2024 has been an exciting year for legal opinions affecting a variety of individuals and industries, and healthcare is no exception. This analysis looks at three federal cases that could have important implications for healthcare providers who find themselves subject to an investigation or legal action under the False Claims Act (31 U.S.C. § 3729-3733) (FCA) or the Civil Monetary Penalties Law (42 U.S.C. § 1320a-7a) (CMPL).

The FCA is a civil fraud statute focused on individuals or entities that receive funding from government programs, providing that any person who knowingly submits or causes to submit a false claim for payment to the government is liable for three times the amount of the claim, plus per-claim penalties. “Knowingly” means actual knowledge of falsity, but also “reckless disregard” and “deliberate ignorance,” allowing the statute to reach beyond specific intent to defraud.

The CMPL authorizes the Office of Inspector General (OIG) of the Department of Health and Human Services to seek monetary penalties against individuals and entities for a wide range of conduct affecting the Medicaid and Medicare programs, including presenting a false or fraudulent claim for reimbursement, violating Medicare assignment provisions, making false statements on applications to participate in Federal healthcare programs, and failing to provide adequate medical screening for patients who present to a hospital emergency department. The CMPL allows the OIG to seek civil monetary penalties of $10,000 to $50,000 per violation. Under the CMPL, OIG can also seek exclusion of individuals and entities from participating in the Medicare and Medicaid programs, which can be devastating for healthcare providers.

SEC v. Jarkesy, 144 S. Ct. 2117 (June 27, 2024)

The statute at issue in SEC v. Jarkesy allowed the Securities and Exchange Commission (SEC) to pursue an enforcement action against the defendant, Jarkesy, for defrauding his investment fund customers, and to seek civil monetary penalties in the process. The statute also allowed the SEC to pursue its action in either an administrative proceeding within the agency, or in a civil action in federal court. The SEC chose to pursue its action against Jarkesy in an administrative tribunal, where it succeeded in obtaining an award of civil monetary penalties. Jarkesy appealed to the Fifth Circuit, which held that the imposition of civil monetary penalties through an administrative proceeding violated the defendant’s constitutional right to a jury trial. In June, the U.S. Supreme Court affirmed the ruling of the Fifth Circuit, reasoning that since the remedy (civil monetary penalties) was legal in nature rather than equitable, Jarkesy was entitled to a jury trial under the Seventh Amendment to the U.S. Constitution. This ruling is likely to have far-reaching implications for agency enforcement actions because agencies frequently elect to pursue such actions through administrative proceedings rather than civil actions. In the healthcare context, we expect to see the Jarkesy decision invoked by defendants with CMPL actions pending or threatened against them, likely culminating in Federal court decisions applying Jarkesy’s holding in the CMPL context. The Jarkesy decision may also encourage OIG to pursue more CMPL actions in Federal court to avoid the challenge.

Zafirov v. Florida Medical Associates LLC, Case No. 8:19-cv-1236-KKM-SPF (U.S. Dist. Ct., M.D. Florida, Tampa Division)

One of the most significant features of the FCA is its qui tam provisions, which allow private citizens to pursue actions under the statute on behalf of the government, and to obtain a sizable percentage (15-30%) of the recovery. This is intended to, and does, create a powerful incentive for whistleblowers with knowledge of potentially fraudulent activity involving government funds to initiate lawsuits against the alleged wrongdoer. However, in dissenting and concurring opinions in the 2023 case of U.S. ex rel. Polansky v. Executive Health Resources Inc., three Justices of the U.S. Supreme Court signaled that the FCA’s qui tam provisions may be unconstitutional under the Appointments Clause of Article II of the U.S. Constitution, in that the law allows private relators who are not “appointed as an officer of the United States” to nevertheless “wield executive authority to represent the United States’ interests in civil litigation.” This precise argument is being advanced by the defendant in an FCA case currently pending in Florida: Zafirov v. Florida Medical Associates LLC. The Defendant filed a motion for judgment on the pleadings that was heard in April and, following the supplemental briefing, is now pending a decision by the court. If the judge sides with the defendant and determines that the qui tam provisions of the FCA are unconstitutional, we can expect the issue to be appealed to the Eleventh Circuit, potentially setting the stage for a future cert petition to the U.S. Supreme Court. With more than half of all FCA cases in 2023 being qui tam actions—many pursued by a robust and experienced relator’s counsel bar—a successful constitutional challenge at the U.S. Supreme Court would fundamentally transform FCA litigation.

Grant v. Zorn, 2024 WL 3309763 (8th Cir., July 5, 2024)

Another hallmark of the False Claims Act is its minimum and maximum per-claim penalties, which currently stand at $13,946 and $27,894, respectively. The statutory minimum per-claim penalty is particularly daunting in the healthcare context, where providers submit a high volume of claims for reimbursement from federal healthcare programs such as Medicaid and Medicare, even though the value of each claim may be relatively low. Combined with the treble damages provisions, the per-claim penalties quickly multiply the potential exposure for providers subject to an FCA investigation or lawsuit. This feature of the statute was the subject of the Eighth Circuit’s ruling in Grant v. Zorn in July, where the Court ruled that the $6.47 million penalty awarded by the trial court, based on compensatory damages of $86,332, was a violation of the Excessive Fines Clause of the U.S. Constitution. Due to the FCA’s per-claim penalties, the trial court’s award was 78 times the actual damages. To determine the constitutionality of an FCA award, the Court reasoned, the trial court must consider what portion of the award is compensatory versus punitive, holding that a single-digit multiplier of the compensatory damages is appropriate in cases involving purely economic loss. Following traditional principles of proportionality in punitive damages awards, the Eighth Circuit held that “in determining the constitutionality of a punitive sanction, the reprehensibility of the defendant’s conduct is the ‘most important indicium.’" The Eighth Circuit’s decision in Grant v. Zorn stands in contrast to the Eleventh Circuit’s opinion in Yates v. Pinellas Hematology & Oncology, P.A. (11th Cir. Dec. 29, 2021), which held that while proportionality principles must be applied, a penalty assessment that falls within the FCA’s statutory range is presumed constitutional under the Excessive Fines Clause. Both cases give defendants support to challenge per-claim penalties, but Grant v. Zorn goes further by allowing an award outside of the FCA’s statutory range. It will be interesting to see if this rationale is adopted by other Circuits over time.