On November 8, 2017, the US District Court for the Middle District of Florida dismissed a relator’s non-intervened claims in United States ex rel. Stepe v. RS Compounding LLC for failure to satisfy the particularity requirement of Federal Rule of Civil Procedure 9(b). Relator originally filed her complaint under seal on December 16, 2013, under the federal False Claims Act (FCA) and Florida’s analogous statute. Over three years after the complaint was filed, the government elected to partially intervene as to fraudulent pricing allegations relating to TRICARE. Relator amended her complaint in July 2017 and added state false claims counts under the laws of 16 additional states. All 17 states declined to intervene in the case in September 2017.

The complaint alleges that Relator, through her work as a sales representative for defendant RS Compounding, became aware of Defendants’ purported schemes to defraud the government on prescription compound and gel products. The relator alleged that prescription pads were prepopulated for physicians, with RS Compounding’s most expensive compounds pre-checked on the pads and six refills listed by default. Relator further alleged that this scheme involved sales representatives “coaching” physicians to number three different products on the pads, with priority given to products containing ketamine because those products had a higher reimbursement rate from the government. Continue Reading Dismissed in Florida: Former Compounding Pharmacy Sales Representative’s FCA Whistleblower Suit

Attendees at the Health Care Compliance Association’s Health Care Enforcement Compliance Institute are reporting that, Michael Granston, Director, Civil Frauds, Commercial Litigation Branch of the Civil Division of the US Department of Justice (DOJ), announced a significant shift in policy for the DOJ in dealing with False Claims Act (FCA) complaints that are deemed “frivolous” on the merits. Acknowledging the burden on the resources of all parties caused by the litigation of frivolous FCA matters, Mr. Granston reportedly stated that, going forward, once it has determined that the allegations of a qui tam complaint lack merit, the DOJ will more aggressively exercise its discretion to move to dismiss the case rather than leave to the qui tam relator in every instance the option of whether to continue the litigation. Senior management—including boards of directors, in-house corporate counsel and chief compliance officers—should take notice of this new, potentially meaningful, opportunity to extricate FCA defendants from burdensome qui tams pursued by relators purely for settlement value. Continue Reading DOJ Announces Significant Shift Towards Affirmative Dismissal Of “Frivolous” Qui Tam Complaints: A New Exit Strategy For Defendants?

On October 23, 2017, the US Court of Appeals for the Seventh Circuit reversed itself by determining that proximate cause—and not the “but-for” causation test that the court adopted 25 years ago—is the appropriate standard to determine causation in a claim under the False Claims Act (FCA). United States v. Luce, No. 16-4093 (7th Cir. Oct. 23, 2017).

The United States brought suit against defendant Robert S. Luce under the FCA and the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) in 2011 based upon Fair Housing Act (FHA) certifications included in annual verification reports that Luce and his subordinates signed on behalf of the mortgage company he owned and operated. Although Luce had been indicted in 2005 for an unrelated matter, the mortgage company continued to submit certifications stating that no officers of the company were then subject to criminal proceedings. Only in February 2008, after almost three years had passed since the defendant’s indictment, did the company notify an inspector with the US Department of Housing and Urban Development (HUD) of the indictment. HUD issued a Referral for Suspension/Disbarment of the company shortly thereafter. Continue Reading Seventh Circuit Reevaluates and Adopts More Stringent FCA Causation Standard

While medical practices are generally aware that relators and the government pursue allegations of false or duplicative claims to federal health care programs, a recent settlement reflects a growing trend of False Claims Act (FCA) allegations concerning the failure to report and return identified overpayments. On October 13, 2017, the US Department of Justice (DOJ) announced that it had reached a $450,000 settlement with First Coast Cardiovascular Institute, P.A. (FCCI) of Jacksonville, Florida in a qui tam lawsuit alleging that FCCI failed to promptly return identified overpayments from federal health care programs after the overpayments came to the attention of the practice’s leadership. Continue Reading DOJ Settlement with Florida Medical Practice Serves as a Reminder: Delayed Repayment to Federal Programs Can Have Significant Consequences

On October 5, 2017, the State of New Jersey sued Insys Therapeutics, Inc. (Insys), alleging that the company improperly marketed and promoted the opioid-fentanyl painkiller drug, Subsys. The civil complaint (Complaint) follows a series of federal indictments (and in some cases guilty pleas), of several Insys employees and executives, as well as lawsuits and ongoing investigations being conducted by several states.

