Healthcare Enforcement & Compliance

In United States ex rel. Keen v. Teva Pharmaceuticals USA, Inc., relator Janice Keen sued her former employer—the pharmaceutical company Teva—for violations of the FCA.  According to Ms. Keen, Teva trained its sales force to misleadingly promote and sell a medicine used to treat muscle spasms.  Ms. Keen alleged that Teva’s deceptive practices caused physicians to prescribe the medicine in situations for which it was not approved, with the effect that pharmacies submitted false claims to government programs like Medicare and Medicaid. Ms. Keen’s brought her FCA claims  pursuant to 31 U.S.C. § 3729(a)(1)(A) and (B). Those provisions provide, in part, that anyone who “knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval” by the United States government, or “knowingly makes, uses, or causes to be made or used, a false record or statement material to a false or fraudulent claim,” is liable to the United States government for civil penalties and treble damages. Teva moved to dismiss Ms. Keen’s complaint under Fed. R. Civ. P. 12(b)(6) for failure to state a claim. Among other things, Teva argued that Ms. Keen failed to connect any of her deceptive marketing theories to actual submissions of false claims. On January 4, 2017, Judge Jorge L. Alonso agreed with Teva and dismissed Ms. Keen’s complaint in its entirety. Important to the court’s ruling were the pleading standards of Rules 8(a) and 9(b).  Judge Alonso emphasized that not only must a complaint be plausible, but any claims asserted under the False Claims Act must also comply with Federal Rule of Civil Procedure 9(b), which requires the pleading party to state with particularity the circumstances constituting fraud.  Particularity means information like the identity of the person who made the misrepresentation, the time, place and content of the misrepresentation, and the method by which the misrepresentation was communicated, among other things. In Ms. Keen’s case, the absence of allegations specifically linking the allegedly misleading promotional materials or sales presentations to the actual submission of false claims to the government was fatal to her claim. Her complaint focused on Teva’s allegedly deceptive marketing effort, but failed to allege that a particular pharmacy submitted a false claim for payment to a government payor.  Without these allegations, the court concluded that Ms. Keen “failed to state a plausible, non-speculative claim with particularity.” Judge Alonso’s opinion and order serves as a reminder that the FCA is not a vehicle for addressing garden-variety breaches of contract or regulatory infractions. Instead, a whistleblower must go farther and describe with particularity how false claims were submitted to the government such that a violation of the FCA is plausible from the face of the complaint. The case is United States ex rel. Keen v. Teva Pharmaceuticals USA, Inc., 2017 U.S. Dist. LEXIS 518 (N.D. Ill. Jan. 4, 2017).

Affirming an earlier order handed down by the United States District Court for the District of Massachusetts, the First Circuit recently denied Plaintiff D’Agostino leave to amend his complaint, finding the proposed claims were futile. D’Agostino, et al. v. EV3, Inc. et al., 2016 WL 7422943 (1st Cir. Dec. 23, 2016).  D’Agostino’s complaint alleges False Claims Act (“FCA”) violations related to the Onyx and Axium medical devices, which are used in embolization procedures. D’Agostino alleged that the defendants made false statements during the FDA approval process for the devices, including disclaiming uses of the devices they later pursued, misstating the training that would be provided to physicians using the device, and omitting relevant information about the devices’ safety. To link the alleged false statements to a claim for payment, D’Agostino relied on a theory of fraud upon the FDA, arguing that these statements constituted false claims because they could have influenced the FDA’s decision to approve the devices, and but for the FDA approval, CMS would not have reimbursed physicians for the use of these devices. The First Circuit presented numerous reasons for rejecting D’Agostino’s request for leave to amend. Some of those reasons rest on basic legal principles, such as the lack of sufficient allegations to satisfy federal pleading requirements under Rule 9(b) and 12(b)(6).  The design defect claim, which argued that improvements to the design of Axium demonstrate that previous versions of the device were defective, was similarly and succinctly dispatched as nonviable.  The court remarked that if this standard were applied “most every car sold to the government would be per se defective.” In less charted territory, the court also rejected D’Agostino’s fraud on the FDA theory of liability. The court noted that this theory would require D’Agostino to show that the allegedly false statements actually caused the FDA to grant approval it otherwise would not have granted—a mere showing that the statements could have influenced the FDA’s decision would be insufficient.  D’Agostino attempted to salvage his argument by relying on the FCA’s materiality standard, which only requires plaintiffs to show that a statement has “a natural tendency to influence, or [is] capable of influencing, the payment or receipt of money or property.”  In addition to finding that this argument misconstrued the FCA’s “demanding” standard of materiality, the court found that this approach improperly conflated the FCA’s materiality and causation requirements. The court’s analysis also considered that allowing the fraud on the FDA theory to proceed would effectively permit a jury to overrule the FDA’s approval of medical devices. Although the FDA has the authority to temporarily or permanently revoke its prior approval of a medical device, it has not done so for either Onyx or Axium in the six years since D’Agostino’s complaint has been made public.  The court found this to be persuasive evidence that the alleged false statements were not material to the FDA’s decision to approve the devices. Although the court rejected D’Agostino’s use of the fraud on the FDA theory of liability in this case, the decision acknowledges that this theory may support viable FCA claims in instances where the FDA withdraws its approval of a device after discovering fraud.

