A recent decision by the U.S. Court of Appeals for the Ninth Circuit affirms the real challenges the public disclosure bar can pose to whistleblowers. In Amphastar Pharms. Inc. v. Aventis Pharma SA, No. 5:09-cv-00023-MJG-OP, 2017 WL 1947890 (C.D. Cal. May 11, 2017), the U.S. Court of Appeals for the Ninth Circuit affirmed a California federal judge’s dismissal of a False Claims Act suit by Amphastar Pharmaceuticals, Inc. (“Amphastar”) alleging the government overpaid for a blood thinner that was improperly patented, finding that the allegations were already public. (more…)
In a May 8, 2017 statement of interest, DOJ made a bold attempt to strip the heightened materiality standard articulated in Escobar (previously reported here) of all of its meaning. DOJ’s statement was filed in support of relator’s Rule 59(e) motion to alter or amend the judgment dismissing the underlying declined qui tam case, which took exception to the court’s determination that the government’s continued payment of defendant’s claims “despite its actual knowledge that certain requirements were violated” was “very strong evidence that those requirements are not material.” United States ex rel. Kolchinksy v. Moody’s Corp., – F.Supp.3d –, 2017 WL 825478, at *6 (S.D.N.Y. March 2, 2017) (citing Escobar). DOJ took aim at the court’s conclusion, arguing that “an agency’s continued payment of claims to a potential FCA defendant who faces public allegations of fraud is insufficient – by itself – to establish that the alleged fraud is immaterial.” (more…)
In a variety of matters, DOJ and relators have attempted to base claims under the FCA on alleged violations of the FDCA or FDA regulations, by arguing that such violations constitute “fraud on the FDA,” and that the resulting claims for payment to other agencies for associated products are false. As we have discussed (here, here, and here), so far plaintiffs have had little success with this theory, including in the First and Fourth Circuit Courts of Appeal. Last week, a panel of the Ninth Circuit heard oral arguments in United States ex rel. Campie v. Gilead Sciences, Inc., and the government and the plaintiff’s bar no doubt have pinned their hopes on that court reversing the trend.
The question of when an overpayment becomes “identified” for purposes of False Claims Act liability has generated significant uncertainty, and one district court just added more fodder for debate. See UnitedHealthcare Ins. Co. v. Price, No. 16-cv-157 (D.D.C. Mar. 31, 2017). The Affordable Care Act (“ACA”) requires persons to report and return overpayments from Medicare or Medicaid within 60 days of identification, and the failure to do so can trigger FCA liability. The ACA delegated to CMS the task of defining when an entity has “identified” an overpayment. CMS promulgated two rules (in May 2014 for Medicare Advantage (“MA”) plans and Part D Sponsors and in February 2016 for Medicare Part A/B providers), which equate “identification” to circumstances in which a person “has, or should have through the exercise of reasonable diligence, determined that the person has received an overpayment.” The “should have identified” standard generated concerns that CMS was using a simple negligence standard. The FCA, however, requires proof of at least “reckless disregard,” which courts have equated to gross (not merely simple) negligence.
On February 13, 2017, the District Court for the District of Columbia rejected motions for summary judgment filed by cyclist Lance Armstrong and his agents Capital Sports and Entertainment Holdings Inc. (CSE) in an FCA suit alleging the defendants violated the FCA by issuing payment invoices to the United States Postal Service (USPS) under sponsorship agreements while actively concealing Armstrong’s use of performance enhancing drugs (PEDs). The Court rejected Armstrong’s motion because it found that the government raised genuine issues of fact regarding the applicability of two of its three theories of FCA liability, its common-law claims, and the issue of actual damages. As a result, the Court will set the case for trial, where Armstrong may face nearly $100M in damages. A copy of the court’s order can be found here.
In U.S. ex rel. Alex Booker and Edmund Hebron v. Pfizer, Inc., the U.S. Court of Appeals for the First Circuit affirmed two district court judgments rejecting allegations of the defendant’s sales and marketing activities related to its drug Geodon, noting that, after 6 years of litigation, the whistleblowers failed to provide sufficient evidence to show that defendant’s alleged conduct resulted in the actual submission of fraudulent claims.
