News has been coming out about what is reported to be the U.S. Department of Justice's latest False Claims Act initiative: "the national false claims investigation of Medicare billing for implantable cardiac defibrillator (ICD) procedures." According to the National Heart Lung and Blood Institute, ICDs are small devices implanted in the chest or abdomen that are used to treat irregular heart beats by using electrical pulses or shocks to bring the heart back to a normal rhythm. A study published early last year by JAMA, the Journal of the American Medical Association, examined an enormous patient sample where implantable cardiac defibrillators were used. Out of over 100,000 patients who received such devices, the article found that 22.5% of those patients received ICD devices even though they did not meet "evidence-based criteria for implantation:" what the authors called "non-evidence based" ICD procedures. Patients who received non-evidence based ICDs, the study found, had a significantly higher rate of in-hospital death and complications.
In an article reprinted at www.Forbes.com (and apparently several other cites as well), "Feds Turn corner in ICD Investigation; Hospital Liability in Divided Into Categories," its author, Larry Husten, writes that DOJ "is apparently about to take a big step forward in its national false claims investigation of Medicare billing for implantable cardiac defibrillator (ICD) procedures" and whether such ICD procedures are medically necessary. "DOJ, reports Husten, "now has a blueprint for determining hospital liability" under the False Claims Act. According to Husten, Medicare will normally reimburse the use of ICDs, but a number of the "covered indications" for when such devices may be used have "timing requirements." "Medicare," writes Husten, "won’t pay for a patient’s ICD implant within 40 days of an acute myocardial infarction (MI) or within three months of a coronary artery bypass graft (CABG) or percutaneous transluminal coronary angioplasty (PTCA). . . . . The idea is to first give patients time to recover from the heart attack to determine whether the patient really is at elevated risk for cardiac arrest." Husten writes that there are exceptions to when such devices can be implanted notwithstanding these timing requirements; however, he quotes an anonymous source who says that "it doesn’t look like the government will go easy when hospitals billed in violation of the timing requirement in other circumstances."
The press attention to this new initiative appears to be prompted in part by the Hospital Corporation of America ("HCA") recent disclosure that it provided information to the Civil Division of the U.S. Attorney's Office for the Southern District of Florida about the "the medical necessity of interventional cardiology services provided at about 10 HCA hospitals, mostly in Florida."
In a recent article, "Hospitals face hefty False Claims penalties over defibrillator cases," on the investigation of ICD usage by Joe Carlson of Modern Healthcare.com, he writes that for the "past two years" DOJ has been conducting a "patient-by-patient investigation into thousands of implantable cardioverter defibrillators . . . for Medicare beneficiaries between 2003 and 2010 at hospitals across the country. . . . . More than 100 U.S. hospitals are believed to have received requests for records on their implanted defibrillators, with the first round going out in March 2010."
I think there has been some question as to whether DOJ can really pursue such large scale "medical necessity cases" as involved here with ICDs. Carlson, for example quotes one attorney who rightly points out that "the government would have to be prepared to show that a hospital acted with intent to defraud, or with deliberate indifference or reckless disregard for the CMS rules, in order for False Claims penalties to come into play." In certain False Claims Act cases based on alleged statistical abnormalities, however, I have not found that the government was prepared to show either fraud or deliberative indifference. Rather, the government draws the inference that fraud or deliberate indifference occurred based on the statistical abnormality alone, and hospitals faced with the prospect of a False Claims Act suit, often settle rather than fight the issue of medical necessity. For example, in the pneumonia up-coding cases, hospitals were accused of overusing higher reimbursable diagnostic codes for a certain type of pneumonia. Rather than fight these cases, hospitals settled in droves, even in many instances where there was substantial evidence to support their use of such codes. Another example can be found in the recent DOJ kyphoplasty settlements. In those cases, DOJ accused the hospitals of admitting too many kyphoplasty patients for a one day stay and argued that the patients should have been observed instead. Here again, hospitals settled, often protesting their innocence. My point is medical necessity cases are much easier to bring when there is a gross or large statistical aberration in the procedure at issue by the hospital or medical provider: the government does not need evidence of fraud or recklessness beyond the aberration itself in order to drive settlements.
A. Brian Albritton
August 19, 2012
Sunday, August 19, 2012
Friday, August 3, 2012
When a Relator Steals Confidential Information: the Case of Cabotage v. Ohio Hospital for Psychiatry
In an entry entitled, "What Happens When a Relator Steals Patient Data?", Scott Stein of the Original Source blog writes about the case of Cabotage v. Ohio Hospital for Psychiatry, No. 11-cv-50 (July 27, 2012 S.D. Ohio), wherein the Court dealt with that question and barred the relator from using such documents under its "inherent authority." This was an issue that was hotly debated by panelists at the Ethics breakout of the Ninth National Institute of the Civil False Claims Act. I commend Scott's article to you, where you can also find a link to the case.
A. Brian Albritton
August 3, 2012
A. Brian Albritton
August 3, 2012
Can Government Employees Be Relators? The 5th Circuit says, Yes.
In a case of first impression for the circuit, the 5th Circuit Court of Appeals recently held that government employees who learn of alleged violations of the False Claims Act within the scope of their employment may nevertheless file a qui tam and are not precluded from acting as relators even though their job as a government employee was "to investigate a fraud." Randall Little and Joel Arnold on behalf of the United States v. Shell Exploration and Production Co., et al., Case no. 11-20320, (5th Cir. July 31, 2012).
