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.
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highlighting a database containing a list of more than 18,000 scientific papers and conference abstracts that have been retracted over the past several decades.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.
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.
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.
The False Claims Act (FCA) allows the government to pursue any “alternate remedy available” if the government chooses not to intervene in a qui tam action. See 31 U.S.C. § 3730(c)(5). However, if the government pursues an “alternate remedy,” the FCA gives the qui tam plaintiff the “same rights” in the “alternate” proceeding that the plaintiff would have had if the qui tam action “had continued.” Id. In U.S. v. Couch et al., the question before the United States Court of Appeals for the Eleventh Circuit was whether the FCA allows a qui tam plaintiff to intervene in a criminal forfeiture proceeding when the government chooses to prosecute fraud rather than intervene in the qui tam plaintiff’s action. No. 17-13402 (Oct. 17, 2018). The Eleventh Circuit held that criminal forfeiture law bars qui tam plaintiffs from intervening in related forfeiture proceedings.
The suit stemmed from a qui tam action brought by Lori Carver, a former employee of an Alabama-based pain management company. During her employment, Carver allegedly discovered that the two doctors that ran the clinic, John P. Couch and Xiulu Ruan, submitted false claims to federal health care programs. Carver took her information to the US Attorney’s office, which encouraged her to bring a qui tam action against the doctors and the clinic. Carver brought the qui tam action in 2013 and the case remains pending. Carver is litigating the case herself, because the government chose not to intervene.
With Carver’s information, the government began investigating Dr. Couch and Dr. Ruan. Two years after Carver brought her qui tam action, the government criminally charged both doctors with conspiracy to distribute controlled substances and conspiracy to commit health care fraud. The charges in the indictment partially overlapped with Carver’s qui tam complaint. Thereafter, more defendants and charges were added to the criminal case in subsequent, superseding indictments. A jury ultimately convicted Couch on all charges and Ruan on all but one charge, which resulted in the judge issuing a preliminary forfeiture order.
Carver moved to intervene in the forfeiture proceedings, asserting a right to some of the forfeited assets. Carver primarily argued that the alternate-remedy provision allows her to intervene to claim a share of the assets she would be entitled to if the government had intervened in her qui tam action.
In response, the government argued that Carver did not have standing to intervene under the alternate-remedy provision because her qui tam case is pending—meaning that Carver has not yet established a right to a relator’s share. The government also argued that the FCA does not permit intervention in criminal cases.
The district court denied Carver’s motion to intervene and ruled that the alternate-remedy provision does not permit intervention in criminal cases.
Appeal Before Eleventh Circuit
The Eleventh Circuit took issue with the government’s jurisdictional arguments. The Eleventh Circuit concluded that Carver had standing to assert that the alternative-remedy provision gives her a right to intervene in criminal forfeiture proceedings and claim an interest in the forfeited property.
The Eleventh Circuit rejected the government’s claim that Carver’s potential property interest in the forfeited assets was too “speculative.” While the Eleventh Circuit agreed that no court had yet adjudicated whether Carver was entitled to a relator’s share, it noted that if this were enough to deprive the panel of jurisdiction, “no person claiming a property interest would ever get into federal court.”
Turning to the substantive issues, the Eleventh Circuit noted that whether a criminal fraud prosecution is an “alternate remedy” is an open question. Applying statutory construction to interpret the alternate-remedy provision of the FCA, the Eleventh Circuit held that the three criminal forfeiture statutes at issue each expressly bar third parties from intervening in forfeiture proceedings to claim an interest in property subject to forfeiture: “these criminal forfeiture statutes speak to the precise issue raised in this appeal, and they make plain that [Carver] has no right to intervene.”
The Eleventh Circuit noted that its ruling will not prevent Carver from getting her relator’s share, with the government having provided a related assurance to the court that if Carver is successful in her FCA case, she will be entitled to her share of the judgment, including the restitution already paid, which can be offset against the FCA judgment.
On August 20, 2018, U.S. District Judge Algenon L. Marbley of the United States District Court for the Southern District of Ohio granted summary judgment in favor of The Brink’s Company (Brink’s), concluding that Regional Federal Reserve Banks (RFRB) are not “the Government” for purposes of the federal False Claims Act (FCA).
The relator’s qui tam action was premised on an alleged penny-swapping scheme. Brink’s and other armored carriers regularly enter Coin Terminal Agreements (CTA) with RFRBs to transport and store coins. Pursuant to one such CTA, Brink’s received, weighed, tracked and stored the Federal Reserve Bank of Cleveland’s coins and provided similar services to other customers. Although Brink’s maintained electronic records of the coins in its inventory, it did not segregate physical coins by customer.
