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3rd Circuit

23 September 2019

Third Circuit Holds That A Live Hearing Is Not Required When Government Seeks To Dismiss FCA Complaint Over Relator’s Objection

The Third Circuit recently held that relators are not automatically entitled to an in-person hearing when the government moves to dismiss a qui tam suit over the relator’s objection. U.S. ex rel Chang v. Children’s Advocacy Center of Delaware, No. 18-2311 (3d Cir. Sept. 12, 2019). Weih Chang filed qui tam lawsuit in 2015 alleging the Children’s Advocacy Center of Delaware had misrepresented material information when applying for governmental funding. After a lengthy investigation, the United States declined intervention and moved to dismiss under the statutory provision that allows dismissal, “notwithstanding the objections of the person initiating the action if the person has been notified by the Government of the filing of the motion and the court has provided the person with an opportunity for a hearing on the motion.” 31 U.S.C. § 3730(c)(2)(A). The district court granted the motion to dismiss, holding that the government had shown a legitimate interest in dismissing the suit and Chang had not met the burden of showing that the move to dismiss was arbitrary or capricious. Chang appealed, arguing that he had a statutory right to an in-person hearing prior to dismissal and that at the hearing he could have introduced evidence to show that the dismissal was arbitrary and capricious. Id. at *5-6. The Third Circuit affirmed the district court opinion, holding the court had not erred in granting dismissal without conducting an in-person hearing. Id. at 8.

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19 March 2019

Third Circuit Finds Individual Ownership Interest in Corporation Not Required for FCA Liability and Unsworn Testimony Insufficient to Create a Material Issue of Fact

On March 14, 2018, the Third Circuit affirmed in part and vacated in part a district court ruling granting the United States’ motion for summary judgment.  The case raised three issues:  (1) whether an individual without any ownership interests in a company can face FCA liability for the company’s failure to perform a required act to qualify for Medicare reimbursement; (2) whether an unsworn statement is sufficient to create a material issue of fact when weighed against facts admitted during a plea colloquy; and (3) whether a defendant corporation is collaterally estopped from contesting FCA liability or damages based on an individual’s plea colloquy.

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10 April 2018

Sidley Lawyers Publish Article On Third Circuit Decision Regarding The Necessary Link Between Alleged Anti-Kickback Statute Violations And Actual Claims for Payment

Sidley lawyers Kristin Graham Koehler and Josh Fougere have authored an article as a part of the Washington Legal Foundation’s Legal Opinion Letter series, entitled “Third Circuit Confirms that False Claims Act Liability Requires Actual Evidence of a False Claim.” The article examines the Third Circuit’s recent ruling in United States ex rel. Greenfield v. Medco Health Sols., Inc., 880 F.3d 89 (3d Cir. 2018), an FCA suit premised on alleged violations of the Anti-Kickback Statute that was previously covered on this blog here.  Reaffirming the importance of showing an actual false claim for government payment, the Third Circuit held that, to prevail at summary judgment, relators must “point to at least one claim” rendered false or fraudulent by the alleged kickback scheme.  In doing so, moreover, the Third Circuit roundly rejected the relator’s arguments that a defendant “necessarily” violates the FCA by certifying that it did not pay illegal kickbacks, or that “the taint of a kickback renders every reimbursement claim false.”  Instead, the relator needed evidence of at least one “particular patient [who was] exposed to an illegal recommendation or referral and a provider [who] submits a claim for reimbursement pertaining to that patient.”  This decision should prove particularly significant for pharmaceutical manufacturers as more relators gravitate towards Anti-Kickback Statute allegations rather than off-label contentions.

The article is available for download on the Washington Legal Foundation’s website: http://www.wlf.org/publishing/publication_detail.asp?id=2706.

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13 February 2018

Third Circuit Clarifies Required Link Between AKS Violations and the False Claims Act

The Third Circuit’s recent decision in Greenfield ex rel v. Medco Health Systems, Inc. recently clarified the “link” that plaintiffs must show to connect the alleged kickback scheme to the submitted claim.  Greenfield, No. 17-1152 (3d Cir. Jan. 19, 2018).  In affirming summary judgment for the defendant, the Third Circuit held that to create an issue for trial, a plaintiff alleging a violation of the Anti-Kickback Statute (AKS) must present evidence of a claim submitted to the federal healthcare government that was actually exposed to the alleged kickback scheme. (more…)

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29 June 2017

Third Circuit Asked To Address Timelines of Claims Dismissed on First to File Grounds

The Third Circuit may become the second court of appeals to weigh in on whether a relator in a qui tam action may amend her complaint under Rule 15 to add claims previously prohibited by the “first-to-file” rule.  Last week, a federal court certified this and two additional questions for interlocutory review.  The district court’s decision follows an April ruling denying Pfizer’s motion to dismiss an amended complaint in a case that is over a decade old, and the question has important implications for the viability of otherwise time-barred claims. (more…)

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24 May 2017

Third Circuit Provides New Guidance on Escobar’s Materiality Requirement in Healthcare Cases

