Health care leaders should closely note the new guidelines on corporate conduct released on September 9, 2015 by the Department of Justice (DOJ) (Memorandum from Sally Quillian Yates, Deputy Attorney General, U.S. Department of Justice, September 9, 2015, Individual Accountability for Corporate Wrongdoing (Guidelines), available at www.justice.gov/dag/file/769036/download). These Guidelines reflect a substantially increased focus on individual accountability for corporate wrongdoing, both civil and criminal, and on the importance of corporate cooperation in the context of governmental investigations. It is not a “rifle shot” enforcement initiative focused solely on Wall Street or the broader financial sector. Rather, it is intended to apply across industry sectors (including, health care) (See http://www.reuters.com/article/2015/07/30/doj-compliance-hire-idUSL1N10A26420150730 (note reference to health care). The Guidelines can reasonably be expected to impact an organization’s approach to legal compliance, internal investigations, D&O insurance and indemnification protection, and interaction with management on matters of regulatory concern. They should, therefore, be taken seriously by senior leadership of health care companies.
The Health Care Industry and DOJ’s New Corporate Conduct Enforcement Guidelines
Health care leaders should closely note the new guidelines on corporate conduct released on September 9, 2015 by the Department of Justice (DOJ). These Guidelines reflect a substantially increased focus on individual accountability for corporate wrongdoing, both civil and criminal, and on the importance of corporate cooperation in the context of governmental investigations. It is not a “rifle shot” enforcement initiative focused solely on Wall Street or the broader financial sector. Rather, it is intended to apply across industry sectors (including, health care).[2] The Guidelines can reasonably be expected to impact an organization’s approach to legal compliance, internal investigations, D&O insurance and indemnification protection, and interaction with management on matters of regulatory concern. They should, therefore, be taken seriously by senior leadership of health care companies.
Can Satisfying A Regulatory Requirement Now Equate To Providing Illegal Remuneration?
Defending False Claims Act litigation is often a costly budget item. The disposal of weak cases by the government through the intervention decision making process has always been a critical safety valve for non-culpable defendants. Two of the more concerning trends in False Claims Act litigation, however, are (1) the increasing likelihood of relators pursuing factually and legally weak allegations after the government declines to intervene, and (2) courts allowing such cases to survive a Rule 9(b) motion to dismiss. A recent case in the Middle District of Florida involving the unintended consequences of a health system’s adherence to a local zoning obligation serves as a prime example of these troubling trends.
On August 14, 2015, in U.S. ex rel. Bingham v. BayCare Health System, the court denied the defendants’ motion to dismiss relator’s claim that BayCare Health System (BayCare) and an independent third party real estate developer, St. Pete MOB, LLC (St. Pete’s)—referred to by relator as BayCare’s “proxy”—entered into a “scheme” to enable BayCare to pass remuneration to physicians in violation of the Stark Law and Anti-Kickback Statute (AKS). According to the relator, the heart of this “scheme” is BayCare’s ground lease to St. Pete’s on a BayCare hospital’s campus to build a medical office building (MOB).
In this ground lease, BayCare provided a non-exclusive easement for MOB tenants to use the hospital’s parking facilities. As pleaded by the relator, and acknowledged by the court, this easement was included in the lease “to satisfy zoning and other governmental requirements.” Despite this salient fact, relator turns this legally-required easement into illegal remuneration under the Stark Law and AKS simply by alleging that one of BayCare’s purposes in providing the easement was for St. Pete to avoid incurring the costs to lease additional land and to build a parking garage, and then for St. Pete to “pass some or all of the millions of dollars in savings to physician tenants to encourage them to make or increase referrals.” However, the relator does not appear to have mustered support for this bald conclusion. The relator does not appear to allege that the terms of the physicians’ leases with St. Pete’s are problematic, other than suggesting that amending the leases in 2013 to allow the physicians, staff and patients to use the parking facilities to access the MOB at no charge is another sign of improper remuneration. The relator also asserts that BayCare provided a “rent concession” to the tenant physicians (even though BayCare is not the landlord) by claiming a tax exemption for what is alleged to be non-exempt property, which saved St. Pete’s about $140,000 in real property taxes. The relator alleges, with little support, that this tax exemption resulted in lower rent charged to the physician tenants and that BayCare is culpable for this alleged remuneration even though St. Pete’s was the lessor.
