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Laura McLane serves as head of McDermott's Boston Litigation Practice Group. Laura represents national and international clients in health care, securities and other government enforcement matters, both civil and criminal. She also represents clients in professional and products liability cases and in complex commercial disputes. A significant part of Laura's practice is devoted to representing health care and other companies, as well as individuals, in government investigations and qui tam litigation based on the False Claims Act (FCA) and related statutes, including the Anti-Kickback Statute and the Stark Law. Read Laura McLane's full bio.

On September 30, the US Court of Appeals for the Sixth Circuit reversed dismissal of a relator’s False Claims Act (FCA) claims against providers of home health services in U.S. ex rel. Prather v. Brookdale Senior Living Communities, Inc. et al. The relator was a utilization review nurse who alleged that physician certifications of patient need for home health care were not signed until well after the care had been provided, in violation of 42 C.F.R. § 424.22(a)(2), which requires that such certifications be completed at the time a plan of care is established or “as soon thereafter as possible.” While the regulation does not define “as soon thereafter as possible,” the Sixth Circuit held that the relator’s allegations that the requisite certifications were not completed for several months were sufficient to allege violations of both the regulation and the FCA.

The Sixth Circuit reasoned that the phrase “as soon thereafter as possible” “suggests plainly that the analysis of whether a certification complies requires that the reason for any delay be examined.” The court went on to announce the following rule: “Certification of need may be completed after the plan of care is established, but only if an analysis of the length of delay, the reasons for it, and the home health agency’s efforts to overcome whatever obstacles arose suggests that the home health agency obtained the certification ‘as soon thereafter as possible.’” The Sixth Circuit held that the relator’s complaint satisfied this standard, because she alleged that the certifications were not completed for months due solely to a backlog of Medicare claims that arose because of the defendants’ allegedly aggressive solicitation of residents for treatment. Continue Reading Sixth Circuit Revives Home Health Qui Tam Based on Pre-Escobar Standards; Dissent Criticizes Majority for Engaging in Rulemaking

On September 1, 2016, the US Court of Appeals for the Seventh Circuit largely affirmed dismissal of a relator’s amended complaint pursuant to the particularity requirement of Fed. R. Civ. P. 9(b). In US ex rel. Presser v. Acacia Mental Health Clinic, LLC, the relator, a nurse, alleged that a number of practices at a clinic where she worked were not medically necessary. These were: requiring patients to see multiple practitioners before receiving medication; requiring patients to undergo mandatory drug screenings at each visit; and requiring patients to come to the clinic in-person in order to receive a prescription or speak to a doctor. (The relator also alleged that clinic misused a billing code. This was the only claim the Seventh Circuit permitted to go forward.) In dismissing the majority of the relator’s complaint, the Seventh Circuit began with a robust discussion of the importance of Rule 9(b) in screening out baseless False Claims Act (FCA) claims:

Rule 9 requires heightened pleading standards because of the stigmatic injury that potentially results from allegations of fraud. We have observed, moreover, that fraud is frequently charged irresponsibly by people who have suffered a loss and want to find someone to blame for it. The requirement that fraud be pleaded with particularity compels the plaintiff to provide enough detail to enable the defendant to riposte swiftly and effectively if the claim is groundless. It also forces the plaintiff to conduct a careful pretrial investigation and thus operates as a screen against spurious fraud claims. (Citations and quotations omitted).

The Seventh Circuit held that the relator fell far short of Rule 9(b), because she provided “no medical, technical, or scientific context which would enable a reader of the complaint to understand why Acacia’s alleged actions amount to unnecessary care.” The court further observed that the relator did not offer any reasons why the practices were unnecessary other than her “personal view” — the complaint was devoid of any context, such as a comparison of relator’s clinic’s practices to others in the industry. And while the relator attempted to rely on her 20 years of “experience and training,” this was simply not enough. The court concluded by holding that a relator’s subjective evaluation, standing alone, is not a sufficient basis for a fraud claim.

