PRACTICAL CONSIDERATIONS           IN DEFENDING AGAINST    HEALTHCARE FRAUD AND ABUSE ACTIONS                     STARK LA...
Martin MerrittAttorney At LawMartinMerritt PLLC100 Crescent CourtSuite 700Dallas, Texas 75201(214) 459-3131(214) 459-3010 ...
Dallas Bar Assn. Friday MCLE Clinic, (May 1990); “Responding to Adverse Pretrial and Trial Motions,” Texas Trial LawyersAs...
drugs. While physicians and providers spend                incentive,” to perhaps over-treat. In fact the onlycountless re...
experience.” See, Rehab’h Ass’n of Va. v.                  know which law actually applies.)Kozlowski, 42 F.3d 1444, 1450 ...
outrageously bad actors, which tends to erode              for two reasons (1) in response to the ballooningblind faith th...
overlap between Stark Law and the AKS, (and                 soon found out how difficult it is to “un-ring awhy most physi...
criminal action, or simply civil money penalties?           example, a physician may perfectly fit the AKSThe answer isn’t...
from AMA “Conflict of Interest” Rule 8.032 (and             the Amgen case cited in Part II. This includes:its predecessor...
subject to a penalty for each claim submitted. This         (i.e., “knows” about the claim), the provider mustis how in th...
situation, (8) consider ability to pay in accessing         following are examples of questionable features,civil money pe...
U.S. v. Campbell case, (Cited in Part II)                    alleged wrongdoing compared with the rule beingdemonstrates, ...
doctor, and maybe the office manager. Instruct              that the doctor may have been paid above the fairyou clients t...
the total since January 2009 to $8.7 billion – the          presented a false claim for payment or approval;largest three-...
the courts as a last resort. (2) qui tam relators must       court for “good cause” may, (and normally)use the False Claim...
unsealed and the defendant is served. The first             to weigh mixed fact and law issues in a 12.b.1responsive plead...
Iqbal/Twombly decisions were specifically                   Cases?designed to address growing concerns that (1)           ...
seeking civil remedies for fraud against the United          became one of the top selling drugs in the world.States. 31 U...
Neurontin for nociceptive pain. The jury rendered           the Information are true.").) As a result of itsa verdict in p...
migraine; and (4) doses greater than 1800 mg/day.           unapproved uses, including painful diabetic                   ...
2012 January Dba Health Law Speech
2012 January Dba Health Law Speech
2012 January Dba Health Law Speech
2012 January Dba Health Law Speech
2012 January Dba Health Law Speech
2012 January Dba Health Law Speech
2012 January Dba Health Law Speech
2012 January Dba Health Law Speech
2012 January Dba Health Law Speech
2012 January Dba Health Law Speech
2012 January Dba Health Law Speech
2012 January Dba Health Law Speech
2012 January Dba Health Law Speech
2012 January Dba Health Law Speech
2012 January Dba Health Law Speech
2012 January Dba Health Law Speech
2012 January Dba Health Law Speech
2012 January Dba Health Law Speech
2012 January Dba Health Law Speech
2012 January Dba Health Law Speech
2012 January Dba Health Law Speech
2012 January Dba Health Law Speech
2012 January Dba Health Law Speech
2012 January Dba Health Law Speech
2012 January Dba Health Law Speech
2012 January Dba Health Law Speech
2012 January Dba Health Law Speech
2012 January Dba Health Law Speech
2012 January Dba Health Law Speech
2012 January Dba Health Law Speech
2012 January Dba Health Law Speech
2012 January Dba Health Law Speech
2012 January Dba Health Law Speech
Upcoming SlideShare
Loading in …5
×

2012 January Dba Health Law Speech

2,883 views

Published on

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
2,883
On SlideShare
0
From Embeds
0
Number of Embeds
13
Actions
Shares
0
Downloads
10
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

2012 January Dba Health Law Speech

  1. 1. PRACTICAL CONSIDERATIONS IN DEFENDING AGAINST HEALTHCARE FRAUD AND ABUSE ACTIONS STARK LAW, THE ANTI-KICKBACK STATUE, THE FALSE CLAIMS ACT/QUI TAM ACTIONS _____________________________________ MartinMerritt PLLC 100 Crescent Court Suite 700 Dallas, Texas 75201 (214) 459-3131 (214) 459-3010 (Fax) (214) 952-1279 (Cell) Martin@DallasPhysicianLaw.com ____________________________________ DALLAS BAR ASSOCIATION HEALTH LAW SECTION January 18, 2012MartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 1
