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Becker Private Equity & Business Podcast
False Claims Cases with David Pivnick of McGuireWoods LLP 5-29-25
00:12:20
In this episode, Scott Becker talks with McGuireWoods partner David Pivnick about a major constitutional challenge to the False Claims Act, the potential impact on whistleblower lawsuits, and what it could mean for healthcare litigation and government ...
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- [00:00]
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- [00:30]
David Pivnick
Facts.
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- [00:59]
Scott Becker
This is Scott Becker with the Becker Private Equity and Business Podcast. We're thrilled to have recently passed 7 million downloads and been ranked at the top of the Apple Business News Rank Exists mug and this is largely due to great listeners and great guests. One of our great guests is David Pivnick, who's a brilliant leader, lawyer, business strategist, and a lot more. We talk to David often about leadership issues, business issues. He made his name as a top litigator handling white collar claims, often for private equity funds. But a fascinating, fascinating person. David, let me start with this. Talk to us for a second about so one of the most interesting issues that you're following today. What's top of mind for you? What are you keeping your eyes on?
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David Pivnick
Sure, absolutely. Scott, appreciate you having me on, you know, business wise day to day. As you alluded to. I spent a lot of my time and energy defending False Claims act cases representing, you know, a wide range of providers, health systems, managed care insurers, as well as, you know, private equity funds. And so I often am focused on issues in that space. One of them that is, you know, particularly notable to me right now is an 11th Circuit appeal in what's known as the Zafarov case. And you know, that is focusing on whether or not the False Claims act and specifically its key TAM provisions allowing whistleblowers to bring lawsuits on behalf of the government is constitutional. And so there's been many, many challenges to the constitutionality of the statute, but it hasn't been determined by the Supreme Court or really resolved with any finality. And A couple of Years ago in 2023, Justice Thomas issued a dissenting opinion in a Supreme Court case where he noted that he thought it would be interesting that there might be a challenge to the constitutionality and whether whistleblowers could proceed with claims. And I think that invited a lot of litigation. And Zafarov is a Middle District of Florida case where the judge, who's a President Trump appointee from his first term, granted judgment for the defendant and found that the QTAN provisions were not constitutional. And that case has since been appealed. And the briefing is now completed as of about a month ago, before the 11th Circuit, there's been amicus briefs that were filed, you know, from a variety of constituents, including the Department of Justice and, you know, other government officials, as well as amicus briefs on the other side. You know, so both, both sides have briefed this very extensively. And it'll be interesting, you know, with the 11th Circuit weighing unconstitutionality, and I expect fully that the issue will make it its way to the Supreme Court and likely get taken up by the Supreme Court. And that would have a massive impact on False Claims act litigation generally and specifically on whistleblower litigation. So that's something that, you know, the briefing was completed in the first five months, for first four months, really of this year. And it's certainly something I've been focused on and looking into it and will have a big impact on work that I'm, you know, participating in and representing clients in going forward. And then, you know, I always monitor what DOJ is focused on and where some of the key litigation efforts are going as well.
- [04:23]
Scott Becker
Let me ask you about that. The false claims case have been around since the Civil War. What's the take on that? Can that possibly be ruled unconstitutional and can we possibly not have TTM cases? Is that, is that a possibility or, or would that get the Supreme Court? And at some point they'd be like, no, of course we could do. What's your take on that? Is there a good basis for not being constitutional?
- [04:48]
David Pivnick
I think there is. I think that the general concept here is under the Constitution, based on the Appointments Clause and Care Clause, there are certain authorities that are limited to the executive and where people have to be appointed to represent the government appropriately. In this instance, the QTM provision sort of circumvents that and has whistleblowers with no, you know, basis or standing other than self election, self determining that they're going to file a lawsuit coming in and taking over that. And while the government has the ability to investigate and Intervene in cases where it declines to do so and the DOJ is not running the case, you're left with private litigants making their own decisions. And so I think there's already, to my mind, as you pointed out, the False Claims act is initially a civil war enacted statute. To my mind, it is not intended to cover or was not intended to cover the wide array of purported wrongs that it currently covers. I think it's already been taken beyond its intended utility and particularly in the health care context. I think the False Claims act is an inappropriate and overly blunt object for hammering out in many instances what is, you know, hypertechnical violations. Rather than sort of black and white fraud, it was more intended to do things like billing for services not rendered or intentional upcoding, billing for treating dead people versus, you know, any allegation of regulatory non compliance can lead to potential liability under the False Claims act with its heavy statutory penalty scheme, so long as the non, you know, non compliance is purportedly material. So there's a lot of ability for folks to pursue non fraudulent. At least, you know, as you or I are, your listeners would contemplate fraud conduct that doesn't really fit in that rubric, but can fit under the Act. And in health care, you know, where the statutory penalties right now are, you know, into the five digits per claim. You know, you could be looking at a situation where you build improperly for an EM code and you got paid 150 bucks, give or take, for the Evaluation Management Service, but your liability if you fraudulently build that code could be $25,000. It's somewhat outsized and nonsensical, frankly, in proportion. So I think there's already some practical and policy issues with the statute, which is not tantamount to me saying fraud is fine, don't worry about it. It's more saying there are appropriate ways to monitor it. And there's a big difference between fraud and regulatory non compliance getting lumped in with fraud. And so taking that framework and then applying the fact that, you know, with some limited exceptions, anyone can bring these claims on behalf of the government. I do think the constitutionality concerns are well taken.