The legal theory and factual problems with this case are multifold. BayCare’s legal obligation to meet the local zoning requirement for the easement should raise significant challenges for the relator in proving the intent necessary for a criminal AKS violation. Nonetheless, the district court’s unwillingness to dismiss the AKS count demonstrates significant deference to the relator and forces the defendants to continue to expend costs litigating the matter. As for Stark, the relator’s complaint also appears to enjoy the broad benefit of the doubt from the court even though serious questions are presented as to whether the allegations could establish whether either direct or indirect compensation was paid to the physicians.
Notably, Thomas Bingham, the relator, is a serial whistleblower who has been previously successful at extracting settlements in prior FCA matters. Mr. Bingham is a certified real estate appraiser based in Nashville and admits to developing his qui tam allegations, not from insider knowledge, but rather from working with another client in the area, reviewing publically available information, and using “his skills and experience as a commercial real estate appraiser in uncovering the schemes.” He has brought at least two other FCA cases alleging AKS and Stark violations in hospital real estate transactions involving physicians. In 2008, he filed an FCA case against the Healthcare Corporation of America (HCA) and its Chattanooga hospital, Parkridge Medical Center, claiming that Parkridge made rental payments for office space to a physician group in excess of fair market value. This case settled in 2014 with HCA paying $16.5 million to the Government, of which Mr. Bingham received a $2.9 million relator share. Mr. Bingham has filed another FCA case against HCA, this time in Florida, alleging conduct similar to his Tennessee case. His complaint was unsealed on February 23, 2015, after the government declined to intervene. At minimum in his case against BayCare, Mr. Bingham’s admission about having no insider knowledge calls into question his ability to properly qualify as a relator under the FCA’s public disclosure bar.
Unfortunately, in at least some jurisdictions, it seems to be becoming easier for relators to pursue highly questionable fraud claims, after the government declines to intervene. While appellate courts are increasingly being called upon to reverse this trend (the Seventh Circuit’s recent rejection of implied certification claims is an apt example), hospitals and other providers are forced to assume the costly defense of meritless claims and weigh whether to take cases to trial to discourage whistle-blowers or settle matters to mitigate the often outsized risk of a “runaway” jury verdict.
Amarin Ruling Solidifies Off-Label Marketing Options but Raises Questions About False Claims Act Enforcement Action
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.
Fourth Circuit Rejects ‘Advice of Counsel’ Defense
A major new decision from the U.S. Court of Appeals for the Fourth Circuit has important implications for the availability of the “reliance of counsel” defense, particularly in situations involving the application of complex statutes and regulations.
In U.S. ex rel. Drakeford v. Tuomey, the Fourth Circuit affirmed the District Court’s prior judgment of over $237 million in damages and penalties against a South Carolina nonprofit, tax-exempt health care system. The judgment was based upon a jury finding that the Tuomey Healthcare System had submitted over 21,000 false claims to Medicare pursuant to part-time physician employment contracts, which the jury determined had been submitted in violation of both the federal False Claims Act (FCA) and the federal Stark anti-self referral law.
While the Court of Appeals ruled on a number of issues presented by Tuomey on appeal, noteworthy was its rejection of Tuomey’s advice of counsel defense. In particular, the Court of Appeals found that, in failing to provide outside counsel all relevant factual information (including not only the facts of the arrangement but also the views of other counsel), Tuomey had not met the basic legal requirements necessary to sustain an advice of counsel defense. The Court went further to suggest that Tuomey’s advice of counsel defense was additionally undermined by the appearance of “opinion shopping.” This ruling has implications beyond health care, to other industry sectors in which clients frequently seek multiple legal opinions to help them address technical legal issues.
