On June 16, 2023, the Supreme Court held in U.S. ex rel. Polansky v. Executive Health Resources1 that the Government may seek the dismissal of a False Claims Act (FCA) case "over a relator's objection so long as it intervened sometime in the litigation, whether at the outset or afterward." The Court also held that when the Government seeks to intervene and dismiss a suit, district courts need only apply the relatively lax standards set forth by Federal Rule of Civil Procedure 41(a), the rule generally governing voluntary dismissal of suits. The Court's decision in Polansky may have profound implications in determining when, and how, FCA matters are resolved in the future.
In an 8-1 opinion authored by Justice Kagan, the Court held that the Government's interest in an FCA lawsuit is the "predominant one." That interest includes not only redressing injuries against the Government, but, as in Polansky, an interest in obtaining "dismissal of the suit because it will likely cost the Government more than it is worth."2 The decision is a victory for FCA defendants, as well as the Government, who can most effectively value the cost of litigation and potential recovery. The Government and FCA defendants can now resolve matters after the sealing period without seeking the blessing of a whistleblower, whose interests may not align with the Government as the real party in interest.
The FCA's Unique Public-Private Scheme
President Abraham Lincoln signed the FCA into law to prevent profiteers from defrauding the Government in the wake of the Civil War. The FCA penalizes any person who knowingly submits a "false claim" to the Government for payment. It provides that a person who violates the law is liable for treble damages – three times the Government's damages – plus a civil penalty. The FCA is an unusual statute in that it authorizes private parties, known as relators, to sue on the Government's behalf. Relators bring suits in the Government's name, often at great expense and expectation, in exchange for up to a 30 percent share of the proceeds if the suit is successful.
The relator is frequently a former employee or contractor of the defendant who has inside knowledge of the allegedly false claims submitted to the Government. When the relator files a lawsuit, the suit is filed under seal for at least sixty days to allow the Government the opportunity to investigate. This is called the "seal period." At this point, the purported defendant will not know that a qui tam action has been filed, but it will likely receive a civil investigative demand (CID) from an Assistant United States Attorney in the Civil Division. The sixty-day seal period is frequently extended for months (and sometimes years) to allow the Government to complete its investigation and determine whether or not to intervene.
If the Government decides to intervene, it will proceed with the action. On the other hand, if the Government declines to intervene, the relator will have the opportunity to proceed with the action. In this circumstance, the Government retains the right to intervene later upon a showing of good cause. And, given the cost of litigation, relators often decline to continue with the lawsuit absent Government intervention.
Healthcare providers are often targets of FCA suits due to conduct that can result in overpayment by Medicare or Medicaid programs. For example, FCA investigations are often caused by "upcoding," which is when a healthcare provider submits CPT3 codes to Medicare, Medicaid or other insurers for more serious (and more expensive) diagnoses or procedures than the provider actually diagnosed or performed. FCA suits are also brought where providers order procedures or equipment that is not medically necessary or where care is submitted for reimbursement but never actually provided. A claim made to the Government for payment can also be "false" if the Government contractor fails to comply with the material terms and conditions of its contract with the Government.
Frequently, the Government and the putative defendant will negotiate a resolution during the seal period, at which point the Government will intervene and dismiss the action. But, in Polansky, the Supreme Court ruled that the Government retains the right to intervene and dismiss the case outright even after the seal period ends.
The Government's Continued Right to Seek Dismissal: The Relator "Is Not Home Free"
The factual background in Polansky is typical of many FCA allegations. Jesse Polansky is a doctor who worked for Executive Health Resources (EHR), a company that helped hospitals bill for Medicare-covered services. In 2012, Polansky filed a qui tam action under seal against EHR. The complaint alleged that EHR was enabling its clients to falsely charge higher inpatient rates to Medicare for what should have been outpatient services. In June 2014, after spending two years investigating the allegations while the complaint remained under seal, the Government declined to intervene.
Thereafter, Polansky continued pursuing the claim. The case spent years in discovery, with EHR seeking both documents and deposition testimony from the Government. As the discovery burden on the Government increased and "weighty privilege issues emerged," the Government, in 2019, decided that "the varied burdens of the suit outweighed its potential value."4 The Government, therefore, filed a motion to dismiss the action over Polansky's objection.
