Photo of Amandeep S. Sidhu

Amandeep (Aman) S. Sidhu focuses his practice on complex commercial disputes with an emphasis on regulated industries, including health care-related investigations and litigation. He represents hospitals and health care companies in investigations and defense of qui tam whistleblower litigation involving federal False Claims Act (FCA), Stark Laws and Anti-Kickback Statute in federal district courts throughout the United States. Aman regularly supports settlement negotiations with the US Department of Justice for clients in multiple jurisdictions, including negotiation of corporate integrity agreements with the US Department of Health and Human Services Office of Inspector General. Aman also represents health care and life sciences companies in the navigation of state and federal investigations, including responding to congressional inquiries. Aman serves on the Firm's Diversity/Inclusion Committee, Pro Bono and Community Service Committee and Associate Development Committee. Read Amandeep Sidhu's full bio.

On February 14, 2017, after nearly two years of appellate proceedings, the US Court of Appeals for the Fourth Circuit declined to address the substance of an appeal related to the use of statistical sampling to prove liability in a False Claims Act (FCA) case in United States ex rel. Michaels, et al. v. Agape Senior Community, Inc., et al. (4th Cir., Case No 15-2145). In the same opinion, the appellate court affirmed the district court’s holding that the Attorney General has the power to veto settlements between relators and FCA defendants, even when the United States has elected not to intervene in the case.

We have been reporting on the developments in this high-profile FCA case as it has proceeded in the Fourth Circuit. From the Court’s acceptance of the appeal, to a summary of opening briefs, to amicus briefs filed by hospital trade associations, to the oral arguments last fall, we have keenly followed this case because of its potentially far-reaching implications for FCA defendants. Continue Reading Fourth Circuit Declines to Address FCA Sampling Dispute as “Issue of Fact” While Affirming That United States Has “Unreviewable Veto Power” to Deny Settlements

Last week, a 2-1 split panel on the US Court of Appeals for the Sixth Circuit affirmed the lower court’s dismissal of U.S. ex rel. Harper, et al. v. Muskingum Watershed Conservancy District, Case No. 15-4406 (6th Cir. Nov. 21, 2016). The Sixth Circuit’s decision comes nearly eleven months after the US District Court, Northern District of Ohio dismissed the relators’ False Claims Act (FCA) complaint, which alleged reverse false claims arising from hydraulic fracturing (“fracking”) leases executed by the Muskingum Watershed Conservancy District (MWCD). In this case, the Sixth Circuit became the first appellate court to address the requisite mental state for the so-called “reverse false claims” theory of liability, 31 U.S.C. § 3729(a)(1)(G), under which a defendant is liable if it “knowingly conceals or knowingly and improperly avoids or decreases an obligation to pay or transmit money or property to the Government.”

The case involves a 1949 land grant from the United States to MWCD, a political subdivision of the state of Ohio responsible for developing reservoirs and dams to control flooding. The 1949 deed included a provision reverting the land to the United States if MWCD “alienated or attempted to alienate it, or if MWCD stopped using the land for recreation, conservation, or reservoir-development purposes.” Starting in 2011, MWCD began selling rights to conduct fracking on the land. Opposed to fracking, the three relators filed this FCA action based on a theory that the 1949 deed’s reversion clause was triggered by MWCD’s sale of fracking rights, thereby resulting in reverse false claims and conversion when MWCD “knowingly withholding United States property from the federal government.” The United States declined to intervene in the case.

The Sixth Circuit concluded that “knowingly” in the context of § 3729(a)(1)(G) applies “both the existence of a relevant obligation and the defendant’s own avoidance of that obligation.” In other words, to be liable, the defendant must have known it had (or have acted in deliberate ignorance or reckless disregard of) an obligation to the United States and known that it was avoiding (or have acted in deliberate ignorance or reckless disregard of) that obligation. Continue Reading Split Sixth Circuit Panel Affirms Dismissal of Reverse False Claims Case Involving Fracking Leases

On October 5, 2016, the Court of Appeals for the Third Circuit remanded a “reverse” False Claims Act (FCA) case to the District Court for the Eastern District of Pennsylvania for further proceedings. The court’s decision in United States ex rel. Custom Fraud Investigations, LLC v. Victaulic Company, Case No. 15-2169 (3d Cir., Oct. 5, 2016), breathes new life into a case that was previously dismissed by the district court in September 2014, and provides extensive discussion about how reverse claims operate in the era of the 2009 Fraud Enforcement and Recovery Act (FERA) amendments.

