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.
Posted by Kristin Graham Koehler and Monica Groat
On November 20, Acting Associate Attorney General Stuart F. Delery and Acting Assistant Attorney General Joyce R. Branda announced that the Department of Justice recovered a record $5.69 billion in settlements and judgments from civil cases involving alleged fraud against the Government in fiscal year 2014. This figure represents the highest annual total recovery and an increase of nearly $2 billion over the Government’s recovery in fiscal year 2013.
Recoveries from the financial industry accounted for the most significant proportion of fraud-related recoveries, representing $3.1 billion of the total $5.69 billion. This amount was more than double the previous record for recoveries from banks and other financial institutions, which paid $1.4 billion in fiscal year 2012. Healthcare fraud represented the second largest area of recovery; DOJ recovered $2.3 billion from pharmaceutical and device manufacturers, hospitals, and other healthcare providers. Fiscal year 2014 was the fifth straight year during which the Government has recovered more than $2 billion in cases involving false claims against federal healthcare programs, including Medicare and Medicaid.
Of the $5.69 billion recovered this year, nearly $3 billion related to lawsuits filed under the FCA’s qui tam provisions, and relators recovered $435 million. The number of FCA qui tam suits filed in 2014 decreased slightly: 713 suits were filed in 2014, compared with 754 in 2013. These numbers indicate that both DOJ and private relators are continuing to bring FCA cases; although the volume of cases did not increase, recoveries by both the Government and relators increased. The announcement also confirms that DOJ is continuing to aggressively pursue fraud cases, with a continuing interest in healthcare fraud and an increasing focus on the financial industry.
An April 14 article on Reuters.com titled “Lawyers start mining the Medicare data for clues to fraud” explains how plaintiffs’ lawyers are eagerly mining newly-released Medicare data showing provider-specific billings to support existing FCA claims and identify new ones. The article describes one example of how the data is being used to support healthcare cases based on violations of the Anti-Kickback Statute:
For example, if a lawyer were representing a pharmaceutical sales manager accusing his company of paying kickbacks to certain doctors, the data could point to other providers using the company’s products who could serve as witnesses or be added as defendants if the billings suggest wrongdoing.
“It could expand the case beyond a certain institution or provider to multiple institutions or providers,” said Chris Coffin, a Louisiana lawyer who represents whistleblowers.
Other lawyers said the data could produce leads for new lawsuits. When red flags emerge – a doctor bills Medicare an unusually high amount for a particular drug, say – lawyers could investigate what might explain the aberrant figure. That could turn up a possible fraud.
While the data may help relators add details to their pleadings, a strong argument can be made that claims based on the new Medicare data implicate the public disclosure bar. Thus, whether the release of this data ultimately helps or harms defendants remains to be seen, and is likely to depend on the stage of a particular case and the manner in which the information is being used.
Last week, the Supreme Court of Louisiana reversed a $330 million judgment ($258 million in penalties, $70 million in attorney fees, and $3 million in costs) against Johnson & Johnson and its subsidiary, Janssen Pharmaceutical, because there was no evidence that “any defendant made or attempted to make a fraudulent claim for payment against any Louisiana medical assistance program within the scope of [the Louisiana Medical Assistance Programs Integrity Law (‘MAPIL’)]”—a state statute based on the federal False Claims Act. Caldwell ex rel. State v. Janssen Pharmaceutical, Inc., Nos. 2012-C-2447, 2012-C-2466, 2014 WL 341038, slip op. at 1-2, 19-20 (La. Jan. 28, 2014)
The case centers on a narrow set of facts related to defendants’ antipsychotic drug Risperdal. In September 2003, the FDA told all manufacturers of so-called atypical antipsychotics to amend their labels to warn about potential adverse side effects associated with the drugs, and to issue letters about the change to healthcare providers around the country. Defendants did so, but their letter also reported that Risperdal had been associated with lower risks than other atypical antipsychotics. The FDA took issue with those statements and directed defendants to issue a “corrective” letter, which they did in July 2004. Just a couple of months later, the Louisiana Attorney General brought suit, alleging that the original letter contained off-label statements misrepresenting Risperdal’s safety and efficacy and that defendants were subject to civil penalties under Louisiana law as a result. In 2010, a jury returned a verdict for the state, finding that the defendants had violated Louisiana’s MAPIL 35,146 times (based on the number of letters mailed and sales calls made) and assessed a civil penalty of $7,250 per violation. The verdict was affirmed by the intermediate appellate court.
