On July 25, 2023, Sens. Chuck Grassley (R-IA), Dick Durbin (D-IL), John Kennedy (R-LA), and Roger Wicker (R-MS) introduced the False Claims Amendments Act of 2023. The proposed amendment to the False Claims Act does not remove the requirement that the alleged false claim must be material to the government’s decision to pay the claim. Instead, it modifies the materiality requirement by stating that the government’s decision to continue paying allegedly false claims does not necessarily mean a party’s non-compliance with rules or regulations related to its submission of claims to the government was immaterial to the government’s decision to pay if there are other reasons for the government’s continued payment. The bill also seeks to expand the application of the FCA’s anti-retaliation protections to former employees, an issue on which courts have been split. If passed, these changes could limit defendants’ defenses to False Claims Act cases, while also expanding the universe of people who could sue under the FCA’s anti-retaliation provisions.
Limiting the Materiality Defense
The FCA requires the government to prove that the falsity of a claim for payment submitted to the government was material to the government’s decision to pay the claim. Prior to the Supreme Court of the United States’ 2016 decision in Universal Health Services v. United States ex rel. Escobar, 579 U.S. 176 (2016), courts routinely found in favor of the government on the issue of materiality when the government showed that regulatory compliance was a condition of payment. In Escobar, however, the Supreme Court held that the materiality standard is “demanding” and that the alleged non-compliance with a statute or regulation must be material to the government’s payment decision to support liability under the FCA. Further, the Court found that the government’s decision to continue paying claims with knowledge of the conduct allegedly rendering the claims false is strong evidence that the falsehood was immaterial to the government’s decision to pay.
Post-Escobar, defendants have successfully defeated FCA claims by showing that the government continued to pay claims notwithstanding its own knowledge of the conduct allegedly rendering those claims false. If passed, the False Claims Amendments Act of 2023 would weaken the materiality element of the FCA by limiting the ability of defendants to avoid liability through a showing that the government’s decision to pay claims with knowledge of alleged falsity precludes a finding of materiality. Specifically, the bill provides as follows:
(e) PROVING MATERIALITY. —In determining materiality, the decision of the Government to forego a refund or to pay a claim despite actual knowledge of fraud or falsity shall not be considered dispositive if other reasons exist for the decision of the Government with respect to such refund or payment.
The bill does not identify, list, or otherwise limit the “other reasons” that may result in an alleged false claim being found to be material notwithstanding the government’s decision to pay the claim with full knowledge of the facts. As such, the amendment would provide the government broad latitude to argue that a company’s non-compliance with a rule or regulation in its submission of a claim to the government satisfies the materiality requirement of the FCA even though the government paid the claim while fully aware of the facts allegedly rendering that claim false. For example, the government may argue that it continued payment of claims it considered false because it was still investigating the matter, or that continuing payment was necessary in light of the surrounding circumstances. A hypothetical example may be the government’s desire to continue payments to a rural healthcare provider to ensure individuals have access to care despite the provider’s alleged non-compliance with Medicare billing rules. However, this vague language could allow the government to make post-hoc materiality determinations or argue that there were “other reasons” for the payment of claims it considered false that it did not identify or consider at the time it paid the claims.
Expanding the Anti-Retaliation Provision
Whistleblower protection for employees is an important element of the FCA and a necessary part of any corporate compliance program. The FCA provides protection for employees who are fired, suspended, harassed, or discriminated against in the terms or conditions of employment by the company for reporting false claims or acting to stop the submission of false claims. If an employee proves he or she has been retaliated against for engaging in protected conduct, he or she is entitled to reinstatement, twice the amount of back pay, and other compensation as a result of the discrimination.
The proposed amendment would allow former employees anti-retaliation protections for alleged acts of the company that occur after the employee has left the company. The impetus behind the proposed amendment is a split in case law as to whether post-employment acts of retaliation are covered by the FCA’s anti-retaliation provision. In Potts v. Center for Excellence in Higher Education, Inc., the United States Court of Appeals for the Tenth Circuit found that the FCA anti-retaliation provision did not protect a former employee who filed a written complaint against her former employer and then was sued by her former employer for filing the complaint in violation of a non-disparagement agreement she entered into when she resigned. 908 F.3d 610 (10th Cir. 2018). There, the appellate court affirmed the ruling by the trial court dismissing the claim, concluding “that the False Claims Act’s anti-retaliation provision unambiguously excludes relief for retaliatory acts occurring after the employee has left employment.” Id. at 618. On the other hand, in United States ex rel. Felten v. William Beaumont Hosp., the United States Court of Appeals for the Sixth Circuit ruled the FCA anti-retaliation provision did protect a former employee alleging post-termination retaliation. There, the former employee was terminated after filing a qui tam complaint and amended the complaint to allege that the former employer had intentionally disparaged him to undermine his ongoing employment applications. 993 F.3d 428 (6th Cir. 2021). The proposed amendment would formally expand anti-retaliation protections to former employees in line with the Sixth Circuit’s decision. The application of this amendment could be particularly interesting in situations like Cestra v. Mylan, Inc., No. CIV.A. 14-825, 2015 WL 2455420 (W.D. Pa. May 22, 2015). There, an employee filed a qui tam action against his former employer. Id. at *4. After learning its new employee was a “whistleblower,” the current employer terminated the whistleblower. Id. at *5. The employee sued the current employer under the FCA and successfully survived a motion to dismiss, but the former employer was not a party to the suit. Id. at *4. If the former employer played any role in his termination, the employee would have two avenues of recovery with this new amendment. If passed, employers nationwide should be cognizant of how they interact with former employees who may have reported alleged misconduct of the company. As demonstrated above, former employees could seek damages for alleged retaliatory actions that take place post-employment.
Conclusion
This is not the first time that Senator Grassley has attempted to amend the FCA to functionally overturn Escobar through legislation. In 2021, he and others introduced the False Claims Amendments Act of 2021, which sought to shift the burden of proving immateriality to defendants. The 2021 bill did not pass. It remains to be seen whether this revised, bi-partisan amendment will pass. AGG will be watching the bill’s progress closely.