On January 6, 2017, two new safe harbors to the federal anti-kickback statute (the “AKS”) will become effective pursuant to a final rule published by the United States Department of Health and Human Services Office of the Inspector General (the “OIG”) on December 7, 2016. The final rule also codifies safe harbors for certain AKS exceptions and makes a technical correction to the existing safe harbor for referral services.  The OIG is authorized to promulgate safe harbors to protect various business arrangements from criminal prosecution under the AKS even though the arrangements potentially may be capable of inducing referrals of federal health care program business.  The final rule as published in the Federal Register is available here. New Safe Harbors Created The two new safe harbors share a focus on making medical-related transportation more affordable. The first new safe harbor protects reductions or waivers of a federal health care program beneficiary’s obligation to pay copayment, coinsurance or deductible (“cost-sharing”) amounts for emergency ambulance services provided by a state-, municipality- or tribal-owned ambulance supplier and paid for under a fee-for-service payment system if specified requirements are satisfied (e.g., the reduction or waiver must be offered on a uniform basis to all residents, tribal members or transported individuals). See 42 C.F.R. § 1001.952(k)(4).  The second new safe harbor protects free or discounted local transportation provided by an “eligible entity” (i.e., any individual or entity, except for individuals or entities that primarily supply health care items) to federal health care beneficiaries in the form of a “shuttle service” if certain conditions are met. See 42 C.F.R. § 1001.952(bb). AKS Exceptions Codified as Safe Harbors The final rule also protects certain pharmacy reductions or waivers of cost-sharing amounts (see 42 C.F.R. § 1001.952(k)(3)), remuneration between a federally qualified health center (“FQHC”) and a Medicare Advantage (“MA”) organization and (see 42 C.F.R. § 1001.952(z)), and discounts by manufacturers on drugs furnished to beneficiaries under the Medicare Coverage Gap Discount Program (see 42 C.F.R. § 1001.952(aa)). Focus on Safe Harbor for Pharmacy Cost-Sharing Waivers While all of the safe harbors are noteworthy, some additional commentary on the scope and requirements of the safe harbor for pharmacy cost-sharing waivers is warranted. First, the scope of the final rule’s pharmacy cost-sharing waiver safe harbor includes both the Medicare Part D program and the Medicaid program, whereas the similar AKS statutory exception covers only Medicare Part D. Second, the OIG clarified in its comments to the final rule that the safe harbor requirement that the reduction or waiver not be part of an “advertisement or solicitation” would be violated by a pharmacy posting information on its Web site regarding the reduction or wavier, but generally would not be violated by responding to an inquiry from a particular patient in person. Third, with respect to the safe harbor requirement that the reduction or waiver not be “routine,” the OIG stated in its comments that what is “routine” depends on the facts and circumstances of a particular case but that giving a reduction or waiver could be common enough without being automatic and still be routine. Fourth, the OIG declined to specify any particular method of determining whether a beneficiary has a “financial need,” permitting pharmacies flexibility, by way of examples, to use a multiple of the poverty guidelines or to use a combination of the poverty guidelines plus family medical expenses. The key to satisfying the requirement is that the pharmacy must apply a reasonable determination method of financial need uniformly. And while not requiring a written policy describing the pharmacy’s determination method, the OIG did say that having such a written policy, along with evidence that the policy was followed, would be “useful” in asserting the safe harbor’s protection. Fifth, if a patient is not in financial need then the pharmacy must make “reasonable collection efforts” before waiving the cost-sharing amount. The OIG recognized in its comments that the amount of the copayment or the historical inability to collect from a particular patient might be factors in a pharmacy’s decision regarding what collection efforts to take. However, a preemptive decision by a pharmacy not to request payment from, or not to pursue any collection efforts regarding, a particular patient would not satisfy this requirement. Parties intending to fit within a particular safe harbor are advised to review all of the applicable requirements. In addition, as illustrated by the discussion of the safe harbor for pharmacy cost-sharing waivers above, reviewing the OIG’s responses to comments in the final rule can help interpret the regulatory language.

