Source: https://www.mwe.com/insights/health-care-enforcement-quarterly-roundup-2/
Timestamp: 2019-04-21 08:40:42+00:00

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With recoveries from health care related cases exceeding $2 billion for the ninth straight year, it is clear that DOJ’s primary focus for FCA enforcement is in this sector. It is also apparent that incentives remain strong for whistleblowers, as $1.9 billion of the $2.5 billion in recoveries came from qui tam cases, which resulted over $266 million in relator share awards.
Along with the decline in overall FCA recoveries, the number of new FCA cases also fell for the second year in a row—767 new cases were filed in 2018, 645 of which were filed by relators. This compares to 799 cases filed in 2017, 674 of which were filed by relators. Interestingly, while recoveries from health care related cases rose from $2.4 billion in FY 2017 to $2.5 billion in FY 2018, the number of new HHS cases is trending slightly downward, with 506 new HHS cases in 2018, 446 of which were filed by relators. For comparison, DOJ reported 550 new HHS cases (495 from relators) in 2017 and 573 new HHS cases (503 from relators) in 2016.
As we consider expected trends for the coming year, DOJ’s press release emphasized three policy priorities that dominated its FCA activities in 2018: (1) continued focus on alleged violations of the Anti-Kickback Statute, 42 U.S.C. § 1320-7b; (2) affirmative action to seek dismissal of meritless cases pursuant to the guidance in the Granston Memorandum to “prioritize the use of government resources” (discussed in greater detail below); and (3) “holding individuals accountable” by seeking monetary resolutions with individuals in addition to corporations (which aligns with the revised guidance pursuant to the Yates Memorandum, discussed below). We expect each of these priorities to persist in 2019.
Practice Note: The health care industry remains a top target of DOJ enforcement activity, particularly with regard to FCA cases. While DOJ sought to dismiss a large swath of cases in late 2018, incentives remain strong for relators to come forward with their claims.
 See Press Release, US Dep’t of Justice, Justice Department Recovers Over $2.8 Billion from False Claims Act Cases in Fiscal Year 2018 (Dec. 21, 2018), https://www.justice.gov/opa/pr/justice-department-recovers-over-28-billion-false-claims-act-cases-fiscal-year-2018.
First, DOJ rejected the legal basis for relators’ allegations that the provision of educational information, instruction, and certain patient support services related to various drugs—and based on the specific facts in each case—constitutes illegal kickbacks to physicians.
Second, it argued that because the government spends “vast sums” on the medications at issue, it has a strong policy interest in ensuring that patients have access to information and product support from the drug manufacturers.
Third, DOJ argued that the relators should not be allowed to “indiscriminately advance” claims against the entire biopharma industry, as it would weaken common industry practices that the government has concluded are beneficial and appropriate to federal healthcare programs and their beneficiaries.
Finally, DOJ also argued that permitting the cases to proceed would cause the government to incur significant costs in monitoring the litigation and responding to discovery requests.
In the Q3 Quarterly Roundup, we discussed the emerging split over what the government must prove to warrant dismissal under the competing “valid purpose test” and the government’s “unfettered right” to dismiss. With the NHCA Group motions to dismiss, DOJ is hedging its bets and arguing under both standards.
The Granston Memo also received attention during the confirmation hearing of Attorney General nominee, William Barr. In a colloquy with Barr during Senate Judiciary Committee proceedings, Senator Chuck Grassley pointedly noted that the Granston Memo provides reasons that DOJ can dismiss FCA cases, including “preserving government resources.” Senator Grassley then remarked “just think of all the mischief those three words can bring.” While Barr acknowledged that he was not familiar with the Granston Memo, he was pointedly asked by Senator Grassley: “In circumstances where the government doesn’t intervene in False Claims cases, if confirmed, will you commit to ensuring the Department doesn’t unnecessarily dismiss False [Claims] Act cases?” Barr responded in the affirmative, indicating he would enforce the law in good faith.
Practice Note: FCA defendants should continue to view the Granston Memo as a guidepost to find opportunities to encourage DOJ to exercise its dismissal authority under 31 USC § 3730(c)(2)(A).
