Boards and management should make use of recent expanded guidance from the US Department of Justice to ensure that their compliance programs are considered “effective” if and when an investigation arises. Companies should affirmatively answer three fundamental questions in evaluating a compliance program:
On April 23, 2019, the US Department of Justice (DOJ) announced it has entered into a deferred prosecution agreement with Rochester Drug Co-Operative, Inc. (RDC), one of the 10 largest wholesale distributors of pharmaceutical products in the US, and filed felony criminal charges against two of RDC’s former senior executives for unlawful distribution of controlled substances (oxycodone and fentanyl) and conspiring to defraud the US Drug Enforcement Agency (DEA). During the relevant time period (2012-2016), RDC’s sales of oxycodone increased by approximately 800 percent (from 4.7 million to 42.2 million tablets) and fentanyl increased by approximately 2,000 percent (from 63,000 to over 1.3 million dosages). The two charged executives are RDC’s former chief executive officer, Laurence F. Doud III, and the company’s former chief compliance officer, William Pietruszewski.
Geoffrey S. Berman, the US Attorney for the Southern District of New York, noted in a press release that the prosecution is “the first of its kind,” with RDC and its former chief executive officer and former chief compliance officer charged with “drug trafficking, trafficking the same drugs that are fueling the opioid epidemic that is ravaging this country.” Keeping the focus on the C-suite, Mr. Berman emphasized that his office “will do everything in its power to combat this epidemic, from street-level dealers to the executives who illegally distribute drugs from their boardrooms.”
Ray Donovan, the DEA Special Agent in Charge of the investigation, underscored this sentiment:
Today’s charges should send shock waves throughout the pharmaceutical industry reminding them of their role as gatekeepers of prescription medication. The distribution of life-saving medication is paramount to public health; similarly, so is identifying rogue members of the pharmaceutical and medical fields whose diversion contributes to the record-breaking drug overdoses in America . . . . This historic investigation unveiled a criminal element of denial in RDC’s compliance practices, and holds them accountable for their egregious non-compliance according to the law.”
A consistent theme across the three cases is the alleged deficiency in RDC’s compliance program—as well as the role that the former CEO and compliance chief allegedly played in directing RDC to ignore its obligations to maintain “effective control[s] against diversion of particular controlled substances into other than legitimate medical, scientific, and industrial channels” under 21 USC § 823(b)(1) and reporting suspicious orders under 21 CFR § 1301.74(b). The criminal pleadings include allegations that:
DOJ announced on February 6, 2019, the Settlement Agreement resolving allegations in DOJ’s Complaint that Greenway caused its customers to submit false Medicare and Medicaid claims for payments under the EHR Incentive Programs in violation of the FCA and that it paid illegal kickbacks to current customers to recommend Greenway products (that are used to generate incentive payments or avoid penalties under the EHR Incentive Programs) to new customers. Under the Settlement Agreement, Greenway agreed to pay approximately $57 million to resolve the allegations without admitting liability. Greenway also entered into a five-year CIA with strict compliance oversight, reporting obligations and costly obligations to provide the latest version of Greenway’s EHR software to each of Greenway’s current customers at no additional charge.
This settlement comes nearly two years after eCW entered into a groundbreaking settlement with DOJ. At that time, we wondered whether it may be a sign of increasing FCA actions against vendors of EHR technology (CEHRT) certified through the health information technology (HIT) certification program of the Office of the National Coordinator of HIT (ONC). Statements by the United States Attorney for the District of Vermont, Christina E. Nolan, in the DOJ press release discussing the Greenway settlement seem to answer that question very directly in the affirmative. She says that “EHR companies should consider themselves on notice.” It is notable that, unlike the eCW case, the Greenway case was not initiated by a relator, but pursued by DOJ directly. In light of the government’s continued focus on vendors of EHR technology used to earn payments or avoid penalties for failing to succeed under the EHR Incentive Programs (or their successor value-based payment programs), HIT vendors should:
On February 8, 2019, the Department of Justice (DOJ) announced that it obtained a temporary restraining order (TRO) in the Middle District of Tennessee against two pharmacies, their owner and three pharmacists from dispensing controlled substances, including opioids. The DOJ simultaneously unsealed a complaint alleging violations of the False Claims Act and Controlled Substances Act against the same parties. DOJ’s press release is available here.
