False Claims Act’s Public Disclosure Bar Does Not Apply to Claims Against Prescription Monitoring Service Provider Not Disclosed in Prior Suit

A company developed a urine drug-testing program for physicians to monitor the medications of chronic pain patients and to assess patients' compliance with prescribed medication regimes. The testing method begins as point-of-care testing in a doctor's office and uses various chemically-treated test strips (“units”) inserted into a single cup filled with the patient's urine (“specimen”) (collectively, the “test kit”).


A compliance officer for a competitor of the company learned of allegedly improper billing practices between the company and the physicians who used its urine drug-testing program related to multiple billing for single test kits, excessive testing without medical necessity, and improper confirmation testing.


The company filed a complaint against the competitor in the Superior Court of California, alleging defamation and intentional interference with contractual relations. Specifically, the company's complaint alleged that two of the competitor’s account executives sent e-mails to individuals and a company customer describing the company's practice of billing insurance companies and the government twice for the same service, and claiming that that practice could put both the company and physicians at risk of potential legal exposure for insurance fraud.


Five days after the company filed the suit against the competitor, the compliance officer for the competitor brought a suit in the United States District Court for the District of Massachusetts against the company and John Doe physicians under the False Claims Act (FCA) and similar statutes of 14 states and the District of Columbia. The suit alleged that the company encouraged physicians to bill the government multiple times for single drug tests and to perform excessive, medically unnecessary original and confirmation tests. The district court dismissed the compliance officer’s complaint, finding that the company’s suit against the competitor was a prior disclosure which constituted a jurisdictional bar to the compliance officer's suit.


The First Circuit U.S. Court of Appeals affirmed in part, vacated in part, and remanded. The court affirmed in part, holding that the company's state court defamation suit against the competitor, in which it described its practice of billing the government multiple times for single drug tests and automatically confirming negative test results, which it claimed the competitor had misrepresented as fraudulent, constituted public disclosure of the company's billing services. Thus the competitor's compliance officer's subsequent claims against the company, based on substantially similar allegations, were properly dismissed pursuant to the FCA's public disclosure bar.


For the public disclosure bar to apply to an FCA claim, each of three elements must be met: (1) a public disclosure of the allegations or transactions in the complaint must have occurred; (2) said disclosure must have occurred in the manner which is specified in the FCA; and (3) the suit must be based upon those publicly disclosed allegations or transactions. A prior public disclosure may occur through any public document available on the docket in a civil hearing. To be a disclosure of fraud a disclosure must either contain a direct allegation of fraud or allow for a proper inference of fraud by revealing a misrepresented state of facts in conjunction with a true state of facts. In assessing whether a later-filed suit is based upon publicly disclosed allegations, the court looks to whether those allegations are substantially similar to prior allegations.


The court vacated in part the district court's dismissal, remanding for the district court's consideration of whether the compliance officer had alleged sufficient facts to survive the dismissal of his remaining FCA claim. Specifically, the court held that the compliance officer’s claim that the company had urged physicians to test excessively in a manner that was not medically necessary was not substantially similar to prior disclosures that the company had made in the prior state court defamation suit so as to be barred by the FCA's public disclosure bar. The prior disclosures were based only on the company's alleged multiple billing for single tests and excessive confirmation testing, rather than on the frequency of testing.


See: U.S. ex rel. Estate of Cunningham v. Millennium Laboratories of California, Inc.,

2013 WL 1490435 (C.A.1 (Mass.), April 12, 2013) (not designated for publication).