In this case, the relators were auditors with the Minerals Management Service ("MMS"), an agency of the Department of Interior, and part of the mission of their agency was "to uncover theft and fraud in the royalty programs" for offshore drilling. The relators alleged that Shell failed to pay the United States $19 million in royalties due it from Shell's offshore drilling. The Court noted that it was "undisputed that the Shell allegations came to light during the course" of the relators' "official duties" and that reporting their findings was "a job requirement." The relators reported their requirements and then subsequently filed two different qui tams. The government did not intervene.
Overturning the District Court's grant of summary judgment, the 5th Circuit found that government employees, such as the relators, qualified as "persons" under the False Claims Act. 31 U.S.C. 3730(b)(1)("A person may bring a civil action for a violation of section 3729 . . . "). In making its decision, the Court declined a number of policy and statutory construction arguments offered by the government in an amicus and the defendant as to why government employees cannot be relators, including arguments based on the text of the statute; the "absurdity" of having government employees as relators, and that government employees serving as relators would violate "ethics guidelines" applicable to government employees. The Court also noted that the 10th and 11th Circuits also permit government employees to be relators. U.S. ex rel Williams v. NEC Corp., 931 F.2d 1493, 1501-02 (11th Cir. 1991) and U.S. ex rel Holmes v. Consumer Ins. Grp., 318 F.3d 1199, 1208-12 (10th Cir. 2003); but see U.S. ex rel. LeBlanc v. Raytheon Co., 913 F.2d 17, 19-20 (1st Cir. 1990)(some federal employees may not be qui tam claimants.)
Additionally, the Court remanded the case for the District Court to properly apply the 2006 version of the "public disclosure bar," 31 U.S.C. 3730(e)(4), which has been subsequently amended, as defendants had alleged that the "scheme" alleged by the relators had been the source of several public disclosures. The Court did note, however, that if public disclosure had occurred, the relators cannot be an "original source" and the action must be dismissed. To be an original source, a relator must have "direct and independent knowledge" of the allegations of his or her complaint and must have "voluntarily provided the information to the government." 31 U.S.C. 3730(e)(4). Following other courts, the 5th Circuit held that a relator who was "employed specifically to disclose fraud is sufficient to render his disclosures nonvoluntary."
Overall, this opinion is somewhat of a monument to plain language statutory interpretation. The Court appears to acknowledge that having government employees as relators may be problematic ("we are are of the dilemmas identified"). But, it refuses all invitations on the basis of policy to create an exception to what it characterizes as clear statutory language.
A. Brian Albritton
August 2, 2012
In this case, the relators were auditors with the Minerals Management Service ("MMS"), an agency of the Department of Interior, and part of the mission of their agency was "to uncover theft and fraud in the royalty programs" for offshore drilling. The relators alleged that Shell failed to pay the United States $19 million in royalties due it from Shell's offshore drilling. The Court noted that it was "undisputed that the Shell allegations came to light during the course" of the relators' "official duties" and that reporting their findings was "a job requirement." The relators reported their requirements and then subsequently filed two different qui tams. The government did not intervene.
Overturning the District Court's grant of summary judgment, the 5th Circuit found that government employees, such as the relators, qualified as "persons" under the False Claims Act. 31 U.S.C. 3730(b)(1)("A person may bring a civil action for a violation of section 3729 . . . "). In making its decision, the Court declined a number of policy and statutory construction arguments offered by the government in an amicus and the defendant as to why government employees cannot be relators, including arguments based on the text of the statute; the "absurdity" of having government employees as relators, and that government employees serving as relators would violate "ethics guidelines" applicable to government employees. The Court also noted that the 10th and 11th Circuits also permit government employees to be relators. U.S. ex rel Williams v. NEC Corp., 931 F.2d 1493, 1501-02 (11th Cir. 1991) and U.S. ex rel Holmes v. Consumer Ins. Grp., 318 F.3d 1199, 1208-12 (10th Cir. 2003); but see U.S. ex rel. LeBlanc v. Raytheon Co., 913 F.2d 17, 19-20 (1st Cir. 1990)(some federal employees may not be qui tam claimants.)
Additionally, the Court remanded the case for the District Court to properly apply the 2006 version of the "public disclosure bar," 31 U.S.C. 3730(e)(4), which has been subsequently amended, as defendants had alleged that the "scheme" alleged by the relators had been the source of several public disclosures. The Court did note, however, that if public disclosure had occurred, the relators cannot be an "original source" and the action must be dismissed. To be an original source, a relator must have "direct and independent knowledge" of the allegations of his or her complaint and must have "voluntarily provided the information to the government." 31 U.S.C. 3730(e)(4). Following other courts, the 5th Circuit held that a relator who was "employed specifically to disclose fraud is sufficient to render his disclosures nonvoluntary."
Overall, this opinion is somewhat of a monument to plain language statutory interpretation. The Court appears to acknowledge that having government employees as relators may be problematic ("we are are of the dilemmas identified"). But, it refuses all invitations on the basis of policy to create an exception to what it characterizes as clear statutory language.
A. Brian Albritton
August 2, 2012
Thursday, July 26, 2012
Are State Organized Corporations Subject to the False Claims Act?
The U.S. Court of Appeals for the Fourth Circuit recently addressed the question of what legal test should be applied to determine whether and when state organized corporations are in fact "state agencies" and thus not subject to suit under the False Claims Act. See US ex rel Oberg v. Kentucky Higher Education Student Loan Corporation et al, No. 10-2320, June 18, 2012. In Oberg, the relator brought suit against against four state created corporations (the Kentucky Higher Education Student Loan Corp., Pennsylvania Higher Education Assistance Agency, Vermont Student Assistance Corp., and Arkansas Student Loan Authority) alleging that these entities made fraudulent claims to the U.S. Department of Education ("DOE") "by engaging in various non-economic transactions" in order "to inflate their loan portfolios" and make these entities "eligible for federal student loan interest subsidies." The relator claimed that the DOE had overpaid "millions" to these entities.
