Overview
In this issue:
- Connecticut USAO successfully argues for an eight-year sentence for false claims of a defendant's safety supplies and cleaning services post-COVID
- The Sixth Circuit holds that remuneration only includes payments, and Anti-Kickback Statute (AKS) violations must be a but-for cause of false claims, limiting the reach of AKS-based FCA claims
- Oral argument in SuperValu indicates that "objectively reasonable" may be objectively dead-on-arrival
Ghost Cleaner Sentenced to Eight Years, More than Double Guideline Range, for False Claims
United States v. DiMassa, 3:22-cr-00033 (D. Conn. 2022)
John Trasacco, the beneficiary of a scheme to submit fraudulent invoices for Personal Protective Equipment (PPE) and other COVID supplies and cleaning services to the West Haven, Connecticut City Council, was sentenced to eight years in federal prison – a sentence significantly above the two-and-a-half to three-and-a-half-year range recommended by the sentencing guidelines. Trasacco, through his friendship with Michael DiMassa, a Connecticut State Representative who was also employed by the West Haven City Council as an administrative assistant, defrauded the city out of more than $400,000 in COVID-19 relief funds by submitting fraudulent invoices for safety supplies and cleaning services, including an invoice for cleaning services for a school building that had been vacant and abandoned for several years. Prosecutors requested an upward deviation from the guidelines for Trasacco, citing Trasacco’s repeated thefts over the course of a year, as well as his prior violent felonies. Trasacco was also ordered to pay $143,994 in restitution. DiMassa has also pleaded guilty and is awaiting sentencing.
Sixth Circuit: Raising the Bar for Plaintiffs to Assert FCA AKS Claims
United States ex rel. Martin v. Hathaway, No. 22-1463 (March 28, 2023)
Last month, the Sixth Circuit issued a decision narrowing the scope of the AKS in an FCA case. In Hathaway, relators accused a hospital and ophthalmologist of violating the FCA and AKS. Specifically, relators, another ophthalmologist and her spouse, asserted that the defendants had violated the AKS when the hospital allegedly declined to hire the relator as an ophthalmologist based on a general commitment of referrals the hospital had from the defendant ophthalmologist. Relators alleged that, as a result of the AKS violations, all the defendant hospital's claims to Medicare for services resulting from the referrals were false under the FCA. The Sixth Circuit rejected both the AKS violations and the idea that any alleged AKS violation created false claims.
The Sixth Circuit affirmed the lower court’s dismissal of the claims, holding that "remuneration" only includes payments and other transfers of value and the hospital’s decision not to hire the relator ophthalmologist was not a transfer of value. Instead, the court reasoned that the decision to hire or not to hire a doctor is a business decision based on many factors. The Sixth Circuit, therefore, placed some parameters around courts' long-held understanding that remuneration includes anything of value.
The Sixth Circuit also held that the relators failed to prove that the claims at issue “result[ed] from” AKS violations, as required by the statute. While circuits are divided on what the phrase "resulting from" requires a relator to prove, the Sixth Circuit held that a relator must show that the false claim would not have occurred, absent the remuneration. The relators in Hathaway failed to meet this but-for causation standard because there was no evidence that the defendant ophthalmologist changed his referral patterns after the hospital's decision or that the referral resulted from personal interest. Importantly, the Sixth Circuit explained that "[r]eading causation too loosely or remuneration too broadly" could devolve the entire practice of medicine into constant AKS litigation over broadly accepted medical practices, noting “the statute does little to protect doctors of good intent, sweeping in the vice-ridden and virtuous alike."
SuperValu Letdown Pending? Justices Sure Didn’t Think the Price Was Right.
This week the Supreme Court heard arguments in United States ex rel. Schutte v. SuperValu – an FCA case asking whether an "objectively reasonable" interpretation of a regulation protects a defendant from FCA liability regardless of the defendant’s subjective knowledge or intent. During the argument, the Justices expressed skepticism that evidence of subjective intent should not be considered in determining a defendant's liability under the FCA. In what appears to be a blow to the FCA defense bar, lawyers are predicting that the Supreme Court will reverse the Seventh Circuit, and, at a minimum, curtail the applicability of an "objectively reasonable" defense to False Claims Act liability.
The case involves SuperValu and Safeway's representations to Medicare and Medicaid regarding the "usual and customary prices" they charged for generic drugs for purposes of Medicare and Medicaid reimbursement. The stores have argued that their interpretation of "usual and customary price" as being the non-discounted price for which they sought reimbursement was an "objectively reasonable" interpretation in the absence of guidance. However, Justices appeared sympathetic to arguments that relied on defendants’ subjective intent, including evidence that the defendant stores believed, at the time they submitted information to Medicare and Medicaid, that their chosen interpretation of "usual and customary price" was unreasonable. What the parties tried to present as a complex issue needing resolution by the High Court was treated by the Justices as a straightforward issue, with Justice Gorsuch saying "Mr. Phillips [counsel for respondents], it sounds to me like an excellent jury argument."
Hope for clarity from the Court remains. The oral argument featured significant debate between the Justices about whether the question before the Court was a narrow one or expansive one, and whether the issue for decision before the Court was whether the Seventh Circuit erred when it determined that the only evidence relevant to a scienter analysis under the FCA was objective proof of intent or whether adopting an objectively reasonable but incorrect interpretation of a regulatory requirement would satisfy the FCA’s scienter requirement.
A decision is expected by the end of June.
