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00;00;00;29 - 00;00;25;06
Jonathan Porter
Welcome to another episode of Husch Blackwell's False Claims Act Insights podcast. I'm your host to Jonathan Porter. There has been a ton of huge things that have happened recently in the False Claims Act world. We've got an FCA Supreme Court decision and FCA circuit split growing deeper with a new First Circuit decision, a huge blow to DOJ and a multibillion dollar FCA case against the Medicare Advantage plan.
00;00;25;15 - 00;00;52;08
Jonathan Porter
A memo from the Attorney General that purports to narrow up FCA enforcement and an FCA trial win by Supervalu. The case that went up to the Supreme Court the other year where a jury found for the defense and cleared Supervalu of FCA allegations. These are huge developments and we want to get our listeners up to speed on what these new developments are and what they really mean for those who are in industries that involve government claims.
00;00;52;08 - 00;01;18;10
Jonathan Porter
And so today's episode is a different kind of one. It's an emptying of the notebook episode, as some journalists say. We're covering five of the biggest FCA developments from the last month or two. And joining me to talk about these really big FCA developments is my colleague Tanner Cook. Regular listeners will remember Tanner from our episode last year on how Chevron's demise impacts FCA litigation.
00;01;18;20 - 00;01;39;28
Jonathan Porter
Then we're bringing Tanner back to help us stay on top of these current events, these cutting edge developments. I won't reintroduced Tanner in full, except to say that Tanner is super sharp when it comes to the FCA, especially complex concepts, and we've got some complex concepts to talk about today. So Tanner was my first thought when it came to digging into these new FCA developments.
00;01;39;29 - 00;01;56;20
Jonathan Porter
And so Tanner, welcome back. Thanks for getting me and our listeners up to speed on these breaking FCA developments.
Tanner Cook
Yeah. Thanks, Jonathan. Happy to be back. As you noted, there's a lot to cover, a lot of interesting things and actually a lot that I think is on the horizon. So I think this should be a fun episode.
Jonathan Porter
Yeah, I agree, Tanner.
00;01;56;21 - 00;02;19;22
Jonathan Porter
Let's get right into the thick of things. In late February, the U.S. Supreme Court decided in FCA case, this is the Wisconsin case. This case is as complex as FCA comes, at least to me. To cut through the complexity for us. Give our listeners the streamlined story of Wisconsin Bell. What the Supreme Court said and how the case impacts FCA enforcement going forward.
00;02;20;03 - 00;02;38;13
Tanner Cook
Sure, happy to do so. So Wisconsin Bell dealt with at a high level the question of what is a claim. And you would think with a statute called the False Claims Act, that's been around for a long time and is heavily litigated. We would have settled that question already, but it turns out we had so relevant to our discussion here today.
00;02;38;23 - 00;03;02;16
Tanner Cook
The FCA defines a claim in part as any request or demand for money or property, where the government has provided any portion of that money or property. So that was the relevant language for Wisconsin Bell. Factually, Wisconsin Bell dealt with this program called the E-Rate program that was established by the FCC. And for our purposes, I don't think we need to get too deep into what that involves, essentially.
00;03;02;24 - 00;03;39;12
Tanner Cook
It's a program that's designed to further universal access to telecommunications services. So the FCC created this program. And to fund this universal access, it required telecommunication carriers to contribute funds to this universal fund to further this access. So these are statutorily required dollars from private entities. And the program is administered by a private nonprofit corporation. So for FCA purposes, the real issue is, okay, you've got private dollars that are required by statute and you've got a private entity that's administering these funds.
00;03;39;22 - 00;03;56;19
Tanner Cook
How is this a demand for money or property to the government? This all seems like we're dealing with private money and we're dealing with private actors. It doesn't really involve the government. So that was the issue that was teed up in the Supreme Court. And the Supreme Court ruled against Wisconsin Bell and for the relator on this issue.
00;03;56;24 - 00;04;21;23
Tanner Cook
So in doing so, it really took a narrow view of things that said during the relevant time period that's critical to the decision. The government provided about $100 million, at least of its own money to the fund through the form of settlement awards that it collected delinquent contributions, things like that. And so because that money was collected by the government, held in the Treasury and then submitted to the fund.
