7/28/2015

False Claims Act MSP Whistleblower Litigation Poses Triple Threat

The outcome of a new case could greatly impact the handling of claims with a Medicare beneficiary.

By Heather Sanderson

The False Claims Act (FCA) provides for civil sanctions that can be devastating: up to three times the damages as well as fines for individual false claims. Individual whistleblowers often bring FCA claims on behalf of the government. These suits are called qui tam suits, and if successful, the whistleblower is entitled to as much as 30 percent of the recovery. This provides tremendous incentive for individuals to file their own suits. Before filing this type of lawsuit, however, the government must be involved and has the option to prosecute the claim on its own or elect to allow the individual plaintiff to go it alone. In either case, if the whistleblower prevails, the government recovers, too.

Recently, a Medicare Secondary Payer (MSP) FCA case, Takemoto v. ACE, et al., was filed. The case involves plaintiff Dr. Kent Takemoto’s attempt to recoup money for the federal government (and himself) based upon the defendants’ alleged failure to repay the government for conditional payments that Medicare made as a result of settlements, judgments, or awards. Takemoto alleges that he was intimately aware of the Medicare compliance programs, or lack of such programs, relative to the more than 50 defendants being sued in this case through his prior work as an MSP compliance vendor.

This litigation was filed by the U.S. Attorney’s Office for the Western District of New York in 2011 and was unsealed in 2013 after the government elected that Takemoto could pursue the case on his own. Numerous procedural motions have been made since, but on June 3, 2015, an oral argument was held on whether the allegations in the complaint were sufficient to support a claim under the FCA. There has not been a determination to date that non-group health plans have liability for whistleblower lawsuits based on failing to comply with the MSP Act; therefore, the outcome of the Takemoto litigation certainly will impact the industry, and the oral argument held on June 3 should shed some light on the likely outcome.

The ruling from this hearing likely won’t come out for another month or two. When a decision is made, though, it will be an important opinion for all parties involved in MSP compliance to comb over for important guidance on improving their compliance programs. Defendants essentially based their joint motions to dismiss in the June 3 hearing on three theories, which we’ll examine below:

  1. Takemoto fails to allege his claims with particularity under Rule 9(b) of the FCA.
  2. The amended complaint fails under Rule 8(a) of the FCA.
  3. The FCA’s public disclosure bar compels dismissal.

Rule 9(b)

In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake.

The defense began to argue the application of the Rule 9(b) to the facts of the Takemoto case. The crux of this argument is that Takemoto fails to allege any particular settlements or Medicare payments that triggered an FCA obligation to reimburse the Centers for Medicare & Medicaid Services (CMS). Judge Jeremiah McCarthy quickly interjected that it was his understanding that Takemoto had withdrawn this aspect of the amended complaint. The defense acknowledged that the plaintiff had formally stated an intent to withdraw the fraud component, but the defense further argued that fraud is a required element to prove in this qui tam lawsuit, and that the plaintiff does not meet this standard. Whether or not the fraud component required by Rule 9(b) of the FCA returns remains to be seen.

Rule 8(a)

This provision of the FCA requires a plaintiff to allege enough facts to state a claim for relief that is plausible on its face.

This standard of the FCA is more relaxed than the heightened standard of Rule 9(b), and the court allowed a great deal of discussion during the oral arguments. Paragraph 69 of the plaintiff’s amended complaint was discussed at length. In that paragraph, Takemoto used statistical evidence in an attempt to demonstrate the thousands of cases that defendants resolve each year, combined with the data showing that close to 15 percent of such settlements generally involve Medicare beneficiaries. The defense argued that such data is not specific enough to be plausible and therefore the amended complaint should be dismissed.

The defense also focused upon the fact that the government first seeks repayment from the plaintiff, and stressed that considerable efforts are taken by plaintiffs to arrive at payment plans or compromises of Medicare’s conditional payment amounts. The reasoning here is that very few matters ever mature to a debt owed by the defendants.

Public Disclosure Bar

Under this theory, an FCA claim should be dismissed if the lawsuit is “based upon publicly disclosed information in which would-be relators ‘seek remuneration although they contributed nothing to the exposure of the fraud.’” This provision allows for dismissal of a false claim complaint if there is public knowledge of the alleged fraud, which can be in the form of a federal complaint, news media, or other “original source.”

The defense argued that the U.S. v. Stricker case, a federal lawsuit, is an example of the publicly known potential for insurers and self-insureds to not repay the government as a result of Medicare making payments related to a settlement. The defense further recounted numerous articles and other media commentary publicly articulating the issues that the plaintiff is suing over. The plaintiff’s counsel’s response to this line of reasoning was to cite case law and otherwise deny there was a complete bar to suit.

As previously stated, the industry is closely watching this case. If it proceeds, the outcome could greatly impact the handling of any workers’ compensation, liability, or auto no-fault cases with a Medicare beneficiary in the future in order to ensure that there are no gaps in MSP compliance and to avert any successful FCA MSP causes of action brought against the insurer.   



Heather Sanderson is chief legal officer for Franco Signor, where she provides compliance counseling. She has been a CLM Fellow since 2011 and can be reached at heather.sanderson@francosignor.com, www.francosignor.com.

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