False Claims Act Archives

Supreme Court Will Hear Fraud Loophole Case That Goes to the Heart of the False Claims Act

Mar 10 2023

The Supreme Court will hear arguments this spring about the “biggest threat” the False Claims Act has faced since it was modernized four decades ago.

It’s an issue that could undercut the FCA’s ability to hold bad actors accountable and recover taxpayer money—$72 billion and counting since the statute was revamped in 1986.

The issue arose from the Seventh Circuit’s decision in U.S. ex rel. Schutte v. SuperValu Inc. nearly two years ago. That ruling defines the FCA’s knowledge of fraud requirements in a way that allows companies to use a lawyer-crafted after-the-fact interpretation of the law, even if it’s wrong, as a defense for submitting false claims to the government even when the defendant thought at the time it submitted the claims that it was unlawful.

On one side of the issue: whistleblowers with supporting briefs by the U.S. Department of Justice and Solicitor General; U.S. Sen. Charles Grassley (R-Iowa), who championed the modernization of the FCA in 1986; the Attorneys General of 33 states and supporters of government and taxpayer spending accountability, including the Taxpayers Against Fraud Education Fund (TAF). Keller Grover attorney Kate Scanlan is a member and chair of TAF’s Public Education Committee.

On the other side: SuperValu and Safeway, two government contractors who, according to the whistleblowers’ complaints, defrauded Medicare and Medicaid of millions of dollars by overcharging the government for prescription drugs.

InSuperValu, a whistleblower alleged in a 2011 lawsuit that the supermarket chain violated the FCA by reporting list prices of prescription drugs for Medicare reimbursement that were eight to 15 times higher than what it charged non-insured customers for the same drugs.

But a U.S. District Judge granted summary judgment to SuperValu because even though the court found that the company’s reported prices were false, SuperValu’s after-the fact interpretation of the law was objectively reasonable, even if it was wrong. The Seventh Circuit upheld that ruling and several other federal appellate courts have adopted the objectively reasonable standard of knowledge.

To violate the FCA, defendants must have made a false claim knowing it was false. The law defines knowledge of false information as (1) actual knowledge, (2) deliberate ignorance of the truth or falsity of the information, or (3) reckless disregard of the truth or falsity of the information.

Lawyers for the federal government, Grassley, and taxpayer advocates want the Supreme Court to overturn SuperValu and adopt a subjective knowledge standardjoined the whistleblower in urging the Court to reject the 7th Circuit’s reasoning.

In an amicus brief filed at the invitation of the Court, the DOJ and Solicitor General argued that when a defendant has submitted false claims with a culpable state of mind, “it cannot escape liability merely by showing that its claims were consistent with an objectively reasonable (but wrong) understanding of the law.”

The Taxpayers Against Fraud Education Fund , of which Keller Grover attorney Kate Scanlan is a member and chair of its Public Education Committee, also filed an amicus brief, arguing the “FCA’s plain language allows for consideration of a defendant’s subjective knowledge.”

“The Seventh Circuit’s rule (gives) defendants with subjective knowledge of their own wrongdoing a get-out-of-liability-free card, which they or their lawyers can play at any time,” the brief said. “If adopted by this Court, the rule would not only rewrite the FCA’s knowledge standard, but would also severely hamstring the United States’ ability to protect taxpayer dollars from fraud.

“The Court should reverse and reaffirm the FCA’s text, which acknowledges that a defendant’s contemporaneous subjective knowledge matters. In addition, the Court should reject the Seventh Circuit’s narrow view of interpretative guidance and hold that relevant guidance in FCA cases is a context-specific factual question.”

Earlier this year Senator Grassley also asked urged the Supreme Court to hear SuperValu and Safeway because of the important implications the faulty reasoning in the 7th Circuit’s opinions would have on the government’s fraud fighting ability. Three of his attorneys wrote an op-ed for Fortune magazine in which they lay out the stakes, which are stark.

“This case is the biggest threat to an anti-fraud statute that has, since its modernization 40 years ago, allowed the government to recover over $46 billion from companies that have defrauded the American public. It means that a company can get off the hook by saying: ‘I knew what I did was wrong, and I did it on purpose. But I’ve just hired lawyers who say someone else might possibly not have known that.’

