By

Jaime L.M. Jones

02 October 2015

District Court Denies Home Health Assessment Company’s Motion to Dismiss in Medicare Advantage Fraud Case, Dismisses Health Plan Defendants

A court in the Central District of California recently granted in part and denied in part the motions to dismiss of defendants—multiple Medicare Advantage (“MA”) plans and a home health assessment company—in a suit alleging that the sickness of patients had been inflated through illegitimate in-home assessments.  See United States ex rel. Silingo v. Mobile Med. Examination Servs., No. 13-cv-01348 (C.D. Cal. Sept. 29, 2015).  The case is one further development in the broader ongoing enforcement effort against private Medicare insurers (as reported here), and highlights the scrutiny by CMS of the role in-home assessments play in the MA program.

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25 August 2015

District Court Grants Partial Dismissal in Part D/Medicaid Case Alleging False Comparative Marketing Claims

On August 20, 2015, the District of New Jersey granted in part and denied in part defendants’ motion to dismiss allegations that by making comparative claims regarding an on-label use of a drug, the defendant prevented physicians from making informed decisions about whether resulting prescriptions were eligible for Medicare or Medicaid reimbursement.  See United States ex rel. Dickson v. Bristol-Myers Squibb Co., No. 13-1039 (D.N.J. Aug. 20, 2015).  The case highlights relators’ ever-broader use of the FCA to target sales and marketing activities of pharmaceutical manufacturers.

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10 August 2015

District Court Holds that First Amendment Bars Prosecution for Misbranding Where Conduct is Truthful, Non-Misleading Speech about Off-Label Uses, Declines to Rule on Potential FCA Liability

On August 7, in the first Caronia progeny case, the United States District Court for the Southern District of New York (Engelmayer, J.) granted preliminary relief to Amarin Pharma, Inc. (“Amarin”) in a highly significant case involving First Amendment limitations on the Government’s entitlement to bring misbranding charges based on manufacturers’ truthful, non-misleading speech about off-label uses of drugs.  See Amarin Pharma Inc. v. Food and Drug Admin., No. 1:15-cv-03588 (S.D.N.Y. Aug. 7, 2015).

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16 June 2015

Court Dismisses GMP-based FCA Claims With Prejudice

Posted by Jaime L.M. Jones and Brenna Jenny

On Friday, the Northern District of California dismissed with prejudice claims alleging that a failure to obtain supplemental approval for major changes in manufacturing processes created FCA liability. U.S. ex rel. Campie v. Gilead Sciences, Inc., No. 11-0941 (N.D. Cal. June 12, 2015). The court also adopted a narrow reading of “worthless services” in the context of pharmaceutical products. Together, these holdings deal a significant blow to those seeking to premise FCA suits on violations of current Good Manufacturing Practices (“cGMPs”).

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12 June 2015

Whistleblower’s Receipt of Report of Government’s Investigation of His Claims Ruled a Public Disclosure

Posted by Jaime L.M. Jones and Brenna Jenny

A decision earlier this month by the Central District of California that the public disclosure bar had been triggered marked an unusual ruling in which the court determined that a whistleblower whose allegations led to an administrative investigation may be precluded from sharing in the settlement funds due to the disclosure of the resulting report to the relator himself. United States ex rel. Swoben v. SCAN Health Plan, No. 09-cv-05013 (C.D. Cal. June 1, 2015).

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05 June 2015

Maryland Expands its False Claims Act

Posted by Jaime Jones and Bevin Seifert

On May 12, 2015, Maryland Governor Larry Hogan signed into law Senate Bill 374, an expansion of the Maryland False Claims Act (“MFCA”), which took effect on June 1, 2015. The prior version of the MFCA was limited to Medicaid and healthcare-related fraud, whereas the new law covers any claims made to the state or to local government.

