Boards and management should make use of recent expanded guidance from the US Department of Justice to ensure that their compliance programs are considered “effective” if and when an investigation arises. Companies should affirmatively answer three fundamental questions in evaluating a compliance program:

  1. Is the compliance program well designed?
  2. Is the program being implemented effectively and in good faith?
  3. Does the compliance program work in practice?

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On April 23, 2019, the US Department of Justice (DOJ) announced it has entered into a deferred prosecution agreement with Rochester Drug Co-Operative, Inc. (RDC), one of the 10 largest wholesale distributors of pharmaceutical products in the US, and filed felony criminal charges against two of RDC’s former senior executives for unlawful distribution of controlled substances (oxycodone and fentanyl) and conspiring to defraud the US Drug Enforcement Agency (DEA). During the relevant time period (2012-2016), RDC’s sales of oxycodone increased by approximately 800 percent (from 4.7 million to 42.2 million tablets) and fentanyl increased by approximately 2,000 percent (from 63,000 to over 1.3 million dosages). The two charged executives are RDC’s former chief executive officer, Laurence F. Doud III, and the company’s former chief compliance officer, William Pietruszewski.

Geoffrey S. Berman, the US Attorney for the Southern District of New York, noted in a press release that the prosecution is “the first of its kind,” with RDC and its former chief executive officer and former chief compliance officer charged with “drug trafficking, trafficking the same drugs that are fueling the opioid epidemic that is ravaging this country.” Keeping the focus on the C-suite, Mr. Berman emphasized that his office “will do everything in its power to combat this epidemic, from street-level dealers to the executives who illegally distribute drugs from their boardrooms.”

Ray Donovan, the DEA Special Agent in Charge of the investigation, underscored this sentiment:

Today’s charges should send shock waves throughout the pharmaceutical industry reminding them of their role as gatekeepers of prescription medication.  The distribution of life-saving medication is paramount to public health; similarly, so is identifying rogue members of the pharmaceutical and medical fields whose diversion contributes to the record-breaking drug overdoses in America . . . . This historic investigation unveiled a criminal element of denial in RDC’s compliance practices, and holds them accountable for their egregious non-compliance according to the law.”

A consistent theme across the three cases is the alleged deficiency in RDC’s compliance program—as well as the role that the former CEO and compliance chief allegedly played in directing RDC to ignore its obligations to maintain “effective control[s] against diversion of particular controlled substances into other than legitimate medical, scientific, and industrial channels” under 21 USC § 823(b)(1) and reporting suspicious orders under 21 CFR § 1301.74(b). The criminal pleadings include allegations that:

Continue Reading First of Its Kind: Drug Wholesaler Accepts DPA and Two Executives Face Criminal Charges in SDNY For Illegal Distribution of Opioids

We are pleased to share that Chambers USA has once again named McDermott Health the only firm to receive a Band 1 national ranking in health care. This year’s Band 1 placement marks 10 consecutive years of securing a top national ranking in this prestigious law firm directory, and the ninth year that we have held this position exclusively. The Health team also garnered Band 1 state-level rankings in California, Florida, Illinois, Massachusetts and Washington, DC—cities and states where we have substantial health law teams—and 29 McDermott health lawyers were ranked individually.

Click here to view the full announcement. 

In this first installment of the Health Care Enforcement Quarterly Roundup for 2019, we continue to monitor trends we identified in 2018 and introduce new enforcement efforts that are expected to persist in the coming year. In this Roundup, we focus on increased enforcement activity against electronic health record (EHR) companies, enforcement against individuals (with an acute focus on the telemedicine industry), lower court interpretations of the landmark Escobar ruling, developments related to the Granston Memo and dismissal of False Claims Act (FCA) cases, potential changes to the FCA statute of limitations, and the current state of affairs in opioid litigations around the country.

Click here to read the full issue of the Health Care Enforcement Quarterly Roundup.

Click here to download a PDF of the issue.  

On February 11, 2019, the Eighth Circuit affirmed the dismissal of a group of relators’ qui tam suit against Crawford County Memorial Hospital for failure to meet the pleading standards required by Federal Rule of Civil Procedure 9(b). The court’s decision focused on the relators’ failure to allege the specifics of any actual claim for payment by Crawford County – a solid confirmation that the Eighth Circuit continues to require the pleading of identifiable false claims for payment, even in instances in which a relator is not in a position to have that information.

The three relators were a former EMT and two former paramedics at Crawford County. The relators alleged that Crawford County violated the FCA by submitting, among other things, claims for breathing treatments administered to patients by paramedics, claims for lab services performed by paramedics and EMTs, and claims with false credentials of service providers. The relators further stated that Crawford County used false statements to get these claims paid, including records documenting breathing treatments as taking 30 minutes when they did not, records referring to paramedics as “specialized ancillary staff” for breathing treatments, and documents containing false credentials for emergency staff. The complaint was fairly detailed – it included allegations that Crawford County required paramedics to perform breathing treatments previously provided by nurses, that hospital management told staff the change was explicitly for billing purposes, and that management required the paramedics to document each breathing treatment at 30 minutes, regardless of its actual length. Continue Reading Eighth Circuit Rejects FCA Claim for Failure to Allege Actual Claims for Payment

DOJ announced on February 6, 2019, the Settlement Agreement resolving allegations in DOJ’s Complaint that Greenway caused its customers to submit false Medicare and Medicaid claims for payments under the EHR Incentive Programs in violation of the FCA and that it paid illegal kickbacks to current customers to recommend Greenway products (that are used to generate incentive payments or avoid penalties under the EHR Incentive Programs) to new customers. Under the Settlement Agreement, Greenway agreed to pay approximately $57 million to resolve the allegations without admitting liability. Greenway also entered into a five-year CIA with strict compliance oversight, reporting obligations and costly obligations to provide the latest version of Greenway’s EHR software to each of Greenway’s current customers at no additional charge.

