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.