Government Program Fraud, False Claims Act & Qui Tam Litigation Playbook

Despite an earlier declination of intervention in United States ex rel. Zafirov v. Florida Medical Associates, LLC, Case No. 8:19-cv-01236-KKM-SPF (M.D. Fla. Sept. 30, 2024), yesterday, the United States filed a notice of appeal of the Zafirov Court’s September 30, 2024 decision to dismiss the case to the U.S. Court of Appeals for the Eleventh Circuit. The district court held in the underlying dismissal order that the qui tam provisions of the False Claims Act (FCA) are unconstitutional, echoing arguments made by certain justices in a recent FCA case before the U.S. Supreme Court. The relator, Dr. Clarissa Zafirov, filed suit in 2019 against her employer, Florida Medical Associates, LLC, alleging that the physician practice group violated the FCA by misrepresenting patient medical conditions to Medicare. Like most relators, Zafirov did not assert that any of the alleged illegality harmed her personally; rather, she brought suit on behalf of the “real party of interest,” the United States of America. The government had declined to intervene, leaving Zafirov to pursue the litigation on her own over the past five years. But yesterday, the United States filed its Notice of Appeal, opening the door for further review of the constitutionality of the FCA's qui tam provisions – including by the U.S. Supreme Court should there be a circuit split.

On October 22, 2024, the Department of Justice announced a False Claims Act (FCA) settlement related to a government contractor’s failure to adhere to certain cybersecurity requirements. Specifically, Pennsylvania State University (Penn State) has agreed to pay US$1.25M to resolve allegations that it violated the FCA by failing to comply with cybersecurity requirements in fifteen contracts or subcontracts involving the Department of Defense (DOD) or the National Aeronautics and Space Administration (NASA). The DOJ announcement is available here: https://www.justice.gov/opa/pr/pennsylvania-state-university-agrees-pay-125m-resolve-false-claims-act-allegations-relating.

The Supreme Court of the United States’ recent decisions in Loper Bright Enterprises et al. v. Raimondo, 603 U.S. (2024) and Corner Post v. Board of Governors, Federal Reserve System, 603 U.S. __ (2024), may provide federal contractors with new arguments and opportunities to challenge agency regulations in litigation and bid protests.

The U.S. District Court for the Eastern District of Virginia is the latest court to weigh in on the continuing debate surrounding the scope of the Federal Anti-Kickback Statute (AKS) as it applies to patient assistance programs (PAPs). In a lengthy opinion issued in January 2024, the court endorsed the broad interpretation advanced by the government, expressing little sympathy for the legal or policy arguments advanced by the plaintiffs, a coalition of pharmaceutical manufacturers. The coalition has indicated it will appeal the case to the Fourth Circuit.

On Feb. 22, 2024, the US Department of Justice (DOJ) released its annual False Claims Act (FCA) recovery statistics and announced that it obtained more than $2.68 billion in settlements and judgments in fiscal year (FY) 2023 from civil cases involving fraud and false claims against the government, a 21% increase over the prior year's recoveries. As such, FY 2023 was another strong year for FCA enforcement and marked the fifteenth straight year where recoveries exceeded $2 billion. This past fiscal year also saw records set in several areas, including the highest number of settlements and judgments in DOJ history and a record number of civil investigative demands (CIDs) issued in connection with investigating FCA claims, revealing highly robust FCA investigative activity in 2023, which could signal even greater FCA judgments and recoveries in future years.

The U.S. Department of Justice (DOJ) has vowed to hold accountable the individuals and entities who “knowingly and improperly sought PPP loans or forgiveness of those loans.” In furtherance of this promise, the DOJ has reached settlement with two companies and prosecuted two individuals, all of whom were suspected of fraudulently seeking relief from the Paycheck Protection Program (PPP).

The U.S. Department of Justice (DOJ) continued its health care fraud enforcement activity in June 2023, announcing two convictions and a national enforcement action involving charges against 78 individuals and over $2.5 billion in alleged fraud. This enforcement activity relates to efforts to defraud Medicare by billing for supplies that were not medically necessary, compounding drugs to maximize reimbursement from TRICARE, and other allegations of alleged health care fraud, telemedicine fraud, and opioid abuse-related schemes.

The U.S. Department of Justice (“DOJ”) announced several settlements related to False Claims Act (“FCA”) allegations this June. The settlements involved various types of health care entities, which shows the DOJ’s continued interest in pursuing FCA allegations across the health care industry.

