Posted by Jaime Jones and Adam Susser
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.
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 Jonathan Cohn, Paul Ray and Ben Mundel
A recent decision by a federal district court highlights some of the dangers of qui tam suits under the False Claims Act brought by a company against one of its competitors capitalizing on a patent dispute victory.
Needless to say, qui tam suits are typically brought by former officers or employees of a defendant corporation, because these persons are most likely to have access to the type of non-public information generally necessary for a successful qui tam action. See 31 U.S.C. § 3730(e)(4). But, in Amphastar Pharmaceuticals Inc. v. Aventis Pharma SA, EDVC-09-0023 MJG (C.D. Cal.), one pharmaceutical company has brought a qui tam action against one of its competitors. Amphastar, a drug manufacturer, is suing competitor Sanofi (formerly Aventis), alleging that Sanofi fraudulently inflated the price of one of its drugs (Lovenox) over which Sanofi claimed (ultimately unenforceable, as determined in litigation with Amphastar) patent rights and thus overcharged the federal government, as well as several state governments, for the drug. The case is important, because it could mark a new species of False Claims Act case involving corporate qui tam plaintiffs suing their competitors after prevailing in prior patent litigation.
The United States District Court for the Central District of California denied Sanofi’s motion to dismiss Amphastar’s amended complaint on April 19. (Coverage of an earlier order dismissing Amphastar’s original complaint with leave to replead can be found here.) Under Ninth Circuit precedent, the submission of false claims is often pleaded by describing representative examples of particular false claims that have been submitted. Because Amphastar is a competitor of Sanofi rather than a former officer or employee of the company, it did not have ready access to Sanofi’s internal information that might have helped Amphastar detail particular false claims in its complaint. Instead, it pleaded more broadly that Sanofi held the exclusive right to sell Lovenox, that as a result of its fraudulently obtained patent, Sanofi was able to inflate Lovenox’s price, and that the federal government bought certain quantities of Lovenox from Sanofi or its distributors. Sanofi argued that Amphastar’s complaint failed to plead with the particularity required by Federal Rule of Civil Procedure 9(b) that Sanofi had submitted false claims for Lovenox, as necessary for a claim under the False Claims Act. See 31 U.S.C. § 3729(a).
The court disagreed. It acknowledged that “Amphastar has not provided a detailed account of Aventis’s claims submission process, nor specifics regarding how government reimbursement programs work, both of which could be helpful to evaluate the presence of reliable indicia of claims submission.” Nevertheless, it concluded that “[s]uch detail … is not necessary,” because Amphastar “present[ed] a plausible contention that every claim for reimbursement at the inflated price was an actionable false claim.” Accordingly, the court found that Amphastar had pleaded its qui tam claim with adequate particularity under Rule 9(b), and denied Sanofi’s motion to dismiss.
This is an important case that may unfortunately increase the scope of FCA liability. The theory of liability in this case is novel and raises serious risks for pharmaceutical companies. Claims of fraud are a staple in patent litigation. If FCA liability can be predicated on the invalidation of the underlying patents of branded drugs after those patents have been invalidated by competitors on grounds of fraud, then pharmaceutical companies may face new and substantial FCA liability as a consequence of being defeated in patent litigation.
Posted by Scott Stein and Nirav Shah
On January 30, 2013, a federal court in the Southern District of Illinois denied a motion to dismiss a relator’s complaint accusing defendants Sanofi-Aventis and Bristol Myers Squibb of allegedly making unsubstantiated efficacy claims about on-label use of the blockbuster drug Plavix. According to the complaint, by overstating Plavix’s efficacy, the defendants caused the federal health care programs to pay for unnecessary Plavix prescriptions, rendering claims for the drug false.
In its ruling, the Court focused on the relator’s allegation that Plavix was not “reasonable and necessary” for the patients to whom it was prescribed. The relator argued that the defendants made overstatements regarding Plavix’s efficacy, and that these statements misled physicians into thinking that Plavix was the only viable treatment option. The court concluded that the relator had met the pleading standard for Rule 9(b), notwithstanding the fact that the relator conceded that Plavix was used for FDA-approved purposes.