The state created corporations moved to dismiss the FCA claims against them on the grounds that they were "state agencies" and thus not "persons" subject to FCA claims. The FCA provides an action against "any person" who "undertakes certain fraudulent behavior, including 'knowingly present[ing], or caus[ing] to be presented, a false or fraudulent claim for payment or approval' to an officer, employee, or agent of the United States." 31 U.S.C. sec. 3729(a)(1)(A). In Vermont Agency of Natural Resources v. United States ex rel. Stevens, 529 U.S. 765, 780, 787-88 (2000), the Supreme Court held that the FCA "does not subject a State (or state agency) to liability" due to the "longstanding interpretive presumption that 'person' does not include the sovereign." Corporations, the Court observed, are "presumptively covered by the term 'person," id. at 782, and in Cook County v. U.S. ex rel Chandler, 538 U.S. 119, 125 (2003), the Court went further and found that municipal corporations are also persons subject to qui tam suits under the FCA. The District Court in Oberg dismissed the case, finding that the state created corporations were state agencies. In so doing, the Fourth Circuit observed, it "did not apply any stated legal test" and instead "looked to state statutory provisions" to determine "each entity's status as a 'state agency.'"
The Fourth Circuit reversed the District Court's dismissal, and remanded the matter, saying "the critical inquiry is whether appellees are truly subject to sufficient state control to render them a part of the state, and not a "person," for FCA purposes." To determine whether an agency is part of the state, the Court employed what it called the "arm-of-the-state-analysis used in the Eleventh Amendment context" and analyzed four "non-exclusive factors:" (i) whether the state would pay any judgment rendered against the agency; (ii) the degree of autonomy exercised by the entity, including whether the state can veto the entity's actions; (iii) whether the entity is "involved with" state concerns as opposed to non-state or local issues; and (iv) and how the entity is treated under state law. Applying these factors, the Court explained, should assist in determining whether the state-created entity functions independently of the state or functions as an arm or alter-ego of the state.
Overall, the decision is short and straightforward. The Fourth Circuit does not claim to be breaking new ground in applying this test to FCA claims and state organized corporations, as it cites the 9th, 10th, and 5th Circuits for support.
A. Brian Albritton
July 26, 2012
The state created corporations moved to dismiss the FCA claims against them on the grounds that they were "state agencies" and thus not "persons" subject to FCA claims. The FCA provides an action against "any person" who "undertakes certain fraudulent behavior, including 'knowingly present[ing], or caus[ing] to be presented, a false or fraudulent claim for payment or approval' to an officer, employee, or agent of the United States." 31 U.S.C. sec. 3729(a)(1)(A). In Vermont Agency of Natural Resources v. United States ex rel. Stevens, 529 U.S. 765, 780, 787-88 (2000), the Supreme Court held that the FCA "does not subject a State (or state agency) to liability" due to the "longstanding interpretive presumption that 'person' does not include the sovereign." Corporations, the Court observed, are "presumptively covered by the term 'person," id. at 782, and in Cook County v. U.S. ex rel Chandler, 538 U.S. 119, 125 (2003), the Court went further and found that municipal corporations are also persons subject to qui tam suits under the FCA. The District Court in Oberg dismissed the case, finding that the state created corporations were state agencies. In so doing, the Fourth Circuit observed, it "did not apply any stated legal test" and instead "looked to state statutory provisions" to determine "each entity's status as a 'state agency.'"
The Fourth Circuit reversed the District Court's dismissal, and remanded the matter, saying "the critical inquiry is whether appellees are truly subject to sufficient state control to render them a part of the state, and not a "person," for FCA purposes." To determine whether an agency is part of the state, the Court employed what it called the "arm-of-the-state-analysis used in the Eleventh Amendment context" and analyzed four "non-exclusive factors:" (i) whether the state would pay any judgment rendered against the agency; (ii) the degree of autonomy exercised by the entity, including whether the state can veto the entity's actions; (iii) whether the entity is "involved with" state concerns as opposed to non-state or local issues; and (iv) and how the entity is treated under state law. Applying these factors, the Court explained, should assist in determining whether the state-created entity functions independently of the state or functions as an arm or alter-ego of the state.
Overall, the decision is short and straightforward. The Fourth Circuit does not claim to be breaking new ground in applying this test to FCA claims and state organized corporations, as it cites the 9th, 10th, and 5th Circuits for support.
A. Brian Albritton
July 26, 2012
Wednesday, July 18, 2012
Recent False Claims Act Articles That Are Worth A Read
This week I came across two articles on the web concerning the False Claims Act which I commend to readers.
First, I recommend the "2012 Mid-Year False Claims Act Update" recently published by Gibson Dunn as it provides a good, succinct summary of False Claims Act highlights thus far in 2012. The Update addresses such topics as (i) legislative action, both federal and state, and discusses several states that recently amended their statutes as well as numerous other proposed state bills; (ii) surveys recent significant False Claims Act settlements in health care, mortgage and financial services, and procurement and defense industries; and (iii) case law developments and trends, discussing many of the cases highlighted in the blog such as Davis and Schweizer along with recent cases addressing the False Claims Ac "first to file" bar and "public disclosure" bar.
