On January 10, 2018, citing costs associated with record increases in the number of qui tam actions filed under the False Claims Act, the Department of Justice issued a memorandum[1] to certain DOJ attorneys, strongly signaling the Department’s intent to liberalize its use of section 3730(c)(2)(A) to seek dismissal of qui tam actions.

In the recently leaked memo, Michael Granston, Director of the Fraud Section of DOJ’s Commercial Litigation Branch, outlines “a general framework for evaluating when to seek dismissal” by identifying seven factors that have supported DOJ’s previous successful dismissal requests and emphasizes that the Department views its dismissal authority as one subject only to “highly deferential” review by the courts. The memo suggests DOJ will seek dismissal of these actions more often, making use of its authority to seek dismissal as “an important tool to advance the government’s interests, preserve limited resources, and avoid adverse precedent.” As further indication that the Department intends to pursue aggressively any available means of dismissal of these cases, the Director also recommends asserting in the alternative other independently available grounds for dismissal or requesting partial dismissal where appropriate, and the memo reminds attorneys that dismissal may occur at any stage of the proceedings, depending on the circumstances. The Director also stresses the importance of communication between the DOJ, the affected agency, and relators as a means of encouraging voluntary dismissal.
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Warning signThe Department of Justice (DOJ) recently announced a $155 million settlement agreement with an electronic health records (EHR) vendor, eClinicalWorks (ECW), to settle False Claims Act allegations against the company initially brought by a whistleblower/qui tam relator.  The whistleblower was a software technician for the City of New York City who was implementing ECW software in a prison healthcare system.  The DOJ subsequently intervened and filed suit.  The May 31, 2017 announcement is the first of its kind, holding an EHR vendor accountable for claims made about their certifications.

Provider clients of ECW relied on the assertions made by ECW that their EHR software met the criteria of the Office of the National Coordinator of Health Information Technology (ONC) certification program.  Based on ECW’s software and the assertion of EHR certification, providers believed they had achieved “meaningful use” and received incentive payments under the Medicare and Medicaid EHR Incentive Programs. 
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dollar-signiStock_000013001848_LargeRoughly $2.95 for each $1 overpaid (plus legal costs and the overpayment) based on an August 24, 2016, U.S. Attorney’s Office press release regarding settlement of State of New York, ex rel. Robert P. Kane v. Healthfirst, Inc. et al case in the U.S. District Court for the Southern District of New York. Defendants previously lost a motion to dismiss this case based, in part, on the fact that defendants actually identified and repaid the overpayments. Specifically, about $1 million in overpayments were presented to the defendants in the form of a spreadsheet in February 2011. Subsequently, defendants repaid the overpayments in more than 30 installments from April 2011 to March 2013. Notwithstanding, the government took the position that, under the False Claims Act, repayment should have been made within 60 days of the date of the claims were identified in the spreadsheet. Defendants argued, among other things, that there was ambiguity about the term “identify” as used in the False Claims Act and that the spreadsheet was merely the first component of an investigation into the overpayments that was ongoing through the repayment process. Almost a year after losing the motion to dismiss, defendants settled the case for $2.95 million.
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flag_160540827The Supreme Court’s unanimous decision in Universal Health Services, Inc. v. United States ex rel. Escobar, No. 15-7 (U.S. June 16, 2016) upholds the viability of the implied certification theory of False Claims Act liability. But it also makes cases arising from minor instances of noncompliance much harder to prove. The Court held that a knowing failure to disclose a violation of a material statutory, regulatory, or contractual requirement can create False Claims Act liability. The requirement need not be an express condition of payment, but it must be material to the government’s decision to pay.
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gavel2-touched upIn some courts in the United States today, a government contractor or a healthcare provider seeking reimbursement from a federal program can violate the False Claims Act even when its work is satisfactory and its invoices are correct. Under the theory of “implied certification,” a minor instance of non-compliance with one of the thousands of applicable statutes, regulations, and contract provisions can be the basis for a federal investigation, years of litigation, as well as fines, penalties, suspension and debarment, even imprisonment of company personnel.
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Due diligence is often perceived as a mundane part of the mergers & acquisitions (M&A) process, but its importance in healthcare transactions is critical. Due diligence is one of the first steps of any transaction and involves a buyer undertaking an in-depth examination of the target to evaluate the business and uncover potential issues or liabilities. In the healthcare industry, diligence is especially important considering the heavy regulation of the industry, the unique areas of risk, and the significant liabilities that could be imposed upon a buyer if issues and liabilities are not identified before the transaction closes.
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The U.S. District Court for the Eastern District of Tennessee answered what it acknowledged was a novel question: whether statistical sampling and extrapolation are appropriate to establish liability under the False Claims Act (FCA). The court found the government could extrapolate from a sample of patient records to prove FCA liability. While the court’s decision approved the use of sampling, it emphasized the defendant could challenge the government’s methodology and that the government was not using sampling to prove all of the elements of the alleged FCA violations.
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The line between “white collar crime” and “street crime” is often blurred as prosecutors and investigators deploy all of the tools at their disposal against white collar and regulatory offenses. Principal among these tools is the search warrant. While the execution of a lawfully obtained search warrant cannot be stopped, a company’s reaction to the search and to the agents conducting it can have a significant impact on the course of a government investigation. A well-executed response may yield intelligence about the nature and scope of the investigation and may limit the amount of information the government obtains.

In this post, we present an overview of the search warrant process and offer some basic guidelines that may be used in preparing for and responding to a search warrant.
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On August 20, the Fifth Circuit Court of Appeals rejected a whistleblower claim by a former employee of Cardinal Health, Inc., affirming dismissal of the former employee’s complaint, which alleged that Cardinal Health sold hospitals run by the U.S. Department of Veterans Affairs defective medical equipment, in violation of the False Claims Act (FCA).

Before her termination from Cardinal Health, the plaintiff marketed Cardinal Health’s “Signature pump”—an electronic device that regulates the rate at which intravenous fluids flow into patients—to various hospitals, including hospitals run by the VA.  The plaintiff alleged that the Signature pump had a dangerous defect, causing air bubbles to accumulate and be released into a patient’s intravenous fluids flow, potentially resulting in serious injury or death.

The plaintiff claimed that she became aware of the defect in late 2000 and discussed it with a Cardinal Health area manager in early 2001.  In mid-2001, Cardinal Health suspended shipment of the Signature pump for three months and undertook a review of the possible defect.  Cardinal Health terminated the plaintiff at the end of the three-month review period.  Cardinal Health suspended production and sale of the Signature pump for independent reasons in 2006.

“Implied False Certification” Theory of FCA Product Liability

The crux of the plaintiff’s FCA claim was that Cardinal Health falsely certified to the VA that the Signature pump was in compliance with the warranty of merchantability in the parties’ contract each time it requested payment from the VA for the pumps—a so-called “implied false certification” theory.
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The jury in the Tuomey case (U.S. ex rel. Drakeford v. Tuomey Healthcare Systems, Inc.) returned a verdict in favor of the government yesterday, May 8, 2013.  As is well known, this is the re-trial of a case centered on a series of employment agreements that Tuomey Healthcare entered to allegedly capture referrals