In this issue:

  • Supreme Court holds that the government may intervene in an FCA case and file a motion to dismiss any time “good cause” is shown, even if it initially declined to intervene and notwithstanding the relator’s objection.
  • New York doctor fails to allege sufficient particularity to nab his former boss for re-using single-use medication vials.
  • Dismissal of HUD fraud shows the continued importance of causation in FCA claims.
  • Pfizer advocates narrowing the scope of the Anti-Kickback Statute based on two seemingly unrelated Supreme Court cases issued this term.

It’s My Party, I’ll Dismiss When I Want To

United States ex rel Polansky v. Executive Health Resources, Inc., 143 S. Ct. 1720 (2023)

The Supreme Court held in an 8-1 decision that the government may move to dismiss under 31 U.S.C. § 3730(c)(2)(A) any time it has intervened in a qui tam action filed under the False Claims Act (FCA), even if the seal period has passed and the relator objects, and that the standard for assessing the motion to dismiss an FCA action over a relator’s objections is the same standard applied to voluntary dismissal in ordinary civil suits (Federal Rule of Civil Procedure 41(a)).

Dr. Jesse Polansky was a consultant for Executive Health Resources (EHR), a provider of billing review and certification services to hospitals and physicians. Polansky filed an FCA suit, alleging that EHR systematically enabled its client hospitals to charge inpatient rates for services that should have been provided on an outpatient basis, resulting in improper billing of Medicare at higher rates. The government investigated the case for two years, but ultimately decided not to intervene. Seven years later, after receiving demands from EHR for documents and deposition testimony during discovery and assessing the burden of discovery, the government determined that the demands of the suit outweighed its value and it filed a motion to dismiss the action, notwithstanding the relator’s objection.

The district court granted the government’s motion to dismiss, and the Third Circuit affirmed. The relator then appealed to the US Supreme Court, arguing that the government could not move to dismiss after it declined to intervene during the seal period following the filing of relator’s complaint.

The Court held that, even if the government initially declined to intervene in a relator’s FCA case, once the government has actually intervened, it has the authority to move to dismiss the relator’s case, notwithstanding the relator’s objection. This is because, the Court explained, § 3730(c)(2)(A) of the FCA, which grants the government the power to dismiss or settle FCA cases, does not apply if the government is not a party to the litigation; thus, the government must intervene to become a party prior to moving to dismiss. Section 3730(c)(2)(A) does not indicate whether the government’s dismissal authority survives the government’s decision to let the seal period lapse without intervening. However, the Court held that the government may intervene any time it chooses – either before the seal period or after, so long as “good cause” is shown.

The Court also provided clarification to lower courts regarding the standard they should use for assessing government motions to dismiss an FCA action over a relator’s objection. The Court confirmed that the standard is the same as voluntary dismissal of ordinary civil suits under Federal Rule of Civil Procedure (FRCP) 41(a). Under Rule 41(a), the standard varies with the case’s procedural posture. If the defendant has not yet served an answer or summary-judgment motion, the plaintiff need only file a notice of dismissal. But once that threshold has been crossed, dismissal requires a “court order, on terms that the court considers proper.” Fed. Rule Civ. Proc. 41(a)(2).

Justice Thomas filed a dissenting opinion asserting that the FCA does not permit the government to dismiss a qui tam action when it has declined to take over the litigation from the relator at the outset.

Historically, the government has rarely filed motions to dismiss in qui tam cases, and there may be an uptick in motions to dismiss now that the Court has made clear that the Rule 41(a) standard applies. In addition, the Court’s holding is a good development for the defense bar as it can continue to advocate that the government file a motion to dismiss in qui tam cases, particularly if discovery becomes burdensome and even in a case in which the government has initially declined to intervene and the relator objects.

Assumptions Do Not Make Strong Inferences on Rule 9(b) Particularity

United States v. Canzoneri, 2023 WL 4082376 (W.D.N.Y. June 20, 2023)

In United States v. Canzoneri, the federal district court for the Western District of New York dismissed the FCA claims of plaintiff-relator, Dr. George Vito, against Dr. Joseph Canzoneri and Advanced Podiatry Associates, PLLC (APA) for failing to plead the submission of false claims with sufficient particularity under FRCP 9(b). Dr. Vito alleged that Dr. Canzoneri violated the FCA and the analogous New York State law by improperly reusing single-use medication vials.

The relator, a former employee of APA, alleged that he witnessed the defendant, while practicing at another medical facility, take the remainder of partially-used medication vials to re-use with different patients at the APA office. The relator claimed that the defendant was billing Medicare and Medicaid for the cost of the medication that he obtained for free from another facility.

In order to meet the particularity requirements of Rule 9(b), a qui tam relator can plead the existence of the fraud “on information and belief” rather than identifying specific claims submitted to the government, if the relator can provide “plausible allegations creating a strong inference” that the claims were, in fact, submitted to the government. The court held that the relator failed to meet 9(b)’s pleading standard because he merely alleged that the defendant: (1) reused single-use medication vials when he treated some patients, (2) billed for those improperly reused vials, and (3) treated some patients who were insured by Medicare or Medicaid. These allegations, however, still require an assumption that the defendant submitted false claims to Medicare or Medicaid because the plaintiff provided no evidence that either of the defendants actually reused single-use medication vials for Medicare or Medicaid patients. This, alone, was not enough to support a “strong inference.”  Id.

