United States: Recent Appellate Decisions Underscore Importance Of Public Disclosure Bar, But Outcomes Are Highly Dependent On The Facts

Two Circuit Courts of Appeals recently came out on opposite ends of the False Claim Act's (FCA's) public disclosure bar.  On February 19, 2015, the United States Court of Appeals for the Third Circuit affirmed the district court's dismissal of claims related to allegations of fraudulently inflated pharmaceutical prices, holding that the information underlying the suit had been publicly disclosed in the media and elsewhere and that the relator failed to qualify as an original source.  U.S. ex rel. Morgan v. Express Scripts, Inc., No. 14-1029, 2015 WL 728029 (3rd Cir. Feb. 19, 2015) (unpublished).  On February 25, 2015, the United States Court of Appeals for the Sixth Circuit reinstated a claim against a hospital related to allegedly fraudulent Medicaid and Medicare charges, holding that the allegations, though previously known to government auditors, had not been publicly disclosed.  U.S. ex rel. Whipple v. Chattanooga-Hamilton County Hospital Authority, No. 13-6645, 2015 WL 774887 (6th Cir. Feb. 25, 2015).  These different outcomes demonstrate the fact-intensive nature of the inquiry under the public disclosure bar.

In Express Scripts, the pharmacist-relator alleged that certain pharmaceutical industry defendants profited from artificially inflated Average Wholesale Prices (AWPs).  In affirming dismissal, the Third Circuit agreed with the district court's finding that the allegations underlying the case had been widely disclosed, including by the news media and in previously-filed lawsuits (including one in which the relator served as an expert).  Thus, the relator needed to be an "original source" of the information for his suit to proceed.  The Third Circuit held that the relator could not meet this standard.  The relator, who was never an employee of any of the defendants, purportedly identified the alleged fraud by performing an "eyeball" comparison of two publicly available price lists.  Moreover:

The mere fact that Morgan quantified the AWP differential does not remove his allegations from the public disclosure realm.  Morgan's 4.16 percent differential simply indicates an AWP based on a 25 percent markup over wholesale acquisition cost, a markup disclosed in a Congressional report predating Morgan's complaint.  The report's disclosure of a specific, industry-wide markup shift provided Morgan with all the "essential elements" needed to arrive at a 4.16 percent price differential.

In Whipple, the Sixth Circuit confronted a different and more thorny public disclosure issue.  The court, applying the pre-Patient Protection and Affordable Care Act version of the public disclosure bar, determined that the information underlying the complaint's allegations had not been publicly disclosed, even though the allegations of improper billing had already been the subject of an audit and investigation conducted by the United States Department of Health and Human Services Office of Inspector General (OIG) and Centers for Medicare & Medicaid Services' contractor charged with investigating fraud and waste.  The defendant hospital had also conducted an internal investigation through its own outside counsel and auditors.  The hospital had submitted a voluntary refund check as a result of these audits, and the OIG had administratively closed its investigation before the relator brought suit.

Nonetheless, distinguishing between disclosure to the "government" and disclosure to the "public," the Sixth Circuit held that the prior investigations and audits did not bar the relator's suit under the public disclosure bar: "The public-disclosure bar 'clearly contemplates that the information be in the public domain in some capacity and the Government is not the equivalent of the public domain.'"  The court also rejected the defendant's argument that the disclosure to the OIG's auditor separately qualified as a public disclosure, noting the auditor was acting as an agent of the government and had an obligation to keep the underlying information confidential.

While the Sixth Circuit states that its opinion in Whipple follows the majority view of whether disclosures to the government qualify as public disclosures, critics argue that a defendant's disclosure to the government on whose behalf a relator attempts to bring suit should be sufficient to invoke the bar, particularly where the government has already resolved the issue that is the subject of the disclosure.  However, the Whipple court may have come to the opposite conclusion had the post-2010 FCA applied.  Now, relators are barred from bringing an action if substantially the same allegations or transactions were "publicly disclosed in a congressional, GAO, or other Federal report, hearing, audit, or investigation" unless an original source (emphasis added).  Federal audits and investigations are often not publicized to the general public, especially if the audit or investigation is closed.  Of course, regardless of where a court comes out on the applicability of the public disclosure bar in a given case, evidence of disclosures to the government can, and should, still be used to defeat essential elements of a relator's FCA claim.

Recent Appellate Decisions Underscore Importance Of Public Disclosure Bar, But Outcomes Are Highly Dependent On The Facts

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