Appellate decisions in 2023 led to changes in False Claims Act (FCA) litigation, including how continued government payments influence a material defense, and the definition of a kickback.
In United States ex rel. Druding v. Care Alternatives Inc., the US Court of Appeals for the Third Circuit overturned a Medicare fraud case, finding that the trial court placed too much emphasis on the idea that the US continued making payments to the provider despite allegations of fraud.
The Third Circuit stated in its Aug. 25 ruling that it couldn’t equate government awareness of fraud allegations with actual knowledge that fraud occurred.
The Supreme Court has ruled that an FCA suit can fail for lack of materiality if an agency keeps making payments to a contractor despite knowledge of fraudulent activities, as stated in 2016’s Universal Health Servs. Inc. v. United States ex rel. Escobar.
In Druding, a New Jersey district court previously rejected the whistleblowers’ claim for lack of materiality, but the Third Circuit overturned this decision, finding that the district court gave too much consideration to government action.
The panel cited Escobar and noted that “whether a provision is labeled a condition of payment is relevant to but not dispositive of the materiality inquiry.”
Whistleblower attorney Colette G. Matzzie of Phillips & Cohen LLP stated that the defendant’s continued payments argument “has not been seen as a dispositive factor although it is relevant.”
Matzzie also highlighted a case in which the US Court of Appeals for the Sixth Circuit on March 28 adopted a “but-for” causation standard for alleging a kickback under the FCA, which, according to her, could affect FCA circuit split.
Regarding the issue of a no-hire tradeoff, the ophthalmologist Shannon Martin, who brought a case against Darren Hathaway, sought US Supreme Court review after the Sixth Circuit dismissed her lawsuit.
The Supreme Court also issued two FCA rulings in 2023. In United States ex rel. Schutte v. SuperValu Inc., the Court unanimously stated that subjective intent evidence must be considered when assessing an alleged fraudster’s state of mind.
Two weeks later, in United States ex rel. Polansky v. Exec. Health Resources Inc. the high court said the government may seek dismissal of an FCA action, over a whistleblower’s objection, so long as it has intervened in the case at some point.
In 2023, the cases included United States ex rel. Druding v. Care Alternatives Inc., 3d Cir., No. 22-1035, 8/25/23; and United States ex rel. Martin v. Hathaway, 6th Cir., No. 22-1463, 3/28/23.