- [07:42]
Scott Becker
Let me ask you a question just to understand it further. Would this knock out the TTM statute entirely or just knock it out for particular types of claims?
- [07:52]
David Pivnick
I think if it was failed to be unconstitutional, the way it would practically work would be whistleblowers wouldn't be able to prosecute the claims. So it might not prevent whistleblowers from asserting claims, but it would certainly Leave claims where the government declined to intervene and take over the prosecution in a situation where those claims would become, you know, unconstitutional and therefore barred and subject to judgment or dismissal.
- [08:19]
Scott Becker
And currently, the government intervenes in a certain percentage of false claims cases, and when they intervene, the chances of recovery go up significantly. I don't have in front of me the percentage of claims. I remember it was about 25% that the government intervenes, and maybe it's less than that. Do you know the percentage of claims that the government intervenes in? Because it seems as though this would knock out particularly all those cases the government doesn't intervene.
- [08:45]
David Pivnick
Yeah, so you're right on with the numbers. In any given year, it's in that 20 to 25% ballpark that the government intervenes. Now, it isn't necessarily the case that the remainder would all go out if it was found unconstitutional, because part of what might happen is, you know, it's possible DOJ would intervene more frequently. There might be other steps that were taken to protect cases. I do think there's a significant number of cases, some of which, you know, unfortunately for my clients, like, I had multiple cases where I represented clients who really didn't do anything wrong, full stop, period, like there was no merit to it. But they're in a position where it's incredibly expensive to defend these cases and incredibly risky in case you have a judgment against because of that penalty scheme. So there's a lot of cases, I think, annually that end up getting settled for relatively low amounts because people are ultimately concerned about the outsized liability. And I think a lot of those cases would fall away, and I think, frankly, very much appropriately so. I think the bigger cases, both in terms of dollars and targets and the risk, and particularly where the conduct is egregious, the DOJ would be picking up anyway, and so those would not be falling away. And again, I don't view it as one where someone could get away with wrongdoing. I view it more as avoiding improperly incentivizing people to bring claims, knowing that there might not be anything there, but they're likely to be able to shake out a decent settlement if they can survive a motion to dismiss. Right.
- [10:22]
Scott Becker
Because you end up in a spot where that number, that 20, 25% number would go up somewhat, most likely. So it wouldn't completely knock out key TAM cases, but it would knock them out where the government does intervene. It'd be fascinating to see the ultimate impact on this, because Also of those 75% of the cases, the government doesn't intervene in those are ones that are less likely to lead to successful outcomes for the for the plaintiff, the relator, as they call it. Fantastic. David, can you talk a little bit about the context for health care, some sense of the amount of dollars recovered through pretty am cases each year or some ballpark on it and what you see there?
- [11:00]
David Pivnick
Yeah, absolutely. And I mean the numbers fluctuate year to year over the last five to 10 years. The number in total government fraud recoveries, you know, it is typically in the 3 to 5 billion dollars range. There's some exceptions slightly higher than the 5 billion mark, some exceptions that are in the 2 to 3 billion dollars range. But that sort of 3 to 5 billion dollars range has been where the recoveries have been for most of the last several years, probably dating back at this point the better part of a decade most years. As you alluded to, the overwhelming majority of those dollars are in cases where the government intervenes. So again, the government's intervening 1 in 4, 1 in 5 cases in every 1 in 4, 1 in 5cases and they're recovering almost always north of 80% and usually north of 90%. There's one year in the last decade that was a notable exception where it was about 70% and that was largely because there happened to be a healthily into the nine digits settlement in a non intervene case, which is very much the exception, not the rule. But by and large the government's recovering the heavy majority of its dollars from the small minority of cases in which it is decided to intervene. And then from an industry standpoint, it fluctuates year to year. But health care is almost always the source of the majority of cases. It's usually in 50 to 70% of the filings as well as the dollars are in the health care space. And that includes health care services, managed care, life sciences, etc. And then the next two industries that get covered in a meaningful way are defense contracting and the mortgage industry.
- [12:59]
Scott Becker
Fantastic and fasting. David, love to talk to you. More about the about the key TAM case, the false claims cases and what a fascinating area. Again, David Pivnick, one of the brightest in the business. Thank you for joining us today on the Becker Private Equity and Business Podcast.
- [13:15]
David Pivnick
Thank you for having me, Scott.