Top 5 False Claims Act Trends to Watch In 2019

There were some significant developments in the False Claims Act world last year.

Here is a countdown of the top five “hits” of 2018 to be aware of — and predictions on how they will impact the year ahead:

#5. Government Recoveries Were Down Overall in 2018, but Healthcare Remains A Big-Dollar Target

What happened in 2018:

  • Settlements were down. The Department of Justice reported recovering more than $2.8 billion in settlements and judgments during 2018, down from the FY 2014 high-water mark of $6 billion.
  • Healthcare recoveries held steady. DOJ has recovered about $2.5 billion in healthcare fraud matters in each of the last several years.  Procurement fraud represented a smaller portion of the overall recoveries in 2018.
  • New procurement filings are up – a little. The number of new Defense and “other” procurement cases filed in 2018 increased slightly – meaning that those cases will mature in 2019 and beyond.

What to look for in 2019:

  • The pipeline is full. The total dollar figure for recoveries in a single year is less important than the number and quality of cases in the DOJ investigations pipeline. The current pipeline is pretty packed – more than 3,000 new cases were initiated between 2015 and 2018.
  • Focus on drugs and devices. These companies will continue to be a prime focus of healthcare fraud investigations and the source of large recoveries.
  • Opioid crisis. Expect DOJ to use the False Claims Act in its efforts to combat the opioid crisis; the 2018 example to follow is the Insys Therapeutics case, which alleges that the defendant paid kickbacks to induce prescriptions for its fentanyl spray.
  • Follow the money. Contractors who have enjoyed increased government spending on defense and procurement over the last couple of years are likely targets for investigation.

#4. Revised Corporate Cooperation Requirements Still Look For Individual Responsibility

What happened in 2018:

  • Backtrack from all-or-nothing cooperation. DOJ softened its expectation that companies must identify all the people and facts that gave rise to unlawful conduct in order to earn cooperation “credit.” The revised approach is now part of the Justice Manual.
  • Accountability versus government resources. DOJ must still evaluate whether to pursue criminal or civil charges against individuals. In the civil context, DOJ may consider whether pursuing individuals is an efficient use of government resources, especially where ability to pay is an issue.

What to look for in 2019:

  • Incentive to cooperate. Companies who assist DOJ attorneys in identifying individuals responsible for or involved with the conduct at issue may likely be able to resolve any corporate liability more quickly.
  • Ability to pay agreements. The revised policy creates room to argue that pursuing individuals under the False Claims Act would not be an efficient use of government resources.
  • Alternative solutions. Companies, individuals, and their counsel have the opportunity to suggest alternatives to FCA liability that will address and avoid the conduct.

#3. The Department of Justice Will Dismiss Whistleblower Actions – Sometimes

What happened in 2018:

  • The “Granston Memo.” The Director of the Civil Fraud Section issued internal guidance about when the government should affirmatively dismiss a case rather than allow the whistleblower to proceed. Those factors have now been incorporated into the Justice Manual.
  • Cases that undermine U.S. policy dismissed. DOJ flexed its dismissal muscle at the end of the year, when it moved to dismiss eleven related lawsuits, explaining that the whistleblower’s theory of liability undermined, rather than advanced, the United States’ health care policies.

What to look for in 2019:

  • More affirmative dismissals. Whistleblowers and their attorneys should listen closely if DOJ raises the issue of an affirmative dismissal.
  • Tailored allegations and theories. Whistleblowers may persuade the government to allow a case to proceed under a narrowed set of allegations or a revised legal theory that will avoid unduly burdensome discovery and limit the risk of bad precedent.
  • Decline and dismiss. Defendants can use the Granston Memo factors to argue that DOJ not only should decline the case, but dismiss it as well. The best opportunity for making that argument, though, is at or before an intervention decision is made.

#2. The Supreme Court Takes On Review Of The FCA’s Statute Of Limitations

What happened in 2018:

  • Cert granted. The Supreme Court agreed to examine the False Claims Act’s statute of limitations in Cochise Consultancy Inc. v. United States, ex rel. Hunt. At issue is whether a whistleblower can rely upon the Act’s three-year period in the same fashion as “an official of the United States” when the government has declined to intervene in the case.

What to look for in 2019:

  • Circuit split resolution. Until the Supreme Court weighs in, the Circuit Courts are split three ways in applying limitations provision at issue. Arguments in Hunt will be heard in March, with a decision likely in May or June.
  • Who, what, when? Defendants in declined qui tam cases should explore: what did the whistleblower know, what did the government know, and when did each of them know it?

#1. The Fight Over Materiality Lives On

What happened in 2018:

  • Clarification of Escobar denied. Cert petitions were filed in three cases in late 2017-2018 seeking clarification on how to interpret the False Claims Act’s materiality requirement following the Supreme Court’s 2016 decision in Universal Health Services, Inc. v. United States ex rel. Escobar, et al. So far, two of the petitions have been denied.
  • The United States tanks Gilead. In amicus briefing in Gilead Science, Inc. v. United States ex rel. Campie, the government supported the 9th Circuit’s view that materiality cannot be decided at the pleadings stage, but then declared that it would affirmatively dismiss this case on remand to the trial court, explaining that “allowing this suit to proceed to discovery (and potentially a trial) would impinge on agency decision making and discretion and would disserve the interests of the United States.” Not surprisingly, the Supreme Court declined to hear the case.
  • Decision to overturn jury verdict stands. In United States ex rel. Harman v. Trinity Industries, Inc., et al., the 5th Circuit vacated a $663 million jury verdict based on evidence that the government continued to pay for the defendant’s products even after becoming aware of the underlying facts creating falsity.  Again, the Justices denied cert.

What to look for in 2019:

  • Third time’s a charm? The Justices have not decided whether to grant the cert petition currently pending in  Brookdale Senior Living Communities, Inc., et al. v.  United States ex rel. Prather.  The petitioners seek to challenge the 6th Circuit reversal of motion to dismiss.  At issue is what kinds of allegations about materiality are sufficient to allow a complaint to survive.
  • Impact on pleadings and discovery. DOJ, whistleblowers, and defendants all will want to brush up on the most recent cases from their districts and circuits for guidance on issues such as: how much factual detail is required to support allegations of materiality in a False Claims Act complaint?  What kinds of evidence will support – or defeat – a finding of materiality in a particular case?  What are the best, and reasonably efficient, sources for developing evidence around materiality?
  • Potential impact on payment decisions. Government agencies may change their approach to payment decisions in light of the ongoing materiality debate. The Centers for Medicare and Medicaid Services (CMS), for example, has authority to suspend Medicare payments based on a “credible allegation of fraud,” but historically has deferred implementing payment suspensions while DOJ investigates False Claims Act allegations.  CMS has been more aggressive in implementing payment suspensions in recent years – a trend that may be beneficial to the government in making materiality arguments, but potentially devastating to providers dependent on Medicare reimbursements.

April 23, 2019