00;04;22;00 - 00;04;46;00
Tanner Cook
That was enough to say that during the relevant time period the government provided at least some portion of the funding. So that settle the issue was a decision on that. And what is often the case here is what the court said is less interesting than what the court didn't say. So as Justice Thomas noted in his concurrence, the court was reserving ruling on a couple of really interesting issues.
00;04;46;00 - 00;05;11;15
Tanner Cook
One of them being is this nonprofit private entity that administers the fund, is an agent of the government and could that matter for whether or not this is a claim? The other very interesting question is because these dollars are required by statute, the companies are required by law to submit these dollars to the Universal Fund. Is that enough to characterize those as government funds?
00;05;11;15 - 00;05;33;14
Tanner Cook
After all, most money begins in private hands and then makes its way to the government. We all were coming up on tax season, so everyone should be very familiar with that. So the court didn't rule on those. It had a very narrow ruling, which I think is what allowed it to get a unanimous decision. And then the last thing that was not ruled on but it was brought up again, is the entire constitutionality of the qui tam provision.
00;05;33;15 - 00;05;55;28
Tanner Cook
So as some people might recall, there's a brewing dispute over whether or not the qui tam provisions violate Article two of the Constitution and in 2023, Justice Thomas, dissenting in the Polansky decision, noted that the Supreme Court should take up this issue in an appropriate case. And he was joined in that part of his dissent by Justices Kavanaugh and Barrett.
00;05;56;23 - 00;06;21;23
Tanner Cook
So here in Wisconsin Bell Justice Kavanaugh concurred separately and again called for the court to take up this issue, whether or not the qui tam provisions are constitutional. And to add to the interest of all of this, he was joined by Justice Thomas, but he was not joined by Justice Barrett. And so it's unclear whether or not Justice Barrett felt that she had already made her views known on this and didn't need to repeat herself or if perhaps she's had the change of heart.
00;06;21;23 - 00;06;42;26
Tanner Cook
She doesn't think that this is an issue that the court should take up. So there was a lot that came out of this that is left unanswered. And I think we're walking away from Wisconsin with more questions than answers at this point.
Jonathan Porter
Thanks, Tanner. That's a great summary. Yeah. So Wisconsin Bell is super fascinating to me. The idea that I keep going back to is the FCA's is a pretty simple statute.
00;06;42;26 - 00;07;13;04
Jonathan Porter
If you read the statute, it's meant to deter specific conduct going back to the Civil War when it was passed. It's meant to deter people from blatantly ripping off the government is the statement of lawmakers that breach of contract is not enough. You've got to have a bigger deterrent when you're defrauding the government. But I guarantee you, the drafters of the original False Claims Act right after the Civil War had no idea that one day there was going to be this program where the government was going to require private companies to pay into it.
00;07;13;04 - 00;07;33;25
Jonathan Porter
It's going to be a question as to whether that's a claim or not. I think this is really complicated. I agree with the Wisconsin Bell opinion. But as you said, Tanner, there's a lot of interesting stuff that comes out of this that this sort of yet to be decided. I think the takeaway for our listeners, most of the time we're dealing with something far less complicated than the E-Rate program, you know, in health care.
00;07;34;01 - 00;07;52;20
Jonathan Porter
If you're a health care provider, you're making a claim to Medicare. If that's your claim. If you're a defense contractor, you're making a claim for a bit of the funds that you're supposed to receive. That's a claim. This E-Rate program just shows that enforcement in the FCA is getting into some really interesting areas. And so thanks Tanner, that's a helpful synopsis of this Wisconsin Bell opinion.
00;07;52;20 - 00;08;18;02
Jonathan Porter
And like you said, there's a lot more to come. So let's move right along. Next up, we've got the Regeneron case from the first circuit. This is growing the circuit split on the level of causation needed for kickback predicated FCA cases. For background on this one, in the Affordable Care Act, Congress added statutory text that said claims resulting from kickbacks or FCA violations.
