SORRELL STRIKES

In my last blog post, I wrote about the possible implications for False Claims Act litigation arising out of the Supreme Court’s opinion in Sorrell v. IMS Health, Inc., -- U.S. --, 131 S. Ct. 2653 (2011), suggesting that we were about to see numerous challenges to off-label and kickback theories under the First Amendment. Well, the time has come. In a case we are litigating with the State of Texas against Janssen that is set to go to trial at the end of November, Janssen recently filed a “bench brief” asking that the jury get a special instruction on Janssen’s First Amendment rights. The court is set to decide whether such an instruction is appropriate on the eve of trial, in late November. In Keeler v. Eisai, an off-label case filed in the Southern District of Florida, the defendant moved to dismiss, arguing in part that the off-label claims were barred by the First Amendment. The district court has not yet ruled on this theory. The response that plaintiffs have made in both of these cases is that the conduct at issue includes false and misleading speech; false and misleading speech is not protected by the First Amendment; and the statutes at issue therefore regulate only speech that is not entitled to First Amendment protections. As I suggested in my previous blog, this argument has strong support in the explicit language of Sorrell. We will be watching to see if the courts agree.

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Loren Jacobson is a partner at Waters & Kraus, LLP, in the firm’s Dallas office. Her practice focuses on qui tam (whistleblower) cases and appellate matters.

Bad Medicine in the False Claims Context

Improper Financial Ties Between Hospitals and Their Referring Physicians

On Friday, September 9, 2011, the Department of Justice announced that the United States has partially intervened in a False Claims Act lawsuit against Halifax Hospital Medical Center located in Daytona Beach, Florida, and Halifax Staffing, Inc.[1]  The case was initially filed in July 2009 by the current Director of Physician Services for Halifax Staffing.  A Second Amended Complaint, filed in February 2011, alleged that Halifax “improperly admitted thousands of inpatients even though no medical necessity existed for the admissions and the Defendants have routinely paid excessive compensation, and provided illegal kickbacks, profit-sharing incentives, as well as compensation pooling, to physicians in violation of the Stark and Federal Anti-Kickback laws.”[2] 

The government has partially intervened with respect to allegations that Halifax violated the Stark law[3], which prohibits hospitals and other entities from submitting claims to Medicare for certain health care services referred by physicians with an improper financial relationship with the hospital or other entity.  Here, the U.S. alleges that “Halifax’s contracts with three neurosurgeons and six medical oncologists were improper, in part, because they either paid physicians more than fair market value, were not commercially reasonable or took into consideration the volume or value of the physicians’ referrals.”[4]

According to Tony West, Assistant Attorney General for the Civil Division of the Department of Justice, “Improper financial arrangements between hospitals and physicians threaten patient safety because personal financial considerations, instead of what's best for the patient, can influence the type of health care that is provided.” [5]

The government’s involvement in this case is part of the Health Care Fraud Prevention and Enforcement Action Team (HEAT), an initiative by the Justice Department and the Department of Health and Human Services to focus efforts on reducing and preventing Medicare and Medicaid financial fraud through enhanced cooperation. Robert E. O’Neill, U.S. Attorney for the Middle District of Florida, said that “[b]y bringing cases such as this one, we hope to ensure that precious health care resources are not being wasted as a result of questionable financial relationships between health care providers.”[6]

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[1] U.S. Department of Justice, Office of Public Affairs, “U.S. Joined False Claims Act Lawsuit Against Florida’s Halifax Hospital Medical Center and Halifax Staffing, Inc.,” (Sept. 9, 2011), available at: http://www.justice.gov/opa/pr/2011/September/11-civ-1162.html (hereafter “DOJ Announcement”).

[2] U.S. ex rel. Baklid-Kunz v. Halifax Hosp. Med. Ctr., et al., Case No. 6:09-cv-1002 (M.D. Fla.) (Doc. 29).

[3] 42 U.S.C. § 1395nn, et. seq.

[4] DOJ Announcement.

[5] Id.

[6] Id.

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Melanie Garner is an attorney at Waters & Kraus, LLP, in the firm's Baltimore office. She focuses her practice on toxic tort, product liability, and qui tam (whistleblower) cases.

What Distinguishes Medical Judgment from Fraud?

Many qui tam cases involve decisions by physicians—a decision to certify a patient as eligible for hospice, a decision to order services that are allegedly medically unnecessary, a decision to code a procedure a certain way. In all of these circumstances, defendants will argue that allegations that such conduct is fraudulent are not actionable because differences in scientific opinion, methodology, and judgments cannot support claims under the False Claims Act.

Recently, the U.S. Attorney’s office debunked such arguments in a Statement of Interest filed in U.S. ex rel. Wall v. Vista Hospice Care, Inc., Case No. 3-07-cv-0604 (N.D. Tex.). In the Statement of Interest, the Government argued that where a physician acts with deliberate indifference or reckless disregard of objective facts, a fraud claim can lie. Specifically, in the hospice context, if a physician certifies a patient for hospice care without sufficient information to make the certification or with deliberate indifference or reckless disregard for whether the patient actually meets the objective criteria for such certification, the certification and claims for payment of that patient’s hospice care are false. As the Government noted:

Hospice care provided to a patient who does not meet objective medical criteria for terminal illness can be false or fraudulent under the FCA. A defendant cannot defeat FCA allegations simply due to the existence of a physician certification of terminal illness when there is evidence that the provider knew or should have known such a patient was not terminally ill.

