Source: http://mondaq.com/unitedstates/x/779204/Healthcare/Health+Care+Enforcement+Quarterly+Roundup+Q4+2018
Timestamp: 2019-04-23 04:07:08+00:00

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This latest installment of the Health Care Enforcement Quarterly Roundup reflects on trends that persisted in 2018 and those emerging trends that will carry us into 2019 and beyond. Leading off with the US Department of Justice's (DOJ) December announcement of its fiscal year 2018 False Claims Act (FCA) recoveries, it remains clear that the health care industry is a primary target of FCA enforcement activity. We also revisit the current state of implementation of DOJ's Granston Memorandum, substantive revisions to the Yates Memorandum, critical interpretations of the landmark Escobar case (including those expected in the coming year), and continued enforcement activity in the pain management industry.
We encourage you to sign up to receive updates from our FCA Update blog, where we regularly discuss important FCA decisions and settlements, along with commentary on regulatory guidance from DOJ, the US Department of Health and Human Services (HHS) Office of the Inspector General (OIG), the Centers for Medicare and Medicaid Services (CMS) and other agencies.
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.
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.
Since the Granston Memo was issued a year ago, DOJ has sought dismissal in a number of noteworthy FCA matters. In December, DOJ moved to dismiss nearly a dozen FCA qui tam cases brought by the National Health Care Analysis (NHCA) Group in Illinois, Massachusetts, Pennsylvania, Texas and Washington.
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).
In past editions of the Quarterly Roundup, we have given substantial consideration to the Yates Memo, originally issued in September 2015, by Deputy Attorney General Sally Yates, which laid out a revised DOJ policy on individual accountability in the context of corporate investigations. Since the change in administration, however, the fate of the Yates Memo has been unclear, and indeed has been under active reconsideration since at least the fall of 2017.
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.17 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.
As a starting point, DAG Rosenstein emphasized that under the revised policy, "pursuing individuals responsible for wrongdoing" will continue to be "a top priority in every corporate investigation." In the criminal context, revised DOJ policy makes clear that "absent extraordinary circumstances, a corporate resolution should not protect individuals from criminal liability."
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.
However, the Yates Memo still has force in the civil realm, particularly with respect to senior management. The revised policy leaves behind the memo's "all or nothing" approach, but DAG Rosenstein emphasized that for a company to receive "any credit for cooperating in a civil case" under the revised policy, a company "must identify all wrongdoing by senior officials, including members of senior management or the board of directors." At the other end of the spectrum, the revised civil policy echoes the criminal policy by providing for "maximum credit" only when a company "identif[ies] every individual person who was substantially involved in or responsible for the misconduct."
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.
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.
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."18 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).19 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,20 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-�-vis a determination of materiality.
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.
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.21 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.
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.
1 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.
3 DOJ Commercial Litigation Branch, Fraud Division, Factors for Evaluating Dismissal Pursuant to 31 U.S.C. � 3170(c)(2)(A) (Jan. 10, 2018).
4 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.).
5 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).
7 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.).
11 See cases cited supra note 4.
12 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.
17 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.
18 579 U.S. ___, 136 S.Ct. 1989, 2001 (2016).
Section 3730(c)(2)(A)), cert. denied, 525 U.S. 1067 (1999).
20 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).
21 In re: National Prescription Opiate Litigation, Case No. 1:17-md-02804 (N.D. Ohio).
22 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.
23 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.
24 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.
25 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.
26 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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