FCA UPDATE
FCA UPDATE
Exploring Recent Developments in False Claims Act Litigation, Enforcement and Compliance
FCA UPDATE
Exploring Recent Developments in False Claims Act Litigation, Enforcement and Compliance
original source
Subscribe to original source's Posts

Massachusetts Lawsuit Against Long-Term Pharmacy Care Provider Fails to Clear the Legacy FCA Public Disclosure Bar

By on May 16, 2018
Posted In , , ,

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 [...]

Continue Reading



Eleventh Circuit Says Whistleblower’s Suit Should Never Have Been Heard

By on Nov 16, 2016
Posted In ,

On November 8, 2016, the US Court of Appeals for the Eleventh Circuit issued a decision in U.S. ex rel. Saldivar v. Fresenius Medical Care Holdings, Inc., remanding the case for entry of an order dismissing the case for lack of subject matter jurisdiction based on the False Claims Act’s (FCA) pre-2010 public disclosure bar.

We previously posted about the US District Court for the Northern District of Georgia’s October 30, 2015, decision granting Fresenius’ motion for summary judgment. As a reminder, relator Chester Saldivar alleged that Fresenius violated the FCA by billing the government for the “overfill” in medication vials, which is the extra medication included to facilitate the extraction of the amount labeled on the vial.

Fresenius maintained that the action should be dismissed for lack of subject matter jurisdiction due to the pre-2010 version of the public disclosure bar in the FCA, which prevents qui tam actions if the allegations in question were publicly disclosed and the relator is not an original source. The district court concluded that Saldivar’s allegations of overfill billing were publicly disclosed to the government in communications between Fresenius and the Centers for Medicare and Medicaid Services (CMS) as well as publicly in a complaint in another matter. But, the district court held that Saldivar was an “original source” and not barred from bringing the action because of his experience in managing the inventory of the medication and his discussions with supervisors and coworkers about overfill use and billing.

On the merits of Saldivar’s allegations, the district court then held that Saldivar could not prove that Fresenius knew that billing for overfill was impermissible. On that basis, the district court granted Fresenius’ motion for summary judgment and Saldivar appealed.

(more…)



District Court Opinion Analyzes the Impact of the 2010 FCA Amendments on the Public Disclosure Bar

By on Oct 11, 2016
Posted In

On September 30, 2016, the US District Court for the Southern District of Indiana issued an opinion in United States ex rel. Conroy v. Select Medical Corp., et al. (Case No. 12-cv-000051) regarding the 2010 False Claims Act (FCA) Amendments to the public disclosure bar (31 U.S.C. § 3730(e)(4)(A)) and the government’s associated right to veto  a public disclosure-based dismissal.

The opinion addresses a motion to dismiss a non-intervened FCA suit based on several grounds, including the public disclosure bar.  Complicating matters was that the allegations involved claims that arose both prior to and after March 23, 2010 – the effective date of the amendments to the public disclosure bar.  In addition, the government, despite not intervening with respect to the FCA claims, filed its own brief opposing a public disclosure bar-based dismissal.  (more…)



Ninth Circuit Rejects Qui Tam Relator’s Original Source Claim

By on Aug 8, 2016
Posted In

On July 27, 2016, a three-judge panel of the Ninth Circuit Court of Appeals in California issued a ruling in United States ex rel. Hastings v. Wells Fargo Bank, NA, Inc., affirming the district court dismissal of a qui tam suit on the grounds that the relator was not an original source.

The relator had sued Wells Fargo and a number of other lending institutions under the Federal Claims Act (FCA), claiming they had falsely certified to the federal Department of Housing and Urban Development (HUD) that they were in compliance with a regulation requiring borrowers to make a down payment of at least 3%. Federal regulations allow this down payment to be paid via gift, so long as repayment for the gift is not “expected or implied.” See U.S. ex rel. Hastings v. Wells Fargo Bank, Nat. Ass’n (Inc.), 2014 WL 3519129, at *1 (C.D. Cal. July 15, 2014) (summarizing HUD regulations).

The defendants moved to dismiss, arguing that the gravamen of the allegations (that certain charities were, with the tacit approval the defendants, making “gifts” to borrowers that were ultimately repaid) had already been disclosed in various public documents that predated the qui tam suit. Because of these public disclosures, the suit could only proceed if the relator was an “original source” of the information, per 31 U.S.C. § 3730(e)(4)(A). The district court held that the relator, a real estate agent, was not an original source because his knowledge of the charities and their gift programs was secondhand. The court also held the fact that relator had “offered his view to HUD that [the gift programs] violated HUD standards” to be of no moment, because “[i]dentifying the legal consequences of information already in the public domain does not constitute discovery of fraud.” 2014 WL 3519129, at *11.

