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The FCA and Medical Necessity: An Increasingly Tenuous Relationship

On January 19, 2017, another district court ruled that a mere difference of opinion between physicians is not enough to establish falsity under the False Claims Act.  In US ex rel. Polukoff v. St. Mark’s et al., No. 16-cv-00304 (Jan. 17, 2017 D. Utah), the district court dismissed relator’s non-intervened qui tam complaint with prejudice based on a combination of Rule 9(b) and 12(b)(6) deficiencies.  In so doing, the Polukoff court joined US v. AseraCare, Inc., 176 F. Supp. 3d 1282, 1283 (N.D. Ala. 2016) and a variety of other courts in rejecting False Claims Act claims premised on lack of medical necessity or other matters of scientific judgment.  This decision came just days before statements by Tom Price, President Trump’s pick for Secretary of Health and Human Services (HHS), before the Senate Finance Committee in which he suggested that CMS should focus less on reviewing questions medical necessity and more on ferreting out true fraud.  Price’s statements, as well as decisions like Polukoff, are welcome developments for providers, who often confront both audits and FCA actions premised on alleged lack of medical necessity, even in situations where physicians vigorously disagree about the appropriate course of treatment.

In Polukoff, the relator alleged that the defendant physician, Dr. Sorensen, performed and billed the government for unnecessary medical procedures (patent formen ovale (PFO) closures). The relator also alleged that two defendant hospitals had billed the government for associated costs.  Specifically, the relator alleged that PFO closures were reasonable and medically necessary only in highly limited circumstances, such as where there was a history of stroke.  Medicare had not issued a National Coverage Determination (NCD) for PFO closures or otherwise indicated circumstances under which it would pay for such procedures.  However, the relator held up medical guidelines issued by the American Heart Association/American Stroke Association (AHA), which, essentially, stated that PFO closures could be considered for patients with “recurring cryptogenic stroke despite taking optimal medical therapy” or other particularized conditions. (more…)




Circumstantial Evidence Stretched Beyond Its Limits in Proving Kickback and Fraud-on-DrugDex Theories

Two decisions from the US District Court for the Southern District of Texas limit the extent to which relators can stretch the use of circumstantial evidence to support a False Claims Act case based on an anti-kickback or off-label marketing theory. In two separate decisions on December 10 and December 14 in US ex rel. King v. Solvay Pharmaceuticals, Inc. (SPI)., the court granted SPI’s summary judgment motion finding insufficient evidence for a reasonable juror to support either theory.

For the anti-kickback claim, relators alleged that SPI engaged in a number of activities, such as speaker programs, preceptorships, honorariums, free continuing medical education, and provided gifts such as dinners and event tickets, as part of a national scheme to illegally induce physicians to prescribe SPI’s drugs. In dismissing this claim on December 10, the court first found that the allegations of a nationwide scheme were unsupported because in relator’s response to interrogatories and expert report, only 46 Texas-based physicians were identified as having prescribed SPI’s drugs and as having allegedly received remuneration from SPI. The court observed:

[t]heoretically Relators could survive summary judgment with examples, the examples would have to be linked to remuneration from SPI, some evidence of intent that the remuneration would lead to claims, and claims for prescriptions written by these physicians that a reasonable juror could believe resulted from the unlawful remuneration.  Additionally, to continue a claim on a national-level scheme, Relators would need to demonstrate that kickbacks were provided to physicians in different areas of the country as part of a nationwide scheme to increase prescriptions of the specific Drugs at Issue to patients who are on Medicaid or part of some other government prescription program.

Since relators provided no physician examples outside of Texas, the court ruled the multi-state claims failed.

The court then examined each of the alleged forms of remuneration and found that the evidence was insufficient to find SPI had the requisite “knowing and willful” intent to induce referrals to support an anti-kickback claim under federal or Texas law. For example, the “physician profile interview program” involved sales representatives interviewing physicians prior to the launch of the drug Aceon to obtain information about the physicians’ practice and treatment of hypertension. Physicians were paid $100 for participating in this 30 minute interview. Sales reps were instructed to not mention Aceon during these interviews. Relators offered no evidence that sales reps failed to follow this instruction. Not surprisingly, the court found that the evidence failed to show that SPI intended the program to induce physicians to write prescriptions for a drug they were not told about. For other forms of remuneration, the court found that relators offered no proof that the physicians who received the remuneration actually prescribed SPI’s drugs.

In a separate ruling on December 14, the court granted SPI’s summary judgment motion dismissing relators’ “fraud-on-DrugDex” theory. To be eligible for government reimbursement for an off-label use of a drug, relators alleged that off-label use has to be [...]