The Louisiana Supreme Court found no evidence to support that judgment based on its reading of the state’s false-claims act. Proceeding through each of the statute’s three subsections one-by-one, the court explained the law’s scope and why the conduct at issue did not fall within it. First was subsection (A), which provides that “[n]o person shall knowingly present or cause to be presented a false or fraudulent claim.” La. Rev. Stat. § 43:438.3(A). Because the statute elsewhere defined a “false or fraudulent claim” as one that a provider submits “knowing” it to be false or misleading, the court focused the responsibility for policing falsity on the person or entity actually making the claim for payment. The AG was thus required to “show that a Louisiana doctor who prescribed Risperdal for his patient, or a healthcare provider who dispensed the drug to the patient, knew that the defendants had made misleading statements about their product, but nonetheless prescribed or dispensed the drug to the patient knowing that there may be drugs that are equally safe, and less expensive, or safer than Risperdal, and notwithstanding that knowledge, prescribed or dispensed Risperdal.” Put another way, the “doctor or healthcare provider would have had to have knowingly committed malpractice, prescribing or dispensing Risperdal despite knowing there were better, cheaper, or safer, more efficacious drugs available, for the defendants to be liable under this provision.” No evidence supported such a finding.
Next, the court turned to subsection (B), which provides that “[n]o person shall knowingly engage in misrepresentation to obtain, or attempt to obtain, payment from medical assistance programs funds.” Again requiring a tight nexus between the claim for payment and the allegations, the court found “no showing the defendants knowingly attempted to obtain payment from the medical assistance programs pursuant to a claim.” In addition, the court read the “misrepresentation” requirement to “logically place the obligation of truthful and full disclosure on the healthcare provider or any person seeking to obtain payment through a claim made against medical assistance program funds or entering into a provider agreement,” in light of the “absurd consequences” that would arise if “potentially any information required by any federal or state agency or source, which is not fully disclosed by any person who ultimately receives Medicaid funds, directly or indirectly, could, if not truthfully or fully disclosed, subject that person to civil penalties under MAPIL.”
The third subsection states that “[n]o person shall conspire to defraud, or attempt to defraud, the medical assistance programs through misrepresentation or by obtaining, or attempting to obtain, payment for a false or fraudulent claim.” La. Rev. Stat. § 43:438.3(C). Here, too, the gap between the allegedly misleading statements and the claims for payment doomed the state’s case: “Even if the defendants were attempting to gain a competitive edge over other manufacturers of atypical anti-psychotics through the use of misleading off-label statements,” and “even if the defendants’ conduct was intended to influence the prescribing decisions of doctors treating schizophrenia patients,” there could be no liability because there was “no showing the defendants failed to truthfully or fully disclose or concealed any information required on a claim for payment made against the medical assistance programs” or that any such statements “were made to the department relative to the medical assistance programs,” and there was “no causal connection” between any such conduct and “any false or fraudulent claim for payment to a healthcare provider or other person.”
The thrust of the Louisiana court’s reasoning is straightforward but powerful: a statute designed to prevent false or fraudulent claims requires a close connection between the allegedly fraudulent conduct and the claim for payment from the state, and liability will not necessarily attach to any allegation of wrongdoing that ultimately winds its way to a Medicaid claim. Because the Louisiana statute bears similarities with false claims act statutes in other jurisdictions, this is a significant ruling for manufacturers defending false marketing claims elsewhere.
Posted by Jaime Jones and Brenna Jenny
The Eighth Circuit Court of Appeals recently reaffirmed that mere regulatory noncompliance, standing alone, is not sufficient to establish False Claims Act liability for claims submitted to Medicare. Rather, the court held, a relator must allege facts tying a defendant’s alleged conduct to Medicare’s expectations regarding material conditions of payment. See United States ex rel. Ketroser v. Mayo Found., No. 12-3206 (8th Cir. Sept. 4, 2013).
In the Ketroser case, relators alleged that the defendant violated the FCA when it submitted one written report, rather than two, as part of a pathology analysis incorporating a two-stage testing process. According to relators, because the CPT codes for the tests were both included in a section of the Medicare Codebook that required “reporting,” Medicare expected Mayo, to create two separate written reports. Mayo responded that it created a written report of the first test, and more broadly “reported” the results of the second test through oral communications between physicians and supplemental written comments as needed.
