Overview
In this issue:
- A former Contracting Officer’s (CO) expert testimony may be used as part of a defense to fraudulent overbilling charges in connection with a government contract; however, the CO may not testify to ultimate issue in the case—whether the defendant actually worked the hours claimed.
- The government cannot setoff any portion of a relator’s False Claims Act (FCA) settlement award to satisfy judgement against the relator in an unrelated tax enforcement action, because the FCA claim is aligned with the government’s interests rather than adverse.
- An accounting firm’s knowledge of contracts governing the relationship between a management company and a critical access hospital does not establish scienter under the FCA.
- An FCA claim can proceed against a defendant drug manufacturer where the complaint alleges specific examples of advertisements advocating for off-label uses. Claims under the Anti-Kickback Statute and Beneficiary Inducement Statute can also proceed with allegations of specific violations.
United States v. Jacky Lynn McComber, No. ELH-21-36, 2022 WL 16775930 (D. Md. Nov. 7, 2022)
Industry: Information Technology
Topics: Government Contracting, Inflated Timesheets, FRE 702/Daubert
Summary: Recently, the District Court of Maryland issued a decision establishing the parameters of the expert testimony a contracting officer (CO) can provide in a criminal FCA case involving allegations of fraudulent overbilling.
In 2021, Jacky Lynn McComber (Defendant), the Chief Executive Officer, President, and sole shareholder of InfoTeK Corporation (ITK) was indicted under the criminal FCA in connection with ITK’s performance of a National Security Agency (NSA) contract known as the “Ironbridge Contract,” for maintenance and enhancement support services for information technology and software requirements at the NSA’s National Security Operations Center and Counter Terrorism Mission Management Center. The government alleged that Defendant engaged in fraudulent overbilling while serving as InfoTeK’s Senior Program manager for the Ironbridge Contract.
Following a tip from an anonymous whistleblower that alleged fraudulent billing, NSA conducted a review and determined that Defendant caused InfoTeK to submit materially false, fictitious, and fraudulent invoices to NSA. Defendant was indicted in February 2021.
The government filed a motion to exclude most of the opinion testimony of defense expert Charles Stein, a former NSA CO. Defendant sought to introduce testimony from Mr. Stein on a variety of issues, including, as relevant here, on how many hours and deliverables were required under the contract at issue and the reports produced by Defendant, as well as Federal Acquisition Regulation requirements, changes to the contracts for acceptance of non-conforming goods, and US government policies regarding quality control, fraud detection, and invoice payments. The Court held that (1) the CO could not provide testimony on whether Defendant actually worked the hours charged the NSA, (2) the CO was not qualified to testify to US government policies, and (3) the CO could not testify as to whether the government was ultimately defrauded.
First, the court held that the CO could not provide testimony as to whether Defendant actually worked the hours billed. Rather, the CO could only testify to the responsibilities of a CO, the process a CO undertakes to select a specific type of contract, the labor hours required for performance, the type of contract at issue in this case, the deliverables that Defendant produced, the labor hours dedicated to the contract, and specific information about the contracting process, including “deliverables,” labor hours, “level of effort,” and reports. Among other findings, the court addressed the difference between estimated and actual labor hours, commenting that an individual may never bill the government for hours not worked despite a higher projection in the contract award.
Second, the court held that the CO could not testify to US government policies. Rather the court held that the CO could only testify to what a CO would normally keep in a contract file, explain the meanings of specific contract terms, and testify generally to the government’s quality control processes, as well as the general process for modifying a contract.
Finally, the court held that the CO was not qualified to render an opinion as to whether the government was defrauded. The court agreed with the government’s argument that the CO did not meet the test for admissibility under FRE 702 because his knowledge was outdated – he had not been a CO for 30 years, was “not an expert on fraud,” and had not encountered any fraud during his time at NSA. Additionally, the court concluded that any opinion of the CO related to whether ITK provided the services requested under the Ironbridge Contract, or the quality of those services, would not be relevant to whether Defendant billed more hours than she worked.
United States ex rel. Monsour v. Performance Accounts Receivable, LLC, 1:16-cv-00038 (S.D. Miss. Nov. 9, 2022):
Industry: Healthcare
Topics: Medicare; Medicaid; Critical Access Hospitals
Summary: Recently, the Southern District of Mississippi granted Defendant Watkins Ward & Stafford PLLC’s (WWS) motion to dismiss allegations that Defendant WWS, an accounting firm, had violated the FCA when it prepared and submitted to Critical Access Hospitals (CAH) allegedly false cost reports that were later submitted to Medicare.1
Relators’ claims arise from Medicare cost reports filed by three CAHs. Unlike Medicare reimbursement for traditional hospitals, Medicare reimburses CAHs 101% of their “reasonable and allowable costs.” As a result, CAHs are incentivized to maximize the amount of costs claimed on their cost reports because the more money they claim, the more they receive from Medicare. However, federal regulations restrict the costs that are allowable. Medicare also requires providers to disclose whether any services for which the provider is seeking reimbursement were provided by a related organization and the costs of those services. This is necessary to ensure that the costs are reasonable and not an attempt by affiliated organizations to improperly maximize reimbursements (by inflating payments between affiliates).