00;08;18;20 - 00;08;49;07
Jonathan Porter
That's the key language, resulting from. The issue there is that courts have previously interpreted that phrase, resulting from, to mean actual causation. In other words, that the claim wouldn't have been submitted but for the kickback. And that's very different from how FCA works with other obligations. Think of it this way, if a drug company visits a doctor who prescribes a bunch of the company's drugs and then hands her the doctor a bag of cash and the doctor continues prescribing the same drugs as before.
00;08;49;07 - 00;09;12;11
Jonathan Porter
Has that bag of cash caused any claims? Who's to say the doctor wouldn't have just carried on as before prescribing the same drugs regardless of that bag of cash? That's where causation is super important. And, Tanner, courts are divided on the Affordable Care Act's resulting from language, and the First Circuit waded into that circuit split in Regeneron the other week.
00;09;12;12 - 00;09;32;14
Jonathan Porter
So Tanner, tell our listeners what the First Circuit said and how it impacts FCA enforcement going forward.
Tanner Cook
Absolutely. So at a high level and I think this is really all that anyone needs to know about, this is the First Circuit took the side of the split that says you need to show that but for the antikickback violation, the government would not have paid the claim.
00;09;32;23 - 00;09;51;14
Tanner Cook
So that's really the key take away. That is the split. Is this a but for causation standard as the sixth and the eighth circuits have said? Or is this just some connection? Does there need to be a nexus between the violation of the Anti-Kickback statute and the claim that's being submitted? That's what the Third Circuit is. So those are the two sides of the split.
00;09;51;14 - 00;10;09;29
Tanner Cook
Here is a what people are calling a some connection test and then what others are calling it but for causation test and the first circuit sided with the sixth and the eighth deepening that split. And so as far as enforcement goes, if you're in the first circuit and you're dealing with one of these cases, you're a defendant, you have a much friendlier standards.
00;10;09;29 - 00;10;30;18
Tanner Cook
It's significantly harder for the government to show that but for this violation, the claim would not have been paid. It's a lot easier if you're in Pennsylvania or New Jersey. They're in the Third Circuit where there's just this some connection. So from an enforcement perspective, this is going to matter depending on what circuit you're in, whether you've got a harder standard for the government or later to prove, or is your standard.
00;10;30;25 - 00;10;56;18
Tanner Cook
And then at a broader level, what this means is that we're likely to see other circuits weighing in on this said circuit splits typically go, this is going to proliferate and we're going to get differing views. And presumably at some point the Supreme Court might step in and clear it up. But right now we've got really irreconcilable standards that are vastly different from each other, both in terms of what the government's and Relator's must prove, and then also, relatedly, how defendants go about defending a case.
00;10;56;18 - 00;11;14;14
Tanner Cook
So I think that's what the main takeaway is on this, is that it's highly dependent on what circuit you're in and what the standards are going to be.
Jonathan Porter
Yeah, I think that's all right, Tanner. Yeah I think what's interesting, there's nothing from the legislative history that said Congress was trying to elevate the causation standard here, but words have meaning and Congress chose these words.
00;11;14;14 - 00;11;28;24
Jonathan Porter
And so we've got to apply the statutes as they come. So I think we're general and this is the right decision. You know, Congress is free to go back and change it. And if they don't like this, if this was unintended and I think it was, they can go back and change the law. That's perfectly something that they can do.
00;11;29;03 - 00;11;46;24
Jonathan Porter
But I think Regeneron gets it right because this is resulting from has been interpreted to mean but for causation. That's what the court that's what it's meant always. And so I think this is the right decision, even though there's no sign that Congress intended to create this new standard in the Affordable Care Act. But again, words have meanings.
00;11;46;27 - 00;12;12;08
Jonathan Porter
What's interesting here is I've got some friends on the relator side, and when this First Circuit opinion came out, they texted me and they said, Hey, what do you think about health care providers that make claims themselves? Is there still like an implied false certification theory that fits within Regeneron? I think the answer probably is yes. It's interesting to read it the First Circuit sort of acknowledges that that is an independent theory, but doesn't actually say whether it would apply.
