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DOJ Issues Memorandum Outlining Factors for Evaluating Dismissal of Qui Tam FCA Cases in Which the Government Has Declined to Intervene

As first reported in the National Law Journal, the US Department of Justice (DOJ), Civil Division, recently issued an important memorandum to its lawyers handling qui tam cases filed under the False Claims Act (FCA) outlining circumstances under which the United States should seek to dismiss a case where it has declined intervention and, therefore, is not participating actively in the continued litigation of the case against the defendant by the qui tam relator. (more…)




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

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…)




Recent District Court Decision Highlights FCA’s Effective but Underutilized “Government Action” Bar

On April 20, 2016, the US District Court for the Eastern District of California dismissed a False Claims Act (FCA) case based on 31 U.S.C. § 3730(e)(3), otherwise known as the FCA’s “government action” bar, in US ex rel. Bennett v. Biotronik, Inc. This bar provides: “In no event may a person bring an action under [the FCA] which is based upon allegations or transactions which are the subject of a civil suit or an administrative civil monetary penalty proceeding in which the Government is already a party.” Compared with the FCA’s public disclosure bar (§ 3730(e)(4)(a)), which serves a similar goal of preventing claims by parasitic relators where the government is already on notice of alleged fraud, the government action bar is invoked relatively infrequently. However, Bennett is reminder that qui tam defendants who face or have faced multiple suits predicated on the same or similar allegations should always consider the availability of a defense based on the government action bar, in addition to other available defenses.

The relator in Bennett alleged that the defendant, Biotronik, paid doctors to enroll patients in studies that lacked scientific and medical value, as a result of which doctors prescribed Biotronik’s cardiac devices.  A prior FCA case against Biotronik (the Sant case) contained similar allegations about studies, along with other kickback allegations. The government had intervened and immediately settled the Sant case, but the “covered conduct” in that settlement did not include the allegations relating to studies; instead, it focused on other types of purported payments to physicians.

The court dismissed the Bennett complaint based on the government action bar, in light of the prior Sant case. Drawing on the First Circuit’s opinion in US ex rel. S. Prawer & Co. v. Fleet Bank of Maine, 24 F.3d 320, 324-26 (1st Cir. 1994), the Bennett court observed that the purpose of the government action bar is to “prevent the prosecution of qui tam FCA claims that [stand] to enrich the relator but not to expose fraud.” The court held that this principle applied squarely to preclude the Bennett case, which contained similar study-related kickback allegations as those previously alleged in Sant.

The court rejected the relator’s assertion that the government action bar only applied to the “covered conduct” in the Sant settlement which, according to the relator, was the only piece of Sant as to which the government intervened. The court held that the statute does not support such a narrow and artificial reading, and that the Sant case had put the government on notice of a range of allegations, including both the “covered conduct” and the allegations concerning the studies. The government  “investigated all of those claims, and after its investigation, negotiated a joint settlement of the case and complaint.” The court observed that applying the government action bar to these facts “fits the purpose of § 3730(e)(3), to dispense with qui tam claims of wrongdoing the government has already discovered thanks to previous suits or proceedings.”

The court also rejected the relator’s assertion that the [...]

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

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. [...]

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

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 [...]

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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.

 




Recent Fifth Circuit Decision Spotlights Perils of Complex Procedural Issues

On August 25, 2015, the Fifth Circuit vacated and remanded a district court’s order denying a relator’s Rule 60(b) motion for relief from dismissal based upon new evidence in the False Claims Act (FCA) case of United States ex rel. Gage v. Davis S.R. Aviation, LLC, No. 15-50141 (on appeal from Case No. 1:12-cv-00904-SS in the Western District of Texas). The district court had denied the Rule 60(b) motion because its underlying dismissal of the complaint was on appeal to the Fifth Circuit. In remanding, the Fifth Circuit held that the district court was required to consider the Rule 60(b) motion on its merits prior to denying it, and that not doing so was an abuse of discretion.   Because the district court failed to consider the merits of the Rule 60(b)  motion, it must now address that motion on remand even though, as a review of the pleadings demonstrates, there is little basis for relief.

