As 2020 draws to a close, we take a look back at a number of the most significant False Claims Act (FCA) cases of the prior 12 months. Although no blockbuster cases emerged, such as the Supreme Court’s 2016 decision in Escobar, there were a number of noteworthy cases that will have lasting impact on future FCA litigation. We discuss those cases briefly below. We expect to cover these cases and much more in our Healthcare Fraud and Abuse Review, which we will release in early 2021.
Materiality
U.S. ex rel. Janssen v. Lawrence Memorial Hospital, 949 F.3d 533 (10th Cir. 2020)
Background. In 2016, the Supreme Court held in Escobar that whether a defendant can be held liable under the FCA for violating a statute, rule, regulation, or contract provision turns, in part, on the elements of materiality and scienter, which the Court said are “rigorous” and “demanding.” Post-Escobar, courts have grappled with specific applications of these standards, with some courts appearing to apply them less “rigorously” than others.
Allegations. In U.S. ex rel. Janssen v. Lawrence Memorial Hospital, the relator primarily alleged that the defendant hospital falsified patient arrival times associated with certain CMS pay-for-reporting and pay-for-performance programs. The relator introduced proof that the hospital had knowingly falsified arrival times in patient records by recording actual arrival times on patient triage sheets but then entering later times in the medical record or delaying patient registration until after the administration of some tests.
Outcome. The Tenth Circuit affirmed summary judgment entered by the district court for the hospital, holding that the relator had failed to establish that her allegations satisfied the FCA’s materiality requirements.
Why this Case Is Important. One hotly-contested question in assessing materiality is from whose perspective materiality should be judged. The relator (both here and numerous relators in other cases) argued that materiality should be judged based on the likely impact of the legal violation on a “reasonable person” or on what the defendant knew or had reason to know in connection with making the alleged misrepresentation. The Tenth Circuit rejected this argument, holding that the materiality analysis requires evaluation of the effect on the likely or actual behavior of the government recipient of the alleged misrepresentation. Thus, information that the government was aware of conduct by the defendant or similar conduct by similarly-situated parties yet did not seek return of payment is relevant proof that the violation was not material. In the instant case, the Tenth Circuit noted that before filing the qui tam, the relator had called CMS’s fraud hotline to report the conduct but that CMS had taken no action.
Additionally, the Tenth Circuit rejected the relator’s argument that the government’s reaction to noncompliance is not relevant unless the defendant can show that the government had knowledge of actual noncompliance. Rather, the Tenth Circuit held that government inaction in the face of noncompliance was sufficient for summary judgment purposes.
Finally, the Tenth Circuit considered whether compliance with the reporting requirements in question went to “the essence of the bargain.” The relator argued that accurate data reporting was of central importance to the effective operation of the quality and value-based programs at issue. The Tenth Circuit did not disagree but said that did not necessarily mean it went to the essence of the bargain given the availability of administrative procedures designed to ensure hospitals remained in compliance. To hold otherwise would make the FCA into an “all-purpose antifraud statute or a vehicle for punishing garden-variety breaches of contract or regulatory violations.”
The Tenth Circuit’s opinion in Lawrence comes very close to the sort of “rigorous” and “demanding” application of the FCA’s materiality requirement contemplated by Escobar. The Tenth Circuit rejected arguments advanced with some success by relators in other cases, which have threatened to water-down the FCA’s materiality standard, making Lawrence one of the most significant FCA decisions of the year.
Eleventh Circuit Reinstates Most of Substantial FCA Jury Verdict
U.S. ex rel. Ruckh v. Genoa Healthcare, LLC, 963 F.3d 1089 (11th Cir. 2020)
Background. The roller coaster ride of U.S. ex rel. Ruckh v. Genoa Healthcare, LLC, continues. In a previous post, we wrote about the staggering $348 million judgment entered following a jury verdict against a management company and skilled nursing facilities (SNFs) owned by Consulate Health Care. The jury found the defendants committed FCA violations by artificially inflating Resource Utility Group (RUG) levels for Medicare therapy patients and falsely certifying that the SNFs had created timely and adequate patient care plans required by Medicaid. Following the judgment, as we noted here, the district court judge took the extraordinary step of overturning the judgment on materiality grounds.
Outcome. The Eleventh Circuit reversed the district court’s decision on the Medicare claims, but upheld dismissal of the Medicaid claims. As to the Medicare claims, the Eleventh Circuit held that where an SNF billed Medicare for a higher level of service than what was actually provided, that constituted a material misrepresentation. However, for the Medicaid claims, the Eleventh Circuit noted that when the relator had complained about lack of care plans, her employer had self-reported the deficiencies to the state but the state did not stop...