Like many other suits against drug manufacturers for improper marketing and promotion, the Complaint alleges violations of state consumer protection law (here, the New Jersey Consumer Fraud Act). However, representative of a growing trend among the states, especially in the context of the country’s opioid epidemic, the Complaint also alleges a violation of state False Claims Acts (here, New Jersey’s False Claims Act). Manufacturers, physicians, pharmacies and others should closely review their compliance practices to anticipate such claims in light of the increased assertion of False Claims Act violations at the state level.

Echoing the allegations in other complaints against the company, the New Jersey complaint alleges that Insys improperly marketed Subsys in several ways. The Complaint alleges that, although the US Food and Drug Administration (FDA) approved Subsys only for the “single use of managing breakthrough cancer pain in patients who are tolerant to around-the-clock opioid therapy,” Insys directed its sales force to “peddle” Subsys to a broader patient population. For example, the Complaint alleges that Insys provided its sales force with “target lists ranking by deciles healthcare providers, including dentists and podiatrists, who could write prescriptions for controlled dangerous substances.” The Complaint alleges that: oncologists appeared at the bottom of these target lists, that a small percentage of the sales force was “oncology-specific,” and that the small group was disbanded shortly after Insys created it.

The Complaint also alleges that Insys “pushed” prescribers to prescribe Subsys on an inappropriate starting dosage above the FDA-mandated starting dose. For example, the Complaint alleges that: Insys’ tactics included emails from Insys executives requesting that members of the sales force explain lower-dose prescriptions, implementation of a “Switch” program designed to convert patients on high levels of competing products to the same high dosage of Subsys, a “Super Voucher” program to provide free Subsys prescriptions to prescribers, and “bribes” to prescribers alleged to be in the form of “speaker fees.”

In addition to three counts of violations of New Jersey’s Consumer Fraud Act, the Complaint alleges that Insys’ conduct violated the False Claims Act. The Complaint alleges that Insys caused the submission of false claims for reimbursement of Subsys to several New Jersey state-run programs, including New Jersey’s State Health Benefits Program, School Employees’ Health Benefits Program and State Workers’ Compensation Program. The Complaint alleges that these submissions included allegedly false expressed and/or implied certification of compliance with federal and State law and medical necessity.

The case is Porrino v. Insys Therapeutics, Inc., Superior Court of New Jersey, Chancery Division, Middlesex Vicinage.

Eventually, any health care organization with an effective compliance program is very likely to discover an issue that raises potential liability and requires disclosure to a government entity. While we largely discuss False Claims Act (FCA) litigation and defense issues on this blog, a complementary issue is how to address matters that raise potential liability risks for an organization proactively.

On August 11, 2017, a group of affiliated home health providers in Tennessee (referred to collectively as “Home Health Providers”) entered into an FCA settlement agreement with the US Department of Justice (DOJ) and the US Department of Health and Human Services Office of Inspector General (OIG) for $1.8 million to resolve self-disclosed, potential violations of the Stark Law, the Federal Anti-Kickback Statute, and a failure to meet certain Medicare coverage and payment requirements for home health services. This settlement agreement underscores the strategic considerations that providers must weigh as they face self-disclosing potential violations to the US government. Continue Reading DOJ Settlement with Home Health Providers Underscores Strategic Considerations for Self-Disclosure

Earlier this year, DOJ and OIG independently issued guides focused on evaluating compliance program effectiveness. The guides approach the topic from different perspectives but cover overlapping themes and work well in tandem. We reviewed the guides and compiled the reference tool to aid organization executives and boards of directors to measure compliance program effectiveness and, in turn, wisely invest resources.

Read the full article “Breaking Down the 2017 DOJ and OIG Compliance Guides.”