Although the plaintiff asserted that he “unwittingly” submitted false claims by using partially used single-doses on Medicare and Medicaid patients, he failed to explain how he knew that he “unwittingly” used partially used vials and failed to provide additional information on the false claims he submittedThe court distinguished this from other cases where the relator could identify and point to specific false claims submitted to Medicare or Medicaid. Because the plaintiff could not assert that the false claims were submitted to the government, the court dismissed the complaint.

Causation Saves Defendant Mortgage Provider from FCA Liability

United States ex rel Calderon v. Carrington Mortgage Services, 70 F.4th 968 (7th Cir. 2023)

Relator, a former employee of lender Carrington Mortgage Services, brought a qui tam action against the lender, alleging that the lender had made false representations to the United States Department of Housing and Urban Development (HUD). The district court entered summary judgment for the lender, and the Seventh Circuit affirmed the grant of summary judgment, holding that the relator did not establish causation.

The district court granted summary judgment because the relator failed to show that (1) the allegedly false representations were material to HUD’s decision to pay out claims under the federal mortgage insurance program and (2) that the false representations caused HUD to suffer a monetary loss. The Seventh Circuit held that, while the relator had sufficient proof of materiality, she failed to show causation.

The relator’s allegations involved HUD’s Direct Endorsement Lender program, where HUD covers private lenders’ losses on high-risk mortgages for borrowers who would not otherwise qualify. The relator alleged she observed a pattern of reckless underwriting practices at Carrington, including the false certification of several loans as meeting HUD’s guidelines. Under Escobar, “materiality” depends on what the government considers in practice when deciding whether or not to pay claims. More specifically, Escobar provides that “if the Government pays a particular claim in full despite its actual knowledge that certain requirements were violated, that is very strong evidence that those requirements are not material.” The Seventh Circuit held that there were still issues of material fact related to materiality based on the relator’s identification of several false certifications in 349 loans, that those false certifications are material according to federal regulations, and that HUD has in the past deemed similar violations material.

Even though the circuit court held that there were issues of fact regarding materiality, it determined that the relator’s failure to establish causation justified a grant of summary judgment for the defendant. The DC Circuit has held that, even if a relator fails to prove actual damages, if it merely proves materiality, falsity, and knowledge, then the defendant is still liable under the FCA and must pay a civil penalty. In order to access treble damages, however, the relator must show causation – that the false statement caused a loss to the government. The Seventh Circuit declined to address whether a civil penalty method applied here because the relator did not raise it on appeal. Instead, the Seventh Circuit followed the Fifth and Third Circuits in evaluating whether the defendant’s conduct was the foreseeable cause, and a substantial factor in, the later defaults. The circuit court held that the relator failed to prove causation through a statistical analysis because she could not proffer evidence that Carrington’s federally insured loan default rate was higher than the national average for federally-insured loans. The relator also could not, with sufficient specificity, identify the causes of default for specific loans due to default codes such as “Curtailment of Income,” let alone tie them to specific false statements.

Pfizer Kicks Back: Its Argument that SCOTUS has Changed the Anti-Kickback Act by Its Recent Rulings

Following the Supreme Court’s rulings in Dubin and Hansen, cases involving identity theft and immigration respectively, Pfizer has alleged that the Supreme Court’s analysis in those cases should apply to interpretations of the scope of the Anti-Kickback Statute (AKS).

Pfizer developed a program that provided subsidies to Medicare enrollees prescribed the manufacturer’s drug for a serious heart condition and obtained an advisory opinion from the Office of the Inspector General at the Department of Health and Human Services regarding the program. That opinion stated that Pfizer’s program would violate the AKS if implemented. Pfizer is a member of a coalition in a case filed in the Eastern District of Virginia, Pharmaceutical Coalition for Patient Access v. United States, et al. Case No. 3:22-cv-714 (E.D. Va.), challenging the HHS OIG’s advisory opinion. Recently, the coalition filed two notices of supplemental authority addressing Hansen and Dubin.

The Supreme Court in Hansen held that “induce” carries with it the implications of corruption or ill motive. The coalition argued that an overbroad reading of “induce” would make it a crime if a patient accepts financial help to get critical medication.

The coalition also argued that the Supreme Court’s interpretation of the words “transfers, possesses, or uses,” in the aggravated identity theft statute at issue in Dubin should be applied to “kickback, bribe or rebate.” The coalition’s argument is that because in Dubin the Court held that “uses” had to be interpreted in line with the other two terms (i.e., “transfers” and “possesses”), courts should similarly interpret the term “remuneration” in the AKS in light of the neighboring words “kickback, bribe, or rebate.” This result would narrow the scope of potential crimes under the AKS.

On July 24th, the government responded to the notices of supplemental authority in Pharmaceutical Coalition for Patient Access v. United States, rejecting the coalition’s position that Dubin and Hansen support its position. The government asserted that its reading of the AKA does not criminalize innocuous conduct or lead to absurd results. In addition, the government asserted that in contrast to the statute at issue in Hansen, which refers narrowly to efforts to induce a violation of law, the AKA refers more broadly to efforts to induce a person to refer an individual for purchasing items or services paid for by a federal health program. The AKA does not apply only where the thing that a defendant seeks to induce would be independently unlawful. This, the government stated, would be an untenable interpretation of the AKA because the statute reaches efforts to induce another person to perform acts that are not themselves unlawful or wrongful.