Tuomey’s Appeal of $237M False Claims Act Judgment Denied by the Fourth Circuit
The US Court of Appeals for the Fourth Circuit affirmed the trial court’s May 2013 decision that Tuomey Healthcare System, Inc., a hospital and health system based in Sumter, South Carolina, submitted 21,730 false claims, claims prohibited by the Stark Law, to the Medicare program. The court rejected Tuomey’s request for a new trial based on multiple errors by the trial court and Tuomey’s constitutional challenges to the trial court’s award of damages and civil penalties totaling $237 million. Although concurring with the Fourth Circuit’s opinion, Judge Wynn described this case as “troubling,” explaining that “even for well-intentioned health care providers, the Stark Law has become a booby trap rigged with strict liability and potentially ruinous exposure–especially when coupled with the False Claims Act.” United States ex rel. Drakeford v. Tuomey, No. 13-2219, 2015 U.S. App. LEXIS 11460, at *69 (4th Cir. Jul. 2, 2015) (Wynn, J., concurring).
Fourth Circuit Upholds Judgment of Over $237 Million against Tuomey Healthcare System
On July 2, 2015, the U.S. Court of Appeals for the Fourth Circuit affirmed the U.S. District Court for the District of South Carolina’s judgment of $237,454,195 in damages and penalties against Tuomey Healthcare System in United States ex rel. Drakeford v. Tuomey Healthcare System, Inc. (No. 13-2219). The judgment followed a rare False Claims Act (FCA) trial, after which the jury found Tuomey liable for submitting 21,730 false claims to Medicare. While the Fourth Circuit’s Tuomey decision addressed many claims of error advanced by Tuomey on appeal, this post highlights the court’s response to Tuomey’s challenges based on the “advice of counsel” defense and on the computation and size of the judgment.
Tuomey was alleged to have entered into part-time employment contracts with physicians that violated the Stark Law. After one of the physicians expressed compliance concerns about the structure of the proposed arrangement, Tuomey sought Stark Law compliance advice about the contracts from several attorneys – one of whom, Kevin McAnaney, indicated that the contracts raised “red flags” under the Stark Law. McAnaney was jointly retained by Tuomey and the physician, Drakeford, after Tuomey received a legal opinion from its longstanding counsel that the contracts were Stark compliant. Despite McAnaney’s advice, Tuomey elected to move forward with the contracts. Drakeford subsequently filed an FCA qui tam lawsuit against Tuomey, and the extensive litigation ensued. Continue Reading Fourth Circuit Upholds Judgment of Over $237 Million against Tuomey Healthcare System
Use of Statistical Sampling to Establish Damages in FCA Cases Still Controversial
As we previously posted, on April 28, 2015, the United States District Court for the Middle District of Florida in U.S. ex rel. Ruckh v. Genoa Healthcare LLC et al, held that expert testimony based on statistical sampling was appropriate in False Claims Act (FCA) cases and could not be excluded solely due to the concern that sampling, by its nature, subverts individualized proof. The court did, however, preserve the importance of Daubert motions to assail a purported sample, noting that defects in methodology or other evidentiary defects could still result in exclusion of an expert’s sampling analysis. Given the difficulties inherent in identifying a reliable sample in FCA cases involving issues of individualized proof, effective Daubert challenges to a relator’s or the government’s sampling expert are critical when litigating in courts that are inclined to permit sampling, whether offered to prove liability or damages.
In Ruckh, the relator alleged that the defendant defrauded the United States and the State of Florida by “upcoding” and “upcharging” for services provided to patients at 53 of the defendants’ medical facilities in Florida. Plaintiffs have long tested the limits of sampling, especially in actions alleging Medicare/Medicaid fraud in which issues of individualized medical decision making are in play. The relator, Ruckh, took this practice a step further, moving to admit expert testimony based on statistical sampling, prior to a sampling analysis having actually been completed. Ruckh argued that individually analyzing each claim from all 53 facilities was impractical and unnecessary to establish damages.
The defendants responded that, among other things, the court’s ratification of Relator’s statistical sampling methodology was premature. While the court did not foreclose sampling, it agreed with the defendants on the issue of ripeness, noting that arguments that go to the weight or reliability of an expert opinion are best reserved for Daubert proceedings.
