Whistleblower Qui Tam Law Blog

The Third Circuit recognizes two types of false claims under the False Claims Act: a factually false claim, which occurs when the claimant misrepresents the goods and services being provided to the government, and a legally false claim, which occurs when the claimant knowingly certifies falsely that it has complied with a statute or regulation that is a precondition to payment by the government. Further, there are two types of false certifications: express false certifications (where an entity certifies that it complied with regulations that are prerequisites to government payment) and implied false certifications (the act of submitting a claim for reimbursement itself implies compliance with governing federal rules that are prerequisites to payment).

In United States ex rel. Rodney Repko v. Guthrie Clinic, P.C. et al., No. 3:04-cv-1156 (M.D. Pa. Sept. 1, 2011), Rodney Repko, the former General Counsel of Guthrie Clinic and Guthrie Healthcare System, filed a qui tam lawsuit under the False Claims Act that his former employers, as well as Robert Packer Hospital and Dr. Terrance Devine, falsely certified claims for Medicare reimbursement based on improper financial relationships between the various defendants in violation of the Stark and Anti-Kickback Acts. Specifically, Repko claimed that Guthrie Clinic accepted millions of dollars in financial benefits from the other defendants over a period of years in exchange for patient referrals.

After discovery, defendants moved to dismiss for lack of subject matter jurisdiction, arguing that Repko's claims were barred by the public disclosure provisions of the FCA, and the U.S. District Court for the Middle District of Pennsylvania granted the motion.

In determining whether the jurisdictional bar applies, the court must determine whether the relator's claims are based on publicly disclosed allegations or transactions. The FCA provides three categories of sources for such disclosure: (1) a criminal, civil, or administrative hearing, (2) a congressional, administrative, or Government Accounting Office report, hearing, audit, or investigation, or (3) the news media.

First, the court held that the information regarding defendants' "illegal financial arrangements" and "patient referrals" were publicly disclosed in litigation proceedings and a variety of publicly available websites (which the court held qualified as "news media" under the FCA).

Continue reading "Pennsylvania Court Dismisses Kickback and Stark Allegations Based on Public Disclosure Bar" »

Congress and Abraham Lincoln enacted the False Claims Act in 1863 in response to widespread corruption and fraud by defense contractors in selling supplies and provisions to the Union Army during and after the Civil War. After being weakened by Congress during World War II, the FCA was revived in 1986 after congressional hearings and GAO reports exposed rampant fraud in the defense industry. Senator Charles Grassley and Congressman Howard Berman pushed the amendments through Congress, and Ronald Reagan signed them into law, thus enhancing the Government's ability to combat fraud and recover losses.

For the past 25 years, the False Claims Act has been the single most effective tool for combating fraud against the government. The law owes much of its success to the courage of whistleblowers, who not only alert the government to fraud, but also provide invaluable assistance by uncovering evidence and explaining highly complex fraudulent schemes. The False Claims Act's qui tam provisions allow whistleblowers with evidence of fraud against the government to sue on behalf of the government, and receive 15 to 30 percent of the amount recovered.

In Fiscal Year 2010, the government recovered over $3 billion under the False Claims Act, 80 percent of which was recovered as a direct result of whistleblower lawsuits. Since the 1986 amendments to the False Claims Act, the government has recovered over $30 billion in judgments and settlements.

Taxpayers Against Fraud, a nonprofit, public interest organization dedicated to combating fraud against government, chronicles the False Claims Act's remarkable success over the last 25 years and highlights the pivotal role of whistleblowers in The 1986 False Claims Act Amendments, A Look At Twenty-Five Years of Effective Fraud Fighting in America.

In United States ex rel. Jamison v. McKesson Corporation, No. 10-60376, 2011 WL 3370344 (Aug. 5, 2011), the United States Court of Appeals for the Fifth Circuit addressed which complaint - the original or first amended - was relevant in determining whether the relator's claims were barred by public disclosure provisions of the False Claims Act.

In that case, Thomas Jamison operated a durable medical equipment (DME) business that provides enteral nutrition products to nursing homes. Under Medicare Part B, such suppliers can obtain a supplier number that allows them to submit reimbursement claims assigned to them by the insured beneficiary. While attempting to sell his product, Jamison noticed that some nursing homes rejected his product because they had entered into joint ventures with DEM suppliers, through subsidiary corporations, to provide DME to the nursing homes.

Jamison alleged that the DME suppliers allowed the nursing homes to keep a portion of the reimbursement from Medicare in return for a guarantee that each nursing home would buy all of its DME from that supplier. This enabled DME suppliers to charge more for their products and nursing homes to purchase less expensive DME. Medicare, however, paid the additional costs. Jamison alleged that this arrangement was fraudulent because the nursing home represented itself as a DME supplier but instead created a shell company that played no part in the delivery of DME and consequently could not comply with the standards set forth for DME suppliers.

In December 2004, Jamison filed a qui tam complaint against over 450 nursing homes, DEM suppliers, and owners and officers of the defendant organizations who allegedly carried out the fraud. The Fifth Circuit characterized Jamison's original complaint as containing "no specific allegations and describ[ing] the scheme only generally." In June 2006, Jamison filed his first amended complaint, which contained the same theories of fraud but included specific allegations against some of the defendants.

