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Supreme Court Issues Major False Claims Act Decision

Client Alert
June 5, 2023

Supreme Court Rules that Liability under the False Claims Act (FCA) Depends on the BELIEF of Defendant

The Supreme Court unanimously ruled Thursday, June 1, 2023 that liability in FCA suits depends on whether defendants believed their claims were false, not whether they had made an "objectively reasonable" interpretation of law or regulation. The decision rejects the recent attempts to shift the scienter element’s knowledge standard in FCA cases, clarifying instead that an assessment of a defendant's subjective beliefs about potential wrongdoing is required. In the opinion, Justice Thomas writes “…what matters for an FCA case is whether the defendant knew the claim was false. Thus, if respondents correctly interpreted the relevant phrase and believed their claims were false, then they could have known their claims were false.”

At oral arguments, the government asked the Court to preserve the relevance of subjective intent standard. The Government argued that following the Seventh Circuit’s precedent of “objectively reasonable” interpretation would undermine enforcement and incentivize individuals to come up with crafty, post-hoc arguments for why a claim it submitted was not false. The Court agreed, and its ruling allows the government to rely on deliberate ignorance or recklessness of the defendant instead of having to prove actual knowledge.

The FCA was passed under the Lincoln administration and underwent significant strengthening through a congressional amendment in 1986. Today, the FCA is one of the government's strongest anti-fraud statutes. It imposes liability on individuals and businesses that defraud and cause financial loss to the federal government. The FCA also provides the potential for rewards for whistleblowers who report such fraudulent activities. Since its amendment in 1986, the Department of Justice has successfully utilized the Act to secure settlements and judgments amounting to over $70 billion, mainly in healthcare and defense contracting cases.

The FCA plays a substantial role in balancing the power between the government and industry. Along with being used to combat health care fraud, the FCA serves as the government’s primary tool to redress false claims involving a multitude of other government operations and functions. In recent years, healthcare fraud has been the leading source of the Department’s FCA settlements and judgments, as the FCA has played a critical role in combatting the opioid epidemic and the growing issues surrounding the Medicare Advantage program. The number of FCA cases has increased over the past several years, and it is evident that governments on both the state and federal levels are becoming more aggressive in their use of the FCA to obtain recoveries.

FCA claims can be a source of concern and complexity for businesses when they find themselves as the subject of either a federal investigation or state investigation. Whenever there is government money at stake, there is a chance for an FCA claim. Since fraud in the healthcare industry can lead to rising healthcare costs, the government is keen on cracking down on such activity.  The unanimous ruling decidedly addresses with the FCA’s knowledge element, overturning the Seventh Circuit’s use of an "objectively reasonable" interpretation of law or regulation, and instead holding that an FCA case hinges on whether the defendant knew the claim was false.

Should you have any questions concerning the CMS Final Rule, please contact BMD President Matt Heinle at maheinle@bmdllc.com, BMD Vice President Amanda Waesch at alwaesch@bmdllc.com, or Healthcare Partner Bryan Meek at bmeek@bmdllc.com.

COVID-19Vaccine PolicyHealthcareHealth LawAmanda L. Waesch
Client Alert

Will Federal Legislation Open Cannabis Acquisition Floodgate?

February 18, 2021Are potential buyers quietly lobbying at federal and state levels to kick open the door to launch a new round of strategic acquisitions? Will presently pending federal legislation, the SAFE and MORE Acts, providing safe harbor for banks and re- or de-scheduling marijuana, be sufficient to mobilize into action major non-cannabis companies that previously shunned the cannabis industry due to the unknown implications of owning businesses whose activities are illegal under federal law?Client Alert

The Future of the Families First Coronavirus Response Act

February 3, 2021Over the last year we all have had to adjust to the new normal ushered in by the coronavirus pandemic. Schools and daycares closed, businesses transitioned from in-office work to work from home, bars and restaurants have closed their doors...all to slow the spread and try to prevent this pandemic from spiraling out of control. The start of the pandemic was utter pandemonium. Working parents trying to balance both caring for their now at-home children and their livelihood. Businesses trying to decide how to implement leave policies with limited information. Employees determining if they could financially afford to take time off. We were all flying by the seat of our pants trying to adjust to our new normal.Client Alert

Ohio Supreme Court Clarifies Medical Statute of Limitations

February 1, 2021The Ohio Supreme Court issued a decision in late December that clarifies and finalizes the Ohio law regarding the period of time in which patients can assert claims for medical malpractice. The Court was examining the interplay between three different statutes being the statute of limitations, the statute of repose, and the savings statute.Client Alert

Ohio Hospitals and Healthcare Clinics: It’s Time to Revisit Your Billing and Collection Practices

February 1, 2021According to a recent Cuyahoga County case, certain healthcare entities may not be protected from liability when engaging in unfair or deceptive billing acts. This decision is consistent with the growing trend across the country to encourage price transparency and eliminate unfair surprise billing practices by health care organizations. Now is the time for hospitals and other health care organizations to revisit their billing and collection policies and procedures to confirm that they are legally defensible and consistent with best practices.Client Alert

HIPAA Business Associate Agreements: Why These Contracts Matter

January 27, 2021No one loves drafting, reading or negotiating HIPAA Business Associate Agreements (BAAs). Yet many of us need to do so, and some of us do so daily. They are often boring, dense and technical, but BAAs are important from both a legal and a business perspective, and they deserve our attention. Failure to enter a BAA when one is required can constitute a HIPAA violation that results in substantial liability, as demonstrated by certain recent Department of Health & Human Services (HHS) settlements.1 A business associate who makes a disclosure that is not authorized by the applicable BAA or required by law can be subject to civil and, in some cases, criminal penalties. Further, parties are often presented with BAAs that contain onerous one-sided indemnification and other provisions that can be devasting to an organization in the event of a HIPAA breach. The significance of a BAA is often not fully understood by the parties until something goes wrong (e.g., a HIPAA security incident or breach, an Office of Civil Rights (OCR) audit or a fracture in the relationship between the parties) and, at that point, there is limited opportunity to mitigate legal and business risk. Ideally, attention should be given at the commencement of the business associate relationship, when the parties are able, to thoughtfully addressing regulatory requirements, planning and preparing for potential adverse events and appropriately allocating risk among the parties. As with most healthcare regulatory compliance initiatives, a proactive approach with respect to BAAs is preferable. This article provides a broad overview of certain BAA requirements and some practical negotiating tips for the parties involved.
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