“It’s surprising this sort of argument could get any traction in the first place. It makes no sense. If an ordinary criminal tried that excuse for any crime, they would be laughed out of the courtroom. If not overturned, the decision will essentially give corporations license to defraud the government. That’s paid for by all of us taxpayers.

“Government fraud is notoriously difficult to catch without whistleblowers. As Senator Grassley once said, trying to do so without whistleblowers is ‘about as useful as harvesting acres of corn with a pair of rusty old scissors.’ If this case stands, a rusty pair of scissors is all the government will have left to fight fraud—and that will neither punish nor deter wrongdoers.”

Whistleblowers who see fraud being committed and who are willing to speak up about it deserve the support of the government. They also need lawyers who understand the implications of changes to the FCA, and who are willing to fight for changes to the law so that they can right the wrongs they’ve witnessed and return money back to the taxpayers.

The lawyers at Keller Grover have three decades of experience representing whistleblowers and can advise potential whistleblowers about the best path forward from the very beginning, helping minimize the impact of reporting, protect rights and achieve the best possible outcome for their situation. If you have information about government fraud, contact us for a confidential, free consultation.

Nursing homes that offer poor care and take government funds may be liable under the False Claims Act

Jun 20 2022

Some nursing homes have been taking advantage of vulnerable residents to milk government coffers, and the federal government promises an aggressive response.

On June 15, the U.S. Department of Justice filed a False Claims Act complaint against an Ohio-based nursing home operator, alleging that three nursing homes run by the company “provided grossly substandard services” that didn’t meet basic standards of care. The False Claims Act prohibits companies from fraudulently making claims for payment of government funds — in this case, Medicare and Medicaid reimbursement. Taking such funds for “non-existent or grossly substandard” services is a violation.

The allegations include an array of disturbing conditions: a dirty, pest-infested building; giving unnecessary medications, including powerful antipsychotic drugs; not protecting residents’ possessions; verbal mocking and abuse; “a glaring absence of activities or stimulation”; and not providing necessary psychiatric care. One resident with a history of self-harm didn’t get the essential help and was hospitalized after a suicide attempt; when he returned to the facility, the staff didn’t help and ignored warning signs. He committed suicide within weeks.

“Despite getting regular reports detailing the grossly substandard care … the Defendants were primarily focused on their finances and not on improving care quality at the nursing homes,” the DOJ court filing alleges.

Executives pushed facility managers to bring in more residents while also cutting costs, and despite a large reserve fund, the company offered low salaries, making it difficult to attract workers.

The DOJ’s use of the False Claims Act to pursue these nursing homes is yet another illustration of why the False Claims Act is the government’s most powerful tool for fighting fraud against government programs. Although the government initiated this case itself, the False Claims Act also includes a qui tam provision that allows whistleblowers with knowledge of a fraud to file a lawsuit in the name of the government.

The misconduct alleged in this case track a troubling link between private equity investment in health care organizations and a decline in the quality of care.

President Joe Biden went so far as to call out such firms in his March State of the Union speech.

“As Wall Street firms take over more nursing homes, quality in those homes has gone down and costs have gone up,” Biden said. “That ends on my watch.”

Biden said that Medicare will raise its standards for nursing homes, inducing better care. But that’s just one prong of the response. In addition, the Federal Trade Commission and DOJ, already zealously enforcing antitrust concerns, will scrutinize private equity firms that make multiple acquisitions within the same industry — particularly if those investments relate to health care.

The sector certainly has drawn attention. In 2021, health care private equity hit a record for deal volume and disclosed value, with a $34 billion and a $17 billion acquisition headlining the list of transactions, according to a recent report by consultancy Bain & Co. The number of deals jumped by more than a third to 515, while the disclosed value of those collective deals more than doubled to $151 billion.

The DOJ is acting on Biden’s message about health care.

“Simply put, no industry is more important to our well-being and livelihoods,” Andrew Forman, deputy assistant attorney general for the Antitrust Division, said in a June 3 speech at an American Bar Association conference. “That is precisely why we must aggressively enforce the antitrust laws in the health care industry. Vigorous competition in health care means lower costs for drugs and procedures, increased quality of care, additional lifesaving innovations, and more good-paying jobs. Accordingly, protecting competition in health care is among the highest priorities of the Antitrust Division.”