Polansky argued that the Government did not have the authority under the FCA to dismiss the suit if it declined to intervene during the seal period. As the Supreme Court wrote, the "mystery at this case's heart" is that nothing in the statute expressly states whether (or when) the authority to dismiss survives the Government's decision to let the seal period lapse without intervening. In his briefings, Polansky also claimed his counsel incurred approximately $20 million in attorney time and costs litigating the matter and that the Government was abandoning potentially billions of dollars in recovery.
The district court granted the Government's motion to dismiss, and the Third Circuit affirmed, finding that the Government's motion to dismiss the suit – based on its weighing of discovery burdens against the likelihood of success – itself established good cause to intervene and that the Government had the right to voluntarily dismiss following the seal period.
The Supreme Court affirmed. The Court held that even after the seal period, "the relator is not home free." Rather, the FCA is ultimately for the benefit of the Government: "Congress enabled the Government, in the protection of its own interests, to reassess qui tam actions and change its mind." Justice Kagan emphasized this point by writing "nothing about the statute's objectives suggests that the Government should have to take a back seat to its co-party relator," and "[t]he suit remains, as it was in the seal period, one to vindicate the Government's interests."5
The Supreme Court, in holding that Rule 41(a) governs, also resolved a circuit split over the dismissal standard in qui tam cases. The Court affirmed the decision of the Third Circuit and declined to accept the Government's position, that it had essentially unfettered discretion to dismiss, or conversely, that a more demanding standard should be placed on the Government. The Court held that "nothing in the FCA suggests that Congress meant to except qui tam actions from the usual voluntarily dismissal rule."6
The FCA requires notice and an opportunity for a hearing before a relator's suit is dismissed. Rule 41(a)(2) requires the court to dismiss only "on terms that the court considers proper." In a typical civil case, that analysis focuses on the interests of defendant, and whether the time and money committed to a case by a defendant militates against dismissal. The decision in Polansky points out that in qui tam cases, district courts should consider the substantial resources that relators may have invested.
Against that background, a motion to dismiss an FCA action by the Government "will satisfy Rule 41 in all but the most exceptional cases."7 As long as the Government offers a reasonable argument that the burdens of the litigation outweigh its benefits, district courts should grant a motion to intervene and dismiss by the Government.
Key Takeaways from the Polansky Decision
While the long-term impact of Polansky remains to be seen, the decision affirms that ultimate authority to prosecute or resolve qui tam cases stays with the Government even after the seal period. This is good news for FCA defendants, including healthcare companies like the defendant in Polansky. Conversely, this is bad news for relators, for the Government's decision to not intervene may be a harbinger of worse news to come.
The Government may be emboldened by Polansky to unilaterally move for dismissal of suits where discovery burdens outweigh potential recovery. In cases where the Government has declined to intervene, FCA defendants should consider the merits of demanding the full scope of discovery from Government prosecutors and the agencies they represent.
The Polansky decision could also provide a powerful tool for FCA defendants to resolve cases. Because the Government has the legal right to intervene and dismiss an FCA suit after the seal period, FCA defendants have increased leverage in seeking favorable settlements with relators.
Companies and practitioners should also pay close attention to the Supreme Court's FCA docket in the future. Justice Thomas, in dissent, indicated that he sees the entire qui tam system as violating Article II's requirement that the exercise of executive power belongs to the President. Justice Kavanaugh, in a concurring opinion joined by Justice Barrett, wrote that he agreed with the need to consider such Article II arguments in the appropriate case. As such, three of the nine Supreme Court justices appear open to scrapping the FCA's qui tam lawsuits altogether.
As the Supreme Court's interpretation of the FCA continues to unfold8, the lawyers in Buchanan's White-Collar Defense and Investigations group are well equipped to defend companies in FCA investigations and qui tam lawsuits.
Footnotes
1. No. 21-1052, 599 U.S. ___ (2023).
2. Id.
3. CPT stands for "current procedural terminology." CPT codes identify procedures performed and the level of professional performing those procedures. They are submitted by providers to payors in order for insurance claims to be processed.
4. Polansky, slip op. at 6.
5. Id. at 13.
6. Id. at 14.
7. Id. at 15.
8. Polansky is the Supreme Court's second FCA decision this term. Earlier this month, the Supreme Court clarified the FCA's scienter element in United States ex rel. Schutte v. SuperValu and United States ex rel. Proctor v. Safeway.
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