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False Claims Act - The Basics & Then Some

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False Claims Act - The Basics & Then Some

Also known as the “Lincoln Law”, the False Claims Act continues to serve as the United States Government’s primary tool to redress false claims for federal funds and property. In late-2021, a bi-partisan group of Senators introduced The False Claims Act Amendments of 2021 (S.2428), which builds upon the 1986 and 2009 amendments and addresses issues related to Escobar. The goals of the webinar are to highlight key areas of the False Claims Act, explain DOJ priorities, and highlight recent case law.

Transcript

- Hello, my name is Rachel Rose and I'm an attorney in Houston, Texas, where I have my own practice, Rachel V. Rose - Attorney at Law, PLLC. My practice areas focus on healthcare, cyber security, securities law, the False Claims Act, and Dodd-Frank from transactional compliance and litigation vantage points. I also have taught bioethics at Baylor College of Medicine for the past nine years, and I'm extensively published and present on a variety of topics which are relevant to my practice. I've also had some significant cases where I've represented whistleblowers, which the government has intervened in or where my co-counsel and I have moved forward without the government's intervention. Today, I'm here with Quimby to discuss the False Claims Act, the basics, and then some. Now no presentation is complete without a disclaimer. The information presented here today is not meant to constitute legal advice so please consult an attorney for advice on a specific situation. Additionally, because of the dynamic nature of this area of the law, the information presented is current as of the initial date of this presentation, and participants are encouraged to check government websites, the SCOTUS website, as well as PACER, and other relevant websites for the most up to date information. Today, we are here to learn about the following. First and foremost, appreciating the nuances of the False Claims Act, next, appreciating the potential damages and what the recovery is for the government and a relator potentially, as well as the liability for the defense side. From there, I'll delve into the compliance standpoint and highlight some areas of interest to the government. And then we'll end with some trends in case law and conclude. So I wanted to begin with a snapshot of the Department of Justice. And the Department of Justice is often referred to as the largest law firm in the world, which actually began in 1789 as part of the Judiciary Act of 1789. At that time, there was the attorney general and a single clerk. So basically by 1870, the duties of the office of the attorney general had expanded so much so that Congress adopted an act to establish the Department of Justice. Now, the attorney general is the chief litigator and the chief law enforcement officer of the United States as the head of the Department of Justice. So let's fast forward from 1870 to 2021. And this is important because anyone practicing in this area of the law or considering practicing in this area of the law should do two things. First, if you've never brought a False Claims Act case, be sure to partner with seasoned counsel who has brought a False Claims Act case. There are a multitude of reasons. Some of them procedural and some of them are not listed in either the False Claims Act text or in the Federal Rules of Civil Procedure expressly. But it is very important to appreciate that this is a very different statute and has nuances that can be costly for both counsel and the whistleblowers who, per the statute, are referred to as relators. Typically I use those terms interchangeably, so if you hear me referred to whistleblower or relator as part of a qui tam provision in the False Claims Act. Qui tam essentially means that a private individual has the ability with the representation of a licensed attorney to bring a case under the False Claims Act on behalf of the United States government. The United States government always remains the primary party of interest. And so as we'll see in a few slides, whether or not the government intervenes or declines to intervene, the government always has the greatest share of the recovery and nothing can get done without the government's blessing. So in terms of electronic health records, providers are increasingly relying on electronic health records to improve treatment for the outcomes of patients. And this really hearkens back beginning with HIPAA's security rule, which was published in the federal register in 2009, which became effective in 2005. Again, that related to HIPAA, but four years later, we see the passage of the HITECH Act. And subsequently in 2010, the passage of the Affordable Care Act. That's when we started to see the program known as meaningful use being implemented and a wide range of providers getting funds from the government for participating in meaningful use and meeting a multitude of different requirements with the fundamental purpose, being to transition from paper records to electronic health records. Now there have been cases which we'll see later in the presentation today related to electronic health records, and there are some nuances to those. It's also important to note that the program formally known as meaningful use now has a different name and it is known as the Interoperability Program. So if you hear people referring to IP versus the meaningful use, I always just say the program formally known as meaningful use. So cyber security, notably, electronic health records and telemedicine go hand in hand with cyber security and cyber security has been creeping into different areas of the False Claims Act as a basis for False Claims Act liability. That's why this last sentence is very important. To the extent that the government pays for systems or services that purport to comply with required cyber security standards, but fail to do so, it is not difficult to imagine a situation where False Claims Act liability may arise. Now in March of 2022, as is customary for the DOJ, they may another priorities announcement, and this