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

On June 28, 2012, the U.S. Supreme Court upheld the Patient Protection and Affordable Care Act (Pub. L. 111-148) (Affordable Care Act).  See National Federation of Independent Business et al. v. Sebelius, Secretary of Health and Human Services, et al., No. 11-393.  The Affordable Care Act makes the following changes in law that are of particular significance to manufacturers of generic drugs and biological products:  (1) creation of an abbreviated licensure pathway for biological products shown to be biosimilar to, or interchangeable with, an FDA-licensed biological reference product, pursuant to the Biologics Price Competition and Innovation Act (BPCIA); (2) revision of the definition of Average Manufacturer Price (AMP), a price used by the Medicaid program to calculate rebates paid by generic drug companies and reimbursement amounts paid to pharmacies that dispense generic drugs; (3) increase in the amount of Medicaid rebates paid by drug manufacturers; (4) change in the calculation of Federal Upper Limits (FULs), which are prices used to reimburse providers that dispense drugs under the Medicaid program; (5) expansion of the 340B drug pricing program, which limits the cost of drugs to certain providers; (6) alleviation of the labeling roadblock for FDA approval of generic drugs when the reference brand product changes its label; and (7) reduction of the Medicare Part D coverage gap, referred to as the “donut hole”.  The Affordable Care Act makes additional changes in law, not discussed in this advisory, that are applicable to all drug manufacturers not discussed in this advisory, such as amendments to the False Claims Act’s “public disclosure bar” and “original source” provisions.  See http://www.fcaalert.com/2010/11/articles/relator-jurisdiction-issues/tennessee-court-holds-selfreporting-to-government-does-not-bar-relator-action/; http://www.fcaalert.com/2010/06/articles/relator-jurisdiction-issues/supreme-court-denies-certiorari-on-original-source-question/.

To view the complete advisory, click here.

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In two prior posts, we reported on a case which an insurance company was deemed subject to liability under the False Claims Act even when it did not directly submit claims to the federal government.  See United States v. Hawley, No. 08-2992, 2010 WL 3292710 (8th Cir. Aug. 23, 2010) and click here and here for the prior posts.  In the most recent opinion in the Hawley case, the District Court held that the Fraud Enforcement and Recovery Act (FERA) amendments did not apply retroactively in Hawley, and such retroactive application would violate the Ex Post Facto clause of the United States Constitution.  See United States v. Hawley, No. C 06–4087–MWB, 2011 WL 3295419 (N.D.Iowa Aug. 1, 2011). 

Hawley, an insurance agent, was alleged to have caused farmers to submit false claims to North Central Crop Insurance, Inc., a private insurance company, which then submitted claims for reimbursement to the Federal Crop Insurance Corporation (FCIC), established pursuant to federal statute.  The Government argued that, since the FCIC was approving and paying claims, the FCA reached Hawley’s conduct.  The Eighth Circuit held that there was a genuine issue of material fact as to whether the Government had claims under Sections 3729(a)(2) and (a)(3) of the FCA prior to the 2009 amendments of the Fraud Enforcement and Recovery Act (FERA).  Prior to FERA, these provisions provided for liability where the defendant “intended that the false record or statement be material to the Government’s decision to pay or approve the false claim.”  See Allison Engine co. v. United States ex rel. Sanders, 128 S. Ct. 2123 (2008).  The Eighth Circuit did not decide whether FERA, which modified these provisions of the FCA, was retroactive to the claims in Hawley. 

FERA eliminated the requirement that a false statement be made “to get a false or fraudulent claim paid or approved by the Government.”  See 31 U.S.C. § 3729(a)(1)(B).  FERA provides for liability where the false statement is material to a false or fraudulent claim.  FERA further states that these amendments “shall take effect as if enacted on June 7, 2008, and apply to all claims under the False Claims Act (31 U.S.C. 3729 et seq.) that are pending on or after that date.”  In dispute was the meaning of the term “claims”.  Hawley argued that “claims” refers to claims submitted to the Government for payment, which in this case were prior to June 7, 2008.  The Government, by contrast, argues that “claims” refers to when the case was filed, which was subsequent to June 7, 2008.  The court agreed with Hawley, relying on United States ex rel. Burroughs v. Central Ark. Development Council, 2010 WL 1542532 (E.D.Ark.2010).  Additionally, the District Court held that application of FERA retroactively would violate the Ex Post Facto clause of the United States Constitution because, though the FCA is a civil statute, the sanctions (treble damages and penalties) make the statute punitive in nature. 

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The Office of Inspector General for the Department of Health and Human Services (OIG) completed its review of 24 individual state false claims acts for compliance with Section 1909 of the Social Security Act.  This section, made effective on January 1, 2007, is intended to encourage states to enact or update existing state false claims act (FCA) legislation to facilitate the prosecution of state false claims act cases.  Specifically, federal law provides a financial incentive to a state with legislation that is in compliance by increasing that state’s share of monetary recovery from any lawsuit brought under the state's false claims act by 10 percent. 

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On November 3, 2010, the Securities & Exchange Commission released proposed rules for implementing Section 21F of the Securities Exchange Act of 1934, titled “Securities Whistleblower Incentives and Protection.”  Section 21F was added to the Exchange Act by Section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, Public Law No. 111-203, signed by President Obama on July 21, 2010. The Commission’s proposed rules are available here.  Comments on the proposed rules are due to the Commission on or before December 17, 2010.  Comments already received can be viewed here.

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Earlier, we reported on recent amendments to the New York State False Claims Act.  Our report focused on the portions of the amendments to the New York FCA that tracked amendments to the federal False Claims Act.  Recently, we spoke with Greg Krakower, special counsel to the majority at the New York State Senate, about another significant change included in the amendments:  the New York FCA is now the first FCA in the nation to cover tax fraud.

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On August 15, 2010, Gov. Paterson signed into law amendments to New York’s FCA recently passed by the New York State legislature. The amendments became effective August 29. The amendments – which closely track amendments to the federal FCA contained in the 2009 Fraud Enforcement and Recovery Act – significantly increase the scope of New York’s FCA. Click here for a discussion of some of the key changes contained in the amendments.

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On June 30, 2010, the New York State Legislature passed legislation amending the New York State False Claims Act, N. Y. State Fin. Law § 188, et seq. (the “New York FCA”).   The New York FCA, enacted in 2007, is almost identical to the federal FCA. Many of the amendments track amendments to the federal FCA contained in the 2009 Fraud Enforcement & Recovery Act (FERA). New York is the first state to adopt the FERA amendments. The legislation enacting the amendments purports to make the amendments apply retroactively to the date of the enactment of the New York FCA, in 2007. Below are some of the key changes:

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