The relator, a former Brink’s employee, alleged Brink’s violated its contract with the Federal Reserve Bank of Cleveland and defrauded the government by engaging in a penny-swapping scheme with Jackson Metals. In essence, the relator alleged that Brink’s entered into a secret agreement, allowing Jackson Metals to purchase commingled pennies, cull out the pennies minted prior to 1982, and replace them with pennies minted after 1982. Pennies minted prior to 1982 have a higher metallurgical value because of their copper content. The replacement pennies are made from lower-value zinc. The relator argued that this penny-swapping scheme deprived the government of the value of the copper.
In moving for summary judgment, Brink’s argued, in part, that the FCA did not apply because RFRBs are not “the Government” under the FCA. The court agreed. First, Judge Marbley examined the structure of the Federal Reserve. He contrasted the Board of Governors with RFRBs, noting that RFRBs “are ‘private corporations whose stock is owned by the member commercial banks within their district.’” Continue Reading Southern District of Ohio Concludes that Regional Federal Reserve Banks are not “the Government” Under the FCA
On October 1, 2018, the District Court for the Northern District of California dismissed with prejudice a relator’s qui tam suit against Carelink Hospice Services, Inc. (Carelink) for failure to meet the heightened pleading standards mandated by Federal Rule of Civil Procedure 9(b). The court’s decision largely rested on the relator’s inability to specifically plead the existence of identifiable false claims—a strong affirmation that, in the Ninth Circuit, courts continue to hold relators to their pleading burdens.
The relator worked for Carelink, a hospice provider, for a three-month period in 2015. As a hospice provider, Carelink needed to provide certifications of terminal illness to justify admissions to the facility and, in turn, receive reimbursements from Medicare for services rendered. The relator, without identifying particular claims for reimbursement or patients, alleged that Carelink violated the FCA by seeking reimbursement for patients who Carelink knew were not terminally ill. The court seized upon the relator’s inability to point to specific claims in rendering its dismissal of the case.
Relying on Rule 9(b)’s particularity requirement, the court dismissed the relator’s complaint due to her failure to identify, with the required specificity, actual false claims. The court noted that the relator “relies on general allegations that Carelink presented false claims” but failed to “identify any reimbursements from Medicare[.]” The court came to this conclusion despite the relator’s citation to four patients about whom she alleged to have raised eligibility concerns. The court reasoned that these allegations, without “describ[ing] the nature of [her] concerns or her basis for believing the four individuals” were not eligible for Medicare reimbursements, were not enough to satisfy Rule 9(b).
The court concluded that the relator “fail[ed] to identify with particularity what ‘claims’ Caremark submitted” that were false because the allegations “do not provide a reasonable basis for [the court] to infer that claims had been submitted on behalf of any particular patient.” The court specifically dispelled the relator’s argument that, based on her extremely limited tenure with Carelink, the Rule 9(b) requirement should be relaxed in her case.
This decision confirms that, in the Ninth Circuit, a relator must allege the existence of specific, particularized, identifiable false claims submitted to the government. This confirmation serves as a strong defense against relators who do not sufficiently allege the “who, what, when, where, and how” of their FCA claims.
In the latest installment of Health Care Enforcement Quarterly Roundup, we examine key enforcement trends in the health care industry that we have observed over the past few months. In this issue, we report on:
- Practical applications of recent guidance from the US Department of Justice (DOJ)
- A recent blow to DOJ’s effort to use the federal False Claims Act (FCA) to attack Medicare Advantage reimbursement
- Continued enforcement efforts at the state and federal level to combat the opioid crisis
- Potential changes to the Stark Law and Anti-Kickback Statute
- Continued reporting on how the lower courts have interpreted the landmark Escobar case
Click here to read the full issue of the Health Care Enforcement Quarterly Roundup.
Join us on for a webinar discussion on Tuesday, October 23. will take a deep dive into the trends and issues covered in this installment of the Health Care Enforcement Quarterly Roundup. Click here to register.
Last month, Insys Therapeutics, Inc. announced that it reached a settlement-in-principle with the U.S. Department of Justice (DOJ) to settle claims that it knowingly offered and paid kickbacks to induce physicians and nurse practitioners to prescribe the drug Subsys and that it knowingly caused Medicare and other federal health care programs to pay for non-covered uses of the drug. The drugmaker agreed to pay at least $150 million and up to $75 million more based on “contingent events.” According to a status report filed by DOJ, the tentative agreement is subject to further approval and resolution of related issues. The settlement does not resolve state civil fraud and consumer protection claims against the company.
