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.

In a January 10, 2019 decision, the US District Court for the District of Arizona granted summary judgment to Defendants because Relators failed to raise a genuine issue of material fact on the issue of “knowledge” under the False Claims Act (FCA) which, as everyone knows by now, includes deliberate ignorance or reckless disregard. The decision is significant for the simple fact that courts can be reluctant to address scienter on summary judgment, and in many cases prefer to simply let the issue go to trial. Moreover, the court’s opinion makes clear that corrections to claiming issues and improvements to systems that result in better claims submission do not function as evidence of knowledge or recklessness under the FCA. In tort law parlance, “remedial measures” are not evidence of fraud.

In Vassallo v. Rural/Metro Corp., a qui tam lawsuit in which the government declined to intervene (but filed a statement of interest attempting to support the Relator’s opposition to summary judgment), the allegations primarily concerned Defendants’ transition from using internal coders to an outside coding vendor to code claims for ambulance transports. There were some alleged issues with the coding performed by the outside coding company, which Defendants worked to improve and correct during and after the transition. Notably, Defendants had been operating under a Corporate Integrity Agreement (CIA) during the time period at issue, and consistently received positive results from the Internal Review Organization (IRO) with respect to coding, billing and claims submission.

The district court held that no reasonable jury could have found that Defendants acted with deliberate indifference or reckless disregard. Relators contended, among other things, that Defendants’ transition to the outside coding vendor was reckless, and that they completed the transition despite knowing about the vendor’s coding and billing errors and issues. In response, Defendants pointed to evidence regarding their training and oversight efforts, their instructions that the vendor’s coders should undercode if they had any doubt about the correct code to be used, their positive results under the CIA, and their retention of Deloitte to address any continued issues with the vendor’s coding. Continue Reading Process Improvements Not a Basis to Establish Scienter: District Court Grants Summary Judgment to Defendants

On December 21, just before the government shutdown began, the Civil Division of the US Department of Justice (DOJ) announced its fiscal 2018 False Claims Act (FCA) statistics.  According to DOJ, FCA judgments and settlements totaled over $2.8 billion for the year.

While this number is the lowest total since 2009, the reason for this result is related to a drop in non-health care related cases.  In fact, the statistics show that health care remains the top driver of FCA activity, both in the number of cases filed and total dollars recovered; only about $370 million of the $2.8 billion, or about 13 percent, came from non-health care cases. Almost all of the fiscal 2018 number–over $2.5 billion–came from cases involving the Department of Health and Human Services (HHS). This appears to be the largest percentage of the total recoveries since DOJ began reporting these statistics in 1987. $1.9 billion of this $2.5 billion came from qui tam cases (also resulting in over $266 million in relator share awards). Indeed, 2018 continued the trend into the ninth consecutive year where health care case recoveries exceeded $2 billion.

The overall number of new FCA matters also fell for the second year in a row; 767 new cases were filed in 2018, with 645 of them filed by relators. Interestingly, the number of new HHS cases also is trending downwards. 2018 saw 506 new HHS cases, 446 of which were filed by relators. In 2017, DOJ reported 550 new HHS cases (495 from relators) and 573 new HHS cases (503 from relators) in 2016, which was the all-time high record of new HHS cases. The 2018 total is consistent with number of new HHS cases filed since 2010.

DOJ’s press release notably emphasized three policy issues outside of dollars that have defined DOJ’s FCA activities in 2018: the continued focus on alleged violations of the Anti-Kickback Statute, 42 U.S.C. § 1320-7b; the movement seek dismissal of unmeritorious cases as discussed in the Granston Memo; and “holding individuals accountable” by seeking monetary resolutions with individuals in addition to corporations. We should expect all three of these trends to continue into 2019.

DOJ’s 2018 False Claims Act statistics can be found here and the press release can be found here.

On November 16, 2018, the United States Supreme Court granted certiorari in United States ex rel. Hunt v. Cochise Consultancy, Inc., 887 F.3d 1081 (11th Cir. 2018). The question presented to the Court is “whether a relator in a False Claims Act qui tam action may rely on the statute of limitations in 13 U.S.C. § 3731(b)(2) in a suit in which the United States has declined to intervene and, if so, whether the relator constitutes an “official of the United States” for purposes of Section 3731(b)(2).”

Section 3731(b) requires an FCA case be filed either (1) six years after the date on which the violation…is committed, or (2) three years after the date when facts material to the right of action are known or reasonably should have been known by the official of the United States charged with responsibility to act in the circumstances, but in no event more than 10 years after the date on which the violation is committed, whichever is later.

In Cochise Consultancy, Inc., the Eleventh Circuit held that § 3731(b)(2) was available to a relator in a non-intervened case. The court also held that the relevant person whose knowledge triggers the limitations period is an official of the United States.

The Eleventh Circuit’s decision deepens the divide among circuits as to how to apply § 3731(b)(2), creating a three-way circuit split. The decision is a departure from the Fourth Circuit and Tenth Circuit. Both courts determined that § 3731(b)(2) extends the statute of limitations period only if the government is a party. See United States ex rel. Sanders v. N. Am. Bus Indus., Inc., 546 F.3d 288 (4th Cir. 2008); United States ex rel. Sikkenga v. Regence BlueCross BlueShield of Utah, 472 F.3d 702 (10th Cir. 2006).