The DOJ described this action as part of a coordinated effort by the Prescription Interdiction & Litigation (PIL) Task Force to deploy its criminal, civil and regulatory tools to address the opioid epidemic in the United States. The complaint alleges that the pharmacies and pharmacists filled numerous prescriptions for controlled substances outside the usual course of professional practice and in violation of the pharmacists’ corresponding responsibility to ensure that prescriptions were written for a legitimate medical purpose. In particular, the complaint alleges that the defendants routinely dispensed controlled substances and ignored “red flags” of diversion and abuse, such as unusually high dosages of oxycodone and other opioids, dangerous combinations of opioid prescriptions other controlled substances and patients travelling extremely long distances to get and fill prescriptions. The complaint also asserts that the pharmacies falsely billed Medicare for illegally dispensed prescriptions.
“Pharmacies and pharmacists have a legal obligation to dispense controlled substances properly, so as not to put patients’ health at risk,” said Assistant Attorney General Jody Hunt for the Department of Justice’s Civil Division. “The Department of Justice will use every available tool to stop individuals and entities responsible for the improper distribution of controlled substances.”
While the DOJ has previously obtained TROs and a permanent injunction against physicians for prescribing opioids upon filing a complaint, this is the first case in which the agency has taken this combination compliant and TRO action against a pharmacy and pharmacists.
In September 2015, Deputy Attorney General Sally Yates issued the Yates memo on individual accountability in the context of corporate investigations. It is no understatement to say that this memo created a near-cottage industry of articles and panels on the memo’s impact on government investigations and officer/director liability.
After the change in administration, a favorite parlor game of the defense bar was wagering on the memo’s survival. And after Deputy Attorney General Rod Rosenstein revealed, in September and October 2017, that the Yates memo was under active reconsideration, discussions turned serious about whether the memo would be preserved, diluted or outright reversed and whether the distinctions between criminal and civil False Claims Act matters would receive needed nuance.
The False Claims Act (FCA) allows the government to pursue any “alternate remedy available” if the government chooses not to intervene in a qui tam action. See 31 U.S.C. § 3730(c)(5). However, if the government pursues an “alternate remedy,” the FCA gives the qui tam plaintiff the “same rights” in the “alternate” proceeding that the plaintiff would have had if the qui tam action “had continued.” Id. In U.S. v. Couch et al., the question before the United States Court of Appeals for the Eleventh Circuit was whether the FCA allows a qui tam plaintiff to intervene in a criminal forfeiture proceeding when the government chooses to prosecute fraud rather than intervene in the qui tam plaintiff’s action. No. 17-13402 (Oct. 17, 2018). The Eleventh Circuit held that criminal forfeiture law bars qui tam plaintiffs from intervening in related forfeiture proceedings.
Background
The suit stemmed from a qui tam action brought by Lori Carver, a former employee of an Alabama-based pain management company. During her employment, Carver allegedly discovered that the two doctors that ran the clinic, John P. Couch and Xiulu Ruan, submitted false claims to federal health care programs. Carver took her information to the US Attorney’s office, which encouraged her to bring a qui tam action against the doctors and the clinic. Carver brought the qui tam action in 2013 and the case remains pending. Carver is litigating the case herself, because the government chose not to intervene.
With Carver’s information, the government began investigating Dr. Couch and Dr. Ruan. Two years after Carver brought her qui tam action, the government criminally charged both doctors with conspiracy to distribute controlled substances and conspiracy to commit health care fraud. The charges in the indictment partially overlapped with Carver’s qui tam complaint. Thereafter, more defendants and charges were added to the criminal case in subsequent, superseding indictments. A jury ultimately convicted Couch on all charges and Ruan on all but one charge, which resulted in the judge issuing a preliminary forfeiture order.
Carver moved to intervene in the forfeiture proceedings, asserting a right to some of the forfeited assets. Carver primarily argued that the alternate-remedy provision allows her to intervene to claim a share of the assets she would be entitled to if the government had intervened in her qui tam action.
In response, the government argued that Carver did not have standing to intervene under the alternate-remedy provision because her qui tam case is pending—meaning that Carver has not yet established a right to a relator’s share. The government also argued that the FCA does not permit intervention in criminal cases.
The district court denied Carver’s motion to intervene and ruled that the alternate-remedy provision does not permit intervention in criminal cases.
Appeal Before Eleventh Circuit
The Eleventh Circuit took issue with the government’s jurisdictional arguments. The Eleventh Circuit concluded that Carver had standing to assert that the alternative-remedy provision gives her a right to intervene in criminal forfeiture proceedings and claim an interest in the forfeited [...]
