Introductions. Welcome to our inaugural Quarterly Roundup! Panelists

Transcription

1 April 17, 2018

2 Introductions Welcome to our inaugural Quarterly Roundup! Focus on key enforcement trends in the health care industry with a focus on the False Claims Act (FCA) Look to FCA Update blog for weekly insight on key cases, regulatory developments, etc. Panelists Rebecca C. Martin (NY) Amandeep S. Sidhu (DC) T. Reed Stephens (DC) Paul M. Thompson (DC) 2

3 Program Overview Q1 Roundup: Escobar Use of FCA to combat opioid epidemic DOJ guidance memoranda Use of FCA against individuals Use of FCA against Medicare Advantage plans Use of FCA against private equity sponsor What to watch in Q2 Q&A 3

4 Escobar 4

5 The Holding of Escobar Escobar held that the false certification theory can be a basis for liability where: (1) the defendant does not merely request payment, but also makes specific representations about the goods or services provided; and (2) the failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading 5

6 Specific Representation Requirement in Escobar Specific representation requirement adopted by some courts: Second, Fourth, and DC Circuits specific representations are sufficient, but not a necessary condition, of implied false certification claims Seventh and Ninth circuits specific representations are necessary 6

7 Materiality Requirement in Escobar Materiality standard generally helpful for FCA defendants District Court decisions in 2017 and Q reflect willingness to dismiss cases on basis of materiality Ruckh v. Salus Rehabilitation (M.D. Fl. Jan. 11, 2018) $350M verdict vacated finding that the Escobar materiality standard had not been met where government continued payments to defendant nursing home despite knowing about its alleged record-keeping deficiencies Most courts agree with Ruckh if the government continues payment to a contractor after becoming aware of allegations of the contractor s noncompliance, it cannot prove the noncompliance was material 7

8 Continued Interpretations of Escobar Circuit courts have generally agreed DC Cir., First, Second, Third, Fifth, Seventh, Ninth (though not always Seventh and Ninth) Most recently, the Ninth Circuit also found materiality to be satisfied United States ex rel. Campie v. Gilead Sciences, Inc. cert. petition filed in the Supreme Court The Supreme Court considered Gilead in its April 16th conference and has requested the Solicitor General to share the United States view in the case 8

9 Use of FCA to Combat Opioid Epidemic 9

10 Use of FCA to Combat Opioid Epidemic Evolution of Trump administration s approach to national crisis: July 2017 Aug Oct AG Sessions announced charges against 120 individuals (including doctors); AlphaBay dark web marketplace seized DOJ launched Opioid Fraud and Abuse Detection Unit Data analytics used to identify trends (e.g., prescription frequency, patient deaths, etc.) 12 AUSAs assigned to opioid hot spots in the following jurisdictions: M.D. Fl., E.D. Mich., N.D. Ala., E.D. Tenn., D. Nev., E.D. Ky., D. Md., W.D. Pa., S.D. Ohio, E.D. Cal., M.D.N.C., S.D.W. Va. President Trump declared public health emergency 10

11 Use of FCA to Combat Opioid Epidemic Jan Feb Feb Mar DOJ launched 45-day surge focused on pharmacies and opioid prescribers DOJ launched Prescription Interdiction and Litigation (PIL) Task Force Interagency cooperation (including FDA and DEA) Wide array of enforcement tools, including the FCA, to combat opioid epidemic Indication of involvement in Ohio MDL re prescription opioid litigation Deputy ASG Stephen Cox highlighted the FCA as a tool against opioids, citing Galena Biopharma settlement Jody Hunt (DOJ Civil Division Chief nominee) confirmation hearing 11

12 Enforcement of FCA to Combat Opioid Epidemic Galena Biopharma Settlement $7.55M (Sept. 2017) Government alleged Galena paid kickbacks to doctors to induce them to prescribe its fentanyl-based drug Abstral Alleged kickbacks included free meals, $5-6K payments for advisory board participation, $92K payment to physician-owned pharmacy, payments to physicians that referred patients to patient registry study Two physician prescribers of Abstral were separately charged criminally, convicted, and sentenced to over 20 years in federal prison 12

