The Qui Tam Blog

On July 1, the federal government will begin using computerized predictive modeling software to collect and analyze information to spot potential fraud. The software will sort information gathered from Medicare and Medicaid claim forms to generate a risk score for claims. If a risk score reaches a particular level, the system will flag that claim for further investigation by Centers for Medicare and Medicaid Services and the Office of the Inspector General. Prompt payment provisions will be waived for claims that are flagged as suspicious.

$77 million in funding for the system is provided as part of the Patient Protection and Affordable Care Act signed into law last year. Northrop Grumman, National Government Services, and Federal Network Systems, a subsidiary of Verizon, are working on the system.

History of the False Claims Act
In 1863 Congress passed a law that created incentives for private individuals to report government fraud in an attempt to curb a rash of fraud against the government. On March 2, 1863 President Lincoln signed the law, called the False Claims Act (“FCA”). Also referred to as the “Informer’s Act” or “Lincoln’s Law,” the original FCA prohibited various acts designed to fraudulently obtain money from the government.

The FCA was initially adopted by Congress with the intention of combating fraud against the United States Army during the Civil War. Although the legislative history of the FCA focused specifically on fraud committed by military contractors, the FCA also applied to fraud committed by all government contractors.

Defendants were subject to both civil and criminal penalties under the original FCA and fined $2000 for each fraudulent claim in addition to a penalty of double the government’s actual damages.

Under the 1863 FCA, private individuals known as “relators” could pursue this remedy through a “qui tam” action, and the informer was entitled to half the total recovery. The justification for allowing qui tam litigation was to encourage citizens to report wrongdoing against the government that would otherwise go unnoticed. In short, the government hoped that economic incentives would promote private enforcement of federal legislation.

Next month we will continue our history lesson with The 1986 Amendments to the FCA.

History of the False Claims Act
Qui Tam Defense Industry Cases
Qui Tam Litigation

$176,000 was just paid to qui tam whistleblower who filed a lawsuit against Cochlear Americas on behalf of the federal government. Whistleblower Brenda March filed the lawsuit as the company allegedly paid illegal remuneration to health care providers as an incentive to sell Cochlear devices.

The total settlement with Cochlear Americas was worth $880,000. The defendant company is a subsidiary of the Australian company Cochlear Limited.

March originally filed using provision in the Anti-Kickback Act and False Claims Act, saying that the company was clearly paying kickbacks to physicians who sold Cochlear devices to Medicare and Medicaid patients.

New financial reform legislation before Congress would allow an increase in multi-million dollar awards to whistleblowers. Ideally, this would create an environment where companies are pressured to report misconduct earlier and where whistleblowers will see the reward in bringing fraudulent activities to light.

Under the new law, the Securities and Exchange Commission would be required to award whistleblowers 30 percent of the total retribution or settlement gained from prosecution of the fraudulent company.

The False Claims Act had similar goals, although without the minimum reward requirement that would offer whisteblowers and lucrative and tangible incentive to report their company’s wrongdoings. Many experts agree that this type of incentive would go a long way toward convincing wary potential-whistleblowers who are afraid of losing their jobs or facing similar retaliation from the company they report. With significant financial incentive, blowing the whistle on misconduct gets a little easier.

Learn how the qui tam attorneys at Berg & Androphy have recovered hundreds of millions for the government and whistleblowers.

In an attempt to speed up civil fraud investigations in the U.S., Attorney General Eric Holder expanded the power of the False Claims Act by signing an order allowing U.S. Attorneys to issue civil investigative demands under the Act.

Civil investigative demand allows for a subpoena of documents, depositions and interrogatories. Currently the Justice Department can issue these investigative demands before it files a complaint or before signing on to qui tam litigation. This makes the information accessible before the potential defendant can conduct its own discovery.

Until this year, the Attorney General could exclusively approve civil investigative demands. Because of this limitation, they were not common. Last spring, however, an anti-fraud bill made its way through congress and subsequently established the practice of allowing the Attorney General to delegate the power to Assistant Attorney General for the Civil Division. In a further expansion, Attorney General Holder also allowed Assistant Attorney General Tony West to redelegatee such powers to U.S. Attorneys, with notice and reporting requirement.

Laidlaw Transit, Inc., a company that provides busing services to California school districts, is being challenged by the First District Court of appeals on the basis of a Qui Tam case brought by plaintiffs claiming that the company falsified safety records and failed to meet state safety and environmental standards.

Because Laidlaw accepted payment while allegedly breaching the contract held with the city, they are liable under the False Claims Act. The case had previously been dismissed but has been revived by the Court of Appeals.

The case was brought to court by a private individual with knowledge about Laidlaw’s supposed misconduct. If Laidlaw is charged with damages in this case, the whistle blower will be awarded some of the money under the False Claims Act.

Earlier this week AtriCure, Inc. executed a settlement with the Department of Justice in a case brought to court by a relator in 2007. AtriCure, primarily a manufacturer of cardiac surgical ablation systems, settled with the Department of Health and Human services for $3.8 million plus interest covering a five year period.

The case was filed in the United States District Court for the Southern District of Texas and charges AtriCure in violation of the Federal False Claims Act. By using illegal kickbacks and sponsoring non-branded marketing, AtriCure coaxed medical practices into favoring the corporation’s costly in-patient cardiac surgical ablation procedure over a clinically more effective out-patient catheter process.