The case involves nondiscretionary import regulations—set forth in the Tariff Act of 1930—that apply to the pipe fitting industry. These regulations mandate that pipe fittings manufactured outside the United States must be marked with the country of origin; in contrast, pipe fittings manufactured in the United States are typically unmarked. Failure to properly mark foreign-manufactured pipe fittings results in a 10 percent ad valorem that accrues from the time of importation. Furthermore, if improperly marked goods are discovered by customs officials, the importer has three options: (1) re-export the goods; (2) destroy the goods; or (3) mark them properly to be released for sale in the United States. Since customs officials largely rely on importers to self-report any duties that are owed at the time of import, it is possible for improperly marked pipe fittings to enter the United States’ stream of commerce. To the extent that improperly marked pipe fittings are discovered after they have entered the market, the 10 percent ad valorem is due immediately, retroactive to the date of importation.

Continue Reading Third Circuit Revives Reverse False Claims Act Case but Acknowledges Burden on Defendants

Each year, the US Department of Health and Human Services (HHS) Office of Inspector General (OIG) issues a Work Plan that summarizes new and ongoing OIG reviews and areas of focused attention for the coming year and beyond. The current Fiscal Year (FY) 2016 Work Plan was issued in November 2015 and supplemented by a Mid-Year Update in April 2016. OIG considers work planning a “dynamic process” with adjustments made throughout the year to meet priorities and in response to new issues as necessary. Accordingly, the Work Plan provides health care providers and related entities with a “roadmap” of issues that are currently being addressed or will be addressed in the coming year by OIG. As we look towards OIG’s issuance of the FY 2017 Work Plan in a few months, we are revisiting OIG’s FY 2016 plans, projections, results and mid-year updates that reflect the trajectory of ongoing and future examinations and enforcement priorities. Continue Reading OIG Work Plan: A Roadmap to Identify Health Care Compliance Risk

On June 29, 2016, the US Department of Justice (DOJ) issued an anticipated interim final rule that substantially increases penalties under the False Claims Act (FCA).  Under the interim final rule, minimum penalties per claim will dramatically spike from the current $5,500 to $10,781, and the maximum penalties per claim will jump from $11,000 to $21,563.  As we previously reported, the substantial increase in FCA penalties has been expected since the Railroad Retirement Board (RRB) issued a similar interim final rule in May 2016.  The massive increase in FCA penalties comes in response to the Bipartisan Budget Act of 2015, which requires agencies to adjust penalties for inflation over the past 30 years.

The increased FCA penalties are set to go into effect on August 1, 2016 and will apply to claims after November 2, 2015.  As we have observed, the increased FCA penalties may raise constitutional concerns regarding defendants’ due process rights and under the Eighth Amendment’s bar on excessive fines.  With FCA cases increasingly involving tens of thousands of claims, the application of these increased penalties could easily result in circumstances where punitive recoveries are dramatically out of proportion with single damages.

There is a 60-day comment period associated with the interim final rule, which is available here.

In late March, three major health care trade associations filed amicus briefs in support of the defendant-appellees in U.S. ex rel. Michaels v. Agape Senior Community, et al., Record No. 15-2145 (4th Cir.).  As we have previously reported, the relator in Agape is pursuing an interlocutory appeal to the U.S. Court of Appeals for the Fourth Circuit regarding the use of statistical sampling to prove False Claims Act (FCA) liability.  In their respective briefs, the American Hospital Association (AHA), Catholic Health Association (CHA) and American Health Care Association (AHCA), did not mince words – a reversal of the District Court’s ruling that sampling cannot be used to prove FCA liability would have catastrophic consequences for the thousands of hospitals and health care providers throughout the United States.

