DOJ Tries to Take Materiality Off the Table for Drug Company Motions to Dismiss

In a recent Statement of Interest, DOJ articulated a problematic, and incorrect, theory of materiality in an apparent effort to make it virtually impossible for defendants to defeat bare allegations of materiality at the motion to dismiss stage in cases that involve allegedly false claims for prescription drugs.


OIG Annual Work Plan Targets Drug Pricing, Data Protection Issues

Last week, the Department of Health and Human Services, Office of Inspector General (“OIG”) released its Fiscal Year 2016 (“FY2016”) Work Plan.  This work plan offers manufacturers and providers insight into OIG’s priorities for the coming year, many of which are consistent with issues that have been raised in False Claims Act lawsuits.  A number of OIG’s newly announced programs mirror current topics of intense debate in the healthcare industry, including pricing for brand name prescription drugs and controls over protected health information.


GAO Report Criticizing CMS Suggests Heightened Enforcement Risks for Part D Sponsors

The Government Accountability Office (“GAO”) recently released a report, “Changes Needed to Improve CMS’s Recovery Audit Program Operations and Contractor Oversight,” criticizing CMS for failing to adequately oversee the Part D recovery audit contractor (“RAC”) program.  The report reflects growing concern around potential overpayments under the Part D program, mirroring the wave of interest that first arose several years ago regarding potential overpayments under the Medicare Advantage (“MA”) Program.  For a time, the MA program operated relatively unscathed by the groundswell of qui tam suits in the healthcare industry, but it is now in the midst of a widespread industry enforcement wave, and a number of plans and providers are facing FCA suits (as discussed here).  The GAO’s report could portend more Part D Sponsors being future targets of similar scrutiny.


District Court Grants Partial Dismissal in Part D/Medicaid Case Alleging False Comparative Marketing Claims

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.


OIG Issues Publications Emphasizing Kickback Risks of Manufacturer-Sponsored Coupons for Part D Drugs

On September 19, the Office of Inspector General of the U.S. Department of Health and Human Services (OIG) issued a controversial report entitled Manufacturer Safeguards May Not Prevent Copayment Coupon Use for Part D Drugs, along with a companion Special Advisory Bulletin. The Report describes an OIG survey of pharmaceutical manufacturers’ use of copayment coupons and analyzes the safeguards manufacturers implement to guard against the use of coupons for drugs paid for by Medicare Part D beneficiaries. Each of the manufacturers surveyed provided notices to beneficiaries and/or pharmacies stating that their coupon and co-payment programs are invalid for use by Federal healthcare program beneficiaries. Nevertheless, OIG takes the position that failure to implement effective safeguards for compliance with eligibility requirements and other terms and conditions may be taken by the agency as reflecting an intent to use coupons to induce federally funded purchase of drugs in violation of the Anti-Kickback Statute and other fraud and abuse laws. These publications reflect another example of OIG’s emphasis on transparency as a way to reduce what it considers a source of fraud and abuse. However, OIG offers no concrete suggestions about how such a system might operate or be operationalized. In the meantime, these developments highlight certain AKS (and attendant FCA) risks that Part D plan sponsors, manufacturers, and participating pharmacies face.

DOJ Seeks Aggressive Enforcement of FCA Overpayment Provision

Posted by Scott Stein and Brenna Jenny

On June 27, 2014, the Department of Justice (“DOJ”) elected to intervene in a FCA suit based solely on an alleged failure to timely refund overpayments to the government. The failure to refund provision was one of the significant changes to the FCA wrought by the Affordable Care Act, and this suit is believed to be the first one in which DOJ has intervened based solely on allegations of a failure to refund.

The ACA amended the FCA by defining “obligation” as it is used in the “reverse false claims” provision to include retention of an overpayment from Medicare or Medicaid. Failure to report and return such overpayment within 60 days from the date on which the overpayment is “identified” creates potential liability under the FCA. The ACA left many open questions regarding the mechanics of the overpayment provision.

The relator is a former employee of Continuum Health Partners (now part of Mount Sinai Health System), who conducted an internal audit of Continuum’s claims after the New York Office of the State Comptroller notified Continuum in September 2010 that it had wrongly billed Medicaid as a secondary payor on certain claims. After concluding that a computer programming glitch was responsible for the error, relator emailed his managers on February 4, 2011, enclosing a spreadsheet indicating what he believed to be approximately 900 erroneous claims from three hospitals. Relator’s employment was terminated four days later. However, Continuum began refunding the claims at issue “in small batches,” such that 600 of the approximately 900 claims had been repaid as of June 2012, when Continuum received a subsequent Civil Investigative Demand. The remaining 300 claims were refunded by March 2013.