 DOJ Commercial Litigation Branch, Fraud Division, Factors for Evaluating Dismissal Pursuant to 31 U.S.C. § 3170(c)(2)(A) (Jan. 10, 2018).
 See, e.g., U.S. ex rel. Miller v. AbbVie Inc., 3:16-cv-02111 (N.D. Tex.); U.S. ex rel. SCEF LLC v. AstraZeneca PLC, 17-cv-01328 (W.D. Wash.); U.S. ex rel. SMSF LLC v. Biogen Inc., 1:16-cv-11379 (D. Mass); and U.S. ex rel. NHCA-TEV LLC v. Teva Pharmaceutical Products Ltd., 17-cv-02040 (D. Mass.).
 See, e.g., U.S. ex rel. Miller v. AbbVie Inc., 3:16-cv-02111 (N.D. Tex.), ECF No. 52, *3-5 (Dec. 17, 2018 N.D. Tex.) (arguing that the NHCA Group established the plaintiff shell company (SAKSF, LLC) “for the sole purpose of serving as the named relator in this action” and that the shell company relators filed eleven qui tam complaints against a total of 38 defendants).
 See, e.g., U.S. ex rel. SMSF LLC v. Biogen Inc., 1:16-cv-11379, ECF No. 53, *11 (Dec. 17, 2018 D. Mass.).
 See Attorney General Confirmation Hearing, Day 1, C-SPAN (January 15, 2019), https://www.c-span.org/video/?456626-1/attorney-general-nominee-william-barr-confirmation-hearing.
On November 29, 2018, the Deputy Attorney General (DAG) Rod Rosenstein announced much awaited changes to DOJ policy on individual accountability, as incorporated in the revised Justice Manual. The Yates Memo still lives, but is scaled back in the criminal context and further downsized in the context of FCA matters—in a manner that seems designed to lessen inefficiencies, but not in a way that, on its face, eases the focus on senior management.
The revised policy, however, unquestionably reins in the level of disclosure previously required by the Yates Memo in criminal matters. Under the original Yates Memo, DOJ expected companies to disclose “all facts relating to the individuals involved in the wrongdoing, no matter where those individuals fall in the corporate hierarchy in order to obtain cooperation credit in criminal matters under the Yates regime.” Now, under the revised DOJ policy, companies under criminal investigation need “only” identify individuals who were “substantially involved” in the alleged conduct. While, overall, the revised policy should lift part of the burden of investigations, there is little doubt that the meaning of “substantially involved” will be fertile ground for dispute and if not managed with care, could create a minefield for defense counsel when identifying the appropriate individuals.
The DAG emphasized that principles of individual accountability continue to apply in the FCA context, but was also clear that “civil cases are different.” Indeed, the primary focus of civil fraud investigations—as DAG Rosenstein acknowledged—has always been the money, and although many districts historically focused on individual liability, the Yates-driven changes created inefficiency and needless delay in civil resolutions.
In between the minimum- and maximum-credit boundaries is a gray zone where a company can get “some credit” in exchange for “meaningful assistance.” In addition, the revised policy reaches back in the direction of the pre-Yates practice of granting releases for individuals. Yates eliminated DOJ’s typical practice of granting releases to employees, officers and directors in corporate FCA settlements. Now, civil fraud attorneys are again “permitted to negotiate civil releases for individuals who do not warrant additional investigation in corporate civil settlement agreements, again with appropriate supervisory approval.” Whether DOJ reverts to the prior broad releases as the new norm will be a key factor to monitor.
In addition, there is still the unanswered question of what “credit” actually means in a practical, dollars-and-cents way. While most companies wish to cooperate with the government and can identify clear benefits of doing so, the Yates Memo never clarified how the government actually quantifies “cooperation credit” in FCA matters. DAG Rosenstein’s revisions provide no specificity in this regard. We will continue to closely monitor any guidance from DOJ on how cooperation translates into the measure of damages, multipliers and penalties under the FCA.
Practice Note: In its original form, the Yates Memo increased DOJ’s focus on prosecuting individuals for corporate wrongdoing. Recent changes to DOJ’s guidance reaffirm the core principles of the memorandum, but scale back disclosures required from defendants. Greater clarity on how “cooperation credit” is quantified in FCA cases is still needed.
