False Claims Act: Latest Trends and Developments

Joe Wolfe, Attorney, Hall Render Killian Heath & Lyman PC, speaks with Robert S. Salcido, Partner, Akin Gump Strauss Hauer & Feld LLP, about the current landscape of the False Claims Act (FCA) in the health care industry. They discuss the “falsity” element and the interaction between the FCA and the Stark Law and Anti-Kickback Statute, the constitutionality of the FCA’s qui tam provisions and possible Supreme Court intervention, the uptick in FCA investigations and other enforcement developments, the legacy of the SuperValu case and the impact on how FCA actions are litigated, and potential emerging government enforcement priorities. Robert is the author of AHLA’s False Claims Act & The Health Care Industry: Counseling & Litigation, Sixth Edition. From AHLA’s Fraud and Abuse and Hospitals and Health Systems Practice Groups.

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Transcript

SPEAKER_00 0:04

This episode of AHLA Speaking of Health Law is brought to you by AHLA members and donors like you. For more information, visit AmericanHealth Law.org.

SPEAKER_02 0:17

Welcome everyone to today's AHLA podcast, where I'll be talking to Robert Salcito from Aiken Gump about the False Claims Act, or we'll be calling it the FCA and key trends and developments that we're seeing in the healthcare industry. Robert recently published the sixth edition of the AHLA's False Claims Act and healthcare industry book. I have a copy of it right here. It's a great resource. Today's podcast is brought to you by the AHLA's fraud and abuse practice group and the hospitals and health system practice group. The fraud and abuse practice group's mission is to help all of you stay informed about healthcare fraud and abuse and compliance issues. And the HHS practice group focuses on the legal, financial, and operational issues raised by healthcare business strategies and transactions from the perspective of hospitals and health systems, which of course would include the FCA, like we'll be talking about today. Again, going to be talking to Robert Salcedo and his about his sixth edition of the book. It has some great information. It's broken out into the history of the FCA, substantive provisions of the FCA, how FCA civil actions work procedurally, the whistleblower concepts, damages and penalties, procedure and jurisdiction, CID, civil investigative demands, and voluntary disclosures. So there's a lot covered in that book that's really helpful for healthcare attorneys and those in healthcare compliance. Thanks, Robert, for participating. Before we get started, Robert, why don't you introduce yourself?

SPEAKER_01 1:59

Thank you, Joe. My name's Robert Salcedo. Just very briefly, my background is I started my career as a trial attorney with the civil fraud section of DOJ, which has nationwide jurisdiction over the False Claims Act. So I've seen enforcement actions from that vantage point. Since uh 1993, I've been an attorney with um AC and Gump. Now I'm currently based in uh Los Angeles as a partner with AK and Gump.

