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 David Rody and Lauren Treadaway
On October 23, 2013, the U.S. Chamber of Commerce’s Institute for Legal Reform (ILR) issued a white paper entitled “Fixing the False Claims Act: The Case for Compliance-Focused Reform.” The paper proposes three areas of Congressional reforms to the FCA that would better prevent the loss of government funds through earlier detection and prevention of fraud, while reducing the cost of FCA lawsuits and investigations on companies accused of wrongdoing by narrowing the scope of successful claims as well as the amount of damages and penalties.
The first area of the paper’s FCA reform proposal deals with a shift from the government’s use of ex-post litigation to recover for fraudulently obtained government funds to ex-ante compliance programs that encourage businesses contracting with the government or participating in government programs to preclude, discover, and report fraudulent activity. Such compliance programs would not only reduce the estimated $60 billion lost by the U.S. Treasury to fraud each year but would also decrease the burden of FCA enforcement on taxpayers by relying on less expensive government investigation techniques and reducing the resort to costly litigation techniques.
The proposed voluntary compliance programs would encompass two requirements outlined by the paper: (1) independently developed” best practice” standards that measure compliance both across industries and within specific industry sectors; and (2) company retention of an independent auditing body to periodically review and certify the company’s compliance with those standards. To incentivize voluntary adoption of the certified compliance programs, the paper proposes reforms to the FCA for companies with such programs, including elimination of the blanket mandate for treble damages in favor of a variable factor based on the defendant’s culpability; a prohibition of subsequent qui tam actions based on fraudulent activity already reported by the company to a government investigatory agency; a mechanism by which companies can dismiss a qui tam suit filed by a relator-employee who failed to internally inform the company of the alleged wrongdoing at least 180 days prior to filing suit; and an elimination of mandatory or permissive exclusion or debarment.
The second area of the paper’s FCA reform proposal targets eight isolated provisions of the FCA, recommending amendments in order to effectuate the just and efficient use of the FCA against all companies and individuals regardless of their adoption of the proposed certified compliance programs. A majority of the eight proposed reforms focus on narrowing the scope of the FCA in various ways, thus preventing duplicative or frivolous claims as well as excessive damage pay-outs by defendants. The amendments would include, among other things, a calibrated structure for determining relator award percentages to reduce high recovery amounts paid to relators and their counsel; a prohibition against the filing of qui tam suits by government employees based on information obtained during their government service; a restriction of FCA liability to “instances of genuine, material falsehood or fraud” as opposed to the historical “implied false certification” cause of action; a change in the standard of proof for all elements under the FCA from a preponderance of the evidence to clear and convincing evidence; and a limitation of the government’s recovery to “net actual damages” to prevent windfall recoveries by the government.
Finally, the FCA reform proposal also urges the Department of Justice to improve its policy guidelines governing the use of Civil Investigative Demands (CIDs) in order to reduce the number of CIDs and the cost that companies incur when responding to these administrative subpoenas. The proposals include limiting the employees authorized to issue CIDs, establishing a narrow scope for CIDs, and limiting the DOJ’s ability to share CID-obtained information with relators and third parties.
The Taxpayers Against Fraud (“TAF”) Education Fund recently reported that the Department of Justice’s (“DOJ’s”) False Claims Act data dramatically underestimates the amount of money actually recovered to the government. In fact, according to TAF, the federal government’s return on investment (“ROI”) related to federal FCA enforcement from fiscal years 2008 through 2012 exceeds 20:1, up significantly from the 16:1 ROI calculated by DOJ. TAF explains that this discrepancy is due to the fact that DOJ’s figures do not include criminal fines associated with federal FCA recoveries or any state FCA recoveries, which together account for almost an additional $9 billion above the approximately $9.4 billion figure attributable to civil net recoveries during the 2008-2012 period. In light of this, TAF views the DOJ as significantly underestimating the benefits of its own investment in health care fraud enforcement.
Other notable statistics cited in the TAF report include the following:
- From 1987 to 1992, a total of 62 new health care qui tam matters were filed, while in 2011 and 2012, respectively, there were 417 and 412 new matters.
- In 2012, whistleblowers received $284 million of the more than $2.5 billion in health care qui tam settlements and judgments.
- From 2008 to 2012, the federal government poured almost $575 million of funding into U.S. Attorney’s offices, the Office of Inspector General, and the DOJ to facilitate the investigation and prosecution of health care fraud.
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.
Sidley lawyers Kristin Graham Koehler and Brian Morrissey have authored a monograph published by the Washington Legal Foundation. The monograph is entitled “The View From the Front Lines: Litigation Under the False Claims Act in a New Era of Enforcement,” and provides a concise overview of the FCA, its qui tam provisions, the latest trends in FCA enforcement, and anticipated future developments. It also assesses enforcement trends in particular industries, such as government contracting, healthcare, and pharmaceuticals, and explains seven key issues affecting future False Claims Act litigation:
- The FCA’s Applicability to “Legally False” Claims
- Scope of FCA’s First-to-File Bar
- Increased Pursuit of “Reverse” False Claims
- Constitutionality of Mandatory Damages
- Increase in False Claims Act Suits Brought against Numerous Defendants in the Same Industry
- Increased Use of Civil Investigative Demands in False Claims Act Investigations
- Sanctions over Privileged Documents Obtained by Qui Tam Relators
A copy of the full monograph can be ordered here.
The Office of Inspector General of the Department of Health and Human Services (OIG) has issued updated guidelines for determining whether a state false claims act satisfies the requirements of section 1909(b) of the Social Security Act. Where the Inspector General determines that a state act satisfies the requirements of section 1909(b), the state is entitled to an increased share of recovery in false claims cases brought under that state act. Effective March 15, 2013, the new guidelines replace previous guidelines issued on August 21, 2006 and reflect amendments to the Federal False Claims Act (FCA) that have gone into effect since issuance of the previous guidelines.