On June 1, 2023, the Supreme Court of the United States issued its decision in the most-watched False Claims Act (FCA) case of the year. In United States ex rel. Schutte v. SuperValu Inc. (consolidated with United States ex rel. Proctor v. Safeway, Inc.),[1] a unanimous Court held that the question of scienter under the FCA turns on a person’s subjective beliefs, not what an objectively reasonable person may have believed—rejecting a standard that had been set by the Seventh Circuit and embraced by the Third, Eighth, Ninth and D.C. Circuits.

The Sixth Circuit Court of Appeals recently issued a key decision interpreting narrowly an important element of the Anti-Kickback Statute (AKS) and the interplay between the AKS and the False Claims Act (FCA). The court’s decision perpetuates a circuit split, now two to one, on whether the but-for causation must be proven to maintain an FCA action on an AKS-violation theory. While not ripe for Supreme Court review yet, the decision signals that this critical and controversial issue may ultimately need clarification from the high court.

On February 7, 2023, the U.S. Department of Justice (“DOJ”) released its annual False Claims Act (“FCA”) recovery statistics and announced that it had obtained more than $2.2 billion in settlements and judgments in fiscal year 2022 from civil cases involving fraud and false claims against the government.[1] The significant decrease in 2022 recoveries stands in stark contrast with DOJ’s near-record breaking fiscal year 2021 where it obtained more than $5.6 billion in settlements and judgments. That said, fiscal year 2022 marked the fourteenth straight year where recoveries exceeded $2 billion.

On January 9, 2023, the U.S. Department of Justice, the U.S. Attorney’s Office for the Eastern District of California, and the Small Business Administration’s Office of General Counsel and Office of Inspector General announced a settlement that resolves alleged violations of the False Claims Act (FCA) and the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA) related to improper inflation of employee head count numbers on the companies’ Paycheck Protection Program (PPP) loan applications.

The decision in United States ex rel. Morsell v. NortonLifeLock Inc., No. 1:12-cv-00800 (D.D.C. Jan. 19, 2023), is a striking reminder of the strategic importance of pushing plaintiffs to prove FCA damages with reasonable certainty.

On November 1, 2022, the Department of Justice (“DOJ”) announced that Florida-based electronic health record (“EHR”) vendor, Modernizing Medicine (“ModMed”), agreed to a $45 million settlement with the United States to resolve civil claims that it violated the False Claims Act (“FCA”) and Anti-Kickback Statute (“AKS”) by accepting and providing unlawful remuneration in exchange for referrals, causing users to submit tainted claims for federal incentive payments.

On July 20, 2022, the Office of Inspector General (“OIG”) for the Department of Health and Human Services issued a Special Fraud Alert (the “Alert”) on potential fraud schemes involving companies that provide telehealth, telemedicine, or telemarketing services (referred to collectively in the Alert as “Telemedicine Companies”).[1]

On July 26, 2022, the United States Court of Appeals for the Eighth Circuit issued a decision that creates a new circuit split on the question of what evidence is needed to prove that a violation of the Anti-Kickback Statute (AKS) renders a claim false or fraudulent under the False Claims Act (FCA).

Historically, if the Securities and Exchange Commission (“SEC”) wanted to obtain monetary relief against a defendant for violations of the federal securities laws, it needed to sue that defendant in federal court.  However, when Congress passed the Sarbanes-Oxley Act in 2002, it gave the SEC the option of seeking such relief from its own administrative law judges, instead.

On April 6, 2022, the Department of Justice (“DOJ”) announced that Florida-based BayCare Health Systems Inc. and four affiliated hospitals (collectively, “BayCare”) entered into a $20 million settlement with the United States to resolve civil claims that BayCare had violated the False Claims Act (“FCA”) by engaging in Medicare fraud.

On October 6, 2021, Deputy Attorney General Lisa O. Monaco announced a new Civil Cyber-Fraud Initiative, by which the Department of Justice (DOJ) will utilize the False Claims Act (FCA) as a tool to enforce cybersecurity standards required of federal contractors and grant recipients.

Last week, the federal government took another step toward considering the greenhouse gas emissions of suppliers when deciding major Federal agency procurements.  It proposed amendments to the Federal Acquisition Regulation (“FAR”) that would require consideration of the social cost of carbon, and commitments to reduce or mitigate greenhouse gas emissions, in connection with awarding federal contracts.