SPEAKER_02 2:33

Great. Thanks, Robert. Um again, I'm Joe Wolfe. Um I'm a vice chair of the hospitals and health systems practice group. Uh previously chaired the fraud and abuse practice group at AHLA. Um, and in my day-to-day, I'm a shareholder um and healthcare practice group leader at Hull Render, and we're a boutique healthcare law firm and practiced about 20 years in the industry uh now. Um, we're gonna get into some questions for Robert about the FCA and the book, but just wanted to start off with a high-level uh overview of the False Claims Act. Um, you know, many of us that work in this space, there's a talk about it being called the Lincoln Law, originally enacted back during the Civil War to combat uh procurement fraud. Um, and then prior to I would say the mid-80s, it was largely used in the defense industry and through a number of amendments that have strengthened its its reach, um, you know, notably the Patient Protection and Affordable Care Act has uh really positioned it as the government's primary litigation tool for combating fraud uh against the government. Um and you know, looking at it from uh a very high level, um, just the mechanics of it can be helpful. Uh the False Claims Act has a few elements. It it uh any person who knowingly presents or causes to be presented a false claim for payment and and know it or knowingly makes or uses or causes to be made a false record or statement, material to a false or fraudulent claim, or conspires towards that, um, can be uh held liable for civil penalties. Um and the damages involved in a false claims act type litigation uh can be staggering, dramatic. And Robert will get into more of the mechanics, but at a high level, when we talk about false claims act liability, we're talking about how does a situation align with some key elements? And you know, when we we we work through the false claims act, there are a number of key elements um that we want to be thinking about. You know, one, you know, was there a claim? You know, was there some type of a request for payment? Was it presented? Was did did we make a request of payment through some type of a claim? You know, whether that was an electrial electronic filing like a CMS 1500, uh, did a party cause uh a false claim to be submitted? Uh defendants in these cases may not actually be the ones who filed the claim, but there could be an allegation that they caused the claim to be to be filed. And there are some other key terms to the analysis. It's all in Robert's book, but you know, uh materiality um under the materiality concept, was there was the was there a natural tendency to influence or be capable of influencing payment um from the government? Um, did the party act knowingly? Um and that's an interesting analysis, you know, looking at actual knowledge or deliberate ignorance or reckless disregard as concepts as well. Um, and was there an obligation to pay in the often in the context of a retention of an overpayment? And so um, those of us that work in the space have to interact with these issues. One of the more interesting sides of the the false claims act, from my perspective, is just some of the procedures uh involved. Um, that uh that allegations are often brought as key TAM actions. Uh the plaintiffs tend to be uh those that have um knowledge of the uh of the underlying facts involved in the case. Um there they must follow certain key TAM procedures. Um the complaint is filed under seal. Uh the government investigation occurs while the case is under steel under seal. And then there's ultimately an intervention decision by the government where the government decides to proceed with the action or notify the court that it's going to decline and the whistleblower continue can continue with the case on their own. Um and then that impacts the amount of the whistleblower's proceeds, depending on how it's handled. Uh the DOJ also has dismissal authority, um, notwithstanding the objections of the relators. So again, I'm not trying to steal Robert's thunder here, but it's it's a very interesting law from a lot of different angles, and we want to hear Robert's take on it. Um and Robert, I just provided a very high-level overview of the FCA. Um, in when we when we talked last time in the podcast, you discussed the the falsity element and the interaction between the FCA and this and Stark and kickback. Uh, can you dig in on those areas again or maybe touch on other areas where you're seeing FCA development?

SPEAKER_01 7:35

Yes. Um in terms of the the first part, um, Joe, in terms of the falsity element and um kickback and stark actions um brought in the context of a false claims act alleged violation, there's been a few developments. Um one is uh with respect to falsity, what is a false claim? Uh there has been a very recent decision coming out this year, uh, US XRL Sheldon versus Allergen in the Fourth Circuit, that um further describes what constitutes a false claim. So there the court ruled that a statute in and of itself being ambiguous, there the drug brevate standard um statute um isn't enough to constitute falsity for purposes of the False Claims Act. So um we have that decision out there. We now have to reconcile that decision with other decisions like United States versus Sarah Carity 11th Circuit case, which says that if reasonable experts can disagree uh regarding um clinical judgment, there is no falsity there because it's it's merely a manifestation of reasonable disagreement. So we'll have to see how the Fourth Circuit's recent case in allergen is ultimately going to be reconciled uh with the 11th Circuit's decision in ASERA care. That that will be a development to watch for this year. In terms of STARK and anti-kickback statute, uh there's been a phenomenal decision just recently, um about a month ago, uh issued also by the Fourth Circuit, uh US XREL CHIRE versus Thomas Health System, which will be very important in terms of defending false claims action actions based on an alleged violation of the Stark loan anti-kickback statute. And the reason for that, as I'm sure you know and for the audience, a common theme or common narrative by either whistleblowers or the government in Stark and anti-kickback cases involves the various factors. One is that the hospital purportedly tracked physicians' referrals and the profitability of those referrals. Another is that physicians are highly paid, sometimes in a 90th percentile or higher. Another is that the physician component of the health system operated at a loss. And another is either the hospital or executives of the hospital has been involved in false claims act actions in the past and manifested a desire of capturing physician referrals. All those themes uh were developed by the relator, the purported whistleblower in the KIRE case. And the court rejected each of those as really being kind of a dispositive grounds for believing either a kickback violation or stock Stark law violation occurred. The court noted that tracking referrals isn't the same as overpaying on compensation, paying physicians at the 90th percentile. Of course, there's another 10% who are paid higher, and that doesn't tell you necessarily whether appropriate payment was made at the end of the day or not. And the fact that for reimbursement purposes, um payments to physicians might operate at a loss doesn't tell you either, whether there's a violation of either the STARK law or the anti-kickback statute. So that that was very favorable. However, leaving aside the falsity and the Stark and kickback components, uh, the biggest development in my view, and what to watch for over the next couple of years is really the constitutionality debate. Uh, we've now had the 11th Circuit and US X Rail Zoffer Off versus Florida Medical Associates in December here oral argument. And then, of course, we had US XREL Penelot versus Jansen, the Third Circuit here oral argument uh in March. In terms of whether the QITAN provisions of the False Claims Act are constitutional, um, we have the Zafirf district court decision, which found the uh False Claims Act QITAMP provisions to breach the appointments clause of the Constitution. Um, we we suspect that that's going to ultimately reach the Supreme Court. We know that three justices, Justice Um Thomas, going back to the Polanski case, US X Ref Polanski versus Executive Health Resources, um, said that this raises substantial questions that should be addressed by the Supreme Court. And in the same case, there was a concurrence by Justices Barrett and Kavanaugh saying the same thing. So we suspect eventually this issue is going to get there. And of course, if it does, it will have enormous consequences for the future of the False Claims Act. Um, if it finds it's constitutional, that issue will ultimately be finally resolved. If it finds it to be unconstitutional, then it's an open question what what the remedy's going to be. Is the court going to try to rewrite the statute, or is it, or is it going to say it can't rewrite it and leave it to Congress to rewrite it? So I think that's that's the biggest issue looming over this year and probably the next couple of years.