  2. 2. Martin MerrittAttorney At LawMartinMerritt PLLC100 Crescent CourtSuite 700Dallas, Texas 75201(214) 459-3131(214) 459-3010 (Fax)(214) 952-1279 (Cell)Practice Focus: Martin Merritt is a member of the Health Law Section of the Dallas Bar Association and the HealthLaw Section of the State Bar of Texas. MartinMerritt PLLC is a boutique practice, which focuses on the needs ofPhysicians in Stark Law/Anti-Kickback Statute Compliance, False Claims Act Litigation, Contracts and Leases,Medical Business Law, Malpractice Defense, Medical Ethics, Business Litigation, Pharmaceutical Litigation, MDLActions. Lead counsel in over 2000 medical cases. Over 100 first-chair jury trials and administrative law hearingsinvolving ethics, benefit reviews, eligibility, and whether a physician’s course of treatment was reasonable andnecessary, met the applicable standard of care, the amount charged was usual and customary in Dallas County and/orthat the coding was appropriate for the treatment provided. Cases include defense of physicians in medicalmalpractice, ethics violations, and pharmaceutical defense in MDL class action opt-out cases. As a witness, Martinhas testified in open court over 100 times on behalf of clients. First Chair Jury Trial experience in MedicalMalpractice, Wrongful Death, Paralysis Injury, Products Liability, Contracts, Negligence, Premise Liability, DTPA,Breach of Contract, Breach of Warranty, Personal Injury, Workers Compensation, Federal Statutory Law, StateRegulatory Law, Real Estate. At least a dozen $1 million and multi million dollar (net present value) recoveriesactually received on behalf of clients. Over $500 million dollars in medical malpractice and Pharmaceutical claimsdefended. Volunteer Legal Director of StarkLaw.org, a national website devoted to helping healthcare providers findanswers to compliance issues, or referral to a health lawyer in their state. Martin has also served as a Prosecutor forthe Texas Commission for Lawyer Discipline.Books Authored:Texas Motion Practice Handbook, Vols. I-II, 1600 pp., (updated annually), Knowles Publishing Co., Fort Worth,Texas (1992-2005)(Best-selling treatise and form book, Texas Civil Trial Procedure and Evidence. Chapters includeSummary Judgment, Default Judgment, Motions to Recuse Judges, Motions to Disqualify Counsel, New Trials,Dismissal for Want of Prosecution, Sanctions, Discovery Motions.) This book and the annual updates requiredreporting on every major development in civil procedure each year during the publication run.Texas Bar Journal Articles and MCLE Presentations:“Practical Considerations in Defending Stark Law, Anti-Kickback, False Claims Act, and Qui Tam Actions,” Dallas BarAssociation, Health Law Section, (Jan. 2012) “Medicare Set-Asides Under the Secondary Payor Act,” National BusinessInstitute, (Dec. 2010); “Federal Practice Update,” National Business Institute (Feb. 2001) “Fry is Out, But What is the Test?The Foundation for Expert Testimony in Federal Trials after Daubert”, 57 Tex. Bar. J. Vol. 7, pp. 710-715, (July 1994);“TexasSummary Judgment Evidence,” 53 Tex. B. J. Vol. 1, p. 24, (January 1990); “Prejudgment interest in Wrongful Death, PersonalInjury and Property Damage Actions,” Texas Trial Lawyer’s Forum, Vol. 2., No. 2 p 21-23 (1992); “A Critical Analysis of IrvingYounger’s Ten Commandments of Cross Examination,” Texas Trial Lawyers Forum Vol. 28, No. 1. pp.11-16 (1994); “Rule165a. Dismissal for Want of Prosecution” 60 Tex. Bar.J. Vol 6, pp. 555-559 (June 1997);” Summary Judgments in Texas,”MartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 2
  3. 3. Dallas Bar Assn. Friday MCLE Clinic, (May 1990); “Responding to Adverse Pretrial and Trial Motions,” Texas Trial LawyersAssociation MCLE Seminar, Dallas and San Antonio, (Feb. 1994); “Demonstrative Aides in Civil Trials,” National BusinessInstitute Seminar, (Feb. 1994); “Motion Practice Pointers,” Plano Bar Association, (July 1995); “Case Intake and Investigation,”Institute for Paralegal Education, Seminar, (Sept. 1994) “Cross Examination, Getting the Most out of Depositions,” Texas TrialLawyers Assoc., Seminar, (Sept 1996); Guardian Ad Litem Practice and Procedure,” University of Houston Bar Foundation. shareholders, as we have seen with decisionsPart I: Government made by CEO’s of managed care organizations. Fifty years ago, the AMA didn’t really need toEnforcement of Health Care choose which was worse– Scylla or Charybdis– inFraud and Abuse Laws. the 1950s the AMA had fairly well erasedBy Martin Merritt capitalism from the picture. Both