Continue Reading
Last month, Insys Therapeutics, Inc. announced that it reached a settlement-in-principle with the U.S. Department of Justice (DOJ) to settle claims that it knowingly offered and paid kickbacks to induce physicians and nurse practitioners to prescribe the drug Subsys and that it knowingly caused Medicare and other federal health care programs to pay for non-covered uses of the drug. The drugmaker agreed to pay at least $150 million and up to $75 million more based on “contingent events.” According to a status report filed by DOJ, the tentative agreement is subject to further approval and resolution of related issues. The settlement does not resolve state civil fraud and consumer protection claims against the company.
The consolidated lawsuits subject to the settlement allege that Insys violated the False Claims Act and Anti-Kickback Statute in connection with its marketing of Subsys, a sub-lingual spray form of the powerful opioid fentanyl. The Food and Drug Administration has approved Subsys for, and only for, the treatment of persistent breakthrough pain in adult cancer patients who are already receiving, and tolerant to, around-the-clock opioid therapy. The government’s complaint alleges that Insys provided kickbacks in the form of arrangements disguised as otherwise permissible activities. Specifically, it alleges that Insys instituted a sham speaker program, paying thousands of dollars in fees to practitioners for speeches “attended only by the prescriber’s own office staff, by close friends who attended multiple presentations, or by people who were not medical professionals and had no legitimate reason for attending.” Many of these speeches were held at restaurants and did not include any substantive presentation. Insys also allegedly provided jobs for prescribers’ friends and relatives, visits to strip clubs, and lavish meals and entertainment. (more…)
On June 29, 2018, federal district courts in California and Kentucky issued conflicting decisions over the deference owed to prosecutors in seeking to dismiss frivolous False Claims Act (FCA) claims and the effect of the January 2018 Granston Memo, which recognized dismissal as an “important tool” to advance governmental interests, preserve limited resources and avoid adverse precedent.
In United States et al. v. Academy Mortgage Corporation (N.D. Cal.), the relator, an underwriter at Academy Mortgage Corporation (Academy), claimed that a mortgage loan originator violated the FCA by falsely certifying loans for government housing insurance. The government declined to intervene after the relator filed her initial complaint, which limited the alleged misconduct to a one-year period at the specific branch where the relator was employed. The relator next filed an amended complaint that included additional allegations and identified specific employees allegedly complicit in the fraud. This time, the government moved to dismiss the complaint under 31 U.S.C. § 3730(c)(2)(A), which authorizes the government to move to dismiss an FCA action even though it did not intervene in the litigation, as it remains the real party in interest.
In its motion to dismiss, the government argued that allowing the suit to continue would drain government resources and was not justified by a cost-benefit analysis. The government also argued that its conclusion that dismissal was appropriate was subject to deference. (more…)
Health Care Enforcement Q2 Roundup Webinar
Date: Tuesday, July 17, 2018
Time: 11:00 am PDT | 12:00 pm MDT | 1:00 pm CDT | 2:00 pm EDT
How will recent developments and emerging trends related to health care fraud and abuse impact future investigation targets and litigants?
Our upcoming Health Care Enforcement Quarterly Roundup webinar will address this critical question and discuss trends related to:
Attendees will also receive an advance copy of McDermott’s Health Care Enforcement Quarterly Roundup report on the day of the webinar and will have the opportunity to ask questions of the panel through the webinar platform.
Earlier this week, the US Department of Justice (DOJ) launched a new front in its effort to combat the opioid crisis and explicitly stated that it will deploy the False Claims Act (FCA) as part of its offensive. In a press release and parallel speech delivered by Attorney General Jeff Sessions on February 28, 2018, DOJ announced the creation of the Prescription Interdiction & Litigation (PIL) Task Force.
According to DOJ, the PIL Task Force will combat the opioid crisis at every level of the distribution system, from manufacturers to distributors (including pharmacies, pain management clinics, drug testing facilities and individual physicians). DOJ will use all available civil and criminal remedies to hold manufacturers accountable, building on its existing coordination with the US Food and Drug Administration (FDA) to ensure proper labeling and marketing. Likewise, DOJ will use civil and criminal actions to ensure that distributors and pharmacies are following US Drug Enforcement Administration (DEA) rules implemented to prevent diversion and improper prescribing. Finally, DOJ will use the FCA and other enforcement tools to pursue pain-management clinics, drug testing facilities and physicians that make opioid prescriptions. (more…)
Subscribe