time, it wasn't made only by the civil division. If you look at the DOJ's organizational chart, the attorney general's at the top, and then you have a branch that comes down and you have the civil division on one side and you have the criminal division on the other side. So the DOJ, as a whole, has these priorities, increased resources for white collar enforcement inter-agency cooperation. Oftentimes, when a False Claims Act case is brought, it requires, for example, that the Department of Health and Human Services or TRICARE the Department of Defense, just a lot of different government agencies are involved, and they're typically referred to as client agencies. COVID-19 fraud is a hot topic, including the PPP loan program under the CARES Act, as well as some healthcare fraud related to that, cyber security, individual accountability, and this hearkens back to the Yates Memo. So for those of you who may not be familiar with the different memos that various high ranking officials at the DOJ promulgate at different times, the Yates Memo really had several key directives and we've seen them integrated into the justice manual and then reinforced throughout, about the last decade, in different ways. Specifically with the Yates Memo, it called for the individual accountability on top of corporate accountability. It also mentioned better coordination between the civil division and the criminal division. And then lastly, it related to mitigating factors. So there are different items in the Yates Memo, again, which have been incorporated into the justice manual, which are very relevant for defense counsel to utilize in the defense of a False Claims Act case, or mitigating their liability, as well as plaintiff's counsel appreciating that there are things that defense counsel can do, which are very legitimate and relevant, and that the DOJ will take them into account. So the enforcement of healthcare fraud, healthcare fraud accounts for approximately 66% of all False Claims Act recoveries. And so it's because of this as well as healthcare being more than 1/7 of the GDP, gross domestic product, in the United States, that it is an area that is ripe with fraud and an area where the government has been very successful through both bringing False Claims Act cases on its own, which it can do as well as the important role that the whistleblowers play in bringing fraud to the government's attention. So the current Attorney General Garland announced a renewed effort to work closely with inspector generals across the federal government to identify perpetrators of healthcare fraud and other government program fraud. He highlighted the Centers for Medicare and Medicaid Services as an important partner in combating government program fraud. Now I'm putting this case in here, not because it was a False Claims Act case, because it was not. However, it is relevant because a baby actually died as a result of a cyber security attack. A woman went to a hospital in Alabama in July of 2019. She had no idea that a ransomware attack was going on, which disabled the computers and the EHR on every floor for nearly eight days. The ransomware attack, in turn, diverted the hospital staff's attention away from the normally closely tracked heart rate monitors. Attending physician texted the nurse manager that she would've delivered the baby who was in distress via C-section had she seen the monitor readout, but she did not. The baby was delivered with its umbilical cord wrapped around its neck and died nine months later due to severe brain injuries from lack of oxygen. Although the hospital denies any wrongdoing, if this case is proven in court, it would be the first death linked to a ransomware attack. So let's step back for a moment. As you'll see down later in this presentation, in terms of cyber security, compliance with the technical, administrative, and physical safeguard requirements of the Federal Acquisition Regulations, as well as HIPAA, and the HITECH Act, we now see it with information blocking as well as part of the 21st century CARES Act, all of those factors are very relevant. And one of the key components, as I mentioned earlier, I do the compliance side and I actually do the risk analyses for cyber and HIPAA compliance for covered entities and business associates and subcontractors in the healthcare arena, I can say unequivocally that a document and document retention and destruction plan coupled with a disaster recovery and business continuity plan is absolutely imperative as part of your compliance, as well as training the staff and hospitals and physicians' offices alike. And other types of providers should always run drills a couple of times a year, even with a remote work staff, so that people know exactly what to do, so that patient harm does not occur. The DOJ and HHS, as well as the sub-agency, CMS, all have a very narrow laser focus on harm to government beneficiaries, physical harm to government beneficiaries. So that's something to be hyper aware of in this space. So what about the False Claims Act? Let's delve into some of the key aspects. I'm gonna begin with the background because it's really a dynamic law with a very rich history, but first some recent FCA data. So in 2021, total False Claims Act settlements and judgements, which did not include Medicaid, accounted for $5.6 billion in recoveries to the federal treasury. Now over five billion are approximately 89% of fiscal year 2021 recoveries came from the healthcare industry. And I mentioned that, on average, it's about 66% of the recoveries are 2/3, which has been the trend over previous years, but 2021 was particularly robust for the healthcare sector. Now non-health care procurement fraud matters still brought in about 500 million in recoveries up about 100 million from the previous year, 2020. Qui tam filings, which recall I mentioned, were those types of cases brought by whistleblowers represented by licensed attorneys dipped again, landing at 598 compared to fiscal year 2020, 672. The DOJ also highlighted that it continues to hold individuals, not just corporations, accountable for False Claims Act violations. And one area in particular that we have seen individuals held accountable has been