A series of criminal and civil enforcement actions announced in recent weeks demonstrate the continued attention that state regulators throughout the Northeast are placing on health care fraud. These actions, and the significant sanctions imposed by courts and the government, can serve as a reminder that violators of health care fraud laws are subject to scrutiny at both the federal and state levels (often simultaneously), and that such violations can create exposure to significant civil and criminal penalties.
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False claims
Third Circuit Recognizes Escobar “Heightened Materiality Standard” in Dismissal of False Claims Act Case Tied to Avastin
In May 2017, the U.S. Court of Appeals for the Third Circuit relied on the “heightened materiality standard” endorsed by the U.S. Supreme Court in its 2016 Escobar decision in dismissing a False Claims Act (FCA) whistleblower suit filed against pharmaceutical giant Genentech related to its billion dollar cancer drug Avastin. In Escobar, the Supreme Court upheld the validity—“at least in some circumstances”—of the “implied false certification” theory of FCA liability, and provided that this theory can attach where at least two conditions are met: a defendant must (1) make a specific representation on a claim for payment to the government, and (2) fail to disclose noncompliance with a material requirement for payment, which failure renders that representation a “misleading half-truth” (even if the representation is true on its face).
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DOJ Increases Range of Per-Claim Penalties under False Claims Act for 2017
In a little-noticed development, on February 3, 2017, the Department of Justice (DOJ) increased the per-claim range of penalties under the federal False Claims Act (FCA) (31 U.S.C. § 3729 et seq.) for the second successive year, in accordance with a statutory requirement issued under the Bipartisan Budget Act of 2015. As a result, FCA defendants are now subject to monetary penalties ranging from $10,957 to $21,916 per claim submitted in violation of the FCA.
Section 701 of the Bipartisan Budget Act of 2015 revised federal requirements for determination of civil monetary penalties by federal agencies, including substituting a new statutory formula for calculating inflation adjustments annually. In response, on June 30, 2016, the DOJ issued an interim final rule with a request for comments to adjust civil monetary penalties assessed by DOJ for inflation. That interim final rule led to a significant increase in the range of per claim FCA penalties because the new formula tied the inflation adjustments to cost of living increases between 2015 and the year in which each civil penalty was established or adjusted by law. Consequently, the DOJ used the FCA’s per claim penalty range of $5,000 to $10,000 established in 1986 as a baseline, which yielded a considerable increase to a new penalty range of $10,781 to $21,563 per claim in violation of the FCA as of August 1, 2016.On February 3, 2017, the DOJ finalized its interim final rule (and the formula for inflation adjustments), and also published its new range of per claim penalties for violations assessed on or after February 3, 2017 (that occurred on or after November 2, 2015).
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Fourth Circuit Upholds DOJ’s Absolute Veto Power but Declines to Address Validity of Statistical Sampling in FCA Case
By Conor Duffy on
The U.S. Court of Appeals for the Fourth Circuit recently declined to rule on the validity of statistical sampling as a method to establish liability and damages in a False Claims Act (FCA) whistleblower case that was closely watched within the FCA bar, U.S. ex rel. Michaels v. Agape Senior Community, Inc. et al. (Nos. 15-2145, 15-2147). In a victory for the government, however, the Court did hold that the FCA grants the Department of Justice (DOJ) an “unreviewable veto” over proposed settlements of FCA cases – even cases in which the DOJ declines to intervene.
The case was brought in 2012 by former employees of Agape Senior Community Inc. and its affiliated entities (collectively, Agape), who own and/or operate elder care facilities throughout South Carolina. The plaintiffs, who were qui tam relators, alleged violations of the federal Anti-Kickback Statute (42 U.S.C. 1320a-7b), the FCA (31 U.S.C. 3729-3733), and Health Care Fraud law (18 U.S.C. 1347) related to claims filed by Agape for services provided to ineligible individuals or for services not actually provided. Because the allegations implicated up to 50,000 claims involving over 10,000 patients, the relators (plaintiffs in FCA cases are known as “relators”) sought to establish damages via the use of statistical sampling in lieu of having to review every claim. The relators argued that a comprehensive review of each patient’s chart for evidence of fraud could cost over $30 million, potentially exceeding the actual damages in the case. In 2015, a federal district court in South Carolina rejected the relators’ argument and sided with Agape, finding that the use of statistical sampling in this case would be improper because the relevant patient medical records were available for the relators to review.Continue Reading Fourth Circuit Upholds DOJ’s Absolute Veto Power but Declines to Address Validity of Statistical Sampling in FCA Case