theMartin@DallasPhysicianLaw.com pharmaceutical industry and the health care delivery industry had come to respect the AMA’s1. Fraud vs. Abuse. Sources of Federal Health power to enact state laws which made theCare Fraud and Abuse Laws: The AMA Code corporate practice of medicine a crime, or simplyof Medical Ethics made it impossible, by negative implication, for corporations to qualify for a license to deliver The health care system in the United health care. See, Claymon, Jennifer, “CorporateStates has been described as the world’s largest, Practice of Medicine and Non-Profits,” UT Schoolcostliest health care bureaucracy, engulfed by red of Law Health Law Conference, (April 2009.) See,tape and maddening complexity, in which Garcia v. Texas State Board of Medical“[i]nsurers cheat patients and doctors; patients Examiners, 384 F. Supp. 434, 437-38 (W.D. Tex.cheat doctors and insurers; doctors cheat insurers 1974). So powerful was the AMA, evenand patients; and all cheat the federal and state Pharmaceutical companies didn’t dare advertisegovernments.” See, Bartlett, Donald; Steele, directly to consumers, as the AMA did not wantJames, Critical Condition– How Health Care in anyone, other than a physician, telling patientsAmerica Became Big Business and Bad Medicine, what drug to buy.New York: Doubleday (2004.) This wasn’talways the case. Medicare “Fraud and Abuse” regulations are the bane of physicians and the healthcare In America, throughout most of the 20th industry. Not only are the regulations impossiblecentury, the nation’s physicians held virtually to find for the average physician, the frustration isunchallenged economic, moral, and political sway compounded by the seemingly inescapableover the regulation what we now call the “health conclusion that the federal government is morecare industry.” See, e.g., Mahar, Maggie, Money interested in the appearance of reform, than inDriven Medicine, New York: Harper -Collins actually enforcing a code which in any way2006. Gazing out over the horizon, physicians reduces the deficit. Consider, as a stunningsaw trouble in the form of both government example, that in 2003, when Medicare Part D was(socialist) and corporate (capitalist) takeover of passed, the pharmaceutical industry was able tomedicine. The problem with socialist medicine is secure a provision that forbids CMS (Medicare)that it is thought to kill both innovation and the from negotiating volume discounts whenhuman spirit, as we observed in the case of the purchasing drugs. Hence, the Veteran’sSoviet Union, while corporations were thought to Administration (and virtually everyone else) paysplace too much emphasis on the needs of on average, 58% less than Medicare for the sameMartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 3
  4. 4. drugs. While physicians and providers spend incentive,” to perhaps over-treat. In fact the onlycountless resources attempting to comply with thing standing in the way, would be the state-by-fraud and abuse laws, Every nickle that the US state versions of the AMA Code of MedicalTreasury has ever recovered under the FCA has Ethics.been squandered in a single year by operation of As federal spending on Medicare doubled,this “no haggle” provision in Medicare Part D. In then tripled, over the decade between the 70s andother words, all this effort is wasted. 80s, the federal government snatched the AMA Code of ethics from the hands of doctors, and To be sure in the formative years of both turned a few sections into a multi-billion dollarprivate and public health insurance, just like the civil and criminal litigation leviathan calledpharmaceutical industry, the AMA insisted neither “fraud and abuse.” (State laws, based uponcorporate “Blue Shield” plans, nor the new federal law, are used to enforce Medicaid and inMedicare program should attempt to extract some cases, private health plan fraud and abuse.