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.
Posted by Kristin Graham Koehler and Amy Markopoulos
On July 28, 2012, McKesson Corporation entered into a national settlement with 29 states and the District of Columbia adding to the growing list of drug companies who have settled with the federal and state governments for allegations of reporting inflated prices to the databases used to set Medicaid and Medicare prices.
In April, the federal government settled the federal portion of this lawsuit for over $187 million. When announcing the federal settlement with McKesson, U.S. Attorney Paul Fishman said that over $2 billion has been recovered by state and federal governments from drug companies that have reported inflated prices to databases.
Under the July 28 settlement, McKesson agreed to pay more than $151 million to the states for violations of the false claims act. The settlements resolve a 2005 whistleblower case that charged McKesson with inflating the average wholesale prices that it reported to First Data Bank, a publisher of drug prices, by as much as 25% between Aug. 1, 2001, and Dec. 31, 2009. Medicaid relied upon First DataBank’s price lists to calculate the reimbursement amounts Medicaid paid pharmacies, physicians and clinics for prescription drugs it covered. As a result, it is alleged that State Medicaid programs had to overpay for a variety of drugs. The settlement covered more than 1,400 brand name prescription drugs, including commonly prescribed medications such as Adderall, Allegra, Ambien, Celexa, Lipitor, Neurontin, Prevacid, Prozac and Ritalin.
In Sandoz v. Alabama, the Supreme Court of Alabama extended its earlier opinion in AstraZeneca v. Alabama (2009) and overturned a jury verdict, holding that the State could not prevail on a fraud theory where it had actual knowledge that the defendant’s reported list prices did not reflect actual transaction prices.
Proceeding under various state law fraud theories, Alabama alleged that Sandoz had provided false “Wholesale Acquisition Cost” (“WAC”) and Average Wholesale Price (“AWP”) information to national price compendia, such as First Databank, leading Alabama’s Medicaid program to over-reimburse generic drug purchases. Specifically, Alabama alleged that Sandoz reported its list price without accounting for discounts, rebates, and other inducements, which had the effect of lowering the actual transaction prices to customers.
At trial, Alabama put on evidence that WAC data should reflect a drug manufacturer’s net price, that is the price ultimately charged to wholesalers. By reporting only its list price, exclusive of rebates, discounts, and the like, Sandoz led the compendia to overstate its prices. Alabama, in turn, relied on these allegedly inflated prices in reimbursing drug purchases covered by its Medicaid program, which, it alleges, resulted in over-reimbursements. Sandoz presented contrary evidence showing that WAC is commonly understood to reflect list, not net, prices. The jury disagreed, and found Sandoz liable for hundreds of millions of dollars in compensatory and punitive damages.
On appeal, Sandoz argued that regardless of whether WAC and AWP reflect list or net prices, Alabama could not reasonably have relied on the data it received from the compendia because it had actual knowledge that WAC and AWP pricing data routinely overstates manufacturers actual prices to wholesalers. Applying AstraZeneca, the Court agreed. “To claim reliance upon a misrepresentation, the allegedly deceived party must have believed it to be true. If it appears that he was in fact so skeptical as to its truth that he placed no confidence in it, it cannot be viewed as a substantial cause of his conduct.” Moreover, “plaintiffs alleging fraud cannot be said to have reasonably relied on alleged misrepresentations when they have been presented with information that would either alert them to any alleged fraud or would provoke inquiry that would uncover such alleged fraud.”
The Court pointed to evidence in the record showing that both federal and state officials had long been aware that AWPs routinely exceed actual transaction prices. The record also showed that Sandoz had voluntarily submitted Average Manufacturer Price (“AMP”) data to the state Medicaid agency, which should have put the agency on notice that its WAC and AWP data did not reflect its actual prices.
Although not an FCA case, this decision reflects similar considerations as the District of Massachusetts’ recent decision in United States ex rel Banigan v. Organon USA, which rejected FCA claims predicated on alleged off label promotion where the State knowingly reimbursed purchases of drugs for off label uses.
A Wisconsin court recently unsealed a qui tam complaint alleging that several pharmaceutical manufacturers violated Wisconsin’s version of the False Claims Act by publishing false “average wholesale prices” (AWPs) for their drugs, on which the State Medicaid program relied to establish drug reimbursement. This is not the first suit based on allegedly false AWPs. Indeed, AWP litigation has been raging in state and federal courts for the better part of the last decade. But what makes this case unusual is that the qui tam relator is the former Attorney General of Wisconsin, Peggy A. Lautenschlager. As Ms. Lautenschlager notes in the first paragraph of the complaint, it was under her term as Attorney General that the State of Wisconsin sued 38 other drug companies in 2004 for the same alleged conduct. These facts would appear to present obvious problems for the former Attorney General under Wisconsin’s public disclosure bar, but it will be interesting to watch this suit play out.
On February 16, 2012, the Centers for Medicare and Medicaid Services (“CMS”) released a long-awaited proposed rule (“Proposed Rule“) to implement the overpayment reporting and refund provisions of the Patient Protection and Affordable Care Act (“PPACA”), which are enforceable in a “reverse false claims” action under the False Claims Act.