00;12;12;08 - 00;12;28;29
Jonathan Porter
And it didn't. It wouldn't have changed the outcome in Regeneron. But I think that's an uncertain area coming out of this. And because of that, because there's growing circuit split Tanner, I think we're going to see cert granted at some point on this. I mean, this is too important of an issue. So I think that's probably going to come at some point.
00;12;29;11 - 00;12;52;01
Jonathan Porter
But the big takeaway, and I've told some healthcare providers this just in passing in the last week or two, don't pay kickbacks just because there's this new defense friendly way of arguing false claims that cases that are predicated on the anti-kickback statute, that does not mean that you should pay kickbacks just don't don't do that. This is something that Tanner you and I care a lot about in our fellow False Claims Act practitioners.
00;12;52;12 - 00;13;11;22
Jonathan Porter
But if you're a health care provider for your defense contract, whatever you are, don't take kickbacks. So this is not an invitation to go and pay all the kickbacks because that's just a bad idea. Tanner, thanks for catching us up to speed on this growing circuit split. So let's move along to this big defense win in the United Health case from just a couple of weeks ago.
00;13;12;02 - 00;13;36;22
Jonathan Porter
For the past decade, DOJ has been warring with Medicare Advantage plans over how they adjust for risk. Way oversimplified Medicare Advantage plans are paid by the government to offer health plans for Medicare patients, and the patients are increased or decreased based on patient diagnoses. So Medicare pays a plan more money to insure a super sick person than it would to insure a super healthy person.
00;13;36;26 - 00;14;04;21
Jonathan Porter
Makes sense, right? Here's where it gets complex. Years and years ago, health plans started scouring patient charts to add diagnosis codes in an effort to increase their risk adjusted payments. But these were mostly efforts to add codes to increase revenue, not to delete diagnosis codes that were inappropriate. DOJ has called this a one way look, and they have said that this is improper Medicare Advantage plans
00;14;04;21 - 00;14;27;25
Jonathan Porter
strongly disagree. You get a bunch of cases on the issue and one saw a big decision go against DOJ a couple of weeks back in the United Health case. So, Tanner, tell all listeners about the special master's decision in this case, what it means for Medicare Advantage, FCA enforcement and whether there are any broader takeaways for FCA enforcement in general.
00;14;28;05 - 00;14;54;11
Tanner Cook
Absolutely. So this was for the procedural posture. These were cross motions for summary judgment. The defendant had moved for summary judgment on the theory that the government could not prove the elements of its claim. Typical thing that you'll see from FCA defendants almost all the time to move for summary judgment in these types of cases. But the theory here was very interesting was that the government hadn't done the necessary discovery to even come up with any sort of material issue of fact here.
00;14;54;11 - 00;15;23;15
Tanner Cook
And so getting to what you were saying, Jonathan, about these diagnosis codes, the government's theory here was that when a provider submits its diagnosis codes and then the Medicare Advantage program engages in what's called a blind review, where it does its own review of the patient's history and comes up with its diagnosis codes. If the blind review doesn't yield the same codes as the provider, that means necessarily that a provider's codes were inaccurate and they shouldn't be built.
00;15;23;15 - 00;15;51;00
Tanner Cook
And they were saying that by billing for both the codes that they got, the blind review and the provider's codes. The provider's codes were false and they were submitting those to the government. So one of the things the government did not do in this case actually look at those patient files and compare them to the diagnosis codes to see whether or not the diagnosis codes were actually inaccurate and instead relied on this assumption that if the blind review didn't catch it, then the provider's code must have been inaccurate.
00;15;51;16 - 00;16;12;25
Tanner Cook
One of the really fatal things for the government here was that the government's own expert admitted that there were all sorts of reasons why a blind review might not pick up accurate codes that the medical provider would put in there. So that eliminated any sort of argument from the government based on this assumption that they're necessarily false. Their own expert said they're not necessarily false.
00;16;12;25 - 00;16;36;11
Tanner Cook
There's a lot of reasons why those might not get picked up. And that was the crux of the special master's decision. It said, without actually reviewing the medical files and looking at whether or not these diagnosis codes are actually inaccurate, you cannot prove that there is a submission of a false claim. So that seems like a fairly straightforward ruling, and we'll see what happens in the fallout from it with any sort of appeal or what's going to happen in other cases.
