The FCA Insider

The FCA Insider

Insights and updates on False Claims Act Litigation

Investigations, Regulatory

The Travel Act in the Healthcare Space: 3 Notable Considerations

Earlier this year, a notable trial took place in Dallas (United States v. Beauchamp, et al., 3-16 Cr. 516D (N.D. Tex.) that could have an impact on the healthcare industry in the coming years. In the trial, the DOJ brought criminal claims against multiple physicians under the Travel Act, which resulted in multiple physicians being convicted and sentenced to prison time. The trial tested the boundaries and application of the Travel Act and was, in many ways, unexpected. This article summarizes 3 things that you ought to know about this trial and its potential impact.

  1. The Travel Act Overview 

It is important to first understand the Travel Act, which was a main statute advanced by the federal prosecutors in the prosecution of the physicians.

The Travel Act, which was passed in 1961, establishes the illegality of committing unlawful acts across state lines – which can occur via email or other electronic means. The Travel Act has not historically been used in the healthcare context in this manner.

Historically, this act gave the federal government the ability to oversee or claim jurisdiction on a broader array of cases because the underlying criminal activity crossed state lines. While the federal government exercised this ability in many different spaces after the passage of the Travel Act, the federal government had not typically utilized the Travel Act in this manner in the healthcare space.

  1. Overview of the Trial

The trial in Dallas involved criminal charges that were brought by the federal government against Forest Park Medical Center and multiple physicians. The trial specifically targeted any kickbacks or bribes by the hospital to get doctors to refer their patients there. Many of the alleged bribes were facilitated through commercial or marketing contracts that purportedly provided free advertising for the physicians in return for their patient referrals.

As the Dallas News mentions, some physicians had the perception that they could avoid scrutiny by the federal government if they avoided patients who are covered by federal health programs. However, prosecutors built a case around the Travel Act in order to establish their jurisdiction. The Travel Act was implicated due to the interstate communications that allegedly aided in the unlawful acts of the hospital and the physicians.

  1. The Impact

This trial could have a substantial impact on the healthcare space. The Department of Justice has long made healthcare fraud enforcement a priority and is devoting substantial resources to its efforts to curtail and prosecute fraud in the healthcare industry. The use of the Travel Act as a means to pursue federal claims even where healthcare providers may not be submitting claims to federal healthcare programs expands the avenues under which the federal government may pursue such claims.

This reinforces the need for healthcare providers to carefully consider their financial and other relationships and to ensure compliance with all applicable laws, while serving as a reminder of the importance to carefully consider the propriety of such relationships even if claims are not being submitted to government payors. Additionally, the case serves as a reminder that simply having a contract in place is insufficient to eliminate potential exposure if there are illegal or improper aspects of the contract.

Overall, the Forest Park case reflects the further scrutiny that is being brought on practices in the healthcare space. We will continue to monitor this litigation and any other efforts by the government to use the Travel Act in this manner.


DOJ Offers Further Guidance on False Claims Act Prosecutions

At a conference earlier this year, Deputy Associate General Stephen Cox offered further guidance on a number of topics central to the DOJ’s enforcement attitude in FCA actions over the past several years. Cox’s comments help provide further clarity and color to several recent memorandums authored by the DOJ and provide guidance on the DOJ’s initiatives and perspectives.

Granston Memo – In a January 2018 memorandum authored by Michael Granston, the Director of the DOJ’s Civil Fraud Section, the DOJ issued internal guidance on the factors that it considers when deciding to exercise its authority to dismiss meritless FCA actions. Cox reaffirmed the underlying principles of the Granston Memo, explaining that even non-intervened cases (which constitute about 80% of all qui tam actions) consume resources and time and that part of the DOJ’s gatekeeping role includes curbing cases that are “non-meritorious, abusive, or contrary to the interests of justice[.]” Cox clarified that the Granston Memo is not a pronouncement of a new policy; rather, it is an effort towards ensuring that the factors enumerated therein are applied more consistently.

Brand Memo – In another January 2018 memorandum, this one authored by then Associate Attorney General Rachel Brand, the DOJ clarified its position on the use and impact of subregulatory guidance, explaining that the violation of such guidance cannot be used to establish a violation of law as it does not have the force or effect of law. A year later, in discussing the Brand Memo, Cox succinctly noted that “agency guidance should educate, not regulate.” Cox elaborated that while an agency’s interpretation of a particular regulatory requirement can be “probative,” it is not binding.

