Tracking the Top 5 False Claims Acts Issues in 2019
Back in February, we highlighted five areas to watch in False Claims Act enforcement. So far, 2019 has lived up to expectations. Here’s a rundown of some developments in recent months.
#5. Healthcare Settlements Bring in The Big Bucks.
FCA recoveries were lower in FY 2018 – the Department of Justice could brag about “only” $2.8 billion in settlements and judgments for the year – but attention-grabbing numbers have made the news in 2019. As anticipated, manufacturers and distributors of opioid-related products have been targeted for enforcement, as we wrote, in July, and some massive civil settlements have resulted.
• $1.4 billion resolution of opioid treatment marketing claims. The Department of Justice announced on July 11, 2019 that it has resolved criminal, civil, and administrative claims against Reckitt Benckiser Group plc (“RB Group”) arising from the company’s marketing of the opioid addiction treatment drug Suboxone. The civil portion of the recovery – $700 million of the $1.4 billion total payment – resolves six qui tam actions against the company.
• $225 million recovered from opioid manufacturer. In June, Insys Therapeutics reached a global settlement of charges that it had paid kickbacks to encourage doctors to prescribe the opioid drug Subsys. $195 million was earmarked to resolve five False Claims Act cases that had been unsealed last spring.
• $257 million paid to resolve kickback allegations. The government also wrapped up claims against five different prescription drug manufacturers that worked with foundations to cover the costs of Medicare benefit co-pays – allegedly to steer prescriptions to the drugs offered by the manufacturer. The United States charged that the payments violated the Anti-Kickback Statute and the resulting claims to Medicare violated the False Claims Act.
Even with the big numbers coming from the health care sector, government contractors have not gotten a pass this year. The Justice Department has intervened in or resolved a number of procurement fraud claims, on allegations ranging from insufficient testing of military equipment to defective pricing and false billing for services.
#4. New DOJ Guidelines Detail How Defendants Can Get Credit for Cooperation.
Last year, the Justice Department revised its previous strict standards for companies seeking cooperation credit in criminal cases; in May 2019, DOJ issued more detailed guidance about the benefits of cooperation for those who wish to resolve civil FCA allegations.
• Max credit for full disclosure, cooperation, and remediation. The policy makes clear that to earn “maximum credit,” a company must:
o Voluntarily disclose findings from internal investigations. The policy acknowledges that the government benefits when companies aren’t afraid to reveal the results of internal investigations for fear of punitive sanctions.
o Cooperate during the government’s investigation. Even after a government investigation is underway, a company can get credit for facilitating the government’s efforts. Merely complying with subpoenas or other types of compelled responses is not likely to meet the guidelines, however.
o Take remedial action. A company that demonstrates it has assessed and addressed the risk areas around the conduct at issue in the investigation can make a case for cooperation credit.
The policy requires all three factors to justify full credit but notes that defendants can still earn partial credit for “meaningfully assist[ing]” the government.
• Credit = reduction in damages multiplier and penalties. In the past, the government has been reluctant to accept less than double damages in settlement, but the new policy expressly allows Justice Department attorneys to dip below that threshold so long as the government receives “full compensation” for its losses, including “damages, lost interest, costs of investigation, and relator share.”
• Additional non-monetary credits available. The policy outlines other ways that the government can be helpful to cooperating entities by, for example, notifying the relevant agencies about the cooperation for their consideration in taking any administrative action. DOJ might also assist in resolving issues with qui tam relators in the case.
#3. DOJ Will (Try To) Dismiss Whistleblower Actions – Sometimes.
2018’s “Granston Memo” signaled that DOJ was prepared to take more aggressive action to dismiss whistleblower cases that do not serve the government’s interests. As the United States has filed motions to dismiss under section 3730(c)(2)(a), district courts have been confronted with the question of what standard should apply (see our April post). Does the government have unfettered discretion to dismiss a case brought in the name of the United States, as the D.C. Circuit has held? Or, must it articulate a reason for seeking dismissal, as the 9th Circuit requires?