SPEAKER_02 13:29

That's great. Um, I really appreciate you you stepping through that. Um and I one from my perspective and some developments in the industry, um, you know, from an enforcement standpoint, I I think we're seeing a significant uptick um in in investigations. If you look at some of the data, um it it's play it it's showing that. Um if you look at data from 2024 as compared to 2025, the number of of new filed key TAM actions in 2025 was around 1300, up from about 700 the year before. So there are just so many cases are are unfolding. So we we're continuing to see lots and lots of false claims act development. Um and then within that, and we look at recoveries uh under the False Claims Act. Um, if you look at the 2025 data, I think numbers I saw were about 6.8 billion in total FCA recoveries and 5.7 billion of that um in healthcare-related cases. So this continues to be an area that uh has a return on investment as we look at uh bringing False Claims Act actions and significant recoveries in the healthcare sector uh when we look at the totality of a false claims act recoveries beyond that. So, and I was actually, you know, Robert and I didn't compare notes, but um prior, uh but that the Thomas Healthcare case in in my from my perspective was a was a significant case. And those issues you mentioned that it clarified around provider compensation uh was was very helpful for the Fourth Circuit to take that on um and to articulate some of those those concepts. And I thought uh the the way that the um the Fourth Circuit framed those arguments was helpful. Um and the judges in that case noted that um some of the what are what I would call ordinary healthcare business practices um were were framed as as being fraudulent, and and the the court here was saying, look, that uh ordinary healthcare business practices like hospital subsidies uh does not necessarily constitute uh an FCA claim if there haven't been specific allegations uh of fraudulent actions. So I think that's uh you know that the the industry can breathe a sigh of relief there because I think as you would parse through complaints from prior cases, there there was a thought that some of the allegations were being framed um as fraud when when I think many of us know that there are appropriate business rationale uh for for many of those business practices. So I'm glad you mentioned the Thomas Healthcare case. I think that was an important one from my perspective as well. Um question for you, Robert. Um in 2024, uh the Supreme Court issued its decision in the supervalue case, uh, where they touched on on how to interpret the FCA's knowledge element. Uh, has that decision made a big impact on how FCA actions are litigated from your from your perspective?