The consolidated lawsuits subject to the settlement allege that Insys violated the False Claims Act and Anti-Kickback Statute in connection with its marketing of Subsys, a sub-lingual spray form of the powerful opioid fentanyl. The Food and Drug Administration has approved Subsys for, and only for, the treatment of persistent breakthrough pain in adult cancer patients who are already receiving, and tolerant to, around-the-clock opioid therapy. The government’s complaint alleges that Insys provided kickbacks in the form of arrangements disguised as otherwise permissible activities. Specifically, it alleges that Insys instituted a sham speaker program, paying thousands of dollars in fees to practitioners for speeches “attended only by the prescriber’s own office staff, by close friends who attended multiple presentations, or by people who were not medical professionals and had no legitimate reason for attending.” Many of these speeches were held at restaurants and did not include any substantive presentation. Insys also allegedly provided jobs for prescribers’ friends and relatives, visits to strip clubs, and lavish meals and entertainment. Continue Reading Insys Announces Settlement-in-Principle with DOJ Over Alleged Subsys Kickback Scheme
In the aftermath of the Supreme Court’s 2016 Escobar decision, the majority of litigation regarding that decision’s impact has concerned the issue of materiality. While the materiality predicate to False Claims Act (FCA) liability announced in Escobar has certainly assumed top billing, another aspect of the Supreme Court’s decision is increasingly getting attention: that is, whether the two-part test for applicability of the implied certification theory of FCA liability is mandatory.
In Escobar, the Supreme Court held that the implied certification theory “can be a basis for liability, at least where two conditions are satisfied: first, the claim does not merely request payment, but also makes specific representations about the goods or services provided; and second, the defendant’s failure to disclose noncompliance with material statutory, regulatory or contractual provisions makes those representations misleading half-truths.”
Since this pronouncement, lower courts have grappled with whether all implied certification FCA cases must satisfy this two-part test, or whether the Supreme Court simply intended to describe a non-exhaustive set of factors that could give rise to an implied certification claim. This is important, in part, because not all claims for payment submitted to government payors actually describe or make representations about the goods or services provided, thus failing part one of the test.
In prior cases, such as the one we reported on here, panels of the Ninth Circuit Court of Appeals have held that the two-part test is mandatory. A Ninth Circuit panel reaffirmed this holding on August 24, 2018, albeit with a total lack of enthusiasm. In United States ex rel. Rose v. Stephens Institute, the court stated that “while the [Supreme] Court did not state that its two conditions were the only way to establish liability under an implied false certification theory,” the panel was “bound by [prior] three-judge panels of this court” interpreting Escobar. The Rose court went on to suggest that the Ninth Circuit hearing the case en banc might decide the issue differently. (No petition for rehearing en banc has yet been filed in Rose; any such petition is not due until October 9, because of an extension of time for filing).
The skepticism about the mandatory nature of the Escobar two-part test expressed by the Ninth Circuit panel in Rose is unwarranted. First, the Supreme Court granted certiorari in Escobar for the very purpose of resolving whether the implied certification theory of FCA liability is viable and if so, to what extent. The notion that the Supreme Court would then have laid out two “conditions” for implied certification liability, labeled them “conditions,” but not have actually meant them to be “conditions,” makes little sense.
While some advocates for the contrary view (including the government) have grasped onto the phrase “at least” in the Supreme Court’s opinion to suggest that the “conditions” are instead non-exhaustive “examples” of situations where implied certification claims may proceed, such reasoning is flawed: the use of the term “at least” conveys that the two conditions are the minimum necessary components of a viable implied certification claim. This point is underscored when the phrase “at least” is used in a (somewhat) more conventional sentence. For example, if a person says, “I like skydiving, at least when I’m wearing a parachute,” one would not conclude that there are situations in which the person would entertain skydiving without a parachute.
We will have to wait and see what happens if the Ninth Circuit has occasion to address the Escobar two-part test en banc.
This week, the Sixth Circuit declined the en banc petition of Brookdale Senior Living Communities to revisit a three-judge panel’s two-to-one decision to permit the Relator’s third amended complaint to move forward. We previously analyzed this decision here. The court’s one-page order did not explain the reasoning for declining the petition, although it noted that the dissenting judge voted in favor of re-hearing.
Fortunately, most courts have taken to heart the Supreme Court’s direction that materiality is a “demanding” and “rigorous” test in which “minor or insubstantial” non-compliance would not qualify as material. However, the Sixth Circuit’s decision that noncompliance with a physician signature timing requirement sufficiently alleged materiality under Escobar arguably is inconsistent with Escobar. The better analysis of the Relator’s complaint would conclude that the Relator pled insufficient facts, under the Rule 9(b) particularity standard, to suggest that the untimely physician signature somehow resulted in the government paying for home health services for which it otherwise would not have paid. As the dissenting opinion noted, the Sixth Circuit created the “timing” requirement in a prior opinion in this matter. Given this unusual circumstance, this case may be distinguishable in other cases in which the court is less constrained by their prior ruling.