In 2023, the government and whistleblowers were party to 543 False Claims Act (FCA) settlements and judgments, the highest number of FCA settlements and judgments in a single year. As a result, collections under the FCA exceeded $2.68 billion, confirming that the FCA remains one of the government’s most important tools to root out fraud, safeguard government programs, and ensure that public funds are used appropriately. As in recent years, the healthcare industry was the primary focus of FCA enforcement, with over $1.8 billion recovered from matters involving hospitals, pharmacies, physicians, managed care providers, laboratories, and long-term acute care facilities. Other areas of focus in 2023 were government procurement fraud, pandemic fraud, and enforcement through the government’s new Civil Cyber-Fraud Initiative.
Tag: FCA
Three Individuals Sentenced for $3.5 Million COVID-19 Relief Fraud Scheme
Three Individuals Sentenced for $3.5 Million COVID-19 Relief Fraud Scheme
On February 6, three individuals were sentenced for fraudulently obtaining and misusing Paycheck Protection Program (PPP) loans that the US Small Business Administration (SBA) guaranteed under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.
According to court documents and evidence presented at trial, in 2020 and 2021, defendants Khadijah X. Chapman, Daniel C. Labrum, and Eric J.O’Neil submitted falsified documents to financial institutions for fictitious businesses to fraudulently obtain $3.5 million in PPP loans intended for small businesses struggling with the economic impact of COVID-19. Chapman was convicted in November 2023 of bank fraud. Labrum and O’Neil pleaded guilty in 2023 to bank fraud. Following their convictions, Chapman was sentenced to three years and 10 months in prison, Labrum was sentenced to two years in prison, and O’Neil was sentenced to two years and three months in prison.
Read the US Department of Justice’s (DOJ) press release here.
False Claims Act Complaint Filed Against Former President and Co-Owner of Mobile Cardiac PET Scan Provider
The DOJ filed a complaint in the US District Court for the Southern District of Texas under the False Claims Act (FCA) against Rick Nassenstein, former president, chief financial officer, and co-owner of Illinois-based Cardiac Imaging Inc. (CII), which provides mobile cardiac positron emission tomography (PET) scans.
The complaint alleges that Nassenstein caused CII to pay excessive, above-market fees to doctors who referred patients to CII for cardiac PET scans. The government alleges that the compensation arrangements violated the Stark Law, which prohibits health care providers from billing Medicare for services referred by a physician with whom the provider has a compensation arrangement unless the arrangement meets certain statutory and regulatory requirements. Claims knowingly submitted to Medicare in violation of the Stark Law also violate the federal FCA.
The complaint alleges that CII provided cardiac PET scans on a mobile basis and paid the referring physicians, usually cardiologists, to provide physician supervision as required by Medicare rules. From at least 2017 through June 2023, Nassenstein allegedly caused CII to enter into compensation arrangements with referring cardiologists that provided for payment to the cardiologists as if they were fully occupied supervising CII’s scans, even though they were actually providing care to other patients in their offices or patients who were not even on site. CII’s fees also allegedly compensated the cardiologists for additional services the physicians did not actually provide. The complaint alleges that CII paid over $40 million in unlawful fees to physicians and submitted over 75,000 false claims to Medicare for services provided pursuant to referrals that violated the Stark Law.
The lawsuit was originally a qui tam complaint filed by a former billing manager at CII, and the United States, through the DOJ, filed a complaint in partial intervention to participate in the lawsuit.
The case, captioned US ex rel. Pinto v. Nassenstein, No. 18-cv-2674 (S.D. Tex.), follows an $85.5 million settlement in October 2023 by CII and its current owner, Sam Kancherlapalli, for claims arising from this conduct.
Read the DOJ’s press release here.
San Diego Restaurant Owner Charged with Tax and COVID-19 Relief Fraud Schemes
On February 2, a federal grand jury in San Diego returned a superseding indictment charging a California restaurant owner with wire fraud, conspiracy to commit wire fraud, tax evasion, filing false tax returns, conspiracy to defraud the United States, conspiracy to commit money laundering, and failing to file tax returns.
According to the indictment, Leronce Suel, the majority owner of Rockstar Dough LLC and Chicken Feed LLC, conspired with a business partner to underreport over $1.7 million in gross receipts on Rockstar Dough LLC’s 2020 federal corporate tax return. From March 2020 to June 2022, Suel and the business partner then allegedly used this fraudulent return to qualify for COVID-19-related loans pursuant to the PPP and Restaurant Revitalization Funding program. In connection with those loans, Suel also allegedly certified falsely that he used the loan money for payroll purposes only. The indictment alleges that Suel and his business partner laundered the fraudulently obtained funds through cash withdrawals from their business bank accounts and stashed more than $2.4 million in cash in their home.
The indictment further charges that Suel failed to report millions of dollars received in cash and personal expenses paid for by his businesses as income, in addition to reporting false depreciable assets and business losses.
If convicted, Suel faces prison sentences up to 30 years for each count of wire fraud and conspiracy to commit wire fraud, 10 years for each count of conspiracy to commit money laundering, five years for tax evasion and conspiracy to defraud the United States, three years for each count of filing false tax returns, and one year for each count of failing to file tax returns.
Read the DOJ’s press release here.
2023 Key Developments In The False Claims Act
2023 was another active year for the False Claims Act (FCA), marked by notable appellate decisions, emerging enforcement trends, and statutory amendments to state FCAs. We summarize the year’s most important developments for practitioners and government-facing businesses.
Developments in Caselaw
Supreme Court Holds That FCA Scienter Incorporates A Subjective Standard
The Supreme Court issued two consequential decisions on the False Claims Act this term. In the first, United States ex rel. Schutte v. SuperValu Co., 1 the Court held that objectively reasonable interpretations of ambiguous laws and regulations only provide a defense to the FCA’s scienter requirement if the defendant in fact interpreted the law or regulation that way during the relevant period. The Court held that the proper scienter inquiry is whether the defendant was “conscious of a substantial and unjustifiable risk” that their conduct was unlawful. 2 Previously, some courts (including the courts below in Schutte) had dismissed FCA claims based on an ambiguity in relevant statutory or regulatory provisions identified by a party’s attorneys, even if the party never actually believed that interpretation. Schutte precludes such a defense. That said, Schutte does require relators or the Government to allege facts to support an inference of actual knowledge of falsity, and some courts have granted motions to dismiss on that basis post-Schutte. 3
High Court Reaffirms Government’s Authority To Intervene And Dismiss Declined Actions, While Some Justices Raise Constitutional Questions
The Court also decided United States ex rel. Polansky v. Executive Health Resources, Inc., 4 which held that the Government may intervene in a declined action—i.e., where the Government declines to litigate the case at the outset under 31 U.S.C. § 3730(b)(4)(B)—for the purpose of dismissing it over the relator’s objection. The case essentially preserves the status quo, as courts widely recognized the authority of the Government to dismiss declined qui tams before Polansky. Polansky places two minor restrictions on the Government’s ability to dismiss declined actions. First, the Government has to intervene. 5 Second, the Government needs to articulate some rationale for dismissal to meet the standard of Rule 41(a), which the Court remarked that it will be able to do in “all but the most exceptional cases.” 6 More notably, however, three of the nine Justices (Justice Thomas in dissent and Justices Kavanaugh and Barrett in concurrence) signaled that they would entertain a challenge to the constitutionality of the qui tam mechanism under Article II. 7 Though the one court that has considered such arguments on the merits post-Polansky rejected them, 8 it remains likely that additional, similar challenges will be made.
