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Is the Stark Law’s “Signed Writing” Requirement Material to Payment: One Federal Court Says Yes

In a case of first impression, a federal court found that the federal physician self-referral law’s (Stark Law) requirement that financial arrangements with physicians be memorialized in a signed writing could be material to the government’s payment decision. This case raises troubling questions about applying the False Claims Act (FCA) to what many in the industry consider “technical” Stark issues, especially given the Supreme Court’s description of the materiality test as “demanding” and not satisfied by “minor or insubstantial” regulatory noncompliance.

United States ex rel. Tullio Emanuele v. Medicor Associates (Emanuele), in the US District Court for the Western District of Pennsylvania, involves Medicor Associates, Inc., a private medical group practice (Medicor), and Hamot Medical Center’s (Hamot) exclusive provider of cardiology coverage. Tullio Emanuele, a qui tam relator and former physician member of Medicor, alleged that Hamot, Medicor, and four of Medicor’s shareholder-employee cardiologists (the Physicians) violated the FCA and Stark Law because Hamot’s multiple medical director compensation arrangements with Medicor failed to satisfy the signed writing requirement in the Stark Law’s personal services or fair market value exceptions during various periods of time. The US Department of Justice declined to intervene in the case, but filed a statement of interest in the summary judgment stage supporting the relator’s position. (more…)




Third Circuit Affirms Dismissal of FCA Suit against Genentech Based on Supreme Court’s Materiality Standard

On May 1, 2017, the US Court of Appeals for the Third Circuit affirmed the dismissal of United States ex rel. Petratos, et al. v. Genentech, Inc., et al., No. 15-3801 (3d. Cir. May 1, 2017). On appeal from the US District Court for the District of New Jersey, the Third Circuit reinforced the applicability of the materiality standard set forth by the US Supreme Court in Universal Health Services v. Escobar. Per the Court, the relator’s claims implicate “three interlocking federal schemes:” the False Claims Act (FCA), Medicare reimbursement, and US Food and Drug Administration (FDA) approval.

The relator, Gerasimos Petratos, was the former head of health care data analytics at Genentech.  He alleged that Genentech suppressed data related to the cancer drug Avastin, thereby causing physicians to certify incorrectly that the drug was “reasonable and necessary” for certain Medicare patients. This standard is drawn from Medicare’s statutory framework: “no payment may be made” for items and services that “are not reasonable and necessary for the diagnosis and treatment of illness or injury.” 42 U.S.C. § 1395y(a)(1)(A) (emphasis added).  In turn, the Centers for Medicare and Medicaid Services (CMS) consider whether a drug has received FDA approval in determining, for its part, whether a drug is “reasonable and necessary.” Petratos claimed that Genentech “ignored and suppressed data that would have shown that Avastin’s side effects for certain patients were more common and severe than reported.” Petratos further asserted that analyses of these data would have required the company to file adverse-event reports with the FDA and could have triggered the need to change Avastin’s FDA label.

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Supreme Court Vacates First Circuit’s Expansive View of Implied Certification Liability

On June 16, 2016, the Supreme Court of the United States issued an important decision regarding the implied certification theory of liability under the False Claims Act (FCA) in which it vacated a decision of the US Court of Appeals for the First Circuit and remanded the case for further proceedings in accordance with the opinion.  A copy of the decision can be found here.

Because of McDermott’s ongoing role in this active matter, we will not be providing extensive public analysis at this time.  However, we are pleased that the Supreme Court has vacated the opinion of the First Circuit Court of Appeals ruling against Arbour Counseling Services. The Court expressly and unanimously “disagree[d] with” the lower court’s view and stated that “[t]he False Claims Act does not adopt such an extraordinarily expansive view of liability.” It is significant that the Court remanded to the lower court to reconsider the case under the new, rigorous standard of materiality stated by the Supreme Court.  Our client looks forward to litigating the case on remand and is confident of prevailing under the new Supreme Court standard.




Opening Brief Filed Before Fifth Circuit in Appeal of Largest False Claims Act Judgment

Trinity Industries filed its appeal brief before the U.S. Court of Appeals for the Fifth Circuit in U.S. ex rel. Harman v. Trinity Industries on March 21, 2016, appealing “the largest judgment in the 150-year history of the False Claims Act.” In its appeal brief, Trinity argues that the relator’s case failed every element of the False Claims Act (FCA), including materiality, falsity, scienter and false claim. According to Trinity, the applicable regulatory agency, the Federal Highway Administration (FHWA), expressly approved the expenditure of federal funds at issue after the submission of the claims in question. Thus, the Fifth Circuit’s decision in the case will be instructive on whether agency guidance issued after the presentment of an allegedly false claim prevents materiality or legal falsity of the claim. This question is particularly relevant to industries such as health care, where regulatory guidance often changes in light of updated evidence or changes in industry practice.

The relator in the case is a competitor of Trinity, a highway guardrails manufacturer. The federal government, through the FHWA, reimburses state transportation departments for certain highway construction expenses, including installation of safety guardrails. In order to be eligible for reimbursement, guardrails must be crash-tested and accepted by the FHWA. Defendant Trinity had obtained such acceptance for its ET Plus guardrail units in 1999. In 2005, Trinity then modified the design of the ET Plus units. The relator alleged that Trinity did not disclose these modifications to the approved guardrails. The relator thus argued that the underlying claims for reimbursement for installation of the modified guardrails were false claims because they were founded on misrepresentations that the modified guardrails complied with the underlying FHWA regulations. (more…)




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