Second, I commend to you the article,"False Claims Act Investigations: Time for a New Approach?" published in October 2011 by John Bentivoglio, Jennifer Bragg, Michael Loucks, and Gregory Luce, all partners at Skadden Arps. The article observes that companies subject to False Claims Act investigations are hampered in their ability to defend themselves since most such investigations are conducted under seal, and the government is able to investigate and use its limited resources at a timetable that suits it. While a qui tam is under seal, the article point out "the government and the whistle-blower have an advantage" because "a company does not know the precise nature of the allegations pending against it and does not have the power of discovery and the right to defend that it is afforded by the federal court system once the suit has been disclosed and the litigation engaged." During this time, the article argues, government and the whistleblower can use the all-to-common extended seal period to keep the defendant in the dark as to precise nature of the allegations against it and to gather the evidence they need.
Given the advantages to the government and whistleblower of an extended seal period, the article asserts that "companies presently faced with a pending false claims investigation might consider whether a more aggressive strategy of forcing the government’s disclosure of the litigation (the unsealing of the complaint and other documents in the file) will better inform the company’s ability to defend itself: to engage in the process of discovery permitted by the Federal Rules of Civil Procedure." In turn, the article contends that several cases and legislative history permit defendants to challenge the government's justification for keeping a qui tam matter sealed.
Companies faced with False Claims Act investigations have a hard choice, and most prefer, as the article acknowledges, to settle or where possible, to dispose of the matter while under seal, thereby controlling the effects of bad press as well as other collateral damage. At the same time, I think that every False Claims Act defense counsel has experienced the frustration of trying to defend a qui tam that is under seal because they are in the dark as to the allegations against the client and the government refuses to disclose the substance of the alleged fraud it is investigating. From the vantage of the defendant, the government appears to employ a lengthy seal period to build a case at its leisure and to avoid having to actually litigate the matter. I would certainly be interested in hearing of any instances where defendants sought to unseal a matter on behalf of their client in order to force the matter into civil litigation as the article suggests.
A. Brian Albritton
July 18, 2012
First, I recommend the "2012 Mid-Year False Claims Act Update" recently published by Gibson Dunn as it provides a good, succinct summary of False Claims Act highlights thus far in 2012. The Update addresses such topics as (i) legislative action, both federal and state, and discusses several states that recently amended their statutes as well as numerous other proposed state bills; (ii) surveys recent significant False Claims Act settlements in health care, mortgage and financial services, and procurement and defense industries; and (iii) case law developments and trends, discussing many of the cases highlighted in the blog such as Davis and Schweizer along with recent cases addressing the False Claims Ac "first to file" bar and "public disclosure" bar.
Second, I commend to you the article,"False Claims Act Investigations: Time for a New Approach?" published in October 2011 by John Bentivoglio, Jennifer Bragg, Michael Loucks, and Gregory Luce, all partners at Skadden Arps. The article observes that companies subject to False Claims Act investigations are hampered in their ability to defend themselves since most such investigations are conducted under seal, and the government is able to investigate and use its limited resources at a timetable that suits it. While a qui tam is under seal, the article point out "the government and the whistle-blower have an advantage" because "a company does not know the precise nature of the allegations pending against it and does not have the power of discovery and the right to defend that it is afforded by the federal court system once the suit has been disclosed and the litigation engaged." During this time, the article argues, government and the whistleblower can use the all-to-common extended seal period to keep the defendant in the dark as to precise nature of the allegations against it and to gather the evidence they need.
Given the advantages to the government and whistleblower of an extended seal period, the article asserts that "companies presently faced with a pending false claims investigation might consider whether a more aggressive strategy of forcing the government’s disclosure of the litigation (the unsealing of the complaint and other documents in the file) will better inform the company’s ability to defend itself: to engage in the process of discovery permitted by the Federal Rules of Civil Procedure." In turn, the article contends that several cases and legislative history permit defendants to challenge the government's justification for keeping a qui tam matter sealed.
Companies faced with False Claims Act investigations have a hard choice, and most prefer, as the article acknowledges, to settle or where possible, to dispose of the matter while under seal, thereby controlling the effects of bad press as well as other collateral damage. At the same time, I think that every False Claims Act defense counsel has experienced the frustration of trying to defend a qui tam that is under seal because they are in the dark as to the allegations against the client and the government refuses to disclose the substance of the alleged fraud it is investigating. From the vantage of the defendant, the government appears to employ a lengthy seal period to build a case at its leisure and to avoid having to actually litigate the matter. I would certainly be interested in hearing of any instances where defendants sought to unseal a matter on behalf of their client in order to force the matter into civil litigation as the article suggests.
A. Brian Albritton
July 18, 2012
Wednesday, July 4, 2012
Is there Hope for the IRS Whistleblower Program?
The IRS Whistleblower Program has been the subject of repeated criticism from several corners. For example, in a Forbes article last March, "IRS Whistleblowers See Little Reward," Erika Kelton of the Phillips & Cohen firm, one of the leading relator firms, accused the IRS of "sitting on a mountain of whistleblower claims" and asserted that the "real problem" in processing these claims is "the IRS itself and institutional resistance to whistleblowers within the IRS that is hobbling the whistelblwoer program and draining its enormous promise." In fact, Kelton quoted the former IRS Chief Counsel as saying, "The new whistleblower provisions Congress enacted a couple of years ago have the potential to be a real disaster for the tax system. I believe that it is unseemly in this country to encourage people to turn in their neighbors and employers to the IRS as contemplated by this particular program. The IRS didn’t ask for these rules; they were forced on it by the Congress."
