Transcript Recent False Claims Developments

Recent False Claims Developments
Robert J. Sherry
K&L Gates
May 2009
Overview
 Prologue: Federal Civil False Claims Act
Developments
 The Impact of the Federal DRA on State/Local FCA
Activity
 State of Play: Existing State/Local FCAs
 Recent State FCA Cases
 Predictions
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Federal FCA Developments
 FCA cases/recoveries multiplying
 FY 2008 recoveries: $1.34B
 1986-08 recoveries: $21B
 2006-08 recoveries: $6+B
 Yet Congress dissatisfied with scope of
FCA/enforcement trends
 Pending legislation would amend FCA
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Federal FCA Developments
 HR 1788, False Claims Correction Act (reported out of committee April
28):
 Eliminates “presentment” requirement
 Claim need only be for government money/property -- need not be
presented to government official
 Reaches funds held in trust or administered by government, money
provided to a recipient, or money which the government will reimburse
 “Public disclosure” bar may be raised only by United States
 Cripples defendant’s and court’s ability to limit qui tam cases to those where
relator provides new information
 New contractor “mandatory disclosures” could become basis of qui tam
action
 Eliminates “particularity” obligation for relators’ FCA complaints
 General rule: complaint must allege “who, what, where, when, and how”
 Bill: need not identify “specific claims” if allegations provide “reasonable
indication” that FCA violated and “adequate notice” of “specific misconduct”
to allow defense
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Federal FCA Developments
 S. 386, Fraud Enforcement and Recovery Act
(approved by Senate April 28):
 Similar provisions regarding presentment
 S. 458, False Claims Clarification Act
 Still before Judiciary Committee
 Similar to legislation introduced last term in Senate
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Impact of the Federal DRA on State/Local FCA
Activity
 DRA provides enhanced FCA recoveries for states with
qualifying FCAs
 State FCAs must meet certain standards and receive
HHS OIG approval:
 Establish FCA liability for false/fraudulent claims related to state
Medicaid plans
 Provisions “at least as effective” concerning qui tam claims as
those in federal FCA
 Sealed qui tam filing provision with state AG review
 Civil penalties at least equal to those in federal FCA
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Impact of the Federal DRA on State/Local FCA Activity
 Status:
 20 states have submitted FCAs for review
 13 approved (including TX, CA, NY)
 7 rejected (including FL, MI, NJ, NM, OK)
 Reasons include:
 Relaxed standards for awards of fees to defendants
 Limitations on relators (right to proceed, size of recovery
share)
 Intent standard stricter than federal FCA
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State of Play: Existing State/Local FCAs
 Existing FCAs: 25 states
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22 with qui tam provisions
3 with relator recovery provisions up to 50%
15 are “general” FCA statutes
6 are limited to health care/Medicaid fraud
2 have separate general and health care provisions
 Pending FCAs: 9 states
 2 states with pending amendment legislation
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Recent State FCA Cases
 Armenta (Cal. App. 2006): Unique “passive beneficiary” in
CFCA
 Third party (parent) which becomes aware of inadvertent
provision or intentionally submitted false claim and does not
disclose may be liable
 Subsidiary falsely represented that its products complied with
code
 Parent later learned through testing that representations were
false
 Court found that parent could be liable even if claims were
submitted inadvertently by subsidiary
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Recent State FCA Cases
 Fassberg (Cal. App. 2007):
 CFCA authorizes treble damages for knowingly
presenting false claim or false record
 CFCA authorizes civil penalties only (of up to
$10,000) for each false claim, not false record
 Only progress payment requests were false claims
 Federal FCA precedent not employed – difference in
construction
 Demonstrates risks of possible “counterattack” by
government when claiming breach of contract
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Recent State FCA Cases
 Kennedy (N.D.Ill. 2008): Both federal and Illinois FCA claims
 Relators allege Aventis marketed a drug for numerous off-label
uses
 Caused medical providers to submit fraudulent Medicare claims
 Court dismissed federal and “parallel” Illinois FCA claims
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Payments not based on drugs prescribed/used
Payment based on diagnosis-related group codes (“DRGs”)
DRGs based on diagnosis/age, not on drugs prescribed
Individual patient charges for drug not material to decision to pay
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Recent State FCA Cases
 Abbott Labs (TX 2008): Settlement under Texas Medicaid
Fraud Prevention Act
 Latest of drug pricing settlements with several pharmaceutical
companies
 Three-way settlement involving relator and Texas AG
 Alleged false reporting of pricing to the Texas Vendor Drug
Program
 Result: Inflated reimbursement by Medicaid to providers
 $28M settlement
 Shares to state, relators, United States
 Includes fees to state, relators
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Predictions
 Federal FCA amendments will enhance prospects
for liability
 State/local FCA enactments/amendments will
continue; issues for non-health care contractors
 Will states be required to amend FCAs to comport
with any federal FCA amendments?
 Impact of December 2008 federal ethics/disclosure
rule and DRA: creating new “whistleblowers”
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