A recent settlement reinforces the potential liability facing private equity investors in the life sciences industry. As we previously reported, late last year The Gores Group (“Gores”) entered into a $1.5 million settlement agreement with the United States to resolve claims that the alleged off-label promotion by its portfolio company of combination drug-medical device systems for pediatric patients resulted in the submission of false claims to federal healthcare programs. Last month, Gores entered into a separate $1.5 million settlement agreement with certain states to resolve claims that the same alleged conduct resulted in the submission of false claims to state Medicaid programs. See U.S. ex rel. Johnson v. Therakos, Inc., Case No. 12-cv-1454 (E.D. Pa., filed Mar. 22, 2012). The participating states in the more recent settlement have sixty days to agree to the terms of that agreement; thus far at least California has joined. The claims resolved in these settlements arose from a qui tam suit.
During the Federal Bar Association’s 2021 Qui Tam Conference, two senior government lawyers—Neeli Ben-David, the Civil Division Deputy Chief and Health Care Fraud Coordinator for the U.S. Attorney’s Office for the Northern District of Georgia and Karen Glassman, Senior Counsel at the U.S. Department of Health and Human Services Office of Inspector General (“HHS-OIG”)—provided insights into how defendants can position themselves for successful engagement with the government and how DOJ and HHS-OIG coordinate behind the scenes to investigate and resolve FCA cases.
Yesterday during the Federal Bar Association’s 2021 Qui Tam Conference, Charlene Keller Fullmer, 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.
Yesterday, Senator Grassley, the architect of the 1986 False Claims Act amendments, and Brian Boynton, the Acting Assistant Attorney General of DOJ’s Civil Division, delivered the opening remarks at the Federal Bar Association’s 2021 Qui Tam Conference, previewing Senator Grassley’s priority legislative changes to the FCA and DOJ’s enforcement priorities under the Biden administration.
On January 14, 2021, Acting Assistant Attorney General Jeffrey Bossert Clark of the Department of Justice (DOJ) announced that the Civil Division recovered over $2.2 billion in settlements and judgments under the False Claims Act (FCA) for fiscal year 2020. This represents a more than $850 million decrease from last year’s figure and a $3.9 billion decrease from the all-time recovery record in 2014. Detailed statistics on FCA cases from 1986 through FY 2020 are available here.
Today, December 4, HHS announced a False Claims Act Working Group:
HHS Announces False Claims Act Working Group to Enhance Efforts to Combat Fraud and Focus Resources on Bad Actors
Today, the Department of Health and Human Services (HHS) announced the creation of a False Claims Act Working Group (Working Group) that enhances its partnership with the Department of Justice (DOJ) and the HHS Office of Inspector General (OIG) to combat fraud and abuse by identifying and focusing resources on those who seek to defraud the American taxpayers. HHS regulates over a third of the United States economy. In 2020, HHS provided over $1.5 trillion in grants and other payments to public and private recipients, including for healthcare items and services. In addition, HHS is one of the largest government contractors, paying over $170 billion in 2020 to thousands of contractors. In combating COVID-19, HHS has administered unprecedented levels of taxpayer support for private individuals and organizations.
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.
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.
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.
On May 28, 2020, the United States Court of Appeals for the Fifth Circuit affirmed the dismissal with prejudice of a False Claims Act suit brought against Baylor Scott & White Health (“Baylor”), a network of acute care hospitals. The suit, brought by Integra Med Analytics, alleged that Baylor submitted $61.8 million in fraudulent claims to Medicare by using unsupported “higher-value” diagnosis codes to inflate Medicare reimbursements. The U.S. government previously declined to intervene in the suit.