In their joint brief, AHA and CHA noted that their member hospitals “submit thousands of claims to Medicare and Medicaid every day based on physicians’ medical judgments about patient conditions and courses of treatment.”  On behalf of its members, AHA and CHA affirmed that “statistical analyses are no substitute for the on-the-ground medical context a treating physician knows, understands, and relies upon in making treatment decisions for a given patient.” The crux of the AHA/CHA argument is as follows: if the government and relators want to benefit from the treble damages and statutory penalty provisions of the FCA, then they must accept the “essential safeguard against its abuse: each claim must be separately proved.”  The alternative, suggested AHA/CHA, is a “Trial by Formula” approach that was firmly rejected by the Supreme Court of the United States in Wal-Mart Stores v. Dukes, 131 S. Ct. 2541 (2011), and further explained just last month in Tyson Foods, Inc. v. Bouaphakeo, No. 14-1146 (Mar. 22, 2016).  With the majority of FCA qui tam cases being handled by relators directly—with limited oversight from a non-intervening United States—AHA/CHA argue that allowing statistical sampling to prove FCA liability would “shortcut” a physician’s clinical judgment.  Moreover, they observe that “[p]erversely, the bigger the relator’s allegations, the lower his burden of proof would become; the result would be more health care providers forced into costly defense of meritless FCA suits and more in terrorem settlements,” diverting resources from patient care and increasing health care costs for everyone.

Continue Reading Hospital Trade Associations Side with Agape in Fourth Circuit Appeal, Urging the Court to Reject Use of Statistical Sampling to Prove Liability in FCA Cases

As we previously reported in October 2015, the U.S. Court of Appeals for the Fourth Circuit is considering an interlocutory appeal regarding the use of statistical sampling to prove liability under the False Claims Act (FCA).  The Fourth Circuit’s resolution of this case, U.S. ex rel. Michaels v. Agape Senior Community, et al., Record No. 15-2145 (4th Cir.), could have broad-sweeping implications for FCA defendants.  In short, while courts have regularly permitted the use of statistical sampling to determine damages in FCA cases, the use of sampling to prove FCA liability is a relative rarity and the question has never been considered by a circuit court.  The first question on appeal goes directly to this point.  The second question on appeal—which could also have a significant impact on the FCA landscape—is whether the United States has unreviewable “veto authority” under 31 U.S.C. § 3730(b)(1) to reject a settlement in FCA cases where it has elected not to intervene.

In opening briefs filed last week, the relators expound upon a cross-section of cases where statistical sampling has been permitted to prove damages.  Then, citing to the Supreme Court’s touchstone Daubert opinion, the relators seek to stretch the use of sampling beyond damages and directly to the issue of FCA liability, asserting that the question is not “whether statistical sampling and extrapolation, in and of itself, is appropriate, but whether the statistical sampling is conducted in a scientifically proven and accepted manner . . . .”  The relators’ position throughout the case has been that the sheer volume of claims at issue—approximately 50,000–60,000 claims across 10,000–19,000-plus patients—could not be individually reviewed by an expert to determine medical necessity without incurring exorbitant costs that exceed the estimated damages in the case.  The relators pinned that cost at upwards of $35 million based on each of their experts spending “four to nine hours reviewing each patient’s chart.”

With top-end estimated damages of $25 million, the relators argued that they should be permitted to review a sample of claims, extrapolate across the universe, and draw inferences about FCA liability from the results.  Agape firmly rejected the relators’ position, contending that “determining eligibility for hospice care requires an exercise of subjective clinical judgment that takes into account a myriad of facts and circumstances unique to each patient.”  The district court agreed, leading the relators to proceed forward based on the ruling that sampling could not be used to prove liability, including preparations for an “informational bellwether” trial (over Agape’s objections) to present evidence regarding a small sample of claims.  At the same time, the parties engaged in a series of mediation sessions.  In the first two sessions, the United States participated and a resolution was not reached.  At the mediator’s request, the third session excluded the United States and resulted in Agape obtaining a settlement agreement to resolve all of the relators’ claims for $2.5 million.

