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Senator Chuck Grassley Introduces Bipartisan Amendments to False Claims Act Aimed at Clarifying “Confusion” Over Materiality Standard

On Monday, Senator Chuck Grassley, R-Iowa, introduced the False Claims Amendments Act of 2021, section 2 of which would provide that defendants “may rebut an argument of materiality” as to an allegedly false claim submitted to the government for payment “by clear and convincing evidence.”
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Senator Chuck Grassley Introduces Bipartisan Amendments to False Claims Act Aimed at Clarifying “Confusion” Over Materiality Standard

On Monday, Senator Chuck Grassley, R-Iowa, introduced the False Claims Amendments Act of 2021, section 2 of which would provide that defendants “may rebut an argument of materiality” as to an allegedly false claim submitted to the government for payment “by clear and convincing evidence.” The materiality element has presented defendants with a key defense strategy ever since the United States Supreme Court held in its landmark Universal Health Services, Inc. v. U.S. ex rel. Escobar ruling that the materiality element is “rigorous” and “demanding,” and requires evaluation of the government’s actual conduct in response to knowledge of a false claim. Senator Grassley argues that “fraudsters” have seized on the Court’s ruling in Escobar and the resulting confusion among lower courts in applying the materiality standard to escape FCA liability, based solely on the government’s continued payment of claims despite knowing about their falsity. The new legislation attempts to strengthen the FCA by shifting the burden of proof regarding materiality to defendants. Even if passed, however, it remains to be seen whether section 2 of the proposed amendment would actually have an impact, given that the plaintiff must still prove materiality in the first instance.

In addition, section 3 of the bill attempts to resolve a circuit split over whether and when the court should grant a section 3730(c)(2)(A) government motion to dismiss a qui tam complaint, providing that the relator would “have the opportunity to show that the reasons [for dismissal] are fraudulent, arbitrary and capricious, or contrary to law.” This would replace the more deferential standard adopted by some courts, such as the D.C. Circuit, which held in Swift v. United States, 318 F.3d 250 (D.C. Cir. 2003), that the government has “unfettered discretion” to dismiss a qui tam complaint.

Senator Grassley’s press release and a full copy of the proposed legislation are available here. Stay tuned for Arent Fox’s broader analysis of the proposed legislation.

Interface Rehab Settles FCA Lawsuit for $2 Million

On Friday, July 23rd, the Department of Justice announced a $2 million settlement with Interface Rehab to resolve claims that it violated the False Claims Act by causing the submission of claims for unreasonable or unnecessary rehabilitation therapy services. The government alleged that from January 1, 2006 through October 10, 2014, Interface pressured its therapists to increase the amount of therapy provided to patients so that it could bill Medicare at the highest level – or the “Ultra High” level – without reference to patients’ actual, individual needs.  During this time, Medicare reimbursed skilled nursing facilities at a rate reflecting the skilled therapy and nursing needs of qualifying patients. The “Ultra High” level allegedly required a minimum of 720 minutes of skilled therapy from two therapy disciplines, one of which had to be provided five days a week. The settlement includes resolution of whistleblower claims brought by a former director at the company.

The DOJ press release is here.

Nonprofit Agrees to Settle Qui Tam Case for $1 Million

SpectraCare Health Systems, Inc., a 501(c)(3) nonprofit organization, has settled a False Claims Act lawsuit brought by a whistleblower for $1 million.  SpectraCare contracted with the Alabama Department of Mental Health to provide a range of integrated healthcare services that were paid for by the Alabama Medicaid Agency. The government alleged that SpectraCare engaged in a scheme from October 1, 2012, through December 31, 2019, whereby SpectraCare knowingly engaged in improper billing practices, including providing incomplete and incorrect documentation, billing in duplicate, and overbilling, and then failed to repay Medicaid the resulting overpayments, which constituted a “reverse false claim.

The USAO press release is here.

Florida Doctor Sentenced to Six Years in Prison for Engaging in $20 million Health Care Fraud Scheme

A Florida doctor and co-conspirators allegedly engaged in a health care fraud scheme where they established a conglomerate of durable medical equipment (“DME”) supply companies.  According to court documents, the conspirators created several companies, but concealed the true ownership of the companies by placing them in the names of straw companies, and then gained ownership control of multiple companies. They also allegedly lied to Medicare to obtain billing privileges.

In one year, through this conglomerate of companies, the conspirators allegedly submitted high volumes of illegal DME claims, totaling more than $20 million, which in turn resulted in more than $10 million in payments from Medicare and other government programs. To generate the DME claims, the conspirators paid “marketers” kickbacks, and the “marketers” purportedly generated telemedicine claims, when in actuality, the “marketers” bribed doctors to sign the illegal DME claims, and no telemedicine services occurred.

The Florida doctor pleaded guilty in September 2020. He was sentenced to serve six years in federal prison for conspiracy to commit health care fraud and ordered to forfeit approximately $650,000 in assets derived from the misconduct. The court also entered a money judgment of $2.47 million and ordered $10.72 million in restitution.
 
The USAO press release is here.

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