This reasoning has equal force in the other circumstances described above:  where there are allegations that a physician ordered unnecessary procedures or services, or deliberately upcoded procedures, so long as there is a good faith allegation that the physician knowingly acted in direct contradiction to objective facts, an FCA claim should lie. The key is to be able to show that the physician’s conduct is not being challenged as erroneous, but as fraudulent.

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Loren Jacobson is a partner at Waters & Kraus, LLP, in the firm’s Dallas office. Her practice focuses on qui tam (whistleblower) cases and appellate matters.

FOIA Requests: A Bar to Federal False Claims Actions?

On May 16, 2011, the U.S. Supreme Court, in a 5-3 opinion delivered by Justice Thomas, held that a federal agency’s response to a request for records under the Freedom of Information Act (FOIA) constitutes a “report” within the meaning of the public disclosure bar of the Federal False Claims Act.  Schindler Elevator Corp. v. U.S., ex. rel. Kirk, 131 S. Ct. 1885, 1889 (2011).         

Under the Federal False Claims Act (FCA), qui tam (or whistleblower) actions are expressly barred if “substantially the same allegations or transactions . . .were publicly disclosed (i) in a Federal criminal, civil, or administrative hearing in which the Government or its agent is a party; (ii) in a congressional, Government Accountability Office, or other Federal report, hearing, audit, or investigation; or (iii) from the news media, unless the action is brought by the Attorney General or the person bringing the action is an original source of the information.” 31 U.S.C. § 3730(e)(4)(A).

The purpose of the public disclosure bar has been tersely described as a means “to strike a balance between encouraging private persons to root out fraud and stifling parasitic lawsuits.”  Graham County Soil & Water Conservation Dist v. U.S. ex. rel. Wilson, 130 S. Ct. 1396, 1407 (2010). 

In Schindler, the relator (or whistleblower) filed a qui tam action against his former employer, Schindler Elevator Corporation (“Schindler”), alleging that Schindler had submitted hundreds of false claims for payment under government contracts and had violated certain provisions of the Vietnam Era Veterans' Readjustment Assistance Act of 1972 requiring contractors to report certain information to the Department of Labor, including the number of its employees who are qualified veterans under the Act.  Schindler, 131 S.Ct. at 1889-90.  In support of his allegations, the relator pointed to information that his wife had obtained from the Department of Labor in response to three FOIA requests seeking information about Schindler’s veteran reporting.  Id. at 1890.           

Schindler filed a motion to dismiss on a number of grounds, including that the District Court lacked jurisdiction based on the FCA’s public disclosure bar.  Id.  The District Court granted Schindler’s motion concluding, in part, that the relator’s claims were based upon public disclosure of the allegations in a “report” or “investigation.”  Id. (citing U.S. ex. rel. Kirk v. Schindler Elevator Corp., 606 F. Supp. 2d 448 (S.D.N.Y. 2009)).  The Court of Appeals for the Second Circuit vacated, effectively holding that a response to a FOIA request is neither a “report” nor an “investigation” within the meaning of the FCA’s public disclosure bar.  Id. (citing U.S. ex. rel. Kirk v. Schindler Elevator Corp., 601 F.3d 94 (2d Cir. 2010)).           

Because the FCA does not define “report” within the meaning of the public disclosure bar, the Court looked to its ordinary meaning and dictionary definitions, including “something that gives information” or a “notification,” “[a]n official or formal statement of facts or proceedings,” and “[a]n account brought by one person to another.” Id. at 1891 (alterations in original) (citations omitted).     

The Court then concluded that “[a] written agency response to a FOIA request falls within the ordinary meaning of ‘report.’” Id. at 1893.  The Court reasoned that “FOIA requires each agency receiving a request ‘to notify the person making such request of [its] determination and the reasons therefore.”  Id. at 1893 (alteration in original) (citing 5 U.S.C. § 522(a)(6)(A)(i)). The Court also noted that the Department of Labor and other agencies have adopted more detailed regulations for responding to FOIA requests in writing.  Id. (citations omitted).

In addition to concluding that such written responses constitute “reports,” the Court further concluded that the records produced by the agency along with its written response to the three FOIA requests at issue were also reports within the meaning of the FCA’s public disclosure bar.  Id. at 1893, 1896. 

On remand, the Second Circuit is to consider whether the relator’s qui tam suit was “‘based upon . . . allegations or transactions’ disclosed in those reports.”  Id. at 1896.

Of note, the Court left open the possibility that a relator who learns of the information contained in a FOIA request from another source  may not be barred or that the relator may be excepted as an “original source,” id. at 1895, defined by the FCA as “an individual who either (i) prior to a public disclosure under subsection (e)(4)(a), has voluntarily disclosed to the Government the information on which allegations or transactions in a claim are based, or (2) who has knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions, and who has voluntarily provided the information to the Government before filing an action under this section,” 31 U.S.C. § 3730(e)(4)(B). 

