The federal government brought a False Claims Act action against an insurance company, alleging that the company participated in a scheme to obtain federally reinsured crop insurance payments for ineligible persons. The lower court, in dismissing the case on the eve of trial, ruled that the government had not sufficiently pled that the defendant “intended” for the “Government itself” to be involved in the payment decision, as required by the U.S. Supreme Court’s Allison Engine decision. The government appealed the decision, arguing that the defendant was well aware that its scheme would cause claims to be submitted to the Federal Crop Insurance Corporation (FCIC), which in turn would pay the bogus claims with federal funds.

In United States v. Hawley, 2010 WL 3292710 (8th Cir. Aug. 23, 2010), the Eighth Circuit started its analysis by noting that Allison Engine holds FCA defendants liable for “natural and foreseeable consequences” of their actions. Here, because the company and its principal agent were familiar with the FCIC payment process, the court easily determined that the defendant “intended” the “natural and foreseeable consequences” of having “Government itself” involved in the payment decision. In turn, the Eight Circuit reversed the lower court’s decision.

While the Allison Engine decision ultimately did not derail the government’s prosecution of this major crop insurance fraud scheme, the lower court’s decision was one of the driving forces behind the recent False Claims Act amendments. From Senator Grassley’s home state of Iowa, this decision came out just hours after Allison Engine identified a major loophole in the FCA’s liability provisions. In championing the FCA Amendments, Senator Grassley was rightly concerned that the court’s reasoning would quickly spread, for the “Government itself” is rarely involved in the “payment decision.” Indeed, our government largely relies on contractors to make payment decisions for everything from Medicare payments to hurricane relief efforts.

The resulting amendments now protect all federal funds, regardless of who actually inks the check. However, few courts have retroactively applied these amendments to cases that were filed prior to the enactment of the amendments. In turn, this means that the government and relators will need to wrestle with the Allison Engine “intent” requirement for a few more years.

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