Split In Authority Deepens On Causation In Kickback Cases
In FCA cases where the relator alleges a violation of the Anti-Kickback Statute (AKS), the payment of a kickback needs—at least in part—to have caused a submission of a false claim. That requirement flows from the statutory text of the AKS, which provides that claims “resulting from” AKS violations are “false or fraudulent claim[s]” for the purpose of the FCA. 9 But courts have not coalesced around a single standard for what it means for a false claim to “result from” a kickback. Before this year, the Third Circuit in United States ex rel. Greenfield v. Medco Health held that there needs to be “some link” between kickback and referral beyond temporal proximity. 10 On the other hand, the Eighth Circuit in United States ex rel. Cairns v. D.S. Medical, LLC, held that the kickback needs to be a but-for cause of the referral. 11 Earlier this year, the Sixth Circuit endorsed the Eighth Circuit’s interpretation of causation. The court reasoned that but-for causation is the “ordinary meaning” of “resulting from” and no other statutory language in the AKS or FCA justifies departure from a but-for standard. 12 But not every court has adopted the Sixth Circuit’s straightforward analysis.
In the District of Massachusetts, for example, two decisions issued this summer came out on opposite sides of the split. In both cases, United States v. Teva Pharmaceuticals USA, Inc., 13 and United States v. Regeneron Pharmaceuticals, Inc., 14 the Government alleged that the pharmaceutical companies were improperly paying copayment subsidies to patients for their drugs. Yet Teva adopted Greenfield’s “some link” standard, while Regeneron adopted the “but-for” standard of the Sixth and Eighth Circuits. The Teva court also certified an interlocutory appeal to the First Circuit to resolve the issue prior to trial, which remains pending. 15 FCA defendants in cases arising out of the AKS thus continue to face substantial uncertainty as to the applicable standard outside the Third, Sixth, and Eighth Circuits. That said, there is mounting skepticism of the Greenfield analysis, 16 and those defendants retain good arguments that the standard adopted by the Sixth and Eighth Circuits should apply.
Enforcement Trends
The also Government remained active in investigating and, in many cases, settling False Claims Act allegations. That enforcement activity included several large settlements, including a $377 million settlement with Booz Allen Hamilton arising out of its failure to comply with Federal Acquisition Regulation cost accounting standards. 17 Our review of this year’s activity revealed significant trends in both civil and criminal enforcement, which we briefly describe below.
Focus On Unsupported Coding In Medicare Advantage (Part C) Claims
Medicare recipients are increasingly turning to private insurers to manage the administration of their Medicare benefits: over half of Medicare enrollees now opt for managed care plans. 18 The Government announced several important enforcement actions focused on submissions to and the administration of Medicare Advantage plans.
On September 30, DOJ announced a $172 million settlement with Cigna due to an alleged scheme to submit unsupported Medicare coding to increase reimbursement rates. According to the press release, Cigna operated a “chart review” team that reviewed providers’ submitted materials and identified additional applicable diagnosis coding to include on requests for payment. The Government alleges that some of the coding Cigna added was not substantiated by the chart review. 19
Similarly, in October, the Government declined to prosecute insurer HealthSun for submitting diagnosis coding to CMS that increased applicable reimbursement rate of treatment without an actual underlying diagnosis by the treating physician. The declination was based on HealthSun’s voluntary self-disclosure of the conduct through the Criminal Division’s recently updated Corporate Enforcement and Voluntary Self-Disclosure Policy. 20 DOJ did, however, indict the company’s former Director of Medicare Risk Adjustment Analytics for conspiracy to commit healthcare fraud and several counts of wire fraud and major fraud against the Government in the Southern District of Florida. 21
In May, the United States Attorney’s Office for the Eastern District of Pennsylvania announced a settlement against a Philadelphia primary care practice based on the submission of allegedly unsupported Medicare diagnosis coding in Part C submissions. The press release asserts that the practice coded numerous claims with morbid obesity diagnoses when the patients lacked the required body-mass index for the diagnosis and diagnosed chronic obstructive pulmonary disease without appropriate substantiation. 22
Both managed care organizations and providers that submit claims to Medicare Advantage should review their claim coding practices to ensure that their claims accurately reflect the medical diagnoses of the treating physician, as well as the treatment provided.
DOJ Follows Through On Civil Cyber-Fraud Initiative
In 2021, DOJ announced the launch of its Civil Cyber-Fraud Initiative, 23 which was aimed at policing government contractors’ failures to adequately protect government information by meeting prescribed cybersecurity requirements. This year, the enforcement of that policy led the Government to alleged FCA violations based on implied or explicit certifications of compliance with cybersecurity regulations:
In September, the Government declined to intervene in a qui tam action against Pennsylvania State University alleging that Penn State falsely certified compliance with Defense Federal Acquisition Regulation Supplement 252.204-7012, which specifies controls required to safeguard defense-related information, during the length of its contract with the Defense Department. 24 However, the parties subsequently sought a 180 day stay of proceedings due to an ongoing government investigation, which was granted. 25 The application for the stay hinted that the Government may yet intervene in the action and file a superseding complaint. 26
DOJ also announced in September a $4 million settlement with Verizon Business Network Services LLC arising out of Verizon’s provision of internet services to federal agencies that was required to meet specific security standards. The Government’s press release, which specifically noted Verizon’s cooperation with the investigation, alleged that Verizon failed to implement “three required cybersecurity controls” in its provision of internet service, which were not individually specified. 27
Entities doing business with the Government should ensure that they are aware of all applicable cybersecurity laws and regulations governing that relationship and that they are meeting all such requirements.