On appeal, the relator argued that the district court incorrectly applied the 1986 FCA definition of “original source” (someone who has “direct and independent knowledge of the information on which the allegations are based”) instead of the 2010 definition (someone who “(1) prior to a public disclosure … has voluntarily disclosed to the Government the information on which allegations or transactions in a claim are based, or (2) has knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions”). Compare 31 U.S.C. § 3730(e)(4)(B) (1986) with 31 USC. § 3730(e)(4)(B) (2010). The Ninth Circuit panel unanimously held that the relator was not an original source under either definition. Regarding the former, it held that his knowledge was not “direct and independent” where it was “assembled from information available to all members of the Multiple State Listing Service.” 2016 WL 4011199, at *1. Regarding the latter, it held that the relator had merely provided the government with information that did not “materially add to [the] public disclosures,” citing the fact that the gift programs in question “were extensively examined in proposed rules, internal audits, a GAO report, and congressional hearings.”  Id. at *2.

In [...]

Continue Reading



First Circuit Rejects FCA Suit On Public Disclosure Grounds

By on Jul 8, 2016
Posted In

On June 30, 2016, a three-judge panel of the First Circuit Court of Appeals in Boston issued a ruling in United States ex rel. Winkelman and Martinsen v. CVS Caremark Corp., affirming the district court dismissal of a qui tam suit (in which the United States had declined to intervene) on public disclosure grounds.

The relators had sued CVS in August 2011 under the FCA and several analogous state statutes, claiming CVS’ “Health Savings Pass” program was designed to defraud Medicare and Medicaid by failing to pass along discounts offered to certain customers.  CVS moved to dismiss, arguing that significant publicity in 2010 (during which labor unions and state officials alleged the Health Savings Pass program overcharged the government) was sufficient to bar the suit.

The FCA states, in relevant part, that qui tam actions cannot stand “if substantially the same allegations or transactions as alleged in the action . . . were publicly disclosed.”  31 U.S.C. § 3730(e)(4)(A).  The relators argued that their allegations were not substantially the same as the 2010 allegations because the latter described a “price gouging scheme,” as opposed to fraud.  Characterizing this as “quibbling” and an elevation of “form over substance,” the First Circuit noted that the FCA does not require public disclosures to “specifically label disclosed conduct as fraudulent,” adding that a subsequent qui tam complaint is barred “even if it offers greater detail about the underlying conduct.”  Responding to the relators’ argument that the public disclosure addressed a different state than the ones addressed in their complaint, the court held:

When it is already clear from the public disclosures that a given requirement common to multiple programs is being violated and that the same potentially fraudulent arrangement operates in other states where the defendant does business, memorializing those easily inferable deductions in a complaint does not suffice to distinguish the relators’ action from the public disclosures.

Similarly, in the context of rejecting the relators’ argument that they were original sources, the court held that “asserting a longer duration for the same allegedly fraudulent practice,” “[o]ffering specific examples of that conduct,” or “add[ing] detail about the precise manner” in which a scheme operated were all insufficient to overcome the public disclosure bar.

The takeaway for practitioners attempting to defeat relators’ complaints on the pleadings is that the FCA’s public disclosure bar does not require allegations to be even close to identical.  Because the “ultimate inquiry,” according to the First Circuit, is “whether the government has received fair notice . . . about the potential existence of the fraud,” so long as there has been public disclosure of the general allegation, qui tam FCA suits should fail.



FCA Claims Based on Average Wholesale Price (AWP) Theory Barred by Public Disclosure Bar

By on Feb 17, 2016
Posted In

On January 20, 2016, the U.S. District Court for the Eastern District of Missouri dismissed a complaint based on allegations of Average Wholesale Price (AWP) fraud under the False Claims Act (FCA) against CSL Behring, LLC (Behring) and specialty pharmacies Accredo Health, Inc., (Accredo) and Coram LLC (Coram).  See United States ex rel. Lager v. CSL Behring, LLC, et al., No. 4:14-CV-841CEJ, 2016 WL 233245 (E.D. Missouri 2016).  The Court found that relator’s allegations were barred by the public disclosure bar and did not satisfy the “original source” exception.

Relator, a former Behring employee, alleged that the company reported inflated AWPs for prescription drugs, Vivaglobin and Hizentra, causing government health programs to reimburse specialty pharmacies much more than they paid for the drugs ($133 v. $65 and $151 v. $70).    Vivaglobin and Hizentra are classified as “DME infusion drugs” because they are self-administered by patients through a pump, which is considered durable medical equipment (DME). Unlike most drugs which the government reimburses based on a percentage of the average sales price (ASP), DME infusion drugs are reimbursed based on a percentage of the drug’s AWP.  Unlike ASP, AWP is not defined by law or regulation and is not based on actual sales data.  AWP is based on figures the drug manufacturer reports to third-party publishers and is substantially higher than ASP.  In addition to allegations that Behring reported inflated AWPs, relator claimed that Behring used the “spread” between the actual cost and the AWP-based reimbursement rates to induce their customers, including Accredo and Coram, to buy their products.