 See Press Release, US Dep’t of Justice, Deputy Attorney General Rod J. Rosenstein Delivers Remarks at the American Conference Institute’s 35th International Conference of the Foreign Corrupt Practices Act (Nov. 29, 2018), https://www.justice.gov/opa/speech/deputy-attorney-general-rod-j-rosenstein-delivers-remarks-american-conference-institute-0.
In 2018, courts continued to grapple with the landmark decision in United Health Services, Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016). In Escobar, the Supreme Court held that the implied certification theory can be a basis for liability “at least where two conditions are satisfied: first, the claim does not merely request payment, but also makes specific representations about the goods or services provided; and second, the defendant’s failure to disclose noncompliance with material statutory, regulatory, or contractual provisions makes those representations misleading half-truths.” As previously reported, in United States ex rel. Campie v. Gilead Sciences, Inc., 862 F.3d 890, 901 (9th Cir. 2017), the US Court of Appeals for the Ninth Circuit held that both conditions outlined by the Supreme Court must be satisfied for an implied certification claim to proceed.
Notwithstanding the acknowledgment that both conditions must be satisfied, in Gilead, the Ninth Circuit reversed the district court’s dismissal of a case involving FDA approved medicines where the government continued to pay for the medicines despite learning of misrepresentations made to the government. The Ninth Circuit denied Gilead’s petition for rehearing en banc, and Gilead filed a petition for writ of certiorari in the Supreme Court.
The Supreme Court invited the Solicitor General to file a brief expressing the views of the United States. DOJ indicated that the government’s continued payment for Gilead’s medicines—despite knowledge that Gilead was alleged to have made misstatements concerning those drugs—did not render the alleged misstatements material as a matter of law. However, channeling the guidance outlined in the Granston Memo, DOJ stated that the case is “not in the public interest” and noted that it would seek to dismiss the case based, in part, on the government’s thorough investigation of the allegations. DOJ also voiced concerns that, if the case were to proceed to discovery, the United States would face “burdensome” discovery and Touhy requests for documents and witness testimony from the US Food and Drug Administration (FDA). The Supreme Court denied the petition for writ of certiorari on January 7, 2019, leaving the Ninth Circuit decision intact. All eyes will now be on the district court, given DOJ’s representation that it will seek a dismissal of the case.
As we discussed in Q3, in August 2018, a Ninth Circuit panel in United States ex rel. Rose v. Stephens Institute, 909 F.3d 1012 (9th Cir. 2018) reaffirmed the court’s previous holding in Gilead that Escobar’s two-part implied certification test is mandatory (although it denied the defendant’s motion for summary judgment finding a genuine issue of material fact existed regarding the school’s representations to the government). Somewhat reluctantly, the court relied on panel precedent to reach its holding, but further observed that the Supreme Court “did not state that its two conditions were the only way to establish liability under implied false certification theory.” As such, the court suggested that it might come out differently on the question of whether the two-part test is mandatory if it were addressing the issue en banc. However, when the appellant petitioned for rehearing en banc, the court denied the request. Lower courts have also grappled with whether an implied certification FCA case must satisfy the two-part test, or whether the Supreme Court simply intended to describe a non-exhaustive set of factors that could give rise to an implied certification claim. Importantly, some claims for payment to the federal government do not make representations about goods or services provided, and would thus fail one part of the two-part test. We expect this issue to continue to be a source of litigation in FCA cases based on the implied certification theory of liability.
Although courts require relators to meet the “demanding” materiality standard articulated in Escobar, courts of appeals have applied this standard in different ways across various jurisdictions.
In 2018, the US Court of Appeals for the Sixth Circuit reversed the district court’s dismissal in United States ex rel. Prather v. Brookdale Senior Living Communities, Inc., 892 F.3d 822 (6th Cir. 2018). Implicating the Escobar materiality standard, the Prather case involved the timing requirement for obtaining a physician signature certifying the need for home health services a case. In a two-to-one decision, the Sixth Circuit identified three reasons for finding that the relator sufficiently alleged materiality. First, the court held that the physician signature timing requirement was an express condition of payment. Second, the government paid the claims without knowledge of the non-compliance. Finally, the court noted that HHS-OIG guidance specifically addresses the importance of the physician signature requirement.