Continued Crackdown On Telemedicine Fraud Schemes
Following OIG-HHS’s July 2022 Special Fraud Alert 28 regarding the recruitment of practitioners to prescribe treatment based on little to no patient interaction over telemedicine, DOJ announced several significant settlements involving that exact conduct. In many circumstances, the Government pursued criminal charges rather than civil FCA penalties alone.
In September, the United States Attorney’s Office for the District of Massachusetts announced a guilty plea to a conspiracy to commit health care fraud charge. The Government alleged that the defendant partnered with telemarketing companies to pay Medicare beneficiaries “on a per-order basis to generate orders for [durable medical equipment] and genetic testing,” and then found doctors willing to sign “prepopulated orders” based on telemedicine appointments that the doctors did not actually attend. 29
In June, as part of a “strategically coordinated” national enforcement action, DOJ announced action against several officers of a south Florida telemedicine company for an alleged $2 billion fraud involving the prescription of orthotic braces and other items to targeted Medicare recipients through cursory telemarketing appointments that were presented as in-person examinations. 30
Although enforcement in the telemedicine space to date has largely focused on obviously fraudulent conduct, practitioners should be aware that the Government may view overly short telemedicine appointments as insufficient to support diagnoses leading to claims for payment from the Government.
State False Claims Acts
Both Connecticut and New York made notable alterations to the scope of conduct covered by their state FCAs. Companies doing business with state governments should be aware that 32 states have their own FCAs, not all of which mirror the federal FCA.
Connecticut Expands FCA To Mirror Scope Of Federal Statute
Prior to this year, Connecticut’s False Claims Act covered only payments sought or received from a “stateadministered health or human services program” In June, however, Connecticut enacted a substantial revision to its state FCA, which seeks to mirror the scope and extent of the Federal FCA. 31 Those doing business with the state of Connecticut should conduct an FCA-focused compliance review of that business to avoid potential liability arising out of state law, and should also understand federal FCA jurisprudence, which is likely to have a significant influence on the new law’s interpretation.
New York Expands FCA To Cover Allow Tax-Related FCA Claims Against Non-Filers
New York is among the few states whose state FCAs cover tax-related claims. Prior to this year, though, the state and its municipalities could only assert tax-related claims against those who actually filed and whose filings contained false statements of fact. In May, New York amended its FCA to allow a cause of action against those who knowingly fail to file a New York tax return and pay New York taxes. 32 Companies doing business in New York should be aware that not filing required taxes in New York may potentially subject them to, among other things, the treble damages for which the FCA provides.
1 143 S. Ct. 1391 (2023).
2 Schutte, 143 S. Ct. at 1400-01.
3 See, e.g., United States ex rel. McSherry v. SLSCO, L.P., No. 18-CV-5981, 2023 WL 6050202,
at *4 (E.D.N.Y. Sept. 15, 2023).
4 143 S. Ct. 1720 (2023).
5 Id. at 1730.
6 Id. at 1734.
7 Id. at 1737 (Kavanaugh, J., concurring); id. at 1741-42 (Thomas, J., dissenting).
8 See United States ex rel. Wallace v. Exactech, Inc., No. 7:18-cv-01010, 2023 WL 8027309, at
*4-6 (N.D. Ala. Nov. 20, 2023).
9 See 42 U.S.C. § 1320a-7b(g).
10 United States ex rel. Greenfield v. Medco Health Sol’ns, 880 F.3d 89, 98-100 (3d Cir. 2018).
11 United States ex rel. Cairns v. D.S. Med., LLC, 42 F. 4th 828, 834-36 (8th Cir. 2022).
12 United States ex rel. Martin v. Hathaway, 63 F. 4th 1043, 1052-53 (6th Cir. 2023).
13 Civ. A. No. 20-11548, 2023 WL 4565105 (D. Mass. July 14, 2023).
14 Civ. A. No. 20-11217, 2023 WL 7016900 (D. Mass. Oct. 25, 2023)
15 See United States v. Teva Pharma USA, Inc., No. 23-1958 (1st Cir. 2023).
16 See, e.g., Regeneron, 2023 WL 7016900, at *11 (remarking that the Greenfield analysis is
“fraught with problems” and “disconnected from long-standing common-law principles of
causation”).
17 https://www.justice.gov/opa/pr/booz-allen-agrees-pay-37745-million-settle-false-claims-act-
allegations.
18 https://www.kff.org/policy-watch/half-of-all-eligible-medicare-beneficiaries-are-now-enrolled-
in-private-medicare-advantage-plans/.
19 https://www.justice.gov/opa/pr/cigna-group-pay-172-million-resolve-false-claims-act-
allegations.
20 See https://www.justice.gov/opa/speech/assistant-attorney-general-kenneth-polite-jr-delivers-
remarks-georgetown-university-law.
21 https://www.justice.gov/opa/pr/former-executive-medicare-advantage-organization-charged-
multimillion-dollar-medicare-fraud.
22 https://www.justice.gov/usao-edpa/pr/primary-care-physicians-pay-15-million-resolve-false-
claims-act-liability-submitting.
23 See https://www.justice.gov/opa/pr/deputy-attorney-general-lisa-o-monaco-announces-new-
civil-cyber-fraud-initiative.
24 See United States ex rel. Decker v. Penn. State Univ., Civ. A. No. 22-3895 (E.D. Pa. 2023).
25 Id. at ECF Nos. 24, 37.
26 Id. at ECF No. 24.
27 See https://www.justice.gov/opa/pr/cooperating-federal-contractor-resolves-liability-alleged-
false-claims-caused-failure-fully.
28 https://oig.hhs.gov/documents/root/1045/sfa-telefraud.pdf.
29 https://www.justice.gov/usao-ma/pr/owner-telemedicine-companies-pleads-guilty-44-million-
medicare-fraud-scheme.
30 https://www.justice.gov/opa/pr/national-enforcement-action-results-78-individuals-charged-
25b-health-care-fraud.
31 See Conn. Gen. Stat. §§ 4-274–4-289.
32 See N.Y. State Fin. Law § 189(4)(a).
The Supreme Court Is Poised to Weigh in on a False Claims Act Circuit Split
The FCA creates a right of action whereby either the government or private individuals can bring lawsuits against actors who have defrauded the government. 31 U.S.C. §§ 3729 et seq. Under the FCA, a private citizen can act as a “relator” and bring an action on behalf of the government in what is known as a qui tam suit. The government can elect to intervene, which means participate, in the suit; if it does not, the relator can continue to litigate the case without the direct participation of the government. 31 U.S.C. § 3730. Private individuals can receive a portion of the action’s proceeds or settlement amount. 31 U.S.C. § 3730(d).