This case is unique and reflects the fact that after years of substantial settlements based on allegations of off-label promotion, enterprising relators’ counsel are turning their focus to new theories, including improper marketing of on label uses. Indeed, such theories are consistent with comments last year by Assistant U.S. Attorney Sara Bloom (D. Mass.) that unsubstantiated superiority claims by manufacturers are likely to be an area of increased focus by the government.
Posted by Scott Stein and Jessica Rothenberg
A recent opinion by a federal district court in California addressed a competitor’s effort to leverage the outcome of pharmaceutical patent litigation into an FCA suit. The case arose out of Hatch-Waxman litigation between Aventis, manufacturer of Lovenox (enoxaparin) and Amphastar, a generic competitor. After Amphastar filed an Abbreviated New Drug Application with the FDA seeking approval to manufacture a generic form of enoxaparin, Aventis filed a patent infringement suit against Amphastar, which counterclaimed antitrust violations. Ultimately, Aventis’s patents were found unenforceable, and Amphastar’s antitrust counterclaim was dismissed.
Amphastar then filed a qui tam action, claiming that Aventis had made false representations while prosecuting its patents, improperly listed its patents in the FDA’s Orange Book, engaged in baseless litigation against Amphastar in order to delay approval of its ANDA, made false representations and material omissions to the FDA, and thereby attempted to manipulate the approval or marketing of enoxaparin. After the government declined to intervene and the complaint was unsealed, Aventis moved to dismiss the FCA claims on several grounds.
Aventis first argued that the suit was barred because the complaint was based on information publicly disclosed in the prior litigation and regulatory proceedings. The court agreed that the disclosures in the preceding antitrust litigation, FDA submissions public court filings, and judicial decisions predating the present complaint all constituted public disclosures, and that Amphastar’s FCA claims were based on those public disclosures. However, the court found that Amphastar qualified as an original source because it had direct and independent knowledge of the alleged fraud and had a hand in the public disclosure of the allegations.
Aventis separately argued that the complaint should be dismissed for failure to state a claim because it was based on certain conduct (petitioning the FDA) protected under the Noerr-Pennington doctrine. The court rejected this argument, finding that Amphastar was seeking to impose liability on Aventis for the act of overcharging the government, and not for the act of petitioning the government, making the Noerr-Pennington doctrine inapplicable.
However, the Court agreed with Aventis that the complaint failed to plead an FCA violation with the particularity required by Rule 9(b). Although Amphastar sufficiently alleged that Aventis had engaged in certain misconduct, that Aventis had acted with knowledge and intent to deceive, and that the false statements were material, the court concluded that Amphastar failed to allege “the particular details of a scheme to submit false claims and details leading to a strong inference that those claims were submitted.” Accordingly, the complaint was dismissed with leave to replead. A copy of the court’s opinion in Amphastar Pharmaceuticals Inc. v. Aventis Pharma SA, et al., Case No. EDCV-09-0023 MJG (C.D. Cal.) can be found here.
It remains to be seen whether Amphastar can or will seek to replead a viable claim, but it will be interesting to see whether this case is an anomaly, or whether it portends a new strategy for generic manufacturers seeking to leverage victories in Hatch-Waxman litigation into FCA claims.
Posted by Kristin Graham Koehler and Lauren Roth
In the pharmaceutical industry, government investigations initiated by whistleblower qui tam complaints can—and often do—result in both civil and criminal charges against the company. In recent years, such investigations also have increasingly focused on individual corporate executives, either based on the executives’ participation in the misconduct or by virtue of their status as “responsible corporate officers” of the wrongdoing entity. Last week, three executives ensnared in one such investigation scored a key, albeit mixed, victory.
A decision by the D.C. Circuit Court in Friedman v. Sebelius overturned the exclusions of three Purdue Pharma executives from participation in federal healthcare programs, holding that the Department of Health and Human Services (HHS) acted arbitrarily in imposing extraordinarily lengthy exclusions. Notwithstanding this ruling, the court held that HHS has the authority to exclude individuals convicted of a misdemeanor if the conduct underlying the conviction is related to fraud, even if the individual is an executive that had no knowledge of the underlying fraudulent conduct.
Background on the Case
In 2007, Purdue Pharma L.P. and Purdue Frederick Company, Inc. paid $600 million to resolve charges that Purdue Frederick fraudulently misbranded OxyContin as less addictive and less subject to abuse and diversion than other pain medications. As part of the settlement, Purdue Frederick pleaded guilty to a felony misbranding charge. The settlement resolved potential civil liability for allegations that that, based on these misleading claims, Purdue knowingly caused the submission of false claims for OxyContin.