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15 April 2015

District Court Refuses to Uphold Release of Liability or Apply Public Disclosure Bar Based on State-Law Employment Suit, Dismisses Off-Label Promotion Claims Under Rule 9(b)

Posted by Jaime L.M. Jones and Brenna Jenny

A court in the Eastern District of Pennsylvania recently ruled that, despite a relator’s publication during an employment retaliation suit of allegations relating to the defendant’s alleged off-label promotion and payment of kickbacks, such allegations were not publicly disclosed, nor was the relator’s execution of a release of liability effective. U.S. ex rel. Gohil v. Sanofi-Aventis U.S. Inc., No. 02-cv-02964 (E.D. Pa. Mar. 30, 2015). This case demonstrates the way policy arguments regarding a perceived congressional intent in favor of private enforcement of the FCA can impact legal arguments in FCA litigation.

The court first considered whether the relator’s claims had previously been publicly disclosed. The relator, a former sales representative employed by the defendant, filed a qui tam suit a month before resigning his position with the defendant in June 2002. Upon resigning, he filed a wrongful termination action pursuant to New Jersey’s Conscientious Employee Protection Act (“CEPA”). While the government weighed whether to intervene, the parties in the CEPA action engaged in discovery. They ultimately settled—with the relator signing a broad release of liability—and the qui tam suit was subsequently unsealed, with the government declining to intervene. The defendant argued that the relator’s Statement of Facts (“SoF”) in the CEPA action constituted disclosure through a “civil hearing,” thereby triggering application of the public disclosure bar. The court ruled that although the SoF “exhaustively details” the alleged off-label promotion of defendant’s cancer drug Taxotere, and corresponding payment of kickbacks, the SoF was not “substantially similar” to the relator’s complaint because the SoF did not state that any provider had submitted a claim to a federal healthcare program (“FHCP”). Accordingly, the court reasoned that the allegedly fraudulent transactions were not previously disclosed, and inferring the allegation of fraud “would impermissibly broaden the scope of the public disclosure bar and restrict private enforcement of the FCA.” The defendant has since filed a motion for reconsideration, arguing that where submission of false claims to the government is a “logical and obvious consequence” of an alleged scheme, all essential elements of the FCA claim are publicly disclosed.

The court next determined whether the relator had nonetheless waived his right to prosecute the qui tam suit through his settlement and release of liability in the CEPA action. Although the Third Circuit Court of Appeals has yet to rule on whether relators can unilaterally settle a qui tam suit post-filing, all of the courts of appeal to consider the issue have held that, based on the statutory language of the FCA, the government’s written consent is a prerequisite. In contrast, several courts of appeal have held that a pre-filing release can wipe out a would-be relator’s attempt to file a later qui tam suit, so long as the release covers the allegations in the suit and there are no countervailing public policy considerations. Consistent with the prevailing approach to post-filing releases, the Gohil court ruled that the relator’s release had no effect on the litigation. The defendant responded by suggesting that the release be effective as to the relator, but that the claims be dismissed without prejudice to the government’s ability to intervene. The court declined to adopt this approach, again invoking the “clear congressional intent of encouraging private enforcement of the FCA.”

As to the merits of the relator’s claims, the court first ruled that, even under the Third Circuit’s more lenient “reliable indicia” standard to the submission of false claims—in place of pleading the details of particular false claims submitted—the off-label promotion allegations did not meet Rule 9(b)’s requirements. This was so because all of the off-label uses related to medically accepted indications, which would have been eligible for government reimbursement. However, the court denied the defendant’s motion to dismiss the kickback allegations, holding that certifying compliance with the AKS is a precondition to payment by the FHCPs and that the relator had provided sufficient examples of kickbacks allegedly offered to providers. Finally, the court refused to dismiss the relator’s conspiracy count, ruling that a conspiracy between the defendant and providers could easily be inferred from examples of kickbacks supposedly paid by the defendant, followed by the recipient physician’s increase in Taxotere prescriptions.

A copy of the court’s opinion can be found here.

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09 March 2015

District Courts Split Over Whether Relators Can be Original Sources of Claims Based on Misconduct Occurring After Employment Termination

Posted by Jaime L.M. Jones and Brenna Jenny

On March 4, 2015, the Central District of Illinois granted a defendant hospital’s motion to dismiss FCA claims based on “upcoding” allegations, holding the relator was not an original source of certain allegations and finding his remaining allegations insufficient to satisfy the requirements of Rule 9(b). U.S. ex rel. Gravett v. The Methodist Med. Ctr of Ill., No. 12-1008 (C.D. Ill. Mar. 4, 2015). In reaching its decision the court rejected relator’s argument that he could be the original source of allegations based on conduct that occurred after he left defendant’s employ, breaking with recent precedent out of the Eastern District of Pennsylvania. See U.S. ex rel Galmines v. Novartis Pharma. Corp., No. 06-cv-03213 (Feb. 27, 2015).

