A Reportable Event: Corporate Integrity Agreements May Hold FCA Traps for the Unwary

On February 3, 2025, in United States ex rel. Wheeler v. Acadia Healthcare Co., the Fourth Circuit reversed a district court’s dismissal of a qui tam case brought against Acadia, which is one of the largest addiction treatment and behavioral healthcare service providers in the United States. The circuit court held that the requirements of a Corporate Integrity Agreement (CIA) can give rise to obligations that trigger a reverse false claim, creating a split with the Sixth Circuit, which considered the same issue involving a CIA with similar provisions in 2018 and reached the opposite conclusion.

The relator, who was the former Assistant Medical Director of one of Acadia’s North Carolina clinics, accused the company of fraudulently collecting Medicare and Medicaid reimbursements for therapy and counseling sessions it never conducted. The relator claimed that therapists and counselors at Acadia facilities were falsifying medical records for patients experiencing opioid use disorder, and relying on these records to submit claims to the government for payment.

Amongst a host of other False Claims Act (FCA) violations, the relator’s amended complaint included a reverse false claim allegation related to Acadia’s alleged violation of a CIA it had entered into with the U.S. Department of Health and Human Services Office of Inspector General (HHS-OIG) in 2019. The CIA stemmed from allegations of fraud concerning reimbursements for drug testing, and required Acadia to (1) provide training to its medical staff regarding the federal healthcare programs and CIA requirements; and (2) develop a “disclosure program” to allow individuals to report potential violations of law. It also required Acadia to investigate allegations of potential violations of law and, if it determined that there had been a “Reportable Event,” as defined by the CIA, that Acadia notify HHS-OIG. The CIA provided for stipulated monetary penalties in the event of a breach of the agreement.

Reverse false claims arise where a defendant “knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government.” The relator based her claim on the theory that Acadia’s failure to comply with the provisions of its CIA and to notify HHS-OIG of a Reportable Event triggered the stipulated monetary penalties provision in the agreement, giving rise to an “obligation to pay” within the meaning of the FCA.

The District Court for the Western District of North Carolina disagreed, finding that an “obligation” requires a “specific duty outlined in a contract or statute.” Citing the language of the CIA — which stated that failure to comply with the CIA “may” lead to the imposition of monetary penalties — the district court held that these penalties were “contingent” — i.e., it was up to the government’s discretion whether to collect the penalties — and therefore they did not qualify as obligations. The district court based its decision on Sturgeon v. Pharmerica Corp., 438 F. Supp. 3d 246 (E.D. Pa. 2020), which considered the same question and found that “[b]ecause there is no ‘established duty’ until the government exercises its discretion to demand payment, the stipulated penalties are not ‘obligations.’”

The Fourth Circuit reversed, reasoning that “[e]ven though the CIA leaves to the discretion of the government whether to enforce the stipulated penalty provision, this is no different from the decision by any contracting party to seek enforcement of a breach of contract.” Further drawing on contract law, the circuit court held that “[a] contracting party’s discretion to enforce an obligation does not eliminate the existence of that obligation.”¹

The only other circuit court to have considered this issue in a case involving similar CIA provisions was the Sixth Circuit in United States ex rel. Ibanez v. Bristol-Myers Squibb Co., 874 F.3d 905 (2017). There, the court reached the opposite result, holding that CIAs with provisions whose breach “may” lead to stipulated penalties are contingent obligations not covered by the FCA.

Companies entering into CIAs should be aware that stipulated penalty provisions in those agreements may give rise to reverse false claims. And because there is a circuit split on the issue, it is unlikely to go away anytime soon. Qui Notes will monitor further developments as the law continues to evolve.

© Arnold & Porter Kaye Scholer LLP 2025 All Rights Reserved. This Blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.