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A Kinder, Gentler U.S. Department of Justice Approach to False Claims Act Cases?

In two recent memoranda issued by the United States Department of Justice ("DOJ"), the agency signaled an approach favorable to hospitals and other providers. The DOJ stated in one memorandum that reliance on agency guidance documents in affirmative civil enforcement cases, such as the False Claims Act ('FCA"), needed to be more limited than current practices. In the other memorandum, the DOJ indicated it may be more receptive to dismissing FCA qui tam (i.e., whistleblower) cases.

On January 25, 2018, Rachel Brand, the Associate Attorney General, issued a memorandum entitled "Limiting Use of Agency Documents in Affirmative Civil Enforcement Cases" (the "Brand Memorandum"). This followed on the heels of a memorandum from Attorney General Jeff Sessions issued last November prohibiting DOJ components from issuing guidance documents that effectively bind the public without undergoing the notice-and-comment rulemaking process (the "Guidance Policy"). In the Brand Memorandum, the Guidance Policy was extended to DOJ litigators relying on other agency documents for civil enforcement actions. The Brand Memorandum applies only to future actions, as well as (wherever practicable) to those matters pending as of the date of the Memorandum (January 25, 2018). Specifically, the Brand Memorandum states:

  • Agency guidance documents cannot create binding requirements that do not already exist by statute or regulation.
  • The DOJ may not use its enforcement authority to effectively convert agency guidance documents into binding rules.
  • DOJ litigators may not use noncompliance with agency documents as a basis for proving violations of applicable law in civil enforcement cases.
  • The DOJ should not treat a party's noncompliance with an agency document as presumptively or conclusively establishing that the party violated the applicable statute or regulation.
  • Failure of a party to comply with agency guidance expanding upon statutory or regulatory requirements does not mean that the party violated those underlying legal requirements–-agency guidance documents cannot create additional legal obligations. The DOJ may continue to rely on agency documents for proper purposes, such as to explain or paraphrase existing statutes and regulations. The DOJ may use as evidence that a party read such a document to help prove that the party had the requisite knowledge of the underlying statute or regulation.

So what are agency documents and what does this mean? Examples of agency documents include OIG compliance guidance, CMS manuals, OIG fraud alerts, OIG advisory bulletins, and Local Coverage Determinations issued by a Medicare Administrative Contractor ("MAC"). If the Brand Memorandum had been in effect several years ago, it is questionable whether or not the DOJ would have pursued hospitals for noncompliance with the timeliness requirements related to cardiac defibrillators as set forth in Section 20.4 of the CMS National Coverage Determinations Manual–-a form of Agency document.

The Memorandum could also have impact in a case when agency documents are used as a defense. In the recent case of United States ex. rel. Groat v. Boston Heart Diagnostics Corp., the Court relied on OIG compliance guidance in support of the provider holding that a laboratory may rely on the ordering physician's determination of medical necessity. Thus it is possible that the Brand Memorandum may benefit providers on one hand and limit the range of defenses on the other.

The Brand Memorandum applies only to civil cases, not criminal prosecutions (at least for now). The Brand Memorandum also permits the use of agency documents by the DOJ to show knowledge, an element of an FCA case. Private litigants bringing whistleblower suits under the FCA would not be bound by the Brand Memorandum. Finally, the Brand Memorandum applies to the DOJ's prosecution of civil FCA cases and does not prevent CMS or a Medicare Contractor recouping overpayments from a provider for the provider's noncompliance with an agency document, such as a National or Local Coverage Determination.

The second memo dated January 10, 2018 was authored by Michael Granston, Director of the Commercial Litigation Section, Fraud Branch (the "Granston Memorandum"). Under the federal FCA, when a private individual (i.e., whistleblower) files a lawsuit, the government can intervene and take over the action or decline to intervene. See 31 U.S.C. § 3730(b)(4). The subject of the Granston Memorandum is 31 U.S.C. § 3730(c)(2)(A), which allows the Government to dismiss the action notwithstanding the objections of qui tam relator (whistleblower) if the relator has been notified by the Government of the filing of the motion and the court has provided the person with an opportunity for a hearing on the motion.

The Granston Memorandum sets out a list of seven factors that the DOJ may consider as a basis for dismissal of a qui tam lawsuit: (1) curbing meritless whistleblower claims (e.g., the factual allegations are frivolous); (2) preventing parasitic or opportunistic whistleblower actions (e.g., the action is duplicative of a preexisting government investigation and adds no useful information); (3) preventing interference with agency policies and programs (e.g., pursuit of lawsuit could delay or hinder other more important agency goals); (4) controlling litigation brought on behalf of the United States (e.g., avoid risk of unfavorable precedent); (5) safeguarding confidential information and national security interests (e.g., litigation would require disclosure of classified information); (6) preserving government resources (e.g., the amount of money involved does not justify costs of litigation); and (7) addressing egregious procedural errors (e.g., the whistleblower refuses to disclose material facts of case to the DOJ). This does not necessarily mean the suit will be dismissed. The Granston Memorandum points out that there is a split of authority among the federal courts between requiring the identification of a valid government purpose rationally related to dismissal and giving the government an unfetterd right to dismiss an action.

The Granston Memorandum commented that whistleblower actions filed under the FCA are close to 600 new matters per year. The DOJ website reports that $2.4 billion was recovered in FCA cases involving the health care industry. A reduction in the number of nonmeritorious lawsuits should be seen as good news. Some of the factors set forth in the Granston Memorandum–-such as avoiding unnecessary costs—suggest that suits might be dismissed at early stages. The grounds set forth in the Granston Memorandum and other relevant factors should encourage those attorneys defending providers to raise grounds for dismissal (and perhaps nonintervention) with the DOJ, particularly in the early stages of the litigation, and also with whistleblower's counsel to encourage a voluntary dismissal by the whistleblower.

However, the Granston Memorandum points out that is not an "all or nothing" consideration. The DOJ can seek a partial dismissal of the whistleblower claims. The Granston Memorandum also directs the DOJ to first consult with the affected agency and to obtain the agency's recommendation, before seeking a dismissal.

Providers will have to take a "wait and see" approach here. However, it appears that these memoranda should be welcomed as good news and generally as aids to defense of any DOJ civil FCA prosecution.

Joseph P. Loudon

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