FCA Alert : Lawyers & Attorneys for Whistleblower, False Claims Act & Qui Tam Defense : Kelley Drye & Warren LLP

On February 18, 2011, the Seventh Circuit issued a decision concerning the pre-PPACA version of the public disclosure bar under the False Claims Act. See United States ex rel. Baltazar v. Warden and Advances Healthcare Associates, No. 09-2167. The relator, a chiropractic physician, was employed by the defendants for four months in 2007. She alleges that the defendants engaged in a scheme to defraud the Medicare and Medicaid programs by (1) billing for chiropractic services that were not rendered and (2) billing for more expensive procedures than were actually provided (i.e., “upcoding”). The relator alleges that she quit once she discovered the defendants’ allegedly improper billing practices.
 

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This is our final post on United States ex rel. Blundell v. Dialysis Clinic, Inc., No. 5:09-cv-00710 (N.D.N.Y. Jan. 19, 2011), a qui tam action against a dialysis treatment center based on alleged quality of care issues that was recently dismissed pursuant to Rules 9(b) and 12(b)(6).  In the Dialysis Clinic case, the relator, a nurse who had been employed by the center from August 2007 until October 2008, alleged that the center violated certain state and federal standards and regulatory requirements by, e.g., failing to provide adequate staffing, using unqualified personnel, permitting personal care technicians to perform nursing functions, and failing to adequately train employees to handle emergency situations. The relator further claimed that these alleged deficiencies compromised patient care for beneficiaries under the Medicare, Medicaid, and Veterans’ Administration programs. The relator alleged violations of the False Claims Act based on worthless services and false certification theories of liability. The government declined to intervene in the action.

Today, we discuss the court’s ruling on the defendant’s Rule 12(b)(1) motion to dismiss the action for lack of subject matter jurisdiction under the False Claims Act’s public disclosure bar.

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The topic of discussion this week is United States ex rel. Blundell v. Dialysis Clinic, Inc., No. 5:09-cv-00710 (N.D.N.Y. Jan. 19, 2011) , a qui tam action against a dialysis treatment center based on alleged quality of care issues that was recently dismissed pursuant to Rules 9(b) and 12(b)(6). In the Dialysis Clinic case, the relator, a nurse who had been employed by the center, alleged that the center violated certain state and federal standards and regulatory requirements by, e.g., failing to provide adequate staffing, using unqualified personnel, permitting personal care technicians to perform nursing functions, and failing to adequately train employees to handle emergency situations. The relator further claimed that these alleged deficiencies compromised patient care for beneficiaries under the Medicare, Medicaid, and Veterans’ Administration programs. The relator alleged violations of the False Claims Act based on worthless services and false certification theories of liability. The government declined to intervene. The defendant moved to dismiss.

Today, we discuss the portions of the court’s opinion that addressed the defendant’s successful motion to dismiss under Rules 9(b) and 12(b)(6).

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Last month, a court in the Northern District of New York dismissed a qui tam action against a dialysis treatment center based on alleged quality of care issues. See United States ex rel. Blundell v. Dialysis Clinic, Inc., No. 5:09-cv-00710 (N.D.N.Y. Jan. 19, 2011). In the Dialysis Clinic case, the relator, a nurse who had been employed by the center, alleged that the center violated certain state and federal standards and regulatory requirements by, e.g., failing to provide adequate staffing, using unqualified personnel, permitting personal care technicians to perform nursing functions, and failing to adequately train employees to handle emergency situations. The relator further claimed that these alleged deficiencies compromised patient care for beneficiaries under the Medicare, Medicaid, and Veterans’ Administration programs. The relator alleged violations of the False Claims Act based on worthless services and false certification theories of liability.