The decision is also a departure from the Third Circuit and Ninth Circuit. The Third Circuit and Ninth Circuit also held that § 3731(b)(2) is available when the government does not intervene.  However, the three-year period depends on the relator’s knowledge. See United States ex rel. Malloy v. Telephonics Corp., 68 F. App’x 270 (3d Cir. 2003); United States ex rel. Hyatt v. Northrop Corp., 91 F.3d 1211 (9th Cir. 1996).

The Supreme Court’s decision to tackle this issue will provide clarity to businesses subject to the FCA because it will likely provide an answer as to how long a relator has to bring an action when the government has not intervened. It could also do away with any forum shopping that relators currently have the ability to engage in.

The Office of Inspector General, Department of Health and Human Services posted an unusual negative Advisory Opinion (AO 18-14) on a drug company’s proposal to provide free drugs to hospitals for use with pediatric patients suffering from a form of epilepsy. Of particular interest is OIG’s reliance on a longstanding, but rarely used, authority to justify finding and relying on public information about the drug at issue, including pricing information, to support its unfavorable conclusion. This advisory opinion might counsel future opinion requestors to withdraw their opinion request once OIG indicates the opinion will be unfavorable.

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The October issue of the journal Science features a series of short articles highlighting a database containing a list of more than 18,000 scientific papers and conference abstracts that have been retracted over the past several decades. An analysis of the database shows that nearly 60 percent of retraction notices mentioned fraud or other kinds of misconduct (the balance of which were retracted because of errors, problems with reproducibility and other issues). The Science article, as well as a link to the searchable database, can be accessed here. Not only does research misconduct have significant potential for reputational harm–potentially career ending for the investigator, with ripple effects for the institution–but as described below, when the associated research is federally funded, such misconduct could have significant legal (and liability) implications.

US health care organizations are used to warnings about the potential for exposure under the federal False Claims Act (FCA) resulting from improper claims submitted to federal payors such as Medicare and Medicaid. Less attention has been paid to the potential for FCA liability resulting from research non-compliance. Recipients of federal grant funding are subject to a variety of complex rules (e.g., the National Institute of Health (NIH)  Grants Policy Statement), as well as the terms and conditions of the Notices of Award.  Just as compliance with Medicare rules can lead to questions about potential FCA exposure for Medicare payments, compliance with federal grant funding rules can lead to the same questions for grant funds.

For example, grant recipients should consider the FCA implications of research misconduct. “Research misconduct” is defined by the Public Health Services’ (PHS’s) final rule, effective  June 2005 (the Rule), as the “fabrication, falsification, or plagiarism in proposing, performing, or reviewing research, or in reporting research results.” 42 C.F.R. § 93.103. The Rule confers upon an organization an affirmative duty to protect PHS funds from misuse by ensuring the integrity of all PHS supported work, and primary responsibility for responding to and reporting allegations of research misconduct. 42 C.F.R. § 93.100(b). The Rule applies to grant funding from a variety of federal agencies, including the Food & Drug Administration, NIH, Centers for Medicare and Medicaid Services, and the Substance Abuse and Mental Health Services Administration, to name a few.

Continue Reading Practice Reminder: Research Misconduct can be a Source of False Claims Act Liability

At a time when health care organizations are facing greater financial and reputational costs than ever before, more than 150 health care industry leaders, legal and compliance executives, and investors gathered for McDermott’s Health Care Litigation, Compliance & Investigations Forum at the Ritz-Carlton in Chicago to discuss strategies for proactively managing and effectively responding to compliance risks, investigations and litigation.

Sylvia Mathews Burwell, Secretary of Health and Human Services from 2014 to 2017, delivers the keynote presentation.

The event covered a wide range of issues, including fraud and abuse (such as False Claims Act and Stark Law matters), governance, cybersecurity, antitrust, white-collar, intellectual property, products liability and tax-exemption disputes. The event also featured a keynote address by Sylvia Mathews Burwell, Secretary of Health and Human Services from 2014 to 2017, on the foundations of the Affordable Care Act (ACA), the ramifications of the elimination of the individual mandate and the ACA’s prospects going forward.

If your organization needs support in current litigation or wants to ensure best practices to help avoid one, we’re here to help.

Below are key insights from the sessions:

Every Day’s Adventure: How Leading GCs Are Thinking about Compliance and Enforcement

  • Collaboration between the general counsel and the compliance officer provides a proactive and team-oriented approach to substantive legal and policy issues.
  • Keys to effective collaboration include communication, coordination and a culture of sharing, coupled with respect for the independence of the compliance/audit function.
  • Transparency is key; bad news is OK, but surprises are not. Stay closely engaged with the board and internal audit team. Of audience members surveyed, 40 percent brief their board on legal or compliance matters about once a quarter, and 47 percent do so every board meeting.
  • Preventative compliance measures involve a formal enterprise risk management plan and proactive two-way communication with line teams regarding trends and solutions.

Continue Reading Best of McDermott’s 2018 Health Care Litigation, Compliance & Investigations Forum