A recent Second Circuit decision highlights an important—and sometimes counterintuitive—distinction in False Claims Act (FCA) cases: the evidence needed to plead that a company submitted false claims to the government (called “direct” false claims) may differ substantially from the evidence needed to plead that it knowingly kept government money it should have returned (called “reverse” or “indirect” false claims).
In United States ex rel. Gallian v. AmerisourceBergen Corp., a former senior reimbursement manager alleged that US Bioservices overcharged Medicare, Medicaid, and other government healthcare programs, concealed the resulting overpayments, and eventually took them to revenue.
The Second Circuit dismissed the whistleblower’s “direct” false claims, but revived her “reverse” false claims, which alleged the defendant knowingly retained overpayments from the government.
Why the different outcome? The reason starts from the requirement that some courts impose on whistleblowers who allege direct false claims to identify examples of the actual claims submitted to the government. For whistleblowers in such courts, this can mean needing to have surprisingly mundane information. It may not be enough to explain, in detail, that a hospital systematically charged for services it did not provide. A complaint may also need “representative” examples that show, in effect: on a particular date, the provider submitted a claim seeking a particular amount for specified services provided to a particular patient, and that claim was false for a particular reason. If that sounds tedious, that’s because it is. Courts dismiss a surprising number of otherwise meritorious FCA cases over what often seems to be a technicality, though others recognize that rigidly requiring “representative” claims leads to gamesmanship.
In Gallian, the Second Circuit dismissed Gallian’s “direct” false-claims theory for just this reason. Although she described the alleged billing schemes, she did not identify a specific false invoice submitted to the government. And because her job responsibilities included billing, collections and posting payments, the court found that she had not adequately explained why she lacked access to that information.
Gallian’s “indirect” overpayment claim, however, was different.
A reverse false claim does not necessarily depend on proving that the defendant made an affirmative false statement to obtain money. It can arise when a company knowingly conceals or improperly avoids an existing obligation to return government money.
Gallian’s “indirect” claim therefore focused on the other end of the transaction. She identified particular government overpayments appearing in company records, including an adjustment form tied to a specific invoice and an internal audit reflecting a $64,984.80 government overpayment that had been recognized, but not refunded. She alleged that overpayments were reclassified internally as “payer processing errors,” hidden from auditors, and ultimately transferred into company revenue. She also identified employees allegedly involved in those decisions.
Those details were enough to plead that US Bio had identified government overpayments, had an obligation to return them, and knowingly avoided that obligation.
For potential healthcare fraud whistleblowers, the practical lesson is significant. An employee may lack the claim-level information needed to say, “Here is the false bill we sent Medicare.” But, at least in the Second Circuit, if the employee can instead say, “Here is a specific Medicare overpayment we identified, when we identified it, who knew about it, and what we did instead of returning it,” that may support a viable reverse-FCA case.