The petitions ask the Court to clarify the level of particularity required under Federal Rule of Civil Procedure 9(b) (“Rule 9(b)”) to plead a claim under the FCA. Rule 9(b) requires plaintiffs alleging “fraud or mistake” to “state with particularity the circumstances constituting fraud or mistake.”
Johnson v. Bethany Hospice and Palliative Care LLC, Case No. 21-462
In their petition for a writ of certiorari, the petitioners in Johnson asked the Supreme Court to take up the issue of whether Rule 9(b) requires FCA plaintiffs “who plead a fraudulent scheme with particularity to also plead specific details of false claims.” The Eleventh Circuit earlier affirmed the district court’s dismissal of an FCA claim based on the plaintiffs’ failure to plead “specific details about the submission of an actual false claim” to the government. Estate of Helmly v. Bethany Hospice & Palliative Care of Coastal Georgia, LLC, 853 F. App’x 496, 502-03 (11th Cir. 2021).
In particular, the relators alleged that several doctors purchased ownership interests in Bethany Hospice and Palliative Care, LLC (“Bethany Hospice”) and were allocated kickbacks for patient referrals through a combination of salary, dividends, and/or bonus payments. Id. at 498. Among other allegations, the complaint alleged that both the relators had access to Bethany Hospice’s billing systems, and, based on their review of those systems and conversations with other employees, were able to confirm that Bethany Hospital submitted false claims for Medicare and Medicaid reimbursement to the government. Id. at 502.
The Eleventh Circuit held that the allegations were “insufficient” under Rule 9(b)’s heightened pleading standard for fraud cases. Id. Even though the relators alleged direct knowledge of Bethany Hospice’s billing and patient records, their failure to provide “specific details” regarding the dates of the claims, the frequency with which Bethany Hospice submitted those claims, the amounts of the claims, or the patients whose treatment formed the basis of the claims defeated their FCA claim. Id. In addition, the relators did not personally participate or directly witness the submission of any false claims. Id. The Eleventh Circuit also found unpersuasive the relators’ argument that Bethany Hospice derived nearly all its business from Medicare patients, therefore making it plausible that it had submitted false claims to the government. Id. “Whether a defendant bills the government for some or most of its services,” the Eleventh Circuit stated, “the burden remains on a relator alleging the submission of a false claim to allege specific details about false claims to establish the indicia of reliability necessary under Rule 9(b).” Id. (internal quotation marks omitted). Because the relators did not do so here, the Eleventh Circuit affirmed the dismissal of the case.
United States ex rel. Owsley v. Fazzi Associates, Inc., Case No. 21-936
The Sixth Circuit took a similarly hardline approach in United States ex rel. Owsley v. Fazzi Associates, Inc., 16 F.4th 192 (6th Cir. 2021), ruling in favor of a strict interpretation of Rule 9(b). The petition for a writ of certiorari in Owsley asks the Court to take up the same question as in Johnson.
In Owsley, the relator alleged that her employer used fraudulently altered data to make its patient populations seem sicker than they actually were in order to increase Medicare payments received from the government. Id. at 195. The complaint “describe[d] in detail, a fraudulent scheme,” and alleged “personal knowledge of the billing practices employed in the fraudulent scheme.” Id. at 196 (internal quotation marks omitted). But the Sixth Circuit ruled that these allegations were not enough under Rule 9(b). Instead, to bring a viable FCA claim, a relator’s complaint must identify “at least one false claim with specificity.” Id. (internal quotation marks omitted). A relator can do that in one of two ways: first, by identifying a representative claim actually submitted to the government; or second, by alleging facts “based on personal knowledge of billing practices” that support a strong inference that the defendant submitted “particular identified claims” to the government. Id. (emphasis in original). Here, though the relator alleged specific instances of fraudulent data – such as upcoding a patient with a leg ulcer to include a malignant cancer diagnosis – she did not identify particular claims submitted to the government. Id. at 197. “[T]he touchstone is whether the complaint provides the defendant with notice of a specific representative claim that the plaintiff thinks was fraudulent.” Id. The Owsley relator, the court held, failed to meet that critical touchstone.
Molina Healthcare v. Prose, Case No. 21-1145
The Seventh Circuit adopted a more flexible pleading standard in United States v. Molina Healthcare of Illinois, Inc., 17 F.4th 732 (7th Cir. 2021). As in Johnson and Owsley, the petition for a writ of certiorari asks the Court to weigh in on the Rule 9(b) standard under the FCA. It also presents an additional question about the requirements for an FCA claim under the implied false certification theory.
In Molina Healthcare, the relator brought an FCA claim against Molina Healthcare (“Molina”) for violating certain requirements of its Medicaid contract. The relator alleged that Molina, which had previously subcontracted with another entity for the provision of certain nursing home services, continued to collect payment for those services from the government even though it no longer provided them. Molina Healthcare, 17 F.4th at 736. Molina Healthcare received fixed payments from the government for different categories of patients. It received the highest per capita payment for patients in nursing facilities: $3,180.30. Id. at 737-38. The relator alleged that Molina Healthcare knowingly continued to collect this rate from the government when it no longer provided a key service to nursing home patients. Id.
The relator brought an FCA claim against Molina based on three theories of liability: (1) factual falsity (i.e., presenting a facially false claim to the government); (2) fraud in the inducement (i.e., misrepresenting compliance with a payment condition “in order to induce the government to enter the contract”); and (3) implied false certification (i.e., presenting a false claim with the “omission of key facts” instead of “affirmative misrepresentations”). Id. at 740-741.
The Seventh Circuit held that the relator’s allegations satisfied Rule 9(b)’s pleading requirement under all three theories. First, as to factual falsity, the Court found that the relator provided sufficient information as to the “when, where, how, and to whom” Molina made the allegedly false representations. Id. at 741. Though the relator did not have access to the defendant’s files, the information he provided “support[ed] the inference” that Molina had submitted false claims to the government. Id. Second, as to fraud in the inducement, the Seventh Circuit found that the relator’s “precise allegations” regarding “the beneficiaries, the time period, the mechanism for fraud, and the financial consequences” again satisfied Rule 9(b)’s standard. Id. at 741. The complaint also included details about Molina’s chief operating officer’s statements that indicated that Molina “never intended to perform the promised act that induced the government to enter the contract.” Id. at 741-42. Third, as to the implied false certification theory, the court found that the plaintiff adequately alleged that Molina knowingly omitted key material facts while submitting claims to the government. Id. at 743-44.
The Supreme Court Invites Comment from the Solicitor General
Facing what appears to be a major circuit split, the Supreme Court invited the Solicitor General to file a brief “expressing the views of the United States” in Johnson in January 2022 and in Owsley in May 2022.