Yates Memo – While not specifically identifying the Yates Memo, Cox’s remarks touched on a couple of the policies central to the September 2015 memorandum. For instance, Cox highlighted the DOJ’s focus on, and recovery from, individuals alleged to have violated the FCA, noting that in 2018 the DOJ had recovered $114 million from three individuals engaged in a kickback scheme.

Cox, however, also elaborated upon the DOJ’s recent clarification on the criteria for a company to receive cooperation credit. These clarifications, which were initially announced in November 2018 by Deputy Attorney General Rod Rosenstein, explained that the ability for a company to receive cooperation credit is not a bright-lined test and that companies are no longer required to admit the civil liability of every individual employee to receive credit. Cox elaborated on this point, explaining that cooperation credit is not an “all or nothing” concept and that DOJ attorneys hold significant discretion in determining the amount of credit to be provided to a company based on its level of cooperation. Building on this point, Cox explained further that when a company meaningfully assists the government’s investigation, the DOJ has discretion to award some credit even if the company does not qualify for maximum credit.

Cox’s remarks provide helpful clarifications and elaborations to the DOJ’s viewpoints on several key issues in the FCA arena and help provide the FCA defense bar with guidance on the DOJ’s areas of focus.

FCA Litigation

DOJ Permitted to Re-Plead Its FCA Claims Against Private Equity Firm

Throughout the past several years, private equity funds have made substantial investments in the healthcare industry. These funds have invested in many facets of the industry, including in physician practices, ambulatory surgical centers, and hospitals. More recently, the Department of Justice (“DOJ” or “Government”) has pursued claims against private equity sponsors under the False Claims Act (“FCA”).

One notable example is the case of U.S. ex rel. Medrano v. Diabetic Care Rx, LLC, Case No. 15-cv-62617-BLOOM (S.D. Fla. 2018). In Medrano, the DOJ intervened in an FCA case against a private equity sponsor, the pharmacy in which the investment was made, and two pharmacy employees.  In its Complaint, the Government alleged that the fund had a “controlling interest” in the pharmacy, that two representatives of the fund served as both board members and officers of the pharmacy, and that these individuals played an active role in the management of the pharmacy. The Complaint also alleged that the private equity fund had acted with the required intent under the FCA because it knew or should have known “that health care providers that bill federal health care programs are subject to laws and regulations designed to prevent fraud.” Id.

Specifically, the Government alleged that the pharmacy executed a provider agreement with Tricare’s contracted pharmacy benefits manager, and then submitted false claims that were generated through kickbacks paid to marketing companies in exchange for patient referrals. Kickbacks were also allegedly given directly to patients through waivers of co-pays. In the provider agreement, the pharmacy agreed to be bound by fraud, waste, and abuse laws, and specifically required compliance with the Anti-Kickback Statute.

The Defendants moved to dismiss, and, on November 30, 2018, the Magistrate Judge issued an opinion recommending that the FCA claims be dismissed. The Magistrate Judge’s opinion concluded that the government had adequately alleged the submission of “legally false” claims, but that the Government had failed to adequately allege any false express certification of compliance. Furthermore, the Magistrate Judge opined that the Government had failed to support its implied certification theory of liability with allegations that Defendants had submitted claims containing specific representations about the goods or services provided and that the Defendants had failed to disclose noncompliance with material statutory, regulatory, or contractual requirements. In contrast, the Magistrate Judge did conclude that the Government had satisfied the second “materiality” prong of the Escobar standard.

Notably, the Magistrate Judge also analyzed the arguments raised by the pharmacy’s private equity investor. One such argument was that the Government had failed to adequately allege that the investor “knew of, directed, or profited from” the alleged fraud. The Magistrate Judge acknowledged the allegation that the investor had communicated to the pharmacy manager that “routine copayment waivers could violate the AKS,” and noted that, without more, such an allegation was insufficient to establish the investor’s intent to violate the FCA. However, the fact that the investor: (1) received legal advice that paying commissions to marketers could violate the AKS, (2) “approved” of the pharmacy’s decision to “use marketers to generate referrals,” (3) knew of the commissions paid to the marketers, and (4) funded commissions paid to marketers, was adequate to allege the fund’s knowledge of the submission of false claims.