The lesson of this case is clear: where an FCA complaint alleges that care was medically unnecessary (as many FCA complaints do), the relator must provide sufficient reasons, other than relying on his or her personal opinion, experience and training, as to why. A relator cannot simply assert that care was unnecessary and hope to fill in the blanks with discovery.

The US Court of Appeals for the Seventh Circuit recently reviewed a district court’s dismissal of an FCA claim against the City of Chicago, in which the relator alleged that the City’s certifications of compliance with civil rights laws were false because the City engaged in practices which increased racial segregation. The case is United States ex rel. Hanna v. City of Chicago, and can be found here.

On August 22, the Seventh Circuit affirmed dismissal of the relator’s complaint for failure to comply with Fed. R. Civ. 9(b). The most notable takeaway from this case is the court’s holding that where the complaint itself did not specify which statutes and regulations the City violated (and with which it thus falsely certified compliance), the relator could not rely on more specific statutory and regulatory references later identified in his briefs. The court observed: “If the particularity requirement is meant to ensure more thorough investigation before filing, it is not too much to ask that one aspect of that investigation include the specific provisions of law whose violation made the certification of compliance false. Moreover, if, as in this case, a defendant is presented with an undifferentiated raft of statutory and regulatory provisions, it will be nearly impossible for the defendant to prepare a defense.” In other words, Rule 9(b) requires an FCA relator to plead his or her theory of fraud with specificity, and to do so in the complaint. Where the alleged fraud is based on a regulatory or statutory violation, relators cannot punt articulating what that statute or regulation actually was.

The court found a number of other Rule 9(b) pleading deficiencies in addition to the foregoing, serving as a reminder that the rule is a powerful tool to weed out meritless FCA claims.

The US Court of Appeals for the Eighth Circuit today issued a decision affirming a district court’s grant of summary judgment against a False Claims Act (FCA) relator in United States ex rel. Donegan v. Anesthesia Associates of Kansas City, PC, on which we previously posted.  The case involved a dispute over whether a regulation required an anesthesiologist to be present in the operating room when the patient “emerges” from anesthesia, and the district court had granted summary judgment on the grounds that the defendant had reasonably interpreted the regulation as not requiring presence in the operating room.  The district court’s decision was important because it made clear that the defendant’s interpretation of an ambiguous regulation need not be the “most reasonable” interpretation.

The Eighth Circuit agreed with the district court, holding that the relator could not establish scienter because the regulation was ambiguous, and the defendant’s interpretation was objectively reasonable.  The court held:

Here, the question is whether AAKC’s reasonable interpretation of the ambiguous regulation precludes a finding that it knowingly submitted false or fraudulent claims, even if CMS or a reviewing court would interpret the regulation differently. Relator simply failed to submit evidence refuting AAKC’s strong showing that its interpretation was objectively reasonable. Relator’s experts expressed their opinions that emergence as referred to in Step Three should end before an AAKC patient is transferred to the PACU. But Relator’s contention that the Medicare regulations be interpreted in this fashion is a claim of regulatory noncompliance, not an FCA claim of knowing fraud.  (internal citations and quotations omitted)

This result underscores the fact that an FCA case based on alleged noncompliance with a regulation that is subject to multiple, reasonable interpretations can be a risky endeavor for a relator.

On June 20, 2016, the United States District Court for the Northern District of Texas granted summary judgment in defendants’ favor on all but her retaliation claims in relator’s False Claims Act (FCA) suit against defendants Vista Hospice Care, Inc. and VistaCare, Inc.  The court found that the relator, a former social worker at Defendants’ facility, failed to provide any evidence of a corporate scheme to admit Medicare beneficiaries before they were eligible.  The decision echoed principles announced by the United States District Court for the Northern District of Alabama in US ex rel. Paradies v. AseraCare, Inc., which we have been following on this blog (and which is now on appeal to the Eleventh Circuit).