• Courts find that the government has given reason enough. In the last several months, most district courts considering (c)(2)(A) motions to dismiss have found that the government’s articulated bases are sufficient to meet the 9th Circuit’s higher, “rational relationship” test, thus granting the motion and dismissing the case without formally adopting either standard.
• Judge Yandle holds DOJ’s feet to the fire. A government motion to dismiss was denied, however, by a district court in Illinois. In April 2019, in the case of United States ex rel. CIMZNHCA v. UCB, Inc., the court rejected DOJ’s rationale that litigating the whistleblower’s allegations would place an undue burden on government resources on a liability theory that undermined government policies. The government sought reconsideration, but that motion was also denied.
#2. The Supreme Court Allows Whistleblowers to Use 10-Year Statute of Limitations.
In the only FCA case to reach the Supreme Court this year, Cochise Consultancy Inc. v. United States, ex rel. Hunt, the justices unanimously ruled that whistleblowers can take advantage of both parts of the FCA’s two-part statute of limitations. In essence, a whistleblower action will not be time-barred if it is filed either within six years of the alleged violation or within three years of the date on which the government was notified of the conduct, up to ten years from the date of the violation.
• Whistleblowers have more time to file – in theory, but rarely in practice. The ruling has the potential effect of extending the limitations period in cases where the United States declines to intervene. However, the Court recognized during oral arguments that, as a practical matter, relators – the ones with good cases, at least – are incentivized to file quickly so as to avoid being eliminated from any recovery under the first-to-file provision of the FCA.
• Whistleblowers are not “officials of the United States.” The Court’s ruling in Cochise clarified that knowledge by the government triggers the three-year notice period of the statute of limitations, explaining that the plain language of the statute does not encompass the relator, who is neither an employee nor an appointed officer of the United States. This finding has broader ramifications, though, in light of a separate cert petition filed this year which argued that the FCA’s whistleblower provisions are unconstitutional because they violate the Appointments Clause. Petitioners in that case dismissed their appeal two days after the Cochise decision was announced.
#1. The Fight Over Materiality Lives On … And On And On.
Despite multiple pleas to the Supreme Court to clarify its 2016 decision in Universal Health Services, Inc. v. United States ex rel. Escobar, et al. on the issue of materiality in FCA matters, the justices declined to take any of the cases seeking cert this term. The district and circuit courts are still working through the materiality arguments being presented to them in a variety of factual contexts. While hard-and-fast rules remain elusive, some themes are starting to emerge:
• Price is an “essential element” of the government’s bargain. The lower courts have had no problems finding that materiality is adequately alleged against defendants who overcharged the government – whether by manipulating “usual and customary” drug prices or routinely upcoding for procedures.
• Government knowledge can go a few different ways. Some defendants have successfully demonstrated a lack of materiality when the government was aware of a company’s violation or noncompliance and decided to pay their claims, anyway. On the other hand, the government’s generalized knowledge of noncompliance within an industry may not be sufficient to dispose of the issue – at least in the early stages of litigation. And, some courts have recognized that the government may have legitimate competing interests – such as continued consumer access to healthcare or national defense interests – that would justify continued payment even with knowledge of material errors.
• Escobar’s two-part test may or may not be mandatory. Escobar upheld the implied false certification theory of liability where a defendant (1) makes specific representations about the goods or services provided; and (2) fails to disclose noncompliance with material requirements that render its representations “misleading half-truths.” Many lower courts have stated that both elements must be met, but some courts have rejected a strict application of this test where the underlying noncompliance involves kickbacks or other illegal activity.
i RB Group spun off the wholly owned subsidiary that marketed and sold Suboxone, Indivior Inc., in 2014. Criminal charges remain pending against Indivior.
ii In the past, in the absence of internal guidance, Justice Department attorneys have cited to the reduced damages provisions in the False Claims Act itself, which credits defendants who timely self-report their violation to the United States but mandates that the courts still assess “not less than 2 times the amount of damages which the Government sustains …” 31 U.S.C. § 3729(a)(2).
iii Characterizing FCA settlement payments as compensatory (or, more specifically, as restitution) may allow companies to treat the payments as deductible business expenses under the Tax Cuts and Jobs Act of 2017.
iv See 31 U.S.C. § 3730(b)(5).
August 6, 2019