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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.

John Oliver Explains Dialysis

John Oliver recently devoted most of his show “Last Week Tonight” to explaining how America funds kidney dialysis.  Oliver admitted the topic was likely to make his viewers push the button on your TV remote marked “Dear God Literally Anything Else.”

 

 

 

But it’s an important topic.  The United States “continues to have one of the industrialized world’s highest mortality rates for dialysis care,” despite spending more on it than other nations.

 

Since 1972, the federal government has covered all kidney dialysis.  We now spend 1 percent of the federal budget just on kidney dialysis.  That’s half as much as we spend on the entire Department of Education!

 

Why do we spend so much? You can probably guess, fraud and greed. Two large companies, Fresenius Medical Care and DaVita, control 70 percent of the market.

 

Megallan Handford, a former DaVita employee who was fired for trying to unionize its employees, explained that:

 

“When I was working at DaVita, the priorities for transitioning patients was to get them on dialysis and get the next patient on as soon as possible,” Handford told Oliver. “You would have sometimes 15, maybe 25 minutes to get that next patient on the machine, so you were not properly disinfecting.”

 

This focus on profits above patients is reflected in the nearly $1 Billion in False Claims Act Settlements that DaVita has paid out in the last several years:

 

 

Nor do these settlements appear to represent the end of DaVita’s legal issues.  DaVita faces a lawsuit and related government subpoenas over use of a non-profit, the American Kidney Foundation to push patients from government healthcare to Healthcare Exchange-offered private plans in order to dramatically increase its reimbursements.

 

Nor should you think that Fresenius is without blame.  For example, in 2000,  a team led by Suzanne Durrell  secured the largest global settlement to date in a health care fraud case against Fresenius Medical Care. The investigation resulted in a record-setting $101 million criminal fine; an aggregate civil settlement payment of $385 million; and the withdrawal by the company of more than $130 million in pending claims for reimbursement with the Medicare Program.

 

If you have concerns about patient harm and fraud against the government by a healthcare company, please contact us to discuss how whistleblower laws including those above can protect and reward you and help ensure that the patients and taxpayers are protected.

 

OxyContin Marketing: Peddling Opiates for Profit

 

This fall, whistleblower attorney Bob Thomas has again been teaching as an adjunct professor at BU Law School, offering a course on Health Care Fraud and Abuse.  As the title suggests, the course is about the many ways in which the government health care reimbursement systems such as Medicare and Medicaid are gamed by fraudsters, and what’s being done about it.

 

One of the more interesting aspects of teaching a course in this area of the law is the dynamic nature of the subject matter.  Each year the syllabus must be updated because of amendments to laws like the False Claims Act or regulations under statutes like the Food Drug and Cosmetic Act (dealing with misbranding and off-label marketing, among other things), and case law interpreting new issues being litigated (such as the Supreme Court’s recent Escobar opinion).   The course also shows students why it’s important to read the news and to pay attention to the many ways the content of the course intersects with real life issues in front of us.

 

This week was a perfect example.  What would normally have the potential to be a fairly dry topic (“Remedies:  exclusion and debarment, and corporate integrity agreements”) evolved into something directly connected to an evolving news story.

 

As a case study on corporate officers being excluded from the Medicare and Medicaid programs after pleading guilty under the “responsible corporate officer doctrine,” students were asked to read the 2010 Friedman case from the district court in D.C., in which Judge Huvelle upheld lengthy periods of exclusions for three high ranking officers of Purdue Pharmaceuticals, Inc.  The Purdue settlement in 2007 was a blockbuster at the time:  $634 million in civil damages and criminal fines, criminal pleas by a subsidiary and three corporate officers, tens of millions in personal fines against the officers, and a corporate integrity agreement imposed against the company.  Why?  Because the company irresponsibly (and criminally) marketed its highly addictive painkiller OxyContin as safe and non-addictive, and as a reliable substitute for other non-addictive painkillers.  This behavior is credited by many observers as a key driver of our current opioid epidemic.  The investigation of the company started in 2001 and lasted several years, covering the marketing schemes going all the way back to the 1990’s.

