Illicit Marketing of Drugs and Devices Extends Beyond Off-Label Promotion to False Marketing by Means of Biased Medical Research

For years, the Justice Department and qui tam whistleblowers have pursued cases in which drug or device manufacturers market their products for unapproved “off-label” uses after gaining FDA approval for limited “on-label” indications. Although doctors can prescribe drugs and devices for any indication they deem medically appropriate, whether on or off-label, it is illegal for manufacturers to promote their products for off-label uses. Also, government healthcare programs generally do not reimburse for experimental uses of drugs and devices that are not medically accepted as reasonable and necessary.

In the typical off-label case, the whistleblower and the government complain not only about off-label promotion, but also about kickbacks paid to clinicians to influence their script-writing decisions and/or money lavished upon medical researchers to bias their published reports in ways that downplay safety risks and overstate the efficacy of the manufacturer’s drug or device. Although qui tam or False Claims Act cases of this sort are generally lumped together under the rubric of “off-label marketing,” I believe the real heart of these cases is the use of drug or device maker money to illicitly influence the script writing decisions of clinical physicians, whether the drugs or devices in question are used on or off-label.

Generally, to violate the False Claim Act, a manufacturer must “cause” others (often doctors or pharmacists) to submit false or fraudulent claims to government healthcare programs.  A claim made against Medicare or Medicaid in many of these cases is false or fraudulent not so much because it involves an off-label use (a doctor can, after all, prescribe an off-label use if it is medically indicated), but because the medical decision to prescribe the drug or device has been influenced by kickbacks or false information provided to the clinician.

In other words, illicit or false marketing that is actionable in a case under the False Claim Act can take the form not only of off-label marketing, but also: (1) marketing that is illicit because of money paid to clinical physicians to influence their script-writing decisions—a garden variety kickback; and (2) marketing that is illicit because of money paid to medical researchers to  bias the published medical literature, thereby influencing the script-writing decisions of clinicians—a kickback once removed in the chain of causation.  

The second of these illicit marketing schemes has yet to be well-recognized as a False Claims Act violation, but should be. The causation test generally employed in False Claims Act cases is foreseeablility. If a drug or device maker can reasonably foresee that publication of biased or corrupted medical literature will cause submission of claims for its product to government healthcare programs, then the test of causation is satisfied. Claims caused by this sort of marketing are false or fraudulent not only because they have originated from kickbacks that create conflicts of interest for researchers, but also because biased or corrupted research studies can be considered false statements or false documents used to get claims paid within the meaning of the False Claims Act.

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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.

Blowing the Whistle: A Civic Duty?

On July 22—one year after President Obama signed the Improper Payments Elimination and Recovery Act[1]—Senators Tom Carper (D-Del.), Joe Lieberman (I-Conn.), Susan Collins (R-Maine), and Scott Brown (R-Mass.) introduced the 2011 Improper Payments Elimination and Recovery Improvement Act (S. 1409)[2].  The purpose of the bill, which includes provisions such as the establishment of a “Do Not Pay List,” is “[t]o intensify efforts to identify, prevent, and recover payment error, waste, fraud and abuse within Federal spending.”[3]  According to a press release on Senator Carper’s website, Senator Lieberman urged: “The nation’s weak economy demands that the federal government find more and better ways to avoid wasting $125 billion a year in taxpayer funds because of improper payments—whether to contractors who have been barred from working with the government or to deceased Social Security recipients.”[4] Senator Collins similarly stated: “Improper payments remain a serious problem across the government and cost taxpayers billions of dollars each year. . . ., not including major programs that aren’t even reporting their payment errors yet, such as the Medicare prescription drug program and about half the Pentagon’s payments.”[5]  

The current and proposed Acts target “improper payments,” which are “payments made in error, such as payments made to the wrong person or in the wrong amount,”[6] as opposed to payments made in response to fraudulent or false claims submitted to the government for payment by individuals or corporations, which are the subject of the False Claims Act.[7] Unlike the increased internal government oversight provided by the proposed legislation, the False Claims Act allows private citizens to file a qui tam (or whistleblower) lawsuit on the government's behalf to aid in the recovery of monies paid when the government has been defrauded through any federally funded contract or program. Although statistics regarding annual recoveries from qui tam lawsuits are available through the Department of Justice, it is difficult (if not impossible) to pinpoint the total amount of false claims for payment submitted to the government each year, especially where such claims go unreported.  Recent discussion on limiting improper payments is, nevertheless, a reminder of the powerful tools already available to help recover monies paid for false claims submitted to the government and to penalize those who made them.     

