Recent False Claims Developments

Robert J. SherryK&L GatesMay 2009

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Overview

Prologue: Federal Civil False Claims Act Developments

The Impact of the Federal DRA on State/Local FCA Activity

State of Play: Existing State/Local FCAs

Recent State FCA Cases Predictions

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Federal FCA Developments

FCA cases/recoveries multiplying FY 2008 recoveries: $1.34B 1986-08 recoveries: $21B 2006-08 recoveries: $6+B

Yet Congress dissatisfied with scope of FCA/enforcement trends

Pending legislation would amend FCA

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Federal FCA Developments HR 1788, False Claims Correction Act (reported out of

committee April 28): Eliminates “presentment” requirement

Claim need only be for government money/property -- need not be presented to government official

Reaches funds held in trust or administered by government, money provided to a recipient, or money which the government will reimburse

“Public disclosure” bar may be raised only by United States Cripples defendant’s and court’s ability to limit qui tam cases to those where relator provides new information

New contractor “mandatory disclosures” could become basis of qui tam action

Eliminates “particularity” obligation for relators’ FCA complaints

General rule: complaint must allege “who, what, where, when, and how”

Bill: need not identify “specific claims” if allegations provide “reasonable indication” that FCA violated and “adequate notice” of “specific misconduct” to allow defense

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Federal FCA Developments

S. 386, Fraud Enforcement and Recovery Act (approved by Senate April 28): Similar provisions regarding presentment

S. 458, False Claims Clarification Act Still before Judiciary Committee Similar to legislation introduced last term in Senate

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Impact of the Federal DRA on State/Local FCA Activity DRA provides enhanced FCA recoveries for states with qualifying FCAs

State FCAs must meet certain standards and receive HHS OIG approval: Establish FCA liability for false/fraudulent claims related to state Medicaid plans

Provisions “at least as effective” concerning qui tam claims as those in federal FCA

Sealed qui tam filing provision with state AG review

Civil penalties at least equal to those in federal FCA

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Impact of the Federal DRA on State/Local FCA Activity

Status: 20 states have submitted FCAs for review 13 approved (including TX, CA, NY) 7 rejected (including FL, MI, NJ, NM, OK)

Reasons include: Relaxed standards for awards of fees to defendants

Limitations on relators (right to proceed, size of recovery share)

Intent standard stricter than federal FCA

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State of Play: Existing State/Local FCAs Existing FCAs: 25 states

22 with qui tam provisions 3 with relator recovery provisions up to 50% 15 are “general” FCA statutes 6 are limited to health care/Medicaid fraud 2 have separate general and health care provisions

Pending FCAs: 9 states 2 states with pending amendment legislation

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Recent State FCA Cases

Armenta (Cal. App. 2006): Unique “passive beneficiary” in CFCA Third party (parent) which becomes aware of inadvertent provision or intentionally submitted false claim and does not disclose may be liable

Subsidiary falsely represented that its products complied with code

Parent later learned through testing that representations were false

Court found that parent could be liable even if claims were submitted inadvertently by subsidiary

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Recent State FCA Cases

Fassberg (Cal. App. 2007): CFCA authorizes treble damages for knowingly presenting false claim or false record

CFCA authorizes civil penalties only (of up to $10,000) for each false claim, not false record

Only progress payment requests were false claims

Federal FCA precedent not employed – difference in construction

Demonstrates risks of possible “counterattack” by government when claiming breach of contract

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Recent State FCA Cases

Kennedy (N.D.Ill. 2008): Both federal and Illinois FCA claims Relators allege Aventis marketed a drug for numerous off-label uses

Caused medical providers to submit fraudulent Medicare claims

Court dismissed federal and “parallel” Illinois FCA claims

Payments not based on drugs prescribed/used Payment based on diagnosis-related group codes (“DRGs”) DRGs based on diagnosis/age, not on drugs prescribed Individual patient charges for drug not material to decision to pay

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Recent State FCA Cases

Abbott Labs (TX 2008): Settlement under Texas Medicaid Fraud Prevention Act Latest of drug pricing settlements with several pharmaceutical companies

Three-way settlement involving relator and Texas AG Alleged false reporting of pricing to the Texas Vendor Drug Program

Result: Inflated reimbursement by Medicaid to providers

$28M settlement Shares to state, relators, United States Includes fees to state, relators

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Predictions

Federal FCA amendments will enhance prospects for liability

State/local FCA enactments/amendments will continue; issues for non-health care contractors

Will states be required to amend FCAs to comport with any federal FCA amendments?

Impact of December 2008 federal ethics/disclosure rule and DRA: creating new “whistleblowers”