The relator in U.S. ex rel Gravett worked as an emergency room physician at Methodist Medical Center until January 1, 2007. According to his allegations, Methodist Medical Center employed coding software that it knew had a tendency to inflate the otherwise applicable CPT codes for physician and hospital services to codes associated with higher reimbursement. As a result, the relator alleged the submission of false claims for patients treated during the period 2006-2011. The defendant moved to dismiss relator’s claims under the public disclosure bar, arguing that it had disclosed the essential elements of the alleged fraud to the U.S. Attorney’s Office in the course of a government investigation beginning in 2010. Following Seventh Circuit precedent, the court held that relator’s allegations were publicly disclosed before proceeding to assess whether the relator qualified as an original source of those allegations. The court held that relator could not have direct knowledge of any alleged upcoding that occurred after his employment ended. As such, he could not be an original source of those allegations, which were barred.

The Central District of Illinois’ refusal to consider allegations of misconduct occurring after the relator’s employment was terminated stands in contrast to a recent order by the Eastern District of Pennsylvania in U.S. ex rel Galmines v. Novartis Pharma. Corp. Under an earlier ruling, the relator’s allegations—that during the time of his employment at Novartis, the company engaged in off-label marketing and entered into kickback arrangements with respect to the drug Elidel—had been deemed publicly disclosed. Nonetheless, the court concluded that the relator was an original source of those allegations. The relator subsequently moved to amend his complaint to extend the time period of the alleged misconduct past the termination of his employment. The court granted the motion, ruling that relators may “pursue the entire fraudulent scheme for which they have direct and independent knowledge of the operative substantive facts,” without limitation to the “specific time periods for which they have direct and independent knowledge.” The court viewed this conclusion as mandated by how the public disclosure and first-to-file rules have been interpreted. In particular, the court was concerned that constraining a relator to the time period of his direct involvement could create situations in which no relator could bring a lawsuit for a particular time period of a fraud. For example, this could arise where an original source who was the first to file lacked direct knowledge of a later portion of the scheme, but would-be relators with direct knowledge as to this later period would be barred from filing a suit under the first-to-file rule. The Galmines court further ruled that because the relator had sufficiently alleged a course of conduct continuing past his misconduct, he could amend his complaint and obtain discovery for conduct occurring after he filed earlier iterations of his complaint.

In contrast to the claims arising from conduct after his termination, the Gravett court held the relator was the original source of allegations related to upcoding he observed during his employment. As to that alleged upcoding, the court ruled that despite his direct knowledge relator failed to include any particulars regarding the false claims, such as invoices or requests for payment to a federal healthcare program that resulted from the alleged upcoding. Under well-established precedent, relators advancing upcoding allegations are only entitled to a relaxation of Rule 9(b)’s requirement to plead specific information of at least one submitted false claim if they are “in a special position of personal knowledge or involvement in the billing practices of the defendant that affords some indicia of reliability to the allegations.” The Gravett court determined that as a former emergency room physician, the relator was only involved in the delivery of care, and he lacked “first hand knowledge of Defendants’ actual billing practices, submission of claims for payment, or receipt of payments from the Government payors.” Absent actual involvement in claims or billing practices, the relator was effectively relying on “rumor or innuendo.” Thus, the court dismissed relator’s remaining claims pursuant to Rule 9(b).

A copy of the opinion in U.S. ex rel. Gravett v. The Methodist Med. Ctr of Ill., No. 12-1008 (C.D. Ill. Mar. 4, 2015) can be found here.

A copy of the opinion in U.S. ex rel Galmines v. Novartis Pharma. Corp., No. 06-cv-03213 (Feb. 27, 2015) can be found here.

