An unprecedented decision backing a whistleblower’s use of third-party legal funding in a Medicare billing suit has raised concerns that future False Claims Act lawsuits may be motivated more by corporate strategy than protecting the government against fraud. The first-of-its-kind June decision from the Eleventh Circuit revived relator Angela Ruckh’s Medicare fraud judgment against nursing facility operator CMC II LLC despite the company’s objections to Ruckh’s appeal being funded by a third party, sparking considerable debate over the propriety of such funding for FCA cases.

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[ ] The reinstated portion of the judgment in Ruckh’s case is $255.4 million with FCA treble damages, plus additional statutory penalties. That means the funder’s roughly 4% of Ruckh’s share of the judgment—a maximum of 30% of the government’s overall recovery—could be more than $3 million.

“That is a significant return on an outlay that is likely several hundred thousand dollars at most, and the Eleventh Circuit did not provide a hard limit on what it considers a ‘small interest,’ which may well be more than 4% of any recovery,” PilieroMazza PLLC partner Matthew Feinberg said.  [Feinberg leads the FCA Team at PilieroMazza.]

And there is other anecdotal evidence that litigation funders are interested in FCA cases. Although Feinberg works on the defense side of such cases, he said he’s received pitches.

“I think the public, mostly these funding companies, don’t necessarily understand there are two sides to the FCA bar, and I’ve gotten many, many email inquiries from funding companies saying ‘we will fund your relator,'” he said. “Now, I have declined to get information from those funding companies so far, but if I’m getting them, other defense counsel are getting them as well.”

The DOJ, however, has indicated that it is not entirely comfortable with qui tam FCA cases outside the typical whistleblower model, and it may seek to curb them in light of the Eleventh Circuit’s decision.

Excerpt taken from the article “3rd-Party Funding Ruling Opens Door for FCA Case Flood” by Daniel Wilson for Law360.  To view the full article, please visit this link (subscription required).