More recently, on March 6, 2019, the District Judge adopted the Magistrate Judge’s opinion and recommended that the Government’s complaint be dismissed for failing to adequately plead a false certification. However, the District Judge granted the Government leave to amend over the defendants’ objection.

The Medrano case is notable because it represents one of the more publicized FCA cases that the Government has pursued against a private equity fund based upon an investment in the healthcare industry. The case reflects the DOJ’s willingness to pursue claims based upon such investments. Of note, it does not appear that the Government was taking a bright-line stance against private equity investment in healthcare. Rather, it appears that the Government was focused on the private equity fund’s allegedly direct involvement in the management and operations of the pharmacy. It will be worth monitoring Medrano further in the future. Regardless of the ultimate result, Medrano provides a reminder for private equity funds to carefully consider their investments in the healthcare industry, to conduct appropriate due diligence, and to ensure that their involvement in the management of such entities, and the entities’ conduct generally, is consistent with all applicable laws and regulations.

FCA Statistics

Department of Justice Recovers $2.8 Billion from FCA Cases in 2018

The United States Department of Justice has announced that it has recovered $2.8 Billion from False Claims Act (FCA) cases during fiscal year 2018 (the 12 months ending on September 30, 2018).  The DOJ’s overall recovery in fiscal 2018 remained substantial; however, it marks a decline from the DOJ’s recoveries in fiscal year 2016 ($4.7 Billion) and fiscal year 2017 ($3.7 Billion).

The substantial majority of the DOJ’s recoveries came from the healthcare industry.  In fiscal 2018, almost 90% ($2.5 Billion) of the DOJ’s recoveries came from the healthcare industry (including hospitals, physicians, laboratories, drug companies, and pharmacies).  The DOJ has now recovered more than $2 Billion from the healthcare industry in each of the past 9 years.

Whistleblowers continued to play a role in a substantial number of the cases that led to the DOJ’s recoveries.  There were 645 claims filed by whistleblowers in fiscal 2018.  The Government recovered approximately $2.1 Billion from these cases, as well as from cases that were filed by whistleblowers in prior years.



Certiorari Granted in Eleventh Circuit Case Interpreting Tolling Provision of FCA Statute

The Supreme Court recently granted certiorari in an Eleventh Circuit False Claims Act (FCA) case, Cochise Consultancy, Inc. v. U.S. ex rel. Hunt, No. 16-12836 (11th Cir. 2018). The Supreme Court will decide how the FCA’s statute of limitations applies in qui tam actions that are brought by a private relator, particularly in cases where the government has declined to intervene, resolving a long standing split among the circuit courts.

The FCA’s statute of limitations provision is contained at 31 U.S.C. § 3731(b) and provides that:

“(b) A civil action under section 3730 may not be brought—

(1) more than 6 years after the date on which the violation of section 3729 is committed, or

(2) more than 3 years after the date when facts material of the right of action are known or reasonably should have been known by the official of the United States charged with responsibility to act in the circumstances, but in no event more than 10 years after the date on which the violation is committed,

whichever occurs last.”

Although § 3731(b)(2) operates as a tolling provision to the six-year statute of limitations period in § 3731(b)(1), there has been a historical split among the circuits regarding whether this tolling provision applies when the government declines to intervene in a relator’s action. The key question the Supreme Court will decide is whether the relevant trigger for the limitations period is the government’s knowledge of the material facts or the relator’s knowledge of the material facts.

Eleventh Circuit Reverses United States District Court for the Northern District of Alabama

In Hunt, the district court below ruled that § 3731(b)(2)’s tolling provision was inapplicable in qui tam cases where the government declined to intervene. However, the Eleventh Circuit reversed the Northern District of Alabama, holding that the alternative 3-year limitations period can apply when the government declines to intervene in a relator’s qui tam action.

The Eleventh Circuit also held that the 3-year limitations period is triggered by the government’s knowledge of the alleged fraud, not the relator’s. It also held for purposes of applying the limitations period, the relator’s knowledge of the alleged fraud was irrelevant to the analysis.