The relator brought a complaint “concerning the salvaging of aircraft parts for resale to the Government,” alleging that the defendants violated the FCA by improperly repairing airplane parts from a crash prior to selling them to the government for use in military aircraft.  The district court allowed the relator two amendments to his complaint, but even with those amendments, the relator could not present a viable false claims action. The district court stated that “[i]f there is a legitimate False Claims Act case buried underneath this mess, the Court cannot find it,” and  dismissed the action based upon both the public disclosure bar and Rule 9(b) lack of particularity. The relator appealed the district court’s decision.

In addition to appealing the court’s decision, the relator filed a Rule 60(b) motion alleging he had new evidence, and thus the court should reconsider its decision dismissing the case. In that motion, the relator alleged that he had new information proving he was an original source, and that the public disclosure bar therefore did not preclude his claims. The relator did not address the district court’s dismissal based on lack of particularity, a fact which itself likely dooms the Rule 60(b) motion.  Moreover, it is doubtful that the relator’s “new evidence” that he is an original source will survive scrutiny on the merits. The district court previously held that the relator’s claims substantially overlapped with claims from a previous case in which the relator served as an expert (and that relator learned the facts in his complaints through his work on that case). Relator’s Rule 60(b) motion did not address that holding at all.  Instead, the relator alleged that his third amended complaint contained new facts about which the government was not previously aware.  But these “new facts” were not new at all—they were information covered by a protective order from the previous case in which the relator served as an expert.

Although the relator’s Rule 60(b) motion is substantively deficient, the district court must  now address its merits, including the “new” evidence purportedly precluding dismissal – all [...]

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Recent Appellate Decisions Underscore Importance of Public Disclosure Bar, But Outcomes Are Highly Dependent on the Facts

Two Circuit Courts of Appeals recently came out on opposite ends of the False Claim Act’s (FCA’s) public disclosure bar.  On February 19, 2015, the United States Court of Appeals for the Third Circuit affirmed the district court’s dismissal of claims related to allegations of fraudulently inflated pharmaceutical prices, holding that the information underlying the suit had been publicly disclosed in the media and elsewhere and that the relator failed to qualify as an original source.  U.S. ex rel. Morgan v. Express Scripts, Inc., No. 14-1029, 2015 WL 728029 (3rd Cir. Feb. 19, 2015) (unpublished).  On February 25, 2015, the United States Court of Appeals for the Sixth Circuit reinstated a claim against a hospital related to allegedly fraudulent Medicaid and Medicare charges, holding that the allegations, though previously known to government auditors, had not been publicly disclosed.  U.S. ex rel. Whipple v. Chattanooga-Hamilton County Hospital Authority, No. 13-6645, 2015 WL 774887 (6th Cir. Feb. 25, 2015).  These different outcomes demonstrate the fact-intensive nature of the inquiry under the public disclosure bar.

In Express Scripts, the pharmacist-relator alleged that certain pharmaceutical industry defendants profited from artificially inflated Average Wholesale Prices (AWPs).  In affirming dismissal, the Third Circuit agreed with the district court’s finding that the allegations underlying the case had been widely disclosed, including by the news media and in previously-filed lawsuits (including one in which the relator served as an expert).  Thus, the relator needed to be an “original source” of the information for his suit to proceed.  The Third Circuit held that the relator could not meet this standard.  The relator, who was never an employee of any of the defendants, purportedly identified the alleged fraud by performing an “eyeball” comparison of two publicly available price lists.  Moreover:

The mere fact that Morgan quantified the AWP differential does not remove his allegations from the public disclosure realm.  Morgan’s 4.16 percent differential simply indicates an AWP based on a 25 percent markup over wholesale acquisition cost, a markup disclosed in a Congressional report predating Morgan’s complaint.  The report’s disclosure of a specific, industry-wide markup shift provided Morgan with all the “essential elements” needed to arrive at a 4.16 percent price differential.

In Whipple, the Sixth Circuit confronted a different and more thorny public disclosure issue.  The court, applying the pre-Patient Protection and Affordable Care Act version of the public disclosure bar, determined that the information underlying the complaint’s allegations had not been publicly disclosed, even though the allegations of improper billing had already been the subject of an audit and investigation conducted by the United States Department of Health and Human Services Office of Inspector General (OIG) and Centers for Medicare & Medicaid Services’ contractor charged with investigating fraud and waste.  The defendant hospital had also conducted an internal investigation through its own outside counsel and auditors.  The hospital had submitted a voluntary refund check as a result of these audits, and the OIG had administratively closed its investigation before the relator brought suit.

Nonetheless, distinguishing between [...]

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