The Supreme Court invites the Solicitor General to comment on only a handful of the approximately 7,000 to 8,000 petitions for writ of certiorari that the Court receives in a year. In the 2021 Term, for example, the Solicitor General filed what it calls a “Petition Stage Amicus Brief” in only 19 cases. Four Justices must vote to issue an invitation to the Solicitor General.
The Solicitor General’s view on whether the Court should grant certiorari has often been extremely influential. In the 2007 Term, for example, the Court denied certiorari in every case in which the Solicitor General recommended that approach. By contrast, it granted certiorari in 11 out of the 12 cases in which the Solicitor General recommended a grant. More recent data confirm that the Solicitor General’s recommendations as to whether the Court should grant certiorari remain highly influential. One study found that between May 2016 and May 2017, the Supreme Court followed the Solicitor General’s recommended approach in 23 cases (85%). At the same time, even the act of requesting the views of the Solicitor General dramatically increases the chances that the Court will take up a case. For example, between the 1998 Term and 2004 Term, one study found that the Court was 37 times more likely to grant certiorari in cases where it had invited the Solicitor General to file an amicus brief.
The Solicitor General Urges the Court to Decline Review
On May 24, 2022, the Solicitor General filed its brief in Johnson; it has yet to comment on Owsley. The Solicitor General’s amicus brief in Johnson urges the Court to deny certiorari. The Solicitor General notes that certiorari might be warranted if the courts of appeals applied a rigid, per se rule that required relators to plead “specific details of false claims.” But instead, the brief argues that the courts of appeals have “largely converged” on an approach to FCA pleading requirements that allows relators “either to identify specific false claims or to plead other sufficiently reliable indicia” to support a “strong inference” that the defendant submitted false claims to the government. According to the Solicitor General, the “divergent outcomes” among the circuit courts are merely the result of those courts’ application of a “fact-intensive standard” to various distinct allegations.
The petitioners in Johnson filed a supplemental brief in response to the Solicitor General’s views. They argue that the Solicitor General misinterpreted the Eleventh Circuit’s pleading standard, which effectively requires a relator to allege specific details about false claims to survive a motion to dismiss. In other words, the petitioners argue that in the Eleventh Circuit, the Solicitor General’s “purported” rule that a relator can either allege details about specific false claims or identify reliable indica that false claims were presented are “one and the same.”
Though the Court did not invite the Solicitor General to comment in Molina Healthcare, the petitioners in that case also filed a supplemental brief in response to the Solicitor General’s amicus in Johnson. “Everyone but the Solicitor General agrees that the circuits are hopelessly divided over whether Rule 9(b) requires a relator to plead details of false claims,” the brief argues. The brief notes that the Third, Fifth, Seventh, Ninth, Tenth, and D.C. Circuits do not require plaintiffs to plead specific details of actual false claims; by contrast, the First, Second, Fourth, Sixth, Eighth, and Eleventh Circuits require relators to plead specific details. Accordingly, the brief urges the Supreme Court to resolve the “widely acknowledged circuit split” over Rule 9(b)’s pleading standards.
The Solicitor General has a history of urging the Court to reject certiorari in FCA cases. According to the petitioners’ supplemental brief in Molina Healthcare, since the 1996 Term, the Solicitor General has recommended against review in eleven out of the twelve FCA cases in which the Court invited the Solicitor General’s views. Still, the Court granted certiorari in three of the cases in which the Solicitor General recommended against review.
Given the Supreme Court’s apparent interest in the FCA pleading standard – as evidenced by its calls for the Solicitor General’s views in Johnson and Owsley – there is a chance that it will grant certiorari in at least one of the three cases pending before it. Depending on when the Solicitor General weighs in, the Court may decide to grant certiorari in the fall of 2022.
Any Supreme Court decision that clarifies the pleading standard for FCA cases will likely affect a relator’s ability to successfully litigate qui tam actions in which the government does not intervene more than in cases in which the government does intervene. When a relator files a qui tam action, the government investigates the alleged fraud. If it intervenes in that action, it can file a complaint to include evidence it has discovered in that investigation, allowing it to meet the more stringent version of the Rule 9(b) pleading standard. Relators, however, often do not have access to the same evidence that the government does, such as specific claims data, making it far harder for a relator to meet the more stringent version of pleading standard.
Until the Supreme Court decides to weigh in, qui tam relators will continue to have an easier time satisfying the requirements of Rule 9(b) in those circuits with relaxed pleading standards. In the meantime, and whether the Court takes one of these petitions or not, any FCA whistleblower should seek legal counsel to help her identify the type of factual information that would meet the pleading requirements of the courts that apply a strict pleading requirement.
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Medicare Advantage: OIG Report Finds Improper Denials
On April 27,2022, the Office of Inspector General of the Department of Health and Human Services (OIG), Office of Evaluations and Inspections, issued a report on the performance of Medicare Advantage Organizations (MAOs) in approving care and payment consistently with Medicare coverage rules. In its review, OIG found that 13% of MAO denials of prior authorization requests should have been approved and that 18% of payment requests from providers were improperly denied. OIG also made a number of recommendations to the Center of Medicare and Medicaid Services (CMS) with respect to its oversight of MAOs.
Purpose and Method of the Study
OIG undertook the study to assess whether MAOs are appropriately providing access to medically necessary services and making payment to providers consistently with Medicare coverage rules. Since CMS pays MAOs principally by capitation, MAOs have a potential incentive to increase their profits by denying access to care of beneficiaries or by denying payments to providers. CMS’s annual audits of MAOs have indicated some persistent problems related to inappropriate denials of service and payment. As enrollment in Medicare Advantage continues to grow, OIG viewed it as important to ensure that medically necessary care is provided and that providers are paid appropriately.
OIG conducted the review by randomly selecting 250 denials of prior authorization requests and 250 payment request denials by 15 of the largest MAOs during a week in June of 2019. OIG had coding experts review the cases and had physician reviewers examine the medical records. Based on these reviews, OIG estimated the rates at which MAOs issued denials of services or payment that met Medicare coverage rules and MAO billing rules. OIG also examined the reasons for the inappropriate denials and the types of services involved.
Standards
MAOs must cover items and services included in fee-for-service Medicare, and may also elect to include additional items and services. MAOs are required to follow Medicare coverage rules that define what items and services are covered and under what circumstances. As the OIG states in the Report, MAOs “may not impose limitations – such as waiting periods or exclusions from coverage due to pre-existing conditions — that are not present in original Medicare.” In following Medicare coverage rules, MAOs are permitted to use additional denial criteria that were not developed by Medicare when they are deciding to authorize or pay for a service, provided the clinical criteria are “no more restrictive than original Medicare national and local coverage policies.” MAOs may also have their own billing and payment procedures, provided all providers are paid accurately, timely, and with an audit trial.