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DOJ Boasts About $3.5 Billion in Recoveries from False Claims Act Cases in FY 2015

The U.S. Department of Justice (DOJ) continues to tout its total annual recoveries in False Claims Act cases, as it does each year after the federal government’s fiscal year closes in September.  In its December 3, 2015, press release, DOJ disclosed that it obtained more than $3.5 billion in settlements and judgments from civil cases involving fraud and false claims against the government in the 2015 fiscal year.  DOJ boasts that this is the fourth consecutive year that these kinds of recoveries have exceeded $3.5 billion, raising the total recoveries from January 2009 through the end of the fiscal year to a whopping $26.4 billion.

Cases involving the health care industry represented the largest chunk of recoveries in 2015, totaling $1.9 billion from companies and individuals.  This figure only includes monies paid to the federal government, not to state Medicaid programs or individuals.  Thus, the total sum paid out by the health care industry for False Claims Act cases is actually higher.  Since January 2009, federal recoveries from the health care industry have totaled nearly $16.5 billion.  DOJ attributes these large sums to the high priority that the Obama Administration places on fighting health care fraud and the efforts of an interagency task force called the Health Care Fraud Prevention and Enforcement Action Team (HEAT), which was created in 2009.

Other categories specifically mentioned in DOJ’s latest press release are government contracts, from which DOJ recovered $1.1 billion, and housing and mortgage, from which DOJ recovered $365 million.

Of the $3.5 billion recovered in 2015, DOJ reports that the vast majority—$2.8 billion—is related to lawsuits filed under the qui tam provisions of the False Claims Act, which permit whistleblowers to file lawsuits alleging false claims on behalf of the government and to recover between 15 and 30 percent of any recoveries.  Whistleblowers filed a total of 638 lawsuits in 2015, which is the lowest number of qui tam suits filed since 2011.

Although this year’s overall recovery from False Claims Act cases in 2015 is less than each of the three preceding years—and far less than the $5.69 billion reported at the end of the 2014 fiscal year—it is still a sizeable sum.  And, it reveals DOJ’s continued efforts and emphasis on False Claims Act cases.

For further information, see DOJ’s press releases for the last several years:

2015

2014

2013

2012

2011




U.S. Attorney Manual Revised To Reflect Yates Memorandum’s Focus on Individuals

On September 9, 2015, Deputy Attorney General Sally Quillian Yates issued a memorandum outlining the Department of Justice’s increased focused on individual responsibility in investigations of corporate wrongdoing, now colloquially referred to as the “Yates Memorandum.”  (We previously reported on the Memorandum here).

Pursuant to the Yates Memorandum’s directive that the U.S. Attorneys’ Manual (USAM) be revised to reflect this increased focus on individuals, on November 16, 2015, such revisions were released.  In a speech on that date to the American Banking Association and the American Bar Association Money Laundering Enforcement Conference, Deputy AG Yates highlighted the important nature of the revisions: “We don’t revise the USAM all that often and, when we do, it’s for something important.  We change the USAM when we want to make clear that a particular policy is at the heart of what all Department of Justice attorneys do and when we want to make sure that certain principles are embedded in the culture of our institution.”

Among other things, the revisions to the USAM update the “Filip factors” concerning criminal prosecution of organizations and associated commentary.  The revisions urge an early focus on individual culpability and possible prosecution in corporate criminal investigations.  The revisions, like the Yates Memorandum itself, also make clear that to receive any credit at all for cooperation, corporations must identify culpable individuals and disclose nonprivileged information concerning their misconduct.  In her speech, Deputy AG Yates remarked that this “seems to be the policy shift that has attracted the most attention,” but also stated that this concept of corporate cooperation is nothing new.  She went on:

“What is new is the consequence of not doing it.  In the past, cooperation credit was a sliding scale of sorts and companies could still receive at least some credit for cooperation, even if they failed to fully disclose all facts about individuals.  That’s changed now.  As the policy makes clear, providing complete information about individuals’ involvement in wrongdoing is a threshold hurdle that must be crossed before we’ll consider any cooperation credit.”

In response to concerns that this policy will require broad and expensive internal investigations, Yates noted that investigations should be tailored to the wrongdoing, and not every investigation needs to be a “years-long, multimillion dollar” effort.  She further suggested that if there are doubts about what is required in terms of an investigation, the requisite extent of the investigation could be vetted with the prosecutor.