00;16;36;20 - 00;16;57;17
Tanner Cook
One thing that I thought was very interesting about this case, and that's kind of flown under the radar because it's such a big victory. The special master also answered the question of whether or not materiality is an element of what's called a prong to or false claim. And so we're getting very deep into the weeds of different types of theories of false claims act violations.
00;16;58;09 - 00;17;21;17
Tanner Cook
But in section 3729, a1g, there is what's called the reverse false claim provision. So a typical false claim is you submit a demand for payment to the government looking to get money from the government. A reverse false claim is where you owe money to the government and you are trying to keep the government from getting that money. And so there's there's two prongs to this.
00;17;21;17 - 00;17;47;23
Tanner Cook
And the second prong I'll read from the statute here is it imposes liability on those who knowingly conceal or knowingly and improperly avoid or decrease an obligation to pay or transmit money or property to the government. So you'll notice in reading that I didn't say the word material. Material doesn't appear anywhere in that prong two, whereas it appears in other parts of the statutes, even in the first prong and subsection g there.
00;17;48;06 - 00;18;07;03
Tanner Cook
So the government had moved from partial summary judgment on the theory that prong to reverse false claims do not require showing a materiality that actually the government had a lot of case law to back this up. Other courts have addressed this and said, yeah, this doesn't include the word material, material as used in other parts of the statute.
00;18;07;08 - 00;18;33;06
Tanner Cook
There's no materiality requirement. The Special Master disagreed. The Special Master reviewed the Escobar opinion, which is the leading Supreme Court opinion on materiality, and noted that the Supreme Court based its ruling on the fact that the FCA is inherently an anti-fraud statute and that it takes its roots in common law. And that common law materiality is always an element of fraud, no matter what the theory of fraud is.
00;18;33;12 - 00;18;51;03
Tanner Cook
So the fact that it wasn't included in this particular statutory text doesn't mean that the government doesn't have the burden. So this is actually a new issue until now, at least as far as I know, every court has said that materiality is not an element of a problem to reverse false claim. The Special Master is the first one to say otherwise.
00;18;51;06 - 00;19;19;18
Tanner Cook
And this is going to, I think, create a lot of confusion, I'll say, because the typical materiality factors don't necessarily map on an easy way to reverse false claims. So for our listeners, the three factors you'll hear most often are whether or not the condition was an express condition of payments, whether or not the government typically denies payments when someone violates this provision, and whether or not that condition goes to the essence of the bargain.
00;19;19;18 - 00;19;36;18
Tanner Cook
Now, that all makes sense when you are submitting a claim for payment to the government, but when you've got an obligation to pay that you're concealing, those factors don't really correlate. So it's possible we just need a new set of factors. It's possible that the Special Master just reached the wrong result on this and that that's going to get corrected.
00;19;37;00 - 00;19;58;17
Tanner Cook
And then there's also another issue of, you know, if we use materiality in parts of the statute but not others, doesn't that make the parts or reuse it redundant? And doesn't for all the the statutory interpretation folks out there, isn't that a big problem? I'm not one of those people, so I'll defer to them. But I hear them say that when you use the term somewhere and don't use it somewhere else, that's like mutually exclusive.
00;19;58;17 - 00;20;32;20
Tanner Cook
So I think that's going to be one of the unintended consequences of this decision is it's going to create a lot of confusion about whether or not materiality is required for prone to reverse false claim.
Jonthan Porter
Thanks, Tanner. Reverse false claim litigation is a really fascinating area. I know, Tanner, you and I have dug in on reverse false claims a good bit is sort of an underdeveloped area of FCA enforcement and it's really important because we have a lot of healthier clients and they come to us and they say, well, we think we've done something wrong and someone realized it and someone else didn't.
00;20;32;20 - 00;20;49;16
Jonathan Porter
And you know, do we have this reverse false claim problem? And the answer is not nearly as clear as some would think it is. Reverse false claims case law is really sort of interesting to track. We will do a whole episode on reverse false claims at some point. I've been thinking about that for the better part of a year now.