The relator relied on two types of evidence: (1) expert testimony that physicians incorrectly certified certain patients’ eligibility; and (2) Defendants’ implementation of corporate policies designed to incentivize improper admissions.

The relator’s expert identified a population of 12,000 patients who had been discharged in the relevant period and were on hospice for a total of at least 365 days.  The expert then selected a stratified sample of 291 patients for evaluation by a second expert.  The first expert then extrapolated the second expert’s analysis to form an opinion as to the total number of claims submitted for the 12,000 patients that were allegedly false.

The court rejected this approach.  First, the court cast doubt on extrapolation evidence, refusing to find it reliable.  The court stated that “[i]n this context, statistical sampling of the type done by [the expert] . . . cannot establish liability for fraud in submitting claims for ineligible patients, as the underlying determination of eligibility for hospice is inherently subjective, patient-specific, and dependent on the judgment of involved physicians.”  The court concluded that “proof regarding one claim does not meet Relator’s burden of proof regarding other claims involving different patients, different medical conditions, different caregivers, different facilities, different time periods, and different physicians.”

Second, the court found that the manner in which the expert chose the stratified sample of 291 patients was “fundamentally flawed” because the sample the expert relied on was not randomly selected and did not control for variables the expert identified as important, such as geographical differentiation, different clinical staffs and doctors or disease type.  Thus, the court prohibited the relator from presenting evidence beyond the 291 patients.

The court also rejected the evidence the relator presented as to these 291 patients.  The court concluded that the relator’s expert’s mere disagreement with a certifying physician’s assessment of hospice eligibility was insufficient to prove a violation of the FCA.  Rather, “[b]ecause a physician must use his or her clinical judgment to determine hospice eligibility, an FCA claim . . . must be predicated on the presence of an objectively verifiable fact at odds with the exercise of that judgment, not a matter of questioning subjective clinical analysis.”  For example, a relator must show that a physician “never reviewed the patient’s medical condition nor saw the patient, or that the physician did not actually believe that if the patient’s disease ran its normal course, the patient had a prognosis of six months or less.”  Here, the fact that the expert simply reached different conclusions than the certifying physicians as to the necessity of admitting certain patients was insufficient.

As to Defendants’ alleged improper implementation of certain corporate policies, the relator pointed to those policies (1) encouraging admission of patients earlier than competitors and before determining eligibility, (2) requiring multiple layers of review before discharging patients, and (3) instructing staff to document evidence supporting eligibility for eligible patients.  According to the relator, these policies supported an inference that Defendants billed for ineligible patients.  But the court found that making that inference would be improper, finding that “[w]hat Relator is missing here is a causal link between Defendants’ policies, a few instances where medical information was allegedly falsified, and actual false or fraudulent certifications and claims.”

As this case underscores, FCA claims dependent on issues of clinical judgment are met with skepticism by the courts, in recognition of the fact that the FCA is not a tool to arbitrate good faith clinical disputes.  Attempts by FCA plaintiffs to extrapolate to prove broad liability are also being closely scrutinized, particularly where, as here, the unique clinical elements underlying each claim are not generalizable across a broad universe.

 

On June 9, 2016, Acting Associate Attorney General Bill Baer delivered a speech regarding the impact of the Yates Memorandum’s focus on individual accountability and corporate cooperation at the American Bar Association’s 11th National Institute on Civil False Claims Act and Qui Tam Enforcement.  The focus of the speech was on the interplay between the Yates Memorandum and investigations and litigation under the False Claims Act (FCA), underscoring the fact that the US Department of Justice’s (DOJ’s) focus on individuals is not limited to the criminal context. Continue Reading Acting Associate Attorney General Remarks on Yates Memorandum and False Claims Act

On May 17, the United States Court of Appeals for the Second Circuit affirmed the dismissal of a relator’s False Claims Act (FCA) claims predicated on allegations that Pfizer “improperly marketed Lipitor, a popular statin, as appropriate for patients whose risk factors and cholesterol levels fall outside the National Cholesterol Education Program (NCEP) Guidelines.”  In United States ex rel. Polansky v. Pfizer, Inc. the relator, Polansky, claimed that the Guidelines were incorporated into the drug’s FDA label and were thus mandatory.  He further alleged that Pfizer induced doctors to prescribe the drug outside the Guidelines, and induced pharmacists to fill such “off-label” prescriptions that were, in turn, reimbursed by government payors.  Polansky claimed that requests for reimbursement for these prescriptions impliedly, but falsely, certified that the prescriptions were for on-label uses.

