Fourth Circuit En Banc Vacates Application of Safeco to FCA Cases

The Fourth Circuit, evenly divided while sitting en banc, recently unwound a panel decision finding that Safeco’s “reckless disregard” standard applies to the False Claims Act (“FCA”).

In January 2022, a panel of the Fourth Circuit held, joining every other circuit to have considered the issue, that when allegations of false claims are premised on violations of ambiguous laws or regulations, the defendant’s scienter is properly assessed using the standard for “reckless disregard” established by the Supreme Court in Safeco Insurance Company of America v. Burr, 551 U.S. 47 (2007).  Under Safeco, courts ask whether a defendant’s interpretation of the ambiguous law or regulation at issue was objectively reasonable and whether authoritative guidance might have warned the defendant away from that interpretation.  As discussed here, applying Safeco, the panel affirmed the district court’s dismissal of the case.

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New Pharmacy, Same Result: Seventh Circuit Holds That Objective Reasonableness Dooms “Usual and Customary” Pricing Case

On April 5, 2022, in a 2-1 decision, the Seventh Circuit applied the precedent it set in United States ex. rel. Schutte v. SuperValu Inc., 9 F.4th 455 (7th Cir. 2021) (discussed here) and found once again that a defendant retail pharmacy did not act with “reckless disregard” under the False Claims Act (“FCA”) by interpreting Medicare Part D and Medicaid “usual and customary” price requirements as allowing it to charge those programs its retail cash prices rather than prices offered through discount programs. United States ex rel. Proctor v. Safeway, Inc., No. 20-3425, 2022 WL 1012256 (7th Cir. Apr. 5, 2022). (more…)

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Fourth Circuit Applies Safeco to FCA Claims, Accuses CMS of “Maintaining Strategic Ambiguity” Around Medicaid Drug Rebate Program Requirements

In a recent 2-1 decision, the Fourth Circuit joined every other circuit to have considered the issue in applying Safeco’s “reckless disregard” standard to legally false FCA claims based on alleged violations of ambiguous laws and regulations.  Under Safeco, courts ask whether a defendant’s interpretation of the ambiguous law or regulation at issue was objectively reasonable and whether authoritative guidance might have warned the defendant away from that interpretation.  The Fourth Circuit found that the Safeco standard “duly ensures that defendants must be put on notice before facing liability for allegedly failing to comply with complex legal requirements.  Without such notice, defendants are not likely to receive due process.”

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District Court Rejects Anti-Kickback Statute Claim Due to “Conclusory” Assertions of Unlawful Intent

A court in the District of Maryland recently dismissed a declined qui tam action in which the relator, a bariatric surgeon, alleged that two medical device companies violated the AKS by providing surgeons with free advertising in exchange for physicians using the companies’ LAP-BAND medical devices in bariatric surgeries.  See United States ex rel. Fitzer v. Allergan, Inc., et al., 1:17-cv-00668-SAG (D. Md. Sept. 10, 2021).  The court’s decision granting defendants’ motions to dismiss is notable in its refusal to allow relator to proceed based on conclusory allegations that the defendants knew they were acting in violation of the AKS. (more…)

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Seventh Circuit Affirms That Safeco “Objective Reasonableness” Standard Applies to FCA Claims; Finds It Was Objectively Reasonable for Defendants to Charge Government Retail Cash Prices Instead of Discount Program Prices

In a 2-1 decision, the Seventh Circuit joined the Third, Eighth, Ninth, and D.C. Circuits in holding that the standard for “reckless disregard” under the Fair Credit Reporting Act (“FCRA”) established by the Supreme Court in Safeco Insurance Company of America v. Burr, 551 U.S. 47 (2007) applies equally to the False Claims Act (“FCA”). Applying Safeco, the Seventh Circuit also held that it was objectively reasonable for Defendants, a group of retail pharmacies, to charge the Medicare Part D and Medicaid programs their retail cash prices as their “usual and customary” prices for drugs rather than prices offered through competitor price-match discount programs.

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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.

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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.

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Current DOJ Enforcement Priorities, Focus on CARES Act Fraud

At a recent U.S. Chamber of Commerce, Institute for Legal Reform meeting, Principal Deputy Associate Attorney General Ethan Davis set forth the current enforcement priorities of the U.S. Department of Justice (DOJ), clarifying for corporations accessing stimulus funds or otherwise dealing with government programs or acting in regulated industries how it is focusing its efforts to target fraud in the midst of the COVID-19 pandemic. While Davis underscored DOJ’s commitment to using the False Claims Act (FCA) and other “weapons in [its] arsenal” to fight fraud against the various pandemic stimulus programs, he also emphasized DOJ’s commitment to exercise enforcement discretion in cases lacking the hallmarks of bad corporate intent.

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Principal Deputy Associate Attorney General Discusses DOJ’s Corporate Enforcement Priorities, Focus on Corporate Compliance

At the recent Compliance Week Annual Conference, Principal Deputy Associate Attorney General Claire McCusker Murray delivered extensive remarks on DOJ’s corporate enforcement priorities.  Of particular note, Murray discussed a number of policy reforms focused on promoting and incentivizing corporate compliance and cooperation.

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Government Sufficiently Pleads Florida Pharmacy Owner Caused Submission of False Claims through Kickback Scheme; Suit Will Go Forward

The U.S. District Court for the Northern District of Florida recently held that a False Claims Act suit can proceed against a Florida pharmacy and its owner, rejecting in particular the owner’s arguments that the complaint did not sufficiently allege that he acted with improper intent or caused the submission of false claims.

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