This issue is an important one, as sampling can allow a plaintiff to increase the scope of alleged and provable damages dramatically without developing robust, individualized proof of its claims. Defendants have had success attacking the kind of methodology which purports to allow plaintiffs to draw inferences over a universe of claims that covers too wide an array of services. For example, defendants have successfully attacked analyses when a given universe of claims is rife with variability in terms of provider and type of procedure, arguing that such variability undermines the reliability of extrapolating from a statistical sample. While the law on the propriety of sampling in these types of cases is unsettled, there is no question that Daubert challenges will play an important role in any FCA case in which a relator or the government attempts to rely on a sample.
Fraud Enforcement Trends for 2015: Over the Horizon
Health care fraud enforcement continues to be a priority for the federal government and is poised to expand even more. As a result, health care providers and suppliers should anticipate greater oversight activities from auditors and investigators. Ensuring that your compliance program is up-to-date and up-to-task in proactively identifying problems and making timely decisions about corrective actions and potential disclosures is key to protecting the organization.
BIGGER BUDGETS FOR LAW ENFORCEMENT AND PROGRAM INTEGRITY
In the fiscal 2015 budget, Congress more than doubled the appropriation to the Health Care Fraud and Abuse Control (HCFAC) program to $672 million. This means that the U.S. Centers for Medicare and Medicaid Services (CMS), the U.S. Department of Justice (DOJ), and the Office of Inspector General (OIG) for the U.S. Department of Health and Human Services (HHS) received a large infusion of new funding at a time when many agencies continue to face flat or declining appropriations. CMS program integrity functions received more than $477 million for Medicare oversight, including Parts C and D. OIG and DOJ received more than $67 million and $60 million, respectively, from HCFAC. Continue Reading Fraud Enforcement Trends for 2015: Over the Horizon
Supreme Court Vets Wartime Tolling of FCA Statute of Limitations in Kellogg Brown & Root v. United States ex rel. Carter
On January 13, 2015, the Supreme Court held oral argument in the closely followed case of Kellogg Brown & Root v. United States ex rel. Carter. Two questions with sweeping False Claims Act (FCA) enforcement implications were at issue: first, whether the Wartime Suspension of Limitations Act (WSLA) tolls the statute of limitations in civil actions under the FCA while the nation is at war; and second, whether the FCA’s so-called “first-to-file” bar prohibits future filings based on the same alleged fraud or functions as a more permissive one-case-at-a-time rule, allowing duplicative claims in future actions. The lower court, the Fourth Circuit, held that the qui tam relator’s claims were timely. Kellogg Brown & Root (KBR) appealed.
Made relevant by over a decade of global military action, the WSLA was a little known criminal code provision tolling the statute of limitations for “any offense” involving fraud against the United States during war. Both the United States and the relator argue that the “any offense” language added in 1944 broadens the statute’s applicability from actions that are criminal in nature to civil actions including under the FCA.
At oral argument, KBR attacked the attempt to broaden “any offense” to include FCA allegations by focusing on the WLSA’s appearance in the criminal code. The Justices, possibly sympathetic, gave KBR counsel the benefit of long stretches of uninterrupted argument. At one point, Justice Sotomayor asked KBR counsel if the court would need to address the first-to-file issue if the Court reversed the lower court on the WLSA ruling. In contrast, the Justices peppered Respondents’ counsel on the strength of their position.
Based on the argument, it is not clear how the Court will come out on the second question. When a relator brings an action under the FCA, “no person other than the government may intervene or bring a related action based on the facts underlying the pending action.” 31 U.S.C. 3730(b)(5). The interpretation of “pending” sits at the center of the dispute. The Fourth Circuit agreed that the first-to-file bar serves only to prohibit simultaneous litigation and therefore, the relator’s suit was permissible.
KBR argued that the Fourth Circuit’s interpretation creates the risk of duplicative litigation into perpetuity; however, the Justices appeared to be wrestling with the ambiguity of the statutory language. Both Justices Kennedy and Scalia seemed persuaded that future duplicative suits were not prohibited by the statute. The Justices seemed to agree with Respondents that the risk of duplicative suits would be mitigated under claim preclusion principles.
The Court’s hotly anticipated ruling will impact myriad cases filed asserting alleged fraud claims arising over a decade of wartime activity. The second issue involving relator rights has broad implications for how defendants can achieve finality in the resolution of pending FCA matters. Stay tuned.