The Second Circuit rejected the relator’s theory at its most basic level, finding that the Lipitor label did not mandate compliance with the NCEP Guidelines, which were clearly advisory in nature.  The fact that the Guidelines were mentioned in the label did not render them mandatory.  Quoting the district court, the Second Circuit wrote, “we cannot accept plaintiff’s theory that what scientists at the National Cholesterol Education Program clearly intended to be advisory guidance is transformed into a legal restriction simply because the FDA has determined to pass along that advice through the label.”  In short, the Second Circuit held that prescribing outside of the Guidelines was not an off-label use.

Because the fundamental premise of the relator’s claims disintegrated, the court did not need to wade into other challenges Pfizer had raised to the relator’s claims.  However, the court noted that it was “skeptical” of relator’s theory of liability as a broader legal matter, observing that “it is unclear just whom Pfizer could have caused to submit a ‘false or fraudulent’ claim: The physician is permitted to issue off-label prescriptions; the patient follows the physician’s advice, and likely does not know whether the use is off-label; and the script does not inform the pharmacy at which the prescription will be filled whether the use is on-label or off.  We do not decide the case on this ground, but we are dubious of Polanky’s assumption that any one of these participants in the relevant transactions would have knowingly, impliedly certificated that any prescription for Lipitor was an on-label use.”

The Polansky case is not the first time the Second Circuit has rejected an off-label marketing theory as a basis for liability.  In December 2012, in the case of United States v. Coronia, the court overturned, on First Amendment grounds, the criminal conviction (under the Food, Drug & Cosmetic Act) of a pharmaceutical sales representative for promoting off-label use of a drug.

The Polansky court concluded its May 17 opinion by signaling that future FCA claims predicated on purported off-label marketing theories would receive serious scrutiny:

“The False Claims Act, even in its broadest application, was never intended to be used as a back-door regulatory regime to restrict practices that the relevant federal and state agencies have chosen not to prohibit through their regulatory authority. (quoting the district court).  It is the FDA’s role to decide what ought to go into a label, and to say what the label means, and to regulate compliance.  We agree with [the district court] that there is an important distinction between marketing a drug for a purpose obviously not contemplated by the label . . . and marketing a drug for its FDA-approved purpose to a patient population that is neither specified nor excluded in the label.”

On April 20, 2016, the US District Court for the Eastern District of California dismissed a False Claims Act (FCA) case based on 31 U.S.C. § 3730(e)(3), otherwise known as the FCA’s “government action” bar, in US ex rel. Bennett v. Biotronik, Inc. This bar provides: “In no event may a person bring an action under [the FCA] which is based upon allegations or transactions which are the subject of a civil suit or an administrative civil monetary penalty proceeding in which the Government is already a party.” Compared with the FCA’s public disclosure bar (§ 3730(e)(4)(a)), which serves a similar goal of preventing claims by parasitic relators where the government is already on notice of alleged fraud, the government action bar is invoked relatively infrequently. However, Bennett is reminder that qui tam defendants who face or have faced multiple suits predicated on the same or similar allegations should always consider the availability of a defense based on the government action bar, in addition to other available defenses.

The relator in Bennett alleged that the defendant, Biotronik, paid doctors to enroll patients in studies that lacked scientific and medical value, as a result of which doctors prescribed Biotronik’s cardiac devices.  A prior FCA case against Biotronik (the Sant case) contained similar allegations about studies, along with other kickback allegations. The government had intervened and immediately settled the Sant case, but the “covered conduct” in that settlement did not include the allegations relating to studies; instead, it focused on other types of purported payments to physicians.