While acknowledging that private equity plays a vital role in the U.S. economy, Forman said that such firms’ motivations differentiate them from other market participants. For example, private equity investors tend to focus on short-term profits and extreme cost cutting, leaving patients to pay the price.

Forman said healthcare workers have pointed to industry consolidation as the cause of a decline in research, staffing shortfalls and lower-quality care. Thus, he said that the DOJ will scrutinize deals and look more favorably on other market participants than on private equity firms as buyers in the health care industry.

If you have information about health care-related fraud or neglect, we are here to help. For advice on handling suspected fraud, contact Keller Grover for a free and confidential consultation.

Senate committee advances bill strengthening whistleblower law

Nov 22 2021

The U.S. Senate Judiciary Committee recently voted to advance a bill strengthening the False Claims Act, the first significant amendment to the law in more than a decade.

At an Oct. 28 hearing, the committee voted the False Claims Amendments Act of 2021 (S.2428) out of committee, advancing it to the Senate floor for consideration.

The bill boasts bipartisan support. Its cosponsors include Sens. Chuck Grassley (R-Iowa) and Patrick Leahy (D-Vermont).

The False Claims Act was originally signed into law in 1863 to help combat fraud by suppliers to the U.S. government during the Civil War. Today, it remains one of the federal government’s most effective weapons in fighting fraud on the government. It incentivizes whistleblowers, or relators, as they’re known, to report a fraud on the government by rewarding them with a percentage of the amount the government successfully recovers because of the whistleblower’s FCA case. The law has not been amended since 2009.

Liability under the FCA only results from “material” violations. “Materiality” is defined as “having a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property.” The pending Amendments are a legislative fix made necessary because of judicial interpretations of dicta (non-binding discussion) in the 2016 Supreme Court decision in United Health Services v. United States ex rel. Escobar that are inconsistent with what Congress intended in the law’s materiality standard.

The bill’s sponsors say that judicial interpretations of a single example in the Escobar decision (that the government’s conduct after a claim is submitted is “strong evidence” that a requirement of the FCA is not material to the government) have made it more difficult for the government and whistleblowers to expose fraud on the government. Companies accused of defrauding the government have conducted fishing expeditions to determine if anyone in the government was aware of the alleged fraud, and then argue that if the government was aware of it, the alleged fraud was not material because the government did not act to stop it.

The bill’s sponsors argue that reasoning “fails to take into account that government bureaucrats are highly segmented and often unable to make key decisions for their monolithic organizations . . . nor are they highly motivated to stop fraud. Yet, the Escobar decision has made it all too easy for fraudsters to argue that obvious fraud was not material simply because the government continued payment.”

The bill also provides clarification about when the government may dismiss whistleblower-initiated FCA cases, requiring a hearing before a judge in which the relator has the opportunity to show the reasons for dismissal are arbitrary and capricious.

It also clarifies that the existing anti-retaliation provisions apply to post-employment retaliation.

The bill has the backing of groups including Taxpayers Against Fraud, the National Whistleblower Center, the Project on Government Oversight and the Government Accountability Project.

Taxpayers Against Fraud applauded the committee vote.

“Today, the vast majority of the Senate Judiciary Committee decided to protect taxpayer dollars from fraud,” said Taxpayers Against Fraud President Jeb White. “With our country trying to recover from a pandemic, this is not the time for our elected officials to pander to the demands of the Fraud Lobby.”

Whistleblowers play an important role in rooting out fraud against the government. With over 30 years of experience litigating fraud and employment cases, Keller Grover is uniquely positioned to represent whistleblower clients. The firm has recovered billions for its clients.

In August, a Keller Grover client reached a record $90 million False Claims Act settlement with Sutter Health, a healthcare provider, to resolve her alleged claims that the health system submitted inaccurate and unsupported medical diagnosis codes, which inflated its Medicare Advantage reimbursements.

We are here to help those who want to report wrongdoing. For advice about how to handle suspected fraud, contact Keller Grover for a free and confidential consultation.

National Whistleblower Protection Day Marks 238 Years of Supporting Those Who Expose Government Misconduct

Jul 30 2016

July 30 was “Whistleblower Appreciation Day” in the United States Senate. This is the fourth consecutive year that the Senate has passed a resolution recognizing the date and expressing support for whistleblowers—courageous government and private-sector workers and contractors who risk their livelihoods and reputations to expose corruption, graft and misconduct within their organizations.