SPEAKER_01 16:48

The answer is yes, uh, a very um big impact um for the industry, I believe. And the reason why is just as in um the Supreme Court's decision in Escobar regarding the materiality standard, the uh Supreme Court said that we had to, in assessing materiality, move from an objective standard to subjective. The Supreme Court did the same thing with respect to False Claims Act knowledge in the supervalue case. And the reason that's so important for the industry, I believe, is before the Supreme Court took that case, we had six circuit courts of appeal who said that if there is if the health system has a reasonable interpretation of ambiguous law, and there is no official governmental guidance to warn them away from that um interpretation, then you can't, as a matter of law, establish a false claims act violation. And we all know the long litany of ambiguous um statutes, um, for which industry could have a reasonable interpretation. I mean, what is a usual and customary charge? Or how do you how do you calculate best price for the Medicaid drug rebate? Courts are all over the place on those issues. Um, what the Supreme Court said in supervalue is that um it's not a dispositive defense merely to show that you had a reasonable interpretation of ambiguous law. Instead, it it said what had to be evaluated was a company subjective knowledge of or interpretation of the law, uh meaning that you could act with reckless disregard or deliberate ignorance in light of an inherently ambiguous statute, if it shows that you had contextual clues of what the right answer is in terms of interpreting that particular statute. Now, the reason why that is so important is because now, instead of resolving a case as a matter of law just based on reading a statute, now it authorizes arguably the government and whistleblowers to dig into the whole health system's files to see what its subjective intent really was. How did it understand the operation of that statute? So, what that means is it's much more difficult to get rid of cases at the pleading stage, um, and also more difficult to get rid of cases at the summary judgment stage. Because if you turn everything into the uh an intent question, what did the writer mean in that email or text message? Um, and and was it uh acting in reckless disregard or deliberate ignorance of the actual meaning of that that statute, then it creates a trial issue, a fact for ultimately a a jury to to resolve. So um we've seen cases that have shown that litany of of consequences occur. One is US X Row's truck versus um Eli Lilly. Now, on on the good news side is very recently within the last couple months, um the Second Circuit has ruled in US X Row Henneck versus um Amazon.com that you have to plead FCA knowledge with specificity for purposes of Rule 9B. Even though Rule 9B says general knowledge is sufficient, you still have to allege sufficient facts. So the coming development for our audience to watch over the short term regarding the construction of the knowledge element is we have some decisions like US XREL Sheldon versus Allergen, that says essentially you can never resolve the knowledge issue on emotions stage of the case. Um and now we could juxtapose that with the Second Circuit decision in Henneck, which says that if you do not plead any type of factual predicate for showing that the company knew that they had conscious knowledge that the conduct was wrongful, um or or otherwise act with reckless disregard or deliberate ignorance, you can get rid of the case on 9B. So I think that's the the future to watch for on that particular issue. Um how much knowledge has to be asserted at the pleading stage to have an operative um complaint. Um and in that regard, Joe, I I know some of your practice has to do with uh proactive compliance and FCA defenses and investigations. Are you are you seeing any recent trends in that area?

SPEAKER_02 21:49

Yeah, thanks, Robert. Yeah, I I I think that many of the I would say themes or best practices around uh you know reacting or responding to uh a CI CID, um performing investigations. Some of those themes are similar to what we uh where we would have looked historically. I mean, if you're responding to a CID from my perspective, it's it's good to involve uh counsel um as as soon as possible. Um the it's important to know that any interactions with the government um in connection with that investigation is is creating a record. Um we want to make sure that we're we're being truthful um in our discussions, um making false statements um in an investigation that that that creates its own list of problem set of problems. And so we want to make sure that our responses to the government are accurate. I think uh maintaining control over the investigation, um, it and who is involved in responding and who has knowledge of the existence of the investigation can help mitigate risk. We want to make sure um that there aren't unintended consequences uh related to just how the investigation is handled. Um, need to be thinking about um information technology um in response to uh you know document preservation um in connection with the CID, uh, having a strategy um where um we we consider the allegations made, how we're going to respond to them, understanding the potential damages uh at stake, um uh determining um and collecting those responsive materials uh that the government's asking for, making sure those are analyzed as they're um you know, as you strategize how they're going to be produced, performing your own internal uh investigation as part of your response strategy, remedying potential areas of compliance concern, um, and presenting uh the facts uh in and responses in in the uh light that uh is most aligned with your strategy as in working with the government. And so, I mean, the response to CIDs, those are some themes I I think about. Um, you know, if you want to think about the most proactive compliance strategy, of course, having a compliance program um that that meets the elements of uh effectiveness that the government has uh uh articulated is important. And then also really considering self-disclosure as a proactive uh compliance strategy to help mitigate future um risk with regard to FCA. And so um, you know, self-disclosure uh should be a part of any healthcare organization's um uh strategy around compliance. Um we're often asked, well, if if we pursue self-disclosure, won't that uh you know call attention to our organization um in the government's eyes? Well, one, if if self-disclosure is is required due to some type of um um uh uh some type of false claims act theory around retention or reverse false claims act theory, it may be the only option uh for an organization. And two, in our experience, the government uh views uh self-disclosure as a an appropriate uh compliance activity. And and I don't think it it raises the temperature um in in most instances if you if you pursue an appropriate uh self-disclosure. So um those are some areas that that that I've we we've been focusing on. That uptick in investigations is is one that we we have seen, we're we're we're seeing, and and uh those are some of the themes we consider as we work with clients in that area. Um Robert, uh just just kind of wrapping up here and and thinking about looking forward, what do you see as some uh potential enforcement priorities of the government and some emerging hot topics?