With the district court set to approve Agape’s settlement, the United States objected on the basis of its 31 U.S.C. § 3730(b)(1) authority, which provides that a qui tam action “may be dismissed only if the court and the Attorney General give written consent to the dismissal and their reasons for consenting.”  While the district court noted that “a compelling case could be made here that the Government’s position is not, in fact, reasonable,” it was “constrained to deny the motion to enforce the settlement” based on the plain language in 31 U.S.C. § 3730(b)(1).  Both Agape and the relators are aligned in their rejection of the district court’s ruling on this settlement-related question.

With a significant number of qui tam cases added to the books each year, resolution of this settlement-related issue will be instructive for parties navigating non-intervened whistleblower suits.  Together with the overarching question of whether statistical sampling can be used to prove FCA liability, the Fourth Circuit’s ruling on the issues presented in Agape could change the way that qui tam cases are litigated (and resolved pre-trial) going forward.

We will closely monitor this case and continue to report on further developments.

On October 29, 2015, the United States announced a $125 million settlement with a subsidiary of pharmaceutical manufacturer Warner Chilcott to resolve a sealed qui tam in United States ex rel. Alexander, et al. v. Warner Chilcott plc, et al., Civil Action No. 11-CA-1121 (D. Mass.). The global settlement consisted of $22.9 million in criminal fines, $102 million to resolve civil claims, and the company pleading guilty in federal district court in Boston to felony health care fraud charges related to its marketing practices for various osteoporosis treatment medications.  In particular, the United States alleged that Warner Chilcott paid kickbacks to physicians to induce them to prescribe the company’s osteoporosis drugs and engaged in improper billing practices.

Simultaneous with announcing Warner Chilcott’s resolution of the corporate case, the company’s former president, W. Carl Reichel, was arrested on an indictment charging that he conspired to pay kickbacks to physicians. The Reichel indictment describes the U.S. Department of Justice’s (DOJ’s) allegations that Warner Chilcott sales representatives were directed to entertain health care professionals—in part under the auspices of medical education events—in exchange for increased referrals.

With charges against Warner Chilcott’s former president and a physician who allegedly received illegal kickbacks from the company, last week’s announcement invokes the DOJ’s newly minted guidance articulated in the Yates Memorandum. As we reported last month, the Yates Memorandum outlined DOJ’s vow to more closely focus on individuals in civil and criminal corporate investigations. The DOJ is also touting the resolution of this case as a product of its continued coordination with the U.S. Department of Health and Human Services in the Health Care Fraud Prevention and Enforcement Action Team (HEAT) initiative.

On September 9, 2015, the U.S. Department of Justice (DOJ) released a memorandum to prosecutors nationwide regarding “Individual Accountability for Corporate Wrongdoing,” authored by Deputy Attorney General Sally Q. Yates.  Dubbed the “Yates Memorandum,” this missive consolidates both long-standing DOJ policy and newly minted guidance for prosecutors and civil enforcement attorneys that could significantly alter the course of both criminal and civil investigations under the False Claims Act (FCA) particularly for health care entities.  The day after releasing the memo, Yates spoke at NYU School of Law, where she noted that DOJ’s mission is “not to recover the largest amount of money from the greatest number of corporations,” but rather, “to seek accountability from those who break our laws and victimize our citizens.”

At its core, the Yates Memorandum calls for a substantially increased focus on individual accountability for corporate wrongdoing and amendment of prior Department policies that have become standard operating procedures in both criminal and civil investigations.  While this is nothing new for FCA defendants, the renewed focus on individuals – and the corresponding guidance in the Yates Memorandum – will have an immediate and lasting impact on internal investigations, pre-intervention negotiations, litigation and any extra-judicial resolution of the case.