Supreme Court Decision May Resolve Years of Circuit Split on this Issue

There are currently three approaches to handling the tolling provision:

  1. The provision only applies in FCA cases filed by the government or in which the government has intervened (followed by the Fourth, Fifth, and Tenth Circuits),
  2. The provision applies in cases where the government has not intervened, but the clock begins to run when the relator learned of the fraud (followed by the Third and Ninth Circuits), and
  3. The provision applies in cases where the government has declined to intervene, and the clock begins to run when the government learned of the fraud.

The Supreme Court’s decision in Hunt could resolve this split and create a uniform national standard that eliminates confusion and uncertainty for FCA defendants.

FCA Litigation

Eleventh Circuit Weighs In On FCA’s Alternate Remedies Provision

Due to the infrequency in which the situation arises, the FCA’s “alternate remedy” provision is infrequently invoked or discussed.  In short, this provision states that when the relator presents information about a potential FCA claim for the Government to investigate, the Government has the option to pursue this claim through “any alternate remedy available to the Government.”  The provision goes on to explain that if the Government pursues an “alternate remedy,” the relator has the same rights as though the action was still being pursued under the FCA (i.e., the relator will still be able to recover a bounty).

The alternate remedy provision’s scope and application to criminal forfeiture statutes was recently addressed by the Eleventh Circuit in United States v. Couch, No. 17-13402, —F.3d—-, 2018 WL 5019480 (11th Cir. Oct. 17, 2018).  In Couch, a former employee filed a qui tam action against the pain management clinic she worked for, as well as a couple of physicians who ran the clinic.  The Government declined intervention and the qui tam case remains pending.

The Government, however, investigated the physicians and ended up charging them (and others) for racketeering, violations of the AKS, wire fraud, and illegal drug distribution.  The criminal charges included forfeiture counts.  The charges partially overlapped with the qui tam complaint.  The physicians were found guilty on several of the charges, and the court entered a preliminary forfeiture order.  Thereafter, the relator moved to intervene claiming that she had a right in the assets at issue pursuant to, amongst other statutes, the alternate remedies provision.

The trial court denied the relator’s motion to intervene and the 11th Circuit affirmed.  The Circuit Court first noted that whether a criminal fraud prosecution constitutes an “alternate remedy” is an issue about which courts are divided.  The 11th Circuit did directly weigh in on this dispute, however, as it found that the forfeiture statutes at issue here each specifically precluded – absent certain circumstances – a third party from intervening.  Because the forfeiture statutes specifically addressed this issue, they controlled over the more general “alternate remedy” provision.

Notably, however, the government did indicate that where a defendant is found liable under the FCA after being found criminally liable for the same conduct, the defendant is entitled to deduct the criminal restitution paid as a credit against the FCA damage, and the relator would be entitled to a share from this offset amount.

Defense Arguments, FCA Litigation

Third Circuit Finds that FCA Retaliation Claims Require a Showing of “But-For” Causation

Earlier this year, the Third Circuit Court of Appeals affirmed the decision of the United States District Court for the Eastern District of Pennsylvania in the case of DiFiore v. CSL Behring, LLC.  DiFiore v. CSL Behring, LLC, 879 F.3d 71, 73 (3d Cir. 2018). The opinion set forth the precedent that “but-for causation” is required for an FCA retaliation claim. The litigation involved the claims of a former employee of CSL Behring, Marie Difiore, who was asserting a claim for retaliation under the FCA. The case was before the Third Circuit on an appeal by Difiore after a March 17, 2016 dismissal of her case by the District Court.

DiFiore’s case was centered on claims that she had been constructively discharged from her employment at CSL Behring in retaliation for raising concerns about certain marketing practices of CSL Behring. CSL Behring is a pharmaceutical company that markets plasma and protein biotherapeutics. DiFiore had worked at CSL Behring since April of 2008, receiving a promotion to be the Director of Marketing in August of 2011. In this position, DiFiore became concerned about CSL Behring’s activities in marketing drugs for off-label use. Difiore expressed such concerns to her supervisors, and DiFiore contends that these concerns were at least partially responsible for the initiation of a third-party compliance audit. DiFiore then alleged that as a result of her conduct, which is protected from retaliation by the FCA, she suffered several employment actions that led to her constructive discharge at CSL Behring. These actions included warning letters regarding her work conduct, disagreements with another co-worker, non-payment of her company credit card, unfavorable performance reviews, hostile interactions from her superiors, removal of certain of DiFiore’s responsibilities, and the institution of a performance improvement plan, all of which DiFiore alleged had never been issues before she raised her concerns regarding the off label promotional activities.