The qui tam provisions of the False Claims Act allow private citizens to file FCA claims on behalf of the government.  The government may elect to intervene in the action—or it may not.  The United States District Court for the Western District of Virginia held earlier this month that when the government does not intervene, it is a party in interest, but not a party to the qui tam suit—a distinction of significance for purposes of collateral estoppel.  See United States v. Whyte, No. 4:12-cr-21-2, 2016 U.S. Dist. LEXIS 172560 (W.D. Va. Dec. 16, 2016). The federal government indicted William R. Whyte and Armet Armored Vehicles, Inc. in 2012 on three counts of major fraud against the United States, six counts of wire fraud, and three counts of false, fictitious, and fraudulent claims.  Mr. Whyte is the owner and CEO of Armet, a manufacturer and supplier of armored vehicles. Id.  The indictment alleges that Mr. Whyte and Armet contracted with the government to manufacture and supply vehicles for use in Iraq, but the vehicles were delivered late and did not conform to contract specifications. Mr. Whyte avoided prosecution for a few years by fleeing to Canada, but he was extradited in September 2016.  In the meantime, Armet’s former president filed a qui tam action against Mr. Whyte and Armet based on the same conduct underlying the government’s indictment.   The government chose not to intervene.  In Mr. Whyte’s absence, that case was tried to a jury, which returned a verdict in favor of Mr. Whyte and Armet. When Mr. Whyte returned to the United States this fall, he moved to dismiss the indictment against him on grounds of collateral estoppel. The court denied Mr. Whyte’s motion, reasoning that although the government was a party in interest to the qui tam action, it was not technically a "party" for purposes of a collateral-estoppel analysis. Because it did not intervene, the government could not “issue subpoenas, conduct depositions, propound discovery, call witnesses, or cross-examine the defendant’s witnesses”—that is, it could not exercise the degree of “practical control over the litigation [such] that it would be fair to bind it to the prior ruling [in the qui tam action].” The court emphasized that its holding recognizes a policy decision behind the framework of the FCA: it is the government’s choice whether to intervene in a civil qui tam action or pursue criminal charges, and the government should not be forced to be a party to a qui tam action.