MAOs utilize prior authorization requests before care is furnished to manage care and payment requests from providers to approve payment for services provided. Beneficiaries and providers may appeal such decisions, and beneficiaries and providers are successful in many of the appeals (for a one-time period, as many as 75% of the appeals were granted).
Findings
Prior Authorization Denials
In the study, OIG found that 13% of prior authorization denials were for services that met Medicare coverage rules, thus delaying or denying care that likely should have been approved. MAOs made many of the denials by applying MAO clinical criteria that are not part of Medicare coverage rules. As an example, a follow-up MRI was denied for a beneficiary who had an adrenal lesion that was 1.5 cm in size, because the MAO required the beneficiary to wait one year for such lesions that are under 2 cm in size. OIG’s experts found such a requirement was not contained in Medicare coverage rules and was therefore inappropriate. Rather, the MRI was medically necessary to determine if the lesion was malignant.
OIG also found instances where MAOs requested further documentation that led to a denial of care when it was not furnished, as such additional documentation was not required to determine medical necessity. OIG’s reviewers found that either sufficient clinical information was in the medical record to authorize the care or the documentation requested was already contained in the medical record.
Payment Denials
OIG found in the study that 18% of payment denials fully met Medicare coverage rules and MAO payment policies. As a result of these denials, payment was delayed or precluded for services that should have been paid.
OIG found that common reasons for these inappropriate payment denials were human error in conducting manual reviews (for example, the reviewer not recognizing that a skilled nursing facility (SNF) was an in-network provider), and inaccurate programming.
OIG also found that advanced imaging services (including MRIs and CT scans), stays in post-acute facilities (including SNFs and inpatient rehabilitation facilities), and injections were the services that were most prominent in the inappropriate denials that should have been authorized for care and payment in accordance with Medicare coverage rules.
OIG Recommendations
Based on the study, OIG recommended that:
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CMS should issue new guidance on both the appropriate and inappropriate use of MAO clinical criteria that are not contained in Medicare coverage rules. In particular, OIG recommended that CMS should more clearly define what it means when it states that MAO clinical criteria may not be “more restrictive” than Medicare coverage rules.
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CMS should update its audit protocols to address issues identified in the report such as MAO use of clinical criteria and/or examine particular service types that led to more denials. OIG suggests CMS should consider enforcement actions for MAOs that demonstrate a pattern of inappropriate payment denials.
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CMS should direct MAOs to identify and address the reasons that led to human errors.
CMS reviewed the OIG report and concurred with each of OIG’s recommendations. Those recommendations can affect future coverage decisions as well as utilization of prior authorization tools. AHIP, a national association of health care insurers, challenged the OIG’s sample size as inappropriate to support the agency’s conclusions, and defended prior authorization tools.
Takeaways
Given CMS’s concurrence with the report’s findings, we recommend that MAOs track these issues over the next several months in advance of CMS’s Final Rate Announcement for CY 2024.
MAOs should also be aware of potential False Claims Act (FCA) exposure in this area. FCA exposure can arise when a company seeks and receives payments despite being out of compliance with the basic terms for its participation. If an MAO knew it was denying claims that should be paid because they would be covered under traditional Medicare, but the MAO was still collecting full capitation, it is possible that a whistleblower or the government may pursue FCA liability. This risk warrants attention because whistleblowers can bring qui tam suits under the FCA, with resulting high costs for defense and potentially high penalties if a violation is proven (or settled to avoid further litigation). That said, an FCA suit based on this theory would raise serious questions, including whether any non-payment actually met the FCA’s “knowingly” standard (which includes reckless disregard), or whether any non-payment met the materiality threshold necessary to demonstrate a violation of the FCA.
Article By Alexis Finkelberg Bortniker, C. Frederick Geilfuss II, Matthew D. Krueger, Maureen F. Kwiecinski, and Kinal M. Patel at Foley & Lardner LLP
For more health law and managed care news, click here to visit the National Law Review.
© 2022 Foley & Lardner LLP
Don’t Use “Build Back Better” to Sabotage the False Claims Act
Congress is on the verge of setting a dangerous precedent. As part of the Build Back Better Act, it has added two provisions equivalent to a “get out of jail free card” for Big Banks that violate federal law when they hand out billions in federal mortgage-related benefits. The two provisions create exemptions to False Claims Act liability by creating blanket immunity from liability when banks fail to exercise due diligence, violate FHA housing regulations, or even directly violate federal laws such as the Truth in Lending Act.
It is obvious why banks want to have their federally sponsored mortgage practices immunized from exposure to the False Claims Act (“FCA”). The FCA works remarkably well and is widely recognized as “the most powerful tool the American people have to protect the government from fraud.” The law has directly recovered over $64.450 billion in sanctions from fraudsters since Congress modernized it in 1986. During the debates on the massive trillion-dollar infrastructure laws enacted or debated this year, corporate lobbyists have been extremely active in successfully preventing Congress from adding any new anti-fraud measures to protect taxpayers from fraud. As part of these efforts, they targeted the False Claims Act as enemy #1 and already have blocked one key amendment needed to close some weaknesses in that law.
With the Build Back Better Act, these corporate lobbyists have taken their opposition to effective anti-fraud laws to a higher level. Instead of trying to repeal the FCA, they are simply exempting Big Banks from liability under that law in two new programs. It is obvious why the Big Banks want the exemption from FCA liability. As a result of illegal or irresponsible lending and foreclosure practices, such as those that fueled the 2008 financial collapse, banks have had to pay billions in sanctions to the United States.
Two words explain why the FCA is “the most powerful tool” protecting taxpayers from fraud: Whistleblowers and sanctions. If you accept federal taxpayer monies, you are required to spend that money according to your contractual agreement or the law. The FCA’s first secret weapon is whistleblowers. The law encourages whistleblowers, known as qui tam “relators,” to report violations of the FCA. Whistleblowers disclosures trigger the overwhelming majority of FCA cases, and the law incentivizes employees to risk their careers to serve the public interest. The second secret weapon is how you prove liability. Second, when an institution accepts federal monies (such as banks that operate various federally sponsored loan programs), liability can attach if the institution acts in “deliberate ignorance of the truth” when spending federal dollars. Similarly, if payments are made with “reckless disregard of the truth,” liability can attach. In other words, corporations (including banks) that accept federal money must ensure that these monies are spent as required by law, regulation, or contract. Safeguards must be in place to prevent fraud. If a bank does not have adequate compliance programs to protect against fraud, it cannot plead ignorance when the law is broken and taxpayers are ripped off.