On September 18, 2017, the Tenth Circuit reversed a decision of the US District Court for the District of Utah in United States ex rel. Little v. Triumph Gear Sys., Inc. In doing so, the Tenth Circuit concluded that the False Claims Act’s first-to-file bar extends to situations where relators’ counsel substitute parties prior to the initial complaint even being unsealed.

In this case, relator Joe Blyn brought a qui tam action against a government contractor, alleging that he witnessed instances of fraud. The initial complaint named Blyn and three John Does as relators. The following year, Blyn and the John Does “vanished” from the action with Blyn’s counsel, David Little, instead naming himself, and Kurosh Motaghed as the sole relators.  After the court unsealed the action, Triumph moved to dismiss the amended complaint, arguing that the substitution of parties triggered the “first-to-file” bar, which prevents private parties from intervening in existing actions or filing related actions based on the facts of the underlying action. The district court denied Triumph’s motion to dismiss, ruling that replacing the relator in this manner did not contemplate an “intervention” for purposes of 31 U.S.C. § 3730(b)(5).

The Tenth Circuit reversed. The court noted that had Little merely added himself and Motgahed as relators and maintained Blyn as a third relator, such an addition would have merely been an amendment permissible under Federal Rule of Civil Procedure 15, which would not have triggered the first-to-file bar.  As it happened, however, Blyn did not amend the complaint – Little and Motaghed did.  And because amendments under Rule 15 may only be made by parties, the Tenth Circuit concluded that Little’s and Motaghed’s actions constituted an “intervention.”

Once Blyn was removed from the complaint, the court determined, the district court lacked jurisdiction over the case. Consequently, Little’s subsequent reinstatement of Blyn as a relator was ineffective. This case thus demonstrates the power and breadth of the first-to-file bar, and how defendants can use it effectively to address follow-on complaints.

Over the last several months, a handful of federal court decisions—including two rulings this summer on challenges to the admissibility of proposed expert testimony—serve as reminders of the importance of (and parameters around) fair market value (FMV) issues in the context of the Anti-Kickback Statute (AKS) and the False Claims Act (FCA).

First, a quick level-set.  The AKS, codified at 42 U.S.C. § 1320a-7b(b), is a criminal statute that has long formed the basis of FCA litigation—a connection Congress made explicit in 2010 by adding to the AKS language that renders any claim for federal health care program reimbursement resulting from an AKS violation automatically false/fraudulent for purposes of the FCA.  42 U.S.C. § 1320a-7b(g).  Broadly, the AKS prohibits the knowing and willful offer/payment/solicitation/receipt of “remuneration” in return for, or to induce, the referral of federal health care program-reimbursed business.  Remuneration can be anything of value and can be direct or indirect.  In interpreting the “in return for/to induce” element, a number of federal courts across the country have adopted the “One Purpose Test,” in which an AKS violation can be found if even just one purpose (among many) of a payment or other transfer of value to a potential referral source is to induce or reward referrals—even if that clearly was not the primary purpose of the remuneration. Continue Reading Recent Developments on the Fair Market Value Front – Part 1

In the fourth of a related set of qui tam False Claims Act (FCA) suits, the United States District Court for the Northern District of Illinois granted summary judgment in favor of generics manufacturer Par Pharmaceutical Companies (Par). The court’s August 17, 2017, opinion in U.S. ex rel. Lisitza et al v. Par Pharmaceutical Co, Inc. held that the relator had not presented sufficient evidence to support an implied certification theory of FCA liability.

Like its sister cases, the relator in Par Pharmaceutical alleged that the defendant caused the submission of false claims to the Medicaid program via an unlawful prescription-switching scheme. The alleged scheme involved manufacturing generic drugs in forms and dosage strengths that were atypical and not covered by existing Medicaid reimbursement limits, then marketing the drugs to pharmacies based on their higher reimbursement potential. The pharmacies would then fill the scripts with the more expensive forms and dosages manufactured by Par. The relators also alleged that the drugs were dispensed without physician approval and without meeting the medical necessity and economic requirements of governing state and federal Medicaid regulations, in violation of the FCA.

Continue Reading Par Pharmaceutical Beats FCA Prescription-Switch Allegations