The Supreme Court held yesterday that a violation of the False Claims Act’s seal provision does not mandate dismissal of a relator’s complaint.  Justice Kennedy authored the Court’s opinion in the unanimous 8-0 decision.  State Farm was accused of defrauding the government by falsely classifying wind damage caused by Hurricane Katrina as flood damage, which would allow State Farm’s costs to be covered by the National Flood Insurance Program.  A relator, Rigsby, filed a False Claims Act suit under seal—where only the federal government and Rigsby would know of the suit.  Rigsby then allegedly violated the seal when her attorney sent evidence about the under-seal case to news organizations.  State Farm believed that this violation should result in dismissal of Rigsby’s complaint.  Today, the Supreme Court disagreed. Although dismissal was not appropriate here, the Court noted that dismissal might be appropriate in some instances, but it needn’t be mandatory.  The Court left it up to later cases to nail down the exact standards to apply when evaluating whether or not to dismiss a case for violation of the FCA’s seal provision, noting that “the factors articulated in United States ex rel. Lugan v. Hughes Aircraft Co. appear to be appropriate….”  Slip op. p. 10.   The Court explained that a violation of the seal provision in the present case might justify the use of, “[r]emedial tools like monetary penalties or attorney discipline….” Id.  However, because State Farm “did not request any sanction other than dismissal,” they did not preserve “the question whether a lesser sanction is warranted….”  Id.  As such, the Fifth Circuit’s judgment, that State Farm was not entitled to dismissal, was affirmed.       The Court’s opinion is available here:  https://www.supremecourt.gov/opinions/16pdf/15-513_43j7.pdf

This month the Supreme Court heard oral argument in State Farm Fire & Casualty Co. v. United States ex rel. Rigsby, a case centered on allegations dating back to Hurricane Katrina.  The Fifth Circuit had previously upheld a jury verdict finding State Farm liable for $758,000 in damages based on a claim that State Farm defrauded the government.  Whistleblowers, including respondent Cori Rigsby, alleged that State Farm falsely classified wind damage caused by Hurricane Katrina as flood damage, which would allow State Farm’s costs to be covered by the National Flood Insurance Program. The issue before the Supreme Court is what standard governs the decision whether to dismiss a relator’s claim for violation of the False Claims Act’s seal requirement. Rigsby operated as a relator in this case, bringing a public lawsuit in the name of the federal government.  The False Claims Act mandates that a whistleblower suit be filed under seal so that only the relator and the government know about it.  This allows the government to consider how to approach the lawsuit without the alleged bad-actor learning of the suit.  The False Claims Act does not contain any specific guidance for how to deal with a situation where the relator has violated this seal requirement.  State Farm alleges that the relator’s attorney sent evidence about the case to news organizations while the case was under seal.  State Farm would like the claim dismissed as a result.  In ruling against State Farm, the Fifth Circuit concluded that the strict dismissal rule employed by some courts of appeal goes against the legislative intent behind the seal requirement, and that the balancing test used in other circuits is more appropriate. Although oral argument did not shed a great deal of light on how this case will turn out, several justices pushed State Farm’s counsel, Kathleen Sullivan, on the prudence of dismissing a case even over a very minor disclosure. When the relator’s attorneys argued, Justice Breyer addressed a concern about simply excusing a violation as “too light a sanction.” It is likely that the justices have already voted on a preliminary outcome, but we will not be privy to any final result for a number of months. SCOTUSblog has assembled the filings here: http://www.scotusblog.com/case-files/cases/state-farm-fire-and-casualty-co-v-united-states/?wpmp_switcher=desktop

The United States Justice Department (DOJ) announced this week that Omnicare, Inc. (Omnicare), the largest nursing home pharmacy in the United States, will pay approximately $28 million dollars to resolve charges that it received kickbacks from Abbott Laboratories (Abbott) to promote Abbott’s anti-epileptic drug, Depakote, to nursing home patients. According to the press release, Omnicare, whose consultant pharmacists review nursing home resident’s medical charts and make recommendations to the resident’s physicians about what drugs should be prescribed to residents, received kickbacks disguised at “grants” and “educational funding” from Abbott in exchange for increasing the utilization of Depakote in nursing homes. Omnicare was acquired by CVS Health Corporation in 2015; according to the DOJ press release, the conduct addressed in the settlement concluded around 2009. This settlement comes after a 2012 resolution where Abbott agreed to pay $1.5 billion dollars to resolve, among other things, violations of the False Claims Act for paying alleged kickbacks to nursing home pharmacies including Omnicare and PharMerica Corp. In 2015, PharMerica entered into a settlement of $9.25 million dollars to resolve claims that it received kickbacks from Abbott. In the DOJ press release, U.S. Attorney John P. Fishwick, from the Western District of Virginia, is quoted as saying “This settlement ensures that some of the most vulnerable amongst us, those suffering from dementia, are provided with the level of care they deserve. Families and loved ones who make the difficult decision to place those they care about into a nursing home must do so with the confidence that medical decisions are being made with the interests of the patient in mind, not big drug companies.” The $28 million dollar Omnicare settlement will go toward government health insurance programs and state Medicaid programs. The settlement also resolves two whistleblower lawsuits filed in the Western District of Virginia by former Abbott employees; one of those whistleblowers will receive approximately $3 million of the settlement amount. A copy of the DOJ Press Release is available here.