Brookdale filed a petition for writ of certiorari on November 20, 2018, raising two questions: (1) whether the failure to plead facts relating to past government practices in an FCA action can weigh against a finding of materiality; and (2) whether an FCA allegation fails when the pleadings make no reference to the defendant’s knowledge that the alleged violation was material to the government’s payment decision. Amicus briefs were filed by the National Association of Home Care & Hospice, Inc., American Health Care Association, and National Center for Assisted Living in late December and the respondent’s brief is due on January 28, 2019. A conference date has not yet been set, but we will be closely watching this case as it proceeds. With the Supreme Court declining to hear Gilead, Prather could be a vehicle for the Supreme Court to clarify the pleading requirements to meet the materiality standard articulated in Escobar.
The Supreme Court also denied certiorari in United States ex rel. Harman v. Trinity Industries, Inc., 872 F.3d 645, 647 (5th Cir. 2017). Similar to Gilead, the Trinity Industries petition sought review of how continued government payments impact courts’ materiality determinations.
In Trinity Industries, the Fifth Circuit reversed a jury award of $664 million, finding in favor of Trinity Industries that there was no materiality in Trinity’s alleged violations of highway guardrail regulations. The Fifth Circuit’s decision hinged on the government’s assertions that (1) it was not defrauded by Trinity; (2) it consistently approved Trinity’s guardrails; and (3) it continued to make payments for the guardrails after it learned of the alleged fraud. With the Supreme Court’s denial of certiorari, the Fifth Circuit’s holding stands—bolstered by the strength of the evidence that the government’s continued payments reflected the immateriality of the defendant’s alleged violations.
In early 2019, the Eleventh Circuit will hear arguments on Ruckh v. Salus Rehabilitation, LLC, et al, 304 F. Supp. 3d 1258, 1260 (M.D. Fla. 2018, another case involving the impact of continued government payments on the FCA’s materiality standard. In Ruckh, the Middle District of Florida overturned the jury’s $350 million verdict, stating that the relator failed to prove that the government would have refused to pay defendants’ claims if it had known of the alleged violations. Further, the court reasoned, the relator had not proven that the government refused, or even threatened to refuse, to pay claims despite knowledge of the lawsuit, evidence, and judgments for the relator. In a July 2018 amicus brief to the Eleventh Circuit, DOJ asserted that the district court placed too much emphasis on the government’s inactions and misunderstood the Escobar decision. If the Ruckh decision is upheld, it would further emphasize the importance of the government’s payment decision vis-à-vis a determination of materiality.
Practice Note: Defendants and investigation targets in FCA cases should watch the pending cases in 2019 and continually evaluate when and how to raise questions about materiality, and whether the plaintiff or the government can satisfy the two-part test in a given case.
 579 U.S. ___, 136 S.Ct. 1989, 2001 (2016).
 In support of this latter point, DOJ cited to United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139, 1146 (9th Cir. 1998) (holding that goal of minimizing expenses and burdens on government resources is a legitimate ground for exercising the government’s dismissal authority under Section 3730(c)(2)(A)), cert. denied, 525 U.S. 1067 (1999).
 See, e.g., United States ex rel. Mateski v. Raytheon Co., 745 Fed. Appx. 49 (2018) (affirming dismissal of complaint citing “demanding” standard established by the Supreme Court in Escobar); United States ex rel. Pelullo v. Am. Int’l Grp., Inc., No. 17-2837, 2018 WL 6179013 (2d Cir. 2018) (affirming dismissal of complaint citing Escobar materiality standard).
One of the most closely watched cases involving the pain management industry is In re: National Prescription Opiate Litigation out of the Northern District of Ohio. As previously reported in the Quarterly Roundup, the United States is participating in the litigation as a friend of the court to provide the government’s perspective on the opioid crisis. In October 2018, the magistrate judge in one of the MDL’s bellwether cases recommended that the case proceed to trial, including alleged violations of the Racketeer Influenced and Corrupt Organizations Act (RICO). In December, the district court judge approved the magistrate’s report and recommendations, clearing the way for the bellwether case to proceed to trial in 2019. The defendants sought to appeal the decision to exclude plaintiffs’ RICO claims, but the district court denied this request on January 18, 2019.
