On April 30, 2018, the U.S. District Court for the District of Massachusetts dismissed the last remaining state False Claims Act (FCA) claims against long-term care pharmacy provider PharMerica, Inc. on the grounds that neither relator qualified as an “original source” under the applicable pre-2010 version of the FCA, thereby precluding their claims under the public disclosure bar. Critically, neither relator had firsthand, “direct” knowledge of the alleged fraud scheme.

In 2007, two relators (employees of a pharmaceutical company) filed suit alleging that their employer had offered financial incentives to two long-term care pharmacy providers (LTCPs) in exchange for the pharmacy providers’ promotion of prescriptions of a specific antidepressant. Specifically, the relators alleged that their employer offered significant discounts and rebates to LTCP customers in exchange for increased promotion of the antidepressant, and that market-tier discounts were offered in exchange for the performance level of each LTCP. The relators alleged that further kickbacks in the form of research and educational grants, gifts, and payment for advertising initiatives were offered to the LTCPs in exchange for purchase and recommendation of the antidepressant. Relators’ knowledge, however, was sourced from two other co-workers; neither relator was directly involved in the alleged scheme.

In 2010, the United States declined to intervene and the case was unsealed. Two years later, in 2012, the Court dismissed all federal claims and 18 state law based claims. Subsequently the other defendants (including the relators’ former employer) entered into settlement agreements, leaving PharMerica facing state FCA claims under Louisiana, Michigan, and Texas law.

On September 29, 2017, PharMerica moved to dismiss the remaining three claims on several grounds, including that each claim was precluded by each applicable state’s public disclosure bar. This argument was based, in part, on the fact that it was undisputed that the fraud allegations at issue had been publicly disclosed in a 2002 case before the Eastern District of Louisiana. Therefore, to avoid dismissal, relators needed to establish that they met the standards of the pre-2010 original source exception to the public disclosure bar in order for their claims to survive. This exception required, in relevant part, that the relator have direct and independent knowledge of the publicly-disclosed information.

The Court rejected the relators’ arguments that they qualified for the original source exception. First, the Court noted that Louisiana, Michigan and Texas each have public disclosure bars and original source exceptions that are substantively identical to the corresponding provisions of the federal FCA. The Court further noted that the “first-to-file” bar did not block relator’s claims, as the 2002 lawsuit that publicly disclosed the alleged fraud scheme was dismissed in 2006, a year before the relators filed their complaint. It was further found to be undisputed that relators’ knowledge of the alleged scheme was independent of the 2002 lawsuit, thereby establishing that the relators had “independent” knowledge of the scheme.

The fatal flaw in relators’ argument was that neither had direct knowledge of the information on which the allegations are based,” as required by the pre-2010 FCA. Neither relator had a direct role in the alleged scheme, and both had learned of the scheme in a second-hand fashion from colleagues with direct knowledge. Furthermore, neither relator saw any corroborating documents until over a year after the alleged scheme had concluded, and those documents were viewed as part of “collateral research and investigation,” not in the regular course of their job duties. In dismissing the remaining claims, the Court cited precedent requiring that, under the pre-2010 FCA, an individual must be a “close observer” of the alleged fraud in order to qualify as having “direct” knowledge for the original source exception.

This ruling highlights the long reach of changes to statutory language. Revisions to the FCA’s statutory language in 2010 removed the requirement of “direct” knowledge of the information for the original source exception, thereby broadening the pool of potential relators. While this revision occurred roughly eight years ago, legacy cases subject to the pre-2010 statutory language are still working their way through the Courts. Had the relators in this case been subject to the current version of the FCA, it appears unlikely that the Court would have dismissed their claims on the basis of the public disclosure bar.

The case is United States ex rel. Banigan and Templin v. PharMerica, Case No. 07-cv-12153, before the U.S. District Court for the District of Massachusetts.

A key area of dispute in False Claims Act (FCA) cases based on Anti-Kickback Statute (AKS) violations is what degree of connection plaintiffs must allege between alleged kickbacks and “false claims.” The AKS states that “a claim that includes items or services resulting from a violation of this section constitutes a false or fraudulent claim for purposes of [the FCA].”

The government and relators typically argue that the mere fact that claims were submitted during the period of alleged kickbacks is sufficient. Defendants argue that the law requires plaintiffs to specifically identify claims “resulting from” an alleged kickback – i.e., that there is proof that the alleged kickback caused the referral or recommendation of the item or service contained in the claim. The Third Circuit’s recent decision in United States ex rel. Greenfield v. Medco Health Systems, Inc. articulated a middle of the road approach.  In affirming summary judgment for the defendants, the Court held that to prevail, plaintiffs must establish that a claim submitted to a federal health care program was “exposed to a referral or recommendation” in violation of the AKS.