in the area of opioid prescribing. So again, we've seen more physicians held accountable, both on the civil side, whether it's through a case the DOJ brings on its own accord or through whistleblower filings, but also on the criminal side, we typically see a lot of individuals held accountable. So as I mentioned, the False Claims Act is rich in history. It stems back to 1863 during the time of the Civil War, and it's also referred to as the Lincoln Law. At that time, the government was really focused on rooting out fraud on the type of fraud that was being perpetuated on the government during the Civil War, such as lame horses being provided, instead of what was contracted for healthy horses, having people submit claims for 100 new uniforms when only 50 new uniforms were provided. Those types of False Claims Act cases, which are known as factually false claims or expressed legally false claims still apply today, perhaps not in terms of horses, but definitely would apply in terms of ammunition or other types of government contracts, as well as what we'll see in other key focus areas, such as healthcare. Now, there have been two major statutory amendments to the False Claims Act, one during World War II, which occurred in 1943, and the other one in 1986. And if there is one senator to know, it is Senator Chuck Grassley from Iowa, who has been one of the biggest advocates in the Senate and has been able, although he's a Republican, to garner bipartisan support. So Senator Grassley was the driving force between the 1986 amendments, which really gave more power back to whistleblowers and their counsel. So from 1986 to the present, we've really seen an increase in the number of whistleblower claims that are filed. Senator Grassley, again in 2009, this time partnered with Democrat, Chuck Schumer, introduced and eventually the law, the Fraud Enforcement Recovery Act of 2009 was passed. The THIRA amendments to the FCA expand exposure to False Claims Act investigations and claims in primarily two ways. First and foremost, it provided the DOJ with expanded tools to conduct civil investigations into possible healthcare fraud before an action is commenced, including CIDs, which are known as civil investigative demands, and those are different than subpoenas. And under THIRA, the reverse false claim came into being, and that is when a person is liable under the False Claims Act when they knowingly receive overpayments and conspire to conceal evidence of an overpayment or knowingly retain that overpayment. That specific provision is now found at 31 USC 3729 a1G. Now the Affordable Care Act, as I mentioned, passed in 2010, and there were three key areas that it really focused on. The first actually relates to the federal Anti-Kickback Statute, which in 2022, actually turns 50 because that law passed in 1972. And what's important to note there is that, the Anti-Kickback Statute, although it has a different language associated with the scienter or the knowledge requirement, is also criminal and civil. But if you can substantiate violations of the federal Anti-Kickback Statute, it is now a per se violation of the False Claims Act. So the False Claims Act can come along for the ride. Now, the Public Disclosure Bar under the Affordable Care Act amendments, here, a relator's allegations may now be based on secondhand information, provided those allegations add to information already contained in the public sphere. Typically, this theory is combined with original source. And so how I explain it to my own clients is an iceberg, whereby the public can see what's above the surface, but the whistleblower is the original source has knowledge that's below the surface. And because of that below surface knowledge, that's what enables the person to survive a Public Disclosure Bar challenge by typically defense counsel, sometimes by the government themselves. Now pursuant to section 6402 of the Affordable Care Act, overpayments that are not reported in return within 60 days after the date identified or the date that the corresponding cost report is due, and I'll side step here, cost reports are required by a variety of different healthcare facilities ranging from long-term care facilities to hospitals, for example, are now considered an obligation under the False Claims Act, and/or the basis for civil monetary penalties. Oftentimes, you'll see the 60-day rule utilized in conjunction with the reverse False Claims Act, but it's important to note that there are separate regulations for all four parts of Medicare and Medicaid relating to their own nuances with the 60-day rule. So Medicare Part A is traditional Medicare, which is inpatient. Medicare Part B is traditional Medicare, which is outpatient and physician office visits. Medicare Part C really came along long after 1965, which is when the Social Security Act was introduced, and Medicare and Medicaid were brought into law. Now, early 2000s, think 2003 to 2005 timeframe, we see Medicare Part C come into the picture. And Medicare Part C is very different in terms of how payments are calculated, but basically, it uses a third party insurer, major insurers, that you would be familiar with, as the intermediary between the government and the Medicare beneficiary. And Medicare beneficiaries need to elect which type of Medicare that they want, either traditional Medicare or Medicare Advantage, also known as Medicare Part C. Medicare Part D is prescription drug only, and that again came about in that 2003 to 2005 timeframe. So again, very important to note, and I know I use the word important a lot, but these are items which could really trip up counsel when filing a False Claims Act case, and it's something that good defense counsel who typically have government experience will hone in on very, very directly. So as I mentioned, Medicaid has its own regulation related to the 60-day rule. And importantly, Medicaid is dual funded, meaning that the federal government funds one portion and then each individual state has its own Medicaid regulations, which also fund the Medicaid program for that state, so that's just something to be aware of if you're not a healthcare attorney. So we have some new amendments, which not surprisingly, also