By Andrew S. Boutros, Christopher RobertsonJohn R. Schleppenbach, and Craig B. Simonsen

Seyfarth Synopsis:  The United States Department of Justice recently filed a seismic motion to dismiss in a series of healthcare fraud-related cases.  In doing so, the government questioned the whistleblowers’ theory of False Claims Act liability and stressed the expense to the government of monitoring the litigation and responding to discovery.  This is the latest step the DOJ has taken to reign in potentially unwarranted FCA suits in the wake of its so-called Granston Memo.

This past Monday, December 17, 2018, the United States Department of Justice (DOJ) took the significant step of filing a motion to dismiss eleven False Claims Act (FCA) suits brought by whistleblowers alleging that patient assistance services supplied by pharmaceutical companies are unlawful kickbacks.  This concrete and decisive action by the DOJ suggests it intends to strongly implement its recent policy memo targeting weak or unfounded FCA actions.

By way of brief background, the FCA, 31 U.S.C. §§ 3729 – 3733, provides civil penalties against any “person” who, in relevant part, “knowingly presents, or causes to be presented, to an officer or employee of the United States Government . . . a false or fraudulent claim for payment or approval.”  Although the U.S. Attorney General can bring suit under the FCA, the FCA permits private persons, known as “relators,” in what is known as a “qui tam” action, to bring suit on behalf of the government and collect as a reward a percentage of the recovery.  The recovery can include civil penalties of $5,500 to $11,000 for each violation, treble damages for the funds fraudulently obtained, plus attorneys’ fees and costs.  Thus, some firms specialize in investigating and bringing FCA claims in hopes of reaping these sizable rewards.

The relators in the eleven actions the DOJ seeks to dismiss are all backed by one such specialist firm, National Health Care Analysis Group, and all raise the same theory (which was recently successful in a suit by California regulators) that drug makers are in essence paying “kickbacks” when they assist prescribing doctors with prior authorizations and nurses with information to educate patients about how to use their drugs properly.  The DOJ’s dismissal motion was strongly critical of that theory, describing the provision of patient support services related to medication as “common industry practices” that are “appropriate and beneficial to federal health care programs and their beneficiaries.”  The DOJ also told the courts that, based on its investigation “the government has concluded that the relators’ allegations lack sufficient factual and legal support.”

In addition, the DOJ’s filing stressed the “substantial costs in monitoring the litigation and responding to discovery requests” that the DOJ would incur should these FCA suits go forward. It noted the six-year period covered by the complaints and the nearly 500,000 prescriptions written by more than 10,000 physicians during this time frame.  Ultimately, it concluded the allegations of the complaints were “unlikely to yield any recovery sufficient to justify the significant costs and burdens that the government will occur if the cases proceed.”

These arguments are consistent with the positions articulated in the DOJ’s January 10, 2018 memorandum on Factors for Evaluating Dismissal Pursuant to 31 U.S.C. §  3730(c)(2)(A) (Granston Memo), which directed federal attorneys to be more aggressive about ending FCA suits that lack substantial merit.  The Granston Memo states that “over the last several years, the Department has seen record increases in qui tam actions filed with annual totals approaching or exceeding 600 new matters.  Although the number of filings has increased substantially over time, the rate of intervention has remained relatively static.  Even in non-intervened cases, the government expends significant resources in monitoring these cases and sometimes must produce discovery or otherwise participate.”

This latest DOJ motion to dismiss does not represent the DOJ’s first action to implement the Granston Memo.  Earlier this month, the DOJ asked the United States Supreme Court to dismiss an appeal in an FCA case out of the Ninth Circuit because the DOJ was no longer interested in pursuing the case.  In that matter, too, the DOJ cited “burdensome discovery which would distract from the agency’s public-health responsibilities.”

In light of these developments, it would not be surprising to see additional motions to dismiss from the DOJ in FCA cases in 2019 and beyond.  More than ever, defense-oriented FCA practitioners must vigilantly look for opportunities to invoke the Granston Memo and its policy underpinnings in FCA suits—especially ones that seek to push the FCA envelope with novel, aggressive, or questionable theories of liability.

Those with questions about any of these issues or topics are encouraged to reach out to the authors, your Seyfarth attorney, or any member of the Seyfarth Shaw’s White Collar, Internal Investigations, and False Claims Team.

By Ada W. Dolph and Craig B. Simonsen

PostHailed as “another achievement” for the government’s Health Care Fraud Prevention and Enforcement Action Team (referred to as “HEAT”), the U.S. Department of Justice has announced that a Florida skilled nursing company and its former president and executive director will pay $17 million to resolve allegations that the company violated the False Claims Act by submitting claims to Medicare and Medicaid for patients that were referred to the company through illegal kickbacks.

The Department of Justice called this the largest settlement involving alleged violations of the Anti-Kickback Statute by a skilled nursing facilities company in the United States. Under the False Claims Act, the company’s former CFO, who initiated the lawsuit, will receive an eye-popping $4.25 million as his share of the recovery.

The CFO alleged that from 2006 through 2013, the company operated a kickback scheme in which they hired physicians as medical directors under contract. The lawsuit alleged that the medical director positions were actually “ghost positions,” which did not require the medical directors to perform any actual work; rather, they were on contract for their patient referrals to the company’s facilities. The CFO alleged that up to 70% of admissions to the skilled nursing facilities resulted from referrals by paid medical directors.

As part of the settlement, the company’s president agreed to resign from his position.  The company also entered into a five-year “corporate integrity agreement” with the Department of Health & Human Services Office of Inspector General, and agreed to change its policies on hiring and maintaining medical directors.

The Department of Justice asserted in its press release that with the help of HEAT, since January 2009 it has recovered more than $24 billion through False Claims Act cases, of which more than $15 billion was recovered in cases involving fraud against federal health care programs.

Ada W. Dolph is Team Co-Lead and Craig B. Simonsen is a member of the National Whistleblower Team. If you would like further information on this topic, please contact a member of the Whistleblower Team, your Seyfarth attorney, Ada W. Dolph at ADolph@Seyfarth.com, or Craig B. Simonsen at CSimonsen@Seyfarth.com.

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