False Claims Act Update: A Statistical Review of 2015 and Key Events for 2016

2015 proved to be another banner year for the federal government as it relates to False Claims Act (FCA) recovery.  In 2015, the DOJ recovered $3.583 billion in FCA actions, the fourth year in a row that such recoveries have exceeded $3.5 billion.  As in the past,  the majority of these recoveries were related to healthcare and defense-related government contracts (respectively, $1.9 billion and $1.1 billion).

Perhaps the most notable conclusions to be drawn from the DOJ’s recent report, however, relate to the role of whistleblowers in bringing and prosecuting FCA claims.  As the Department of Justice noted: “Most (FCA) actions are filed under the Act’s whistleblower, or qui tam, provisions that allow individuals to file lawsuits alleging false claims on behalf of the government.  If the government prevails in the action, the whistleblower, also known as the relator, receives up to 30 percent of the recovery.”  In 2015, the government recovered $2.9 billion from whistleblower-initiated lawsuits, and whistleblowers received a record-setting $597 million for their share.

Even more notable is the fact that in 2015, for the first time, whistleblower recoveries in cases where the government declined to intervene ($334.6 million) exceeded whistleblower recoveries in cases where the government intervened ($262.9 million) – e.g., the government made a formal appearance in the case and took the lead in litigating it.  This statistic is contrary to a prior commonly held belief that a government decision not to intervene was the “kiss of death” to the relator’s chances for recovery, and reflects the growing sophistication of the FCA plaintiff’s bar.  Notably, the total amount recovered in declined cases during 2015 ($1.149 billion) exceeded the amount recovered in declined cases for all prior years combined (approximately $1 billion during 1987-2014), and it remains to be seen whether 2015 is an outlier year for whistleblower recoveries.

Looking ahead, 2016 promises several notable developments relating to the False Claims Act:

•    Increased Civil Penalties – Due to the recent passage of the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015, the per claim civil penalties for the FCA (currently $5,500 to $11,000) will be adjusted to account for inflation by August 1, 2016, and again on January 15 of each subsequent year.  Agencies are allowed some discretion in reducing the penalty adjustment so long as certain procedures are followed and the Office of Management and Budget consents.

•    Anticipated Supreme Court Decision – In order to resolve a long-standing split among the Federal Circuit courts, the U.S. Supreme Court has granted certiorari in U.S. ex rel. Escobar v. Universal Health Services (1st Cir. 2015).  The issues to be resolved focus on whether the “implied certification” theory of FCA liability – which establishes an FCA violation for presenting a claim to the government while in violation of a legal/contractual obligation, regardless of whether the claimant has expressly verified their compliance with that obligation – is valid.  If so, the Court will be presented with the question of whether implied certification requires that the legal or contractual obligation that was not complied with to expressly state that it is a condition of payment.  A ruling that implied certification need not be based on an express condition of payment arguably opens the door wide to a variety of FCA claims that have been since been denied by several circuits. Therefore, this decision will be closely watched.

•    Fourth Circuit to Rule on Extrapolation in FCA cases – The Fourth Circuit Court of Appeals will hear an appeal in U.S. ex rel. Michaels et al. v. Agape Senior Community, Inc. (D.S.C. 2015)  regarding, among other issues, the reliance on statistical sampling to prove liability and damages.  The District court in Michaels held that while some cases may be suited for statistical sampling, the fact intensive nature of the claims before it rendered sampling unreliable.  Given the extent to which whistleblowers (and the government) rely upon statistical sampling in healthcare cases and the conflicting way in which lower courts have treated this methodology, this case may ultimately end up at the Supreme Court as well .

Given the potential liability associated with the False Claims Act (i.e., treble damages and significant statutory fines) and the growing likelihood of success for whistleblower-initiated lawsuits, health care providers should take care that their internal compliance programs are well-designed and that  internal reports and complaints are promptly investigated.

If you are interested in learning more about the False Claims Act or believe you may be the subject of a FCA investigation please feel free to contact a member of our health care practice group.

Eric Cottrell

Eric Cottrell

Eric Cottrell leads the firm’s Antitrust, Business Torts & White Collar Practice Group. He is a seasoned litigator in both civil and criminal matters and has been lead counsel in multiple jury trials. He divides his practice between white collar criminal matters and commercial litigation. Mr. Cottrell is also a member of the Public Company Growth & Compliance group.

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Health Care Companies Beware: Prosecutors Focus on Conduct Alleged in FCA Lawsuits

On September 17, 2014, during a speech at the Taxpayers Against Fraud Education Fund Conference in Washington, D.C., Assistant Attorney General for the Criminal Division of the Department of Justice (DOJ)  Leslie Caldwell  highlighted the fact that the DOJ “will be stepping up [its] use of” False Claims Act (“FCA”) lawsuits against health care companies, corporate health care entities, and their employees.

Ms. Caldwell specifically stated that the DOJ would be “committing more resources” to scrutinizing FCA complaints for evidence of criminal wrongdoing.  According to Ms. Caldwell, the DOJ has recently implemented a procedure that “all new qui tam complaints are shared by the Civil Division with the Criminal Division as soon as the cases are filed.”  The Criminal Division would then review these lawsuits for criminal conduct.

This news is especially relevant to the healthcare industry, one of the three industries specifically highlighted by Ms. Caldwell as targets of increased scrutiny through FCA lawsuits.  Ms. Caldwell touted the successes of the Department’s Medicare Fraud Strike Force and announced her intention to increase prosecutions of corporations involved in healthcare fraud.  She further noted that the Strike Force averaged sentences of over four years of incarceration per individual in criminal cases, signaling that the DOJ has determined that monetary fines are not the only resolution to cases that involve fraudulent conduct.

With the DOJ’s increased scrutiny of FCA complaints for evidence of criminal misconduct, healthcare providers and related entities must continually evaluate their policies and procedures with respect to governmental health care programs, including current and prospective financial relationships with referring entities, to ensure that existing structures and relationships are compliant with current regulations, including Stark and Anti-Kickback laws.

If contacted by any governmental entity, through subpoena or otherwise, a company’s initial response may prove critical and have a profound impact on the investigation. Immediate analysis of all potential options and responses, including negotiation with the government, is vital to the ultimate success of the company’s dealings and the resulting costs of involvement. Preparation of a planned response and proactive collection and preservation of documents and materials are essential in these inquiries.

Partnership with experienced counsel in anticipation of, or in the wake of contact, from the DOJ is vital. The attorneys at Parker Poe Adams & Bernstein LLP have substantial experience in representing companies before the Department of Justice and other government authorities.  For more information please contact Brian Cromwell at (704) 335-9511, briancromwell@parkerpoe.com, or Joy Hord at (704) 335-9848, joyhord@parkerpoe.com.

Brian Cromwell

Brian Cromwell

Brian Cromwell counsels clients on white collar criminal defense, environmental crimes defense, health care fraud defense, internal investigations and SEC enforcement issues. Mr. Cromwell also advises corporate and individual clients under investigation by consumer protection agencies including the Consumer Financial Protection Bureau (“CFPB”) and Federal Trade Commission (“FTC”). Mr. Cromwell is admitted to the United States Court of Appeals for the Fourth Circuit, and the United States District Court for the Western, Middle and Eastern Districts of North Carolina.

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