The court affirmed the district court’s dismissal of the claim based on relators’ failure to submit any “specific evidence” that Medicare considered separate written reports to be a material condition of payment. In this regard, the court joined other Circuits, including the Second, Fifth, Sixth, Seventh, and Ninth, in holding that pleading a “claim of regulatory noncompliance” does not satisfy FCA pleading requirements.
Furthermore, the court suggested that even if Medicare had expected a separate written report as a condition of payment, the Codebook’s “reporting” requirement was ambiguous, and Mayo’s reasonable interpretation negated any inference that Mayo had “knowingly” submitted a false claim. As other courts have held (see related posts here and here), the Eighth Circuit reiterated that where a defendant’s “interpretation of the applicable law is a reasonable” one, relators fail to plead the requisite scienter under the FCA.
Posted by Ellyce Cooper and Patrick Kennell
In May of 2009, DOJ and HHS partnered to establish the Health Care Fraud Prevention and Enforcement Action Team (HEAT) to “focus efforts to reduce and prevent Medicare and Medicaid financial fraud through enhanced cooperation.” The latest settlement to come out of this partnership was for $26 million against a network of hospitals in Florida — Shands Healthcare. (United States of America and the State of Florida ex rel. Terry L. Myers v. Shands Healthcare, et al., No. 3:08-cv-441-J-16 (M.D. Fla. Apr. 30, 2008).
Six of Shands Healthcare’s Florida hospitals were defendants in a qui tam FCA lawsuit filed by the president of a healthcare consulting firm. The crux of Relator’s fraud based claims was that the hospitals billed Medicare, Medicaid and TRICARE “for inpatient procedures that should have been billed as outpatient services.”
The settlement will be split between federal agencies and the State of Florida, with the vast majority going to federal agencies. The realtor’s portion of the recovery has yet to be determined.
DOJ and HHS took the opportunity to again emphasize their “tireless” effort to “seek justice” in healthcare fraud cases. The DOJ Press Release providing more details on the settlement is available here. Note that since January 2009, DOJ has recovered $10.8 billion from cases involving alleged fraud against federal health care programs.
Posted by Gordon Todd and Jeff Beelaert
In Watson v. King-Vassel, No. 12-3671 (7th Cir. Aug. 28, 2013), the Seventh Circuit had stern words for a relator’s unsavory litigation tactics, but also declined to endorse a rule mandating expert testimony on certain issues in every case.
The Relator, Dr. Watson, alleged that defendant Dr. King-Vassel’s off-label prescription of psychotropic drugs to a minor caused the submission of false claims to the Medicaid program. The defendant sought summary judgment because, inter alia, Relator had failed to adduce any expert testimony, including to explain how Medicaid claims are submitted, to prove that by prescribing off-label the defendant knowingly caused the submission. The district court granted summary judgment, holding that expert testimony would be required to explain whether defendant actually caused the claims to be filed, and also holding that expert testimony would be required to explain pharmaceutical data including information in medical compendia, i.e., whether a submitted claim was false.
The Seventh Circuit reversed. As to the first issue, the Court held that expert testimony was not required to prove either how the Medicaid system works, or the defendant doctor’s knowledge regarding the submissions. Instead, a relator need only show that the defendant “had reason to know of facts that would lead a reasonable person to realize that she was causing the submission of a false claim,” or that she “failed to make a reasonable and prudent inquiry into that possibility.” The minor’s mother had testified that she had provided defendant with the minor’s Medicaid billing information and had never paid for the services out-of-pocket. This, the Circuit held, was sufficient for a reasonable juror to extrapolate the defendant’s state of mind. The Circuit rejected the district court’s characterization of Medicaid as a “grand mystery” and “black box,” instead analogizing it to a car: even though “most people could not explain every step turn-key and ignition, the cause-effect relationship is commonly appreciated.” In light of this analogy, a reasonable juror could find, without the aid of expert testimony, that the doctor’s prescription caused a Medicaid claim to be filed.
The Court also rejected as “premature and overbroad” the District Court’s blanket statement that “medical documents typically are not readily understandable by the general public,” thereby requiring expert testimony to explain medical compendia in every case. Instead, the Circuit held that whether such testimony is required turns on a more case-specific analysis as to whether a particular off-label use is supported by one or more compendia. On remand, the Court noted, a more specific analysis may show that the lack of expert testimony is indeed fatal.