Citing multiple government sources and media outlets “[that] have long disclosed that AWP does not represent the actual prices of drugs,” as well as “multiple disclosures that manufacturers used the difference between actual costs and AWPs to influence sales,” the court dismissed the complaint under the public disclosure bar, 31 U.S.C. § 3730(e)(4)(A). Id. at *3-*6 (commenting that “[t]his state of affairs has been labeled as a scam and fraud by the press and in multiple civil lawsuits”). The court was unpersuaded by relator’s argument that the public disclosure bar did not apply because the public disclosures did not “contain[] all of the elements of the alleged fraudulent transactions” (emphasis added), including the defendants and drugs at issue.  The court noted that the prior public disclosures “need not contain every fact or legal consequence to trigger the public disclosure bar” (citation omitted) and explained:

In 2007, the court overseeing the multidistrict litigation found that pharmaceutical companies submitted “false, inflated AWPs” that “caused real injuries.” In re Pharm. Indus. Average Wholesale Price Litig., 491 . Supp. 2d at 31.  In 2013 the OIG disclosed the extreme spread between AWP and ASPs for DME infusion drugs, generally, while publications by the third-party publishers and CMS showed the spread for Viaglobin and Hizentra in particular.  These disclosures are sufficient to identify both the defendants and the drugs.

Relator also failed to adequately allege that he was an “original source” pursuant to 31 U.S.C. [...]

Continue Reading



Seventh Circuit Strictly Construes Original Source Requirement Against ‘Bounty-Hunting’ Relator

By on Jan 5, 2016
Posted In ,

In a decision released yesterday in U.S. ex rel. Bogina v. Medline Industries, Inc., the U.S. Court of Appeals for the Seventh Circuit affirmed a district court’s dismissal of a relator’s False Claims Act (FCA) complaint, holding that the complaint’s allegations had been publicly disclosed in a prior, settled lawsuit and the relator was not an original source. The opinion, authored by Judge Richard Posner, described FCA relators as “bounty hunters” and observed that the FCA imposes obstacles on parasitic bounty-hunting relators who seek to “be handsomely compensated if the[ir] suit succeeds.” Among those obstacles is the FCA’s public disclosure bar, which Judge Posner’s opinion ensures has sharp teeth in the Seventh Circuit.

First, the court held that the 2010 amendments to the original source exception the public disclosure bar, requiring a relator to “materially add” to publicly disclosed allegations in order to surmount the bar, could be applied retroactively because the amendments merely clarified the prior version of the exception. Accordingly, parties litigating in courts within the Seventh Circuit can expect that the current version of the public disclosure bar’s original source requirement will apply, regardless of when the relator acquired his or her knowledge.

Second, the court rejected the argument of the relator, August Bogina, that he had materially added to the allegations made by a prior relator, Sean Mason, in a prior FCA case that the government had settled. Both suits alleged that defendant Medline had made kickbacks to induce purchases of medical equipment. Bogina’s subsequent suit before the Seventh Circuit added a defendant (the Tutera Group, a nursing home chain that allegedly accepted kickbacks) that had not been mentioned in Mason’s prior, settled suit. Bogina also argued that the release provided by the government in the prior suit only concerned false claims submitted to Medicare Part A and Medicaid, but not to other government healthcare programs such as Medicare Part B and Tricare. The Seventh Circuit held that these differences were “unimpressive” from an original source standpoint, observing:

The government was thus on notice of the possibility of a broader bribe-kickback scheme before Bogina sued. Had it wanted to broaden the case against Medline beyond the Mason settlement, it could have gone after, among other Medline customers, nursing home companies such as the Tutera Group that received (if Bogina is correct) Medline kickbacks. …. Moreover, a settlement is a compromise; and it is notable that among the claims the government released as part of the Mason settlement were some of the very claims alleged in Bogina’s complaint.

The Seventh Circuit’s focus on the extent to which the prior suit put the government on notice of the alleged fraud is of crucial importance for defendants faced with copycat claims based on allegations that are similar to allegations they previously settled. Adding defendants or payors not involved in the prior suit is not a material addition sufficient to survive the public disclosure bar, where the prior suit put the government on notice of the allegations. Future [...]

Continue Reading



BLOG EDITORS

Laura McLane

Tony Maida

STAY CONNECTED

TOPICS

ARCHIVES