In the most recent example of its continued effort to hold individuals accountable for corporate misconduct, the U.S. Department of Justice (“DOJ”) announced on September 27, 2016, that the former CEO of Tuomey Healthcare System has agreed to pay $1 million to settle claims arising from his involvement in the hospital’s violations of the Stark Law.  In addition to the $1 million civil fine, the CEO is also excluded for four years from participating in any federal health care programs, including providing management or administrative services that are paid in part by federal health care programs. The underlying corporate misconduct related to violations of the Stark law, which prohibits hospitals from billing Medicare for certain services that have been referred by physicians with whom the hospital has an improper financial relationship.  A whistleblower sued Tuomey in 2005 alleging that certain physician contracts and payments violated the Stark Law, causing the hospital to submit false claims for payment to Medicare in violation of the False Claims Act (“FCA”).  After years of litigation, a jury in a 2013 retrial found that Tuomey had violated both the FCA and the Stark Law. The jury also found that Tuomey had filed more than 21,000 false claims with Medicare.  The trial court entered an order requiring Tuomey to pay $237.4 million. That judgment was later affirmed by the United States Court of Appeals for the Fourth Circuit.  On October 16, 2015, Tuomey and the government agreed to a settlement for $72.4 million, and the hospital was sold to Palmetto Health, a multi-hospital health care system based in Columbia, SC. The government alleged that the CEO had caused Tuomey to enter into the contracts with 19 specialist physicians because he was concerned that Tuomey could lose lucrative outpatient procedure referrals to a new freestanding surgery center.  The government also argued that the CEO ignored and suppressed warnings from one of Tuomey’s attorneys that the contracts were “risky” and raised “red flags.” In 2013, the CEO was fired by Tuomey’s Board of Directors. The settlement reflects the government’s increased emphasis on holding individuals accountable for corporate behavior, and comes just a little over a year after the DOJ Deputy General Sally Yates issued a memo that refocused government law enforcement inquiries on individual misconduct.  The Yates memo begins by proclaiming that “One of the most effective ways to combat corporate misconduct is by seeking accountability from the individuals who perpetrated the wrongdoing . . . [accountability] deters future illegal activity, incentivizes changes in corporate behavior . . . and promotes the public’s confidence in our justice system.”  That sentiment is reflected in the DOJ Press Release announcing the settlement, which states “Today’s settlement demonstrates that the Justice Department and its law enforcement partners will hold individual decision makers accountable for their involvement in causing the companies and facilities they run to engage in unlawful activities.” A copy of the DOJ Press Release is available here: https://www.justice.gov/opa/pr/former-chief-executive-south-carolina-hospital-pays-1-million-and-agrees-exclusion-settle

On September 14, 2016, the United States District Court for the Eastern District of Louisiana granted a government contractor’s summary judgment motion and dismissed a lawsuit brought against it by False Claims Act relators (“Relators”) because Relators failed to identify evidence supporting the existence of a genuine issue of material fact regarding their claims that the contractor had improperly billed the Federal Emergency Management Agency (“FEMA”) for work performed under a temporary housing services contract. U.S. ex rel. Warder v. Shaw Group, Inc., et al., 2016 WL 4802783 (E.D. La. Sept. 14, 2016). Relators were former employees of FEMA who alleged that Shaw Group, Inc. (“Shaw”) had double- and triple-billed FEMA or billed FEMA for work not actually performed under its contract to “haul, install, maintain, and deactivate temporary housing units” signed with FEMA in the wake of Hurricanes Katrina and Rita. In response to these allegations, Shaw moved for summary judgment. Shaw cited three grounds for its motion. First, it argued that there was no factual dispute that FEMA had authorized Shaw to perform the work for which it had billed FEMA, and thus Relators had failed to satisfy their evidentiary burden under Federal Rule of Civil Procedure 56 to preclude summary judgment.  