Also in December, Deputy Assistant Attorney General James Burnham delivered a speech at the 2018 Food and Drug Law Institute Conference. Among other enforcement priorities, DAAG Burnham noted that “the opioid epidemic is the deadliest drug crisis in our nation’s history and combatting it is, quite simply, our #1 priority.” He recalled some of the developments we have reported on over the past year in the Quarterly Roundup—establishment the Opioid Fraud and Abuse Detection Unit (a data analytics program designed to identify and prosecute individuals contributing to the opioid epidemic), direction for each US Attorney’s office to designate an Assistant US Attorney as an opioid coordinator, DOJ’s initiative to ask courts to revoke the prescribing power of doctors that are allegedly abusing it, and establishment of the Prescription Interdiction Litigation (PIL) Task Force (a program that “aggressively” deploys and coordinates civil and criminal enforcement tools to combat the opioid epidemic, with a particular focus on manufacturers and distributors).
DAAG Burham also noted that DOJ would utilize Risk Evaluation and Mitigation Strategies (REMS) to address the opioid crisis. REMS are imposed by the FDA as a condition of approving certain drugs with safety concerns, including opioids. REMS typically impose physician education and reporting requirements that are designed to ensure that the benefits of certain drugs or biologics outweigh their risks. The consequence of violating a REMS is that the covered drugs may become misbranded under the Food, Drug, and Cosmetic Act. Enforcement of REMS violations has resulted in both civil claims and criminal prosecutions in the past, including a $58 million settlement with Novo Nordisk (related to alleged failures to communicate accurate risk information about the potential risk of patients developing a rare cancer) and a $35 million settlement and guilty plea for Aegerion Pharmaceuticals.
Practice Note: Federal and state level scrutiny of companies involved in the pain management industry should remain on alert for increased scrutiny. DOJ’s acute focus on combating the opioid crisis strongly suggests that anyone involved in the manufacture, sales, marketing, or prescription for these medications could become ensnared in an investigation.
 In re: National Prescription Opiate Litigation, Case No. 1:17-md-02804 (N.D. Ohio).
 See Press Release, US Dep’t of Justice, Deputy Assistant Attorney General James M. Burnham Delivers Remarks to the 2018 Food and Drug Law Institute Conference (Dec. 13, 2018), https://www.justice.gov/opa/speech/deputy-assistant-attorney-general-james-m-burnham-delivers-remarks-2018-food-and-drug-law.
 See Press Release, US Dep’t of Justice, Attorney General Sessions Announces Opioid Fraud and Abuse Detection Unit (Aug. 7, 2017), https://www.justice.gov/opa/pr/attorney-general-sessions-announces-opioid-fraud-and-abuse-detection-unit.
 See Press Release, US Dep’t of Justice, Attorney General Sessions Announces New Prescription Interdiction & Litigation Task Force (Feb. 27, 2018), https://www.justice.gov/opa/pr/attorney-general-sessions-announces-new-prescription-interdiction-litigation-task-force.
 See Press Release, US Dep’t of Justice, Novo Nordisk Agrees to Pay $58 Million for Failure to Comply with FDA-Mandated Risk Program: Payments Resolve Allegations Highlighted in DOJ Civil Complaint and Recently Unsealed Whistleblower Actions (Sept. 5, 2017), https://www.justice.gov/opa/pr/novo-nordisk-agrees-pay-58-million-failure-comply-fda-mandated-risk-program.
 See Press Release, US Dep’t of Justice, Drug Maker Aegerion Agrees to Plead Guilty; Will Pay More Than $35 Million to Resolve Criminal Charges and Civil False Claims Allegations (Sept. 22, 2017), https://www.justice.gov/opa/pr/drug-maker-aegerion-agrees-plead-guilty-will-pay-more-35-million-resolve-criminal-charges-and.

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