DOJ’s intervention in this case is notable in several respects. First, as we previously reported here, in February 2012, the Centers for Medicare and Medicaid Services (“CMS”) published a proposed rule to implement the ACA’s overpayment provision, as applicable to providers and suppliers under Medicare Parts A and B. Over two years later, CMS still has not published a final rule. Yet DOJ has apparently chosen this case as a vehicle to litigate the scope of the overpayment rule, notwithstanding that CMS has yet to issue final guidance. (While CMS has issued final guidance as to the meaning of “identified overpayment” for MA organizations and Part D Plan sponsors, it does not appear that this guidance applies to the claims at issue in this case).

DOJ’s complaint indicates that it believes that the defendants “identified” the overpayments on February 4, 2011, when relator provided the spreadsheet of claims at issue to his superiors. Relator also apparently shares that view, as the docket reflects that he filed his complaint under seal on April 5, 2011, exactly 60 days after writing the email to his managers detailing what he believed to be erroneous claims. Relator did so, even though (according to the complaint in intervention) his email to his superiors “indicated that further analysis was needed to corroborate his findings.” Thus, this lawsuit (and DOJ’s intervention, in particular) suggests that even preliminary, uncorroborated results from internal compliance activities may be sufficient to reach the point at which a company becomes sufficiently aware of an overpayment to trigger the countdown to FCA liability.

This suit also highlights the significant financial stakes at issue even in a case based solely on failure to timely refund overpayments. While the complaint contains the standard plea for treble damages, it appears from the allegations that Continuum already refunded the claims at issue, which would all but eliminate the prospect of damages. However, the defendants remain exposed to the possibility of civil penalties ranging from $5,500 to $11,000 for each claim that the government contends was not timely refunded. Through his initial review, relator believed 900 claims contained overpayments, which would yield damages totaling anywhere from $4,950,000 to $9,900,000. Yet the magnitude of the potential civil penalties remains an open issue. Relator’s amended complaint alleges that, if his initial calculations are extrapolated from the claims of the three hospitals he reviewed to all hospitals at issue, the number of claims tainted by overpayments would be much higher (although he does not provide an estimate of the number of claims). Additionally, the State of New York has elected to intervene, based on violations of the New York State False Claims Act. Violations of this state law carry a civil penalty of between $6,000 to $12,000 per false claim.

Had the government chosen to pursue enforcement under the Civil Monetary Penalties (“CMP”) Law instead of the FCA, the financial consequences could potentially have been catastrophic. Under the Department of Health and Human Services, Office of Inspector General’s (“OIG”) recently proposed approach to implementing the parallel overpayments provision of the CMP Law, OIG may impose fines of $10,000 per claim for each day an identified overpayment is not returned. 79 Fed. Reg. 27,080, 27,086 (May 12, 2014). Whereas even a belated but eventual cure mitigates financial penalties for overpayments under the FCA, under the CMP Law this may not be the case.

DOJ’s intervention in this case heightens the necessity of a timely internal assessment and response to complaints regarding overpayments. Given this relator’s filing on the first possible day that FCA liability could be incurred, companies may have little leeway in determining whether they have identified an overpayment.

Court Holds that Pharmacy Cannot Be Liable Under the FCA for Filling “Off-Label” Prescriptions

Posted by Jaime Jones and Catherine Starks

A federal district court in Georgia recently granted summary judgment in favor of Omnicare, Inc. in a qui tam suit asserting FCA liability against the specialty pharmacy for purportedly dispensing atypical antipsychotics for off-label uses and seeking Medicare Part D reimbursement for those prescriptions. United States ex rel. Fox Rx, Inc. v. Omnicare, Inc., No. 1:11-cv-962-WSD (N.D. Ga. May 23, 2014).

The relator, a Medicare Part D plan sponsor, alleged that Omnicare had actual or constructive knowledge that it was submitting “false” claims for off-label, non-reimbursable, uses because Omnicare’s consultant pharmacists regularly reviewed patient records and recorded diagnosis information in Omnicare’s computer system. In a previous post, we reported that this court earlier ruled that Part D does not cover off-label uses of drugs that are not for “medically accepted indications.” See In ruling on the summary judgment motion, the court rejected the notion that there was evidence that Omnicare acted “knowingly” with respect to the off-label and non-reimbursable nature of the claims, finding that there was no proof that Omnicare’s dispensing pharmacists had actual knowledge of or even access to this patient diagnosis information. The court also held that even if the pharmacists had accessed the diagnosis information, there was still no evidence that they knew the diagnoses were not for medically-accepted indications, and thus not subject to reimbursement by Medicare. Moreover, the court held that there was no duty for Omnicare or its pharmacists to make this determination (such as by reviewing the label for FDA approval of the specific use or referring to Medicare Part D- recognized compendia to determine whether the use was supported and therefore properly reimbursable).