Leaving aside the policy statements that deal solely with internal DOJ operations, the Yates Memorandum outlines three key areas of focus that will be relevant for FCA defendants facing exposure from an investigation or qui tam litigation:

Increased Focus on Individuals

As part of this increased focus, corporations will be incentivized to tailor internal investigations to include a hard look at individuals.  First, the DOJ will limit or decline to provide “cooperation credit” unless the corporation “completely disclose[s] to the Department all relevant facts about individual misconduct.”  While the application of cooperation credit in criminal cases is more commonplace, the Yates Memorandum makes clear that this principle will apply equally in the civil context.  Citing the FCA, the Department’s position on “full cooperation” under 31 U.S.C. 3729(a)(2) will be “at minimum, all relevant facts about responsible individuals must be provided.”  The Yates Memorandum also directs prosecutors and civil attorneys to proactively investigate individuals “at every step of the process – before, during, and after any corporate cooperation.”  By focusing on individuals from the inception of the investigation, the DOJ hopes to “increase the likelihood that individuals with knowledge of the corporate misconduct will cooperate with the investigation and provide information against individuals higher up the corporate hierarchy.”

The implications of these directives will impact all stages of the corporate response to an FCA investigation.  While the DOJ recognizes that investigations must be “tailored to the scope of the wrongdoing,” corporations should anticipate a need to expand internal investigations to gather facts and potentially assess the roles played by individuals in the overarching corporate wrongdoing at issue.  As the corporation seeks to resolve the corporate liability, the Yates Memorandum suggests that defense attorneys will be under increased pressure to focus attention on individual employees and former employees creating pressure to share information with the government regarding individuals in order to receive favorable treatment in the negotiated resolution.  While it is uncertain how the DOJ will value such cooperation, it is possible to envision a scenario where a favorable settlement for the corporation will only be reached if the Department perceives that the corporation was forthcoming about all individuals involved in the wrongdoing (as opposed to the “sacrificial lamb” that may have been put forth in the past).

Limited Release of Individuals When Resolving Corporate Case

In perhaps the most significant departure from the current regime for resolving FCA cases, the Yates Memorandum dictates that “[a]bsent extraordinary circumstances, no corporate resolution will provide protection from criminal or civil liability for any individuals.”  Such a directive discouraging prosecutors from providing a commonly expected settlement term in a civil FCA matter – i.e., the release from liability of the corporation’s officers, directors and current/former employees – could significantly complicate the settlement decision-making process of senior management.  In the absence of the traditional global civil and administrative release, not only could DOJ consider pursuing individuals under the FCA, but the Office of Inspector General (OIG) would also be free to consider pursuing individuals for civil monetary penalties.  OIG may have a different – and lower – dollar threshold for deciding to pursue those cases than DOJ.

Another aspect of the Yates Memorandum guidance is the directive that corporate cases will not be resolved without a “clear plan” to resolve related cases against individuals.  This guidance appears to be aimed at ensuring that prosecutors are diligent in their investigation of individuals in order to keep those efforts on track with the corporate resolution.

Relevance of Individual Ability to Pay

Finally, the Yates Memorandum calls on attorneys in civil enforcement efforts to look beyond an individual’s ability to pay as the basis for pursuit of claims against the individual.  In prior years, resource constraints at the DOJ have influenced the qui tam intervention decision‑making process.  Under the new guidance, civil attorneys are urged to consider the seriousness of the individual’s misconduct, whether it is actionable, whether the admissible evidence is likely to obtain and sustain a judgment, and whether pursuit of the action “reflects an important federal interest.”  Civil attorneys are advised to follow the model of their criminal prosecutor colleagues by considering the individual’s misconduct, past history and the circumstances related to the misconduct when determining whether to expend limited federal resources to pursue individual cases.  The Yates Memorandum notes that while cases against individuals may not result in substantial monetary recovery in the short-term, pursuit of these cases will result in “significant long-term deterrence.”  Whether the DOJ implements this directive remains to be seen.

* * * * *

In summary, senior management, including boards of directors, in-house corporate counsel and chief compliance officers, should take notice of the Yates Memorandum and prepare for the ways this enhanced focus on litigating claims against individuals could impact the company’s action plans for responding to, defending and ultimately resolving FCA qui tam litigation.

