The False Claims Act (“FCA”), 31 U.S.C. §§ 3729 et seq., allows a whistleblower (also called a “relator”) to file a qui tam suit on behalf of the federal government to recover government monies that were fraudulently obtained by individuals and entities. If the case is successful, the relator may receive a portion of the government’s recovery. The FCA is the primary mechanism used by the Department of Justice to prosecute fraud in a wide variety of contexts, including healthcare. Enforcement under the FCA has been highly successful. Since 1986, when the government first started tracking FCA statistics, the government has recouped more than $70 billion, much of which is related to healthcare fraud.
However, the whistleblower provisions of the FCA were primarily intended for individuals with highly credible, “insider” information about the fraudulent scheme. Conversely, the FCA discourages suits by corporate “outsiders” who are less likely to have reliable information, which may ultimately lead to a fruitless fishing expedition that wastes the scarce time and resources of all parties involved, including the government.
The importance given to “insider” information is reflected in the heightened pleading standard under Federal Rule of Civil Procedure 9(b) applicable to FCA suits. Under that standard, the relator is required to identify what false statement was made, when it was made, who made it, and how the defendant’s conduct led to the submission of false claims. In particular, courts have required the relator to plead the “submission of a false claim” in detail (also called the “presentment” element), typically by identifying sample transactions, invoices, or purchase orders. Even where the relator is unable to identify specific transactions or claims, courts generally give more leeway to individuals who were in positions where they would have first-hand, seen-with-their-own-eyes knowledge as to the submission of false claims.
Corporate outsiders, by their nature, often have difficulties alleging the details of the fraudulent scheme, and especially the presentment element, due to the lack of first-hand information. For example, imagine that a rival competitor files a qui tam suit against Company A, based on some second-hand information that Company A may be engaged in a kickback scheme. Even if the relator successfully outlines the kickback scheme, it is unlikely to have specific information as to how the kickback-tainted claims were actually billed to government payors. This isn’t to say that corporate outsiders can never bring a successful qui tam FCA case against a company, but outsiders face a very steep hurdle at the motion-to-dismiss stage.
Challenging Outsider Suits Based on the Public Disclosure Bar
An outsider may seek to bolster their case with publicly available information, even going as far as to lift the allegations from a prior case or another public source. This can trigger the “public disclosure bar,” which prohibits cases where “substantially the same allegations” were made public by certain enumerated sources, including the news media, prior enforcement cases in which the government was a party, and reports and other documents from a government agency, unless the relator is the “original source” who provided the information to the Government before it became publicly known. But, for obvious reasons, outsiders generally do not qualify as “original sources.”
It is important to pay close attention to where the relator may have obtained their information. Not all public information comes within the scope of the public disclosure bar. For example, if information regarding fraud is disclosed in a commercial litigation between private parties, the public disclosure bar will not apply because the government was not a party to that litigation. However, any document filed by, or on behalf of, a government agency, such as the Government Accountability Office, may be subject to the public disclosure bar.
Explaining the Prevalence of Outsider Qui Tam Suits
Despite these procedural challenges, there is no shortage of qui tam suits brought by corporate outsiders. It turns out that the stringent pleading requirements do little to deter outsiders from filing cases because the pleading requirements only kick in once the government has investigated the matter and declined intervention, such that the relator must prosecute the matter without the government post-declination.
Prior to declination, the FCA mechanism ensures, in nearly every case, that the US Attorney’s Office will conduct some investigation into the relator’s allegations. The investigation generally involves at least one “relator interview” followed by a multi-year investigation. If the government substantiates the fraud allegations and decides to run with the case, the relator’s inability to meet the pleading requirements of Rule 9(b) poses no obstacle to the government. The FCA mechanism incentivizes relators with limited, unreliable, and/or second-hand information to file qui tam cases, since there is always the possibility that the government’s preliminary investigation may bear fruit and lead to intervention. There are little financial downsides to the relator (other than the court filing fee) because the case can be easily dismissed if the government chooses to decline intervention.
Thus, outsider qui tam suits will continue to be filed against healthcare providers even by those who have little personal knowledge about the alleged fraud. It is further imperative for a company, pharmacy, or practice that becomes a target of an FCA investigation to immediately retain experienced counsel that can provide guidance to minimize exposure, interface with the US Attorney’s Office, and bring the investigation to a close as quickly as possible.
How Frier Levitt Can Help
Frier Levitt represents healthcare providers, pharmacies, hospitals, and other entities in the healthcare and life sciences industries in False Claims Act investigations and litigation. We can provide guidance regarding the numerous regulatory safe harbors and exceptions applicable to many types of FCA fraud theories, including the Anti-Kickback Statute and the Stark Law. Contact us to learn more.