00;20;49;16 - 00;21;11;00
Jonathan Porter
How to explain reverse false claims in a sort of helpful way. But Tanner, you did a great job of sort of giving a high level overview of what all that entails. So thanks for that. Yeah, I keep coming back to this thing that the drafters of the False Claims Act would just be amazed that we're having conversations about, you know, one way looks for Medicare Advantage programs and not at all what the drafters thought this was going to be.
00;21;11;00 - 00;21;41;02
Jonathan Porter
But here we are. All right. So next Tanner, we've got Attorney General Pam Bondi’s February memorandum that deals with sub regulatory guidance as an enforcement predicate. Regular listeners may recall our episodes with Cormac Conner right before President Trump took office, in which we talked about the brand memo from the first Trump administration. The brand memo told DOJ not to use sub regulatory guidance in enforcement, not to base enforcement on sub regulatory guidance requirements.
00;21;41;02 - 00;22;07;25
Jonathan Porter
In other words, let's keep criminal and FCA enforcement in the statutory and regulatory world. Rather than digging into some guidance document that hasn't gone through notice and comment, the Biden administration reversed the brand memo, but now General Bondi has more or less put it back in place. Tanner I think this is a big deal in health care enforcement because a fair amount of health care payment decisions turn on details contained in coverage determinations, whether national or local.
00;22;07;25 - 00;22;33;23
Jonathan Porter
And so, Tanner, tell our listeners what General Bondi's memorandum means for FCA enforcement.
Tanner Cook
Yeah, well, I'm really excited to talk about this because I think this relates actually to the last episode that we had together where we talked about Loper Bright and its effect on false claims like litigation. And to me, the Bondi Memo is really just codifying what Loper Bright instructed at the general level and it's codifying it in the FCA context.
00;22;33;23 - 00;22;58;02
Tanner Cook
So your background, there's different types of regulatory guidance, some of which is binding and has the force of law. Here we're focused on a different guide, which is the regulatory guidance that is not binding and does not have the force in effect of the law. And what the Bondi memo is really doing is saying that latter sort of guidance, the kind that is not binding and does not have a force, in fact law that cannot be the basis for FCA violations.
00;22;58;06 - 00;23;25;29
Tanner Cook
And that's really very similar to what we took away from Loper Bright, which is the agencies are bound by the statute and at any time they really deviate or go farther than either the text of the statute or their delegation provision that allows them to make rules. When they stray from that, they're acting outside their authority and using the guidance that they issue, and they're acting outside of their authority to sort of bootstrap a violation of a non-binding regulation into a violation of the False Claims Act.
00;23;26;06 - 00;23;50;14
Tanner Cook
That's a problem. You're elevating what doesn't have the force of the fact of law into something that does have the force of law. So it was very interesting to see this memo come out because I do think that it is perfectly consistent with what we saw in Loper Bright. I think actually this is the logical outgrowth of Loper Bright, is that you cannot rely on this non-binding regulatory guidance in order to establish violations of the law.
00;23;50;18 - 00;24;22;07
Tanner Cook
And actually, we saw this already in some cases. So in the the Sheldon case out of the District of Maryland, which was the first case really grappling with little bit in the FCA context, know the court noted that relying on non-binding guidance for establishing falsity or science or is a real problem in the wake of Loper Bright because the statute always controls and any time you've got something outside the statute that is not allowed to conflict with it, you cannot use that to, as I said before, bootstrap that into a violation of Claims Act.
00;24;22;07 - 00;24;41;05
Tanner Cook
So this is very interesting to see. It will be equally interesting to see how much this is followed by the DOJ itself and its own False Claims Act decision. So there's a lot that remains to be seen on that. But I thought this was a perfect outgrowth of the upper right decision. I think that makes total sense in terms of what the Supreme Court is instructed.
00;24;41;07 - 00;25;04;04
Jonathan Porter
Thanks, Tanner. I agree with you there yet I keep going back to this false claims act is meant to deter fraud, not just any fraud knowing fraud, not even an all purpose anti-fraud statute. It is it is for deterring actual fraud knowingly committed against the government. And when we're getting into guidance documents, local coverage determinations and the like, we're not really dealing with fraud.
