Intervention in False Claims Act Lawsuits: Is It Make or Break?

Stay ahead of developments in federal and state health care law, regulation and transactions with timely, expert news and analysis.

By Eric Topor

The bulk of the $2.4 billion recovered by the federal government in 2016 from health-care False Claims Act settlements and judgments came from cases in which the Justice Department intervened.

That trend has been clear for at least the last 20 years, as the numbers provided by the agency show that total recoveries from intervened FCA lawsuits far outpace recoveries from FCA actions in which the Department of Justice didn’t intervene or were brought by the DOJ itself rather than by a whistle-blowers.

This trend persists even though the DOJ intervenes in only about 25 percent of whistle-blower cases alleging Medicare and Medicaid billing fraud, according to DOJ statistics and health-care attorneys who defend against these cases.

Nevertheless, annual recoveries for nonintervened cases have trended upwards as well, even though the government chooses to cherry pick the strongest whistle-blower FCA cases for intervention, according to several health-care attorneys. They told Bloomberg BNA that the uptick in nonintervened recoveries is a function of whistle-blowers’ increasing willingness to continue to pursue their claims after the DOJ declines to intervene.

In a nonintervened FCA action, a private whistle-blower chooses to continue litigating after the DOJ investigates the whistle-blower’s allegations but declines to intervene—known as declination.

FCA recovery statistics from DOJ also show that health-care whistle-blowers and the DOJ have a mutually beneficial relationship that makes annual FCA recoveries in the billions of dollars possible. The statistics show that although annual recoveries from FCA actions initiated by the DOJ are substantial, they are far eclipsed every year by the combined recoveries from intervened and nonintervened FCA actions filed by private whistle-blowers, known as qui-tam actions.

Bloomberg BNA surveyed whistle-blower attorneys and health-care attorneys from the FCA defense bar for their thoughts on the driving forces behind these trends and other FCA developments related to intervention that they have seen in their practices.

Reflection of the Merits

The disparity between recoveries from intervened and nonintervened FCA actions is “absolutely a reflection of the merit of the underlying allegations being investigated,” Brian Roark, a partner at Bass, Berry & Sims PLC in Nashville, Tenn., said. Roark is a Bloomberg BNA health-care advisory board member whose practice focuses on representing health-care providers and defending clients against FCA allegations.

The DOJ’s decision not to intervene isn’t considered a reflection on the merits from a legal standpoint, and a lack of agency resources to pursue every worthy FCA action brought to its attention is frequently cited as a reason the DOJ might not intervene in an otherwise meritorious FCA case. But Roark said “the decision by the United States whether to intervene or not absolutely affects the perception of the merits of a case.”

Marcella Auerbach, a whistle-blower attorney with Nolan Auerbach & White in Fort Lauderdale, Fla., agreed that DOJ intervention does indeed carry a perception. “When the government is your partner, you have vast resources and support, and it’s a definite signal to companies that the full force of the federal government will investigate the case,” Auerbach said.

FCA Recoveries in Health-Care Actions

Sandra Louise Weikel Miller said the DOJ is more likely to intervene in a case that involves a still developing area of FCA law and that the DOJ may also intervene “to control the process” of how the law develops in the courts. Miller is a partner with Womble Carlyle Sandridge & Rice LLP in Greenville, S.C., who represents hospitals and providers.

The DOJ might be more willing to stay out of an FCA case that it otherwise would consider for intervention “where it was brought by relator’s counsel they know” or involves an isolated case “not likely to make law,” Miller said. " Those types of nonintervened cases, Miller said, can present “nice big recoveries for relators and their counsel.”

Auerbach said that some defendants, “especially the large companies” can take declination as a signal of weak allegations. But Auerbach acknowledged that the government will intervene when presented with underlying FCA allegations that might otherwise qualify as “low hanging fruit.”

