On October 28, the Senate Committee on the Judiciary approved for consideration by the full Senate the False Claims Amendments Act of 2021 (“FCA-2021”). The primary sponsor of the bill (S. 2428) is Sen. Chuck Grassley (R-IA), and there are four cosponsors: Sen. Richard Durban (D-IL), Sen. John Kennedy (R-LA), Sen. Patrick Leahy (D-VT) and Sen. Roger Wicker (R-MS).
Liability under the False Claims Act (FCA) requires that a false statement in furtherance of a claim be material. The version of the bill approved by the Committee amends the FCA by inserting a new section 3729(e) which provides that a Government decision to not pay a claim or to forego a refund despite actual knowledge of fraud or falsity is not dispositive on the issue of materiality if other reasons exist for the Government’s decision. This change was a response to how some courts had interpreted the Supreme Court’s ruling in Universal Health Services, Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016). In Escobar, Justice Thomas had suggested that evidence that the Government continues to pay claims despite knowledge of an alleged violation would tend to show that the violation was not material to the Government’s payment decision. Id. at 2003. Some courts took this to mean that such evidence would always militate in favor of dismissing a case, despite the possibility that other reasons could explain the Government’s decision to continuing paying claims, ranging from a careless government bureaucrat to concerns that stopping payment for an important drug or service could harm the public. The proposed language addresses this issue.
FCA-2021 also amends the FCA’s dismissal provision at section 3730(c)(2)(A) by adding a requirement that the Government bear the burden of demonstrating, at any hearing afforded the Relator upon a motion to dismiss, the Government’s reasons for dismissal. The Relator will then have the opportunity to show that those reasons are fraudulent, arbitrary and capricious, or contrary to law. Currently, there is a split in the Circuits regarding the standard that must be satisfied in order for the Government to dismiss. The D.C. Circuit believes the Government has unfettered discretion (Swift v. United States, 318 F.3d 250 (D.C. Cir. 2003), the 9th Circuit believes the Government must demonstrate a rational relationship to a valid Government purpose (United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139 (9th Cir. 1998), and the 3rd and 7th Circuits believe that a motion to dismiss should be treated as a motion to intervene and dismiss, with the liberal dismissal standard of Rule 41(a) applying to the Government’s decision to dismiss whenever the motion is brought prior to the defendant serving a responsive pleading (United States ex rel. CIMZNHCA LLC v. UCB Inc., 970 F.3d 835 (7th Cir. 2020) and Polansky v. Executive Health Resources, Inc., No. 19-3810, 2021 WL 4999092 (3d Cir. 2021). This proposed legislative change authorizes an evidentiary hearing at which the Government would be required to state reasons for dismissal and provides specific grounds on which a Relator may successfully challenge such a decision.
Another change, appearing at section 3731(f), includes a requirement in qui tam cases declined by the Government that the court, upon motion by the Government, order the requesting party to pay the Government’s expenses for responding to the party’s discovery requests, unless the party can demonstrate that the information sought is relevant, proportionate to the needs of the case and not unduly burdensome. This change was prompted by cases in which defendants, hoping to prove a lack of materiality by showing that the Government continued to pay claims notwithstanding knowledge of an alleged legal violation, would conduct burdensome fishing expeditions seeking evidence of such knowledge somewhere inside the Government.
Two other changes include an amendment making the anti-retaliation provision of the FCA found at section 3730(h)(1) explicitly applicable to both current and former employees, and a new provision requiring the Comptroller General of the United States to report on the efficacy of the FCA since the 1986 amendments to the statute through enactment of FCA-2021.
The text of FCA-2021 would make the amendments effective for all cases filed on or after the enactment of FCA-2021. We will continue monitoring this legislation for whether it passes the full Congress and becomes law. If you have any questions, you are welcome to reach out to Jeff Kaiser in our Health Services Practice, firstname.lastname@example.org, (516) 357-3161.