 

Well right on cue, just as the class was evaluating the many aspects of this “global” (civil, criminal, and administrative) settlement, Purdue Pharmaceuticals was right back in the news.  First, the always provocative but usually spot-on John Oliver took the company to task for ignoring patient safety and for fueling the opioid epidemic.  Then, this morning on the front page of the Boston Globe, another article appeared about Purdue and its marketing of OxyContin, showing how the company manipulated pharmacy benefit managers (“PBMs”) to remove limitations on physicians’ prescription-writing abilities for the drug.  This latter scheme was not part of the government’s 2007 prosecution of the company, but may be the subject of future lawsuits, according to the article.  With a huge public health crisis in the works and a flourishing black market for its addictive painkiller, it seems Purdue just couldn’t say no to schemes to get its product into as many hands as possible.  With sales rep bonuses as high as five times their base salary, the message was clear:  Sell, Sell, Sell.  Lost in that emphasis was the horrible toll this would take on patients, some of whom would injure themselves intentionally to be able to obtain further prescriptions of OxyContin.

 

For the BU students, it was a perfect example of one of the recurring themes of the course:  Do any of these remedies really slow down fraudsters?  If not, what should we be doing differently?

Health Care Fraud and Abuse Seminar Wraps Up

After 13 lively sessions and a take home exam, the seminar taught by whistleblower attorney Bob Thomas has finished, with nine 3rd year students and one 2nd year student from BU School of Law showing real sophistication in this complex field.

 

The course, which is part of BU’s Health Law Program, is structured in two parts.  The first covers the main substantive areas of health care fraud enforcement:  The False Claims Act, the Anti-Kickback Act, The Food Drug & Cosmetic Act, Stark, and the Exclusion & Debarment remedies.  The second part of the course is practice-oriented, with the students hearing from prosecutors, defense attorneys, compliance officers, and whistleblowers and their attorneys, in presentations relating to actual cases they were involved in.

 

Similarly, the take home exam questions are based upon fact patterns that come up in the cases handled or evaluated by the Whistleblower Law Collaborative.  If you think you’re as smart as a law student, take a look at the questions they answered quite masterfully.  Several of the exams submitted were as good or better than any we could imagine an experienced practitioner writing  — a gratifying thing for a “professor” to see, given the multiple demands on the students’ time.

 

This is the sixth time that Bob Thomas has taught the course.  Given all the changes in the law in this dynamic field, he intends to keep offering the course indefinitely in future years, as long as student interest remains as high as it has been so far.

Happy Fourth of July from Boston

The patriots who signed the Declaration of Independence over 235 years ago, concluded the Declaration with these words:

And for the support of this Declaration, with a firm reliance on the protection of divine Providence, we mutually pledge to each other our Lives, our Fortunes and our sacred Honor“.

Had their bold experiment failed, they would have lost everything, including their lives.

 

As the long 4th of July holiday weekend is unfolding, let us remember the vision, sacrifice, faith, and hard work that have preserved our democracy, and appreciate the many acts, large and small, that contribute to the common good.

 

Among these are the courageous whistleblowers who at great personal cost come forward to tell “the government”, our government, that it is being cheated, by a defense contractor, a health care company, a bank, or others.   Sometimes they succeed, sometimes they fail, but regardless they are doing their part as citizens in a democracy.

 
In just the past month, we have already seen the largest settlement involving alleged violations of the Anti-Kickback Statute by skilling nursing facilities in the United States, Trinity Industries was ordered to pay 463.4 for defrauding the Federal Highway Administration, and UPS agreed to pay for False Claims Act violations.  All due to the contributions of whistleblowers.  Their bravery, and the dedication of the public servants who work the cases, inspire us.

 
We wish everyone a safe and happy Fourth of July from Boston!

Fraud in Small Business Innovation Research Yields Settlement

Recently the U.S. Attorney’s Office for the Western District of Washington announced a False Claims Act settlement stemming from fraud in the Small Business Innovation Research (“SBIR”) program. nLight Photonics, Inc. (nLight), a privately-held, Vancouver, Washington-based manufacturer of high performance diode and fiber lasers, agreed to pay $420,000 to resolve allegations that between 2004 and 2013, it received multiple government grants and contracts for which it did not legitimately qualify under the SBIR because of its ownership structure. For the purposes of the SBIR program, the term “small business” is defined as a for-profit business with fewer than 500 employees, owned by one or more individuals who are citizens of, or permanent resident aliens in, the United States of America.

 

The SBIR program was established by Congress in 1982, and amended several times since. Currently eleven federal agencies participate in the program, awarding millions of dollars of grants and contracts each year. It is a highly competitive program that encourages domestic small businesses to engage in Federal Research/Research and Development (R/R&D) that has the potential for commercialization. Id. Government funding is available because many early-stage innovation are still too high risk for private investors, including venture capital firms.