Yates observed that nothing about the policy requires waiver of the attorney-client privilege.  But at the same time, she invoked the adage that “legal advice is privileged.  Facts are not.”  As such, while a law firm’s interview memoranda prepared during the course of an internal investigation may not need to be disclosed in order for the corporation to receive credit, “the corporation does need to produce all relevant facts—including the facts learned through those interviews—unless identical information has already been provided.”

Yates further observed that the edits to the USAM make clear that [...]

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DOJ Pursues Both Sides of an Alleged Kickback Arrangement Under the FCA

As many health lawyers know, the government usually only pursues the person or entity that offers or pays allegedly improper remuneration, even though the federal Anti-Kickback Statute (AKS) also applies to those to solicit or receive it.  This uneven enforcement pattern occurs for a variety of reasons — the alleged payor is the focus of the relator’s complaint and resulting investigation, the amount of time that this investigation and resolution takes can create practical and legal problems in pursuing additional defendants, and the increasing number of qui tam cases stretches the government’s limited resources.

However, on October 7, 2015, the U.S. Department of Justice (DOJ) announced a settlement with an alleged kickback recipient over three years after it settled with the alleged payor.  PharMerica Corporation, identified by the DOJ as the nation’s second-largest provider of pharmaceutical services to long-term care facilities, agreed to pay $9.25 million to settle allegations that, from 2001 to 2008, the company knowingly solicited and received kickbacks from Abbott Laboratories in the form of rebates, educational grants and other financial support in exchange for recommending that physicians prescribe Abbott’s anti-epileptic drug Depakote to nursing home patients where PharMerica provided pharmacy services.

PharMerica noted in a press release that it denied the government’s allegations and fully cooperated with the DOJ throughout the investigation.  Of note, the Office of Inspector General (OIG) did not require an amendment to PharMerica’s current corporate integrity agreement to add provisions concerning AKS compliance as part of this resolution.

This settlement comes over three years after Abbott entered into an FCA settlement agreement with the DOJ and several individual states in May 2012, which, along with addressing separate allegations related to the promotion of Depakote, settled allegations related to its arrangement with PharMerica. Abbott also did not admit to any wrongdoing in its settlement.  Both the PharMerica and Abbott settlements are the product of lawsuits filed in federal court in the Western District of Virginia under the whistleblower provisions of the False Claims Act.

The pursuit of the settlement with PharMerica may indicate a growing interest by DOJ in pursuing AKS allegations against both the alleged offeror and the alleged recipient of prohibited remuneration under the FCA.




Supreme Court Denies Cert on Whether Government Investigations Are a Public Disclosure

On October 2, 2015, the Supreme Court of the United States denied a petition for writ of certiorari in a case that sought to resolve an apparent circuit split concerning one of the most frequently litigated issues under the False Claims Act (FCA)—the circumstances in which the disclosure of allegations in a government audit or investigation can trigger the public disclosure bar.  Chattanooga-Hamilton County Hospital Authority v. U.S. ex rel. Whipple, No. 15-96.  The petition emanated from a decision we reported on in March 2015 that was issued by the United States Court of Appeals for the Sixth Circuit.  U.S. ex rel. Whipple v. Chattanooga-Hamilton County Hospital Authority, 782 F.3d 260 (6th Cir. 2015). In Whipple, the Sixth Circuit held that information in the possession of the government does not trigger the public disclosure bar because it is not in the “public domain.”

In the petition to the Supreme Court, the petitioner framed the issue for review as involving two separate circuit splits: (1) whether investigatory disclosures to a responsible public official trigger the public disclosure bar (yes in the Seventh Circuit; no in the First, Fourth, Sixth, Ninth, Eleventh and D.C. Circuits, which require the disclosures to be made “outside” the government); and (2) whether investigatory disclosures to “innocent employees” (i.e., defendant “insiders” with no involvement in the alleged fraud) trigger the public disclosure bar (yes in the Second Circuit; no in the Sixth and Ninth Circuits).  Although the Supreme Court declined to grant cert, the fact remains that the circuits take a somewhat different approach concerning the impact of information revealed during a government investigation on the application of the pre–2011 version of the public disclosure bar, particularly in circumstances where the investigation/audit is closed from the public.  Regardless of the specific approach, government disclosures remain fertile territory to attack claims brought under the FCA.

 




OIG Announces New Penalty and Exclusion Litigation Team to ‘Level the Playing Field’

The federal government’s health care fraud enforcement efforts expanded this week with an announcement by the Office of the Inspector General (OIG), of the U.S. Department of Health and Human Services, that it has created a new litigation team dedicated to pursuing civil penalty and exclusion cases.

Read the full On the Subject discussing the announcement.




