Developments in False Claims Act Enforcement

Gone are the days of the False Claims Act (FCA) being associated primarily with defense and other government contractors. Amendments to the Civil War–era statute have expanded the FCA’s reach and emboldened the US Department of Justice (DOJ) and qui tam relators’ bar to bring allegations against businesses in all sectors. While the main basis for FCA liability is making a false claim for payment to the government, which remains the focus of allegations against defense and other government contractors and those in the healthcare industry, relators and the Justice Department alike have increased their use of the “reverse false claim” provision to allege that purely commercial businesses with no ties to a government contract or government funding have violated the FCA by avoiding an obligation to pay government customs duties.

Those facing these civil allegations are met with the prospect of treble damages, per-claim penalties, and a host of significant collateral consequences. We highlight below recent enforcement trends and emerging issues with the FCA across the industry.

FCA IN THE COURTS

The last US Supreme Court term saw two cases with a direct impact on the FCA. The first, United States ex rel. Schutte v. SuperValu Inc., found that a subjective, rather than objective, scienter standard applies in the case of ambiguous requirements. That holding, and certain other comments from the Court about the FCA’s “knowing” standard, has already generated significant discussion in the lower courts. In the second, United States ex rel. Polansky v. Executive Health Resources, Inc., the Court found that the DOJ has easily met dismissal authority, even after an initial decision declining to intervene in a qui tam suit.

It remains to be seen whether the Polansky decision will encourage the DOJ to exercise its authority more often, finally providing FCA defendants with much-needed relief from the burden of defending suits. While the key Polansky holding itself was not much of a surprise, that three justices expressed skepticism about the constitutionality of the FCA’s qui tam provision—which allows private parties to proceed with litigation “on behalf of” the government—was unexpected and will likely result in additional defense challenges on this basis in the future.

There are several other legal issues percolating in the lower courts, including

• FCA/Anti-Kickback Statute (AKS) Causation — Whether the government must prove an alleged kickback caused a false claim for payment.
• FCA/AKS Scienter — Whether an alleged AKS violation serving as the predicate for FCA claims requires “corrupt” intent.
• FCA Falsity — Whether clinical/scientific opinions must be “objectively false” to trigger liability.
• FCA Materiality — Whether the government’s continued payment after knowing of allegations dispositively shows lack of materiality or if it is only relevant to the materiality question.

FCA ENFORCEMENT TRENDS

Healthcare

The DOJ and relators’ bar have focused, and likely will continue to focus, enforcement efforts on healthcare companies. Some recent focus areas include the following:

• Telehealth and other technology-aided provider services arose by necessity during the COVID-19 pandemic and have become incredibly popular. FCA enforcement has focused primarily on questions involving the quality of remote patient encounters, including the prescriptions resulting from such encounters and from compensation and credentialing for remote providers.
• Alleged kickbacks resulting from patient support programs—including those providing co-payment assistance, transportation, and assistance for clinics and nonprofits—have been a focus for relators and the government.
• A related kickback issue is the involvement of nonemployee healthcare professionals in promoting products or services through paid speaker events, consultancies, and other “white coat” marketing.

Government Contractors

While likely already familiar with the FCA and the types of conduct that have led to FCA allegations in the past, government contractors should be aware of new theories and enforcement developments. For example:

• The DOJ has created a task force to “combat antitrust crimes and related schemes in government procurement, grant, and program funding at all levels of government.”
• Often vague and ever-evolving cybersecurity requirements are now the standard fare for government contracts.

State Laws

Most states have their own civil false claims statutes, many of which are modeled after the federal statute. While in the past these were primarily seen as “add-on” allegations to an FCA suit, particularly where joint federal-state funding under Medicaid was implicated, there’s been an uptick in standalone state false claims enforcement, particularly with respect to alleged escheatment/abandoned property misconduct and tax evasion, an area specifically exempted from the federal FCA.

TRADE: FERTILE GROUND FOR FCA ENFORCEMENT

FCA cases related to international trade posing a risk to the commercial business sector have increased, and oftentimes involve the alleged misclassification of goods, undervaluation of goods, and inaccurate country of origin marking.

The intersection of trade and FCA enforcement raises a few key questions, including:

• Does prior disclosure eliminate or at least mitigate FCA claims?
• Are alleged customs violations proper predicates for FCA claims given the separate and established customs enforcement regime?

TIPS AND BEST PRACTICES

Given the expansion of FCA enforcement, businesses should

• take time to update compliance and monitoring programs;
• establish and record the rationale behind decisions, whether for promoting products, treating abandoned property for escheatment purposes, or selecting the classification of an imported item; and
• keep up to date on enforcement trends under and in the legal landscape of the FCA and state analogs.