False Claims Act faces key challenges in circuit courts

Even as the False Claims Act continues to dominate the federal government’s health care anti-fraud efforts, circuit courts are debating a range of issues that may reshape the False Claims Act landscape in important respects, experts say.

For example, despite the Supreme Court’s recent decision that states are not "persons" subject to qui tam litigation, whistle-blowers continue to press claims against state government officials in their individual and official capacities, reports False Claims Act expert John Boese of Fried Frank in Washington, DC.

According to Boese, the first two appellate courts to consider this issue either have completely rejected or severely limited such claims. Most recently, a panel of the Eighth Circuit Court of Appeals concluded that state officials cannot be sued for actions taken in an official capacity and cannot be considered a person under the False Claims Act.

In the other case, a Ninth Circuit panel affirmed the dismissal of False Claims Act claims against the former attorney general of California and other state employee defendants, ruling that state personnel sued in an official capacity have absolute official immunity, says Boese.

That is only one of the debates under way in circuit courts, however. Margaret Hutchinson, Assistant U.S. Attorney in the U.S. Attorney’s office in Philadelphia, says another looming question is whether the government has to suffer an economic loss in order for a false claims action to be sustainable. Currently, the circuit courts are split over this question, she says.

The Third Circuit issued a decision in June that concluded the government must suffer a loss in order for a false claims action to go forward. But it then revised that opinion to say that only the possibility of a loss is required.

"That is a fascinating development," says Hutchinson, adding that it brings the Third Circuit back in line with the other circuit courts that have ruled in this area.

In another notable development, she says the Sixth Circuit recently determined that even if a provider provides goods or services that are of higher quality then those contracted for, it still can be sued under the False Claims Act if it violates the terms of the contract.

The circuits are "all over the map" on this issue, reports Hutchinson. "These are recent decisions, and I don’t think the issue is over," she adds.

Despite that fact, most prosecutors still want to see a financial loss before bringing a case, argues qui tam plaintiff attorney Marc Raspanti of Miller Alfonso & Raspanti in Philadelphia. The same holds for most qui tam plaintiff attorneys. "Whenever I bring a case to a prosecutor, I am looking for a loss, quite frankly," he says.

Another issue being debated is whether the False Claims Act is an appropriate tool for addressing quality-of-care issues. Hutchinson’s colleague, Assistant U.S. Attorney David Hoffman, has used the False Claims Act in the nursing home arena successfully.

"In those cases, it is not about how much he is going to recover," asserts Hutchinson. "It is all about behavior change." That includes putting into place significant corporate integrity agreements, as well as monitoring and auditing mechanisms, she explains.

"We have been very effective and successful in using the False Claims Act weapon to address quality of care, and I don’t think that is going to go away," warns Hutchinson. "That is only going to continue and improve, and you are going to see an increase in it."

According to Raspanti, what looked like a malpractice case 10 years ago now is fodder for a False Claims suit under quality of care. But a body of case law now is emerging that makes it a difficult area to assess, he adds.

From a plaintiff attorney point of view, Raspanti says the challenge is how to take a quality-of-care issue in one nursing home and make any money from it. "You are starting to see national chains being hit with quality-of-care theories that are no more than an extension of what prosecutors were doing when they were taking on a single nursing home," he reports.

To date, however, there are not many reported cases, and Raspanti says the courts are struggling with whether or not this is an appropriate use of the False Claims Act. For one thing, it is difficult to quantify the damages, he says. Not all of the initial cases filed in this area were based on well-articulated theories, he adds.

Yet another issue that is the subject of heated debate in the circuit courts is whether treble damages and the $5,500 mandatory minimum under the False Claims Act constitute an excessive fine prohibited by the Eight Amendment.

"There are decisions all over the map on that issue," says Hutchinson. Most notably, she points to a recent Ninth Circuit decision that held that if the fines and penalties allowed under the False Claims Act are grossly disproportionate to the gravity of the offense, they violate the Eighth Amendment.

According to Raspanti, the difficulty here is defining "excessive." He says the answer to that question is largely in the eye of the beholder.