Here, relators alleged that the Medicare cost reports prepared by WWS and submitted to the CAHs included undisclosed costs for services performed by a related organization. Specifically, relators alleged that the CAHs had contracted with management companies to help them maximize reimbursements, which qualified them as related parties. The management companies selected an administrator to manage day-to-day tasks for the hospital and advise the hospital regarding its provision of patient services and in exchange, relators alleged that the management companies received a percentage of the CAHs’ total collections. These contracts gave the management companies and their owners sufficient control over the CAHs such that they were related parties.
Relators also alleged that WWS fraudulently responded “no” to the question of whether the Medicare cost report included “related organization” costs and told the administrators at the CAHs that the cost reports were suitable for submission to Medicare.
WWS moved to dismiss the allegations against it, asserting among other things, that relators had not sufficiently pled that WWS had the requisite knowledge that the CAHs and management companies were related organizations to establish scienter under the FCA. The court sided with WWS and rejected relators’ arguments that email communications and contracts between the CAHs and management companies, established that, WWS knew or should have known the parties were related organizations within the meaning of the applicable Medicare regulations. Moreover, the court determined that relators had failed to plead a sufficient factual basis to show that WWS knew that costs were unallowable. The court dismissed the conspiracy claim for the same reasons.
Takeaway: An accounting firm’s possession of contracts and email communications between CAHs and management companies were insufficient to support FCA liability without further evidence of knowledge of how the contracts were implemented. When pleading scienter, relators must plead sufficient facts to show that, if true, the parties alleged to have aided in submitting false claims actually knew the claims were false.
United States ex rel. Siegel v. Novo Nordisk, Inc., No. 15-cv-00114, 2022 WL 16716299 (N.D. Okla. Nov. 4, 2022):
Industry: Healthcare
Topics: Healthcare; Advertising; State False Claims, Anti-Kickback Statute (AKS)
Summary: This FCA case arises from allegations brought by relator, the former Director of Hematology at Novo Nordisk, that Defendant Novo Nordisk, Inc., a healthcare company specializing in diabetes care, hemophilia care, growth hormone therapy, and hormone replacement therapy, illegally marketed its hemophilia drug for off-label uses and provided kickbacks to physicians and patients in violation of the FCA and state FCA laws. Defendant filed a motion to dismiss, asserting, among other things, that plaintiffs had not met Rule 9(b)’s heightened pleading standard with respect to relator’s allegations that Defendant had illegally marketed the off-label use of the drug NovoSeven and provided illegal kickbacks in violation of the FCA.
The court rejected Defendant’s argument and instead concluded that plaintiffs described Defendant’s alleged off-label marketing in “significant detail,” and included “particulars of how [Defendant] promoted NovoSeven for uses that were not approved by the FDA,” how Defendant “incentivized sales representatives based on sales for off-label uses,” and how Defendant “publicized studies showing the efficacy of off-label uses, and paid physicians to give promotional lectures in favor of off-label uses.”
The court also determined that relator had sufficiently pleaded with particularity that Defendant’s alleged underlying kickback scheme violated the AKS, the Beneficiary Inducement Statute, and the FCA. As an initial matter, the court rejected Defendant’s argument that the AKS allegations could not proceed because the alleged violations predated the enactment of the 2010 AKS amendment, which provided that claims submitted in violation of the AKS are false or fraudulent for purposes of the FCA. The court explained those allegations still met the elements of an FCA claim, regardless of whether the AKS amendment was in effect. The court also rejected Novo Nordisk’s claim that the Beneficiary Inducements Statute (BIS), which makes it a violation of federal law to offer renumeration to a Medicare or Medicaid patient that is likely to influence them to order or receive any item or service for which payment is made under Medicare or Medicaid, did not apply to Novo Nordisk. Although BIS does not apply to some drug manufacturers because a drug manufacturer is not ordinarily a “particular provider, practitioner, or supplier,” as defined by the BIS, it does apply to pharmacies, and the court found that Plaintiffs had sufficiently pled that Novo Nordisk operated a pharmacy that submitted Medicare claims.
The court granted Defendant’s motion to dismiss state law claims arising under the laws of various other states because although relators had alleged one representative example of possible false claims submitted to the Washington State government, relators had not provided an adequate basis to infer that Defendant had submitted false claims as part of that same scheme in 28 other states, the District of Columbia, and the City of Chicago.
Takeaway: Detailed allegations of false claims meet Rule 9(b)’s heightened pleading standard provided the complaint answers the who, what, when, where, and how of the fraud. However, even a detailed allegation of fraud cannot support state FCA claims if only one example of a state law claim is detailed in the complaint.
Endnotes
1 In addition to suing the accounting firm, the relators also brought FCA claims against the CAHs, management companies that provided administrative cost services to those hospitals, and their owners.