This date is no accident. The American tradition of supporting whistleblowers dates back 238 years to July 30, 1778. Just two years after the United States was founded and before it had even won its independence from Great Britain, the Second Continental Congress passed a unanimous resolution calling upon all public servants—and, indeed, all Americans—to report public officials’ “misconduct, frauds or misdemeanors.”

The First Whistleblowers

The 1788 resolution was the Continental Congress’ response to retaliation against America’s first whistleblowers. Those whistleblowers were two naval officers in Rhode Island who had petitioned the Congress to investigate their commanding officer, Commodore Esek Hopkins (also commander in chief of the fledgling Continental Navy). The two officers, part of a group of 10 sailors and Marines, strongly believed that Hopkins was unfit for command because he had mistreated prisoners, neglected to attack the enemy when he had the chance, and declared his intention not to obey the Congress.

[That’s right: Active-duty Marines and sailors, in wartime, were among America’s first whistleblowers. In fact, it was a Captain of the Marines who, in February 1778, traveled hundreds of miles to Philadelphia to personally deliver the petition to the Congress.]

Upon receiving the petition, the Continental Congress investigated the whistleblowers’ allegations and found them to have merit. Accordingly, it stripped Hopkins of his command. Hopkins then retaliated by suing all of the whistleblowers for criminal libel and conspiracy in a Rhode Island court. Third Lieutenant Richard Marvin and midshipman Samuel Shaw were the only whistleblowers who remained in Rhode Island and therefore the only ones subject to the court’s jurisdiction.

Once again Marvin and Shaw found themselves petitioning the Second Continental Congress, this time seeking help defending themselves against the retaliatory lawsuit. On July 30, 1778, the Congress made good, passing a unanimous resolution funding the sailors’ legal defense and turning over evidence from the Hopkins investigation for their use at the trial. As a result, the sailors were able to convince a jury of their innocence and prevailed on both counts. The resolution went on to underscore the importance of whistleblowers in American society:

Resolved, That it is the duty of all persons in the service of the United States, as well as all other the inhabitants thereof, to give the earliest information to Congress or other proper authority of any misconduct, frauds or misdemeanors committed by any officers or persons in the service of these states, which may come to their knowledge.

Thus was laid the foundation of America’s proud tradition of supporting and protecting those who come forward to blow the whistle on official misconduct.

Exposing Official Wrongdoing: From the Civil War to Today

The whistleblowing spirit continued to guide Congress long after the Revolution was won—a good thing, since fraud, corruption and malfeasance didn’t disappear. During the Civil War, dishonest government contractors sold the Union Army millions of dollars of spoiled rations and faulty equipment, including guns that didn’t always shoot. (A recent Supreme Court decision cited the latter as a classic example of the kind of fraud that whistleblower laws were meant to address.) As a result, in 1863 Congress passed the False Claims Act, today codified at 31 U.S.C. §§ 3729–3733. In addition to protecting whistleblowers, the False Claims Act’s qui tam provision incentivizes whistleblowers to expose fraud on the government by providing them a share of whatever amounts the government ultimately recovers in damages or penalties in the case.

Support for whistleblowers has only increased since the False Claims Act was first passed. Indeed, the False Claims Act is the model for several more federal statutes that shield and encourage whistleblowers; in addition, nearly every state has its own whistleblower laws. Today Sen. Chuck Grassley (R-IA), a staunch advocate for these laws and the primary sponsor of the amendments to the False Claims Act in the 1980’s that gave rise to the ‘modern’ whistleblower, chairs a bipartisan Whistleblower Protection Caucus in theU.S. Senate .

But despite all this support, too many whistleblowers still face retaliation for doing what’s right. To counter that, Sen. Grassley and cosponsor Sen. Ron Wyden (D-OR) introduced the resolution recognizing July 30 as Whistleblower Appreciation Day. The resolution was cosponsored by all 12 of the remaining members of the Whistleblower Protection Caucus.