Supreme Court Rules on Wartime Tolling of FCA Statute of Limitations and FCA’s First-to-File Bar in Kellogg Brown & Root v. United States ex rel. Carter

On May 26, 2015, the Supreme Court issued a unanimous opinion in Kellogg Brown & Root v. United States ex rel. Carter (S. Ct. No. 12-1497), a case addressing several important issues under the False Claims Act (FCA).  In a previous post, we laid out the two issues in this case.  First, when the United States is at war, does the Wartime Suspension of Limitations Act (WSLA) toll the statute of limitations in civil FCA lawsuits?  Second, does the FCA’s so-called “first-to-file” bar prevent all future cases based on the same alleged fraud, or is it a one-case-at-a-time rule, allowing duplicative claims in the future as long as the first action is settled or dismissed?

The Court ruled in favor of Kellogg Brown & Root (KBR) on the first issue, holding that the WSLA only tolls the statute of limitations for criminal offenses, not in civil false claims like the relator filed against KBR.  The WSLA tolls the statute of limitations for “any offense” involving fraud against the government during war.  First, the Court reasoned that the term “offense” usually refers to a crime.  And, in Title 18, where Congress chose to place the WSLA, the term always refers to a crime.  Next, the Court looked to the history of the WLSA.  In doing so, it was most persuaded by Congress’ decision to remove the language “now indictable” from the statute.  According to the Court, this revealed Congress’ intent to apply the WSLA to future fraud as well as past fraud, not—as the government and relator argued—to expand it to civil lawsuits.  Finally, the Court reasoned that it has repeatedly called for a “narrow” construction of the WSLA.  Therefore, even in times of war, relators bringing civil actions against companies like KBR will have to follow the FCA’s statute of limitations provision.  See 31 U.S.C. § 3731(b).

On the second issue, the Court agreed with the government and relator, holding that a previously-filed qui tam lawsuit under the FCA is no longer “pending” under the statute’s first-to-file bar once it is dismissed.  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.”  See 31 U.S.C. § 3730(b)(5) (emphasis added).  In finding that a previously-filed lawsuit only qualifies as “pending”—thereby prohibiting subsequent qui tam suits—if the first action is still being litigated when the subsequent action is filed, the Court said it was construing the term “pending” per its usual meaning.  The Court further reasoned that any other interpretation would mean that Congress intended to abandon potentially successful false claims actions even in situations where the first-filed suit is dismissed for reasons that do not involve the merits.

In practice, the decision may permit second, and even third, lawsuits under the FCA on the same set of facts.  Indeed, rather than reduce litigation, it may have the opposite effect: encouraging more qui tam litigation.  The Court acknowledged that there is “some [...]

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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.




DOJ Continues to Beat the Executive Drum in Recent Speeches

In the annual speeches at New York University Law School, Assistant Attorney General Leslie R. Caldwell specifically addressed the Department of Justice’s (DOJ) continued interest in examining corporate executives allegedly responsible for corporate misconduct.  Ms. Caldwell discussed this issue in the context of shaping corporate culture through deterrence and explained DOJ’s expectations of companies that want to obtain credit from DOJ for cooperation.

At the New York University Law School’s Program on Corporate Compliance and Enforcement on April 17, 2015, Ms. Caldwell said that “true cooperation,” even in the context of making a voluntary criminal disclosure, “requires identifying the individuals actually responsible for the misconduct—be they executives or others—and the provision of all available facts relating to that misconduct.”

At the New York University Center on the Administration of Criminal Law’s Seventh Annual Conference on Regulatory Offenses and Criminal Law on April 14, 2015, Ms. Caldwell also focused on the application of the few criminal statutes that impose strict liability on certain conduct, such as the Food, Drug and Cosmetic Act, that may be used for both corporations and executives.  She discussed how the criminal section evaluates cases in parallel with the civil section and with the regulating agency to determine whether to pursue the case, and if so, what remedy to pursue, whether criminal prosecution, financial penalties, restitution, asset forfeiture or federal program exclusion or debarment.

These speeches continue to show the government’s interest in examining individual executive liability during investigations under the various statutory and regulatory authorities available, and also are consistent with other DOJ remarks during the past year placing emphasis on conducting parallel criminal and civil investigations.  General counsel should stay on top of these developments and discuss them with senior executives (as well as audit and compliance committees), both to enhance awareness of risks and as an opportunity to provide examples of individual conduct that should materially lessen exposure to individual liability.

For a more in-depth review of these issues, please read the article by Tony Maida and Michael Peregrine published in Law360, Health Care Executive Liability Exposure Post-Sacred Heart.”




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