UNDER THE RADAR DEVELOPMENTS IN HEALTH CARE WHISTLEBLOWER LAW

Recent activity in the United States Supreme Court surrounding the False Claims Act has grabbed headlines, and the attention of those who practice in the health care fraud space. But closer to home in California, three recent decisions may have even more impact on day-to-day practice in this area.

First, in a February opinion from the Second Appellate District, State ex rel. Sills v. Gharib-Danesh, 88 Cal. App. 5th 824, 832, 304 Cal. Rptr. 3d 865, 867 (2023), reh'g denied (Mar. 20, 2023), review denied (May 31, 2023), the Court of Appeals confirmed that the five-year period to bring an action to trial in California does not run while a qui tam plaintiffs' case is under seal. The Court found that the time a case is sealed pursuant to provisions of both the California False Claims Act (CFCA), Gov. Code § 12650 et seq. and Insurance Fraud Prevention Act (IFPA), Ins. Code §§ 1871.7 (a)(b) is a "stay" as defined in California's codified "five-year rule." (Code of Civil Procedure § 583.340 subdivision (b).) Though both CFCA and IFPA were enacted over thirty years ago, the question of whether the seal period is properly excluded from the five-year rule remained unanswered until the Second District's opinion.

The panel reversed the trial court's decision to dismiss the case for failure to bring it to trial within five years, pursuant to Code of Civil Procedure section 583.310, finding that the five-year clock did not run for the 962 days during which the government was investigating the case under seal. In Amicus briefs filed by the Attorney General and DOI, the State explained the importance of the decision on their ability to adequately investigate and prosecute fraud and the role civilian whistleblowers play in reporting and litigating fraud on behalf of the government and taxpayers alike.

A contrary ruling by the Second District would have caused the immediate dismissal of dozens of pending CFCA and IFPA cases around the state and hindered future whistleblowers from coming forward.

Second, in an opinion made final in January of this year, the Second Appellate District ruled that plaintiffs are not entitled to a jury in cases brought under the California Insurance Frauds Prevention Act (IFPA). California is one of only two states in the country with a qui tam statute that addresses fraud committed against private insurers. IFPA, located under Section 1871.7 of the California Insurance Code, allows members of the public to file private qui tam suits against anyone who commits insurance fraud in the state. Although modeled on the federal and California False Claims Acts, IFPA is unique in that the claims are not brought on behalf of the victims - the private insurance companies who are overcharged - but instead on behalf of the State. Accordingly, the Court of Appeals found that an action brought under IFPA is "more in the nature of an action to enforce public rights, not to vindicate individual injuries." State ex rel. Rapier v. Encino Hosp. Med. Ctr., 87 Cal. App. 5th 811, 837, 304 Cal. Rptr. 3d 84, 101 (2022), as modified on denial of reh'g (Jan. 20, 2023), review denied (Apr. 26, 2023). Therefore, unlike actions under the FCA or CFCA, the Court found no right to a jury trial. Both plaintiffs and defendants in private health care insurance fraud cases will now have to weigh the benefits and risks of a judge as the fact-finder.

Third, for those in the medical laboratory industry, two recent federal District Court decisions are required reading to understand the scope of the Eliminating Kickbacks in Recovery Act (EKRA). EKRA is a federal criminal statute that Congress originally designed to address fraud stemming from the Opioid Crisis. It includes strict prohibitions against kickbacks related to laboratory tests, essentially broadening the federal Anti-Kickback Statute, and facially prohibiting commission-based compensation arrangements for sales personnel. Until recently, no courts in the Ninth Circuit had occasion to interpret or apply EKRA. That changed with two conflicting District Court decisions, S&G Labs Hawaii, LLC v. Graves, No. CV 19-00310 LEK-WRP, 2021 WL 4847430, at *11 (D. Haw. Oct. 18, 2021), and USA v. Schena, No. 5:20-CR-00425-EJD-1, 2022 WL 1720083, at *5 (N.D. Cal. May 28, 2022). In S&G Labs, the District Court found that EKRA did not prohibit commission-based compensation arrangements, so long as the salespeople are marketing to physicians, and not directly to patients. The District Court in Schena disagreed, finding it "irrelevant" that the marketing personnel induced referrals through "physicians, instead of to the patients directly." All laboratories operating in California would be wise to scrutinize their sales and marketing arrangements to ensure they do not run afoul of EKRA, as interpreted by the District Court in Schena.

Justin T. Berger is a partner, Carlos Urzua is a senior associate, and Theresa E. Vitale is an associate at .