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The U.S. Supreme Court recently expanded the statute of limitations period for nonintervened whistleblower False Claims Act (FCA) cases from six to 10 years.
The decision involving Cochise Consultancy addressed which of two statutes of limitation in the False Claims Act applies in the event a relator brings an action but the government has not intervened, explains Eric H. Cottrell, JD, partner with the Parker Poe law firm in Charlotte, NC. There was a dispute among different circuits, he says.
The first statute of limitations sets a limit of six years after the violation, but a second sets a limit of three years after the facts were known or reasonably should have been known by government officials and in no case later than 10 years after the violation, Cottrell says. The defendants in the case argued that the second and longer statute of limitations applies only when the government intervenes in the case. (The Supreme Court ruling is available online at: https://bit.ly/2IvI5xw.)
“Their argument was fairly interesting and seems fairly reasonable on its face, arguing that the government’s knowledge should really be an issue only when it is party to the case,” Cottrell explains. “The court’s ruling is that the statute’s meaning is just what it says. The court did not delve deep into the policy reasoning underlying the statute, and just said the statute speaks for itself.”
The ruling determined that the False Claims Act was purposefully written to move cases from one period of limitation to another when a U.S. government official is informed of the impending action. The court also addressed the question of who constitutes a government official charged with acting in an FCA case, again sticking with the plain language of the statute, Cottrell explains.
“The main takeaway here is that whatever errors in compliance you make, they are likely to live with you a lot longer than they used to,” Cottrell says. “That is particularly true in the 4th and 10th circuits, which had both adopted the first interpretation of the statute limitations, saying the longer limit did not apply when the government did not intervene.”
The government doesn’t intervene in the vast majority of FCA cases, so in those circuits, the statute of limitations was six years after the violation, Cottrell explains.
“Now, defendants in those cases have to reckon with the fact that the statute of limitations is going to be extended an additional four years,” he says. “That is not only going to affect the number of cases brought, but it is also going to increase the damages calculations. That is going to have a pretty big impact.”
The Supreme Court ruled unanimously that the language of the False Claims Act was unambiguous and that it meant that the statute of limitations extension applied in cases brought by whistleblowers where the government did not intervene, notes Jesse Witten, JD, partner with Drinker Biddle in Washington, DC, and a former deputy associate attorney general in the U.S. Department of Justice.
“In my opinion, the statute was very unclear. It is certainly possible to interpret the plain language of the statute in the way that that Supreme Court did, but it is also possible to interpret the statutory language to reach the opposite conclusion that the statute of limitations extension is not available in nonintervened qui tam cases being litigated by the whistleblower,” Witten says. “In fact, many lower courts interpreted the statute to mean the opposite of how the Supreme Court ruled.”
Under this ruling, a whistleblower could have waited 10 years to file the qui tam action, but so long as the Department of Justice did not know of the material facts more than three years before it was filed, the statute of limitations has not expired, Witten explains.
“The result of this decision is that relators will be able to bring older cases than they could previously. That means that some cases that would have been dismissed as untimely will now survive,” Witten says.
“More importantly, it means that defendants will face larger potential damages and penalties for many cases. Had the case come out the other way, a healthcare provider would only be liable for potential damages and penalties for claims that were submitted within six years of the filing of the qui tam lawsuit, but now can be liable for claims submitted within 10 years of the filing — four more years’ worth of damages and penalties.”
One question is whether this case will inspire more old qui tam lawsuits to be filed, Witten says. Since every qui tam whistleblower hopes that the government will intervene, and since the statute of limitations extension clearly applies to intervened cases, Witten says, there is little motivation for someone to now file a case if they would not have previously.
“In addition, for cases brought against defendants that do business in multiple jurisdictions, even before Cochise, many whistleblowers could have strategically selected one of those venues for their qui tam lawsuit where the lower court had already held that the statute of limitations extension applies to intervened cases,” Witten says.
One issue that healthcare organizations must think about is when they discover Medicare or Medicaid overpayments that stretch back longer than six years or that occurred more than six years ago, Witten says. Under the Affordable Care Act, healthcare providers must refund and disclose Medicare and Medicaid overpayments within 60 days of identifying the overpayment, or else face FCA exposure for the failure to refund. The Centers for Medicare & Medicaid Services (CMS) has advised in its overpayment regulation that the lookback period for these overpayments is six years, Witten notes.
“I do not think that the Cochise decision should alter whatever conclusion healthcare organizations have already reached about what to do with overpayments that occurred between six and 10 years ago that they have identified. It remains reasonable to rely on the CMS overpayment guidance,” he says. “In addition, even before Cochise, the government had the authority to file suits with allegations dating back 10 years, depending on when the government learned of material facts.”
From a practical standpoint, relators may be incentivized to wait years to report conduct in order to increase potential recovery on their claims, says Damaris L. Medina, JD, shareholder with the Buchalter law firm in Los Angeles.
Whistleblower attorneys may also be mistakenly emboldened in arguing that they have more leverage than before to negotiate a settlement when the government decides not to intervene in a case, basing their argument on the court’s comment that a False Claims case remains largely unchanged — except for the removal of a party — when the government doesn’t intervene, Medina says.
