The heightened materiality standard imposed by the Supreme Court last year in Escobar continues to pose a formidable bar to relators pursuing expansive theories of FCA liability. As we explain below, one court recently rejected a claim against pharmaceutical manufacturers alleging that the defendants had fraudulently induced state formulary committees to cover the defendants’ drug, refusing to take a “step toward bringing all misrepresentations to government bodies within the purview of the FCA.” See United States ex rel. Dickson v. Bristol-Myers Squibb Co., No. 13-cv-01039 (D.N.J. June 27, 2017). (more…)
The question of when an overpayment becomes “identified” for purposes of False Claims Act liability has generated significant uncertainty, and one district court just added more fodder for debate. See UnitedHealthcare Ins. Co. v. Price, No. 16-cv-157 (D.D.C. Mar. 31, 2017). The Affordable Care Act (“ACA”) requires persons to report and return overpayments from Medicare or Medicaid within 60 days of identification, and the failure to do so can trigger FCA liability. The ACA delegated to CMS the task of defining when an entity has “identified” an overpayment. CMS promulgated two rules (in May 2014 for Medicare Advantage (“MA”) plans and Part D Sponsors and in February 2016 for Medicare Part A/B providers), which equate “identification” to circumstances in which a person “has, or should have through the exercise of reasonable diligence, determined that the person has received an overpayment.” The “should have identified” standard generated concerns that CMS was using a simple negligence standard. The FCA, however, requires proof of at least “reckless disregard,” which courts have equated to gross (not merely simple) negligence.
In a speech on Tuesday, September 27, 2016, Principal Deputy Associate Attorney General Bill Baer said that in the post-Yates world companies must provide early and material assistance to DOJ’s efforts to hold companies and individuals accountable for corporate wrongdoing – including by voluntarily disclosing information before they receive a subpoena – if they hope to receive cooperation credit. In doing so, Baer called out those banks caught up in DOJ’s enforcement focus on mortgage-backed securities. Baer claims those companies did not cooperate early enough and that DOJ thus rejected their requests for substantial cooperation credit, ultimately extracting billions of dollars in settlements. Baer thus made clear the importance of early cooperation: “little or no cooperation credit will be afforded in situations where the supposed cooperation occurs after the department has completed the bulk of its investigation.” In addition to cooperating early, companies also must provide specific information about any and all employees involved in wrongdoing and information that is unknown to DOJ and materially assists its investigation in order to obtain meaningful cooperation credit. At the same time, Baer described conduct that will not qualify a company for cooperation credit; specifically, simply producing information in response to a subpoena or CID and making a presentation to DOJ that seeks to limit or eliminate liability will not be viewed as cooperation. Indeed, Baer’s speech raises questions as to whether legitimate efforts to defend conduct under investigation may even disqualify a company that otherwise has been cooperative from receiving cooperation credit.
Baer’s speech can be accessed here.
Although the Seventh Circuit last year became the first circuit court clearly to reject the “implied certification” doctrine of FCA liability, a district court in that circuit recently sought to cabin the impact of the ruling. See United States ex rel. Kroening v. Forest Pharm., No. 12-cv-00366 (E.D. Wisc. Jan. 6, 2016). As reported here, the Supreme Court will review the viability of the implied certification theory later this year. While the Kroening court ultimately dismissed the relator’s claims under Rule 9(b), the opinion highlights the divergence of the viewpoints around the implied certification theory that the Supreme Court has been asked to help resolve.
A district court granted summary judgment to Solvay Pharmaceuticals on claims that it influenced the public body of scientific research in order to manipulate the compendia DrugDex into supporting off-label uses of its products. U.S. ex rel. King v. Solvay S.A., No. H-06-2662 (S.D. Tex. Dec. 14, 2015). The opinion provides helpful guidance on the high bar that relators must satisfy to pursue FCA claims based on alleged manipulation of scientific research so that ordinary disputes about the weight to be given to scientific research are not challenged as “fraud” under the FCA.
We recently discussed the settlement Warner Chilcott reached with the Department of Justice, which also announced criminal charges against the former president of the company’s pharmaceutical division. This former executive, however, is not the only individual swept into the criminal charges, as three lower level Warner Chilcott sales force members and a physician who served as a speaker for the company have previously been charged or pled guilty. The details in the charging materials may provide insight into the government’s post-Yates memo approach to targeting and using individuals to build a criminal case against corporations.
Yesterday, the DOJ announced a settlement with the U.S. sales subsidiary of Warner Chilcott PLC. The company has agreed to plead guilty to criminal charges and to pay $125 million to resolve both criminal and civil liability. At the same time, the DOJ announced that it had indicted a former president of Warner Chilcott’s pharmaceutical division with conspiracy to violate the Anti-Kickback Statute. As the DOJ emphasized in its press release, the individual criminal charges in this matter represent an effort to hold “responsible individuals accountable” in enforcement actions. The DOJ’s pursuit of individual criminal liability in this case represents a high profile application of the DOJ’s intent to focus on the liability of individual corporate employees, recently set forth in the Yates memo (as further discussed here). The parallel civil settlement also provides insight into potential future enforcement activities around manufacturer support of prior authorization programs.
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
An Eastern District of New York judge recently declined to apply a relaxed pleading standard to qui tam claims, dismissing an FCA suit based on alleged violations of the Anti-Kickback Statute for relator’s failure to plead facts sufficient to identify false claims that were actually submitted to the government. In United States ex rel. Moore v. GlaxoSmithKline PLC, No. 1:06-cv-06047 (E.D.N.Y. Oct. 18, 2013), a former employee of GlaxoSmithKline (“GSK”) alleged that GSK induced doctors to prescribe its HIV drugs by offering honoraria and educational grants. The relator urged the district court to relax the Rule 9(b) pleading standard and require merely “an adequate basis for the Court to reasonably infer that false claims were submitted.” Slip op. at 7. The relator alleged the submission of false claims could be inferred from the fact that many patients who use GSK’s HIV products are federal healthcare program beneficiaries and allegations of one doctor’s supposed awareness of the alleged scheme.
In declining to relax the requirements of Rule 9(b), the District Court noted that the Second Circuit Court of Appeals has not yet weighed in on the issue, which has led to a Circuit split. However, the district court observed that the majority of lower courts in the circuit have rejected relators’ attempts to utilize a lower pleading standard. Siding with those courts, the Moore court required both the underlying scheme and the submission of a false claim to be pled with the particularity required by Rule 9(b). With respect to the latter, the court noted that it is not enough to portray the submission of a false claim as “merely conceivable or even likely.” Id. at 8. Instead, relators must allege with particularity “details of either a specific claim for payment that was submitted to the Government by either a medical provider or a pharmacist, or the specific details of an actual Medicaid/Medicare provider certification form signed by a particular physician.” Id. The court dismissed the claims because the relator failed to establish a connection between any alleged kickback and any actual claims for reimbursement.
As we recently reported, the Supreme Court recently expressed an interest (see related post here) in the government’s view of the pleading requirements for FCA claims. The Moore decision emphasizes not only the significance of the ongoing Circuit split on the issue, but the critical importance of Rule 9(b)—at least in some Circuits—to the pleading and defense of whistleblower FCA actions.