have Senator Grassley's name on them. And I believe he partnered with Senator Durbin, a Democrat, on the False Claims Act amendments of 2021. And specifically, he honed in on three key areas, which have been the focus of various cases going on throughout the country in different district courts, and in turn, the circuit courts. The first is the government's decision to forego a refund or pay a claim despite actual knowledge of fraud is not dispositive on materiality, and I'm gonna spend some time on materiality momentarily. Government dismissals, as I mentioned, the government can intervene, they can decline intervention at that point, or they can dismiss a case. And the False Claims Act actually has expressed provisions for dismissal, so relator's counsel needs to be aware of that. However, it also allows the relator's counsel to file a motion with the court and request a hearing regarding the government's dismissal. Lastly, there is a more recent memorandum known as the Granston Memo, which delved into the various areas where the government can dismiss a case. And specifically, it appears in section C2A. So sometimes, you'll hear these referred to as a C2A dismissal. Counsel should work with the government and not perturb the government for a lot of different reasons, but dismissal is absolutely one of them. There also may be ways to understand why the government's dismissing and if the national security is an issue, that typically is upheld by the court as being a very valid basis, but there may be a graceful way for relator's counsel to exit out of the case and the relator without having adverse case law come to light too. So again, that's why having seasoned counsel is always a good idea. the False Claims Act does apply in the post-employment retaliation context. Again, I need to emphasize that these FCA amendments have not become law, but these are the focus, and there has been a split in the circuit regarding post-employment retaliation under 3730h also known as an H claim under the False Claims Act. That's a retaliation portion and the government does not get involved in the retaliation. Oftentimes, the defense counsel will settle the retaliation claim as part of a global settlement with the actual fraud claim, but that's not always the case, so that's just something to be aware of as well. Again, depending on the circuit that you're in, the Sixth Circuit, although it has adverse precedent in some areas of the False Claims Act, it has great precedent in terms of post-employment retaliation. Other circuits, not so much. So what does a False Claims Act look like? In general, it may take many forms. The most common being a claim for goods or services not provided or provided in violation of contract terms, specification statute, or regulation. And what about fraud enforcement? Well, as I mentioned, there is a knowing component, so scienter. But under the False Claims Act, there are really three types of knowledge, and it is knowingly submit or caused to be submitted, and that nuance is critical, and you often see the cause to be submitted phraseology used in terms of cases brought against pharmaceutical companies, laboratories, medical device manufacturers, things of that nature, because the kickbacks could be coming from them, and then they would cause whatever that provider is to submit that false or fraudulent claim or payment. The claim was materially false or fraudulent. This is critical and I'm gonna delve into materiality more momentarily, but that is something that I'm reinforcing for a reason. The defendant knew or acted with deliberate ignorance, that's the second type of scienter, or reckless indifference of the truth or falsity of the information, and that's the third type of scienter. A whistleblower's attorney does not need to meet all three types of scienter, you just need to meet one. So if you can meet the reckless indifference, which is the lowest level of scienter, by all means, meet that. But sometimes, as every lawyer knows, you have the smoking gun documents or the smoking gun recording where it is a knowing submission. So again, working with seasoned counsel and how that needs to be framed is critical. So there are per claim penalties, which can be assessed by the government, and these typically increase annually. The most recent increase is a range of 11,665 to 23,331 per claim penalties, which in healthcare is absolutely significant. Now categorizing a false claim. The factually false claim worthless services, again, that's going back to not providing goods or services at all, or only providing a portion of the number of goods, for example, or the types of services that are in fact being claimed. Legally false, for those of you who are familiar with healthcare, providers under the paper version of the claims form, there's also an electronic version, which is a corollary, and it actually expressly states, if you go to the CMS website, this correlation. But CMS Form 1500 is used by providers and the UB-04 form is used by hospitals, so that's just something to be conscious of. Legally false, whenever a provider submits either a 1500 form or a UB-04 form, has an attestation at the bottom or on the back that expressly says, and I'm paraphrasing, I, the person who's at testing, hereby confirm that I am in compliance with all relevant laws and regulations, including but not limited to the federal Anti-Kickback Statute and the Physician Self-Referral Law, which is also known as the Stark Law. Now Stark and Anti-Kickback are very different, but they do have similarities from the standpoint of illicit remuneration being paid to a particular party. This particular presentation is not about Stark and anti-kickback, but I have served as a testifying expert on Stark and anti-kickback before, and this is an area that comes up quite frequently in False Claims Act litigation. So now we have legally false by implied certification. And the Escobar case is the case that really highlights this false claim by implied certification, and we're gonna get to that momentarily. The reverse false claim I've already explained in detail, and that's when someone receives the payment from the government and knowingly conceals and does not return