Of course, the decision to file a qui tam lawsuit is an individual one based on any number of personal and legal considerations; however, in today’s economy—in the wake of protracted debates over debt ceilings and downgraded credit ratings—query whether filing such a suit may be viewed as a civic duty . . . like serving as a juror or potential juror. What do you think?

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[1]See White House Press Release, “President Obama to Sign Improper Payments Elimination and Recovery Act” (July 22, 2010), available at: http://www.whitehouse.gov/the-press-office/%20president-obama-sign-improper-payments-elimination-and-recovery-act (last visited Aug. 8, 2011).

[2] The full text of the proposed bill is available at: http://www.gpo.gov/fdsys/pkg/BILLS-112s1409is/pdf/BILLS-112s1409is.pdf (last visited Aug. 8, 2011).

[3] See id.

[4] See Press Releases - Newswoom – Tom Carper, U.S. Senator for Delaware, available at http://carper.senate.gov/public/index.cfm/pressreleases?ID=457fc5ce-06b7-4d3e-8dfc-4350a5c1d8e4 (last visited Aug. 8. 2011).

[5] See id.

[6] See id.

[7] 31 U.S.C. § 3729, et seq.

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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.

New Wrinkle in Consideration of Whether Severance Agreement Bars Qui Tam Suit

Back in May, I wrote about whether a general release in a severance agreement waived a potential whistleblower’s ability to bring a False Claims Act suit. An opinion out of the U.S. district court in Boston adds a new wrinkle to the analysis.

In general, courts have held that a general release in a severance agreement would not bar a whistleblower from bringing a qui tam suit if the release was signed prior to the whistleblower filing suit. Courts reasoned that in such circumstances it would violate public policy to bar the suit because they did not want to allow companies committing fraud to prevent the government from learning of their fraud by having employees sign severance agreements. Under the same reasoning, if the release were signed after a whistleblower brought suit, and therefore the government already had been notified of the fraud, those public policy issues were no longer a concern, and the release would bar the whistleblower’s claims.

In U.S. ex rel. Nowak v. Medtronic, Inc., the whistleblower had signed the severance agreement prior to bringing suit, but the court nevertheless held that his claims were barred. Why? The Nowak court found that many of the allegations brought by the whistleblower had been publicly disclosed—in news articles, to the FDA, and in other sources. The court thus found that since the government would have been aware of the fraud from the public disclosures prior to the whistleblower bringing suit, there was no public policy reason to prevent the release in the severance agreement from barring the whistleblower’s suit.

Thus, it is no longer generally the case that a release in a severance agreement signed prior to a whistleblower bringing a qui tam suit will not bar the suit. If information relating to the whistleblower’s allegations is in the public domain such that the government would be aware of the possible fraud, the release could bar the whistleblower from bringing suit.

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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.

DOJ Considers Joining Lawsuit Against Home Depot for Violating Buy American Act; Several Companies Settle Similar Allegations

Home Depot confirmed in June of 2011 that the Department of Justice (DOJ) is “taking a closer look” at allegations in a complaint filed in federal court that Home Depot violated the False Claims Act.[1]  The complaint alleges that Home Depot violated federal law by selling products manufactured in China and other countries to the federal government, in violation of the Buy American Act.  The Buy American Act requires that sellers to the federal government provide only products which were made in the United States, or one of the countries which the United States has a trade agreement with.  China does not have a trade agreement with the United States, and so products manufactured in China may not be sold to the United States government under federal law unless the products fall under a recognized exception to the Buy American Act.   Although news that the DOJ may intervene in the suit against Home Depot came recently, the DOJ has been investigating the case since the complaint was first filed in 2008.  Recently, the Judge in this case denied Home Depot’s Motion to Dismiss—a positive sign for the plaintiffs. 

Although the lawsuit against Home Depot has not yet been resolved, Staples, Office Depot, and Office Max have settled similar allegations.  In 2005 Staples entered into a $7.4 million settlement with the Department of Justice regarding its alleged violations of the Buy American Act.[2]  The DOJ also entered into a $9.8 million settlement with Office Max and a $4.75 million settlement with Office Depot regarding their alleged violations which arose under the same complaint.   