DiFiore argued that thecde District Court erred in dismissing her case by requiring DiFiore to show that her protected activity was the “but-for” cause of the alleged adverse action against her. DiFiore contended that she was only required to show that her protected activity was a “motivating” factor in the adverse actions taken by CSL. DiFiore’s argument was based upon the Court’s decision in Hutchins v. Wilentz, which she argued used the lower “motivating factor” standard to link protected conduct and adverse action in an FCA claim. However, the Court did not accept this argument, pointing to the fact that the “motivating factor” standard was not a determining factor in the Hutchins case, and the case was dismissed because the employee failed to prove that he engaged in protected conduct. The Court instead relied on two other U.S. Supreme Court cases, Gross v. FBL Fin. Servs., Inc. and Univ. of Texas Sw. Med. Ctr. v. Nassar, to hold that “but-for” causation must be shown to link the protected conduct and the adverse action in order to support an FCA retaliation claim. The Court upheld the ruling of the District Court that such “but-for” causation had not been demonstrated by DiFiore and thus, affirmed the ruling favor of CSL Behring.

FCA Litigation

Caris Healthcare Pays $8.5M to Settle FCA Case

Caris Healthcare, L.P. has entered an agreement with the DOJ in which it has agreed to pay $8.5 million to resolve allegations that it violated the False Claims Act. The qui tam action was filed in the Eastern District of Tennessee by a registered nurse who was formerly an employees of Caris Healthcare.

The former employee alleged that Caris Healthcare submitted false claims and retained overpayments in connection with claims for hospice services.  The patients at issue were allegedly ineligible for hospice benefits under Medicare because such patients were not terminally ill. According to the complaint, Caris Healthcare was made aware of the ineligibility of the patients, yet continued to submit the claims to Medicare. Allegedly, in an effort to meet the aggressive admissions and census targets set by the company, Caris Healthcare admitted patients whose medical records did not support a terminal prognosis.

The settlement provides another reminder for healthcare entities to ensure that they are billing accurately for services that are covered by Medicare and our properly rendered.  In light of the scrutiny on the healthcare industry it is important to separately assess each patient and make individualized determinations regarding care.  Moreover, healthcare entities should carefully review internal concerns that are raised both to ensure that the company truly has a top-down culture of compliance, but also to identify and resolve potential issues that may arise.


HHS “Sprints” Toward New AKS Safe Harbors and Penalty Exceptions

The U.S. Department of Health and Human Services (HHS) has launched its “Regulatory Sprint to Coordinated Care” to accelerate the healthcare system’s transformation to a value-based system rewarding coordinated care. This “regulatory sprint” focuses on identifying regulatory provisions that may act as unnecessary obstacles to coordinated care and issuing guidance to address such obstacles.

Specifically, the HHS Office of the Inspector General (OIG) requested industry input on Aug. 27 to “identify ways in which it might modify or add new safe harbors to the Anti-Kickback Statute [(AKS)] and exceptions to the beneficiary inducements Civil Monetary Penalty (CMP) definition of ‘remuneration’ in order to foster arrangements that would promote care coordination and advance the delivery of value-based care, while also protecting against harm caused by fraud and abuse.” To this end, HHS may issue guidance and revise regulations to address such obstacles and to encourage and incentivize coordinated care in response to this request for information.

This is not the first HHS request for information under this “regulatory sprint.” On June 25, 2018, the Centers for Medicare & Medicaid Services (CMS) published a request for information seeking industry input regarding the physician self-referral law, commonly known as the Stark Law. The strict liability Stark Law prohibits a physician from referring certain Medicare- and Medicaid-designated health services to an entity where that physician or his or her family has a financial relationship, absent an exception. This relationship could include certain value-based or care coordination arrangements. CMS sought comments to revise or add exceptions or redefine terminology of the Stark Law to structure arrangements between parties that participate in alternative payment models or other novel financial arrangements. In this June request, CMS presented 20 topics for comment.

