Sunshine Act Enforcement No Longer Just on the Horizon

DOJ recently announced its second FCA settlement within the past half year that resolves alleged Anti-Kickback Statute (“AKS”) violations and corollary failures to satisfy Sunshine Act reporting obligations.  Before this pair of settlements, neither DOJ nor CMS has publicly announced any targeted efforts to enforce the Sunshine Act, and these settlements seem to be on the cutting edge of an emerging government enforcement priority.

As we wrote about here, at a qui tam conference earlier this year, the Civil Assistant Chief for the Eastern District of Pennsylvania discussed how enforcement actions involving violations of the Sunshine Act are poised to increase, aided by data analytics.  Consistent with this warning, this latest Sunshine Act settlement is out of the Eastern District of Pennsylvania and resolves allegations that medical device company Medicrea violated the AKS by providing food, entertainment, and travel to U.S.-based physicians at a single conference event that took place in France.  The Sunshine Act authorizes CMS to impose civil monetary penalties, and in addition to the $1 million Medicrea paid to resolve the AKS claims, Medicrea also paid an additional $1 million to resolve allegations that these unreported transfers of value violated the company’s obligations under the Sunshine Act.

This conference was only briefly mentioned in the underlying qui tam complaint, amidst a host of other alleged misconduct, including other forms of kickbacks, various theories of off-label promotion, and improper discounts and/or free products and services.  Nonetheless, and despite having five years to investigate the allegations in the complaint after it was filed in 2016, DOJ chose to pursue a settlement solely based on alleged kickbacks offered at a single event occurring outside the U.S. and the associated Sunshine Act violations connected to that event.  While it is not uncommon for the conduct resolved through an FCA settlement to deviate from the scope of conduct alleged in the underlying qui tam complaint—which often presents a shotgun style of pleading—the difference between this settlement and the underlying allegations presents a more significant departure than many cases.

DOJ’s first parallel AKS/Sunshine Act settlement, announced in October 2020, was similar to the Medicrea case in that it resolved a very narrow theory of AKS liability involving remuneration given by a device company to a single surgeon.

Taken together, these two cases highlight DOJ’s willingness to pursue FCA settlements based on even discrete instances of AKS violations, as well as DOJ and CMS’s increasing appetite for layering on supplemental Sunshine Act penalties at the upper range of permissible amounts for knowing failure to report.

To address this emerging area of government focus, companies should consider reviewing not only the accuracy of their Sunshine Act reports but also engaging in the type of data analytic work DOJ has acknowledged it is increasingly undertaking, and may well be engaging in here, to identify potentially problematic relationships such as reported transfers of value that correlate with billing or prescribing patterns in CMS Medicare data.  This is because the highest enforcement risk will be presented by cases that entail not just Sunshine Act reporting violations but also parallel AKS noncompliance.  Although enforcement risk often increases commensurate with the breadth of a course of conduct, the two settlements so far in this space indicate that DOJ is interested in pursuing cases involving very isolated instances of misconduct that occurred years in the past.  As is often the case, these two settlements will likely provide inspiration to whistleblowers as well.

We will continue to monitor DOJ and CMS enforcement actions involving the Sunshine Act.

This post is as of the posting date stated above. Sidley Austin LLP assumes no duty to update this post or post about any subsequent developments having a bearing on this post.