Healthcare Fraud & Abuse Review 2021

Unlike in Mitias , however, most FCA allegations against healthcare defendants do not involve blatantly false statements or “obviously wrong” conduct, but instead deal with purported violations of highly technical and complex statutory and regulatory requirements. Accordingly, healthcare industry defendants should expect that Escobar ’s “rigorous” and “demanding” materiality analysis will continue to play a key role in the vast majority of FCA cases, and that the government’s payment or non-payment of similar claims will remain a critical factor for determining whether materiality can be established. 84 GOVERNMENT INTERVENTION AND DISMISSAL AUTHORITY Because qui tam lawsuits are brought by a relator on behalf of the United States, key components of the FCA allow the United States to control such lawsuits and include the government’s ability to take over such lawsuits through intervention and the statutory authority to dismiss qui tam lawsuits even where a relator may be pursuing the underlying FCA claims. Recent cases have continued to examine the limits of the government’s statutory intervention and dismissal authority under the FCA. Following the filing of a qui tam lawsuit under seal by a relator, the FCA provides the government with a period of 60 days to investigate the relator’s allegations. The district court can extend that 60-day period only for “good cause” upon the government’s request. While district courts traditionally have allowed the government wide latitude in connection with requests to extend the seal period, there have been increasing instances in recent years where courts have declined to extend the seal period. If the government declines to intervene in the qui tam lawsuit, the government may intervene following declination only upon a showing of “good cause” to warrant late intervention. With district courts willing to more closely scrutinize government requests to extend the FCA’s seal period, the government has increasingly couched its decision not as declination (as the FCA provides) but as a decision to decline to intervene while continuing to investigate. When the government moved for late intervention following such a declination in U.S. ex rel. Odom v. SouthEast Eye Assocs. , the district court determined that the government failed to meet the FCA’s good cause standard and denied the government’s motion. 85 The government had declined intervention following more than two years of investigation but then sought intervention six months later, claiming the emergence of “new evidence” resulting from continued investigation. The district court disagreed, concluding that the government’s submission of new evidence was “tepid” and did not satisfy the FCA’s good cause standard. It remains to be seen whether other district courts will more closely scrutinize the purported “good cause” offered by the government, whether in relation to extending the seal period or late intervention. 86

The government’s FCA dismissal authority also has been more aggressively challenged in recent years, deepening a long-existing circuit split concerning the appropriate standard when deciding whether to grant such a request made by the government. This split centers on whether the government’s dismissal authority under the FCA is “unfettered” and thus not subject to judicial review, as the D.C. Circuit held in Swift v. United States , or instead is contingent on the government demonstrating that its dismissal request bears a “rational relationship” to a valid government interest, as the Ninth Circuit held in U.S. ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp. The Third Circuit became the latest federal appellate court to consider the FCA’s dismissal standard in U.S. ex rel. Polansky v. Executive Health Resources, Inc. 87 The relator alleged that the defendant had assisted hospitals in billing claims as inpatient that should have been billed as outpatient. After the United States declined intervention, the relator litigated the case for years before the United States moved to dismiss it because it considered the expense of responding to discovery to outweigh any potential recovery. The district court granted dismissal and the relator appealed, stating that the dismissal was “shocking” after he and his attorneys had invested years and $20 million in the case. On appeal, the Third Circuit affirmed the district court’s decision to grant the government’s motion for dismissal. In reaching that conclusion, the Third Circuit determined that the government must intervene before it can seek to exercise its statutory dismissal authority, which must be supported by “good cause.” The Third Circuit then went on to consider the standard applicable to a motion for dismissal by the government, concluding that Rule 41(a) of the FRCP governs requests for voluntary dismissal and should apply to such a motion filed by the government to dismiss FCA litigation. In reaching that conclusion, the Third Circuit declined to follow the standards set forth in Swift or Sequoia Orange , but rather adopted the standard articulated by the Seventh Circuit in U.S. ex rel. CIMZNHCA, LLC v. UCB, Inc. 88 The Third Circuit ultimately determined that the analysis undertaken by the district court readily satisfied Rule 41(a)’s requirements.

84 Only confirming as much, in one somewhat unique decision this year, a district court relied on Escobar to dismiss government FCA claims premised on alleged violations of state regulatory requirements that the court deemed to be unlawful and unenforceable under the federal Social Security Act. See United States v. Walgreen Co. , 2021 WL 5760307 (W.D. Va. Dec. 3, 2021). 85 No. 3:17-cv-00689, Dkt. No. 104 (M.D. Tenn. Feb. 24, 2021). 86 See U.S. ex rel. Ross v. Independent Health Corp. , 2021 WL 3492917 (W.D.N.Y. Aug. 9, 2021) (granting the government’s motion for late intervention after finding demonstration of good cause to support such intervention).

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17 F.4th 376 (3d Cir. 2021). 970 F.3d 835 (7th Cir. 2020).

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