June 09, 2022


Jeffrey S. Bucholtz, Tamra Moore, Matthew V.H. Noller, King & Spalding LLP


This week’s top False Claims Act (FCA) developments include: a federal district court decision holding that a Puerto Rico government agency cannot be sued under the FCA; a Fourth Circuit decision affirming summary judgment in favor of an FCA defendant on scienter grounds; and two government settlements of FCA claims.

1. Puerto Rico federal court holds that the United States cannot sue a Puerto Rico government agency under FCA

Overview: On May 25, a federal district court in Puerto Rico dismissed an FCA lawsuit filed by the United States against the Puerto Rico Department of Sports and Recreation. The court held that the Department is not a “person” covered by the FCA.

The Decision: The United States alleged that the Department violated the FCA by receiving federal funds for a government project based on alleged misrepresentations about the identity of the entity performing the work. Specifically, the Department allegedly promised to perform the project itself, but then subcontracted the work to a third party. The United States further alleged that this was a “fraudulent scheme” to subcontract the project for a profit “and hide that fact through various false proposals, bids, and requests for payment.”

The district court dismissed the United States’ FCA suit for failure to state a claim. The FCA applies only to “persons,” 31 U.S.C. § 3729(a)(1), and the Supreme Court held in Vermont Agency of Natural Resources v. U.S. ex rel. Stevens that states and state agencies are not “persons” under the FCA. Stevens involved a qui tamsuit brought by a private party and did not decide whether the same rule would apply to FCA suits brought by the United States. It does not appear that any federal court of appeals has decided whether Stevens applies to claims brought by the United States, and district courts have come out bothways. The district court here held that Stevens applies to all FCA claims, whether brought by a private party or the United States. That is because of “the peculiar nature” of the FCA, which permits private parties to bring a qui tam action “for the person and for the United States in the name of the government.” The district court explained that under these circumstances, Stevens applies to all FCA claims because “the United States is represented [in a FCA suit] whether it is the originator of the lawsuit [or] just a bystander.”

The district court held that, for purposes of applying Stevens, Puerto Rico is a state and the Department is a state agency. Therefore, the court concluded, the Department is not a “person” subject to liability under the FCA.

Our Take: This decision enforces limits on the United States’ ability to pursue FCA actions against state and territorial governments.

2. Fourth Circuit affirms grant of summary judgment to FCA defendant on scienter grounds

Overview: On May 26, the Fourth Circuit affirmed a decision holding that a qui tam relator failed to prove that the defendants acted with the requisite scienter when the defendants violated Medicaid billing regulations. The Fourth Circuit held that the relator had not shown that the defendants knew or believed that their interpretation of the regulations was incorrect.

The Decision: The relator alleged that the defendants, forty-five North Carolina adult care homes, violated state Medicaid billing regulations when billing Medicaid for personal care services (PCS) to assist disabled adults with the activities of daily living. North Carolina reimburses providers for PCS hours on a monthly basis for services rendered to individual beneficiaries. Because the defendants provided their residents around-the-clock care, they calculated daily PCS hours by evenly dividing the total authorized hours for a beneficiary across every day in a month. The relator alleged that this billing method violated North Carolina regulations because, according to the relator, the regulations required the defendants to bill Medicaid for the actual hours in a day that their employees spent providing PCS to individual residents.

The district court granted summary judgment in favor of the defendants, holding that the relator had not shown that the defendants had the requisite scienter to violate the FCA, and the Fourth Circuit affirmed. To prove scienter under the FCA, a relator must show that the defendant acted with “actual knowledge” or with “reckless disregard” or “deliberate ignorance” of the truth. 31 U.S.C. § 3729(b)(1)(A). Relying on the purported “clear” text of the billing regulations, the relator argued that the defendants knowingly violated the regulations’ requirements. The Fourth Circuit rejected the relator’s argument, pointing to the ambiguity in the regulations’ text and reasoning that the regulations did not clearly prohibit the defendants’ billing practices. The Fourth Circuit also noted that the relator had not submitted any evidence, other than the regulations themselves, that showed that the defendants knew or believed their interpretation of the regulations was incorrect. Without such proof, the Fourth Circuit held, the relator could not satisfy the FCA’s “rigorous” scienter requirement.

Our Take: This decision reflects the importance of the FCA’s scienter requirement in limiting qui tam suits based on alleged violations of ambiguous regulations.

In the News:

Doctor agrees to pay more than $1,000,000 to resolve allegations that he charged Medicare for non-FDA-approved drugs and services. On May 24, the government announced a $1,033,66.42 settlement with a San Francisco rheumatologist accused of billing Medicare for drugs and services that were ineligible for reimbursement. The government alleged that the doctor used and billed Medicare for drugs that have not been approved by the FDA.

Florida testing facility agrees to pay $3.15 million to resolve allegations that it fraudulently billed Medicare. On May 19, the government announced a settlement with VirtuOx, Inc., a Florida-based diagnostic testing facility. The government alleged that VirtuOx falsely identified the place of service for certain services it performed, doing so in order to receive a higher rate of reimbursement from Medicare. In particular, VirtuOx allegedly claimed that it performed services in San Francisco when no such services were actually performed there. The government also alleged that VirtuOx billed Medicare for tests that were not performed at all. This action arose out of a qui tam action in which the government intervened.

Jeffrey S. Bucholtz is a partner in the Trial and Global Disputes Practice Group in the firm’s Washington, D.C. office, Tamra Moore is a partner in the Healthcare Practice Group in the firm’s Washington, D.C. office, and Matthew V.H. Noller is a senior associate in the Trial and Global Disputes Practice Group in the firm’s San Francisco office.