PE Investors – Even Minority – Exposed to False Claims Act Risk
As we have discussed in prior posts (here), private equity investors in the healthcare and life sciences industries increasingly face direct risk under the FCA where they actively manage portfolio companies accused of regulatory noncompliance leading to the submission of false claims. In each of the cases discussed in these earlier actions the PE fund defendant was the sole or majority investor and DOJ and the courts relied on facts demonstrating that the funds were aware of and endorsed or otherwise participated directly in the underlying fraud. (more…)
Largest Settlement to Date Announced With a PE Investor to Resolve Claims that a Portfolio Company Healthcare Provider Violated the FCA
This week, in a case we previously reported on here, a PE fund and two executives agreed to pay $25M to resolve claims that they caused the submission by a portfolio company mental health center of false claims for services that were not rendered in compliance with various state law and contractual requirements. (more…)
Judge Saris Green Lights FCA Claims Against PE Fund Based on Regulatory Non-Compliance of its Portfolio Company Healthcare Provider for Trial
Late last week, Judge Patti Saris (D. Mass.) issued an opinion on cross-motions for summary judgment filed by a qui tam relator and Massachusetts and a group of defendants that includes South Bay Mental Health Center (“South Bay”) and its private equity fund owner, permitting the vast majority of plaintiffs’ claims to proceed to the jury. The opinion addresses important questions of law as to each of the elements of the FCA related to claims to Medicaid for services allegedly provided in violation of various state regulatory requirements. However, the opinion is most notable for being the first to hold at the dispositive motion stage that a private equity fund and its principals can act with the requisite scienter and cause the submission of false claims, and thus be exposed directly to the treble damages and statutory penalties of the FCA as a result of conduct by a healthcare provider portfolio company. As such, we may expect it to add momentum to DOJ’s stated intent to pursue FCA claims against PE investors in the industry, as we previously reported here.
Court Permits Qui Tam Focused on Late-90s Conduct to Go Forward, Adopting a Broad Reading of Remuneration and FCA Causation
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.
DOJ Adopts Brand Memo as Departmentwide Policy
The United States Department of Justice (DOJ) recently updated its Justice Manual and formalized the policies it had previously announced regarding reliance on subregulatory guidance in enforcement actions. (more…)
Recent DOJ Settlements Reflect Post-Yates Trend in Holding Individuals Financially Accountable
In the wake of the Yates memo eighteen months ago, DOJ offered an early signal that its commitment to focus more on individual accountability would have bite: alongside a $125 million settlement with Warner Chilcott, DOJ also indicted the former president of the company’s pharmaceutical division for conspiring to violate the Anti-Kickback Statute (discussed here). Since then, the government suffered a speedy loss at his trial, and DOJ’s focus on individuals has not always been so overt. However, two recent settlements highlight the imprint of the Yates memo, and in particular, a new trend of DOJ holding owners of closely held companies personally liable for FCA settlements.
House Judiciary Committee Holds Hearing on Oversight of the False Claims Act
Last Thursday one of the subcommittees of the House Judiciary Committee held a hearing on Oversight of the False Claims Act. Four stakeholders represented the diverse viewpoints of the plaintiffs’ bar, a compliance program reform initiative, the defense bar, and in-house counsel (copies of their prepared written testimony can be found here, here, here, and here).
Active Supreme Court Bench Probes Scope of “Fraudulent” Claims
As we have discussed here and here, yesterday the Supreme Court heard oral arguments in Universal Health Services v. United States ex rel. Escobar, which presents questions over the viability and scope of the implied certification theory. The justices actively questioned the advocates, raising concerns over whether the position of the government and the respondents (“Escobar”) contains logical limitations, and pressing the petitioner (defendant Universal Health Services (“UHS”)) over whether the limitations it proposes truly are consistent with common understandings of fraud.
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).