Compensation for the costs incurred to Medicare because of the more costly treatment being falsely preferred are being sought by the relator and the Department of Justice on behalf of the Department of Health and Human Services.

In a press release earlier this week, the Department of Justice stated that this case is part of a larger movement to fight healthcare fraud. In the last year alone, the legal jurisdiction granted by the False Claims Act has been used by the US Government to recover approximately $2.2 billion in cases of fraud towards United States health care programs.

By: Joel Androphy, Rachel Grier, and Stephanie Gutheinz

For purposes of the FCA’s statute of limitations, an amended complaint filed by the government relates back to the relator’s original qui tam complaint. In United States ex rel. Ven-A-Care v. Actavis Mid Atlantic LLC, a district court in Massachusetts extended this principle to amended complaints filed by the relator as well. Although the defendants argued that the relation back doctrine only applies to the government, the court explained that the FCA contemplates a direct link between the interests of the relator and the interests of the government in every qui tam suit, even when the government declines to intervene. The court also considered the defendants’ argument that allowing relation back under the circumstances of the case would violate their due process rights under the Fifth Amendment due to the delay in unsealing the case. In rejecting this argument, the court noted that the defendants did not allege any prejudice that would implicate due process concerns. The court also noted that the delay was caused by the government exercising its legitimate right to obtain extensions of the seal to investigate the complex allegations of fraud. Therefore, the court held that the relator’s most recent amended complaint was not barred by the statute of limitations because it related back to an earlier complaint that identified the specific drugs at issue.

The court then considered whether relators can invoke the FCA’s tolling provision. Section 3731(b)(2) of the FCA provides that a claim otherwise barred by the statute of limitation may be brought within three years after the date when facts material to the cause of action are known or reasonably should have been known by the official of the United States charged with responsibility to act in the circumstances. While acknowledging a disagreement among the courts on whether the tolling provision applies in cases in which the government has not intervened, the court sided with the line of cases allowing relators to invoke the tolling provision. According to the court, allowing relators to do so is most consistent with the language of the statute because there is no language prohibiting relators from invoking the provision. The court also emphasized that when the government declines to intervene in a case, the relator has the right to conduct the action; therefore, absent clear language providing otherwise, the relator has the right to invoke the provisions of the FCA—including the tolling provision. United States ex rel. Ven-A-Care v. Actavis Mid Atlantic LLC, 2009 WL 3171798 (D. Mass. Oct. 2, 2009).

By: Joel Androphy, Rachel Grier, and Stephanie Gutheinz

The False Claims Act provides that a relator’s complaint “shall be filed in camera, shall remain under seal for at least 60 days, and shall not be served on the defendant until the court so orders.” 

In United States ex rel. Ubl v. IIF Data Solutions, a district court in the Eastern District of Virginia considered whether a relator’s failure to comply with these filing requirements when filing a complaint would require a court to dismiss the complaint for lack of subject matter jurisdiction.  Relying on the language and legislative history of the filing requirements, the court determined that the filing requirements are not jurisdictional in nature; therefore, failing to file a complaint in camera and under seal will not divest a court of subject matter jurisdiction over the claim. 

The court noted that, while other provisions of the FCA include limitations on jurisdiction, the provisions establishing the filing requirements do not include any such limitation.  In fact, the FCA does not provide any consequences for failing to file a complaint in camera or under seal.  As such, the court reasoned that automatically divesting courts of subject matter jurisdiction over qui tam complaints based solely on the failure to file the complaint in camera or under seal would defeat congressional intent and would also frustrate the overall purpose of the FCA—to prevent and combat fraud. 

The court also determined that the FCA’s filing requirements do not necessarily apply to the filing of an amended complaint where the defendant already has notice of the original complaint.  The primary purpose of the filing and seal provisions is to permit the government time to investigate the claims and determine whether to intervene in the action, without alerting the alleged wrongdoers that they are under investigation.  If the alleged wrongdoers already have notice that they are under investigation, however, the in camera and under seal provisions do not serve their intended purpose and therefore do not apply.  United States ex rel. Ubl v. IIF Data Solutions, 2009 WL 1254704 (E.D. Va. May 5, 2009).

By: Joel Androphy, Rachel Grier and Stephanie Gutheinz

To establish liability for submitting false claims under the FCA, it must be shown that the defendant acting knowingly.  Knowing conduct can be demonstrated by showing that the defendant either acted (1) with actual knowledge that the information was false, (2) with deliberate ignorance of the truth or falsity of the information, or (3) with reckless disregard of the truth or falsity of the information. 

A finding of knowing action on the part of the defendant may be precluded, however, if it can be shown that the government had ample knowledge of the defendant’s conduct.  The burden of proof required to obviate a defendant’s liability based on government knowledge is considerable and can only be satisfied with evidence that the defendant and the government had an ongoing dialogue about the activities underlying the submission of the false claims. 

It must also be shown that the defendant completely cooperated and shared all information with the government in such a way that it would not have been possible for the defendant to knowingly submit false claims.  Mere allegations that the government had some knowledge of the defendant’s conduct, audited the defendant, or even reviewed thousands of documents related to the claims are not sufficient to negate the defendant’s liability.  Rather, courts will only find as a matter of law that the defendant could not have possessed the requisite state of mind to be liable under the FCA where the government approved of the defendant’s conduct, or where the government had extensive knowledge of the defendant’s conduct.  United States ex rel. Maxwell v. Kerr-McGee Oil & Gas Corp., 2009 WL 3161828 (D. Colo. Sept. 30, 2009).