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:


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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

On April 6, 2018, the U.S. District Court for the Eastern District of Pennsylvania granted a motion for summary judgment filed by a waste company in an implied certification case under the False Claims Act (FCA), holding that the relator failed to satisfy the Supreme Court’s materiality standard announced in the landmark Escobar case.

The claims in U.S. ex rel. Cressman v. Solid Waste Services, Inc. arose from waste company employees discharging leachate, a liquid that passes through or is generated by trash, onto a grassy area at a transfer station, rather than sending the leachate to a treatment plant.  The relator reported the leachate discharge to the Pennsylvania Department of Environmental Protection (DEP), which conducted an investigation.  The waste company cooperated in the investigation, conducted its own investigation, and took corrective steps in response to the allegations.  The company also entered into a consent decree in connection with which it paid a civil penalty.

The relator then filed his qui tam action under the FCA, in which the government declined to intervene.  The relator asserted that the defendant waste company was liable under the FCA because it submitted claims for payment to federal agencies without disclosing its violation of environmental regulations arising from the leachate discharge incident.
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When is a new qui tam lawsuit derivative of a lawsuit in which the government has already intervened? The US Court of Appeals for the Ninth Circuit answered that question on December 1, 2017, when it decided United States ex rel. Bennett v. Biotronik, Inc. In doing so, the Ninth Circuit addressed the “government action bar” contained in 31 U.S.C. § 3730(e)(3), which states that a relator may not bring a qui tam suit “based upon allegations or transactions which are the subject of a civil suit . . . in which the Government is already a party.”  31 U.S.C. § 3730(e)(3).

The Ninth Circuit in Bennett was faced with False Claims Act (FCA) claims predicated on facts that had already been the basis of a prior qui tam action against the defendant, Biotronik. The government had since settled and dismissed several (but not all) claims in the prior action. The district court dismissed the relator’s complaint based upon the government action bar. In affirming the district court’s dismissal, the Ninth Circuit reached two relevant conclusions.
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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.
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On January 12, 2017, the US Court of Appeals for the Ninth Circuit affirmed a district court’s grant of summary judgment in favor of a government contractor, where a relator had asserted that the contractor had violated material contractual requirements.

In United States ex rel. Kelly v. SERCO, Inc., defendant SERCO provided project management, engineering design and installation support services for a range of government projects to the US Department of Defense, Navy Space and Naval Warfare Systems Command (SPAWAR). The Federal Acquisition Regulation (FAR) requires that government contracts of this nature contain a clause requiring the contractor to implement a cost and progress tracking tool called an “earned value management system” (EVMS), which is “a project management tool that effectively integrates the project scope of work with cost, schedule and performance elements for optimum project planning and control,” 48 C.F.R. § 2.101, and that this EVMS comply with ANSI-748, a national standard for EVMS. SECRO’s monthly cost reports allegedly did not comply with this standard. After the government declined to intervene, the relator pursued a claim against SERCO arguing that its failure to comply with ANSI-748 amounted to a fraud against the government.
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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

RehabCare, the nation’s largest provider of nursing home rehabilitation services, agreed to pay $125 million on January 12 to settle claims under the False Claims Act (FCA) in connection with allegations that it caused its skilled nursing facility customers to submit false claims to Medicare for therapy services. In connection with the settlement, RehabCare entered

On October 30, 2015, the United States District Court for the Northern District of Georgia granted Fresenius Medical Care Holdings, Inc.’s (Fresenius’s) motion for summary judgment in United States ex rel. Saldivar v. Fresenius Medical Care Holdings, Inc., No. 1:10-CV-1614-AT. The district court, in a 108-page decision, found that the undisputed evidence showed that