DEVELOPMENTS IN FEDERAL FALSE CLAIMS ACT LITIGATION

The federal False Claims Act provides severe civil penalties for anyone making a false claim against the United States. It also permits whistleblowers to file suit on behalf of the government and offers them a share of the recovery as a reward. Because so much health care is paid by the government - through Medicare, Medicaid, VA care, and myriad other programs - the statute is used for health care payments more than any other type of claim. Indeed, over three-quarters of False Claims Act recoveries in 2022, to the tune of $1.7 billion, arose from health care matters.

For a statute that has existed in its modern form since about 1990, its interpretation is still surprisingly in flux. Recent decisions have clarified some aspects of the Act, but others have yet to be resolved.

Causation - in connection with kickbacks

Kickbacks are prohibited in federally funded health care by the Anti-Kickback Statute. In 2010, Congress clarified - or tried to clarify - that kickback-tainted claims are false claims for purposes of the False Claims Act. Unfortunately, Congress did so by referring to claims "resulting from" a violation of the anti-kickback statute, and the meaning of "resulting from" is now the subject of debate. On one hand, the Third Circuit has held that "resulting from" means simply that payment was sought for care that was provided in violation of the statute. U.S. v. ex rel. Greenfield v. Medco Health Solutions, 880 F.3d 89 (3rd Cir. 2018). On the other hand, the Sixth and Eighth Circuits have held that "resulting from" means that the kickback caused the claim, meaning that without the kickback, there would not have been a claim. See U.S. ex rel. Martin v. Hathaway, 63 F.4th 1043, 1054 (6th Cir. 2023); U.S. ex rel. Cairns v. D.S. Medical, LLC, 42 F.4th 828 (8th Cir. 2022). This would drastically narrow the scope of the statute because it would exclude cases where need for and propriety of the care is undisputed. This circuit-split has occurred only within the past six months, raising the likelihood that the Supreme Court will address the issue.

Scienter - Supervalu case

At least one open question has just recently been answered by the Supreme Court in U.S. ex rel. Schutte v. Supervalu Inc., 143 S. Ct. 1391 (2023). This involves the required mental state for a false claim when the claimant's position is "debatable." This is especially relevant in health care because so many rules are subject to good-faith debate. In the Supervalu case, the question was about whether a price was "reasonable and customary" if most of the pharmacy's customers actually received a discount. Because reasonable people could debate this issue, Supervalu claimed that it could not have submitted a false claim. The Supreme Court disagreed and found that what other people might think is irrelevant. Instead, the only two things that matter are 1) whether the claim was objectively false, and 2) whether the claimant knew or recklessly disregarded the fact that the claim was objectively false.

One wrinkle in this clarification is that most cases will not supply evidence that the claimant actually knew the claim was false, especially if there is a good-faith debate about whether it is false at all. Instead, the government more frequently relies on the recklessness prong of the statute. Here, the Supreme Court defined that prong as requiring a "substantial and unjustifiable risk" that the claim is actually false, a definition that seems more like begging the question than bringing useful clarity. Thus, one could argue that the Supervalu case merely redefines the uncertainty from one asking whether the claimant can point to the experts who believe the claim is not false into one asking what constitutes a substantial and unjustifiable risk that those experts are wrong.

Damages

Another area that may be in flux is the definition of damages in health care cases where there is no allegation of improper or unnecessary care, for example in cases where the "taint" is only that the referral may arise from a kickback. Traditionally, actual damages in such cases have been viewed as the amount of the claim. See e.g., United States ex rel. Emanuele v. Medicor Associates, CV 10-245, 2017 WL 4867614, at *9-10 (W.D. Pa. Oct. 26, 2017). But there is some suggestion from recent cases that perhaps this overstates things because the government would have had to pay for non-kickback-tainted care anyway and it got the care that it paid for. See, e.g., U.S. ex rel. Davis v. D.C., 679 F.3d 832 (D.C. Cir. 2012). In a typical fraud case, this would reduce damages owed by the defendant and arguably should similarly reduce damages for false claims. And defendants are encouraged by recent criminal cases finding that restitution in kickback cases may be zero if the claims were medically necessary. See e.g., U.S. v. Kanakeswaran, 17 CR 410 (ECF No. 216) C.D. Cal., Jan 22, 2019. This is not to say that penalties are unavailable, and such penalties can be substantial. But the bulk of false claims liability stems from the actual damages and the fact that any such actual damages can be trebled.

Together, these illustrate that although the False Claims Act is hardly new, it is still developing. Practitioners should keep abreast of these issues and use them to their clients' advantage.

Benjamin N. Gluck is a principal at Bird, Marella, Boxer, Wolpert, Nessim, Drooks, Lincenberg & Rhow, P.C.