Fifth Circuit Ruling Bolsters Defenses in False Claims Act Case
The Fifth Circuit's recent decision in U.S. ex rel. Gwendolyn Porter v. Magnolia Health Plan, Inc. reinforces the robust gatekeeping function of district courts in False Claims Act ("FCA") cases, and offers additional support for avoiding costly discovery in FCA matters.
The relator in Porter was the former employee of a Coordinated Care Organization that contracted with the Mississippi Division of Medicaid. She alleged that her former employer violated the FCA by using "licensed practical nurses" for tasks reserved under contract and Mississippi law for "licensed registered nurses." The federal government declined to intervene. After the defendants moved to dismiss, the district court granted the motion and dismissed the suit with prejudice.
In affirming dismissal, the Fifth Circuit invoked the Supreme Court's recent holding in Universal Health Servs., Inc. v. U.S. ex rel. Escobar, which emphasized the FCA's "demanding" and "rigorous" materiality requirement. The Fifth Circuit noted that the employer's contracts with the state of Mississippi did not expressly require the employer to delegate the tasks in question to "licensed registered nurses." The Fifth Circuit also emphatically rejected the argument that the mere fact that contracts containing language requiring the employer to comply with "all applicable laws" could create FCA liability. Relying on Escobar, the Court explained, "broad boilerplate language generally requiring a contractor to follow all laws . . . [is] too general to support a FCA claim." Thus, even if the employer had violated Mississippi law, the Fifth Circuit reiterated that was not sufficient to establish the requisite materiality for a FCA case.
In addition, the Fifth Circuit emphasized that continued payment by the federal government after it learns of alleged fraud "substantially increases the burden on the relator in establishing materiality." Because the Mississippi Division of Medicaid continued to make payments to the employer and even renewed its contract with the employer several times after the whistleblower informed the state about the alleged fraud, the Fifth Circuit concluded that the whistleblower had not met her burden.
Looking forward, health care providers and other government contractors can rely on the Fifth Circuit's approach to materiality, including at the pleading stage. For defendants, that is a welcome message, given the massive costs associated with potentially needless discovery in FCA cases.