“All of these potential consequences point toward hospitals, hospital systems, physician groups, and all other healthcare providers increasing their compliance efforts. Specifically, providers should make sure that they create and/or maintain a culture where any compliance issues are, and can be, reported immediately without fear of retaliation,” Medina says. “In addition, once reported, providers must make sure that any compliance issues are investigated and addressed as quickly and thoroughly as possible to decrease the potential liability associated with any continued conduct under the newly interpreted limitations period.”
Providers also may consider increasing the frequency of their auditing procedures in order to identify any potential issues in a timely manner, and may contemplate availing themselves of self-disclosure protocols where appropriate in an effort to mitigate additional risk, Medina suggests.
Continuing, implementing, or expanding a strong compliance program is the best defense against possible FCA suits, says Kevin P. Mulry, JD, partner with the Farrell Fritz law firm in Uniondale, NY. Companies also will want to consider whether their document retention programs should be revised to provide for a longer retention period so that relevant documents will be available to defend FCA allegations that could reach back for a decade or more.
The healthcare industry perennially accounts for the majority of new FCA cases and recoveries, says D. Jacques Smith, JD, complex litigation practice leader with the Arent Fox law firm in Washington, DC. In fiscal year 2018 alone, the DOJ reported that more than $2.5 billion of the nearly $2.9 billion in total FCA recoveries involved the healthcare industry, Smith notes.
In light of Cochise, even when a healthcare company discovers a potential FCA violation that is several years old, it must take the potential violation seriously, investigate as necessary, and in some circumstances consider a self-disclosure to the Health and Human Services Office of Inspector General or the Department of Justice, with the assistance of experienced FCA counsel, Smith says.
“And if a company or individual receives a subpoena or Civil Investigative Demand from a government authority, the company or individual should promptly retain experienced FCA counsel to handle the response and related strategy,” Smith says. “This could be an early indication that a relator has filed a sealed FCA complaint against the company, and that the government is investigating the allegations to decide whether to intervene and take other action.”
Healthcare fraud cases account for nearly 50% of the lawsuits initiated under the FCA, notes Brian F. McEvoy, JD, chair of government investigations with the Polsinelli law firm in Atlanta. Nearly every year, the number of FCA cases increases, and the amount of money recouped by the government from verdicts and settlements from healthcare and other entities has reached $3 billion annually. This doesn’t include the many millions of dollars that whistleblowers recover as part of their reward under the law for bringing suit on behalf of the government, he says.
Since the government declines to intervene in nearly 85% of FCA qui tam cases, the court’s ruling in Cochise effectively extends the statute of limitations for a vast majority of relators for an additional four years, McEvoy says.
“The increased statute of limitations may create new burdens for healthcare entities defending FCA claims, as allegations and subsequent discovery obligations may extend over dozens of years,” McEvoy says. “It is also worth noting that the unanimous opinion, authored by Justice Thomas, suggested that nonintervened qui tam [cases] should be allowed the same deference as those the government intervenes in.”
The court observed that “If the government intervenes, the civil action remains the same — it simply has one additional party.” The Cochise decision also allows the government to pursue other avenues of discovery, McEvoy says.
“Indeed, a relator intending to use the 10-year limitations period must file the complaint within three years of when ‘facts material to the right of action are known or reasonably should have been known’ by ‘the official of the United States charged with responsibility to act in the circumstances,’” McEvoy explains. “Justice Thomas’ opinion opens the door to defendants issuing further discovery to help determine when the government knew or should have known of the material facts.”
The Cochise ruling is likely to lead to an increase in FCA litigation and, with it, many opportunities to analyze how defendants plan to seek discovery from the federal government, McEvoy says.
“While the court’s opinion has made it easier for relators to pursue FCA claims, it does not change the strategy of healthcare providers looking to prevent and defend against FCA actions,” he says. “A robust and thoughtful regulatory compliance program combined with counsel experienced with FCA claims are essential to limiting potential exposure to future FCA actions.”
• Eric H. Cottrell, JD, Partner, Parker Poe, Charlotte, NC. Phone: (704) 335-9850. Email: firstname.lastname@example.org.
• Brian F. McEvoy, JD, Chair of Government Investigations, Polsinelli, Atlanta. Phone: (404) 253-6021.
• Damaris L. Medina, JD, Shareholder, Buchalter, Los Angeles. Phone: (213) 81-5224. Email: email@example.com.
• Kevin P. Mulry, JD, Partner, Farrell Fritz, Uniondale, NY. Phone: (516) 227-0620. Email: firstname.lastname@example.org.
• D. Jacques Smith, JD, Complex Litigation Practice Leader, Arent Fox, Washington, DC. Phone: (202) 857-6154. Email: email@example.com.
• Jesse Witten, JD, Partner, Drinker Biddle, Washington, DC. Phone: (202) 230-5146. Email: firstname.lastname@example.org.
Financial Disclosure: Author Greg Freeman, Editor Jill Drachenberg, Editor Jesse Saffron, Editorial Group Manager Leslie Coplin, and Nurse Planner Maureen Archambault report no consultant, stockholder, speaker’s bureau, research, or other financial relationships with companies having ties to this field of study. Consulting Editor Arnold Mackles, MD, MBA, LHRM, discloses that he is an author and advisory board member for The Sullivan Group and that he is owner, stockholder, presenter, author, and consultant for Innovative Healthcare Compliance Group.