A few weeks ago, the Seventh Circuit published a ground-breaking court decision that was largely off the radar for FCA experts. However, the implications of this court decision, United States ex rel. Baltazar v. Advanced Healthcare Associates, S.C., No. 09-2167 (7th Cir.  Feb. 18, 2011), will have a lasting impact for years to come. This opinion, penned by respected Chief Judge Easterbrook, removed much of the confusion surrounding the old FCA public disclosure bar and cemented the reach of the recently revised FCA public disclosure bar.

The FCA public disclosure bar, 31 U.S.C. 3730(e)(4), was grafted into the False Claims Act in 1986 to silence parasitic qui tam suits. However, because the government needs the assistance of relators to uncover fraudulent behavior, Congress narrowly tailored the bar to only preclude those actions that actually copied fraud allegations from specific types of public disclosures. In short, Congress wanted to ensure that non-parasitic qui tam suits could survive, particularly if they provided additional information that assisted the government’s fraud-fighting efforts.

However, over the course of nearly a quarter of century, courts increasingly misapplied and misinterpreted the FCA public disclosure bar, such that non-parasitic qui tam suits were regularly derailed by the public disclosure bar. In one clear example, involving a healthcare fraud case, the Seventh Circuit seemed to rule in United States ex rel. Gear v. Emergency Medical Associates, 436 F.3d 726 (7th Cir. 2006), that the public disclosure bar applied when public allegations raised industry-wide fraud allegations, even when the allegations did not mention the specific defendant identified in a later filed qui tam action.

Congress recently responded, in part, by amending the FCA public disclosure bar, clarifying that the bar is only triggered when the publicly disclosed allegations are “substantially the same” as those allegations detailed in the qui tam action. In turn, Congress stressed that the public disclosure bar does not apply when the public allegations generally allege fraud against an entire industry.

In Baltazar, the Seventh Circuit was faced with making sense of this new language. As an initial matter, while the court stated that the new language did not apply to the case at bar, the Congress intent behind the amendment certainly colored its interpretation of the old public disclosure bar. Through this lens, the court held that a qui tam suit alleging “defendant-specific facts” is not “substantially similar” to publicly disclosed allegations of “industry-wide” fraud. Thus, while not explicitly rejecting its earlier Gear ruling, the Seventh Circuit clearly stated that a “defendant-specific” complaint clears the public disclosure bar.

With the “substantially similar” language now codified into the FCA public disclosure bar, the Baltazar reading of “substantially similar” clarifies that industry-wide public disclosure allegations do not derail allegations that detail fraud of a specific industry player. This is a giant step forward for the public disclosure bar and the qui tam community.

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