The Southern District of New York recently ruled in Amarin Pharma, Inc. et al. v. Food and Drug Administration, et al. that a drug company may engage in “truthful and non-misleading speech” about off-label uses of an approved drug without the threat of a misbranding action under the Federal Food, Drug, and Cosmetic Act. No. 1:15-cv-03588 (S.D.N.Y., Aug. 7, 2015). This important decision—which arose out of Amarin’s constitutional challenge seeking to make certain statements about unapproved uses of a triglyceride-lowering drug, Vascepa—builds on recent Second Circuit precedent that allows drug makers more regulatory latitude, at minimum in the Second Circuit, to provide truthful and non-misleading scientific information about unapproved uses for their products. However, the ruling also serves as a reminder of potential False Claims Act (FCA) liability associated with off-label marketing of pharmaceuticals and devices.

Amarin filed its complaint against the Food and Drug Administration (FDA) after the company received a Complete Response Letter (CRL) from the FDA in connection with its application for approval of a new indication. The CRL indicated that, while clinical studies revealed that Vascepa reduced triglyceride levels, based on its data review, the FDA advised that additional clinical data would be needed before it could approve the drug for additional uses beyond the original approval for “very” high levels of triglycerides. Despite the fact that Amarin sought to make truthful and non-misleading statements about its product to “sophisticated healthcare professionals,” including the physicians who joined Amarin in the lawsuit, the FDA concluded there was insufficient support for approval of the supplemental application for a new indication and stated that any communications about off-label uses of Vascepa could result in enforcement action.

While the FDA described Amarin’s First Amendment claims as a “frontal assault on the framework for new drug approval that Congress created in 1962,” the court rejected all of the government’s counterarguments. Relying on the Second Circuit’s decision in United States v. Caronia, 703 F.3d 149 (2d Cir. 2012), the court held that Amarin could engage in the following activity:

  • Distribute summaries and reprints of the relevant studies in a manner or format other than that specified by the FDA
  • Articulate, in connection with Vascepa, the off-label claim permissible for use on chemically similar dietary supplements
  • Make proactive truthful statements and engage in a dialogue with doctors regarding the off-label use

While the Amarin decision is welcome news for the industry, drug manufacturers must still take care to analyze promotional statements to ensure that the content can be successfully defended as “truthful” and “non-misleading” speech. As the Amarin court acknowledged, manufacturers not only face potential criminal exposure for “false” or “misleading” misbranding, but the promotion of off-label use can give rise to civil claims under the FCA. FCA enforcement in off-label cases—which proceed on a theory that a company caused false claims to be submitted to government health care programs for non-covered and non-FDA-approved uses—have been a huge source of FCA recoveries in recent years. In FY2014, for example, the Department of Justice (DOJ) recovered over $2.2 billion in FCA actions against pharmaceutical and medical device companies stemming from off-label promotion. Regulatory enforcers and qui tam whistleblowers will not hesitate to allege FCA violations where circumstances, for example, allow the inference that narrowly couched promotional statements may have been “truthful” but still factually incomplete and, thus, misleading. The Amarin decision highlights the fact-specific nature of the risk analysis. Amarin relied on truthful statements about Vascepa’s off-label use that were largely derived from an FDA-approved study and writings from the FDA itself on the subject. Rather than shooting from the marketing “hip,” Amarin appears to have invested in building a defensible factual scientific record and preemptively sought an FDA opinion regarding the off-label use of Vascepa before engaging in those communications.

While it remains unclear whether the FDA will appeal the Amarin decision to the Second Circuit, the agency’s decision to let Caronia stand without further appeal suggests that there may be reluctance on the part of regulators to risk a higher court expanding the reach of the Caronia holding across the country. Pharmaceutical and device manufacturers should still proceed cautiously as the FDA determines how it will respond following the Amarin ruling. For example, the FDA updated its draft guidance regarding the dissemination of scientific and medical journal articles following the Caronia decision in February 2014 and agreed in June 2014 to conduct a “comprehensive review [of its] regulatory regime governing communications about medical products,” with the intent of issuing new guidance by June 2015. As the Amarin court noted, this revised guidance is still forthcoming and may be further revised in light of this decision.

We will continue to report on future developments in future posts.