False Claims Act/Qui Tam

This blog is about qui tam, a  lawsuit brought under the False Claims Act by a private plaintiff on behalf of the Federal or State Government (rather than by the Government itself). The False Claims Act was originally enacted by Congress in 1863, as a response to widespread abuses by government contractors against the Union Army during the Civil War. The qui tam provisions are now used widely and this blog is intended to keep readers up to date with all qui tam related news and to provide commentary when warranted.  This blog also contains an array of laws and regulations concerning qui tam set out in an easy to read format.

From the monthly archives:

August 2010

TWO “RIGHTS” PERMIT A WRONG?

by Nolan and Auerbach on August 13, 2010

Fraudsters have regularly argued that they could evade FCA liability by simply conjuring up a “reasonable” interpretation of a controlling regulation or contract. As the argument goes, it makes no difference that the fraudster knows that the interpretation is wrong. The courts have uniformly rejected this nonsensical argument . . . until two weeks ago.

In United States ex rel. Hixson v. Health Management Systems, 2010 WL 2977396 (8th Cir. July 30, 2010), the Eighth Circuit, affirming the dismissal of a qui tam action, held that FCA liability does not attach where there are two “right” ways to read an applicable regulation. Notably, the court’s decision hinges solely on the ambiguity of the regulation, with no consideration of the evidence demonstrating that the defendant knew, or should have known, the correct meaning of the law. In short, the court held that the ambiguity negated scienter as a matter of law.

The Hixson decision jumped the tracks by blurring the lines between the “falsity” and knowledge elements of the False Claims Act. This conflated analysis permits a defendant to steal from the government with impunity. As the Ninth Circuit pointed out, this reading of the FCA would permit a defendant to “submit a claim, knowing it is false or at least with reckless disregard of its falsity, thus meeting the intent element, but nevertheless avoid liability by successfully arguing that its claim reflected a ‘reasonable interpretation’ of the requirements” and was therefore “not false.” United States ex rel. Oliver v. Parsons Co., 195 F.3d 457, 463 n.3 (9th Cir. 1999).

This “two rights” escape hatch is closed by separately assessing the defendant’s knowledge. First, in assessing the “falsity” of the claims, the court must interpret the underlying regulation or contract. Once the court determines the true meaning of the law, it then must determine whether the defendant’s claims were “knowingly” false. Ultimately, if the defendant did not have reason to know that the claims were false, FCA liability will not attach. However, the court cannot short-circuit this analysis by glossing over the individual defendant’s knowledge of the applicable regulations.

For more information about qui tam law and health care fraud, contact Nolan & Auerbach, P.A.

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Recent False Claims Act Amendments Fully Protect Whistleblowers

by Nolan and Auerbach on August 9, 2010

In the wake of rampant government fraud and heightened financial uncertainty, Congress has finally decided to fully protect America’s courageous whistleblowers. Specifically, in the Fraud Enforcement and Recovery Act of 2009 (FERA) and the soon-to-be-enacted Financial Reform legislation, Congress has closed debilitating loopholes that have undermined the False Claims Act’s anti-retaliation provision, 31 U.S.C.§ 3730(h). Most importantly, these amendments widen the scope of protected conduct, expand the list of protected individuals, and lengthen the statute of limitations period for anti-retaliation suits.

Prior to FERA, the False Claims Act (FCA) imposed liability on any employer who discriminated in the terms or conditions of employment against an employee because of the employee’s lawful acts in furtherance of a qui tam action. However, the FCA arguably did not cover the following common types of retaliation: (i) retaliation against those who plan to file a qui tam action that never gets filed, who blow the whistle internally or externally without the filing of a qui tam action, or who refuse to participate in the wrongdoing; (ii) retaliation against the family members and colleagues of those who have blown the whistle; and (iii) retaliation against contractors and agents of the discriminating party who were not technically “employees.”

Widening the scope of protected activity, the amendments ensure that Section 3730(h) not only protects “lawful actions done…in furtherance of an [FCA] action,” but it also protects “other efforts to stop 1 or more [FCA] violations.” Thus, in addition to protecting steps taken in furtherance of a potential or actual qui tam action, the FCA also protects steps taken to remedy the misconduct through methods such as internal reporting to a supervisor or company compliance department and refusals to participate in the misconduct that leads to false claims, whether or not such steps are clearly in furtherance of a potential or actual qui tam action.

Addressing the concern about indirect retaliation against colleagues and family members of the person who acts to stop the FCA violations, the amendments also clarify Section 3730(h) by adding language expressly protecting individuals from employment retaliation when “associated others” made efforts to stop FCA violations. This language is intended to deter and penalize indirect retaliation by, for example, firing a spouse or child of the person who blew the whistle.

Protecting persons who seek to stop violations of the Act regardless of whether the person is a salaried employee, an employee hired as an independent contractor, or an employee hired in an agency relationship, the amendments change Section 3730(h) so that it expressly protects not just “employees” but also “contractors” and “agents.” Among other things, the amendments ensure that Section 3730(h) protects physicians from discrimination by health care providers that employ them as independent contractors, and government subcontractors from discrimination or other retaliation by government prime contractors.

Finally, to ensure that wronged individuals have sufficient time to avail themselves of Section 3730(h) protections, the amendments add an explicit three-year statute of limitations period for all FCA anti-retaliation actions. This much-needed amendment is underscored by a recent U.S. Supreme Court decision which held that the Act lacked an applicable statute of limitations provision and that the courts, therefore, must apply the limitations period from the “most analogous” state statute.[1] The resulting statute of limitations patchwork injected uncertainty into the practice area and greatly shortened applicable time periods to less than twelve months for the vast majority of jurisdictions. The amendments replace this confusion with a set, straightforward time limitation.

For more information about qui tam law and health care fraud, contact Nolan & Auerbach, P.A.

[1] Graham County Soil & Water Conservation District v. United States ex rel. Wilson, 545 U.S. 409 (2005).

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