In a recent opinion, the Third Circuit provided new guidance on the application of Escobar’s ”heightened” materiality standard to cases involving healthcare entities.  The relator in United States ex rel. Petratos v. Genentech, No. 15-3805 (3d Cir. May 1, 2017) alleged that a pharmaceutical manufacturer ignored safety information about one of its drugs and potentially violated FDA’s adverse event reporting requirements.  As a result, the relator contended, physicians submitted Medicare claims for prescriptions that were not “reasonable and necessary.”  The Third Circuit concluded that the relator did not meet the “high standard” for pleading materiality post-Escobar because he failed to plead that CMS, the federal agency to which Medicare claims for the drug were submitted, consistently refuses to pay claims like those alleged (and indeed “essentially concedes that CMS would consistently reimburse these claims with full knowledge of the purported noncompliance”).  Moreover, the court noted, not only had FDA not taken any enforcement action, but it had actually approved multiple new indications for the drug at issue.  The court also observed that DOJ “has taken no action against Genentech and declined to intervene in this suit.”  (more…)

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25 February 2015

Third Circuit Deems Pharmacist’s Assessment Of Publicly Available Data Insufficient To Qualify Him As An Original Source

Posted by Jaime L.M. Jones and Jessica Rothenberg

In a recent decision, the Third Circuit provided additional guidance on the scope of the original source exception to the FCA’s public disclosure bar. In U.S. ex rel. Morgan v. Express Scripts, Inc., the court affirmed the dismissal of a qui tam suit based on allegations – widely covered in numerous lawsuits and media reports – that defendants artificially inflated Average Wholesale Prices (“AWPs”) for brand-name drugs. Relator David Morgan, a pharmacist, was never employed by any of the defendants and learned of the alleged scheme to inflate AWPs only through his review and comparison of two publicly available price listings. The court explained that knowledge gained through reviewing files—which was the full extent of Morgan’s “diligence” that led to his discovery of the price inflation—is not sufficient to demonstrate the “direct and independent knowledge” that is required to qualify as an original source. The court went on to note that Morgan’s general knowledge of the pharmaceutical industry, although it may have informed his review of the publicly available information, also was not enough to rescue his claims under the original source exception. The court then applied the familiar two step analysis under the public disclosure bar and found that Morgan’s allegations of a price inflation scheme were (1) disclosed in the news media, previously filed lawsuits, and a Congressional report, and (2) based on those public disclosures. In this connection, the court noted that the mere fact that Morgan calculated specific “markups” tied to the allegedly inflated AWPs was not sufficient to “remove his allegations from the public disclosure realm.” Thus, and since Morgan was not the original source of the allegations in his complaint, the court affirmed the district court’s dismissal of his claims for lack of subject matter jurisdiction under the pre-FERA version of the public disclosure bar.

A copy of the Third Circuit’s opinion in U.S. ex rel. Morgan v. Express Scripts, Inc., No. 14-1029 (3d Cir. 2015) can be found here.

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27 October 2014

Sidley Obtains Third Circuit Victory on Original Source Ruling

Posted by Scott D. Stein and Jessica Rothenberg

On October 20, the Third Circuit affirmed the dismissal of a qui tam suit on the ground that a relator whose knowledge was based on review of documents and discussions with other company employees did not have “direct and independent knowledge” such that he satisfied the original source exception to the pre-PPACA public disclosure bar. The relator, a former employee of Medco (a pharmacy benefit management company), alleged that two pharmaceutical manufacturers violated the FCA by (1) misreporting their average and best prices for drugs sold to government health programs, and (2) improperly inducing health plans managed by Medco to favor their drugs. The relator claimed to have learned of defendants’ alleged fraud while a senior executive at Medco, during which time he met with representatives of the defendant manufacturers to negotiate agreements, and reviewed and discussed with colleagues agreements with defendants and other internal Medco documents.

The Third Circuit agreed with the district court that to qualify as an original source, “a relator must have direct and independent knowledge of either . . . the alleged fraud, or both . . . the false and true set of facts.” The court determined that relator’s knowledge, which allegedly “came from reviewing documents and discussing them with colleagues who participated in the underlying events,” was not “direct and independent,” and did not satisfy the original source exception. And although relator had direct and independent knowledge of defendants’ business strategies and certain payments to Medco and government health plans, he did not have knowledge of kickbacks, inaccurate best-price reports, or any false claims submitted by defendants. The court determined that the relator “substitutes experience-based belief that misconduct was occurring for the requisite direct and independent knowledge,” which “is plainly insufficient to qualify as an original source under the FCA.” Mark Haddad of Sidley Austin argued the appeal in the Third Circuit for AstraZeneca. A copy of the Third Circuit’s precedential opinion in United States ex rel. Schumann v. AstraZeneca Pharmaceuticals L.P., et al., No. 13-1489 (3d Cir. Oct. 20, 2014) can be found here.