“purchasing power” discounts. See, Mahar, Although important, state laws are not covered inMaggie, Money Driven Medicine, New York: this paper.)Harper-Collins (2006). The difference is this,while there were those in 1965 who thought we Today, physicians and providers stand incould actually afford to pay full sticker price for the eye of the storm. In their reception areas, alleverything, by 2003, no one was under any such may seem calm– but behind the scenes, everymisapprehension about our ability to pay full price medical decision, and every business decision,for Medicare Part D. Yet we did it anyway. every medical office lease, equipment rental, medical supply contract, employment contract, In 1965, (as Congress debated enacting partnership, joint venture, real estate transaction,Titles XVIII and XIX of the Social Security Act,) every investment, gift, discount, as well as everythe AMA turned its full attention toward what code entered, and every waiver of co-payment–would happen if the federal government got into carries with it the threat of a federalthe business of providing for, (and regulating) investigation, and potential liability of millions ofthe practice of medicine. The AMA was dollars, (and possibly a felony conviction.)particularly concerned not only that their members Meanwhile, the real criminals are hauling freightcontinue to be paid a “reasonable” fee for loads of government cash out of the treasury, with“necessary” services, but also about government little fear of being caught (under the government’sregulators (who were laymen) instructing or p l a n o f “ p a y, t h e n c h a s e . ” ) S e e ,second-guessing the reasonableness and necessity http://oig.hhs.gov/fraud/fugitives/of medical services. index.asp. “Failure” is not, as JFK opined, always To say that the rules and regulationsand “orphan.” When spending got out of control, against healthcare fraud and abuse are “difficult tocongress had no trouble figuring out who, or what master,” would be a gross understatement.(other than congress,) we should blame– fraud Because regulators are being asked to regulateand abuse. It is fair to say the AMA saw this something they don’t understand, they tend tocoming– but not in their wildest dreams did they over write. It also appears the W.H.O. is destinedimagine the true scope of the storm which was to to write a ICD code for every cell in the humanbecome modern federal “fraud and abuse” law. To body. This tendency to overwrite is especiallysome extent, the AMA succeeded in preserving noticeable, as one begins to delve into the(for a while) the “fee for service” model of provisions of 42. U.S.C., and 42 C.F.R, whichreimbursement. However, with that came the have been described as “among the mostrecognition that physicians had a “perverse completely impenetrable texts within humanMartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 4
  5. 5. experience.” See, Rehab’h Ass’n of Va. v. know which law actually applies.)Kozlowski, 42 F.3d 1444, 1450 (4th Cir. 1994.)See, Baumann, et al., Healthcare Fraud and I will tell you this, no “official” (orAbuse, p. 200, ABA Health Law Section Press, unofficial) compendium of federal fraud and2002. abuse regulations exists. See, Tully, Federal Anti- Kickback Law, 1500:0607 (BNA’s Health and Yet, RAC auditor/bounty hunters, with Business Series, 2001.) In fact we Stark lawyerscomparatively little more training that one might have learned to become our own book binders,gain from a cereal box are being asked to review (with three-ring binders as our chief weaponrymedical charts of physicians with years of medical against chaos.)training and experience. (RAC auditors are This isn’t to say that the government issupposed to be looking for “over” and “under” hiding the ball, or trying to keep the rules a secret.payment errors. Not surprisingly, – 96% of the Far from it– they simply cannot write a rule thaterrors found by RAC auditors favor the also effectively takes everything into account.government.) See, http://www.ahima.org/resources/rac.aspx. Recognizing this, CMS and the OIG do attempt to set out what will be prosecuted by the government on their respective web sites. But “the government” is not one entity. It is a collection of(a) The Five Primary Federal Fraud and agencies and offices. Not every agency agrees onAbuse Prevention Statutes. enforcement, nor do they necessarily talk to one another. Personnel vary widely from region to The 4th Circuit’s observation that “Fraud region with regard to knowledge on the subjectand Abuse” rules constitute an “impenetrable being regulated. The government bridged the gaptext,” is a bit misleading. There is no “text.” In in knowledge between regulators, and thefact, the landscape looks as if we handed a regulated by producing operational manualsmachine gun to a group of regulators who have which guide agents in day-to-day operations.never seen a gun before, and told them to shootanything they don’t recognize as harmless. The The trouble is, these operational manuals“rules” against fraud and abuse are literally are not statutes, which are written after publicscattered out everywhere. The rules are found in hearings, debate