Second, Shaw claimed that the factual record did not support Relators’ other allegations, namely: (1) that Shaw had submitted 374 instances of “possible” false trailer installation claims; (2) that a $1 million credit received by FEMA from Shaw reflected other false claims; and (3) that Shaw sent late or inadequately-supported invoices to FEMA.  Third, Shaw asserted that the lawsuit was barred by the False Claims Act’s public-disclosure bar because a 2008 Department of Homeland Security Office of Inspector General report – rather than Relators – was the original source of the bases for Relators’ claims. Relators filed an opposition brief to Shaw’s motion in which they claimed to have identified two invoices and underlying documents evidencing Shaw’s double billing for trailer transportation services, and pledged to produce additional evidence of Shaw’s False Claims Act violations later in the proceedings. Shaw countered that Relators in their opposition had improperly raising a new dispute, as the complaint alleged only that Shaw had double billed for “trailer installation, deactivation, and maintenance done once,” but not for trailer transportation.  Shaw also noted that Relators had failed to demonstrate the authenticity of the documents underlying this claim.  Finally, Shaw argued that its contract with FEMA authorized it to bill FEMA for moving the same trailer multiple times, and that the the factual record therefore did not support Relators’ allegation. Upon review of the parties’ filings, the district court found no evidence to support Relators’ allegations that Shaw had violated the False Claims Act. The court noted that Relators’ papers had failed to dispute whether backup documentation provided by Shaw to FEMA– which supplemented the invoices identified by Relators – supported Shaw’s argument that its trailer transportation billing was proper under the contract.  Thus, the court found no basis to infer that Shaw had knowingly presented false claims to the government.  Having reached this conclusion, the court found no need to address Shaw’s contention that Relators’ claims were barred under the False Claims Act’s public-disclosure bar.

The Centers for Medicare and Medicaid Services (“CMS”) establishes requirements for how medical procedures must be performed for a medical provider to seek payment for those procedures.  Seeking payment without properly performing the procedure might expose the provider to alleged liability under the False Claims Act (“FCA”).  But what if the requirements for the procedure are ambiguous?  Will a provider’s reasonable interpretation of a requirement shield it from FCA liability if it seeks payment for performing the procedure based on its interpretation?  Earlier this month, the U.S. Court of Appeals for the Eighth Circuit answered “yes,” provided that the government hasn’t previously warned against the interpretation the provider used. At issue in United States ex rel. Donegan v. Anesthesia Associates of Kansas City, was whether a surgical patient’s “emergence” from anesthesia could occur in the post-anesthesia care unit (“PACU”) or had to occur in the operating room.  --- F.3d ----, 2016 WL 4254939 (8th Cir. Aug. 12, 2016).  The defendant had billed CMS for the services of anesthesiologists at a billing rate that required the anesthesiologist to be present during emergence.  The defendants’ anesthesiologists supervised lower-level providers during various phases of surgery but typically did not observe the patient’s emergence from anesthesia until the patient had reached the PACU.  CMS and the Department of Health and Human Services had not defined “emergence,” nor had the professional bodies that establish anesthesia standards of care.  Against this backdrop, the defendant had defined “emergence” such that it could occur in the PACU.  Experts for both parties, and the court, concluded this definition was objectively reasonable.  And no official government warning had cautioned against using this reasonable definition.  As a result, the court held the defendant could not be liable under the FCA for submitting claims premised on defining “emergence” to include the anesthesiologist’s assessment of the patient in the PACU. A medical provider faced with an ambiguous billing regulation might therefore consider the same sources the court did—CMS and DHS or other governmental regulations, official interpretations or government warnings about particular interpretations, and standards of care set by relevant professional bodies.  If these sources point to an objectively reasonable interpretation of the regulation that the government has not previously rejected, the Donegan decision suggests that a provider can apply that definition in its billing practices without contravening the FCA.