False Claims Act: Scienter Defense, Qui Tam Response, and Damages

The FCA's scienter requirement is satisfied only when the defendant knew the claim was false, acted in deliberate ignorance of the truth, or acted in reckless disregard of the truth, and a company that relied on a reasonable interpretation of an ambiguous regulation or on advice of counsel has a strong argument that it lacked the required scienter. White collar crime defense counsel must document the company's decision-making process contemporaneously and identify any regulatory guidance or legal advice that supported the company's interpretation.

The Supreme Court's decision in Universal Health Services v. Escobar established that materiality under the FCA is demanding and not easily satisfied, and a defendant can defeat a materiality claim by demonstrating that the government knew about the alleged violations and continued to pay the claims. Healthcare compliance counsel must gather evidence of the government's actual payment practices in response to the same or similar violations, since continued payment by an informed government strongly suggests the violation was not material.

When a qui tam complaint is unsealed, the defendant faces both the relator's private lawsuit and the possibility of government intervention, and internal investigation services counsel must immediately conduct a privileged internal review of the allegations to assess their factual basis, identify documents or witnesses that support the defense, and evaluate whether voluntary disclosure of any compliance failures would help persuade the government not to intervene.

When the Department of Justice declines to intervene in a qui tam case, the litigation continues with the relator as plaintiff, and whistleblower defense counsel can use the government's declination as evidence that the government's own investigation did not find merit sufficient to justify participation, which is an effective argument in settlement negotiations and in motions to dismiss.

Anti-kickback violations are frequently the predicate for FCA liability in the healthcare sector because the Anti-Kickback Statute provides that claims submitted in violation of the statute constitute false claims under the FCA, and healthcare fraud defense counsel must evaluate every financial arrangement with referral sources, including speaker fees, consulting agreements, and medical advisory board relationships, to ensure each arrangement fits within one of the statute's safe harbors.

Government contractors face FCA exposure when they submit inaccurate cost or pricing data, certify compliance with unmet contract requirements, or overbill for nonconforming goods or services. Government contracts counsel must evaluate the specific contract requirements allegedly violated and assess whether the contractor had a good faith basis for its billing practices.

A defendant who cooperates with the government's investigation, self-discloses violations before the government learns of them independently, and implements remedial measures is substantially better positioned to negotiate a settlement that reduces the damages multiplier. Settlement negotiation counsel must identify the government's strongest and weakest claims and negotiate a penalty structure that reflects the defendant's cooperation and the absence of intentional misconduct.

A Corporate Integrity Agreement imposes reporting obligations, audit requirements, training mandates, and certification requirements that can create significant operational burdens if they are not negotiated carefully, and corporate compliance counsel working on a CIA negotiation must push back on provisions that are broader than necessary to address the specific conduct that gave rise to the FCA liability.