the payment typically within 60 days. So again, that's where you see these different laws intertwining. Now, how does one bring a False Claims Act case? Well, first and foremost, a defendant needed to have presented or caused to be presented to an agent of the United States a claim for payment. The claim was materially false or fraudulent and the defendant knew the claim was false or fraudulent. Again, new under the False Claims Act is knowing and intentionally, it can be the what I call ostrich syndrome that disregard or the reckless disregard for truth and falsity of the information, so those three types. One always needs to consider Federal Rule of Civil Procedure 9b, why? Because that particular rule of civil procedure requires that the attorney pleading fraud plead with particularity. And particularity typically relates to proving the who, what, when, where, why and how. And in the False Claims Act context, this is premised on the two Supreme Court cases, Iqbal and Twombly. Now 12b6 violations or motions to dismiss, so to speak, are failure to state a claim upon which relief can be granted. That is typically the most common type of motion to dismiss, which is filed. Sometimes, you see a 12b1, sometimes you see a 12c, but absolutely 12b6 is the most common type of motion to dismiss that defense counsel will file whether or not the government intervenes and needs to prosecute the case as it moves forward towards trial, or if relator's counsel takes a decline case and moves forward with the approval that they can by the government, but also as the leads in this particular case, so that's something to be aware of. So again, counsel need to think of how they're framing their complaint and their disclosure with an eye towards FRCP 9b as well as 12b6. A unique area of the False Claims Act is known as the seal, and the seal is sacred and that's something that all relators and counsel absolutely need to appreciate. So here we have, per the statute, a 60-day seal requirement, and the service in the False Claims Act is very different as well. I always tell people, ignore what you learned in civil procedure class, at least initially, because what's going to happen is, you need to file a disclosure with the United States Department of Justice in the local US attorney's office, which is connected to the federal district court that you're filing the complaint in. A disclosure is different from filing the complaint. And there are different ways to do it and that varies from US attorney's office to US attorney's office. You also need to serve the disclosure on the United States attorney general. Additionally, when you file the complaint, you need to serve the government, both at the us attorney level as well as at the local or at the attorney general's office in Washington, DC. So again, that local and the AG's office both need to be served. I say, ignore what you learned in civil procedure, because you're not gonna file it on the defendant, there is no summons, and you're not suing the government. In essence, you're partnering with the government. And Federal Rule of Civil Procedure 4 expressly relates to those three areas that I just mentioned that do not apply at this point in the False Claims Act case. Hopefully, you're never suing the government in a False Claims Act case or as a result because the goal is to partner with the government. That is the expressed intent of the statute, so that you can coordinate with the government, move forward, and get a recovery first and foremost for the federal, FISC, and the taxpayers, and then the whistleblower does get a portion of that recovery. The seal set forth in the statute is 60 days. However, typically what happens is the government reviews the initial disclosure, either takes an interest to the extent that there's enough there that they wanna investigate further. And then they reach out to counsel and say, "Counsel, do you consent?" Oftentimes, it is prudent for counsel to either get their client's consent. And some US attorney's offices expressly ask for the client consent, others ask for counsel's consent, and those are very different. So you need to make sure though, in either situation, that you are, in fact, giving your client notice of the seal extension and meeting whatever their request is, which is typically in writing from the United States Department of Justice as to what your answer needs to be in terms of how it's framed and the interaction that you need to have with your client. From there, the government files a motion under seal with the US district court, asks for typically a six-month extension, there can be more than one, and they investigate. At the end of their investigation, they either say, "We're intervening and we've reached a settlement with the defendants," or they say, "We are not intervening and we're either allowing you, relator's counsel, if you and your client want to, to move forward with this case," or "We're going to dismiss the case or recommend dismissal," so there you go. Those are the three ways that things can play out. Intervention versus non-intervention versus dismissal, I've already covered, but that's in here for future reference. The Federalist civil procedure has received heightened attention recently because of the different cases in front of the United States Supreme Court, which are awaiting either the granting or denial of cert. So the Bethany Hospice case is particularly interesting because the court has reached out to the DOJ twice to ask for a statement regarding the United States Department of Justice's perspective on rule 9b in False Claims Act cases. And you can go to the SCOTUS website or the SCOTUS blog and pull the petition, the response, and the various amici briefs which have been filed in this case. It's actually interesting. So this is one, although cert has not been granted yet, it's one to watch. A similar scenario has played out in another False Claims Act case where a requested response from the solicitor general. Again, the solicitor general is the primary voice for the US Department of Justice regarding rule 9b is forthcoming. The high court hasn't asked the DOJ for input in what's known as the Molina case, which has been on the high