The court dismissed the Bennett complaint based on the government action bar, in light of the prior Sant case. Drawing on the First Circuit’s opinion in US ex rel. S. Prawer & Co. v. Fleet Bank of Maine, 24 F.3d 320, 324-26 (1st Cir. 1994), the Bennett court observed that the purpose of the government action bar is to “prevent the prosecution of qui tam FCA claims that [stand] to enrich the relator but not to expose fraud.” The court held that this principle applied squarely to preclude the Bennett case, which contained similar study-related kickback allegations as those previously alleged in Sant.

The court rejected the relator’s assertion that the government action bar only applied to the “covered conduct” in the Sant settlement which, according to the relator, was the only piece of Sant as to which the government intervened. The court held that the statute does not support such a narrow and artificial reading, and that the Sant case had put the government on notice of a range of allegations, including both the “covered conduct” and the allegations concerning the studies. The government  “investigated all of those claims, and after its investigation, negotiated a joint settlement of the case and complaint.” The court observed that applying the government action bar to these facts “fits the purpose of § 3730(e)(3), to dispense with qui tam claims of wrongdoing the government has already discovered thanks to previous suits or proceedings.”

The court also rejected the relator’s assertion that the government action bar only applies while the prior action remains pending, observing that the bar does not contain the word “pending” (unlike, for example, the FCA’s first-to-file bar). And again, the court noted that the relator’s interpretation “would clash with the widely recognized purpose of § 3730(e)(3): discouraging follow-on lawsuits that provide the government with little or no benefit.”

Given that defendants increasingly face multiple FCA actions brought by different relators alleging the same or similar conduct, defense counsel should assess the viability of a motion to dismiss based on the government action bar, in addition to more frequently invoked defenses like the public disclosure bar. Under the court’s reasoning in Bennett, even where one of those actions settles on a narrow basis, the government action bar may preclude a subsequent suit involving allegations similar to those alleged in, but not part of the settlement of, the prior action.

On February 2, 2016, U.S. District Court for the District of Massachusetts dismissed a complaint alleging sweeping allegations of purported fraud under the False Claims Act (FCA) relating to hip replacement devices, and in doing so reaffirmed the principle that where an FCA complaint fails to plead the specifics of actual false claims, it cannot survive. The case is United States ex rel. Nargol v. DePuy Orthapaedics, Inc., in which, at the end of a 57-page opinion, U.S. District Judge Dennis Saylor denied the relators’ request for leave to amend, observing that “[d]espite full awareness of Rule 9(b)’s pleading standards, the relators—who are expert witnesses in related products-liability lawsuits against DePuy—have failed to plead with requisite particularity even a single false claim for the Pinnacle [metal-on-metal] [] device in their 168-page second amended complaint.”

The relators alleged a variety of conduct, but most of it boiled down to variations on the same theme: alleged concealment of product defects from the U.S. Food and Drug Administration (FDA) and doctors, resulting in the submission of false claims. The relators asserted that all claims for payment submitted to the government for costs of the device between the application for FDA approval and the device’s withdrawal from the market were false. The district court roundly rejected this, holding that despite the litany of allegations, the complaint’s specificity regarding the submission of actual false claims submitted to the government was woefully deficient:

In sum, the [second amended complaint] [] spends more than two hundred paragraphs detailing misrepresentations and false statements that DePuy allegedly made to the FDA and surgeons, including the relators themselves. It alleges in general terms that “the government directly purchased . . . hundreds of thousands of Pinnacle products.” But ten of the twelve allegedly false claims do not even refer to the only product relevant to this suit: the Pinnacle metal-on-metal device. For the two remaining “orders,” the SAC fails to plead with sufficient particularity the who, what, when, where, and how of a single false claim that DePuy presented to the [Veterans’ Administration].