00;25;04;07 - 00;25;28;21
Jonathan Porter
It's interesting because a lot of say Medicare decisions are to make payments are premised on coverage determinations. And so you're getting down below regulatory requirements into the really fine details of what it means to submit particular CPT codes. And I just think it's hard to say that that's fraud when you're getting down into the weeds of something. And so, yeah, I think that's what this is.
00;25;28;21 - 00;25;47;18
Jonathan Porter
I think that's so General Bondi is trying to say is, look, there's a whole world is a lot of mechanisms for the government to get into the weeds on particular payment decisions. There's Medicare audits, appeals, ALJs. There's no reason these agencies can't bring breach of contract actions against people that are doing business with it. I mean, there's all sorts of unjust enrichment.
00;25;47;18 - 00;26;02;14
Jonathan Porter
There's all sorts of things you could do. Not everything is fraud. Some things are just, hey, we're going to disagree as to whether this particular CPT code is proper or not, and we're going to go fight that out in court. But just because the False Claims Act is this big tool doesn't mean you should use this tool for everything.
00;26;02;14 - 00;26;18;20
Jonathan Porter
I think that's what General Bond is trying to get at. So that's a big development in our world Tanner, and I appreciate you sort of calling it out for us. All right. Last thing on our list of big cutting edge developments recently, everyone in the world knows about supervalu. The Supreme Court decision from a couple of years ago.
00;26;19;03 - 00;26;43;29
Jonathan Porter
The Supreme Court's sent that decline, qui tam back down for trial. And that trial happened. It started in February. It ended in early March. And the supervalu facts are really complex deals with prices that pharmacies were reporting as their usual and customary prices. The question was whether standard discounts fell into the definition of usual and customary prices.
00;26;44;12 - 00;27;11;11
Jonathan Porter
Frankly, it's a concept to me that does not sound like fraud, but the whistleblower got to go to trial on it. And the key defense theory was that the defendants people had no intent to present false claims, and the defense actually lost on that theory. But the defense won on a different theory. The jury said that even though Supervalu knowingly caused false claims, the government sustained no damages because of the way Medicare Part D program works.
00;27;11;28 - 00;27;37;00
Jonathan Porter
Tanner, this is another one where we could go way down the rabbit hole on complex facts in a complicated regulatory scheme, but drill down to the most important things for us and tell our listeners how this trial impacts FCA enforcement overall.
Tanner Cook
Yeah, I think what's so interesting about this, just as background, is this, you know, that this has been a case for a long time, went up to the Supreme Court on this issue of science or of what it means to knowingly submit a false claim.
00;27;37;00 - 00;27;53;25
Tanner Cook
And we got really the groundbreaking decision from the Supreme Court about how science is about your subject to knowledge. Do you think that you're doing something wrong? Do you think you're defrauding the government? So that was what we got from the Supreme Court. And then it goes back down and goes through trial and the jury says, yes, we think that you knew you were doing something wrong.
00;27;53;25 - 00;28;14;15
Tanner Cook
We think you had the intention of defrauding the government, but it ended up being the sort of no harm, no foul situation, because there were no damages to the government, as you noted. And that's actually an element that is overlooked a lot of times in FCA litigation, we focus a lot on falsity because a lot of materiality. And now after Supervalu we're focusing a lot on science here.
00;28;14;29 - 00;28;49;14
Tanner Cook
But there is this requirement in Section 3731, subsection D, that says any action brought under the False Claims Act, the United States, or it's a relator of the United States standing, the government's shoes shall be required to prove all essential elements of the cause of action, including damages by a preponderance of the evidence. And so oftentimes we would see a finding of, yes, what you could call substantive liability in terms of the other elements, saying that, yes, you submitted a false claim, but the government or a relator still fails because they can't prove damages.