court's radar for a shorter period of time than these other two cases. Some circuits align with the Fifth Circuit's case known as the Grubbs case. And the key on this 9b tension between the circuits is whether or not evidence of specific claims being submitted has been provided to the government. What a claim is, what information needs to be included are very different, but it's important for relator's counsel to appreciate that under Federal Rule of Civil Procedure 5.2, in the complaint, you need to redact any personally identifying information or protected health information, sensitive PII and regular PII are in fact one of the 18 components or multiple components of PHI. By way of definition, protected health information is the past, present, or future diagnosis, treatment, or finance item, which connects a patient to a provider or a payer, that's PHI. So here in Grubbs, that opinion said, individual proof of claims being submitted to the government are not required, but enough information at the pleading stage to detail the scheme is sufficient. So there are different ways to prove that False Claims Act cases are being submitted and paid. You just have to come with your framework and know that the circuit you're in. But that is the key area of tension, whether or not specific claims need to be produced in a False Claims Act case. And the 11th circuit, in particular, is very brutal on that standard. Materiality, it's getting its own section for a reason. Under the False Claims Act, it generally states that information is material. If there is a substantial likelihood that the omitted or misstatement item would've been viewed by a reasonable resource provider is having significantly altered the total mix of information. I put up the SEC side of the equation because under the SEC's Dodd-Frank whistleblower program, it's different and securities laws and case law have their own definition of materiality as to how it's applied, and it's the Basic, Inc. versus Levinson case, which really drives that. So again, it's imperative to appreciate whether or not you're bringing a False Claims Act case in federal district court, or you're filing a whistleblower claim with the United States Securities and Exchange Commission. Now, what about Escobar's crucial distinction? I've mentioned Escobar, and that opinion came out in June of 2016 from the United States Supreme Court. It upheld the split in the circuit and enabled without issue that implied false certification type of false claim to move forward. Unfortunately, in Escobar, a teenager was treated at a particular facility and the individuals rendering the care were not licensed to render that care or to write prescriptions. And as a result, the patient died. So even though there was no expressed requirement on the back of the forms, again, those claim forms that I mentioned that were being submitted, that the person be licensed, the government said, "This is material to our payment and it is implied that the person, whether it's an institution or an individual signing off that this care was provided was licensed and able to provide that type of care." So again, something to know and to hone in on. So here, the government and the First Circuit had a view of materiality, which the Supreme Court narrowed, that any statutory, regulatory, or contractual violation is material so long as the defendant knows that the government would be entitled to refuse payment if it were aware of the violation. Now the Supreme Court analyzed materiality. So if you're bringing a case, I recommend doing this, typically you don't need materiality in terms of a factually false claim case because that's really cut and dry on that type of case. So here, the labeling of a provision as a condition of payment is relevant, but not automatically dispositive, so prong one. Prong two, the materiality standard under the False Claims Act mimics the materiality standard already standing in contract and tort law. Third, the materiality standard is demanding, separate from the False Claims Act, separating the False Claims Act, from an all-purpose anti-fraud statute or a vehicle for punishing garden-variety breaches of contract or regulatory violations. They are honing in again on the material violations. Fourth, it is not sufficient to find materiality where the government would deny payment if it had known that the defendant did not comply with the requirement at issue and proof of materiality can include the government's past acts in either continuing or denying payment for a certain violation. The Fifth Circuit, about three years after the Escobar opinion came out actually reversed a US district court in Texas, finding that dismissal under 12b6 of the False Claims Act case against several hospice organizations was warranted. The Fifth Circuit said, "Nope, we believe that the fraudulent claims as alleged were material." So the Fifth Circuit reversed a district court and remanded for further proceedings. Now the Fifth Circuit's analysis of materiality, here is what you need to hone in on if you are in the Fifth Circuit. First and foremost, on appeal in the Lemon case was whether the Medicare fraud, as alleged, is material under the False Claims Act. So in determining whether liability attaches under the FCA, this court asks the following, whether the false claims statement or fraudulent course of conduct. So A, was there a false statement or fraudulent course of conduct? B, made or carry out with the requisite scienter, again, that knowledge requirement, that was material and that caused the government to pay out money or to forfeit monies do, basically involved a claim or a breach of a government procurement contract. Again, the Fifth Circuit takes a holistic approach indicating that no factor is dispositive, and this they explained was also espoused in the Supreme Court's Escobar opinion. So Escobar explained some of the evidence relevant to the materiality issue. The government's decision to expressly identify a provision as a condition of payment, and two, evidence that the defendant knows the government consistently refuses to pay claims in a mine-run of cases based on noncompliance with the particular statutory, regulatory, or contractual