Criticism of the IRS Whistleblower Program has not been limited to relators' counsel. As detailed in Whistleblower Protection Blog, Richard Renner discusses two recent reports prepared by the Treasury Inspector General for Tax Administration and the General Accounting Office that were critical of the IRS Whistleblower Program. See IG Report says IRS Whistleblower Office falls short and resists audit.
According to a recent article in Accounting Today, "IRS Plans to Fix Whistleblower Program," the IRS is responding to this criticism. In a June 20th memo, the IRS Deputy Commissioner for Services and Enforcement pledged to work with "the Whistleblower Office and with internal and external stakeholders on a comprehensive review of operating guidelines and procedures . . . . . to improve the timeliness and quality of decisions as the Service evaluates and acts on whistleblower information." Outlining proposed internal deadlines for reviewing whistleblower claims, the Commissioner stated: claims received by the Whistleblower Office "should be initially evaluated by the office within 90 days" and review by subject matter experts from the Operating divisions and Criminal Investigation "should be completed within 90 days of receipt."
The Accounting Today article, which I commend to readers, further discusses efforts by U.S. Senator Charles Grassley to pressure the IRS to improve the Whistleblower Program and highlights a recent Bloomberg article that was critical of the IRS Program as well, as it relates that "in the past five years, over 1,300 claims have been filed against nearly 10,000 companies and individuals, alleging tax underpayments of at least $2 million, but only three whistleblower awards have been paid so far under the new program."
A. Brian Albritton
July 4, 2012
Criticism of the IRS Whistleblower Program has not been limited to relators' counsel. As detailed in Whistleblower Protection Blog, Richard Renner discusses two recent reports prepared by the Treasury Inspector General for Tax Administration and the General Accounting Office that were critical of the IRS Whistleblower Program. See IG Report says IRS Whistleblower Office falls short and resists audit.
According to a recent article in Accounting Today, "IRS Plans to Fix Whistleblower Program," the IRS is responding to this criticism. In a June 20th memo, the IRS Deputy Commissioner for Services and Enforcement pledged to work with "the Whistleblower Office and with internal and external stakeholders on a comprehensive review of operating guidelines and procedures . . . . . to improve the timeliness and quality of decisions as the Service evaluates and acts on whistleblower information." Outlining proposed internal deadlines for reviewing whistleblower claims, the Commissioner stated: claims received by the Whistleblower Office "should be initially evaluated by the office within 90 days" and review by subject matter experts from the Operating divisions and Criminal Investigation "should be completed within 90 days of receipt."
The Accounting Today article, which I commend to readers, further discusses efforts by U.S. Senator Charles Grassley to pressure the IRS to improve the Whistleblower Program and highlights a recent Bloomberg article that was critical of the IRS Program as well, as it relates that "in the past five years, over 1,300 claims have been filed against nearly 10,000 companies and individuals, alleging tax underpayments of at least $2 million, but only three whistleblower awards have been paid so far under the new program."
A. Brian Albritton
July 4, 2012
Tuesday, July 3, 2012
GlaxoSmithKline to Pay Largest Health Care Fraud Settlement in US History
In the largest health care fraud settlement in U.S. history, the U.S. Department of Justice announced today that "global health care giant" GlaxoSmithKline LLC ("GSK") agreed to plead guilty and to pay $3 billion to resolve "its criminal and civil liability arising from the company’s unlawful promotion of certain prescription drugs, its failure to report certain safety data, and its civil liability for alleged false price reporting practices."
Deputy Attorney General James Cole described the plea and settlement with GSK as follows: "GSK will plead guilty to criminal charges and pay $1 billion in criminal fines and forfeitures for illegally marketing and promoting the drugs Paxil and Wellbutrin for uses not approved by the FDA – including the treatment of children for depression, and the treatment of other patients for ailments ranging from obesity, to anxiety, to addiction and ADHD – and for failing to report important clinical data about the drug Avandia to the Food and Drug Administration. GSK will pay an additional $2 billion to resolve civil allegations that it caused false claims to be submitted to federal health care programs for these and other drugs as a result of the company’s illegal promotional practices and payments to physicians. This settlement also resolves a civil investigation of the company’s alleged underpayment of rebates that were required under the Medicaid Drug Rebate Program."
As with previous criminal and False Claim Act settlements with Big Pharma discussed in the blog, GSK's conduct as detailed in the plea and the allegations of the False Claim Act complaint is disturbing and reprehensible. For example, the factual allegations of the Information detail GSK's marketing of the prescription drug Paxil for use in treating depression in children and adolescents even though the drug had not been found to have any efficacy for such a population.
Paxil had been approved by the FDA for the treatment of depression in adults, and it was one of the top 10 selling drugs in the U.S., with sales surpassing $1.8 billion a year in 2001-2002. Paxil, however, was never approved by the FDA "for any purpose" in the treatment of children and adolescents. In fact, GSK conducted three placebo-controlled studies in the safety and efficacy of using Paxil to treat depression in children and adolescents, and those studies failed to demonstrate any "efficacy" for the treatment of this population between the "patients in the study who received the drug being studied and patients in the study who received a placebo." After these studies, a GSK contractor hired to write an article about one of the studies misrepresented the study's findings as being favorable for the treatment of children and adolescents with Paxil, going so far as to say that "the findings of this study provide evidence of the efficacy and safety of [Paxil] in the treatment of adolescent depression."