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30 June 2014

Third Circuit Dismisses Qui Tam Claims For Lack of Intent Due to Ambiguity in a Government Contract

A. Brian Albritton at the False Claims Act and Qui Tam Law blog recently posted “Defendant’s Breach of Ambiguous Government Contract Prevents Court from Finding the Defendant Knowingly Submitted a False Claim for Payment.”  In the post, he analyzes the recent Third Circuit opinion in U.S. Department of Transportation ex rel Arnold v. CMC Engineering, Inc., et al., __ Fed. Appx.__, 2014 WL 2442945 (3rd Cir. June 2, 2014). In that case, the court dismissed an FCA action after holding that the contract defendant allegedly violated was so ambiguous that any violation could not have been “knowing.” The holding in this case is consistent with those on which we have previously reported (here and here) in which courts have held that ambiguity in allegedly violated regulations precludes a finding of a “knowing” submission of a false claim.

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12 June 2014

Third Circuit Adopts More Lenient Application Of Rule 9(b) In FCA Cases

As we previously reported, on March 31, 2014 the Supreme Court denied certiorari in response to a petition seeking to resolve a Circuit split concerning the application of Rule 9(b) in FCA cases. U.S. ex rel. Noah Nathan v. Takeda Pharms. N. Am., Inc., 134 S. Ct. 1759 (2014). Last Friday, the Third Circuit weighed in on the issue, adopting the less restrictive approach. See U.S. ex rel. Foglia v. Renal Ventures Mgmt., LLC, 2014 U.S. App. LEXIS 10549 (3d Cir. June 6, 2014); see also U.S. ex rel. Foglia v. Renal Ventures Mgmt., LLC, 2014 U.S. App. LEXIS 10726 (3d Cir. June 10, 2014) (notice of amended opinion).

Rule 9(b) requires that, “[i]n alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake.” The Circuits differ on what a qui tam relator or the government must allege at the pleading stage of an FCA case to satisfy the particularity standard. The Fourth, Sixth, Eighth and Eleventh Circuits, the Foglia court noted, apply a strict standard and generally require that the plaintiff allege at least representative examples of the purportedly false or fraudulent claims submitted for payment. See, e.g., U.S. ex rel. Bledsoe v. Cmty. Health Sys., Inc., 501 F.3d 493, 510 (6th Cir. 2007). The First, Fifth and Ninth Circuits, the Foglia court observed, have permitted FCA claims to proceed on the basis of allegations providing “reliable indicia that lead to a strong inference that claims were actually submitted.” See, e.g., U.S. ex rel. Grubbs v. Kanneganti, 565 F.3d 180, 190 (5th Cir. 2009).

In Foglia, the relator alleged that the defendant, Renal, had harvested and re-used leftover portions of an injectable medication without following HHS procedures, and had charged Medicare as though it had been using new vials of the medication with each patient. As evidence to support his claim that Renal had defrauded Medicare, the relator alleged that Renal’s inventory logs for a particular period showed that it was using between 29 and 35 vials of the medication per day, when it would have required 50 vials if it had been using new vials with each patient. See U.S. App. LEXIS at *9-13. The district court held that these allegations, which did not identify any purportedly false claim for payment, failed under Rule 9(b).

The Third Circuit disagreed and reversed. First, the Foglia court discussed the Circuit split on the pleading standard and sided with the less restrictive approach. The court stated “it is hard to reconcile the text of the FCA, which does not require that the exact content of the false claims in question be shown, with the ‘representative samples’ standard favored by the Fourth, Sixth, Eighth and Eleventh Circuits.” Id. at *6-7. The Foglia court also cited as support for its interpretation the Solicitor General’s amicus curiae brief filed in connection with the petition for a writ of certiorari in the Rule 9(b) case the Supreme Court recently declined to hear. In that brief, the Foglia court observed, the Solicitor General stated that the United States believes the more rigid pleading standard is “‘unsupported by Rule 9(b) and undermines the FCA’s effectiveness as a tool to combat fraud against the United States.'” Id. at 7 (citing Brief for the United States as Amicus Curiae at 10-11, Noah Nathan, 134 S. Ct. 1759).

After adopting the less demanding pleading standard, the Foglia court, while acknowledging that the case before it was “close,” went on to find that what it characterized as the relator’s “hypothesis” passed muster under Rule 9(b). The court accepted the allegations that Renal used fewer vials of the medication per day than it would if each had been used with a single patient, as well as the allegations that Renal did not follow HHS procedures to harvest unused medication from previously used vials. The court stated that the relator had shown “an opportunity for the sort of fraud alleged,” and had “give[n] Renal notice of the charges against it, as is required by Rule 9(b).” Id. at * 13. The court also observed, as further support for its conclusion, “that Renal, and only Renal, has access to the documents that could easily prove the claim one way or another – the full billing records for the time under consideration.” Id.

The chasm between the two camps of Circuits on the Rule 9(b) issue has been sharply delineated for some time. The Third Circuit’s opinion in Foglia further highlights the need for the Supreme Court finally to resolve the dispute and set forth clear guidance as to how Rule 9(b) applies to FCA claims.

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