On June 3, 2020, the Sixth Circuit affirmed the dismissal of qui tam claims as barred, citing prior public disclosures. Holloway v. Heartland Hospice, Inc., Case No. 19-3646 (6th Cir. 2020).
In this case, Holloway, a qui tam relator, sued Heartland Hospice and related entities for violations of the False Claims Act (FCA), codified at 31 U.S.C. §§ 3729 et seq. Specifically, Holloway alleged that Heartland participated in a corporate-wide scheme to submit false claims for payment from Medicare and Medicaid for hospice services by enrolling patients into hospice that were not terminally ill, and retaining those patients even when staff urged their release, and paying bonuses for recruitment of hospice patients. Heartland initially moved to dismiss the case, which the district court granted for insufficient pleading. On appeal, the Sixth Circuit affirmed the district court’s dismissal, but did so under the public disclosure bar.
Under the FCA, qui tam actions “that merely feed off prior public disclosures of fraud” are barred. Holloway, at *7 (citing 31 U.S.C. § 3730(e)(4)(A); U.S. ex rel. Walburn v. Lockheed Martin Corp., 431 F.3d 966, 970 (6th Cir. 2005)). To overcome the public disclosure bar, the Court stated that “Holloway must demonstrate ‘(1) that the factual premise of [her] claim was not publicly disclosed before [she] filed the lawsuit, or (2) even if it was, that [she] was the original source of the information.’” Id. (citing U.S. ex rel. Advocates for Basic Legal Equal., Inc. v. U.S. Bank, N.A., 816 F.3d 428, 430 (6th Cir. 2016)). A relator qualifies as the “original source” if she either (1) “voluntarily disclose[s] to the Government the information on which allegations or transactions in a claim are based prior to a public disclosure” or (2) has knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions, and [she] has voluntarily provided the information to the Government before filing an action under the FCA. Id. at *7-8 (quoting 31 U.S.C. § 3730(e)(4)(B). Curiously, Holloway did not argue that she was an original source.
To overcome the public disclosure bar, Holloway was required to show “that the purported prior disclosures were not ‘public,’ or that their contents did not ‘disclose’ her allegations.” Id. at *8. In arguing that the bar should apply, Heartland pointed to three qui tam suits filed in the United State District Court for the District of South Carolina against HCR Manorcare – Heartland’s parent company – and other Heartland entities (the “South Carolina complaints”). In each of those cases, the Government declined to intervene.
Holloway argued that the public disclosure bar should not apply against the South Carolina complaints because they were not “public.” The FCA only bars claims that were publicly disclosed in a federal proceeding “in which the Government or its agent is a party.” 31 U.S.C. § 3730(e)(4)(A)(i). Holloway took the position that a relator is not an agent of the Government, and that a case is only public if the Government intervenes, which it declined to do in South Carolina. The Sixth Circuit ruled consistently with the majority of circuits in holding that “a qui tam relator is, in all cases, the government’s agent under §3730(e)(4)(A)(i).” Holloway, at *10-11.
Turning to the issue of whether the South Carolina complaints disclosed the fraud alleged in Holloway’s complaint, the Court found that Holloway’s allegations depict “essentially the same scheme as that described in the South Carolina complaints,” and dismissed Holloway’s complaint. Holloway, at *13. Specifically, the Court noted that:
Both sets of allegations were levied against the same corporate parent for the same type of fraud. Both accuse Heartland of making false claims for payment for Medicare for hospice patients. Both allege a systemic and patterned practice of altering or omitting information from clinical documents to make these patients appear to be terminally ill. Both allege that staff were fired if they challenged this practice, and that Heartland set a “census,” or required number of patients, for enrollment.
Id. at *15. And despite Holloway’s argument that the South Carolina complaints focused on a single hospice facility, the Court found “the allegations against Heartland as a whole were sufficiently general and alike to those alleged here [in the Northern District of Ohio] such that the government was put on notice of the corporate-wide conduct alleged in this case.” Id. Consequently, the Court held that Holloway’s claims were barred by the public disclosure bar.
This case reflects that a growing number of circuits are willing to apply the public disclosure bar in broader circumstances. Not only did the Court find that a prior qui tam action is “public” regardless of the government’s intervention decisions, but it also extended the public disclosure bar to apply beyond a single facility named in successive suits when the government was aware of “corporate-wide” scheme due to previously filed cases. These cases provide FCA defendants with the ability to obtain a dismissal of qui tam matters at the early pleading stage, particularly when they are clearly parasitic.
For more information, please contact Rebekah N. Plowman and Kara G. Silverman.