This case has important implications for specialty pharmacies and similarly situated parties that are implicated in cases alleging the submission of claims for off-label use of drugs, and supports the argument that dispensing pharmacists do not have a duty to evaluate whether a drug has been prescribed for an on-label or otherwise medically accepted indication prior to submitting a claim for reimbursement to the federal healthcare programs.

New Anti-Kickback Settlement Announced: Omnicare Settles for $120 Million

On Oct. 22, 2013, Omnicare disclosed in a SEC filing that the Company would pay $120 million plus attorneys’ fees to settle allegations that it engaged in an impermissible “swapping” arrangement under the Anti-Kickback Statute. The settlement involves a long-standing qui tam case, previously featured here, brought by a former Omnicare employee in 2010. The relator alleged that Omnicare, a pharmacy provider, gave nursing homes “per diem pricing” and “prompt payment” discounts on pharmaceutical drugs provided to Medicare Part A patients in exchange for referrals of Medicare Part D patients. Additionally, the suit alleged that Omnicare violated Ohio’s “Most Favored Customer” pricing law by providing pricing to nursing home’s Medicare Part A patient beneficiaries below its Medicaid prices for the same drugs. According to Omnicare’s filing, the Company will not admit guilt in the settlement. Because Omnicare’s disclosure was based on an “agreement in principle” with the relator, no further details are available at this time

Although the settlement was announced in the U.S. District Court for the Northern District of Ohio, it has not been finalized, and still must be approved by the Department of Justice Civil Division.

Court Denies Relator’s Summary Judgment Motion on “Swapping” Arrangements

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.

Court Rules That Defendant Precluded From Using Evidence to Support Advice of Counsel Defense in FCA Action By Waiting Until Close of Discovery To Produce Supporting Evidence

On March 14, 2013, U.S. Magistrate Judge Frank J. Lynch, Jr. issued a discovery order which may effectively foreclose defendants’ use of an advice of counsel defense in a FCA suit currently pending in the U.S. District Court for the Southern District of Florida. United States ex rel. Matheny v. Medco Health Solutions, Inc., 2:08-cv-14201-DLG, Dkt. # 258 (S.D. Fla. Mar. 14, 2013). The order prohibits defendants from using an email and meeting minutes supporting an advice of counsel defense because defendants’ production of these materials was untimely. Slip op. at 12-13. The court noted that it was “limit[ing] its ruling to the discovery context since that is the scope of its Order of Reference.” Id. at 13. However, the court went on to note that except for the email and the meeting minutes, “the Defendants produced no other documentary, testimonial, or other evidence of legal advice upon which they relied,” thereby indicating that the order likely will foreclose defendants’ use of an advice of counsel defense as a practical matter. Id.

The key document at issue in the opinion is a September 22, 2006 email from William Eck, former general counsel of Medco subsidiary PolyMedica, in which Mr. Eck opined that Medicare Part D overpayments, which the plaintiffs allege were fraudulently hidden to avoid paying government refunds, do not count as “overpayments” under the governing contracts. Id. at 4-5. The document was produced to the plaintiffs at the deposition of a corporate representative on February 6, 2013, three business days before the February 11 discovery deadline in the case. See id. at 7. At that deposition, defendants also produced a heavily redacted set of meeting minutes relevant to the advice of counsel defense. Id. at 7. Additionally, on February 8, defendants provided plaintiffs their Second Amended Initial Disclosures, in which defendants for the first time, listed Mr. Eck as an individual likely to have discoverable information, and an updated privilege log, which listed the Eck email. Id. at 8.

Defendants argued that their invocation of the attorney-client privilege at an October 2012 deposition put plaintiffs on notice that Mr. Eck had rendered legal advice and thus that defendants might raise an advice of counsel defense. See id. at 9. Judge Lynch disagreed, finding that defendants’ invocation of the privilege signaled that defendants intended to maintain the privilege, not to raise an advice of counsel defense. Id. at 9-10. Judge Lynch also found that defendants produced the email and minutes “too late to be of any use to the Plaintiffs, and the late production [of the email and minutes] fell short of the Defendants’ general obligation to produce relevant discovery in a timely fashion.” Id. at 10-11. As a result, the court granted plaintiffs relief under Rule 37(c) and ordered that defendants are foreclosed from using the email and minutes. Id. at 12-13.