As part of the revisions, OIG modified the guidelines for determining whether the state act appropriately establishes liability for false or fraudulent claims with respect to state Medicaid expenditures. These revised guidelines reflect amendments to the FCA that expanded liability to include false statements “material” to a false or fraudulent claim. OIG also expanded the guidelines with respect to provisions that reward and facilitate qui tam actions. Among these revisions, OIG restricted state law limits on actions resulting from public disclosures and modified the minimum percentages of recovery that a relator must receive under the state act. With respect to the civil penalty provisions, OIG revised the guidelines to provide minimum civil penalty amounts of at least $5,500 to $11,000, which amounts reflect adjustments per the Federal Civil Penalties Inflation Adjustment Act.
To qualify for the incentive provided by section 1909 of the Social Security Act, a state false claims act must fulfill the requirements of section 1909(b) as amended at the time of OIG’s review. OIG provided a two-year grace period during which states with false claims acts that had been approved before the amendments to the FCA became effective would continue to qualify for the incentive. After expiration of the grace period, a state must amend and resubmit its false claims act to OIG for review and either have its act approved or be under OIG review in order to qualify for the incentive.
Posted by Scott Stein and Nirav Shah
On December 4, 2012, Acting Associate Attorney General Tony West announced that the Justice Department’s Civil Division had recovered nearly $5 billion in settlements and judgments under the False Claims Act for fiscal year 2012. This represents yet another record recovery, surpassing the previous record by $1.7 billion. Subsequently, DOJ released more detailed statistics on FCA cases from 1986 through FY 2012, accessible here. A few observations on the recovery:
- Over $3 billion in recoveries from cases involving healthcare fraud, breaking a previous healthcare fraud record set in fiscal year 2011. From January 2009 through the end of fiscal year 2012, the DOJ collected over $9.5 billion from healthcare fraud, setting another record over a four-year period.
- $3.3 billion in actions filed by whistleblowers, arising from 647 separate qui tam suits.
- Almost $1 billion ($911 million) consists of the FCA component of DOJ’s $25 billion mortgage settlement with five banks. The numbers indicate increased activity in this area in 2012, a trend that will likely continue into next year.
- DOJ continues to intervene in roughly the same percentage of cases as in prior years, roughly 22%.
- The number of new matters is roughly the same in 2011 and 2012. However, the DOJ recoveries are substantially higher in both the non-qui tam and qui tam-initiated categories.
- The percentage of suits initiated by DOJ is substantially lower in healthcare fraud matters than in other kinds of qui tams. Only about 5% of FCA suits in the healthcare context are DOJ-initiated. Put differently, virtually all healthcare FCA cases are whistleblower-initiated
- Comparing qui tam cases to settlements and judgments in non-qui tam cases, the non-qui tam cases result in a very high percentage of recoveries relative to their numbers. For example, in 2012, there was over $500 million recovered in non-qui tam cases, which have historically been a very low percent of total healthcare FCA cases.
- DOJ settlements and judgments in intervened or DOJ-initiated cases hit an all-time high, exceeding last year’s record by nearly one billion dollars.
- Recoveries in cases in which DOJ did not intervene hit a low-point compared to recoveries in recent years (only $29 million in 2012 compared to at least $100 million in each of the past two years).
A recent survey of employee attitudes toward whistleblowing reinforces the importance of an effective compliance program in mitigating FCA suits. The Ethics Resource Center recently published its bi-annual National Business Ethics Survey (NBES), a longitudinal study of employee attitudes that seeks to provide a “barometer of workplace ethics.” The survey, a copy of which can be downloaded here, finds that employees perceive “historically low levels of current misconduct in the American workplace.” Specifically,
* The percentage of employees who witnessed misconduct at work fell to a new low of 45 percent. That compares to 49 percent in 2009 and is well down from the record high of 55 percent in 2007.
* Those who reported the bad behavior they saw reached a record high of 65 percent, up from 63 percent two years earlier and 12 percentage points higher than the record low of 53 percent in 2005.
However, the NBES notes that this positive trend is accompanied by “ominous warning signs of a potentially significant ethics decline ahead”:
* Employees who reported misconduct and who reported experiencing some form of retaliation rose to 22 percent, up from 15 percent in 2009 and 12 percent in 2007.
* The percentage of employees who perceived pressure to compromise standards in order to do their jobs climbed five points to 13 percent, just shy of the all-time high of 14 percent in 2000.
* The share of companies perceived as having a weak ethics culture climbed to near record levels at 42 percent, up from 35 percent in 2009.
The NBES also examined the impact of the new Dodd-Frank whistleblower provisions on employee attitudes regarding reporting of employer misconduct. According to the survey, employees say they are far more motivated by the nature of the misconduct and its potential harm than by financial reward. Only three percent of employees who actually reported misconduct said they went outside the company as their first resort. About half (49 percent) said that they would consider reporting to federal authorities under certain circumstances, even if it might cost them their job. An additional five percent said they would report to the federal government, but “only if there was a chance for a substantial financial reward.”
As the study notes, despite the addition of new incentives under Dodd-Frank for whistleblowers to report wrongdoing to the federal government, employees say that they prefer to first report their concerns internally to their employers. The study recognizes that while “[a]s whistleblower protections become more widely known these behaviors may change,” for now, “financial rewards from government agencies do not seem to be enough of a motivator to cause employees to circumvent their employers.” However, the self-reported nature of the survey merits some caution in interpreting these results.