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Remuneration? Not If It’s Fair Market Value, Says Eleventh Circuit

Bingham v. HCA, Inc., a recent Eleventh Circuit case, highlights the centrality of fair market value to Anti-Kickback Statute (AKS) analyses. This decision is significant for several reasons and we expect to see Bingham cited by many defendants in future False Claims Act cases. The case is also a reminder that the current regulatory and enforcement environment can result in litigation over arrangements with fair market value payments that involve little, or no, compliance concerns. One of the most fundamental elements of managing risk under the federal Anti-Kickback Statute (AKS) is ensuring remuneration is consistent with fair market value. A recent Eleventh Circuit case highlights the centrality of fair market value to AKS analyses. See Bingham v. HCA, Inc., Case No. 1:13-cv-23671 (11th Cir. 2019). In Bingham, the court held that proving fair market value is an essential element for a relator to survive summary judgment and that relators must plead a lack...

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First of Its Kind: Drug Wholesaler Accepts DPA and Two Executives Face Criminal Charges in SDNY For Illegal Distribution of Opioids

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...

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The Third Circuit Rejects the Anti-Kickback Statute “Tainted Claims” Theory

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...

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Another Court Grants Summary Judgment to FCA Defendant Based on Escobar’s Materiality Standard

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...

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Ninth Circuit Case Provides New Insight into Government Action Bar

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...

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Recent Developments on the Fair Market Value Front – Part 1

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...

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Relying on Escobar, Ninth Circuit Tosses Implied Certification Case

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...

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First 60 Day Rule Overpayment Case Ends with Almost $3 Million Settlement

As part of a settlement agreement reached on August 23, three hospitals and their former parent system agreed to pay $2.95 million to resolve state and federal False Claims Act (FCA) allegations that they failed to investigate and repay overpayments from the New York Medicaid program in a timely manner under the so-called “60 Day Rule.” The allegations were originally made by a former employee via a 2011 qui tam suit, United States of America ex rel. Kane v. Continuum Health Partners, Inc. Under the 60 Day Rule, enacted as part of the Affordable Care Act in 2010, providers are required to report and return overpayments within 60 days of identification. When “identification” happens has been the subject of much debate, and was one of the main issues in the decision issued by the US District Court in the Southern District of New York last year, which denied Continuum's motion to dismiss the government's complaint. Despite repaying all of the improper claims,...

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Second Circuit Deals Blow to Off-Label Marketing Claims

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...

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RehabCare Settles False Claims Act Allegations for $125 Million

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 into a corporate integrity agreement (CIA) with the Office of Inspector General (OIG). The provider’s companies, RehabCare Group, Inc. and RehabCare Group East, Inc. (RehabCare), have been subsidiaries of Kindred Healthcare, Inc. (Kindred) since their merger in 2011 with a Kindred subsidiary. In a press release, Kindred stated that it agreed to the settlement without any admission of wrongdoing in order to provide clarity for contract customers, shareholders and government oversight entities. The government’s unsealed Complaint in Intervention alleged that RehabCare manipulated the amount and type...

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