Florida Federal Judge Strikes Down FCA’s Qui Tam Provision as Unconstitutional

On September 30, US District Judge Kathryn Kimball Mizelle of the Middle District of Florida held in a historic decision that the federal False Claims Act’s (FCA) qui tam provision is unconstitutional. In a case titled Zafirov v. Florida Medical Associates LLC, Judge Mizelle found that the provision — which empowers relators to bring actions on behalf of the United States against those who are allegedly violating the FCA — is inconsistent with Article II of the US Constitution. This is the first time that a judge has found the qui tam provision — which has been a feature of the FCA ever since it was first signed into law by President Abraham Lincoln in 1863 — unconstitutional.

As background, the relator, Clarissa Zafirov, brought a qui tam action against her employer and other defendants, alleging that they violated the FCA by misrepresenting patients’ medical conditions to Medicare. The government declined to intervene, and Zafirov litigated the action on behalf of the United States for over five years. Recently, the defendants moved for judgment on the pleadings, arguing that the case should be dismissed because Zafirov exercises core executive power as a relator but lacks proper appointment under the Constitution. The government intervened to contest the constitutional arguments, emphasizing that the qui tam provision has long been “an integral fraud fighting tool to protect the federal fisc from … [those] who have defrauded the Government” and that, even if it does not intervene in an FCA case, it has sufficient tools to protect Executive Branch prerogatives.

In dismissing the lawsuit, Judge Mizelle, a former clerk to Justice Clarence Thomas, reasoned that a relator is an officer of the United States because (1) bringing a civil enforcement action on behalf of the United States to vindicate a public right and with discretion and authority to prosecute the action to final judgment however the relator chooses (i.e., a core executive power) is an exercise of “significant authority,” and (2) a relator occupies a continuing position established by law. As an officer, a relator is subject to the Appointments Clause, which requires that an officer be either nominated by the President and confirmed by the Senate or appointed by the President, a head of a department, or a court to a position established by law. Judge Mizelle concluded that self-appointment by virtue of filing a qui tam action does not satisfy the Appointments Clause, and historical examples of qui tam provisions do not exempt a relator from the Appointments Clause. Consequently, because Zafirov, as a relator, had not been constitutionally appointed, her case had to be dismissed. Judge Mizelle’s reasoning mirrors that of Justice Thomas in his solo dissenting opinion from two terms ago in US ex rel. Polansky v. Executive Health Resources Inc.

Zafirov may appeal Judge Mizelle’s opinion to the US Court of Appeals for the Eleventh Circuit. Regardless of how the appellate court rules, the decision will likely be appealed to the US Supreme Court. It bears noting that Justice Thomas is not the only justice who has expressed concern over the qui tam provision. Justice Brett Kavanaugh, in a short concurrence joined by Justice Amy Coney Barrett in Polansky, expressed similar skepticism over whether the provision complies with Article II. In the end, if a majority of the Supreme Court agrees with Judge Mizelle, its holding may fundamentally alter how the FCA is enforced.

Read Judge Mizelle’s opinion here.

Diagnostics Company Agrees to Pay $27 Million to Resolve FCA Allegations

On October 2, drug testing laboratory Precision Diagnostics Toxicology Lab agreed to pay $27 million to settle claims that it fraudulently billed Medicare for tests that were not medically necessary.

The government alleged that Precision billed Medicare and other federal health care programs for excessive, medically unnecessary tests from January 2013 through December 2022. In the settlement agreement, the government alleged that Precision induced doctors to order excessive amounts of urine drug tests without individual evaluation of each patient’s medical needs. They also alleged that Precision provided free urine drug test cups to doctors if the doctors agreed to return the samples to Precision for further testing. According to the government, these practices violated the federal Anti-Kickback Statute, which prohibits diagnostic companies from providing anything of value to doctors in exchange for referrals.

The settlement resolves three lawsuits filed under the qui tam provision of the FCA. Precision has also entered into a five-year corporate integrity agreement with the US Department of Health and Human Services Office of Inspector General.

The US Department of Justice’s (DOJ) press release can be found here.

Stem Cell Product Company CEO Sentenced for Distributing Unapproved New Drug

On September 30, the founder and CEO of a company that manufactured and marketed injectable stem cell products was sentenced to 36 months in prison for violations of the Federal Food, Drug, and Cosmetic Act. The CEO pleaded guilty last month to introducing an unapproved new drug into interstate commerce with the intent to fraud and mislead in the US District Court for the Central District of California.

According to court documents, the CEO created two companies to manufacture and sell injectable stem cell products made from human umbilical cord blood. The CEO allegedly marketed the products under varying brand names and admitted that he misrepresented the products as suitable for treating multiple conditions. The CEO used marketing materials throughout the United States that contained false statements about the products’ safety and effectiveness. Ultimately, the injectable stem cell products were allegedly linked to 19 hospitalizations. According to the government, the CEO’s sales of these products generated approximately $21.6 million in revenue.

The DOJ’s press release can be found here.

Former Hospital CEO Agrees to Pay $5.3 Million to Resolve FCA Allegations

On October 2, Jeffrey Madison, a former hospital CEO, agreed to pay $5,343,630 to settle FCA allegations related to illegal payments to physicians for laboratory referrals and to work with the DOJ in its investigations against other participants in the alleged illegal kickback schemes.

The settlement resolves allegations in a lawsuit captioned United States, et al. ex rel. STF LLC v. True Health Diagnostics LLC et al., No. 4:16-cv-547 in the Eastern District of Texas. In the lawsuit, the government alleged that Madison caused the submission of false claims for laboratory testing to Medicare and Medicaid. The government also alleged that Madison agreed to an illegal kickback scheme in which the hospital paid commissions to recruiters who paid kickbacks to doctors to encourage laboratory testing referrals to the hospital. The settlement also resolves allegations that Madison agreed to have the hospital pay a Texas doctor $2,000 monthly in purported medical director fees so that the doctor would move his referrals for laboratory testing to the hospital, even though the hospital did not receive any medical director services from the doctor.

The DOJ’s press release can be found here.