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From Health Law Daily, January 16, 2019

No requirement to plead the submission of a false claim when pleading retaliation claim

By Jeffrey H. Brochin, J.D.

The president of a group of hospital pharmacies who raised his concerns over Anti-Kickback Statute (AKS) violations to the CEO and was subsequently terminated, did not need to adequately plead the submission of a false claim or meet the Rule 9(b) standards for pleading fraud because in pleading a False Claims Act (FCA) retaliation claim—as opposed to a direct FCA claim—he only needed to plead that his actions in reporting or raising concerns about the employer's conduct reasonably could lead to an FCA action. He was engaged in protected conduct within the meaning of an FCA retaliation claim when he raised concerns about the kick-back payments being made to a consultant (Guilfoile v. Shields, January 15, 2019, Lipez, K.).

Consultant fee for hospital contracts. In the Fall 2015, the president of a group of hospital pharmacies (the entity) learned that the CEO had previously entered into a contract on behalf of the entity with a consultant whom several New Jersey hospitals also paid for financial advice. The contract obligated the entity to among other things, pay the consulting firm $35,000 per quarter for each hospital contract (and in particular for Newark Beth Israel Medical Center (NBIMC) and University Hospital (University)) that the consultant successfully referred to the entity.

The president believed that the payments had improperly induced the consultant to steer the hospital contracts to the entity in violation of the AKS, and after the entity’s counsel agreed with him, he notified the CEO about the consulting contract violating the federal AKS. After negotiation with the CEO, the consultant agreed to waive payments yet to be made for the University referral but refused to return the money that the entity had already paid for the NBIMC referral. Not long after the president insisted that the matter be brought to the board—and the CEO refused—the president was fired. He filed an FCA retaliation claim in federal court which was dismissed due to inadequate pleading under the FCA.

Wrong approach and conclusion. The district court had concluded that the president had failed to adequately plead that his actions in raising concerns about the payments could have led to an FCA action, and that even if he had adequately pleaded an AKS violation, he failed to connect any such violation to a potential false claim within the meaning of the FCA. The appeals court disagreed with both the district court's approach and its conclusion.

The appeals court began by noting that the president had filed an FCA retaliation claim, not a "direct" claim of an FCA violation, and that adequately pleading an FCA retaliation claim did not require adequately pleading the submission of a false claim or meeting the Rule 9(b) standards for pleading fraud. Rather, he only needed to plead that his actions in reporting or raising concerns about his employer's conduct reasonably could lead to an FCA action.

No need to plead materiality. Because the case involved an alleged violation of the AKS, the court considered the 2010 amendment to the AKS which provided that a claim that includes items or services resulting from a violation of the AKS constitutes a false or fraudulent claim for purposes of the FCA. An AKS violation that results in a federal health care payment is a per se false claim under the FCA. The court further read the AKS amendment as obviating the need for pleading materiality: Congress's intent was to ensure that all claims resulting from illegal kickbacks are deemed "false and fraudulent," and to strengthen whistleblower actions based on medical care kickbacks, by making all claims that stem from an illegal kickback subject to the FCA. Based on the foregoing, the appeals court concluded that the president plausibly pleaded that the concerns he raised about the payments reasonably could have led to an FCA action, and those allegations coupled with the reasonable inferences to be drawn from them, plausibly pleaded that claims for payment were, or were going to be, submitted to the government in connection with the entity’s work with the New Jersey hospitals.

Protected conduct. Although the president may not have consistently raised certain arguments, the core issue of whether the payment scheme as pleaded fell within the compass of the AKS was before the district court, and, was found to be at the core of his appeal. Before the district court and the appeals court he consistently argued that he had adequately alleged an AKS violation for purposes of pleading an FCA retaliation claim. Therefore, after drawing all reasonable inferences in his favor and considering the effect of the statutory language drawing a connection between AKS violations and FCA actions, the appeals court concluded that he plausibly pleaded that he engaged in protected conduct within the meaning of an FCA retaliation claim; when he raised concerns about the payments to the consultant, he was engaging in conduct that reasonably could lead to an FCA action.

For the foregoing reasons, the appeals court vacated and remanded as to the retaliation claim involving a potential violation of the AKS. The court did not, however, reverse as to the dismissal involving an alleged contractual breach and the submission of claims to the government.

The case is No. 17-1610.

Attorneys: Tammy Marzigliano (Outten & Golden LLP) for Thomas Guilfoile. Brian J. Leske (Ashcroft Law Firm LLC) for John M. Shields, Sr., Shields Pharmacy, LLC d/b/a Shields Health Solutions, Shields Pharmacy Equity, LLC d/b/a Shields Health Solutions and Shields Specialty Pharmacy Holdings, LLC d/b/a Shields Health Solutions.

Companies: Shields Pharmacy, LLC d/b/a Shields Health Solutions; Shields Pharmacy Equity, LLC d/b/a Shields Health Solutions; Shields Specialty Pharmacy Holdings, LLC d/b/a Shields Health Solutions

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