requirement. Moreover, materiality cannot be found where noncompliance is minor or insubstantial. The Rose case is out of the Ninth Circuit. And basically, this related to a situation involving Title IV of the Higher Education Act. And basically, the Ninth Circuit affirmed the district court's rejection of the defendant school's motions for summary judgment, holding that the defendant could not argue in materiality because compliance was a condition of the government's payment, the Department of Education's past enforcement activities demonstrated that it cares about violations of the incentive compensation band and the magnitude of the violation was reflected in the substantial size of the forbidden incentive payment. So again, the Fifth Circuit and the Ninth Circuit are closely tracking what was set forth in Escobar. Relator rewards, right? Show me the money to take the phrase from Jerry McGuire or what's in it for me, not all relators bring False Claims Act cases because of the money. And in my experience, when that is the primary driver, that is where the wheels can and often do come off in different ways. But section 3730d, as in dog, sets forth the prongs of the recovery by the government and by the relator, as well as what the defense counsel could be liable for. So first, if the government intervenes, then the relator is typically entitled to receive between 15 and 25% of the amount recovered by the government. The government declines and the relator's counsel moves forward with the prosecution. Then the relator's share is increased to 25 to 30% of the total damages. So it's advantageous to get the government to intervene and the government has some options. Sometimes, they will take the case on a criminal track, parallel track, as well as a civil track. But there's another provision in the False Claims Act case, which is more complex that may come into play in that area. It's very important to note that only the United States government can intervene in a False Claims Act case. And I laugh every time I see either co-counsel, or defense counsel, or other relator's counsel saying that they can intervene in a False Claims Act case. Completely false, only the government can, per the statute, intervene in a False Claims Act case. Now, if a qui tam action is successful, the relator or their counsel is entitled to the legal fees and other expenses of the action by the defendant. So that's important to note too that defense counsel could have to pay the attorney's fees and the expenses. I will say that in practice and in reality, very rarely are all attorneys' fees and expenses paid. That's often a negotiation between relator's counsel and defense counsel on that part. What's exceptionally important to note is that, if a case is brought in bad faith or a judge that has a skewed perspective, and judges are human, that a case is brought in bad faith and doesn't meet all the prongs, again, that's why it's so important not to serve defendants, tell your clients and your other attorneys not to speak outwardly about the case, because that can be a seal breach, which can in fact, render defense counsel the ability to ask for their fees to be paid, not only by the relator or the whistleblower, one and the same, but by relator's counsel as well. So again, nuances to the False Claims Act. I mentioned cyber security as being a hot area and I just wanted to emphasize NIST and FIPS. FIPS is the Federal Information Processing Standards that are used by federal government agencies, and in turn, required by federal government contractors. These are set forth in laws, such as FISMA, FedRAMP, and FAR. FIPS publications may be adopted and used by non-federal government organizations and private sector organizations. And actually, there are a lot of reasons that my clients adopt them, and a lot of other organizations do as well. NIST is the National Institute for Standards and Technology. They often, whether it's for FIPS publications or NIST publications utilize a private-public academic network, industry, and other organizations in the development process, so that all of the major stakeholders or those who are going to be affected do have an understanding of what to do. In terms of cyber security, whether you're a law firm, whether you are a defendant in a False Claims Act case, whatever the issue, you want to make sure that you're utilizing an identify, protect, detect, respond, and recover framework for your policies and procedures, as well as your training. This can come up and does come up in cyber security cases. And this, again, is just one piece of the pie for cyber security, but it's important. I mentioned the federal acquisition regulations and there's FAR, which is set forth here, which is the primary document and agency acquisition regulation. Each government agency typically has their own FAR nuances, but the Department of the Defense, in particular, has what's known as DFAR. And typically, the underlying goal of FAR is to satisfy the customer, which is the government, in terms of cost, quality, and timeliness of the delivered product or service, minimize administrative operating costs, conduct business with integrity, fairness, and openness, and fulfill public policy objectives. So one of the key public policy objectives, as we've seen from the executive orders on cyber security, which stem back to the George W. Bush administration, and most recently with the Biden administration, as well as rooting out fraud, those are public policy objectives. FedRAMP, I mentioned, FedRAMP's only been around since 2011, and this is specific to cloud computing services. FedRAMP standardizes security requirements for the authorization and ongoing cyber security of cloud services in accordance with FISMA. FedRAMP, FAR, and FISMA all leverage the NIST standards and guidelines, and actually have them as requirements. One of the requirements is this it's called a 3PAO, and it's a third party assessor that's utilized to evaluate and do an assessment of the cyber security landscape. Again, those technical administrative and physical safeguards, which should be in place to protect the confidentiality, integrity and availability of data. TINA is the Truth in Negotiations