Big Recovery Distortion

Roark also noted that the recurring, large annual recoveries for intervened FCA cases, like the $2.4 billion in FY 2016, are “made up of a handful of extremely large settlements.” The result, Roark said, is the huge disparity between recoveries in intervened and nonintervened FCA actions.

Roark’s view has substantial support from looking at the top five health-care FCA settlements secured in FY 2016 by the DOJ, which intervened in all of them: Pfizer and its subsidiary Wyeth—$785 million total ($413 million to the federal government and $371 million to states);

Olympus Corp. of the Americas—$646 million ($267 million to the federal government, $43 million to states and $335 million in criminal penalties);

Tenet Healthcare—$513 million ($244 million to the federal government, $124 million to states and $145 million in forfeitures);

Novartis Pharmaceuticals—$410 million ($307 million to the federal government, $83 million to states and $20 million in civil forfeiture); and

Millennium Health—$260 million ($215 million to the federal government, $26 million to states and $19 million in administrative claims).

The list above makes clear that not only are a handful of very large FCA settlements driving the DOJ’s billion-dollar paydays, but they also are coming mostly from pharmaceutical companies and device manufacturers, the exception above being hospital system Tenet Healthcare. DOJ noted in the report that the $2.4 billion in FY 2016 recoveries only counts money paid to the federal government as part of a civil FCA settlement, while an individual settlement amount can include additional money paid to state Medicaid programs and criminal penalties.

Miller predicted the biggest FCA settlements in the future will likely continue to come from pharmaceutical and device makers. Miller attributed the trend to increasingly aggressive marketing from companies in these sectors, and inevitable bad apples in very large companies. “Controlling sales people across the entire United States is very difficult,” Miller said.

The same type of distortion is evident in nonintervened recovery statistics as well. One example cited by Auerbach was a DaVita HealthCare Partners settlement from 2015 for $450 million.

The DaVita settlement, which involved allegations that the company improperly billed Medicare for discarded medication, represented almost all of the $472 million in nonintervened recoveries for fiscal year 2015.

Solo Successes

Claire M. Sylvia, a partner at Phillips & Cohen LLP in San Francisco, said the disparity between intervened and nonintervened recoveries might be “changing over time.” Sylvia, whose practice is focused on whistle-blower representation, said larger recoveries in declined cases have increased in recent years.

Roark said a declination “still has very significant impact on how provider clients view cases.” But Roark said defense counsel has to caution clients that a declination from the DOJ “doesn’t meant the case will not go forward, “as might have often been the case in years past.

Nursing home chain Consulate Health Care experienced this firsthand when it was hit with a $347 million FCA judgment on March 1 following a jury trial in a nonintervened FCA lawsuit ( United States ex rel. Ruckh v. CMCII, LLC , No. 11-cv-1303 (M.D. Fla. 3/1/17) (judgment)). The lawsuit against Consulate was brought by Angela Ruckh, a registered nurse who worked as a consultant at two Consulate-managed skilled nursing facilities. She alleged that Consulate submitted illegally upcoded Medicare claims for patient therapy services.

Consulate has asked the court to set the jury verdict aside, but the court hasn’t addressed the motion yet. Consulate’s decision to take Ruckh’s claims all the way to trial is an example of another recent FCA trend: more companies are willing to litigate FCA claims rather than settle, regardless whether or not the government intervenes.

Take It to Trial

The staggering amount of money Consulate may ultimately owe to the federal government and Ruckh illustrates the danger of taking an FCA case all the way to trial, where the outcome may mean paying nothing with a win, or much more than might have been offered to settle earlier in litigation, with a trial loss. Nevertheless, Roark said FCA defendants are more willing now to fight FCA allegations all the way to trial.

“It’s a function of increasingly aggressive positions the government is taking, particularly in lack of medical necessity cases,” Roark said. “It’s really leaving defendants with no option other than to try the case.”