This settlement comes nearly two years after eCW entered into a groundbreaking settlement with DOJ. At that time, we wondered whether it may be a sign of increasing FCA actions against vendors of EHR technology (CEHRT) certified through the health information technology (HIT) certification program of the Office of the National Coordinator of HIT (ONC). Statements by the United States Attorney for the District of Vermont, Christina E. Nolan, in the DOJ press release discussing the Greenway settlement seem to answer that question very directly in the affirmative. She says that “EHR companies should consider themselves on notice.” It is notable that, unlike the eCW case, the Greenway case was not initiated by a relator, but pursued by DOJ directly. In light of the government’s continued focus on vendors of EHR technology used to earn payments or avoid penalties for failing to succeed under the EHR Incentive Programs (or their successor value-based payment programs), HIT vendors should:

  • Take care to accurately and transparently demonstrate their software during HIT certification program testing
  • Review, and consider improvements to, their systems and other procedures for identifying, responding to and correcting software design and quality issues that call into question EHR software’s conformity to applicable EHR certification criteria or present patient safety or clinician usability risks; and
  • Review existing customer reference, referral and marketing arrangements for compliance with the Anti-Kickback Statute.

Click here to read the full post.

On February 8, 2019, the Department of Justice (DOJ) announced that it obtained a temporary restraining order (TRO) in the Middle District of Tennessee against two pharmacies, their owner and three pharmacists from dispensing controlled substances, including opioids. The DOJ simultaneously unsealed a complaint alleging violations of the False Claims Act and Controlled Substances Act against the same parties. DOJ’s press release is available here.

The DOJ described this action as part of a coordinated effort by the Prescription Interdiction & Litigation (PIL) Task Force to deploy its criminal, civil and regulatory tools to address the opioid epidemic in the United States. The complaint alleges that the pharmacies and pharmacists filled numerous prescriptions for controlled substances outside the usual course of professional practice and in violation of the pharmacists’ corresponding responsibility to ensure that prescriptions were written for a legitimate medical purpose. In particular, the complaint alleges that the defendants routinely dispensed controlled substances and ignored “red flags” of diversion and abuse, such as unusually high dosages of oxycodone and other opioids, dangerous combinations of opioid prescriptions other controlled substances and patients travelling extremely long distances to get and fill prescriptions. The complaint also asserts that the pharmacies falsely billed Medicare for illegally dispensed prescriptions.

“Pharmacies and pharmacists have a legal obligation to dispense controlled substances properly, so as not to put patients’ health at risk,” said Assistant Attorney General Jody Hunt for the Department of Justice’s Civil Division. “The Department of Justice will use every available tool to stop individuals and entities responsible for the improper distribution of controlled substances.”

While the DOJ has previously obtained TROs and a permanent injunction against physicians for prescribing opioids upon filing a complaint, this is the first case in which the agency has taken this combination compliant and TRO action against a pharmacy and pharmacists.

On January 31, 2019, the Department of Health and Human Services (HHS) released a notice of proposed rulemaking (the Proposed Rule) as part of ongoing administration drug pricing reform efforts. The Proposed Rule would modify a regulatory provision that had previously protected certain pharmaceutical manufacturer rebates from criminal prosecution and financial penalties under the federal Anti-Kickback Statute.

Specifically, the Proposed Rule would exclude from “safe harbor” protection rebates and other discounts on prescription pharmaceutical products offered by pharmaceutical manufacturers to Medicare Part D plan sponsors or Medicaid Managed Care Organizations (MCOs), unless the price reduction is required by law (such as rebates required under the Medicaid Drug Rebate Program). The proposed exclusion would apply to rebates offered directly to Part D plan sponsors and Medicaid MCOs, as well as those negotiated by or paid through a pharmacy benefit manager (PBM). HHS stated that it does not intend for the revisions in this Proposed Rule to negatively impact protection of prescription pharmaceutical product discounts offered to other entities such as wholesalers, hospitals, physicians, pharmacies and third party payors in other federal health care programs. The proposed effective date of this regulatory modification is January 1, 2020, although HHS has sought comments regarding whether this allows sufficient time for parties to restructure existing arrangements.

Click here to read the full post. 

This latest installment of the Health Care Enforcement Quarterly Roundup reflects on trends that persisted in 2018 and those emerging trends that will carry us into 2019 and beyond. Leading off with the US Department of Justice’s (DOJ) December announcement of its fiscal year 2018 False Claims Act (FCA) recoveries, it remains clear that the health care industry is a primary target of FCA enforcement activity. We also revisit the current state of implementation of DOJ’s Granston Memorandum, substantive revisions to the Yates Memorandum, critical interpretations of the landmark Escobar case (including those expected in the coming year), and continued enforcement activity in the pain management industry.

Click here to read the full issue of the Health Care Enforcement Quarterly Roundup

Click here to download a PDF of the issue. 

In September 2015, Deputy Attorney General Sally Yates issued the Yates memo on individual accountability in the context of corporate investigations. It is no understatement to say that this memo created a near-cottage industry of articles and panels on the memo’s impact on government investigations and officer/director liability.

After the change in administration, a favorite parlor game of the defense bar was wagering on the memo’s survival. And after Deputy Attorney General Rod Rosenstein revealed, in September and October 2017, that the Yates memo was under active reconsideration, discussions turned serious about whether the memo would be preserved, diluted or outright reversed and whether the distinctions between criminal and civil False Claims Act matters would receive needed nuance.

Click here to read the full article as published in Law360.