1. Federal False Claims Act and Qui Tam Actions Law Journal Press Webinar By: Joel M. Androphy, Sarah Frazier & Rachel Grier Berg & Androphy1

2. 2 Qui Tam Actions: The Basics Qui Tam Actions: The Basics A federal statute that permits private individuals a monetary remedy for successfully bringing suits alleging frauds committed upon the federal government. Without qui tam actions, many reports of wrongdoing against the government would otherwise go unnoticed. The economic incentives provided by qui tam actions promote private enforcement of federal legislation.

3. Berg & Androphy3 “Qui Tam”: What does it mean? Qui tam pro domino rege quam pro se ipso in hoc parte sequitur –He who sues for the king as well as for himself. It is a provision under the False Claims Act which allows for a private individual (or “relator”) with knowledge of past or present fraud committed against the U.S. government to a bring a suit on its behalf. If the suit proves to be successful, the relator takes a share of the recovered proceeds as a reward for “blowing the whistle” on the fraudulent conduct.

4. Berg & Androphy4 History of FCA Qui Tam Actions “ Lincoln’s Law”: Signed into law by Abraham Lincoln on March 2, 1863 to combat fraud against the U.S. Army during the Civil War. The fraud came from both military personal and civilian contractors and tended to be unscrupulous. Qui Tam cases were only being pursued against government contractors who committed against the U.S. Army. After the war ended and the opportunities to commit fraud declined, very few Qui Tam cases were filed. Today the act applies to fraud committed by all governmental contractors.

5. Berg & Androphy5 What is a “Claim”? CLAIM: encompasses virtually all demands or requests that cause disbursement of federal funds. –Any action by the claimant which has the purpose and effect of causing the United States to pay out money it is not obligated to pay, or any action which intentionally deprives the United States of money it is lawfully due. –Each separate submission to the Government seeking payment is a claim for purposes of the FCA, even if the submissions are made pursuant to a single contract.

6. Berg & Androphy6 What Proof is Required Witness Testimony of Illegal Practices Documents –Paper trail/examples of claims for reimbursement (circuit split) –Internal corporate records, emails and correspondence –Limits of whistleblower access Tape recordings, videos, PowerPoint presentations Expert testimony

7. Berg & Androphy7 Mens Rea FCA subjects requires the defendant to “knowingly” submitting or causing the submission of a false claim. A claim is "knowingly" made if: –there is actual knowledge, or –deliberate indifference to the truth or falsity, or –reckless disregard of the truth or falsity.

8. Berg & Androphy8 Types of Claims Direct False Claims –An intentional false representation that causes the Government to pay more than it would have absent the misrepresentation Ex. A physician submits claims to Medicare for surgeries he did not perform. Express False Certification Claims –Where a defendant expressly and specifically certifies compliance with a required contract provision, statute, regulation, or governmental program Ex. Healthcare provider submits a prior authorization form for a drug and certifies that the drug is medically necessary. Conditions of payment versus participation Implied False Certification Claims –Liability is imposed on the premise of contractual breach or implied responsibility, even if the defendant doesn’t expressly certify compliance Ex. Defendant submits accurate bill to the government for the construction of a building, but fails to adhere to a specific term requiring the disposal of waste to be in accordance with the EPA—regardless of whether the defendant never expressly certified compliance with that term or whether there was any financial loss to the Government. Ex. Healthcare providers impliedly certify compliance with all laws applicable to Medicare such as the Anti-Kickback Statute. Conditions of payment versus participation

9. Berg & Androphy9 Common Theories of Liability False claims found when a government contractor: –[1] Presents a False Claim knowingly presents or causes to be presented to the Government a fraudulent claim for payment or approval –[2] Uses a False Record Knowingly makes, uses or causes to be made or used, a false record or statement to get a false or fraudulent claim paid or approved by the Government Current Issue: Allison Engine Co. v U.S. ex rel. Sanders requires a showing that the defendant had specific intent of “getting ‘a false or fraudulent claim paid or approved by the Government.’” –[3] Conspiracy Conspires to defraud the Government by getting a false or fraudulent claim allowed or paid Current Issue: Under Allison Engine Co. v U.S. ex rel. Sanders, it is not enough to show that the conspirators agreed upon a fraud scheme. Allison requires a showing that the conspirators had specific intent of “getting ‘a false or fraudulent claim paid or approved by the Government.’” –[4] Reverse False Claims Knowingly makes, uses, or causes to be made or uses, a false record or statement to conceal, avoid, or decreases an obligation to or transmit money or property to the Government Current Issue: The obligation must be a fixed obligation and cannot be potential or contingent

10. Berg & Androphy10 Types of Cases Healthcare Fraud –Fraudulent Billing –Anti-Kickback Statute violations –“Best Price” –“Off-Label” marketing –Defective Medical Devices Defense Fraud –False Product –Mischarge Environmental Fraud –Government contractor certifies compliance with EPA laws such as the Clean Water Act, the Clean Air Act, and the Resource Conservation Recovery Act. Financial Services Industry –Liability arises from the use of fraudulent statements in loan applications to federal agencies

11. Berg & Androphy11 Types of Cases (continued) Oil and Gas –Defendant underpays royalty payments to the Government pursuant to an oil and gas lease Scientific Research –Involve the liability of hospitals and universities for providing false information to obtain federal funding for research –If a hospital or university receives a grant from the Government to fund a research program, it could be liable under the FCA for failing to comply with conditions required to receive that grant.