In October 2008, the Department of Justice intervened, and the district court dismissed Jamison's complaint on the ground that his action was barred by the public disclosure provisions of the FCA. Jamison appealed.

Continue reading "The Fifth Circuit Looks to Relator's Original Complaint in Determining Public Disclosure Bar Issue" »

Although the public disclosure bar to the False Claims Act was amended in 2010, defining what constitutes a public disclosure continues to be a hotly contested issue. In United States ex rel. Kirk v. Schindler Elevator Corporation, the Relator, Daniel Kirk, alleged that his former employer, Schindler Elevator Corporation, obtained government contracts by falsely certifying that it filed with the Secretary of Labor certain reports, known as VETS-100 reports, which included accurate information about the number of veterans employed by the contractor, as required by law. Before filing suit, Kirk obtained information from the Department of Labor about Schindler's VETS-100 reports through Freedom of Information Act requests. Kirk alleged that Schindler had either filed false VETS-100 reports or failed to file any reports with the Department of Labor in the relevant years.

Schindler moved to dismiss, and the district court held that Kirk's false reports claims were insufficiently pled, and his failure-to-file claims were precluded by the public disclosure bar of the False Claims Act. On appeal, the Second Circuit vacated the ruling, holding that FOIA requests were not "administrative . . . report[s] . . . or investigation[s]" subject to the public disclosure bar and that the false reports claims were sufficiently pled.

Schindler petitioned the United States Supreme Court for a writ of certiorari, which was granted. In conjunction with the AARP, the law firm of Stein, Mitchell & Muse, L.L.P. filed a brief amicus curiae in support of the Relator, arguing, among other things, that the FCA specifically enumerates the types of documents that constitute a public disclosure, and a FOIA response does not constitute a public disclosure unless the document disclosed is from one of the enumerated sources. In May 2011, however, the Supreme Court issued an opinion holding that the Department of Labor's responses to a FOIA request represented "report[s]" within the meaning of the public disclosure bar, and remanded for further proceedings. Schindler Elevator Corp. v. United States ex rel. Kirk, 131 S. Ct. 1885, 1889-90 (2011).

Continue reading "The Second Circuit Considers Claims In Light of Supreme Court's Decision on the Public Disclosure Bar of the False Claims Act" »

Notwithstanding the 2010 amendments to the public disclosure bar of the False Claims Act, the issue of what constitutes a public disclosure continues to be a hotly contested issue in FCA cases. In fact, courts disagree on whether disclosure of information to a competent public official about an alleged false claim against the government is a public disclosure. Although the Seventh Circuit has held that such a disclosure to "one who has managerial responsibility for the very claims being made" constitutes a public disclosure, other circuits, including the First, Ninth, Tenth, and Eleventh Circuits, have held that it is not.

Recently, in United States of America ex rel. Cox v. Smith & Nephew, Inc., 749 F. Supp. 2d 773 (W.D. Tenn. 2010), the Sixth Circuit weighed in on this issue, holding that a voluntary disclosure to responsible government officials does not constitute a public disclosure. In that case, Relator, a former employee of Smith & Nephew, alleged that the company has repeatedly violated the Federal Trade Agreements Act and federal procurement law by falsely stating the actual country of manufacture of products sold to the United States government, despite certifying compliance with such laws. According to Relator, Smith & Nephew would import its products from a company in Malaysia to one of Smith & Nephews's warehouses in the United States, where the products are repackaged and shipped to customers, including the United States. After the products are repackaged, they are never again identified as being of Malaysian origin.

Before the lawsuit was filed, however, Smith & Nephew sent letters to the Department of Defense Inspector General and to the Veterans Affairs National Acquisition Center voluntarily disclosing that it had supplied products to the Defense Department and VA that were manufactured in Malaysia, China, and Thailand and thus failed to comply with federal procurement law. The letters also acknowledged that Smith & Nephew may have supplied incorrect certifications in connection with three Defense Department contracts and four contracts with the VA, and that some of its products were sold to the government through third-party resellers through two other contracts.

Smith & Nephew moved to dismiss the Relators' Amended Complaint based, in part, on the theory that these voluntary disclosures to the government constituted a "public disclosure" under the FDA, thus barring Relator's lawsuit. The district court judge adopted the reasoning of the First Circuit in United States ex rel. Rost v. Pfizer, Inc., 507 F.3d 720 (1st Cir. 2007), and held that equating the "government" with the "public" would contradict the ordinary meaning of those terms and would be inconsistent with the FCA as a whole, which frequently uses the term "government," but does not once use it to mean the "public." Moreover, the district court found that equating the two terms would contradict the intent of Congress in enacting the 1986 amendments to the FCA, which, in part, eliminated the government knowledge jurisdictional bar in the FCA. To allow disclosure to competent government officials to substitute for disclosure to the public would effectively revive the government knowledge bar, which Congress eliminated. Accordingly, the district court held that the public disclosure bar did not provide a basis for dismissal of Relator's lawsuit.

Continue reading "The Sixth Circuit Weighs In On Whether Self-Reporting to the U.S. Government Constitutes a "Public Disclosure" under the FCA" »