13 Enforcement of FCA to Combat Opioid Epidemic Ohio MDL In re National Prescription Opiate Litigation Big Three distributor defendants: AmeriSourceBergen, McKesson, and Cardinal Health Consolidates cases from AL, CA, IL, KY, OH, WA, WV district courts Following AG Sessions statement in February, US filed statement of interest on March 1 and motion to participate in settlement discussions on April 2 Settlement discussions ongoing, but on request of parties, case management order setting litigation track was issued on April 11 State, local, tribal governments separately pursuing FCA theories (AK, MN, Cherokee Nation) 13

14 DOJ Guidance Memoranda 14

15 The Granston Memo The January 10 memo outlines seven factors to consider when evaluating whether to seek dismissal of qui tam cases that lack substantial merit pursuant to 31 U.S.C. 3730(c)(2)(A) (1) curbing meritless qui tams, either because the legal theory is inherently defective, or the relator s factual allegations are frivolous; (2) preventing parasitic or opportunistic qui tam actions, where qui tam cases duplicate pre-existing government investigations and add no useful information; (3) preventing interference with agency policies and programs; (4) avoid[ing] the risk of unfavorable precedent; (5) safeguarding classified information and national security interests; (6) preserving government resources; and (7) addressing egregious procedural errors 15

16 The Granston Memo What does it mean? Cases also may be dismissed where action is both lacking in merit and raises the risk of significant economic harm that could cause a critical supplier to exit the government program or industry Remains to be seen is how aggressively the United States intends to use this tool to manage the risk of unintended FCA litigation outcomes While DOJ asserts that the Granston Memo merely reiterates existing statutory authority, memorandum s detailed guidance opens the door for FCA defendants to advocate more assertively for the dismissal of frivolous qui tam complaints 16

17 The Brand Memo The memorandum mandates that [DOJ] litigators may not use noncompliance with guidance documents as a basis for proving violations of applicable laws in affirmative civil action cases Response to trend of qui tam relators citing failure to comply with agency (sub-regulatory) guidance as evidence of falsity or knowing conduct in FCA cases Effectively directs DOJ lawyers to raise the bar in evaluating whether a defendant should be subjected to intervention in an FCA action Complicates DOJ litigators calculus in using evidence of defendant s knowledge of and compliance with sub-regulatory guidance in the intervention decision 17

18 The Brand Memo What does it mean? Eventual effect of Brand Memo on existing and future cases is not yet clear Should have an effect on how DOJ thinks about and implements intervention decisions Only directly impacts investigative decisions of the DOJ Does not have any controlling effect over Relator counsel in declined qui tam matters or the courts interpreting the alleged falsity of claims May not reduce number of qui tam complaint filings that rely on regulatory missteps to establish the falsity of the claim 18

19 Use of FCA Against Individuals 19

20 Use of FCA Against Individuals Yates Memo issued by DOJ in Sept Memo focused on individual accountability for corporate wrongdoing DOJ codified its policy in the US Attorneys Manual Cases over the past 15 months reflect a continued focus on individual accountability Of the $3.7B recovered by DOJ in FY2017 from FCA cases, $60M came directly from individual defendants Key executives agreed to be held jointly and severally liable for $100M+ settlements against their corporations Notably, all of the individuals named in DOJ press releases in FY2017 were in the health care industry 20

21 Use of FCA Against Individuals DOJ continues to emphasize individual accountability in its enforcement of the FCA, as reflected in recent settlements: United States ex rel. Delaney v. eclinicalworks LLC May 2017, District of Vermont eclinicalworks and three of the company s founders agreed to a combined $155 million settlement Three lower-level employees (a developer and two project managers) were required to pay smaller amounts to resolve the individual claims against them ($15-50,000 each) Five year CIA requiring company to retain an Independent Software Quality Oversight Organization to assess the software quality control systems 21

