FCA Alert : Lawyers & Attorneys for Whistleblower, False Claims Act & Qui Tam Defense : Kelley Drye & Warren LLP

A recent case in the District of Massachusetts provides a good illustration of the application of the False Claims Act’s public disclosure and first-to-file bars in health care fraud cases.  See United States ex rel. Bartz v. Ortho-McNeil Pharmaceutical, Inc. et al., Civil Action No. 11-10316 (D. Mass. March 2, 2012).  In 2005, the relator, a former sales compensation manager for a drug manufacturer, filed a qui tam suit pursuant to the False Claims Act against the manufacturer, a distributor, and various related entities.  The amended complaint asserts three broad categories of alleged fraudulent conduct – the manipulation of Medicaid rebate amounts, false reporting of AMP and best price for certain drugs, and the payment of kickbacks to nursing home drug purchasers.  At the core of the relator’s allegations is the claim that the defendant pharmaceutical distributor took kickbacks from the manufacturer as an inducement to purchase the anti-psychotic medication Risperdal Consta.  In 2008, the United States declined to intervene.  As of the date of the court’s opinion, no State had moved to intervene.

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In United States ex rel. Rille v. Sun Microsystems, Inc., Civil Action No. 04-CV-00986 (E.D. Ark. Jan. 30. 2012), an Arkansas district court denied the motions to dismiss brought by the Department of Justice (DOJ) and the defendant against the relators, although the DOJ and defendant already settled the underlying claims brought by the relators.

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A recent case from the District of Massachusetts raises an interesting question under the False Claims Act’s public disclosure bar. See United States ex rel. Estate of Cunningham v. Millennium Laboratories of California, Civil Action No. 09-12209 (D. Mass. Jan. 30, 2012). The defendant Millennium Laboratories provides drug testing services to physicians who treat chronic pain conditions and need to closely monitor their patients’ drug use. The relator Robert Cunningham was a compliance officer for Calloway Laboratories, a competitor of Millennium. On December 29, 2009, Cunningham filed a qui tam complaint in the District Massachusetts against Millennium, alleging that the company was encouraging physicians to use incorrect billing codes to charge Medicaid, Medicare and other government funded health care programs in connection with initial drug screens the physicians performed in their offices.

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According to new statistics released by the Department of Justice, the U.S. government recovered $30.3 billion pursuant to the federal False Claims Act between 1987 and 2011. In the fiscal year ending September 30, 2011, 762 new FCA cases were initiated, consisting of 638 qui tam actions and 124 cases initiated by the United States without the aid of a relator.

More FCA cases were commenced in 2011 than ever before and recoveries amounted to $3.03 billion in 2011, slightly less than the $3.09 recovered in 2010. Of the $3.03 billion recovered in 2011:

• $2.64 billion was recovered in matters in which the government intervened;
• $148 million was recovered in cases in which the government declined intervention; and
• $241 million was recovered in actions initiated by the United States.

As mentioned previously here, it is expected that FCA recoveries will reach a staggering $9 billion in 2012, due in large part to several possible settlements with pharmaceutical manufacturers hovering near, or exceeding, a billion dollars. Last week, it was reported that a one billion dollar settlement had been reached between a drug manufacturer and the U.S. attorney’s office in Philadelphia concerning the marketing practices for a former blockbuster antipsychotic drug.

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The Health Care Fraud Prevention & Enforcement Action Team (known as "HEAT") has produced a series of 11 short training videos covering high priority compliance topics.  The third training video discusses the False Claims Act.  Here are links to the video and transcript.

The other training videos released so far discuss (1) the OIG's exclusion authorities and the effects of exclusion; (2) the federal Anti-Kickback Statute; (3) and the federal Physician Self-Referral Law.  New episodes are released at the beginning of each week on the OIG's website and should continue to run through mid-February.  

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According to a press release issued today by the Department of Justice, 638 new whisteblower complaints under the qui tam provisions of the federal False Claims Act were filed under seal in fiscal year 2011, representing a peak in such filings over prior years.  The DOJ reports that it recovered more than $3 billion under the FCA in 2011, of which $2.8 billion was generated from qui tam actions.

As has been typical in recent years, FCA matters involving the health care and pharmaceutical industries were the largest source of recoveries in 2011. The DOJ recovered $2.4 billion in health care matters, of which $2.2 billion was obtained from pharmaceutical companies. 

Other sources of recoveries include consumer-related financial fraud cases and non-war related procurement cases, which accounted for nearly $358 million in FCA recoveries in 2011.  The DOJ also recovered $89.3 million under the FCA in connection with the wars in Southwest Asia in 2011.

Looking ahead, it is likely that federal FCA recoveries will be even larger in 2012.  One commentator has suggested that it is possible that FCA recoveries will reach $9 billion in 2012, due, in large part, to several possible settlements with pharmaceutical manufacturers hovering near, or exceeding, the billion dollar mark.    

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The U.S. Court of Appeals for the District of Columbia in United States ex rel. Batiste v. SLM Corporation, Civil Action No. 10-7140 (D.C. Cir. Nov. 4, 2011) affirmed the dismissal of a relator’s complaint based on an application of the first-to-file bar of the FCA.  The first-to-file rule provides that “no person other than the Government may intervene or bring a related action based on the facts underlying the pending action.”  In so holding, the court also ruled, as a matter of first impression in the D.C. Circuit, that first-filed qui tam complaints need not satisfy the heightened pleading requirements for fraud in order to bar subsequent qui tam complaints.  The United States did not intervene but supported the relator’s position as amicus curiae.

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The Senate Finance Committee recently released a report describing the Committee’s findings based on an investigation into Amedisys, LHC Group, Gentiva, and Almost Family, four of the largest publicly-traded home health care companies.  See Report part I and part II.  The Committee alleges that home health care companies “gamed” the Medicare reimbursement system for therapy visits to the homes of eligible Medicare beneficiaries.

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Par filed a Complaint for Declaratory and Injunctive Relief against the United States, the U.S. Food & Drug Administration (FDA), the Commissioner of the FDA, and the Secretary of the Department of Health & Human Services seeking a declaratory judgment that the application of FDA off-label marketing regulations to Par’s marketing of Magace® ES violates the First Amendment.  Par believes that those regulations unlawfully prevent it from engaging in truthful speech regarding approved uses of Magace® ES with healthcare providers that may prescribe the drug for off-label uses.  There is no dispute that physicians are legally permitted to prescribe a drug for off-label uses.  Moreover, Par alleges that Magace® ES is prescribed more often for off-label uses.  However, as Par notes, the Government has prosecuted manufacturers under the federal False Claims Act for marketing a drug in settings where it was likely to be prescribed for off-label uses.  For example, the Government brought actions against Eli Lilly in connection with its marketing of Zyprexa and Pharmacia regarding its marketing of Bextra.  Presently, Par believes it is under investigation for its sales and marketing practices of Magace® ES as it received a subpoena in March 2009.  (Click here for our prior post regarding potential FCA exposure based on allegations of off-label marketing.)  Par alleges:  “The ongoing threat of prosecution for alleged ‘off-label promotion’ based on Par’s truthful and non-misleading speech to healthcare professionals concerning the FDA-approved use of Par’s FDA-approved prescription drug currently chills Par’s speech.” 

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