While reversing summary judgment, the Court disapproved sternly of the Relator’s “unsavory” litigation generation tactics. The Relator had never treated or even met the patient, but had instead advertised for minor Medicaid patients to “participate in a possible Medicaid fraud suit.” Relator then secured the minor’s medical records by soliciting the minor’s mother to lie to the defendant doctor about their intended use. The Court approved of the District Court’s use of its inherent powers to impose monetary sanctions on Relator and his counsel for their conduct, which the Circuit hoped would dissuade the future use of such tactics.
On July 23, a federal district court in Ohio issued an opinion providing further guidance on how courts may view “swapping” arrangements under the Anti-Kickback Statute. The relator alleged that Omnicare, a pharmacy provider, gave a nursing home discounts on drugs provided to Medicare Part A patients in exchange for referrals of Medicare Part D business, a so-called “swapping” arrangement that the relator alleged violated the Anti-Kickback Statute. The relator moved for summary judgment on the basis of a contract with a nursing home in which Omnicare agreed to charge a nursing home a rate for certain drugs for Medicare Part A patients, but a higher rate (“usual and customary charge”) for the same drugs billed under Medicare Part D.
The court denied the relator’s motion for summary judgment on liability under the AKS for two reasons. The first issue was whether the prices that Omnicare offered under Medicare Part A constituted “remuneration.” The relator argued that the fact that prices for certain drugs were lower for Part A patients than for Part D patients was evidence that the Omnicare offered “discounts” for Part A business, and that such discounts qualify as remuneration. In essence, the relator argued that any prices less than “usual and customary charges” should be deemed to be “remuneration” under the AKS. Omnicare, by contrast, argued that whether the Part A prices qualify as “remuneration” depends on whether the prices were fair market value, not whether they were less than prices offered for services under Part D. The Court concluded that “fair market value” is the appropriate benchmark for determining remuneration. Given that, the court stated, it would be relevant whether Omnicare charges the same price for Part A services regardless of whether a nursing home refers Part D patients. Likewise, the court explained, Omnicare’s costs of providing services would be relevant “because no rational market participant would intentionally lose money on its Part A patients unless otherwise compensated.” The relator introduced evidence that Omnicare’s pricing was below its “invoice cost,” but Omnicare presented contrary evidence that invoice cost was not the appropriate measure of cost, in part because it failed to reflect discounts from suppliers. The court concluded that Omnicare’s evidence therefore raised a genuine issue of fact on the issue of remuneration. On the second issue, the court also held that Omnicare had raised a genuine issue of fact as to whether Omnicare intended “below-market” pricing on Part A patients to induce the nursing home to refer Part D business or rather, as Omnicare contended, its pricing “was merely the product of sloppy accounting and management at Omnicare.”
A copy of the court’s opinion can be found here.
The Department of Health and Human Services (“HHS”) Office of Inspector General (“OIG”) recently reported expected recoveries of approximately $3.8 billion for the first half of fiscal year 2013, which included last year’s $1.5 billion global settlement with pharmaceutical company Abbott Laboratories to resolve False Claims Act violations.
In its recently released Semiannual Report to Congress (“Semiannual Report”), which covered the period of October 1, 2012, through March 31, 2013, the HHS OIG touted its global settlement with Abbott as well as other settlements and criminal actions. The Semiannual Report is produced to inform Congress and the HHS Secretary of the OIG’s notable findings, recommendations, and activities over specific six-month periods.
The Semiannual Report highlighted the five-year Corporate Integrity Agreement with Abbott, described as “a global criminal, civil, and administrative settlement,” that the HHS OIG originally entered into with the pharmaceutical company in May 2012 “to resolve allegations that it violated the False Claims Act by improperly marketing and promoting the drug Depakote for uses not approved by the Food and Drug Administration (FDA), including the treatment of aggression and agitation in elderly dementia patients and the treatment of schizophrenia.”
Of the $3.8 billion that the HHS OIG expected to recover, over $521 million was from audit receivables and approximately $3.28 billion was from investigative receivables. Other activity highlighted in the Semiannual Report included:
- The exclusions of 1,661 individuals and entities from participation in federal health care programs;
- The filing of 484 criminal actions against individuals or entities that engaged in crimes against HHS programs;
- And 240 civil actions, including false claims and unjust-enrichment lawsuits filed in federal district court, civil monetary penalties settlements, and administrative recoveries related to provider self-disclosure matters.