With the article in hand, GSK then forwarded it to its 1900 sales representatives who sold Paxil with a cover letter stating, "Paxil demonstrates REMARKABLE efficacy and safety in the treatment of adolescent depression." This was just the beginning of GSK's marketing of Paxil. In addition, the Information reflects that GSK created a "150 person neuroscience specialty sales force to promote Paxil to psychiatrists." The Company also promoted Paxil's use in adolescents at Paxil "Forum Events," dinner programs, lunch programs, and spa programs. GSK had their sales personnel target those physicians --including physicians who only treated patients under age 18-- who prescribed the most antidepressants and provide free samples of Paxil in the hope that they would shift their patients to using Paxil.
GSK, however, did not inform its sales personnel that the FDA had not approved Paxil for the treatment of children or adolescents, and it continued to conceal that its studies did not support its claims for Paxil's efficacy in this population. In fact, the FDA later recommended that Paxil "not be used to treat depression in patients under 18" and later recognized that antidepressants, such as Paxil, "increased the risk of suicidal thinking and behavior in . . . patients under age 18."
Paxil was not the only drug that GSK unlawfully promoted: it unlawfully promoted Wellbutrin and Avandia as well. As a result of the criminal plea, GSK will pay fines and forfeiture totaling $1 billion. The "civil settlements" resolve claims relating to these three drugs and others and will require GSK to pay $2 billion.
One of the civil settlements reported that relators had filed 4 qui tams against GSK and that the U.S. had intervened in them in 2011. The settlements explicitly did not address the whether any relator was entitled to any share of the proceeds or whether in fact they had filed valid qui tams.
DOJ has posted the key documents in the criminal and civil matters, and they can be found here.
A. Brian Albritton
July 2, 2012
Deputy Attorney General James Cole described the plea and settlement with GSK as follows: "GSK will plead guilty to criminal charges and pay $1 billion in criminal fines and forfeitures for illegally marketing and promoting the drugs Paxil and Wellbutrin for uses not approved by the FDA – including the treatment of children for depression, and the treatment of other patients for ailments ranging from obesity, to anxiety, to addiction and ADHD – and for failing to report important clinical data about the drug Avandia to the Food and Drug Administration. GSK will pay an additional $2 billion to resolve civil allegations that it caused false claims to be submitted to federal health care programs for these and other drugs as a result of the company’s illegal promotional practices and payments to physicians. This settlement also resolves a civil investigation of the company’s alleged underpayment of rebates that were required under the Medicaid Drug Rebate Program."
As with previous criminal and False Claim Act settlements with Big Pharma discussed in the blog, GSK's conduct as detailed in the plea and the allegations of the False Claim Act complaint is disturbing and reprehensible. For example, the factual allegations of the Information detail GSK's marketing of the prescription drug Paxil for use in treating depression in children and adolescents even though the drug had not been found to have any efficacy for such a population.
Paxil had been approved by the FDA for the treatment of depression in adults, and it was one of the top 10 selling drugs in the U.S., with sales surpassing $1.8 billion a year in 2001-2002. Paxil, however, was never approved by the FDA "for any purpose" in the treatment of children and adolescents. In fact, GSK conducted three placebo-controlled studies in the safety and efficacy of using Paxil to treat depression in children and adolescents, and those studies failed to demonstrate any "efficacy" for the treatment of this population between the "patients in the study who received the drug being studied and patients in the study who received a placebo." After these studies, a GSK contractor hired to write an article about one of the studies misrepresented the study's findings as being favorable for the treatment of children and adolescents with Paxil, going so far as to say that "the findings of this study provide evidence of the efficacy and safety of [Paxil] in the treatment of adolescent depression."
With the article in hand, GSK then forwarded it to its 1900 sales representatives who sold Paxil with a cover letter stating, "Paxil demonstrates REMARKABLE efficacy and safety in the treatment of adolescent depression." This was just the beginning of GSK's marketing of Paxil. In addition, the Information reflects that GSK created a "150 person neuroscience specialty sales force to promote Paxil to psychiatrists." The Company also promoted Paxil's use in adolescents at Paxil "Forum Events," dinner programs, lunch programs, and spa programs. GSK had their sales personnel target those physicians --including physicians who only treated patients under age 18-- who prescribed the most antidepressants and provide free samples of Paxil in the hope that they would shift their patients to using Paxil.
GSK, however, did not inform its sales personnel that the FDA had not approved Paxil for the treatment of children or adolescents, and it continued to conceal that its studies did not support its claims for Paxil's efficacy in this population. In fact, the FDA later recommended that Paxil "not be used to treat depression in patients under 18" and later recognized that antidepressants, such as Paxil, "increased the risk of suicidal thinking and behavior in . . . patients under age 18."
Paxil was not the only drug that GSK unlawfully promoted: it unlawfully promoted Wellbutrin and Avandia as well. As a result of the criminal plea, GSK will pay fines and forfeiture totaling $1 billion. The "civil settlements" resolve claims relating to these three drugs and others and will require GSK to pay $2 billion.
One of the civil settlements reported that relators had filed 4 qui tams against GSK and that the U.S. had intervened in them in 2011. The settlements explicitly did not address the whether any relator was entitled to any share of the proceeds or whether in fact they had filed valid qui tams.
DOJ has posted the key documents in the criminal and civil matters, and they can be found here.
A. Brian Albritton
July 2, 2012
Wednesday, June 20, 2012
First Reported Case in Which the Government Declines to Exercise its Veto of Public Disclosure Dismissal
Readers, I commend to you the recent article on US ex rel Sanchez v. Abuabara, No. 10-61673 (June 4, 2012, S.D. Fla.), "Government Declines to Exercise New Authority Over Public Disclosure Motion", by Scott Stein of Sidley Austin's "Original Source" False Claims Act Blog.
