Relying on the First-to-File Rule to Protect You from Copycat Qui Tam Lawsuits

As you know, the private individuals, known as relators, the right to bring qui tam lawsuits on the government’s behalf against labs and other contractors that submit false claims to the federal government. But what happens when multiple relators bring separate qui tam suits against a lab for the same basic offense? The Rule: Under the False Claims Act (FCA), the first whistleblower to file is the only one allowed to bring the case. This principle, known as the “first-to-file” rule is designed to protect labs from copycat suits. However, the rule applies only if the subsequent suits are “related to” the first suit. And, as illustrated by the following cases, courts use two divergent approaches in interpreting the meaning of “related,” one which is favorable to whistleblowers and one which is favorable to labs.

Subsequent Whistleblowers Win

Some courts interpret “related” very narrowly and allow subsequent whistleblowers to get around the first-to-file rule as long as they introduce unique information or aspect not addressed in the first case. Here’s an example.

What Happened

Three different qui tam suits were filed against Inform Diagnostics (which was then known as Miraca Life Sciences Inc.) for allegedly offering physicians discounts on electronic health records (HER) consulting services in exchange for lab referrals. The whistleblowers included Miraca’s former Life Science Sr. Vice President of Commercial Operations, dermapathologists and a company called LPF LLC, which claimed that Inform/Miraca limited the discount deal to physicians it identified as potentially high-volume referral sources and based individual discount amounts on the anticipated return on investment the particular physician’s referrals would generate. Informa/Miraca asked the court to dismiss two of the three cases under the first-to-file rule.

The Ruling

The Tennessee federal court denied the motion to dismiss and allowed all three claims to proceed. Faced with the prospect of having to defend itself in three different trials, Informa/Miraca agreed to pay $63.5 million to settle the claims.

The Reasoning

Even though all three complaints stemmed from the same alleged scheme, the court held that the first-to-file rule didn’t apply because each of the whistleblowers offered unique information about how Informa/Miraca carried out the scheme. Each relator shed light on a different aspect of the arrangement explaining how the lab offered and paid referring physicians kickbacks in the form of discounted HER consulting services in exchange for referrals, it concluded.

United States ex rel. Dorsa v. Miraca Life Sciences, Inc., Case No. 13-cv-1025 (M.D. Tenn.); United States ex rel. LPF, LLC v. Miraca Life Sciences, Inc., et al., 3:16-cv-1355 (M.D. Tenn.); and United State ex rel. Heaphy, et al. v. Miraca Life Sciences, Inc., 3:18-cv-1027 (M.D. Tenn.)

Subsequent Whistleblowers Lose

Other courts interpret “related” far more expansively and apply it if the claims involve the “same material elements,” even if the subsequent case introduces something new or novel.

What Happened

A group of whistleblowers filed a qui tam suit charging Logan Labs and Surgery Partners with running a kickback scheme to get physicians to order medically unnecessary confirmatory urine drug tests (UDT) that were then billed to Medicare. While the case was pending, another group of whistleblowers brought a case involving the same scheme but naming as defendant not Logan or Surgery Partners but rather H.I.G. Capital, the equity firm that owned them, for its role in the scheme. H.I.G. asked the court to dismiss the second case.

The Ruling

The Florida federal court ruled that the second case was “related” to the first case and dismissed it under the first-to-file rule.

The Reasoning

“Assessing relatedness is not rocket science,” noted the court. All it requires is comparing the complaints side-by-side “to see whether the claims in the second action incorporate the same material elements of fraud.” In this case, they did. True, H.I.G. wasn’t a defendant in the first suit—although they were named as Logan’s and Surgery Partners’ corporate owner; and the new suit focused on H.I.G.’s masterminding the scheme as a corporate owner of related entities, something the first case didn’t even bring up. But, at the end of the day, both complaints were about the same thing, namely, a broad, nationwide scheme by Logan Labs and Surgery Partners to defraud Medicare and other government programs by submitting medically unnecessary and inflated claims for UDT.

United States ex rel. Cho v. H.I.G. Capital, LLC, 2020 U.S. Dist. LEXIS 155373

Takeaway

Of the two standards for interpreting whether subsequent whistleblower lawsuits, the more defendant-friendly “same material elements” approach is more common, followed by seven of the 12 federal circuits. And that list may grow by one to include the Eleventh Circuit if the H.I.G. case is appealed and is affirmed by the U.S. Court of Appeals.