Act. It stems back to 1962. Typically, this requires that government contractors provide a full disclosure of costs that are expected to be incurred. And we've seen TINA used by the government very effectively in cases involving different corporations, including PeopleSoft, which was subsequently acquired by Oracle for defective disclosures that were not current, accurate, or complete, concerning the sale of software licenses. So Cisco system settlement, in July of 2019, Cisco settled for $8.6 million in a government procurement contract case that it sold video surveillance equipment to federal and state government agencies, knowing that the equipment was susceptible to cyber attack, not good. So what's interesting is that almost two years after the case was filed under seal, Cisco acknowledged it and said, "We have vulnerabilities." So for the government and for the relator, that is very important. What's also notable is that the case was filed in 2011, but did not settle until 2019. So if your clients are looking for a quick hit, and I've been fortunate to have a False Claims Act case settle on Stark and Anti-Kickback violations within two years, which is almost unheard of, and some of my colleagues have had cases settle in that same approximate two-year timeframe, the norm is for a longer haul. It is a marathon, not a sprint, and the anxiety that whistleblowers face or the financial stressors can really have an impact on whether or not a potential seal breach occurs. Electronic health records, there were three key settlements, which totaled more than $275 million. An additional settlement occurred with the Coffey Health System for a meaningful use violation based upon non-compliance with HIPAA and the HITECH Act. So again, I mentioned the program formally known as meaningful use, and in April, 2018, it changed the name of the EHR incentive program to Promoting Interoperability programs or PI. So again, that's just something to be aware of. The next three slides focus on the providers of EHRs that were held accountable because they lied in their submissions to the government. So here, the downstream providers that relied on e-Clinical Works and others attestations were not looped into the cases because they did not know that the software was non-compliant and neither did the government. So in May of 2017, the DOJ announced a $155 million settlement and eCW entered into a five-year corporate integrity agreement. The complainant intervention alleged that the conduct caused the submission of false claims and false statements to the government. Information diagnostics, again, another sizable recovery. A $63.5 million settlement arising from two items. First, the violations of the Stark and the Anti-Kickback Statute for the subsidies, for EHR, and free or discounted technology-related consultation services to physicians in violation of the fraud and abuse laws. Greenway was another one, and this one had components of the software not needing the requisite standards, as well as an allegation of a violation of the Anti-Kickback Statute, and again, that was in 2019. So here we have the Coffey case, which is what I mentioned. This came out of the district of Kansas. Here, Coffey falsely attested that it conducted and/or reviewed security at risk analyses in accordance with requirements under federal incentive programs, submission of false and fraudulent claims under the EHR incentive program. And here, the DOJ press release expressly stated that Medicare and Medicaid beneficiaries expect that providers ensure the accuracy and security of their electronic health records. So what are some compliance tips and risk mitigation? Well first, why do fraudsters engage in this type of conduct? Well, first it's lucrative. Secondly, I mentioned PHI, and why do they do it? It's the potential for claims to be monetized, not only with the taking of the protected health information, but the downstream bundling and type of Anti-Kickback type of statute fraud. What do pharmaceutical companies pay kickbacks for? Access to patient charts and turn, fill out preauthorizations, that is the Warner Chilcott case out of the District of Massachusetts. And again, that's very significant. And lastly, how can persons mitigate risk against cyber security and fraud waste and abuse training? You want comprehensive policies and procedures, you want an auditor to come in, you want to undergo annual training, make sure that documents are encrypted at rest and in transit, and that people have access based upon role-based access, and finally, that you have the requisite business associated agreement or data sharing in place. So finally, as I round out today's presentation, the False Claims Act is steeped in history and is also very dynamic. You wanna make sure that the standards are being alleged as not being met and are material to the government's willingness to pay. From a compliance and risk mitigation standpoint, don't skip the annual fraud waste and abuse training, annual risk analysis, risk assessment that evaluates the person, entity's technical, administrative, and physical safeguards. This actually stems back to what's required by the DOJ on the criminal side for an effective compliance program. And defense counsel can use this to mitigate liability, not typically completely alleviate liability, but it can be helpful in either avoiding a criminal prosecution or mitigating a fine. Make sure that if you receive what I call a love letter from a government agency, that you get competent defense counsel right away. If you're on the receiving end, it's equally as important to have seasoned and knowledgeable relator's counsel on the relator side. Don't submit or cause to be submitted false statements. And the last thing, whether you're a counsel or a client, do not lie to the United States government during the course of any interview. So with that, I wanna thank you today for your time and attention. I know there was a lot to digest, but again, this was the basics and a little bit beyond of what you need to consider with the False Claims Act. Thank you.

Presenter(s)

Rachel Rose
Principal
Rachel V. Rose - Attorney at Law, PLLC

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