12. Protection from Retaliation FCA protects any employee who is discriminated against by his or her employer because of lawful acts done by the employee in furtherance of an FCA claim Damages—all relief necessary to make employee whole, including: – –2 times amount of back pay + interest – –Reinstatement with same seniority status – –Special damages (including attorneys’ fees and litigation cost) Statute of limitations for retaliation claim is the most analogous state law limitations period Berg & Androphy12

13. Jurisdiction and Venue – –Suit may be brought in any judicial district in which: The defendant can be found, resides or transacts business Any FCA violation occurred Court may exercise supplemental jurisdiction over related state law claims Berg & Androphy13

14. Berg & Androphy14 Statute of Limitations The statute of limitations for an FCA action bars a claim that is brought: –more than 6 years after the date of which the violation occurred, or –More than 3 years after the date when the facts material to the right of action are known or should have been known by the official of the United States charged with responsibility to act in the circumstances but in no event no more than 10 years after the date on which the violation is committed, whichever occurs last. Current issues regarding relation back doctrine

15. Preparing a Disclosure Statement Under the FCA, a relator must serve the government with 2 types of disclosures: ▪ prior to suit to qualify as original source ▪ at time of filing as required by statute The disclosure must contain all material evidence and information the relator possesses There is no set requirements on how specific the statement should be A disclosure statement may or may not be protected work product. Berg & Androphy15

16. Complaint Considerations Only the first to file can maintain an action for any given set of “allegations or transactions” Federal Rule of Civil Procedure 9(b) issues File complaint under seal Do not serve defendant with complaint 60-day initial seal period –Government usually requests an initial six-month extension Berg & Androphy16

17. Berg & Androphy17 Public Disclosure Bar A jurisdictional bar that bars any FCA action that is based upon allegations that have already been publicly disclosed. Public disclosures are limited to the allegations or transactions of fraud made in a criminal, civil, or administrative hearing, in a congressional, administrative, or General Accounting Office report, or from the news media.

18. Berg & Androphy18 Public Disclosure Bar: What Constitutes Public Disclosure Discovery –Depends on the circuit Some circuits narrowly apply the bar and hold that only discovery that is actually filed with the court is a public disclosure. Other circuits adopted a broad view and hold that all discovery, whether filed or not, constitutes public disclosure. Freedom of Information Act Requests –Circuit split Amended Complaints –Courts have held that amended complaints are subject to the public disclosure bar if the public disclosure occurs before the amended complaint. –“Relation Back” safety valve

19. “Original Source” If there is public disclosure, to qualify as an “original source” the relator must: 1.have “direct and independent knowledge of the information on which the allegations are based” and 2. “voluntarily provide the information to the Government before filing an action” under the FCA. 31 U.S.C. § 3730(e)(4)(B). Berg & Androphy19

20. Damages and Consequences Up to three times the amount of damages may be assessed against the defendant Defendant often required to sign a Corporate Integrity Agreement with OIG Penalties ranging from $5,500 - $11,000 per claim Berg & Androphy20

21. Government Intervention During the seal period, the government investigates and decides whether to intervene or not Consequences of Intervention –The government takes the lead in prosecuting the case with the relator remaining a party to the case –Relator cannot interfere with the government’s prosecution Consequences of Non-Intervention –The relator bears the burden of litigating the case –The government can jump back in at a later date –Any decisions about settlement or dismissal must be approved by the government –Relator cannot proceed pro se Berg & Androphy21

22. Relator Recovery Government intervention –15% to 25% of the recovery Government does not intervene –25% to 30% of the recovery Berg & Androphy22

23. Berg & Androphy23 What about State fraud? The Federal FCA only applies to fraud committed against the Federal Government, including federally-funded state programs. 21 states and the District of Columbia have already passed FCAs that are very similar to the federal version that allow for qui tam actions based on fraud committed on the state government –Some of the states’ acts copy the language of the federal version verbatim –Because of the Deficit Reduction Act, all states will soon have their own FCA that will be at least as stringent as the federal version There are some differences between a few of the state FCAs and the Federal version –Some states have increased the relator’s share –Some only apply to Medicaid –Some have additional prohibited conduct

24. Key Issues: Qui Tam Relators 1. Where to file/Venue 2. First to file 3. No public disclosure 4. Original source status 5. Plead with detail & specificity 6. Good documentation 7. Fraud not mismanagement/mistakes 8. Criminal Issues 9. Damages & Penalties 10. Retaliation Berg & Androphy24

25. Key Issues: Qui Tam Defense 1. Preventing lawsuits 2. Investigating complaints 3. Intervention issues/dealing with government agencies 4. Parallel issues: civil and criminal 5. Motions to dismiss/summary judgment 6. Discovery/technical issues 7. Settlement issues/Corporate Integrity Agreement 8. Publicity issues 9. Retaliation defenses 10. Releases on termination Berg & Androphy25

26. Preventing FCA Lawsuits Never ignore legitimate complaints Follow corporate compliance programs Make sure employees feel comfortable with reporting criminal activities Releases & severance agreements

27. Investigating Cases Under Seal Internal Investigations Conduct exit interviews for employees who have repeatedly complained about corporate policy Be alert for current or former employees who have received administrative subpoenas

28. Common Defense Tactics Failure to state a claim under 12(b)(6) Failure to pled with specificity as required by 9(b) Public disclosure bar Mens Rea Issues Express and implied certifications Conditions of payment versus participation Berg & Androphy28

29. Berg & Androphy 3704 Travis Street Houston, Texas 77002 713-529-5622 Federal False Claims Act and Qui Tam Litigation (Law Journal Press) By: Joel M. Androphy Berg & Androphy29

30. Berg & Androphy30 End of presentation