That is exactly what hospice provider AseraCare Hospice did in an intervened FCA action. There, the government intervened in a whistle-blower action alleging the provider falsely certified patients as eligible for hospice care under Medicare. The government lost the AseraCare case when the trial judge unexpectedly granted the provider summary judgment on the government’s allegations after the jury had returned a verdict against AseraCare ( United States ex rel. Paradies v. AseraCare, Inc., 176 F.Supp. 3d 1282, 2016 BL 100986 (N.D. Ala. 3/31/16)).

The federal trial judge presiding over the AseraCare litigation said a medical expert’s disagreement with the clinical judgment used to certify an AseraCare patient can’t prove falsity “as a matter of law” without some additional “objective evidence of falsity.” The AseraCare case was one of several FCA lawsuits the government was pursuing based on medical expert disagreement with a provider’s medical necessity judgment, according to Latham & Watkins LLP partner Daniel Meron, who spoke with Bloomberg BNA on the effect of the AseraCare decision when it was handed down.

The AseraCare ruling had the effect of creating FCA law against the government’s position. . However, the DOJ has appealed the AseraCare decision to the U.S. Court of Appeals for the Eleventh Circuit.

Auerbach agreed that defendants have become less eager to settle nonintervened FCA cases. Defendants “have access to the same statistics we do” showing more than over 90 percent of nonintervened cases don’t result in a settlement or favorable judgment for the whistle-blower, Auerbach said.

Auerbach cautioned that discovery can always bring facts to light that make settlements more attractive to FCA defendants. “It comes back to the evidence in the case” and “what you can prove,” Auerbach said, adding that a whistle-blower and counsel should litigate their case if they believe it is strong despite a declination from the DOJ.

Miller said providers do recognize the potential liability risk of taking an FCA case to trial, regardless of whether the DOJ has intervened, and that they should consider settling, particularly when the DOJ intervenes and the provider has “a weak spot” in its case. Miller also said the settlement terms from the DOJ “have gotten good enough, when you compare them to the risk” of trial, to make the prospect of protracted litigation not worthwhile.

Miller has a unique perspective of the trial risk of an intervened FCA case obtained, in a departure from her usual role as FCA defense counsel, from representing physician Michael Drakeford against the now defunct Tuomey Healthcare System. Tuomey lost two FCA jury trials and was hit with a $237 million judgment for violating the Stark physician self-referral law through entering into improper physician payments and employment agreements. Tuomey settled the case after judgment for $72 million and was sold to Palmetto Health as part of the settlement agreement.

Miller said the DOJ “always leaves the door open to settlement,” though the numbers may change as facts develop. Miller noted that “nobody sitting on the other side of the table is going to individually profit from settlements negotiated with the DOJ,” which contrasts with the situation when negotiating with whistle-blower’s counsel in a nonintervened case.

Whistle-Blowers Eager to Litigate

Overall recoveries in nonintervened cases have been trending upwards, Roark acknowledged, a trend he attributed to “an increasing willingness on the part of relators’ counsel to litigate cases on their own.” Roark said more experienced whistle-blower firms are “simply not filing cases unless they’re willing to litigate it no matter what.”

Smaller firms with less experience litigating nonintervened cases also are partnering with larger FCA plaintiff shops, Auerbach said. “There are firms that are well known for taking on these nonintervened cases and some bigger firms are happy to do that and take smaller firms on as partners to go forward,” Auerbach said.

Sylvia agreed that the increase in the overall number of whistle-blowers litigating declined cases was at least partially responsible for the corresponding increase in monetary recoveries. “There are more people filing these cases and more of them being brought,” Sylvia said. She added that whistle-blower success in nonintervened FCA cases is “part of the way the law is intended to work.”

To contact the reporter on this story: Eric Topor in Washington at etopor@bna.com

To contact the editor responsible for this story: Peyton Sturges at psturges@bna.com

For More Information

The DOJ's False Claims Act recoveries report for FY 2016 is at: http://src.bna.com/kLL.A searchable database of health care FCA settlements is available on Bloomberg Law.

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

Request Health Care on Bloomberg Law