00;28;49;14 - 00;29;13;14
Tanner Cook
And sometimes that's because there simply were no damages. Other times that's because the government cannot actually calculate damages to a reasonable cert. So we've seen that in some cases as well, where there's been a trial and it's found that the defendant submitted false claims to the government. It's actually been found that the government probably was damaged in some way, but without a calculation that's reliable as to what those damages actually are.
00;29;13;18 - 00;29;39;24
Tanner Cook
We've seen awards of $0. And so I think this is just a good reminder that you need to focus also on the damages element. It's now listed in 3729 because it's sort of almost goes without saying because this is about costing the government money. But it a lot of times we're so focused on falsity and science or materiality that we overlook that there's this other aspect which is did this actually damage the government and can it be shown to what extent those damages actually took place?
00;29;39;24 - 00;30;03;10
Tanner Cook
So I think this is just a great lesson about looking at the totality of the statute and what all the all the elements are that need to be proven by preponderance of the evidence.
Jonathan Porter
Thanks, Tanner. I totally agree. So me, selfishly, I happen to think there should be a lot more false claims act trials. I think trials are really good for developing law because you get to see what sort of cases should be brought, what sort of cases shouldn't be brought.
00;30;03;10 - 00;30;22;15
Jonathan Porter
So I think trials in general are good. The issue I have is in the False Claims Act, trials are enormously risky. I don't think I can in good faith tell a client, yeah, go risk bankruptcy or losing your company to go try this theory because we may not win if we're going to trial means we've lost on summary judgment.
00;30;22;24 - 00;30;44;17
Jonathan Porter
And so there's some question of fact here, and if there's some question of fact, you're biting off so much risk. For example, there was a false claims act trial in Minnesota two years ago where there was $43 million in false claims identified. The defense thought they were going to win that because of trebling and per claim penalties that ended up being a $487 million judgment.
00;30;44;24 - 00;31;05;07
Jonathan Porter
Luckily, the judge in that went back and said, look, I've got excessive fines clause concerns with this judgment. I'm going to reduce the penalties by 82% in order to make sure that we're complying with the Constitution. But that's such a deterrent to going to trial, is when you're sitting there not knowing if the judge is going to buy your excessive fines clause arguments, not knowing if you're going to lose control of your company.
00;31;05;12 - 00;31;22;24
Jonathan Porter
I've got several friends who got up to the brink of an FCA trial and they stopped because they said This is an existential threat, this is not worth the risk. So me personally, I love that FCA cases are going to trial. I think we all learn. We're going to learn a lot from the Supervalu trial and see how jurors respond to these complex issues.
00;31;22;24 - 00;31;40;01
Jonathan Porter
And so Tanner, me selfishly I'm very thrilled that this went to trial because I think it's good for us who are defending these to see what it's like when this gets in the hands of jurors. So Tanner thanks for talking about that case was and thanks for joining us to talk about these really cutting edge issues.
Tanner Cook
Yeah, that was a lot of fun.
00;31;40;09 - 00;32;00;04
Jonathan Porter
To sort of close, these are five really big developments in the FCA. They're all coming in the last two months. Everything seems to be happening at a pretty quick pace now and the ramifications for all these things are huge. In this sort of climate where these things are happening so quickly, you've got to have sort of accomplished and knowledgeable lawyers on your side who know this area really well.
00;32;00;04 - 00;32;20;06
Jonathan Porter
I hate to think of there are people under investigation right now who can help their clients go to DOJ and say, hey, there's this new memo from Attorney General Bondi that says, you can't look at sub regulatory guidance. All of your facts are dealing with sub regulatory guidance. So let's figure out the application of this memo. You've got to have lawyers who know how to bring these issues up.
00;32;20;15 - 00;32;36;07
Jonathan Porter
And so that's why I'm fortunate to work with Tanner and so many of our other colleagues who are keeping on top of all these cutting edge issues because this is how we defend our clients, is knowing the law as it is right now. And the law is changing very quickly in the false claims act lately. So that's our episode for today.
00;32;36;07 - 00;32;49;09
Jonathan Porter
We appreciate you all listening to our episode today. Continue to listen to us as we bring you more cutting edge FCA developments. Hope you enjoyed the discussion. Thanks for listening and we'll see you next time.