that an entity “shall” or “will” comply with statutes cannot give rise to express certification liability unless the entity was dishonest about its intent to comply at the time the certification is made.
Finally, in U.S. ex rel. Morsell v. Symantec Corp., 2015 WL 5449795 (D.D.C. Sept. 10, 2015), the district court denied Symantec’s motion to dismiss FCA allegations that Symantec failed to disclose more favorable pricing terms and misrepresented the discounts it offered on its software, a violation of its General Services Administration contract. According to the district court, the allegations that Symantec violated contractual disclosure requirements sufficiently pleaded falsity under the implied certification theory.