The resolution, unanimously passed by the Senate earlier this month, “acknowledges the contributions of whistleblowers to shed light on fraud, waste and abuse in the United States,” according to a news release from Sen. Grassley’s office. Moreover, it calls for government agencies to educate employees, contractors and the public about Americans’ legal rights “to ‘blow the whistle’ by honest and good faith reporting of misconduct, fraud, misdemeanors, or other crimes to the appropriate authorities.”

“Since the early days of our nation, our Founding Fathers recognized that whistleblowers, our eyes and ears in government, are essential to ensuring that government is functioning properly and efficiently. They said that raising the alarm when employees encounter fraud, waste or misconduct is not only encouraged, but a duty,” Sen. Grassley said. “The Senate’s approval of this resolution signals our unified commitment to support and encourage whistleblowers, whose efforts save taxpayers billions of dollars each year and lead to a more accountable government.”

“These individuals are courageous in what they do,” Jeff Keller, founding partner of Keller Grover LLP said. “They represent the best of our country and our long tradition of supporting honesty in our government. Helping them accomplish what they do in exposing a fraud on our government is a privilege.”

Supreme Court Strikes Blow in Favor of Whistleblowers

Jul 06 2016

In May, we wrote about how U.S. Supreme Court Justice Antonin Scalia’s death might impact a key whistleblower case brought under the False Claims Act. It turns out that Justice Scalia’s presence might not have made much of a difference: The eight remaining Justices came through with a significant—and unanimous—victory for whistleblower plaintiffs, and delivered a strong rebuke to government contractors that would defraud taxpayers through misleading omissions and then evade responsibility by hiding behind technicalities and legalese.

In Universal Health Services Co. v. United States ex rel. Escobar, the Supreme Court held that a federal contractor that uses “misleading half-truths” to conceal its failure to comply with an important legal or contractual requirement—i.e., by making an “implied false certification” of compliance by submitting a claim to be paid—can be found liable for defrauding the government under the False Claims Act. This may seem like common sense, and while most federal courts faced with the issue have agreed, last year the Seventh Circuit Court of Appeals (covering Illinois, Indiana and Wisconsin) held that contractors could only be held liable for their express, affirmative falsehoods. So the Supreme Court stepped in to resolve the issue.

In Escobar, a 17-year-old girl who sought care at Arbour, a Massachusetts mental health facility that participated in MassHealth (the state’s Medicaid program), died after being diagnosed with bipolar disorder by an Arbour “psychologist”—who was unlicensed—and taking medicine prescribed by an Arbour “psychiatrist” who wasn’t even a doctor. In all, 23 Arbour employees provided unlicensed prescriptions and counseling, in violation of MassHealth regulations.

The girl’s family filed a qui tam suit under the False Claims Act against Universal Healthcare Services, Arbor’s parent company. The False Claims Act allows individuals to sue government contractors that knowingly submit “false or fraudulent” claims for payment. (The individuals are known as “relators” and share in the penalties recovered from fraudsters.) The relators and the United States argued that while Universal didn’t lie about the Arbour staff’s qualifications, when it billed MassHealth it used payment codes corresponding to specific licensed mental health services and mental health job titles. By using these codes, the plaintiffs argued, Arbour fraudulently represented that its licensed staff provided licensed services.

The Supreme Court agreed this was more than just a mere omission: Universal’s representations about Arbour’s services and providers were “clearly misleading in context.” Such “misleading half-truths,” the Court held, can support False Claims Act liability.

After unanimously deciding that implied certifications can give rise to False Claims Act liability, the Court also resolved whether the implied certification theory can only apply for express conditions of payment. Writing for the Court, Justice Clarence Thomas refused to define exactly what rules and regulations would trigger liability and made clear that government contractors should not focus on whether a particular rule is designated a “condition of payment,” writing: : “If the Government failed to specify that guns it orders must actually shoot,” then a contractor that bills the government for guns it knew did not shoot could be liable under the implied false certification theory. Whether the government has expressly labeled a provision a condition of payment “is relevant to but not dispositive of the materiality inquiry.”

“Justice Thomas’ opinion in Escobar sends an important message to government contractors,” says whistleblower attorney Jeffrey F. Keller of Keller Grover LLP. “The rule has long been that contractors need to ‘turn square corners’ when they deal with the government. Escobar hasn’t changed that rule at all. Instead, it has reinforced in a unanimous decision that contractors can be held liable when they know what they are selling the government is not what the government bargained for.”