Under section 6402 of PPACA, providers and suppliers who have been overpaid by Medicare or Medicaid must report and return the overpayment within the later of: (1) 60 days of the date on which the overpayment is “identified;” or (2) the date any corresponding cost report is due, if applicable, or face reverse false claims liability under the FCA. Although the duty to report and return an overpayment is triggered, in the alternative, from the date the overpayment is “identified,” Congress did not define “identified.” The Proposed Rule defines the term by reference to the FCA’s scienter provisions. Specifically, the Proposed Rule would deem an overpayment to be “identified” when the person has actual knowledge of the existence of the overpayment or acts in reckless disregard or deliberate ignorance of the overpayment, which is how the FCA defines a “knowing” violation of the Act. This standard mirrors that provided in the CMS’ Physician Payment Sunshine Act proposed rule whereby an applicable manufacturer must report payments or transfers of value to a covered recipient when the applicable manufacturer has actual knowledge of or acts in reckless disregard or deliberate ignorance of the identity of the covered recipient.
According to CMS, it incorporated the FCA’s mens rea standard to incentivize providers and suppliers “to exercise reasonable diligence to determine whether an overpayment exists.” In particular, CMS stated that the provision is designed to prevent providers and suppliers from avoiding their obligation to identify potential billing issues through, e.g., self-audits or compliance checks. The Proposed Rule does not otherwise provide guidance as to what steps providers should take to uncover potential billing issues, beyond the requirement to exercise “reasonable diligence,” and that investigations, once initiated, should be conducted “with all deliberate speed.” As evidenced by the case law interpreting the FCA’s “knowingly” standard , there is ample room for CMS and providers and suppliers to disagree regarding whether providers and suppliers have exercised “reasonable diligence” to identify potential overpayments.
Increasing the stakes for providers and suppliers in the event that they fail properly to “identify” an overpayment is the Proposed Rule’s adoption of an FCA-like 10-year “look-back” period. This provision requires providers and suppliers (and allows CMS and qui tam relators) to review any potential overpayments in the prior 10-year period (in contrast to the existing four year CMS reopening period and the three year Recovery Audit Contractor “look back” period). The 10 year look-back period obviously raises the spectre of significant financial liability for providers and suppliers.
As for how overpayments are to be reported, the Proposed Rule adopts CMS’ existing process for voluntary refunds, renamed the “self-reported overpayment refund process” set forth in Publication 100-06, Chapter 4 of the Medicare Financial Management Manual. CMS states that it intends to publish a new form specifically for reporting overpayments under PPACA.
The Proposed Rule also clarifies the relationship between the government’s various self-reporting mechanisms. First, if a provider or supplier reports a violation of the Stark Law through the Medicare Self-Referral Disclosure Protocol, this suspends the obligation to return overpayments, but not to report. In contrast, a provider’s or supplier’s report of potential fraud through the OIG Self-Disclosure Protocol1 both suspends the obligation to return overpayments once the OIG has acknowledged receipt of the submission,2 and constitutes a report for purposes of the Proposed Rule, provided such notification is consistent with the proposed deadlines.
CMS also offers guidance on what constitutes “overpayments” in the context of an alleged violation of the Federal Anti-Kickback Statute (“AKS”). The Proposed Rule notes that that while some overpayments may arise from potential violations of the AKS, third parties to the kickback arrangement do not have a duty to report or return such overpayments unless they have “sufficient knowledge of the arrangement to have identified the resulting overpayment.” In that case, the third party must report the overpayment to CMS, but only the parties to the kickback scheme would be expected to return the overpayment and not the innocent third-party provider or supplier, “except in the most extraordinary circumstances.” While the rule does not expressly apply to manufacturers, this proposed interpretation seems to establish a clear link between claims “tainted” by manufacturer kickbacks and “overpayment” liability. A separate post on this topic will be forthcoming.
While the Proposed Rule expressly applies only to Medicare Part A and B providers and suppliers, and is not final, CMS “remind[s] all stakeholders that even without a final regulation,” they “could face potential False Claims Act liability . . . for failure to report and return an overpayment.”
Comments on the Proposed Rule are due by April 16, 2012.
1 Id. at 9,182.
2 Id. at 9,183.
Posted by Scott Stein and Allison Reimann
On December 6, 2011, the Department of Justice intervened in an FCA suit against AseraCare Hospice, a hospice provider with facilities in nineteen states. The lawsuit, filed in 2009 by two former AseraCare employees, alleges that AseraCare knowingly filed false claims to Medicare for hospice care for patients who were not terminally ill. The DOJ’s complaint alleges that AseraCare, by pressuring employees to reach aggressive Medicare targets, admitted and retained individuals who were ineligible for Medicare hospice benefits—even after being alerted to problems by an internal auditor.
The case is United States ex rel. Richardson v. Golden Gate Ancillary LLC d/b/a AseraCare Hospice, No. 09-CV-00627, and is pending before Judge Abdul Kallon in the Northern District of Alabama. As reported by Bloomberg News, the DOJ’s complaint in intervention is part of a wider federal crackdown of suspected fraud by hospice providers.