 
The fraud was discovered by an employee of the Department of Energy, one of the government agencies from whom SBIR funding was obtained. Apparently, the employee who was overseeing both an nLight SBIR grant as well as an SBIR grant awarded to a company that nLight had acquired, made an inquiry of nLight which brought its ineligibility to light. Indeed, nLight had successfully sought funding from the Army, Navy, Air Force, NASA and Department of Energy to further develop its laser technology, which has military and related applications of interest. Each of these agencies participated in the investigation, along with the Department of Justice, to reach the settlement. According to one news report, by 2011 the privately-held company nLight had secured $110 million in equity financing from Silicon Valley investors and was on a steady growth trajectory that led to speculation that it would initiate a public stock offering.

 
It is encouraging to see a False Claims Act case made “the old-fashioned way”—through discovery by agency contracting personnel and investigation by government law enforcement working together with DOJ. It reminds us all that without the benefit of a whistleblower, there are plenty of FCA cases the government can and should make.  To be sure, there are many cases of complicated fraud where a whistleblower is needed, and one wonders how much sooner the fraud here would have been uncovered if a whistleblower had come forward.  In addition, while so much of the attention of the FCA these days is on health care fraud cases, we would all do well to remember how many billions of dollars the federal government spends each year procuring other goods and services, from research as here, to military equipment for our soldiers.

Shippers Who Ripped Off Military Settle FCA Suit

It appears a settlement has been reached in the False Claims Act case  brought by two whistleblowers and the United States against two shipping companies, Covan World-Wide Moving Inc. and Coleman American Moving Services Inc. (the Covan Carrier Group), in federal district court in South Carolina. In an Order issued yesterday, the federal district court judge put the case on hold pending finalization of a settlement in principle.  See Covan-Order and Law360-article-Covan.

 

Covan Carrier Group had contracts with the U.S. Department of Defense (DOD) to assist in relocating military personnel by packing and shipping their belongings as they were deployed at home and abroad. The United States and the whistleblowers, two workers at a Coven Carrier Group warehouse in Augusta, Georgia, allege that since at least 2007, Covan padded their bills for relocating personnel by lying about shipment weights. The whistleblowers claim that managers falsified weight tickets, including by forging documents or “whiting” out portions of the documents.  A government audit revealed widespread misconduct, for example, in Pearl Harbor, Hawaii, military officials determined that Covan consistently claimed its shipments weigh about ten percent more than they actually do; the United States’ Complaint has many other examples of fraud and alleges that it happened at all twenty-four Covan locations in the United States. See Covan-Complaint.

 

The terms of the settlement are not yet announced, but DOD says the companies have billed $723 million to the government for the shipping and relocation services. Under the FCA, the companies could face up to three times the damage or loss to the government plus a civil penalty of between $5,500 to $11,000 per false claim (i.e. invoice).  We expect the size of the settlement will depend on how much weight inflation there was and at what locations (for example, if it was ten percent across the board, then the single damages could be about $72 million; if it was limited in scope as the companies contend, it would be less), how much of a multiplier is applied to the single damages or loss figure (i.e. is it doubled or trebled which will likely depend on how egregious the conduct is), and how many, if any, civil penalties are assessed. In addition to damages and penalties, the companies could face debarment or exclusion by DOD from future federal contracts.

 

The FCA, also known as “Lincoln’s Law,” was first passed during the Civil War to recover for shoddy military equipment being billed to the Union Army. It is frustrating that companies are still ripping off the military for profit, but it is rewarding that the qui tam provisions of the FCA are working. We commend the two whistleblowers here for coming forward. Without them “blowing the whistle” in 2013,  the fraud may never have been exposed.

“Ambiguous” Government Reg Not Automatic Defense

A common defense in a False Claims Act case is to argue that the defendant cannot be liable because the applicable government regulation was “ambiguous” and the defendant’s interpretation of the regulation is “reasonable” therefore the defendant could not have “knowingly” submitted a “false” claim (two key elements of FCA liability). Indeed, this defense is central to a declined qui tam case pending in U.S. District Court in Missouri against Anesthesia Associates of Kansas City (“AAKC”). Last week the Justice Department supported the whistleblower by filing a Statement of Interest debunking this defense.