Historical government payment practices have gained new importance following the Supreme Court’s guidance in Escobar that such practices can preclude a finding that regulatory compliance was material to the payment of an allegedly false claim. Evidence regarding the government’s prior knowledge of regulatory violations and continued payment can also bear on the mens rea element of an FCA claim. Perhaps not surprisingly in light of the importance of this evidence, DOJ recently tried—unsuccessfully—to block a defendant’s efforts to discover information relating to historical payment determinations by CMS Medicare Administrative Contractors (“MACs”). See United States ex rel. Ribik v. HCR ManorCare, Inc., No. 09-cv-13 (E.D. Va. Feb. 3, 2017).
In a speech on Tuesday, September 27, 2016, Principal Deputy Associate Attorney General Bill Baer said that in the post-Yates world companies must provide early and material assistance to DOJ’s efforts to hold companies and individuals accountable for corporate wrongdoing – including by voluntarily disclosing information before they receive a subpoena – if they hope to receive cooperation credit. In doing so, Baer called out those banks caught up in DOJ’s enforcement focus on mortgage-backed securities. Baer claims those companies did not cooperate early enough and that DOJ thus rejected their requests for substantial cooperation credit, ultimately extracting billions of dollars in settlements. Baer thus made clear the importance of early cooperation: “little or no cooperation credit will be afforded in situations where the supposed cooperation occurs after the department has completed the bulk of its investigation.” In addition to cooperating early, companies also must provide specific information about any and all employees involved in wrongdoing and information that is unknown to DOJ and materially assists its investigation in order to obtain meaningful cooperation credit. At the same time, Baer described conduct that will not qualify a company for cooperation credit; specifically, simply producing information in response to a subpoena or CID and making a presentation to DOJ that seeks to limit or eliminate liability will not be viewed as cooperation. Indeed, Baer’s speech raises questions as to whether legitimate efforts to defend conduct under investigation may even disqualify a company that otherwise has been cooperative from receiving cooperation credit.
Baer’s speech can be accessed here.
The ability to invoke the FCA’s statute of limitations defense often hinges on the timing of when “the official of the United States” knew or should have known of the alleged fraud. Most courts have sided with the government’s interpretation of “the official of the United States” as meaning only the Attorney General or his or her designees. A district court recently sided with the majority interpretation, but in so doing, affirmed avenues of discovery outside of DOJ Civil that should have put the government on notice of a potential FCA claim. See United States v. Kellogg Brown & Root Services, Inc., No. 12-cv-04110 (C.D. Ill. Sept. 16, 2016).
DOJ recently filed an amicus brief urging the First Circuit to revive a suit premised on the contention that an agency would have acted differently had it known of defendant’s fraud. See Brief for the United States as Amicus Curiae Supporting Neither Party, United States ex rel. D’Agostino v. ev3, Inc., No. 16-1126 (1st Cir. 2016). The government warns the First Circuit that adopting the district court’s reasoning in dismissing a “fraud-on-the-FDA” theory of liability would have wide-ranging consequences and “categorically foreclose claims that involve federal agency oversight of a defendant’s conduct.” Although courts generally agree that mere regulatory violations, standing alone, cannot serve as the predicate for FCA liability, relators often try to leverage so-called “fraud-in-the-inducement” theories (discussed further here) to repackage regulatory violations into ostensibly valid FCA claims. DOJ has so far suffered losses when advocating for a similar theory of liability in the context of FCA claims based on violations of current Good Manufacturing Practices (“cGMP”) (as discussed here and here), and DOJ’s latest effort to protect FCA liability where it touches on FDA’s discretionary decisions could have broad impact on cases alleging fraud within the context of agency enforcement. In addition, the effort by DOJ here to recast off-label promotion as a “fraud-on-the-FDA” also appears part of an evolving effort to maintain the viability of off-label claims in the face of growing judicial refusal to sanction off-label promotion as the predicate for FCA liability.