These two key elements of the False Claims Act are precisely what the banking lobby is attempting to undermine through the Build Back Better Act. The tactics employed by the Big Banks are somewhat devious. They are doing an end-run around the False Claims Act by exempting themselves from having to engage in any due diligence when spending billions in federal dollars. The banks are seeking to add language to the Build Back Better Act that will immunize themselves from liability under the False Claims Act when they make payments in “reckless disregard” to the legality of those payments. The immunities they are seeking legalize “deliberate ignorance” in the use of taxpayer money, in complete defiance of the False Claims Act. Thus, whistleblowers who report these frauds will be stripped of protections they have under the False Claims Act, and the federal government will have no effective way to recover damages from these frauds.
What language in the Build Back Better Act creates an exemption to False Claims Act liability?
Two highly technical provisions are deeply buried within the 2135 pages of the Build Back Better Act’s legislative text. The provisions are sections 40201 and 40202 of the Build Back Better Act. These two sections establish helpful programs that will provide needed financial support to first-generation homebuyers. Section 40201(d)(5) would provide $10 billion in down payment assistance. Section 40202(f) would give an interest rate reduction on new FHA 20-year mortgage products to first-time homeowners with a potential value of $60 billion. But the banking lobby has corrupted these otherwise well-meaning programs. The exemptions obtained by the banks are incubators for massive fraud. It permits the Big Banks to escape any liability when they abuse the generosity of taxpayers and dole out billions to unqualified individuals.
How do the exemptions work? To qualify for these taxpayer-financed benefits, an applicant simply has to “attest” that they are first-time/first-generation homebuyers. That would be the end of the inquiry a bank would need to approve making a payment from the billions allocated in these two programs. Anyone could simply stroll into a bank and “attest” to being such a first-time homebuyer and would thereafter qualify for the federal benefits. The banks would not be required to do any diligence of their own to confirm the borrower’s eligibility. Willful ignorance would be legalized. Reckless disregard in the handling of taxpayer monies would be permitted under this law. Safeguards, such as requiring banks to adhere to the Truth in Lending Act, which requires verification of a borrower’s statements, would not apply.
Under Sections 40201(d)(5) and 40202(f), banks will not be held liable once they are lied to, even if the bank has reason to know that the borrower is not eligible for the federal payout. Banks can spend taxpayer money even if the information on an applicant’s loan application directly contradicts the borrower’s attestation that they are a first-time homeowner. Given the lack of any compliance standards, the temptation to engage in fraud in these programs will be overwhelming.
Permitting banks to escape liability under the False Claims Act opens the door to paying billions of dollars in benefits to unqualified persons. Such payments rip off the taxpayers and severely hurt all honest first-generation homebuyers denied benefits. For every fraudster who benefits from this program, an honest homebuyer will be left in the cold due to the reckless disregard of the banks.
Congress should never use a back-door procedure to undermine the False Claim Act, as it sets a dangerous precedent. It is a devious way to undermine America’s “most effective” anti-fraud law. Instead of undermining the False Claims Act by granting immunities to Big Banks, Congress should be strengthening anti-fraud laws to protect the taxpayers and ensure that the trillions of dollars spent on COVID-19 relief programs and infrastructure improvement are lawfully spent in the public interest.
Copyright Kohn, Kohn & Colapinto, LLP 2021. All Rights Reserved.
Article by Stephen M. Kohn with Kohn, Kohn & Colapinto.
For more articles about banking and finance, visit the NLR Financial, Securities & Banking section.
COVID-19: FCA and PRA Updates on Working from Home and Key Workers
On September 24, the UK Financial Conduct Authority (FCA) and the Prudential Regulation Authority (PRA) updated their respective statements, originally published in March, regarding key workers and working from home during the COVID-19 pandemic. Both the FCA and PRA advised firms to follow government advice on remote working until notified otherwise.
In addition, the FCA further updated its statement in respect of work-related travel and the responsibilities of senior managers under the Senior Managers and Certification Regime (SM&CR), explaining that:
- firms should continue to discuss working arrangements with staff and support their employees in facilitating appropriate working arrangements; and
- senior managers are expected to take account of changes in the applicability of local and national lockdown restrictions and to review and update employee working arrangements on a continuing basis.
A key financial worker is one who fulfills a role that is necessary for a firm to continue to provide essential daily financial services to consumers or to ensure the continued functioning of markets. Firms should identify a key worker by determining which activities, services or operations, of which, if interrupted, are likely to lead to the disruption of essential services to the real economy or financial stability.
Individuals essential to support functions so identified are that firm’s key financial workers. Firms should also identify any critical outsource partners who are essential to continued provision of services, even where these are not financial services firms.
The FCA also suggests that firms consider issuing a letter to all individuals they identify as key workers. The FCA recommends that the letter includes a notice, expressly stating “the individual has been designated as a key worker in relation to their employment by [firm name]” and is signed by someone with appropriate authority.
The FCA update on remote working is available here.
©2020 Katten Muchin Rosenman LLP
For more articles on employment, visit the National Law Review Labor & Employment section.
UK’s Financial Conduct Authority Consults on New Climate-Related Disclosure Requirements following TCFD Recommendations
In March 2020, the UK’s Financial Conduct Authority (the “FCA”) released a consultation paper entitled: “Proposals to enhance climate-related disclosures by listed issuers and clarification of existing disclosure obligations” (“CP20/3”).
The proposal would introduce a new listing requirement for commercial companies with a Premium Listing on the London Stock Exchange. If implemented, these companies’ annual reports for financial years beginning on or after 1 January 2021, will have to include climate-related disclosure as recommended by the Taskforce on Climate-related Financial Disclosures (“TCFD”), and/or to explain any non-compliance. The deadline for comments and feedback on CP20/3 is 5 June 2020. Following consideration of the feedback received on CP20/3, the FCA aims to publish a Policy Statement, along with the finalised rules and an FCA Technical Note, later in 2020.
TCFD Recommendations
The TCFD is a task force established by the Financial Stability Board with the aim of establishing a global framework for companies to disclose the impact of climate change on their business with the aim of helping investors to understand which companies are most at risk, which are best-prepared, and which are taking decisive action on climate change.
Its recommendations were published in 2017, and recommend clear disclosure on the impact of climate-related risks in the following areas of a company’s business:
- Governance: the organisation’s governance around climate-related risks and opportunities;
- Strategy: the actual and potential impacts of climate-related risks and opportunities on the organisation’s businesses, strategy, and financial planning;
- Risk Management: the processes used by the organisation to identify, assess, and manage climate-related risk; and
- Metrics & Targets: the metrics and targets used to assess and manage relevant climate-related risks and opportunities.
