Hidden Dangers Lurking in Corporate Integrity Agreements

When I litigated False Claims Act (FCA) cases at the U.S. Department of Justice (DOJ), it was common practice for settlements to require Corporate Integrity Agreements (CIAs) setting forth ongoing duties and responsibilities for corporate defendants entering a settlement with the DOJ.  Sometimes, those CIAs included stipulated penalty provisions, which establish set penalty amounts for violations of the terms of the CIA.  It is tempting to think that a violation of the CIA would lead to a payment of those stipulated penalties, and that that would be the end of the story.

But the February 3, 2025 decision of the Fourth Circuit in U.S. ex rel. Wheeler v. Acadia Healthcare Company, Inc. et al., Case No. 23-2101 shows that the outcome can be much more severe, and that there are hidden dangers lurking in CIAs with stipulated penalty provisions, including potential liability under the so-called “reverse false claims” provision of the FCA, and the treble damages and penalty provisions that the FCA applies.

The Reverse False Claims Provision of the FCA

Instead of covering payments made by the government, the reverse false claim provision covers money owed to the government.  It applies liability for improperly avoiding or concealing an “obligation to pay” money to the government, or for making false statements material to such an obligation.[1]  The statute itself defines “obligation” as “an established duty, whether or not fixed, arising from an express or implied contractual, grantor-grantee, or licensor-licensee relationship, from a fee-based or similar relationship, from statute or regulation, or from the retention of any overpayment.”

The Wheeler Decision

In Wheeler, the qui tam relator, a former Assistant Medical Director at one of defendant Acadia’s methadone clinics, alleged that Acadia falsified medical records, “fabricating therapy notes from whole cloth,” and used those falsified records to submit claims to the government for payment.  Some of Lisa Wheeler’s claims were brought under the provisions of the FCA pertaining to direct submission of false claims, but others were brought under the “reverse false claims” provision and alleged that Acadia violated a CIA that it had previously entered in with the government in settling a prior case.  Wheeler alleged that Acadia violated that CIA in two ways: (1) by failing to train employees or inform them of the CIA’s disclosure program and (2) by failing to investigate or report to HHS-OIG the false group therapy notes that were reported internally by employees such as Wheeler.

In reviewing the district court’s dismissal of Wheeler’s claim, the Fourth Circuit accepted Wheeler’s allegations as true.  The question presented for the Fourth Circuit, therefore, was whether the violations of the CIA that Wheeler alleged created an “obligation to pay” the government, within the meaning of the reverse false claims provision of the FCA.  Because the CIA that Acadia had previously entered ascribed stipulated penalties for the specific violations that Wheeler alleged ($2,500 for each day it failed to comply with the training, disclosure, and reporting requirements of the CIA), the Fourth Circuit held that each violation of the CIA “thereby creat[ed] an obligation to pay a stipulated penalty.”  Importantly, the Court rejected Acadia’s argument that the statutory penalties were contingent, rather than established, obligations, even though the CIA left it to the discretion of the government whether to enforce the stipulated penalty provisions of the CIA.

Takeaways

This case illuminates a hidden danger lurking in CIAs with stipulated penalty provisions.  Corporate defendants entering into CIAs with the government should be aware that the stipulated penalties included in a CIA will not necessarily be the end of the story.  Any violation of a CIA with stipulated penalty provisions may expose companies to FCA liability under the reverse false claims provision of the FCA, and the treble damages and penalty provisions that the FCA carries.

[1] Specifically, the reverse false claims provision applies liability to anyone who: “knowingly makes, uses, or causes to be made or used, a false record or statement material to an obligation to pay or transmit money or property to the Government, or knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government.”  31 U.S.C. § 3729 (a)(1)(G).