22 Use of FCA Against Individuals States ex rel. Meehan v. Medstar Ambulance. Inc., et al. January 2017, District of Massachusetts $12.7 million settlement with Medstar Ambulance Inc. and its owners Allegations that the ambulance company knowingly submitted false claims to Medicare relating to transports that were not medically reasonable or necessary United States ex rel. Thomas v. Horizons Hospice LLC and United States ex rel. Mizak, et al. v. Horizons Hospice LLC, et al. February 2018, Western District of Pennsylvania $1.24 million settlement with Horizons Hospice, LLC and its owner to resolve FCA allegations that the company fraudulently billed Medicare and Medicaid for patients ineligible for hospice care 22

23 Use of FCA Against Individuals Also, recent trial victories against individual defendants accused of FCA violations: January 2018, three years after US intervention, the ex-ceo and two marketing consultants at Health Diagnostics Laboratory found liable by a D.S.C. jury for over $17 million in Medicare fraud (automatically trebled under the FCA to over $51 million and subject to as yet to be determined FCA penalties of $5,500 to $11,000 per claim) Health Diagnostics Laboratory previously settled with DOJ in 2015 for $47 million, but the government chose to pursue additional claims against individual defendants 23

24 Use of FCA Against Individuals Yates influences every aspect of a matter, from investigation through trial Pipeline of individual liability cases pre-dating Trump administration is dwindling We are tracking new cases that name individuals as defendants and will report back on additional developments in subsequent roundups 24

25 Use of FCA Against Private Equity Sponsor and Medicare Advantage Plans 25

26 Use of FCA Against Private Equity Sponsor Feb. 16, 2018: US intervened in United States ex rel. Medrano and Lopez v. Diabetic Care Rx, LLC d/b/a Patient Care America, et al., No. 15-CV (S.D. Fla.), naming a private equity firm as an FCA co-defendant DOJ alleged that the compounding pharmacy Patient Care America (PCA) paid illegal kickbacks to induce prescriptions for drugs reimbursed by TRICARE PCA allegedly implemented a scheme to manipulate the compounding formula for pain and scar creams that resulted in the submission of false claims to TRICARE The complaint names as defendants PCA, two of its senior executives (one of which has since left the company), and PCA s private equity sponsor 26

27 Use of FCA Against Medicare Advantage Plans In May 2017, government intervened in United States ex rel. Poehling v. UnitedHealth Group., Inc. (C.D. Cal.) alleging FCA violations relating to risk adjustment scores Risk adjustment alters payments to MA plans based on the health status of Medicare beneficiaries enrolled in the plans In ruling on a motion to dismiss in February 2018, the court: Dismissed allegations that UnitedHealth had falsely attested to the accuracy of the risk adjustment scores Allowed case to proceed on theory that defendant improperly avoided its obligation to refund the government for risk-adjustment related overpayments 27

28 What to Watch in Q2? 28

29 What to Watch in Q2 Application and interpretation of Escobar, including Gilead cert. petition Medrano (private equity) case trend or outlier? DOJ s focus on independent charities patient assistance programs FDA/FDCA non-compliance as basis of FCA liability, including alleged REMS (Risk Evaluation and Mitigation Strategies) non-compliance Life after Michaels v. Agape Senior Community, et al. Fourth Circuit decision re use of statistical sampling to prove FCA liability 29

30 Panelists Rebecca C. Martin Partner New York T. Reed Stephens Partner Washington, DC Amandeep S. Sidhu Partner Washington, DC Paul M. Thompson Partner Washington, DC

31 Thank you / Questions McDermott Will & Emery. McDermott operates its practice through separate legal entities in each of the countries where it has offices. This communication may be considered attorney advertising. Previous results are not a guarantee of future outcome.