Prosecutors also charged three former senior executives of Purdue— the company’s President and Chief Operating Officer, Executive Vice President/Chief Legal Officer, and Vice President of Worldwide Medical Affairs—with misdemeanor violations of the Food, Drug and Cosmetic Act (FDCA) based on Purdue Frederick’s guilty plea for felony misbranding of OxyContin and the executives’ status as “responsible corporate officers.” HHS’s Office of Inspector General (OIG) subsequently excluded the three executives for 20 years on the ground that their convictions “related to” fraud in the delivery of a healthcare item — a ground for discretionary exclusion.
In an administrative appeal, the HHS Departmental Appeals Board (DAB) upheld the executives’ exclusion. Though the three executives did not admit personal knowledge of this fraud — rather, they admitted only that it had occurred and that they had been “responsible corporate officers” at the time — the DAB determined, nevertheless, that the there was evidence that the executives’ convictions had “related to” fraud. The DAB reduced the length of exclusion to 12 years, however, finding that the OIG had not demonstrated that the underlying conduct harmed any patients. The D.C. Federal District Court affirmed the DAB decision.
D.C. Circuit Opinion
On appeal, a sharply divided panel of the D.C. Circuit affirmed that the executives’ exclusion but remanded the case to the agency, holding that it failed to reconcile the lengthy 12-year term of exclusion with agency precedent.
The D.C. Circuit’s ruling is significant in at least two respects. First, a panel majority (Sentelle, CJ., Ginsburg, J.) held that misdemeanor misbranding, which requires no proof that a corporate officer know of, or have any involvement in, fraudulent misbranding, is nevertheless a conviction for a “misdemeanor relating to fraud” within the meaning of the exclusion statute. HHS may therefore exclude individuals convicted of such misdemeanors from participation in federal healthcare programs. Second, a different majority (Williams, Ginsburg, JJ.) held that the length of any exclusion is subject to review under the arbitrary and capricious standard. The government had argued that, unlike the Administrative Procedure Act, the statute providing for judicial review of DAB decisions (42 U.S.C. 405(g)) did not include the arbitrary-and-capricious standard. For that reason, the government contended, the court could not require the agency to compare the exclusion imposed here to exclusions imposed in other cases. The majority disagreed, holding that the agency had not explained how the 12-year exclusion here for a misdemeanor offense was justified by exclusions involving felonies and incarceration. As the majority noted, “Simply pointing to prior cases with the same bottom line but arising under a different law and involving materially different facts does not provide a reasoned explanation for the agency’s apparent departure from precedent.” The case will be remanded to OIG for further consideration. A copy of the opinion is available here. Sidley represented the former Purdue executives in the DC Circuit.
In a decision released yesterday, Judge Robreno of the Eastern District of Pennsylvania dismissed all FCA claims against nine pharmaceutical manufacturers pursuant to Rule 8(a), finding that relator had failed to plead any evidence they acted knowingly or recklessly in light of regulatory ambiguity. U.S. ex rel. Streck v. Allergan, et al., No. 08-5135 (E.D.P.A. Jul. 3, 2012). Relator’s claims against those defendants were based on allegations that they had improperly calculated Average Manufacturer Price (“AMP”) by including certain price increases that triggered credits owed by wholesalers in the calculation of service fees owed to those wholesalers, which fees were in turn excluded from the manufacturers’ calculation of AMP as “bona fide service fees.” Relying on Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47 (2007), Robreno held that due to the lack of any statutory or regulatory guidance regarding price appreciation credits and the calculation of AMP, relator was required but had failed to plead facts to show that defendants’ interpretation of those regulations was unreasonable. The court found that the conduct of those manufacturers was “not unreasonable, let alone reckless,” and dismissed all claims against them with prejudice as to the relator.
The court also dismissed in part the claims against another group of four manufacturers. These “discount defendants” were alleged to have included service fees paid to wholesalers as discounts in their calculations of AMP. While the court dismissed all claims against the discount defendants for conduct prior to 2007, it allowed later claims to proceed based on regulatory developments occurring in 2007.
