A recent U.S. District Court decision provides a good example of how federal courts will apply the public disclosure/original source rules in whistleblower cases alleging that health care providers violated the False Claims Act (“FCA”).
On March 22, 2023, the U.S. District Court for the Eastern District of California dismissed a qui tam lawsuit that had been filed by a plaintiff-whistleblower alleging that Envision Healthcare and its subsidiaries (“Envision”) violated the FCA by knowingly submitting false and fraudulent claims to Medicare and TRICARE for anesthesia services that were the result of illegal remuneration, i.e., kickbacks. (U.S. ex. rel. Jack Waters v. Envision Healthcare Corporation, et. al. No. 2:19-cv-00873-TLN-AC). (The whistleblower, who was a CRNA at an Envision ambulatory surgery center ASC, was proceeding with the case after the government had declined to intervene.)
The Court dismissed the complaint concluding that the FCA’s “public disclosure” bar applied.
The public disclosure bar, as set forth in 31 U.S.C. Section 3730(e)(4)(A), mandates that a court dismiss an action or claim under the FCA, unless opposed by the government, if substantially the same allegations or transactions as alleged in the action or claim were publicly disclosed in either:
- a federal criminal, civil, or administrative hearing in which the government or its agent is a party;
- a congressional, GAO or other Federal report, hearing, audit or investigation; or
- the news media, unless the action is brought by the attorney general or the person bringing the action is an original source of the information.
In the Envision case, the plaintiff alleged that Envision, through its network of AmSurg ASCs, engaged in a scheme perpetuated via a series of anesthesia management companies owned by physicians and Envision to exclusively provide anesthesia services to AmSurg ASC patients.
More specifically, the plaintiff alleged that:
- The anesthesia management companies contracted with independent licensed anesthesia professionals to provide anesthesia services in exchange for signing over their right to reimbursement for those services;
- As a condition of obtaining access to anesthesia referrals at AmSurg ASCs, the anesthesia professionals are required to accept a per diem rate for their services that is far below the anesthesia revenue generated and are also required to kickback to Envision the remaining anesthesia profit (the difference between the per diem rates and the higher insurance reimbursement); and
- At several of the AmSurg ASCs, Envision engages in a further kickback scheme by sharing a portion of this anesthesia profit with the physician owners in exchange for their referrals to the AmSurg ASCs.
Following the plaintiff’s filing of the qui tam compliant, Envision filed a motion to dismiss arguing that the public disclosure bar applied because plaintiff was alleging conduct that was previously disclosed in a nearly identical qui tam lawsuit, as well as in SEC filings and various news media publications.
Envision contended that those public documents individually and collectively disclosed the material elements of the same fraud alleged by the plaintiff and further that the plaintiff did not qualify as an original source.
In granting Envision’s motion, the Court addressed each of Envision’s arguments.
- With respect to the prior lawsuit (U.S. ex rel. Vanasco v. AmSurg Corp.), the plaintiff argued that the allegations in that case did not disclose fraud and were not detailed enough to be “substantially similar” to the allegations in the case at hand. The plaintiff also cited other cases which it argued supported its position.
As to the other cases, the Court disagreed with the plaintiff noting that in those cases, unlike in the Vanasco case, the prior disclosures were very general, whereas the relator’s allegations in Vanasco detailed a specific fraudulent kickback scheme that was “substantially similar” (actors, conduct and harm) to the scheme alleged by the plaintiff and was therefore close enough in kind and degree to have put the government on notice to investigate the alleged fraud before the plaintiff filed his complaint.
- With respect to the SEC filings, the Court explained that in those filings, Envision disclosed that (i) AmSurg’s ASC revenues included revenues derived from charges for anesthesia services provided by medical professionals “employed or contracted” by the ASCs; and (ii) the ASCs made distributions to physician owners equal to their percentage ownership interests in the entity.
Importantly, the SEC filings also specifically stated that the arrangements did not fall within any statutory or regulatory safe harbor under the Anti-Kickback Statute, and that, under certain circumstances, the arrangements presented a risk of violating the statute. (In fact, the plaintiff apparently relied on these disclosures for purposes of asserting that Envision knew of the legal risk.)
- With respect to the question whether the plaintiff was an “original source,” the parties agreed that the only open question was whether the plaintiff’s allegations materially added to the public disclosures and whether his allegations about AmSurg’s “nationwide business model” were based on any independent knowledge. In concluding that the plaintiff was not the original source, the Court accepted Envision’s argument that the plaintiff’s allegations were based almost entirely on public information, such as AmSurg’s website, court pleadings and SEC filings, and that the details provided by the plaintiff as to his personal compensation, duties, and responsibilities did not materially add to these public disclosures.
As is customary, the Court, in dismissing the plaintiff’s complaint, granted plaintiff leave to file an amended complaint.
Given the risks associated with going to trial in defending a qui tam suit, i.e., the extremely large damages and penalties if the defendant health care provider loses, along with the possibility of exclusion from the Medicare and Medicaid programs, defendants are often left with no viable option other than settling if the case cannot be won early in the litigation. Here, the best opportunity for a successful defense often involves seeking to have the court grant a motion to dismiss based on the public disclosure bar.
The Envision case nicely illustrates how a defendant can successfully assert the applicability of the bar by demonstrating that substantially the same allegations or transactions as alleged in the qui tam complaint were publicly disclosed and that the qui tam relator was not the original source.