The latest OIG request for information seeks input from the public on ways it might modify or add new safe harbors to the AKS and exceptions to the beneficiary inducements CMP definition of remuneration. The AKS is a broad criminal prohibition against the offer or exchange of anything of value to induce or reward the referral of federal healthcare program business. Similarly, the CMP law acts as a catch-all as it authorizes the OIG to impose civil monetary penalties (and other remedies) for various types of fraud and abuse under the Medicare and Medicaid programs, including beneficiary inducement. As both laws have broad language, OIG has issued safe harbors and exceptions to protect certain relationships that do not pose a high risk of fraud or abuse. In this request for information, the OIG again considers this balance between risks to federal programs with acceptable provider relationships. In particular, OIG seeks input on the following topics:

  1. Promoting Care Coordination and Value-Based Care

OIG requests information about potential arrangements the industry is interested in pursuing, such as care coordination, value-based arrangements, alternative payment models, arrangements involving innovative technology, and other novel financial arrangements that may implicate the AKS or beneficiary inducements CMP. OIG wants to gain a better understanding of the structure and terms of such agreements and requested that stakeholders identify additional AKS safe harbors or exceptions to the definition of “remuneration” under the beneficiary inducements CMP that may be necessary to protect such arrangements.

  1. Beneficiary Engagement (Beneficiary Inducements and Cost-Sharing Obligations)

OIG requests industry input regarding the types of incentives providers, suppliers and others are interested in providing to engage beneficiaries to improve their care. OIG wants to understand how providing such incentives would contribute to or improve quality of care, care coordination and patient engagement, and whether the types of entities that furnish the incentives matter from an effectiveness and program integrity perspective.

In addition, OIG seeks input about how reducing beneficiary cost-sharing obligations might improve care delivery, enhance value-based arrangements and promote quality of care.

  1. Current Fraud and Abuse Waivers

OIG solicits feedback on the current waivers developed for the purposes of testing models by the Center for Medicare and Medicaid Innovation and carrying out the Medicare Shared Savings Program. These waivers have been specific to these limited programs to date and would not apply to other relationships the providers have for other third-party payor programs. OIG hopes to gain insight about what waiver structures work well and whether any waiver requirements are particularly burdensome.

  1. Cybersecurity-Related Items and Services

OIG is aware of the industry’s interest in donating or subsidizing cybersecurity-related items and services to providers and others with whom they share information. It seeks information about the types of cybersecurity-related items or services entities wish to donate or subsidize, and how existing fraud and abuse laws may pose barriers to such arrangements. Under current law, CMS and OIG allow certain health information and electronic health record donations and support, but this would go beyond to an ongoing related service.

  1. Accountable Care Organization (ACO) Beneficiary Incentive Program

Section 50341(b) of the Bipartisan Budget Act of 2018 states that “illegal remuneration” under the AKS does not include “an incentive payment made to a Medicare fee-for-service beneficiary by an ACO under an ACO Beneficiary Incentive Program” but allowed OIG to add other conditions on such payment.  For the purposes of implementing this new statutory exception, OIG requests input regarding what, if any, “other conditions” a regulatory safe harbor should include as additional program protections or safeguards.

  1. Telehealth

Section 50302(c) of the Bipartisan Budget Act of 2018 creates a new exception to the definition of “remuneration” in the beneficiary inducements CMP. This exception applies to “telehealth technologies” provided on or after Jan. 1, 2019, to an individual with end-stage renal disease (ESRD) who is receiving home dialysis for which payment is being made under Medicare Part B. The exception stipulates that (i) the telehealth technologies not be offered as part of any advertisement or solicitation; (ii) the telehealth technologies be provided for the purpose of furnishing telehealth services related to the patient’s ESRD; and (iii) that the technologies meet any other requirements mandated by OIG.

For the purposes of this exception, OIG requests input on how “telehealth technologies” should be defined as well as examples of telehealth technologies that may be used to furnish telehealth services related to a beneficiary’s ESRD.

  1. The Intersection of the AKS and the Stark Law

Lastly, OIG requests feedback regarding specific circumstances in which (i) exceptions to the Stark Law and safe harbors to the AKS should align for purposes of accelerating the transformation to a value-based system; and (ii) where exceptions to the Stark Law should not have a corresponding AKS safe harbor. As mentioned above, the Stark Law is a strict liability statute while the AKS is a criminal statute requiring intent. Thus, OIG and CMS historically have considered each other’s respective guidance but have not adopted it by default in their respective rulemaking. That said, OIG clarifies here that they want to reconsider certain areas of overlap in the care coordination space and asks that commentators re-comment with respect to this request if they provided CMS comments earlier this year.