SPEAKER_01 26:00

Yeah, in terms of uh emerging actions and and hot topics, um what what we see currently um are some enforcement trends that um uh expand um more broadly than we've seen historically. So we we see some false claims act investigations having to do with diversity, um, inclusion, equity programs, and certifications made um in in that regard. We've seen an uptick in um naturally cases having to do with uh compliance with custom duties and and payment of tariffs, um, which involves to some degree the the healthcare sector, but is is obviously broader than that. Um we've seen a lot of activity with respect to gender affirming care investigations um that also impact to a significant degree healthcare um industry as well. So those are are relatively new trends, but it it appears, at least in my practice, that um the vast bulk of investigations are more on what we've historically experienced on the healthcare side. And what I mean by that is cases questioning medical necessity, um, investigations having to do with alleged breaches of the False Claims Act because of an alleged breach of the STARK law and a kickback statute, and coming out of the post-COVID area, um, still a healthy supply of um paycheck protection program cases. There is a sliver to watch for in terms of data mining cases where um private entities are attempting to mine publicly available data having to do with coding practices or whether people qualified for PPP loans, uh paycheck protection program loans are uh arising as well. There's there's defenses involved in in managing those those cases. But those those are the trends I'm seeing overall.

SPEAKER_02 28:19

Thanks, Robert. Um, do you have any any final remarks for our audience?

SPEAKER_01 28:23

Yes. Um in and largely kind of reiterates points that that you've already raised as well, Joe. One is that enforcement is upticking, and you see that partly in the the numbers. Um a record amount of QITAM actions were filed last year, almost 1,300. It was 1297, which dramatically was an increase from the prior year, which had a record number of 979. So we see a huge uptick in QITAM actions. We also saw a huge uptick in recoveries, 6.8 billion, uh, 5.7 billion of which involved the healthcare industry. And the total recoveries, the the 6.8 billion was more than double than last year. So we're we're seeing more enforcement actions and uh and actions filed. And because those are QITEM actions, as you know, those are filed under SEAL. So we're we're just starting to see those come on SEAL now, and they will for the next couple of years. So um one is to keep keep in mind that that that's coming. The the other final thought, and this this too reiterates on something you said earlier, which is um what what steps can you take to be proactive? And tying this to the the points I referenced earlier about the change in and false claim vag knowledge, where a company's subjective knowledge is um really being scrutinized by the courts. So what one of the best practices, of course, for companies in light of that change in law resulting from the supervalue decision, is to be mindful that whenever red flags are raised internally, the company is going to want to be able to explain why at the end of the day there was no violation of the False Claims Act. Because otherwise, the way it'll be weaponized against them by either the government or other private whistleblowers is to say, you know, my my God, this employee said that this fraud is occurring. Um, see that email or text message. What did you do in light of that? Now, if the company does nothing, then the argument's gonna be made that by definition it was acting with reckless disregard or deliberate ignorance. So now you have to be mindful, those emails and text messages are going to be scrutinized no matter how ambiguous the underlying statute is. And two, you have to have an answer to that question. What did you do when you received that email or text message in order to assure yourself that there was no known overpayment to the government? So that's that that's really the the final thought, at least that I have, um, in terms of what to do moving forward in light of the trending case law.

SPEAKER_02 31:14

Great. Thanks, thanks, Robert. And and thanks to everyone for listening in to this AHLA podcast. Um and you know, please try to find opportunities to get involved in AHLA. I mentioned earlier the the fraud and abuse practice group and the hospitals and health systems practice group. Uh, we're always looking for new members and and volunteers and to try to expand and get others involved. So please reach out. Um, and I hope you all have a great day and thanks for tuning in. Um and uh thanks for your time today, Robert.

SPEAKER_01 31:48

Thank you very much, Joe.

SPEAKER_02 31:50

Take care.

SPEAKER_00 31:56

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