Home Depot, Staples, Office Max, and Office Depot are not the only companies that have faced allegations that they violated the Buy American Act.  In January of 2011 the DOJ announced that Fastenal, a Minnesota-based chain of hardware stores, reached a $6.25 million settlement with the DOJ over allegations that it violated the Buy American Act.[3]  Whatever the outcome may be in the pending lawsuit against Home Depot, it is clear that the DOJ is taking a serious stand against companies which falsely certify that products sold to the government were made in the United States. 

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[1]Maxwell Murphy, Justice Dept Considers Joining Home Depot Whistle-Blower Suit, Wall Street Journal, June 27, 2011, http://online.wsj.com/article/BT-CO-20110627-711891.html.

[2] Minnesota-based National Hardware Store Distributor Fastenal to Pay U.S. $6.25 Million to Resolve False Claims Act Allegations, Department of Justice Press Release, January 13, 2011, http://www.justice.gov/opa/pr/2005/October/05_civ_549.html. 

[3] Staples Pays United States $7.4 Million to Resolve False Claims Act Allegations, Department of Justice Press Release, October 18, 2005, http://www.justice.gov/opa/pr/2011/January/11-civ-042.html.

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Jennifer L. McIntosh is an attorney at Waters & Kraus, LLP, in the firm’s West Coast practice — Waters, Kraus & Paul. Her practice focuses on class action cases, qui tam (whistleblower), and commercial litigation.

Mortgage Fraud as the Basis for a Qui Tam (Whistleblower) Lawsuit

Although claims of mortgage fraud are abundant in our daily news stories (and perhaps the personal accounts of our family and friends), not all mortgage fraud forms the basis of a qui tam (whistleblower) lawsuit. In order to bring a qui tam suit in which a relator (the whistleblower) files suit on behalf of the government and may be entitled to a portion of the government’s recovery, there must be evidence of some sort of fraud against the government. Thus, fraudulent conduct by banks against homeowners or an individual against their lender would not necessarily give rise to a successful qui tam action, absent evidence of harm suffered by the government.

A possible example of such fraud is the subject of a lawsuit currently pending against Deutsche Bank AG and its subsidiary MortgageIT Inc. in the U.S. District Court for the Southern District of New York.[1] In that case, brought under the Federal False Claims Act, the United States has alleged, among other things, that Deutsche Bank and MortgageIT falsely certified that they had complied with various HUD (Department of Housing and Urban Development) requirements in order to obtain FHA (Federal Housing Administration) insured loans on behalf of their borrowers. More specific examples of the fraudulent conduct include allegations of failing to conduct due diligence in connection with a gift being used to fund a transaction, failing to assemble a borrower’s credit history, failing to document and verify a borrower’s investment in a property, failing to verify a borrower’s employment, and failing to secure a deposit—all while certifying that such due diligence had been completed. The United States further alleged that in each instance, the borrower subsequently defaulted on the mortgage and, as a result, HUD paid hundreds of millions of dollars in FHA insurance claims.[2]              

If you have witnessed or otherwise have personal knowledge of the government being cheated out of money through the fraudulent conduct of a bank, its members or employees, or any other entity or individual, you may be able to file a qui tam lawsuit to assist the government in recovering that money, and attorneys at Waters & Kraus, LLP will be happy to talk to you about your potential case.

[1] United States v. Deutsche Bank AG, et al., Docket No. 11-CIV-2986 (S.D.N.Y May 9, 2011).

[2] See 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.

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Can a Government Employee Bring a False Claims Act Case?

In our recent case, U.S. ex rel. Black & Montiel v. Novo Nordisk, which the Department of Justice settled for $25 million, one of the relators was a former Army officer who got some of the information that formed the basis for the lawsuit while he was in the Army. The question that the government and relators’ counsel struggle with in these cases is whether a government employee can be a relator. The Department of Justice generally takes a very strong stance on that issue, and will often tell government employee relators at the beginning of a case that they are not considered proper relators. During recent efforts to amend the False Claims Act, the DOJ supported an amendment that did not make it into any of the final bills that explicitly barred government employees from becoming relators.