In 1996, the U.S. Attorney’s Office for the Eastern District of Pennsylvania filed the first action seeking to establish FCA liability for substandard patient care in United States v. GMS Management-Tucker, Inc. et al., No. 96-1271 (E.D. Pa. 1996). The government alleged that the Tucker nursing home provided inadequate nutritional and wound care to three residents. The case settled for $600,000 before any court decisions were issued addressing the viability of the government’s novel theory of FCA liability. In 1998, the same U.S. Attorney’s Office obtained settlements from several other Pennsylvania nursing homes based on similar quality of care allegations. See United States v. Chester Care, No. 98-cv-139 (E.D. Pa.); United States v. City of Philadelphia, No. 96-cv-4253 (E.D. Pa.). As with the Tucker settlement, these settlements were reached before any court addressed the merits of the government’s theory of FCA liability.

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On January 12, 2011, a district court in the Eastern District of Virginia dismissed a qui tam action which involved claims that a private commercial lender authorized to make post-secondary education loans pursuant to the Federal Family Education Loan Program violated the False Claims Act. In United States ex rel. Jones v. Collegiate Funding Services, Inc., et al., Civ. Action No. 3:07-cv-290 (E.D.Va.), relators, former employees in the telemarketing departments of defendants, first alleged that defendants violated the Higher Education Act’s anti-inducement provisions by entering into unlawful preferred-lender agreements with colleges and universities and agreeing to undertake those institutions’ obligations to provide personalized exit loan counseling to graduates. The court dismissed these claims for lack of subject matter jurisdiction based on the prior public disclosure bar.

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Yes, but only if the government declines to intervene in the action.  United States ex rel. Kolbeck v. Point Blank Solutions, Inc., 1:08-cv-1187 (E.D. Va.), recently addressed this issue.

Section 362(a) of the Bankruptcy Code, commonly referred to as the automatic stay provision, provides the general rule that a petition filed under Title 11 of the Bankruptcy Code “[o]perates as a stay, applicable to all entities, of … the commencement or continuation … of a judicial, administrative, or other action or proceeding against a debtor that was or could have been commenced before the commencement of the case under [the Bankruptcy Code].” 11 U.S.C. § 362(a).

An exception to this rule is the “governmental police powers” exception, codified at 11 U.S.C. § 362(b)(4), which provides that the filing of a bankruptcy petition does not operate to stay “an action or proceeding by a governmental unit” to enforce that governmental unit’s police and regulatory power. Courts have held that an action under the False Claims Act qualifies as an action to enforce the government’s police or regulatory power. See United States ex rel. Goldstein v. P & M Draperies, Inc., 303 B.R. 601, 603 (D. Md. 2004); In re Commonwealth Companies, Inc., 913 F.2d 518, 527 (8th Cir. 1990); United States ex rel. Jane Doe v. X, Inc., 246 B.R. 817, 818 (E.D. 2000).

In the Point Blank Solutions case, the Eastern District of Virginia held that a qui tam action under the federal False Claims Act in which the government has expressly declined to intervene is not “an action or proceeding by a governmental unit” so as to fall within the governmental police powers exception to the Bankruptcy Code’s automatic stay. Because the government declined intervention in the FCA case, the court therefore held that the action was appropriately stayed against two corporate defendants in bankruptcy.
 

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Last week, the DOJ and HHS released the following statistics about qui tam actions under the federal False Claims Act that are currently pending under seal:

• As of January 4, 2011, there were 1,341 qui tam cases under investigation awaiting an intervention decision from the government.
   
• Of these 1,341 cases, 885 (or 66%) of the cases allege health care fraud.
   
• 867 (or 98%) of sealed health care fraud cases involve Medicare or Medicaid.
   
• DOJ/HHS declined to disclose how many cases under seal involve off-label marketing allegations, but revealed generally that 180 cases allege fraud in connection with the pricing and marketing of pharmaceuticals. According to the DOJ/HHS, many of these cases make allegations against multiple pharmaceutical manufacturers.
   
• From October 1, 2006 to January 4, 2011, the government made intervention decisions in 1644 cases; of these 1644 cases, the government intervened in 365 (22%) and declined to intervene in 1,279 (78%).
   
• For qui tam cases filed since October 1, 2006, the average length of time a case remained under seal is 13 months.

For more FCA statistics, click here.

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