In each category, the TCFD has recommended the specific topics to be described or disclosed, and it has provided additional general guidance and sector-specific guidance relating to financial companies (in particular, banks, insurance companies, asset owners and asset managers) and non-financial companies (energy, transportation, materials and buildings and agriculture, food, and forest products).
CP20/3 – Proposed New Disclosure Requirements
CP20/3 adopts the TCFD standards for disclosure wholesale. If adopted, UK premium-listed commercial companies (i.e., companies subject to Listing Rules 9 and 21) will have to become familiar with these standards and report in accordance with them on a comply-or-explain basis.
The comply-or-explain approach is the standard required by the UK’s Corporate Governance Code, and was adopted as the proposed standard for climate-related disclosure despite mixed feedback, as the FCA acknowledges that issuers’ capabilities are still developing in some areas, and they may not yet have the data and capabilities to fully comply with certain of the TCFD recommendations, particularly those relating to scenario analysis and setting climate-related targets. The FCA also notes it does not want to be overly prescriptive at this stage, given the evolving nature of climate-related disclosure and modelling frameworks
CP20/3 – Guidance on Existing Climate-Related Disclosure Obligations
The other key element of CP20/3 is the proposed issuance of an FCA Technical Note to clarify existing climate-related and other environmental, social and governance (“ESG”) disclosure. The FCA-proposed Technical Note is aimed at all issuers subject to existing EU legislation and rules contained in the FCA Handbook (i.e., all issuers with securities listed on the London Stock Exchange, not just those in the premium-listed segment to whom the proposed rule on TCFD disclosure will apply).
It reminds those issuers that even where climate-related risks are not mentioned by name, they may still be important, and required to be disclosed under more general disclosure and internal controls obligations. For example, this proposed Technical Note will advise issuers that their existing obligations under the Listing Rules, the Prospectus Regulation, the UK Corporate Governance Code, the Disclosure and Transparency Rules, and the Market Abuse Regulation, may all involve a review of climate-related risks and, if necessary, related disclosure.
Conclusion
The TCFD’s framework encourages businesses to face and evaluate the financial risk that climate change poses to their business, both in terms of physical risk posed by extreme weather and its consequences, and the “transition risk”, meaning the large category of risks posed by behavioural changes as well as policy changes related to mitigating climate change. The TCFD framework has the aim of moving towards helpful, comparable disclosures related to these risks. This should allow investors (and consumers and regulators) to add a new dimension to their assessment of companies, and modify their behaviour accordingly.
Investors across the board agree that ESG factors are now routinely incorporated into mainstream investment decisions, and companies are required to demonstrate their insight and oversight on these topics. It is still not the case that a single framework dominates reporting on these matters, but this consultation paper shows that the TCFD framework will continue to grow in importance, at least in the UK. The FCA believes its proposals in CP20/3 are consistent with the UK Government’s Green Finance Strategy, published in July 2019, and is a first step towards the adoption of the TCFD’s recommendations more widely within the FCA’s regulatory framework.
© Copyright 2020 Cadwalader, Wickersham & Taft LLP
For more financial regulation, see the National Law Review Financial Institutions & Banking section.
FCA Issues Coronavirus Statement
On March 4, the UK’s Financial Conduct Authority (FCA) issued a statement on Covid-19, the novel coronavirus that originated in China in December 2019 and recently spread to Italy and Iran, among many other countries globally (the Statement).
In the Statement, the FCA explained that they are working with the Bank of England and HM Treasury to engage with firms, trade associations and industry bodies to understand the pressures they are facing. This work includes actively reviewing the contingency plans of a wide range of firms.
The FCA noted that all firms are already expected to have contingency plans in place to deal with major events such as this and that firms should be taking all reasonable steps to meet their regulatory obligations. While the FCA has no objection in principle to staff working from home or from alternative sites, firms still need to be able to, for example, use recorded lines when trading and give staff access to any compliance support they may need.
The Statement is available here.
©2020 Katten Muchin Rosenman LLP
For more from the FCA, see the National Law Review Financial Institutions and Banking law page.
FCA Publishes “Brexit Special” Market Watch
On October 7, the Financial Conduct Authority (FCA) published a “Brexit Special” of its monthly Market Watch newsletter, in which it summarized some recent developments and publications in connection with the regulated sector’s preparedness for the forthcoming departure of the UK from the EU on November 1.
In the newsletter, the FCA noted that Andrew Bailey, FCA CEO, gave a speech in September at Bloomberg London on the Brexit “state of play”. Mr. Bailey outlined recent developments and the outstanding issues, such as the desire for an equivalence agreement for the Share Trading Obligation (STO). (For more information, please see the June 14 edition of Corporate & Financial Weekly Digest).
The FCA explained that transaction reporting rules under the Markets in Financial Instruments Regulation (MiFIR) will not be subject to the temporary transitional power. (For more information, please see the September 27 edition of Corporate & Financial Weekly Digest). Therefore, firms, trading venues and approved reporting mechanisms will need to take “reasonable steps to comply with the changes to their regulatory obligations”. Firms who cannot comply on the day that the UK leaves the EU will need to back-report missing, incomplete or inaccurate transaction reports as soon as possible thereafter.
The FCA provided an updated statement on the operation of the Markets in Financial Instruments Directive (MiFID) transparency regime following Brexit. The FCA published a statement on this topic in March 2019 (please see the March 8 edition of Corporate & Financial Weekly Digest), and the main purpose of this update was to change dates to reflect the extension of the departure date from March to October 2019.
The FCA’s MiFID transparency regime update also reflects a statement made on October 7 from the European Securities and Markets Authority (ESMA). In addition to other updates, ESMA described how reference data submitted by UK trading venues and systematic internalisers will be phased out of EU calculations. ESMA will “freeze” the quarterly calculations until Q1 2020, during which time the EU will re-determine the relevant competent authority (RCA) for all financial instruments that remain available for trading in the EU, for which the FCA is currently the RCA.
Finally, the FCA announced that industry testing for the FCA Financial Instruments Transparency Systems (FITRS) would start on October 10 and noted that it continues to update the Brexit material available on its website.
The Market Watch newsletter is available here.
Andrew Bailey’s speech is available here.
The FCA’s updated statement is available here.
ESMA’s statement is available here.
©2019 Katten Muchin Rosenman LLP
For more on UK finance developments, see the National Law Review Financial Institutions & Banking law page.