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Health Care Fraud and Abuse Class Three: Taking on Theories of Liability

This week’s class at BU Law School in Bob Thomas’ course on Health Care Fraud and Abuse started the deep dive into theories of liability under the False Claims Act, and recent ways in which the law has evolved.

 

Starting with the language from the False Claims Act, the question of what actually is “false or fraudulent” within the meaning of the law was a good place to start.  Most “claims” are on their face truthful (e.g., provider treated patient in XYZ manner on ABC date), so how does the statute capture concepts of falsity or fraud in these circumstances?  If a doctor’s medical judgment has been polluted by a kickback or by illegal off-label promotion, for example, how does that make the doctor’s claims for reimbursement “false or fraudulent”?

 

Courts grappling with this question came up with their own body of judge-made law, using concepts of “express” and “implied certification” to hold (sometimes) that as a “condition of participation” in government health care programs or a “condition of payment”, there can be embedded in every claim an express or implied certification of compliance with applicable laws.  Thus, the argument goes, the government requires that contractors obey applicable laws and contracts only for “taint-free” services and is entitled to reimbursement where claims, even those that on their face are truthful, have been tainted by illegality.  The entity engaged in the bad conduct “caused” the doctor to submit a tainted claim, the theory goes.

 

Some courts have had trouble with these concepts, particularly where the non-compliant activity was, relatively speaking, trivial in nature or something that the paying government agency was already well aware of.  The Supreme Court recently clarified this complicated landscape — to a degree — in its Escobar decision of 2016.   In Escobar, the Court held that “implied certification” is a valid theory of liability, BUT that only false claims “material” to the agency’s payment determination would count for liability under the FCA.   In other words, if the transgression, had it been known, would have had a reasonable chance of changing the agency’s decision to pay the claim, then it’s material.  Lawyers have been quick to point out, however, that “materiality” is a factual question requiring discovery from government agencies.  So while it may be easier for whistleblower suits to survive initial legal challenges (motions to dismiss), the discovery phase of a case could be tricky as defense lawyers try to prove that a paying agency such as the Center for Medicare and Medicaid Services (“CMS”) was sufficiently aware of the issue and didn’t care enough about it to deny the claims.  Lots of work for lawyers ahead on that front.

 

As an example of an “implied certification” type claim, the seminar explored the current state of liability theories relating to “off-label promotion” of drugs and/or medical devices.  This theory, long a favorite of prosecutors, is premised on the notion that the marketing of unapproved uses of drugs or devices can lead to FCA liability.  While doctors are free to write prescriptions off label, companies are constrained by regulations from the Food and Drug Administration (“FDA”) in what they can say to promote such uses.  Running afoul of those restrictions has landed many a company in hot water on the theory of implied certification:  that claims are valid only if they are not tainted by illegal activity that caused the claim to happen.

 

Recently, however, the defense bar has successfully argued for a free speech (First Amendment) limitation on such FDA regulation and FCA liability.  The argument, successfully advanced in a Second Circuit case known as Caronia, is that if there is nothing false or misleading about off-label promotion, it must be protected by the “commercial speech” doctrine under the First Amendment.  The Supreme Court has not taken this question up directly, so Caronia is the law only in the Second Circuit Court of Appeals, but prosecutors are now forewarned that any off-label case they bring should include, at a minimum, some showing of falsity or deception, or some material omission in the communications in order to survive a defense challenge under the First Amendment.

 

Finally, as a way of tying together some of these concepts of “materiality” under Escobar and deceptive marketing, the class examined the tricky fact pattern that is often presented in off-label scenarios:  where the FDA has expressly not approved a certain use, but CMS has decided, based on available data in certain “compendia”, to reimburse off-label claims anyway.  Under Escobar, the fact that the paying agency is aware of the off-label promotion and literature, even reviews it, and pays the claim anyway makes prosecution of an off-label case highly problematic.  A prosecutor or whistleblower lawyer would need, for an FCA case to survive, substantial evidence of false and deceptive practices, or other illegal conduct like kickbacks, to keep such a case alive.

 

Speaking of kickbacks, that’s what the class will talk about next week.

