Interpretation of the False Claims Act

The United States Court of Appeals for the Seventh Circuit issued an opinion on January 4, 2016, which reinforced the necessary criteria that must be fulfilled by a qui tam plaintiff who hopes to satisfy the definition of an “original source” pursuant to the federal False Claims Act. U.S. ex rel. Bogina v. Medline Industries, Inc., et al.  

In the Medline case, August Bogina (Bogina) asserted that Medline provided bribes and kickbacks to the Tutera Group (a chain of nursing homes) to induce the Tutera Group to purchase medical equipment and medical supplies from Medline. In an opinion authored by Circuit Judge Posner, the Seventh Circuit noted that, “[d]iscounts are normally an innocent means of competing. But not discounts in the form of bribes and kickbacks to government contractors.” Bogina alleged a classic kickback scheme which would trigger liability pursuant to the False Claims Act, if the allegations of his complaint had not already been part of the public domain.

The trial court dismissed Bogina’s action because, in the year 2007, a former employee of Medline had successfully alleged in a similar action that Medline had provided bribes and kickbacks to purchasers of medical equipment (which was ultimately reimbursed by Medicare and Medicaid). When reviewing the trial court decision, the Seventh Circuit noted that Medline had settled with the government for “a whopping $85 million in compensation” and the former employee (Shaun Mason) received “a generous bounty – $23.4 million.”

While the substantive allegations of Bogina’s case might have had merit, the Seventh Circuit confirmed the dismissal of his action with prejudice (as to Bogina) because he failed to satisfy the definition of “an original source of the information” based on the 2010 amendment to the statute. 31 U.S.C. § 3730(e)(4)(A). Simply stated, a qui tam plaintiff must establish that he or she is “an original source” of the allegations contained in the complaint if the allegations are similar to disclosures which are already part of the public domain. Even though the alleged kickbacks occurred prior to the 2010 amendment, the Seventh Circuit applied the 2010 language because the court decided the revision to the statute was designed to provide clarity rather than implement a substantive change. Accordingly, the Seventh Circuit applied the 2010 amendment language to the False Claims Act related to the original source requirement, which now reads as follows:

The court shall dismiss an action or claim under this section, unless opposed by the Government, if substantially the same allegations or transactions as alleged in the action or claim were publicly disclosed – (i) in a Federal criminal, civil, or administrative hearing in which the Government or its agent is a party; (ii) in a congressional, Government accountability Office, or other Federal report, hearing, audit, or investigation … unless the action is brought by the Attorney General or the person bringing the action is an original source of the information.

31 U.S.C. § 3730(e)(4)(A).

Bogina asserted that he was nonetheless “an original source” of the allegations against Medline and the Tutera Group because he learned of the information from his friend (Michael Tutera), who had been a former member of the ownership circle of the Tutera Group, and also the brother of one of the current principals.

Bogina also attempted to distinguish his case from the 2007 action by citing three important factors:

(1) He alleged that the Tutera Group was not mentioned in the 2007 complaint;

(2) Medline’s settlement of the prior action related only to false reports submitted for Medicare Part A and Medicaid claims (as opposed to Medicare Part B, state funded Medicaid and TRICARE); and

(3) Bogina also asserted that the fraud had continued to the present date, while the prior settlement released claims only through May of 2010.

The Seventh Circuit decided that Bogina’s new allegations were more redundant than original, as follows:

But these differences between the two suits are unimpressive. It was common knowledge that Medline sold to nursing homes as well as to hospitals, so if it provided kickbacks to the latter, why not to the former as well? Bogina is not allowed to proceed independently if he merely “adds details” to what is already known in outline. United States ex rel. Goldberg v. Rush University Medical Center, supra, 680 F.3d at 934. And why offer bribes and kickbacks for products whose buyers would be reimbursed for the cost (or part of the cost) by Medicare Part A, but not for products covered by other federal programs? The settlement agreement remarks that “unallowed costs” may have been submitted to TRICARE even though TRICARE was not mentioned in the release of liability. The government was thus on notice of the possibility of a broader bribe-kickback scheme before Bogina sued. Had it wanted to broaden the case against Medline beyond the Mason settlement it could have gone after, among other Medline customers, nursing-home companies such as the Tutera Group that received (if Bogina is correct) Medline kickbacks.

Judge Posner’s opinion in the Medline case continues the Seventh Circuit’s conservative interpretation of the False Claims Act, which benefits healthcare providers in Illinois, Indiana and Wisconsin. The Seventh Circuit’s interpretation of the definition of the criteria which must be fulfilled by an individual asserting status as an original source is also influential regarding the interpretation of the Illinois False Claims Act and the Illinois Insurance Claims Fraud Prevention Act. Both of these Illinois statutes contain “original source” definitions which are similar to the current definition contained in the Federal Statute.

This Chuhak & Tecson, P.C. communication is intended only to provide information regarding developments in the law and information of general interest. It is not intended to constitute advice regarding legal problems and should not be relied upon as such.

Client Alert authored by: Daniel J. Fumagalli and David J. Tecson, Principals