This decision, like the Supreme Court’s decision in Christopher v. SmithKlineBeecham Corp., recently reported on this blog, should give relators’ counsel and the government pause when considering FCA claims based on alleged violations of ambiguous statutes or regulations.
Sidley represented three of the defendants against whom all claims were dismissed in the litigation.
Posted by Jaime L.M. Jones and Nirav Shah
Citing the failure to plead claims with particularity, a federal court in the District of Massachusetts recently dismissed a qui tam action brought against Infomedics, Inc. and GlaxoSmithKline. United States ex rel. Arlene Tessitore v. Infomedics, Inc., GlaxoSmithKline, PLC, and GlaxoSmithKline, LLC., No. 08-11775-NMG (D. Mass. Mar. 12, 2012). The case highlights the difficulty in connecting allegations of “fraud on the FDA” to FCA violations.
Tessitore concerns GSK’s antidepressant drug, Paxil, FDA-approved labeling which includes an indication for the treatment of social anxiety disorder (“SAD”). Among other claims, the relator alleged that GSK and its vendor, Infomedics, concealed from FDA information related to certain adverse events that was received through an informational Paxil hotline operated by Infomedics. Relator alleged violations of the FCA based on two theories: (1) that GSK represented in its application to FDA for Paxil that it would report adverse events to the Agency; and (2) that had GSK reported the adverse events to FDA in a timely fashion, FDA would have ordered the company to issue enhanced warnings sooner. Under both theories, relator claimed that the concealment rendered subsequent claims for reimbursement of Paxil false.
With respect to the first theory, Judge Nathaniel Gorton held that relator’s complaint was simply devoid of specifics, including when a misrepresentation to FDA was made, to whom it was made, and why the statements were false. As for the second theory of liability, Judge Gorton found that it failed under Rule 9(b) “because it presumes, without factual support, that submitting the 7,000 adverse reports would have hastened the FDA’s decision to require warnings and that, had such warnings been implemented sooner, physicians would have prescribed Paxil less often between 1999 and 2002.” Id. But, as the government itself pointed out, FDA was aware of the adverse events and did not take any steps to add enhanced warnings. And absent evidence of alternative treatments available at the time, the inference that physicians would have prescribed other treatments is unsupportable. Thus, this decision highlights the difficulty of adequately pleading the causation element of FCA liability when trying to advance qui tam claims based on the theory of “fraud on the FDA.”
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.
Posted by Jaime L.M. Jones and Nirav Shah
In a report released last month, the federal government announced that it had recovered nearly $4.1 billion last fiscal year as a result of its escalated fight against health care fraud. Spearheaded by the Department of Health and Human Services and the Department of Justice, the government recouped approximately $2.4 billion in civil health care fraud via the False Claims Act as well as $1.3 billion in criminal fines and forfeitures under the Federal Food, Drug and Cosmetic Act. The number of new cases also rose, with the DOJ opening more than 1,100 new criminal health care fraud cases in addition to the more than 1,800 already pending. The number of civil cases is growing, too, with nearly 1,000 new cases being filed on top of over 1,000 existing actions.
In a blog post announcing the report, HHS Secretary Kathleen Sebelius credits recent tools, including the Affordable Care Act’s $350 million funding of the Health Care Fraud and Abuse Control Program, to help in the fight against fraud. A government fact sheet released on the same day also highlights these efforts, with particular focus on Health Care Fraud Prevention and Enforcement Action Teams (“HEAT”). These teams, created in 2009, are designed to encourage coordination and intelligence sharing among HHS and DOJ. The report also praises the work of the Medicare Strike Force, an “interagency team of analysts, investigators, and prosecutors who can target emerging or migrating fraud schemes, including fraud by criminals masquerading as health care providers or suppliers.” Secretary Sebelius cites these specialized anti-fraud teams and notes that, before their creation, “a fraudster could swindle Medicare for millions of dollars in Florida, close up shop, move to Detroit, and attempt to reestablish the same scheme without ever being noticed. Now, CMS and Department of Justice officials are tracking fraud scams as they move across the country, so that criminals are spotted when they try to re-enroll into Medicare or Medicaid.”
Administration officials noted that the recovery figures are nearly double the $2.14 billion recouped in 2008. Likewise, the number of fraud prosecutions increased 75 percent during the same period. Secretary Sebelius and Attorney General Holder both credited the Obama Administration’s revamped efforts at fighting fraud for these statistics.