Given the Court’s broad definition of “report” as a public disclosure bar under the FCA, one can only imagine how courts might apply the “news media” section of the public disclosure bar in a world of ever-increasing blogging, social networking and “news sites” that can be updated by almost anyone with the click of a mouse. 

Although at least one state false claims act specifically provides that information is not “‘publicly disclosed’ in the ‘news media’ merely because information of allegations or transactions have been posted on the internet or on a computer network,” New York False Claims Act, N.Y. State Fin. Law §190(9)(b)(iii), the FCA does not define the term “news media” or enumerate any exceptions to it. 

Thus, in addition to being mindful of one’s internet reputation, generally, and refraining from disclosing confidential information to others during the pendency of a qui tam action, an individual thinking of filing a false claims action should be mindful of publicly available information on the world wide web as a potential bar to suit.  At the same time, Schindler serves as an important reminder that a qui tam lawsuit must be based on independent knowledge or information of fraud on the government, not on public disclosures.   

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Melanie Garner is an attorney at Waters & Kraus, LLP, in the firm's Baltimore office. She focuses her practice on toxic tort, product liability, and qui tam (whistleblower) cases.

Is Off-Label Marketing Here to Stay?

Since 2004, there have been dozens of settlements in qui tam cases alleging off-label marketing by pharmaceutical and medical device manufacturers. These include some of the largest qui tam settlements in history, including $1.4 billion paid by Eli Lilly in January 2009 and $2.3 billion paid by Pfizer in September 2009. One might reasonably ask whether the drug and device industries have learned their lesson from these cases and will be deterred from future off-label marketing. The writer thinks not, simply because off-label sales are an important part of the business model for drug and devices companies.

To understand this point, one must understand two simple facts about these industries: 

1. getting FDA approval for a new “indication” for a drug or device is very expensive; and
2. once a drug or device has been approved for a single use, no matter how narrow or specific, doctors are free to prescribe it for any other use they see fit.

If you are in charge of rolling out a new drug or device for a manufacturer, your job is to maximize sales of that drug or device and your compensation is likely tied to your success in doing so. Therefore, you don’t have to be a marketing genius to figure out that the market for your product can be increased greatly, and the company’s sales of the new drug or device will soar, if only doctors will make up their minds to use it for an off-label condition that affects large numbers of people.

Yet you are not supposed to actively “promote” a use of a drug or device that is not described in its FDA-approved labeling. If you do so, you may be guilty of misbranding, 21 U.S. C. §352, for which there are criminal penalties including imprisonment for not more than one year and fines of up to twice the gross gain realized by your company. 21 U.S. C. §§331 & 333. Moreover, the False Claims Act may subject you to treble damages and civil penalties on sales to government healthcare programs. 32 U.S.C. §3729. This creates a real conundrum for the drug or device marketer, one in which he weighs the benefits of violating the law (potentially billions of dollars in annual sales for a blockbuster drug) against the likelihood and consequences of getting caught (not too great and not to bad).

As a practical matter, even when drug and device companies are caught, no one goes to jail and the fines imposed are significantly less than the profits realized, especially profits pocketed by executives and sales personnel who have moved on and left others to clean up the mess. It often takes four to five years for the government to act upon a qui tam complaint and the complaint itself may not be filed until several years after the illegal activity occurs. Several of the off-label cases settled within the last year involved conduct occurring between 1998-2000, for a starting point, and 2004-2006, for an end point. The company and many in its sales force often realize years of profit before they are asked to pay anything back. So, doing a simple cost/benefit analysis, many people in the industry decide to break the law. It’s as simple as that.

Once the decision is made to break the law by engaging in off-label promotion of drugs or devices, it takes only a small additional failure of conscience to use money to influence medical education, to distort medical research and to influence the prescribing behavior of physicians, especially if you are losing market share to cut-throat competitors who are already doing so. Depending upon the circumstances, these acts may constitute violations of the Anti-Kickback Statute, 42 U.S.C. §1320a-7b(b)(2) and the False Claims Act, 31 U.S. C. §3729 et seq.

I'm convinced that people in the drug and device industries are no worse morally than people in any other. But these are tough, competitive industries where people are expected to produce outsized profits on their compainies' best products to make up for all the drugs and devices that never pay for their costs of development. The pressure to produce and compete can be overwhelming. many executives and sales representatives eventually reach a day when they can no longer look themselves in the mirror. If you have reached that point, the lawyers at Waters & Kraus are here to help you do the right thing without sacrificing the financial well-being of your family. The government provides you a significant bounty of 10% to 30% of its recovery in any qui tam case you file in order that you will not have to make the Hobson's choice of either breaking the law or having no livelihood.

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WM. Paul Lawrence, II serves as of counsel to Waters & Kraus, LLP. His practice focuses on appellate, class action, and qui tam (whistleblower) litigation under the False Claims Act.