The district court more generally observed that the FCA incentivizes bounty-hunting relators to attempt to turn product defect allegations into allegations of fraud:

The statute provides large awards to qui tam relators as an incentive to bring such cases. The prospect of such an award may also, however, provide an incentive for individuals to try to convert virtually any set of allegations arising out of a defective product or faulty service into an FCA case. That is particularly true in the medical field, where the government purchases medical supplies and services on a large scale through Medicare, Medicaid, the VA, and other health-care programs…

The district court’s detailed opinion demonstrates that, in many courts, a relator’s attempt to convert a products liability theory (or other tort theory) into a claim for fraud on the government under the FCA will be met with a high degree of skepticism.

In a decision released yesterday in U.S. ex rel. Bogina v. Medline Industries, Inc., the U.S. Court of Appeals for the Seventh Circuit affirmed a district court’s dismissal of a relator’s False Claims Act (FCA) complaint, holding that the complaint’s allegations had been publicly disclosed in a prior, settled lawsuit and the relator was not an original source. The opinion, authored by Judge Richard Posner, described FCA relators as “bounty hunters” and observed that the FCA imposes obstacles on parasitic bounty-hunting relators who seek to “be handsomely compensated if the[ir] suit succeeds.” Among those obstacles is the FCA’s public disclosure bar, which Judge Posner’s opinion ensures has sharp teeth in the Seventh Circuit.

First, the court held that the 2010 amendments to the original source exception the public disclosure bar, requiring a relator to “materially add” to publicly disclosed allegations in order to surmount the bar, could be applied retroactively because the amendments merely clarified the prior version of the exception. Accordingly, parties litigating in courts within the Seventh Circuit can expect that the current version of the public disclosure bar’s original source requirement will apply, regardless of when the relator acquired his or her knowledge.

Second, the court rejected the argument of the relator, August Bogina, that he had materially added to the allegations made by a prior relator, Sean Mason, in a prior FCA case that the government had settled. Both suits alleged that defendant Medline had made kickbacks to induce purchases of medical equipment. Bogina’s subsequent suit before the Seventh Circuit added a defendant (the Tutera Group, a nursing home chain that allegedly accepted kickbacks) that had not been mentioned in Mason’s prior, settled suit. Bogina also argued that the release provided by the government in the prior suit only concerned false claims submitted to Medicare Part A and Medicaid, but not to other government healthcare programs such as Medicare Part B and Tricare. The Seventh Circuit held that these differences were “unimpressive” from an original source standpoint, observing:

The government was thus on notice of the possibility of a broader bribe-kickback scheme before Bogina sued. Had it wanted to broaden the case against Medline beyond the Mason settlement, it could have gone after, among other Medline customers, nursing home companies such as the Tutera Group that received (if Bogina is correct) Medline kickbacks. …. Moreover, a settlement is a compromise; and it is notable that among the claims the government released as part of the Mason settlement were some of the very claims alleged in Bogina’s complaint.

The Seventh Circuit’s focus on the extent to which the prior suit put the government on notice of the alleged fraud is of crucial importance for defendants faced with copycat claims based on allegations that are similar to allegations they previously settled. Adding defendants or payors not involved in the prior suit is not a material addition sufficient to survive the public disclosure bar, where the prior suit put the government on notice of the allegations. Future defendants should thus focus their public disclosure and original source arguments on the concept of government notice; under the reasoning of the Seventh Circuit, the overlap between the two suits need not be even close to identical.

The Seventh Circuit also rejected Bogina’s assertion that his allegation that the fraud was continuing to the present (versus through 2009 as alleged in the prior suit) was sufficient to give him original source status, because Bogina made such allegation merely on “information and belief.”  Such allegations do not satisfy Rule 9(b), and the court observed that “a public accusation of fraud can do great damage to a firm before the firm is exonerated in litigation.”

The moral of the story is that relators seeking to establish original source status in the Seventh Circuit must truly be original.