Material Instincts: Wood, Escobar & the CMS Provider Form Jungle

Alleging health care fraud is no picnic. It inevitably involves a journey into a morass of government regulations, not made easier by the fact that the heart of any case, the false or fraudulent claims, tend to be found in one or more of a plethora of forms for Medicaid or Medicare reimbursement. No wonder that the Supreme Court, in a transformative 2016 case advancing a new standard for determining what fraud really matters, lamented that “billing parties are often subject to thousands of complex statutory and regulatory provisions.” Universal Health Services v. United States ex rel. Escobar, 136 S. Ct. 1989, 2002 (2016). Good lawyers can help navigate this jungle, and to their aid comes a new case out of the Southern District of New York, United States ex. rel. Wood v. Allergan, Inc., 10-cv-5645 (March 31, 2017), which elaborates on the circumstances under which violations of one of those thousands of provisions should be taken seriously, in the process cutting through a lot of uncertainty about the exact wording of claims forms (while also drawing on a case in which our firm played a key role, United States ex rel. Westmoreland v. Amgen, Inc., 812 F. Supp. 2d 39 (D. Mass. 2011), in which we prevailed after the 1st Circuit reversed an earlier unfavorable decision, New York v. Amgen Inc., 652 F. 3d 103 (1st Cir. 2011)).

 
 

In Wood, a former Senior Manager at Allergan, which makes prescription eye care drugs, alleged that the company had “violated the FCA and the Anti-Kickback Statute (“AKS”) . . . by providing substantial quantities of free drugs and other goods to physicians in exchange for their prescribing to beneficiaries of Medicare, Medicaid, and other government programs the company’s brand name drugs.” Id. at 3. Wood identified false claims resulting from Allergan’s activities by pointing to the Centers for Medicaid and Medicare Services (“CMS”) Provider Agreement for Medicare Part D and Form 855I, which contain certifications of compliance with the AKS. Id. at 53. Violations of the AKS made those claims expressly false (and the pharmaceutical company could be held liable under the False Claims Act for “causing” those false claims even though it wasn’t the submitter of them). Furthermore, even though Wood did not identify express certifications or references to the AKS on Medicaid provider applications and state claims forms or on the CMS Form 1500, instead alleging only generally that many states require AKS certifications, references on the forms to “applicable Federal or State laws,” sufficed to imply that claims on the forms were false or fraudulent if there had been noncompliance with the AKS. Id. at 60. That reasoning accords with Amgen, 652 F. 3d at 112-14, in which the court looked to state anti-kickback statutes and regulations in four states, and provider agreements that had sufficient express wording in two more, to find that noncompliance with the AKS can result in false or fraudulent claims.

 
 

Escobar demands that for liability, the noncompliance must be “material,” that is, it must really matter, preventing unfairness to potential defendants by holding them liable for running afoul of some trivial provision amid the jungle of forms and regulations. Escobar, 136 S. Ct at 2003. How do we know what really matters? Wood cuts through some of the cryptic factors that Escobar discussed with an appeal to policy; violations of the AKS matter not because they involve rule-breaking but because “violation of the AKS is a far cry from an ‘insubstantial’ regulatory violation like, say, requiring ‘that [government] contractors buy American-made staplers’ rather than foreign staplers.” Id. at 61 (quoting Escobar, 136 S. Ct. at 2004.) There the Wood court builds on its comment, in identifying falsity, that “[k]ickbacks are designed to influence providers’ independent medical judgment in a way that is fundamentally at odds with the functioning of the system as a whole.” Id. at 60 (quoting United States ex rel. Westmoreland v. Amgen, Inc., 812 F. Supp. 2d 39, 53-54 (D. Mass. 2011)). Another kickback case, United States ex rel. Hutcheson v. Blackstone Medical, Inc., 647 F.3d 377 (1st Cir. 2011), also took AKS compliance language in provider agreements and hospital cost reports as indicative of materiality, suggesting that testimony from parties to the contract could help establish it further. Id. at 394-95.

 
 

This refreshing application of Escobar avoids getting mired in a fact-intensive counterfactual investigation into whether or not government officials would have paid the Allergan-caused false claims, had they known of the kickbacks at issue, and relies on our instinct about why kickbacks matter, as much as the language of the statute. This builds on the best of Escobar; an appeal to common sense. At the Escobar Oral Argument, Justice Kagan drew a powerful analogy between an unlicensed doctor and guns that don’t shoot as examples of fraud that anyone would recognize, which made its way into the opinion in the compelling quote that “because a reasonable person would realize the imperative of a functioning firearm, a defendant’s failure to appreciate the materiality of that condition  would amount to ‘deliberate ignorance’ or ‘reckless disregard’ of the “truth or falsity of the information” even if the Government did not spell this out.” United States ex rel. Escobar, 136 S. Ct. at 2001-02; Transcript of Oral Argument at 16 (No. 15-7). Signs that the lower courts have picked up on Escobar’s theme of indignation is good news for righteous whistleblowers, since they can convince courts to rule in their favor by an appeal to the overarching policy damaged by the fraud, as much as by digging into the regulations.