The HHS OIG has said that historically, approximately 80 percent of its resources have been directed to Medicare and Medicaid-related work. In the Semiannual Report, it reported that efforts by the government’s Medicare Fraud Strike Force teams led to charges against 148 individuals or entities, 139 criminal actions, and $193.7 million in investigative receivables.
Posted by Kristin Graham Koehler and HL Rogers
The False Claims Act (FCA) provides that “no other person other than the Government may intervene or bring a related action based on the facts underlying the pending action.” 31 U.S.C. § 3730(b)(5). This so-called first-to-file rule “bar[s] a later allegation if it states all the essential facts of a previously-filed claim or the same elements of a fraud described in an earlier suit.” United States ex. Rel. Duxbury v. Ortho Biotech Prods., L.P., 579 F.3d 13, 32 (1st Cir. 2009). On this, there is no disagreement among the courts of appeal. However, the question arises as to what form the first filed complaint must take to trigger the rule. The Sixth Circuit has held that in order to qualify as a first filed complaint, the complaint “must not itself be jurisdictionally or otherwise barred.” United States ex rel. Poteet v. Medtronic, Inc., 552 F.3d 503, 516-17 (6th Cir. 2009). Considering the same issue, and looking at the Sixth Circuit’s prior holding, the D.C. Circuit held “a complaint may provide the government sufficient information to launch an investigation of a fraudulent scheme even if the complaint” is not jurisdictionally sound, thereby meeting the first-to-file rule. United States ex rel. Batiste v. SLM Corp., 659 F.3d 1204, 1210 (D.C. Cir. 2011). Judge Stearns, in the U.S. District Court for the District of Massachusetts, ruled on this issue over the summer and sided with the D.C. Circuit, dismissing the plaintiffs’ complaint. United States ex rel. Heineman-Guta v. Guidant Corp., 09-11927 (D.Mass. July 5, 2012). On November 6, 2012, the plaintiff filed an appeal with the First Circuit squarely raising this issue of the first-to-file rule.
In the Guidant case, the plaintiff alleged in the District of Massachusetts that the Company was involved in a scheme to induce doctors to use Guidant pace makers. Because of the product at issue, the allegations largely relate to senior citizens and, therefore, involve Medicare. Guidant argued that plaintiff’s FCA claim was precluded because of two previously filed lawsuits that Guidant argued alleged a similar scheme. The District Court found, and plaintiff conceded, that one of the two complaints did, in fact, allege a scheme nearly identical to that alleged by plaintiff. But the complaint was voluntarily dismissed and plaintiff argued lacked the particularity required by Federal Rule of Civil Procedure 9(b). Plaintiff further argued that, for this reason, the complaint could not serve as a jurisdictional bar to her complaint under the principles espoused by the Sixth Circuit in Poteet. The District Court found this argument unpersuasive.
The District Court began by explaining the reason that underlies the first-to-file rule. “The first-to-file rule is intended to provide incentives to relators to promptly alert the government to the essential facts of a fraudulent scheme.” Guidant Corp., 09-11927 at 5 (quotation omitted). Once the government has been put on notice of a fraudulent scheme, there is little benefit to allowing another relator to come later and allege the same scheme. The District Court examined both the Sixth Circuit’s argument that if a complaint is “jurisdictionally or otherwise barred” it does not qualify as an action that would initiate the first-to-file rule, Medtronic, Inc., 552 F.3d 516-17, and the D.C. Circuit’s argument that as long as the previous filing provides notice, whether the actual action is barred in some way or not, the first-to-file rule is triggered. SLM Corp., 659 F.3d 1210. The District Court sided with the D.C. Circuit’s reasoning arguing that the “purpose of a qui tam action is to provide the government with sufficient notice that it is the potential victim of a fraud worthy of investigation.” Guidant Corp., 09-11927 at 10. The District Court saw no reason why the government would be on notice after a filing that was not jurisdictionally or otherwise barred but not on notice following a filing that included the essential elements of the fraud but was somehow barred. Because the government would be on notice regardless, the District Court could find no reason to bar an action in the first instance and not the second.
The plaintiff recently appealed this ruling to the First Circuit. She places squarely at issue the District Court’s decision to side with the D.C. Circuit and reject the reasoning and holding of the Sixth Circuit. Regardless of the way the First Circuit rules on this issue, it will deepen this circuit split. None of us should be surprised to see this decision make its way to the Supreme Court in the next several years. Stay tuned.