I heard about this case at the recent Qui Tam and False Claims Act Enforcement Conference, and it was referred to by one speaker as the first reported case to reference the government's new authority under the False Claims Act to oppose and prevent the dismissal of a relator's claim on the grounds that it had already been publicly disclosed. 31 U.S.C. 3730(e)(4)(A). I would not describe the opinion itself as a page turner, but Mr. Stein does a good job explaining the significance of this recent case.
A. Brian Albritton
6/20/12
I heard about this case at the recent Qui Tam and False Claims Act Enforcement Conference, and it was referred to by one speaker as the first reported case to reference the government's new authority under the False Claims Act to oppose and prevent the dismissal of a relator's claim on the grounds that it had already been publicly disclosed. 31 U.S.C. 3730(e)(4)(A). I would not describe the opinion itself as a page turner, but Mr. Stein does a good job explaining the significance of this recent case.
A. Brian Albritton
6/20/12
Does Receiving a Tax Benefit Make You a Grantee for False Claims Act Liability?
False Claims Act liability arises not simply for false claims presented to the federal government, but also false claims presented to "a contractor, grantee, or other recipient, if the money or property is to be spent or used on the Government's behalf or to advance a Government program or interest." 31 U.S.C. 3729(b)(2)(A)(i)-(ii). So who is a "grantee" of government funds? It can be an organization that has received some form of subsidy by the federal government. But, does that mean that any so called false claim for payment presented to that organization which receives a federal benefit or subsidy gives rise to a false claim? The Third Circuit recently applied common sense when it refused to the extend the False Claims Act to every person or organization who enjoyed a federal tax benefit.
The Third Circuit Court of Appeals recently addressed whether a grantee can be an organization that enjoys tax benefits from the federal government, and it found that the False Claims Act simply did not stretch that far. See U.S. ex rel Garg v. Covanta Holding Corporation et al., (3rd Cir. May 8, 2012). In the Covanta case, the Court considered whether a state sponsored Utility Authority that issued tax exempt bonds qualified as a "grantee" under the False Claims Act ("FCA") because the tax exemption it enjoyed essentially functioned as a direct "financial subsidy" from federal government. Faced with the Relator's argument that urged it to apply the FCA to "anyone who happens to receive money from the federal government," the Court balked, holding that the Utility Authority did not qualify as a grantee.
In Covanta, the Utility Authority had issued $280 million in tax exempt bonds to finance construction of a solid waste disposal facility, and it leased the facility to Covanta to control and operate the business and facility. The Relator, the former executive director of the Utility Authority, alleged that Covanta failed to make two different types of payments that it owed to the Utility Authority and that it issued invoices to the Utility Authority containing false certifications. The Relator argued that the Utility Authority qualified as a federal grantee under the FCA by "virtue of the fact that it receives a financial benefit from the deductibility of interest on the tax-exempt bonds it issued to finance the facility. In other words, [the Relator] asserted that the federal government contributes tax revenue it otherwise would collect on interest paid to bondholders directly to the [Utility Authority]."
The Court found that the Covanta's alleged false claims and statements to the Utility Authority could not support a claim under the FCA. Citing cases that hold that tax exemptions are the functional equivalent of direct cash grants from the government, the Relator argued that the "grant of tax-exempt status to [Utility Authority's] bonds means the entity has more money in its proverbial pocket . . . than it would if it had to issue non-tax-exempt bonds at a regular rate" thereby making it a "federal grantee." Acknowledging the Relator's point that tax exempt status may essentially qualify as a direct subsidy, the Third Circuit observed:
"In the tax realm alone, every taxpaying American receives some form of exemption or deduction, such as the home mortgage interest deduction, the charitable contributions deduction, or even simply the standard deduction. Just like the tax-exempt bonds, the government's decision to grant these deductions is a matter of grace, and the money saved by these deductions goes straight to the bottom line of the American-taxpayer. . . . . That does not mean, however, that every fraud against a government employee or taxpayer supports a claim under the FCA."
The False Claims Act, observed the Court, "only prohibits fraudulent claims that cause or would cause economic loss to government." Covanta's alleged false claims, however, did not cause loss to the federal government but established only that the Utility Authority "had to pay money out of its general operating funds that it should not have had to pay." The Court went on, "The fact that some unknown portion of those general operating funds might be tangentially attributable to a tax break from the federal government is irrelevant."
In contrast to this clear opinion by the Third Circuit, what is not clear is why the Court marked this opinion as "Not Precedential."
A. Brian Albritton
6/20/12
The Third Circuit Court of Appeals recently addressed whether a grantee can be an organization that enjoys tax benefits from the federal government, and it found that the False Claims Act simply did not stretch that far. See U.S. ex rel Garg v. Covanta Holding Corporation et al., (3rd Cir. May 8, 2012). In the Covanta case, the Court considered whether a state sponsored Utility Authority that issued tax exempt bonds qualified as a "grantee" under the False Claims Act ("FCA") because the tax exemption it enjoyed essentially functioned as a direct "financial subsidy" from federal government. Faced with the Relator's argument that urged it to apply the FCA to "anyone who happens to receive money from the federal government," the Court balked, holding that the Utility Authority did not qualify as a grantee.
