Welcome to Original Source: The Sidley Austin False Claims Act Blog

The False Claims Act (FCA) has long been a key enforcement tool for the federal government in matters involving government contracts or other expenditures of government funds. FCA enforcement has traditionally focused primarily on two industries receiving a substantial amount of government funds: healthcare and defense and other government contractors. Recently, however, FCA enforcement has expanded to other industries, including financial services. Through the False Claims Act Blog, lawyers in Sidley’s White Collar, Healthcare, FDA, Government Contracting, Financial Services, Appellate, and other practices will provide timely updates on new and interesting developments relating to FCA enforcement and litigation.

DOJ Settles FCA Claims With Another Private Equity Investor in the Life Sciences Industry

In line with an emerging trend of False Claims Act enforcement against private equity funds for the activities of their portfolio companies, the government and a private equity fund that formerly owned a medical device and pharmaceutical manufacturer recently settled a qui tam suit alleging violations of the False Claims Act.  U.S. ex rel. Johnson v. Therakos, Inc., Case No. 12-cv-1454, E.D. Pa.  The suit resolves allegations that from 2006 to 2015 the manufacturer promoted a cancer treatment for use in pediatric patients—a use that had not been approved by the Food and Drug Administration.  As a result, the government contended, the private equity fund former owner caused the manufacturer to submit false claims to Medicaid, the Federal Employee Health Benefits Program, and Tricare.  The case remains under seal; as a result, it is not yet apparent whether the government has alleged that the private equity fund took an active role in the management of the portfolio company or other facts that would support FCA liability attaching to the investor.  In settlement of the claims, but without admitting liability, the private equity fund agreed to pay the United States and participating states $1.5 million.  The settlement agreements are available here.

We will continue to monitor the docket for this case and for further action by DOJ against private equity investors in the healthcare and life sciences industries.

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Court Permits Qui Tam Focused on Late-90s Conduct to Go Forward, Adopting a Broad Reading of Remuneration and FCA Causation

The Eastern District of Pennsylvania recently ruled on a summary judgment motion in a case that has been pending in the federal courts since 2002, involving alleged conduct by the defendant drug manufacturer from 1996-2004, when the pharmaceutical industry and compliance programs were vastly different than they are in 2020. U.S. ex rel. Gohil v. Sanofi U.S. Services Inc’s, No. 02-cv-02964 (E.D. Pa. Nov. 12, 2020). In its ruling, the court adopted an expansive definition of remuneration and a low bar to satisfy the causation element of FCA claims premised on underlying alleged violations of the Anti-Kickback Statute. On this basis, the court is allowing the relator to proceed to trial on allegations that his former employer caused the submission of false claims by paying kickbacks in the form of fees to physicians to participate in advisory boards and speaker programs, educational grants, and meals and gift baskets, while granting summary judgment for the defendant based on allegations related to preceptorships and other alleged kickbacks.

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DOJ Civil Division Issues Guidance On Assessing Inability-to-Pay Claims

On September 4, 2020, Acting Assistant Attorney General Ethan Davis issued guidance to the U.S. Department of Justice’s Civil Division on evaluating inability-to-pay claims.  The memorandum, titled “Assessing an Entity’s Assertion of an Inability to Pay,” sets forth an analytical framework for evaluating an individual or company’s claim that it cannot pay a civil fine or monetary penalty because it lacks sufficient assets.  This framework would apply to civil claims under the False Claims Act.

The recent guidance reinforces the Civil Division’s long-standing practice of taking under consideration an entity’s assertion that it is unable to both “pay the government and meet its ordinary and necessary business and/or living expenses.”  In making an inability-to-pay argument, entities must complete the Division’s certified Financial Disclosure Form, which identifies assets and liabilities, current and anticipated income and expenses, cash flow, projections, working capital, and other relevant information.  Entities must also cooperate in providing access to appropriate personnel and documentation responsive to DOJ’s inquiries, including tax returns and audited financial statements.

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Court Sanctions DOJ and Defendants For Discovery Violations In False Claims Act Case

On July 10, 2020, a federal magistrate judge in the District of Minnesota issued a 39-page decision sanctioning DOJ (and the defendants) for various discovery violations in an FCA case based on alleged violations of the Anti-Kickback Statute.

As previously reported here, the Defendants Paul Ehlen (“Ehlen”), the majority owner of Precision Lens, and Cameron-Ehlen Group (conducting business as Precision Lens) (collectively, the “defendants”) are involved in the distribution of intraocular lenses and other products for ophthalmic surgeries.  DOJ alleges that the defendants provided physicians with expensive trips, meals, and other in-kind remunerations at no cost or below fair market value.  DOJ further alleges that, in exchange, these physicians purchased the Defendants’ products and used them during surgeries, which were subsequently billed to Medicare, in violation of the Anti-Kickback Statute and the False Claims Act.  DOJ and the defendants filed motions seeking sanctions against the other in connection with inadequate preparation of 30(b)(6) designees and potential spoliation of information, documents, and electronically stored information.  DOJ also filed a motion to compel the production of additional potentially relevant documents.

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Department of Justice Intends To Scrutinize Role of Litigation Funding in Qui Tam Lawsuits

We recently reported on the Eleventh Circuit’s decision in Ruckh v. Salus Rehabilitation LLC, which was the first case to assess the role of litigation funding agreements in qui tam litigation.  In that case, the Eleventh Circuit rejected a challenge to the relator’s standing based on the existence of a litigation funding agreement.

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Current DOJ Enforcement Priorities, Focus on CARES Act Fraud

At a recent U.S. Chamber of Commerce, Institute for Legal Reform meeting, Principal Deputy Associate Attorney General Ethan Davis set forth the current enforcement priorities of the U.S. Department of Justice (DOJ), clarifying for corporations accessing stimulus funds or otherwise dealing with government programs or acting in regulated industries how it is focusing its efforts to target fraud in the midst of the COVID-19 pandemic. While Davis underscored DOJ’s commitment to using the False Claims Act (FCA) and other “weapons in [its] arsenal” to fight fraud against the various pandemic stimulus programs, he also emphasized DOJ’s commitment to exercise enforcement discretion in cases lacking the hallmarks of bad corporate intent.

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