*          *          *          *          *

HHS recognizes that reimbursement is shifting away from fee-for-service to value-based and care coordination models. Through this OIG request for information and the previous CMS request, HHS appears to also recognize that the current fraud and abuse rules may need updating for this shift.

The public can comment until 5 p.m. (ET) on Oct. 26, 2018. We would welcome the opportunity to work with you on submitting ideas to OIG. If you wish to submit comments, please contact a McGuireWoods attorney.

Defense Arguments, FCA Litigation

Eleventh Circuit Expands the Divide on the FCA’s Statute of Limitations

The FCA’s statute of limitations, 31 U.S.C. § 3731(b), has been a source of confusion and disagreement amongst the courts and litigants for years. The disagreement is focused primarily on whether a relator in a non-intervened case can take advantage of the three-year government knowledge/ten-year lookback provision under subsection (b)(2) or whether the relator is limited to the six-year limitation in subsection (b)(1). The majority of courts have held that the relator is bound by the latter provision, and cannot take advantage of the 10-year lookback period in cases where the government has declined to intervene.

This split was recently expanded by the 11th Circuit, which found in U.S. ex rel. Hunt v. Cochise Consultancy, Inc., 887 F.3d 1081 (11th Cir. 2018) that a relator could take advantage of the longer statute of limitations period in subsection (b)(2) even where the government has declined to intervene.

Hunt involved an allegedly fraudulent award of a government defense subcontract for the clearing of excess munitions in Iraq that were left by retreating or defeated forces. While the underlying allegations are sordid – including assertions that a blind military officer was allegedly deceived into signing the wrong contract – the salient allegations are as follows: Defendant Parsons was awarded a government contract to clear excess munitions and sought subcontractors to provide the attendant security services. The contract was initially awarded to ArmorGroup, but this selection was overridden through the efforts of an officer who had allegedly been bribed to award the contract to Defendant Cochise – the purveyor of the bribes. From February 2006 to September 2006, Cochise performed the subcontracting services.[1] The relator – who worked for Parsons – informed the government about the scheme in 2010, but waited until November 27, 2013 to file his claims under the FCA.

The government declined intervention and the defendants subsequently moved to dismiss on statute of limitations grounds, arguing that the claims were untimely under the six-year provision in subsection (b)(1). The district court agreed with defendants and dismissed the action.

On appeal, the Eleventh Circuit reversed, holding that while the claims were facially barred under subsection (b)(1), the relator could rely upon the longer statute of limitations period in subsection (b)(2) despite the government having declined to intervene. The defendants argued that allowing the relator to rely on subsection (b)(2) would lead to absurd results as the limitations period is triggered by the knowledge of the government, which is not a party to the litigation in a declined case. The court rejected this argument, reasoning that in the “unique context” of an FCA action the government remains the real party in interest and retains control over the action. The court explained that the government stands to obtain the majority of the recovery even in declined cases, is allowed to intervene at a later date upon a showing of good cause, and remains actively involved in the case by receiving filings and discovery.

The court also reasoned that nothing in the text of subsection (b)(2) indicates that it is inapplicable where the government has declined to intervene. Furthermore, the court found that its conclusion was bolstered by the absence of legislative history indicating that subsection (b)(2) is inapplicable where the government has declined intervention.

In so holding, the Eleventh Circuit recognized that its decision was at odds with decisions from the Fourth and Tenth Circuits, but rejected these holdings, arguing that these appellate decisions were not persuasive because they failed to account for the “unique role the United States plays even in a non-intervened qui tam case.”

The Cochise opinion crystallizes the circuit split that exists in connection with the FCA’s statute of limitations in non-intervened cases. This divide is particularly notable in light of the importance of the statute of limitations as both a potential defense and as a means to cut off liability as to dated claims. This is an issue that should ultimately be resolved by the Supreme Court (or by a statutory amendment to clarify the statute of limitations), but, in the interim, it bears monitoring this area of law carefully and being cognizant of the applicable authority in the jurisdiction in which a case is pending.

[1] Cochise’s services were limited to seven months because the bribed officer was rotated out of Iraq in September 2006 after which the contract bidding was reopened and awarded to ArmorGroup.

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