In Covanta, the Utility Authority had issued $280 million in tax exempt bonds to finance construction of a solid waste disposal facility, and it leased the facility to Covanta to control and operate the business and facility. The Relator, the former executive director of the Utility Authority, alleged that Covanta failed to make two different types of payments that it owed to the Utility Authority and that it issued invoices to the Utility Authority containing false certifications. The Relator argued that the Utility Authority qualified as a federal grantee under the FCA by "virtue of the fact that it receives a financial benefit from the deductibility of interest on the tax-exempt bonds it issued to finance the facility. In other words, [the Relator] asserted that the federal government contributes tax revenue it otherwise would collect on interest paid to bondholders directly to the [Utility Authority]."
The Court found that the Covanta's alleged false claims and statements to the Utility Authority could not support a claim under the FCA. Citing cases that hold that tax exemptions are the functional equivalent of direct cash grants from the government, the Relator argued that the "grant of tax-exempt status to [Utility Authority's] bonds means the entity has more money in its proverbial pocket . . . than it would if it had to issue non-tax-exempt bonds at a regular rate" thereby making it a "federal grantee." Acknowledging the Relator's point that tax exempt status may essentially qualify as a direct subsidy, the Third Circuit observed:
"In the tax realm alone, every taxpaying American receives some form of exemption or deduction, such as the home mortgage interest deduction, the charitable contributions deduction, or even simply the standard deduction. Just like the tax-exempt bonds, the government's decision to grant these deductions is a matter of grace, and the money saved by these deductions goes straight to the bottom line of the American-taxpayer. . . . . That does not mean, however, that every fraud against a government employee or taxpayer supports a claim under the FCA."
The False Claims Act, observed the Court, "only prohibits fraudulent claims that cause or would cause economic loss to government." Covanta's alleged false claims, however, did not cause loss to the federal government but established only that the Utility Authority "had to pay money out of its general operating funds that it should not have had to pay." The Court went on, "The fact that some unknown portion of those general operating funds might be tangentially attributable to a tax break from the federal government is irrelevant."
In contrast to this clear opinion by the Third Circuit, what is not clear is why the Court marked this opinion as "Not Precedential."
A. Brian Albritton
6/20/12
Sunday, June 10, 2012
Ninth National Institute on the Civil False Claims Act and Qui Tam Enforcement
Last week, I attended the ABA's National Institute on Civil False Claims Act and Qui Tam Enforcement in Washington, D.C.. It was well attended and a worthwhile event overall. A few observations:
June 10, 2012
- The conference was attended by a great mix of people: lots of plaintiff's counsel (a/k/a relators' counsel), defense counsel, a number of attorneys from state attorneys' general or state Medicaid Fraud Control Units, and a number of federal investigators and counsel from federal agencies. Unlike conferences such as the ABA's White Collar Crime which are huge with nearly a 1,000 attendees, this conference is still quite small (I would estimate around 200+) and there was a very collegial atmosphere.
- As with the attendees, so too with the panels as they were always had a mix of defense counsel, relators' counsel, and various government representatives usually from the a U.S. Attorney's Office or Department of Justice. Most panels provided a very broad perspective.
- Joyce Branda, now Acting Deputy Attorney General for the Civil Division and chair of the first panel, noted that 600 False Claims Act/Qui Tam cases were being filed each year, 2/3 of them health care related, though she said that "other areas were developing." Branda further observed that the government intervenes in 22% of qui tam cases and that percentage has "held steady over the years."
- Dan Anderson, co-chair of the Institute and Deputy Director of the Commercial Litigation Branch of DOJ's Civil Division, told the conference "we are doing much more with much less. We are doing the best we can and are stretched very thin."
- More than one speaker discussed the increased use of Civil Investigative Demands ("CIDs"): a very effective investigative tool that allows the government prior to intervening in a qui tam case to conduct depositions and obtain interrogatories and the production of documents. Prior to the recent amendments of the False Claims Act, the Attorney General had to personally approve the issuance of a CID, but their use has now been liberalized and they are now being issued by DOJ-Civil as well as U.S. Attorneys.
- 29 states have passed False Claims Act statutes. The panel on State Qui Tam Enforcement was one of the best.
- John Boese, conference co-chair and author of a leading treatise on the False Claims Act, observed rather critically that the False Claims Act has become not just a statute to sanction those making false claims, but with the False Claims Act "jurisprudence being dominated by false certification claims," it is increasingly used as an "enforcement mechanism" for compelling compliance with governmental regulations. He gave the example of a bid protest. In the past, he explained, a losing bidder might challenge the legitimacy of a competitor's bid; now, they file an FCA/qui tam claim.
- Panelist Peter Hutt II of Akin Gump noted that non-intervened qui tam cases impose very real and substantial costs on the businesses as a result of the discovery that stems from such suits. Invited to say what he would change about the False Claims Act, he argued that there was too many meritless qui tam suits and that such suits resulted from the "over-incentive" of damages presently allowed under the FCA. To discourage meritless suits, Hutt argued that real fee shifting should be introduced and that it should apply not just to the relator but to a relator's counsel as well. He also argued for a cap on relators' recoveries. Hutt's comments about meritless suits brought an interesting reaction from other panelists. The relators' counsel on the panel did not believe meritless qui cases were a problem, but they also discussed that they carefully review potential qui tam cases and only file a handful of the cases they review. Speaking for herself, an Assistant U.S. Attorney from the Northern District of California who handles FCA/qui tam cases argued that if qui tam cases had been investigated and found to be without merit, then they should be dismissed by the government as permitted by the statute --though she did not cite any instances of that occurring. Boese argued that since dismissals of qui tam required hearings and that such hearings had often been hotly contested by relators, DOJ rarely exercised its authority to dismiss.
June 10, 2012
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