Court Rejects Off-Label Promotion Allegations Due to Failure to Cite Actual False Claim Submissions; Allows Retaliation Claims to Proceed

Posted by Scott Stein and Brenna Jenny

On March 27, 2015, a federal court in the Southern District of Ohio granted in part and denied in part a motion to dismiss a qui tam suit alleging that Bristol-Myers Squibb Co. (“BMS”) and Otsuka America Pharmaceutical (“Otsuka”) had promoted Abilify for off-label uses and violated the AKS through grants, speaker, and similar programs offered to physicians. See United States ex rel. Ibanez v. Bristol-Myers Squibb Co., No. 11-cv-00029 (S.D. Ohio Mar. 27, 2015). The court’s ruling reiterates that regardless of the particularly with which a scheme is pled, complaints will be dismissed if they fail to, at a minimum, include particular allegations that support a strong inference that a false claim was submitted. However, the court’s partial denial of the motion to dismiss also demonstrates the weight of the expanded protections relators now enjoy when bringing retaliation claims under the FERA-amended definition of protected conduct.

Both BMS and Otsuka previously executed Corporate Integrity Agreements (“CIAs”) relating to alleged off-label promotion of an anti-depressant, Abilify. Relators asserted that both companies violated their CIAs by subsequently promoting Abilify for off-label uses, including for pediatric and geriatric patients, and for offering physicians kickbacks to write off-label prescriptions for Abilify. Relators asserted they could rely on a “relaxed” pleading standard referenced but never applied by the Sixth Circuit Court of Appeals, under which they need not present any samples of false claims actually submitted, so long as they pled a strong inference of such submissions.

The defendants contested that such a standard was appropriate, yet the court ruled that the dispute was moot, because relators failed even to meet the lower pleading standard. In particular, while relators alleged that defendants’ off-label promotion and kickbacks caused physicians to write prescriptions for off-label uses of Abilify, the complaint failed to support a strong-inference that the patients who received those prescriptions participated in federal health care programs, that the patients actually filled the off-label prescriptions, and that an entity submitted claims for reimbursement to the government for those prescriptions.

Relators had argued that they further fell within the ambit of dicta in United States ex rel. Bledsoe v. Community Health Systems, Inc., 501 F.3d 493 (6th Cir. 2007), where the Sixth Circuit left open the possibility that a relaxed pleading standard would be appropriate “where a relator demonstrates that he cannot allege the specifics of actual false claims that in all likelihood exist, and the reason that the relator cannot produce such allegations is not attributable to the conduct of the relator.” According to the relators, they were precluded from identifying specific false claims because such information regarding claims for payment caused to be submitted by BMS and Otsuka lay in the exclusive possession and control of the defendants, pharmacies, and federal and state payors. The court characterized the Sixth Circuit’s dicta as “so broadly worded that [it] could undermine the purpose of the particularity rule,” and refused to allow it to “swallow[] the existing and well-settled rules for FCA pleading.”

Nonetheless, the court denied defendants’ motion to dismiss the relators’ retaliation claims. The FERA amendments to the FCA expanded protection over lawful acts “in furtherance of an action under [the FCA]” to also protect “other efforts to stop [one] or more violations of [the FCA].” Thus, whereas protected conduct prior to the FERA amendments was generally limited to actions that could lead to a FCA suit, the court noted that post-FERA, employees need only “report alleged misconduct up the chain of command in order to engage in FCA-protected activity.” Because relators had pled that they reported compliance concerns to their management, the court found this standard to be met.

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

Court Rejects “Swapping” Claims, Rejects Claim That “Below Cost” Discounting Violates the Anti-Kickback Statute

Posted by Scott Stein and Brenna Jenny

The Southern District of Ohio recently granted defendants’ motion to dismiss in a FCA case based on alleged violations of the Anti-Kickback Statute (“AKS”) through “swapping.” Swapping allegations can take a variety of forms; here, relator claimed that defendant Mobilex (a provider of mobile, on-site x-ray services to Skilled Nursing Facilities (“SNFs”) and long-term care facilities) deeply discounted its services for Part A beneficiaries while charging higher rates to services for Part B beneficiaries. Because Mobilex’s clients are reimbursed on a per diem basis for the x-rays provided to Part A beneficiaries, the facilities allegedly received remuneration in the form of pocketing the extra discount on Part A services. This remuneration, according to relator, was intended to induce facilities to refer to Mobilex the opportunity to provide x-rays to Part B residents as well, at non-discounted prices.

After more than two years of seeking extensions of time, the United States declined to intervene. The relator moved forward, premising his swapping theory on the argument that Mobilex priced its Part A services below cost. Relator insisted the only appropriate measure of cost was “fully loaded costs,” which includes not only variable expenses, but fixed costs and overhead. There was no direct evidence of an intent to induce referrals through discounted prices. Instead, relator argued that Mobilex was deliberately ignorant to the fact that its Part A services were priced below cost.

In rejecting the relator’s theory of liability, the court relied heavily on an opinion we previously described here, in which a relator’s efforts to box a court into rigidly defining a single standard for calculating whether discounts are “below cost” fell equally flat. First, the court refused to find that Mobilex “knowingly” violated the AKS, ruling that even “arbitrary prices set ‘with intentional disregard for costs’ do not establish inducement” under the AKS. Slip Op. at 10. Second, relator failed even more fundamentally to show that Mobilex’s discounting violated the AKS. Relator had little response to Mobilex’s explanation that its prices were above Fair Market Value (“FMV”), other than to criticize FMV as a metric for analyzing discounts. Although relator cited as dispositive several Health and Human Services, Office of Inspector General (“OIG”) Advisory Opinions describing below cost discounts (often equated to below fully loaded costs) as “suspect,” the court reiterated that, under Supreme Court precedent, agency opinion letters are not entitled to deference, and furthermore, whether OIG further investigates “suspect” discounting practices does not render them per se illegal. The court concluded not only is a “fully loaded costs” analysis not required to determine whether discounting practices violate the AKS, but obligating such an approach would lead to absurd results, e.g., a corporate entity’s headquarters could alter overhead costs only tangentially related to the services at issue, which could nonetheless rework a contract’s fully loaded costs, significantly impacting the calculus of whether ongoing discount arrangements were legal.

Case law regarding the types of discounting practices that will be deemed to have violated the AKS has been sparse, and the OIG’s guidance has been consistently limited. This opinion adds support for the approach that where there is evidence a business’s costs meet at least one rational standard, such as FMV, a plaintiff should not be able to argue that the failure to meet a different standard establishes a violation of the AKS.

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

What Happens When A Relator Steals Patient Data?

A federal district court in Ohio recently grappled with an issue that arises frequently in healthcare qui tam cases: what happens when a relator steals confidential health information to file an FCA action? The relator in Cabotage v. Ohio Hospital for Psychiatry, No. 11-cv-50 (S.D. Ohio), a nurse, suspected that the hospital’s Medical Director was engaged in fraudulent activity. Cabotage gathered evidence, including the Medical Director’s patient notes and other patient-identifying information, and provided it to an agent for HHS. After HHS declined to pursue a claim against the facility for misconduct, Cabotage filed a qui tam. When the defendant hospital learned that Cabotage had taken confidential patient information, it filed a motion to compel the return of the information pursuant to HIPAA.

The Court concluded that it lacked authority under HIPAA to order the return of the purloined information, and that only the Secretary of HHS could act to enforce that statute. However, exercising its “inherent authority,” the Court entered an order precluding the relator from utilizing in the lawsuit any of the documents she removed from the hospital in connection with her investigation. The Court did not preclude relator from seeking the documents through the discovery process in the qui tam.

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