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02 March 2015

Fifth Circuit Remands Public Disclosure Decision to New District Court Judge

Posted by Jaime L.M. Jones and Bevin Seifert

The Fifth Circuit recently sent a summary judgment ruling back to the Southern District of Texas for the second time for the lower court’s failure to apply the Circuit’s construction of the public disclosure bar. United States ex rel. Little v. Shell Exploration, No. 14-20156 (5th Cir. Feb. 23, 2015). Remarkably, the court also ordered that the case be assigned to a new judge because the lower court’s five-page “broad” and “conclusory” opinion failed to follow instructions for remand and was devoid of appropriate citations to the record or relevant law.

The relators, two auditors within a division of the United States Department of the Interior, filed the case in 2006, alleging that Shell Exploration and subsidiaries (“Shell”) defrauded the government of $19 million by improperly deducting expenses relating to offshore drilling. The government declined to intervene. In April 2011, the district court granted summary judgment for Shell finding, in part, that the allegations were barred under the public disclosure doctrine, U.S.C. § 3730(e)(4).

In 2012, the Fifth Circuit reversed and remanded for redetermination, concluding that the district court applied an “overly broad definition” of public disclosure to determine that the previous disclosures barred relators’ allegations. Specifically, the lower court held that the allegations need not be “identical” to the public disclosures, but rather “parallel,” i.e. that the “public disclosure must have been sufficient for the government to find related frauds, even though the circumstances of the transactions may differ.” The Fifth Circuit instructed the district court, to instead apply more narrow standards to determine whether the allegations had been publicly disclosed. Citing its decision in United States ex rel. Jamison v. McKesson Corp., 649 F.3d 322 (5th Cir. 2011), the court instructed that on summary judgment, the opposing party must (1) identify “public documents that could plausibly contain allegations or transactions upon which the relator’s action is based,” and then (2) if such disclosures are identified, the relator must put forth “evidence sufficient to show that there is a genuine issue of material fact as to whether his action was based on those disclosures.” The court further explained that publicly disclosed allegations need only be as broad or as detailed as those in the relator’s complaint, noting that “[w]here specifics are alleged, it is crucial to consider whether the disclosures correspond in scope and breadth.” Also prior disclosures need not name the defendant as long as the defendant’s misconduct would be readily identifiable from them. But, at a minimum, the court required that “disclosures [must] furnish evidence of the fraudulent scheme alleged.” The Fifth Circuit specifically instructed the lower court to determine if the public disclosures revealed either that (1) Shell was deducting expenses prohibited by program regulations; or (2) this type of fraud was so pervasive in the industry that the company’s scheme, as alleged, would have been easily identified.

On remand, Shell renewed its motion for summary judgment and, a year later, the Southern District of Texas again granted in favor of Shell, dismissing relators’ claims with prejudice. The relators’ subsequent appeal requested to have the case assigned to a new judge. In its de novo review, the Fifth Circuit reiterated its McKesson finding that public disclosure is “necessarily intertwined with the merits and is, therefore, properly treated as a motion for summary judgment” and concluded that had the lower court properly followed its instructions, it would have found no public disclosure and denied the motion.

As to whether a new judge should be assigned, the court recognized a circuit split on the test for this “rarely invoked” and “extraordinary power,” noting that the Fifth Circuit had not yet adopted either test (citing its decision in In re DaimlerChrysler Corp., 294 F.3d 1307, 1333 (5th Cir. 1997)), but concluding that, under either standard, reassignment was appropriate in this case when the lower court disregarded the Fifth Circuit’s “clear mandate” and “failed to apply the legal standards we established in our opinion for public disclosure and to address the specific questions that set out in that opinion.” Moreover, the Fifth Circuit criticized the short length of the opinion in contrast to the extensive summary judgment record, with few references to the record or relevant law. Finally, the court noted that the district court’s conclusion was the same as its prior opinion and followed the same “overly broad reasoning” that the Fifth Circuit already rejected. In its order to reassign the case, the court found that starting with a new judge would not “create waste or duplication” given that the case had been stuck for eight years on the public disclosure issue and that remaining with the same judge would likely result in further appeals.

A copy of the opinion can be found here.

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