 

The U.S. first addressed the argument that the defendant could not have acted “knowingly” or in other words with the requisite scienter to have violated the FCA. The FCA defines “knowingly” to mean having actual knowledge, reckless disregard, or deliberate ignorance of the falsity of the claim, and no proof of specific intent to defraud is required. 31 U.S.C. § 3729(b)(1). Defendant AAKC argued that CMS’ regulation was ambiguous and that AAKC could now advance a reasonable interpretation of the regulation. The U.S. rebutted this argument stating:

 

“An FCA defendant’s scienter, or lack thereof, depends on the surrounding facts as they existed at the time, not on whether its lawyers can point to ambiguities in regulatory language and advance plausible post hoc interpretations… To hold otherwise would mistakenly absolve of liability any defendant who can later advance a plausible regulatory basis for the submission of false claims. It would allow a defendant who fully intended to submit false claims to escape liability. It would eliminate liability, across the board and regardless of circumstances, for those who recognized an ambiguity and made the decision not to inquire.”

 

Brief at 2-3 (emphasis added).

 

As part of the court’s fact finding exercise, it may look at the defendant’s state of mind at the time the claims were being submitted; the U.S. acknowledged that “evidence of whether or not the defendant reasonably interpreted the governing regulation and submitted claims it, in good faith, believed to be truthful at the time of submission is important to consider.” Brief at 4. However, the U.S. reminded the court that the defendant cannot engage in “ostrich-like conduct” by effectively sticking its head in the sand. Brief at 6.

 

The U.S. then turned its fire on the argument that the claim could not have been “false” because of defendant’s purported reasonable interpretation. The U.S. rejected this argument out of hand, characterizing it as a “misstatement of the law.” Brief at 8. Explaining that “knowledge” and “falsity” are separate elements of FCA liability, the U.S. went on to note that it is up to the court to determine “falsity” by using “normal tools of statutory construction to determine whether statements or claims are ‘objectively’ false.” Id. (emphasis added).

 

This case is worth keeping an eye on to see how the district court rules. Anyone litigating a FCA case should consult the U.S. Brief for an excellent summary of the law of “knowledge” and the meaning of “falsity” under the FCA.

Elizabeth Warren Proposes to Make Pharma Pay

Elizabeth Warren, Senator from Massachusetts known for sticking up for consumers in the face of corporate interests, has recently turned her focus on the pharmaceutical industry.  Noting that a substantial number of pharma companies have paid multi-billion dollar settlements, Senator Warren has introduced a bill called the Medical Innovation Act, which would require pharma companies to pay into a medical research fund any time they settle a fraud-related scheme.
 
Warren notes that companies that have successfully produced blockbuster drugs have often realized these profits on the basis of research initially funded by the federal government.  It’s only fair then, she proposes, that when these manufacturers violate the rules in pursuit of greater profits, they pay into a fund that goes back into the research mechanisms that made them rich in the first instance.
 
“It’s like a swear jar,” Warren colorfully notes.  “Whenever a huge drug company that is generating enormous profits as a result of federal research investments gets caught breaking the law and wants off the hook, it has to put some money in the jar to help fund the next generation of medical research,” Warren said. “Instead of letting companies that break the law get off with a slap on the wrist, the Medical Innovation Act will make sure that they pay up in a way that really makes a difference. A difference to the health of all Americans, and a difference to all of the company’s competitors who are playing by the rules.”

Medical Device Manufacturer Settles False Claims Act Lawsuit

A whistleblower False Claims Act lawsuit accusing Medtronic, Inc. of promoting off label unapproved uses of its “SubQ” spinal stimulation device has been settled by the Department of Justice for $2.8 million.

 

The suit, brought by a former Medtronic sales representative, alleged that “from 2007 through 2011, Medtronic knowingly caused dozens of physicians located throughout more than 20 states to submit claims to Medicare and TRICARE for investigational medical procedures known as SubQ stimulation that were not reimbursable.” While the safety and efficacy of SubQ stimulation had not been proved to the FDA, Medtronic nevertheless persuaded doctors to implant Medtronic’s spinal cord stimulation devices just beneath the patient’s skin near an area of pain, most often in the lower back, where the devices would purportedly provide electrical impulses intended to alleviate chronic pain.

 

Devices or drugs prescribed for purposes that are not FDA approved and thus are “off label” are unfortunately all too common. Indeed, the successful, but unlawful, promotion of prescription drugs for off label purposes has led to multiple large FCA recoveries in the last several years.  On Sunday night John Oliver did a hilarious, sad but true, piece on these drug company tactics on his show Last Week With John Oliver.

 

Patients should not be treated like guinea pigs for profit. Ask your doctor…or ask John Oliver..or ask a lawyer who represents FCA whistleblowers.