For the second time in three weeks, the Department of Justice has stepped in to seek the dismissal of high-profile FCA litigation being pursued by relators after the government initially declined to intervene. DOJ’s recent action pertains to approximately a dozen lawsuits filed primarily in 2016 and 2017, which were unsealed over the last year as DOJ declined to intervene. Each of the cases was filed by an LLC relator formed for the purpose of pursuing the litigation and alleging that pharmaceutical manufacturers, and third-party service providers who contracted with them, violated the Anti-Kickback Statute (and thus the FCA) by providing various support services for the manufacturers’ drugs. The cases focused on three types of activity. First, defendants deployed nurse educators who allegedly promoted the manufacturers’ drugs to physicians and patients through a “white coat marketing” scheme. Second, the nurse educators allegedly instructed patients on proper use of medication. Third, the defendants allegedly communicated with insurance companies to determine whether the plans would reimburse the manufacturers’ drugs for specific patients and what process was required to ensure such reimbursement. The relators allege that the second and third categories of conduct violated the AKS because they provided physician practices with expense relief.
Yesterday, DOJ unexpectedly filed motions to dismiss these cases across the country. While arguing that its power to dismiss FCA cases (even those in which it did not intervene) is unfettered, DOJ nevertheless articulated several reasons underlying its request. First, DOJ argued that the burden of allowing the litigation to proceed is not justified in light of the lack of sufficient legal and factual support for the relators’ claims. Regarding the merits of the claims, DOJ stated that “based on its extensive investigation of all of the various [partnerships’] complaints, the government has concluded that the relators’ allegations lack sufficient factual and legal support.” In terms of burden, DOJ noted that Main Justice attorneys alone have already spent 1,500 hours investigating issues raised by the complaints, and that many more hours would be required in the course of further litigation, both in terms of monitoring the litigation and responding to discovery requests on various government agencies. Given these considerations, “[t]he government has rationally concluded based on its extensive investigation of relators’ various cases that the relators’ sweeping allegations lack adequate support and are unlikely to yield any recovery sufficient to justify the significant costs and burdens.”
Second, DOJ explained that a finding of FCA liability in these cases would “conflict with important policy and enforcement prerogatives of the federal government’s healthcare programs.” It noted that the government invests vast sums in healthcare, and that the government therefore has an interest in ensuring that patients have access to “basic product support relating to their medication . . . such as access . . . instructions on how to properly inject or store their medication.” In sum, DOJ argued that “relators should not be permitted to indiscriminately advance claims on behalf of the government against an entire industry that would undermine common industry practices the federal government has determined are, in this particular case, appropriate and beneficial to federal healthcare programs and their beneficiaries.”
In addition to these express reasons, DOJ’s action appears to have been motivated significantly by the nature and conduct of the relators – or the entities underlying the relators. As DOJ explained, the relators are “limited liability compan[ies] established for the sole purpose of serving as the named relator[s] in [these] action[s].” The relators were established by National Health Care Analysis Group, a “pseudonym for a partnership comprised of limited liability companies set up by investors and former Wall Street investment bankers.” The scope of the partnership’s FCA activities has been “sweeping”: “The partnership, acting through shell company relators, has filed eleven qui tam complaints against a total of thirty-eight different defendants for essentially the same alleged conduct.” DOJ also expressed significant concern about the tactics employed by the relators in their pre-complaint investigations. As DOJ explained, NHCA obtained information from industry participants through paid interviews done under the guise of unbiased industry research, without revealing that “the information [was] actually being collected for use in qui tam complaints.” DOJ described this activity as seeking information under “false pretenses.”
DOJ’s action yesterday is further evidence that the Granston Memo, in which DOJ articulated clearer standards for seeking dismissal of non-intervened cases, has real teeth. An example of one of the motions to dismiss DOJ filed yesterday can be found here.