From the monthly archives:

June 2012

Dishonest State Hospitals May Be Liable Under the False Claims Act

by Nolan and Auerbach on June 22, 2012

For years, would-be whistleblowers shied away from suing state hospitals under the federal False Claims Act. This timidity was primarily due to a 2000 U.S. Supreme Court decision, which held that state agencies could not be sued by qui tam relators. Recently, however, several circuit court decisions have clarified the reach of this decision, particularly as it applies to state-created corporations, including state-created hospitals.

Most recently, the Fourth Circuit Court of Appeals confronted this issue in a case involving state-created student loan companies. The lower court had blindly applied the Supreme Court ruling and had dismissed the qui tam action with little analysis. The appellate court, however, vacated and remanded the decision and stressed that the court must determine whether the corporations are truly under state control.

The Fourth Circuit joined the Fifth, Ninth, and Tenth Circuits in blessing qui tam actions against state-created entities that, in effect, compete on the private market. Deciding factors include the following:

  1. Will a judgment against the entity be paid by the State?
  2. Does the State appoint the directors or officers of the entity?
  3. Is the entity involved in governmental functions?
  4. Is the entity treated as a state agency under the state law?

The answers to these questions will tend to drive the answer to whether a particular entity is truly a state agency. For many entities, including hospitals affiliated with state universities, the answers open the door to Medicare fraud qui tam actions.

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

 

 

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Relators Must Provide Necessary Details to Clear Evolving Pleading Standards

by Nolan and Auerbach on June 7, 2012

Claims brought under the FCA must comply with the particularity requirements of the Federal Rule of Civil Procedure Rule 9(b). United States ex rel. Thompson v. Columbia/HCA Healthcare Corp., 125 F.3d 899, 903 (5th Cir. 1997).  Rule 9(b) requires, at a minimum, “that a plaintiff set forth the ‘who, what, when, where, and how’ of the alleged fraud.” Id. While this journalistic formula seems simple enough, the real-world application has led to thousands of published district court opinions, wrestling with the application to the federal False Claims Act.

The problem is that an overly stringent Rule 9(b) pleading standard derails meritorious qui tam actions and subverts the very purpose behind the federal False Claims Act qui tam provisions. The reality is that in the vast majority of qui tam cases, the government does not need the assistance of relators in identifying specific false claims. Moreover, such a requirement would undermine the government’s enforcement efforts, for it would discourage the filing of qui tam suits by relators who would otherwise have both the means and the incentive to expose acts of fraud against the United States.

Fortunately, many circuits have honored the intent behind the False Claims Act qui tam provisions by adopting a looser application of Rule 9(b). For example, in the Fifth Circuit, a relator may survive Rule 9(b) even without claims information “by alleging the particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted.” United States ex rel. Grubbs v. Kanneganti, 565 F.3d 180, 190 (5th Cir. 2009).

The lowered Rule 9(b) standards are not a complete pass on providing sufficiently detailed information, however. For example, a district court in the Fifth Circuit recently held that a relator failed to satisfy the Grubbs Rule 9(b) standard, when the relator alleged a healthcare kickback scheme without providing any information about the recipients of the kickbacks. See United States ex rel. Nunnally v. West Calcasieu Cameron Hospital, No. 2:08CV0371 (W.D. La. May 21, 2012).

More information for whistleblowers is located at the Nolan & Auerbach, P.A. website.

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The Improved False Claims Act Reaches Modern-Day Healthcare Fraud Schemes

by Nolan and Auerbach on June 4, 2012

For decades, the United States Supreme Court has stressed that the federal False Claims Act is “intended to reach all types of fraud, without qualification, that might result in loss to the Government.” United States v. Neifert-White Co., 390 U.S. 228 (1968). This admonition from the Court is worth repeating, particularly as healthcare fraud schemes have become increasingly complex and defense attorneys have tried to rein in the reach of the False Claims Act.

Fortunately, in 2009, Congress restored and modernized the FCA, echoing once again that the False Claims Act should be used to protect all types of fraud on the government dollar, without qualification.

The resulting FCA has become an even stronger weapon against healthcare fraud. Moreover, not only are the courts largely respecting the congressional intent behind the improved Act, but the Department of Justice seems more willing and able to use the Act against all types of healthcare fraud schemes.

With that being said, even the most complex healthcare fraud schemes are, at their root, instances of defendants overcharging the government or wrongfully retaining government money, property, or benefits. All of these bedrock FCA allegations echo back to very founding of the False Claims Act, when President Lincoln raised concerns that contractors were defrauding the Union Army.

The government recently resolved a False Claims Act qui tam action against St. Jude Medical Inc., in which the company inflated the cost of pacemakers and defibrillators it sold the government.  According to the qui tam complaint, St. Jude actively marketed its pacemakers and defibrillators by touting the generous credits available should a device need to be replaced while covered under warranty. At the same time, St. Jude knew that it failed to give appropriate credits to device buyers in a number of cases where a product was replaced while still under warranty. In short, the company allegedly overcharged the government.

This successful qui tam action is a great reminder that present-day healthcare fraud schemes may include new bells and whistles. However, at the end of the day, they all sound the same old tune of dishonesty and deceit—and the False Claims Act is available to silence the fraud.

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

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