The relator, a former area vice president for Accredo, a specialty pharmacy that sells blood clotting drugs and provides nursing assistants to hemophiliacs in their homes, filed a qui tam suit alleging that Accredo violated the AKS and FCA in connection with donations to two charitable organizations that assist the hemophiliac community: Hemophilia Services, Inc. (HSI) and Hemophilia Association of New Jersey (HANJ).  During the time Accredo made monetary donations to HSI and HANJ, the HANJ website allegedly listed Accredo as one of four “approved providers” or “approved vendors” and directed users to “remember to work with our HSI [approved] providers.” In 2010, Accredo notified both charities that it was decreasing its donation the following year. In response, HSI allegedly engaged in activities to persuade Accredo to restore its donation level to previous years, including encouraging its members to contact Accredo to protest the funding cut. The relator was involved in purportedly analyzing the return on investment for returning to previous donation levels. After the relator’s report allegedly projected a significant decline in business in New Jersey if donation levels were not restored, Accredo restored the donation level and relator filed his suit.

The government declined to intervene in this case, but the relator continued the litigation. He argued the expansive view: that the donations amounted to kickbacks, and since Accredo certified compliance with the AKS when submitting Medicare claims, the FCA was violated and, therefore, every claim submitted by Accredo was false. The district court granted summary judgment to Accredo.  The district court declined to decide whether the relator had established an AKS violation, but instead held that the relator did not show sufficient evidence of causation of an FCA violation. The district court held that the relator’s evidence that Accredo submitted claims for 24 federal beneficiaries during the relevant time period, by itself, “did not provide the link between defendants’ 24 federally insured customers and the donations.” The court held that “[a]bsent some evidence….that those patients chose Accredo because of its donations to HANJ/HSI,” the relator could not carry his burden.

On appeal, the government argued that the district court erred to the extent it required proof that patients chose Accredo because of the referrals and recommendations. In the government’s view, all the relator needed to establish was the existence of “a claim that sought reimbursement for medical care that was provided in violation” of the AKS.

The Third Circuit affirmed the district court’s ruling, but for different reasons than those offered by the parties, the government, and the district court. The Third Circuit rejected the relator’s and government’s position that the alleged kickbacks tainted all claims as false by virtue of the kickback.  However, the Court declined to read the “resulting from” language in the AKS to require, as advocated by Accredo and found by the district court, that the relator needed to prove the patients purchased prescriptions from Accredo because of Accredo’s donations to HSI and HANJ. Instead, the Court held that the relator “must show, at minimum, that at least one of the 24 federally insured patients for whom Accredo provided services and submitted reimbursement claims was exposed to a referral or recommendation of Accredo by HSI/HANJ in violation of the AKS.” As explained by the Court, “[a] kickback does not morph into a false claim unless a particular patient is exposed to an illegal recommendation or referral and a provider submits a claim for reimbursement pertaining to that patient.”

This decision is helpful confirmation that relators and the government cannot simply rely on an alleged kickback to demonstrate that a defendant who submits claims to Medicare, violated the FCA.  Defending this type of allegation should include examination of the evidence relied upon to show the connection between the alleged kickback and the purported false claim.  Whether other courts will follow the Third Circuit’s reasoning or follow the “resulting from” language in the AKS and require a stronger connection between a kickback and claim remains to be seen.  This issue will be a continued subject of litigation in these cases.

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. Continue Reading New DOJ Task Force to Take on Opioid Crisis Using the FCA and Other Enforcement Tools

In a two-page memorandum, the US Department of Justice (DOJ) announced a broad policy statement prohibiting the use of agency guidance documents as the basis for proving legal violations in civil enforcement actions, including actions brought under the False Claims Act (FCA). The extent to which these policy changes ultimately create relief for health care defendants in FCA actions is unclear at this time. That said, the memo provides defendants with a valuable tool in defending FCA actions, either brought by DOJ or relator’s counsel, that attempt to use alleged noncompliance with agency sub-regulatory guidance as support for an FCA theory.

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The government’s focus on the US opioid crisis has been consistently expanding over the past year beyond manufacturers to reach prescribers and health care providers who submit claims to federal health care programs for opioid prescriptions. These efforts increasingly include investigations under the False Claims Act and administrative actions, in addition to the more traditional criminal approach to these issues.

With the Trump administration’s public health emergency orders, it is expected for the government’s enforcement activities, including those instigated by relators and their counsel, to grow in this area.

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As first reported in the National Law Journal, the US Department of Justice (DOJ), Civil Division, recently issued an important memorandum to its lawyers handling qui tam cases filed under the False Claims Act (FCA) outlining circumstances under which the United States should seek to dismiss a case where it has declined intervention and, therefore, is not participating actively in the continued litigation of the case against the defendant by the qui tam relator. Continue Reading DOJ Issues Memorandum Outlining Factors for Evaluating Dismissal of Qui Tam FCA Cases in Which the Government Has Declined to Intervene

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

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

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

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

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

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

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

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

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

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

Continue Reading Par Pharmaceutical Beats FCA Prescription-Switch Allegations

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.”