For all intents and purposes, the viability of a False Claims Act suit brought by a government employee depends on whether any of the information underlying the complaint has been publicly disclosed. Under the FCA, if there has been a public disclosure, the relator has to qualify as an “original source,” which in turn requires the relator to have “voluntarily” disclosed the information about the fraud to the government. The government has argued that a government employee who is charged with disclosing fraud as part of his job cannot “voluntarily” disclose the information. The government is concerned, in these situations, that government employees who are charged with ferreting out fraud will file qui tam cases instead of doing their job. Several courts, considering these public policy implications, have accepted this argument. See U.S. ex rel. Fine v. Chevron, 72 F.3d 740 (9th Cir. 1996). But other courts have found that under certain circumstances, a government employee can be a relator. For example, if the employee has a job that does not require the reporting of fraud. Thus, while a government auditor may have trouble showing he is a relator, a postal worker, whose job it is to handle mail rather than uncover fraud, has a better chance at qualifying as an original source. See U.S. ex rel. Holmes v. Consumers Ins. Group, 318 F.3d 1199 (10th Cir. 2003). A government employee is also more likely to qualify as a relator where she reports the fraud up her chain of command,  and nothing was done about it, prior to filing suit, since under those circumstances, public policy favors consideration of the employee as an original source.

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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.

California DOJ Announces Two Multimillion Dollar False Claims Act Settlements

Quest Diagnostics Settles for $241 Million; CVS Pharmacy Settles for $1.76 Million

DOJ Affirms its Commitment to Prosecuting Medi-Cal Fraud  

California Attorney General Kamala D. Harris announced a $241 million settlement with Quest Diagnostics on May 19, 2011. Quest is the largest commercial laboratory in California, according to allegations in the complaint. The Attorney General’s Office stated that this settlement is the biggest recovery in the history of California’s False Claims Act. The Quest settlement involved allegations that Quest charged Medi-Cal[1] up to six times more for laboratory services than it charged private companies. By law, Quest was required to charge Medi-Cal no more than it charged any other purchaser of comparable services in comparable circumstances. The complaint also included allegations of an illegal kickback scheme.

                                        

Although the settlement involved just Quest, other laboratory companies, including LabCorp, are also named in the same complaint. The Attorney General’s Office stated that trial involving the LabCorp allegations is scheduled for early next year. LabCorp is the second largest provider of laboratory services in the state, according to the complaint. A total of eight laboratory companies, including Quest and LabCorp were named in the complaint. In the press release announcing the Quest settlement, Attorney General Harris stated: "In a time of shrinking budgets, this historic settlement affirms that Medi-Cal exists to help the state's neediest families rather than to illicitly line private pockets." Attorney General Harris also had a strong warning for companies and individuals who would try to defraud Medi-Cal. She stated, “Medi-Cal providers and others who try to cheat the state through false claims and illegal kickbacks should know that my office is watching and will prosecute." 

In addition to the Quest settlement, the California Department of Justice (DOJ) announced on April 22, 2011 that it reached a settlement with CVS Pharmacy, in conjunction with the U.S. Department of Justice and nine other states. California will receive $1.76 million of the total $17.5 million settlement with CVS. The allegations in this complaint were that CVS submitted claims for prescriptions drugs to Medi-Cal for individuals who had health insurance coverage under both Medi-Cal and private insurance. Under law, Medi-Cal is the secondary payer in claims where individuals are covered by both Medi-Cal and private insurance. In other words, if an individual is covered by both Medi-Cal and private insurance, Medi-Cal is only responsible for the co-payment, while the insurance company is responsible for the remainder of the claim. The California DOJ’s announcement in recent months of settlements with Quest and CVS demonstrates its commitment to pursuing legal action against those who make false claims to Medi-Cal.

Press Releases for the Settlements with Quest and with CVS can be found at:

  http://oag.ca.gov/news/press_release?id=2518&

  http://oag.ca.gov/news/press_release?id=2074&

[1] Medi-Cal is the name for California’s Medicaid program, which is jointly funded by California and the federal government.

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Jennifer L. McIntosh is an attorney at Waters & Kraus, LLP, in the firm’s West Coast practice — Waters, Kraus & Paul. Her practice focuses on class action cases, qui tam (whistleblower), and commercial litigation.

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