and input from the industry.actual statutes, under 42 U.S.C. and in regulations Often, the people in charge of enforcement havefiled under 42 CFR. Then there are the Bulletins, never read the actual statutes, and certainly noFraud Alerts (“Special” and un-Special) idea what constitutes reasonable and necessaryMemoranda, Opinion Letters, regular letters, medical practices. This is not to impugn the(“Open” and un-Open,) some of which end up in integrity of employees of HHS, CMS, or OIG.the Federal Register, some of which end up in Many are highly skilled, highly trained and highlythe OIG, HHS and CMS websites, and others are knowledgeable. Even those who are lesssimply tucked away in some manual– calling to experienced are good, sincere, hard-workingmind the final scene of Raiders of the Lost Ark. people doing the best they can, given the fact thatThe rest, are what I call “Legend and Lore,” based they are non-physicians, who have been given theupon what someone thought they understood, or task of enforcing the AMA Code of Medicaleven heard a government official say in a town Ethics against licensed physicians who are oftenhall meeting on the subject of what would lead to faced with the impossible task of treating patientsenforcement activity. (This all tends to explain who, themselves, are not always forthright inwhy most of my clients simply call the whole relaying their own histories . (In further defense ofcollection, “Stark Law,” and leave it to me to these federal agents, they do see some fairlyMartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 5
  6. 6. outrageously bad actors, which tends to erode for two reasons (1) in response to the ballooningblind faith that absent a firm hand, mankind will federal budget, (2) growing public awareness thatbehave itself.) defense and medical contractors were “gaming” the system. Contractors with less than stellar Add to this, the army or RAC auditors, abilities, services, or products were jumping inand qui tam relators, who are paid a percentage front of higher quality providers simply by payingbounty to find even the slightest error (which may the highest kickbacks. The AKS was at first adisqualify billions of dollars in reimbursements,) misdemeanor criminal statute, then upgraded to aand an environment of KGB-style terror reigns. felony, and finally, a civil money penaltyBecause qui tam actions are filed under seal, provision was added. Although the AKS appliedmedical providers have no idea, (sometimes for to any government contractor, its major provisionsyears,) that they have been sued, what they may were taken from AMA Ethics Code provisions onbe accused of, when unsealing will happen, or “Fee Splitting” (Rules 6.02-6.04.) In the 1980swhich of their employees, suppliers, neighbors or the spirit of deregulation caused the OIG to craftfriends have turned them in.) a number of Safe Harbors, under 42 CFR 1001.952 (a)-(u) which apply to the most common Nevertheless, the OIG lists on its website types of arrangements.and its “Roadmap for Physicians,” the fiveprimary Medicare fraud and abuse preventionstatues, that will be the subject of enforcement First, the AKS prohibits paying cash oractions: (1) the False Claims Act, 31 U.S.C.§§ items of value for referrals. Second, the AKS prevents “in kind” kickbacks by outlawing3729–3733, (2) the Anti-kickback Statute, 42 referrals between providers who have any kind ofU.S.C.§ 1320a-7b(b), (3) the Physician Self- financial relationship with one another.Referral (Stark) Law,42 U.S.C.§ 1395nn (4) the Obviously, not every relationship contains aCivil Monetary Penalty Statute , 42 U.S.C.§ “kickback,” and cost savings can be realized from1320a-7a and (5) the Exclusionary Statute 42 pooling of capital. The safe harbors were designedU.S.C.§ 1320a-7 . These statues and rules work to permit relationships which carried little risk oftogether, both by cross-reference, cross abuse. It would be very difficult to write a safeincorporation, and with a great deal of overlap. harbor for every possible arrangement, just as itUnderstand, there are actually more than 50 would be difficult to write a product liability rulefederal statues which could be employed– and if for each individual product manufactured. Instead,a client does something really dishonest, he may if a relationship is subject to a safe harbor,have every federal agency from the FBI, the postal providers must meet the requirements. If aninspector to the department of defense in his arrangement doesn’t have a published safe harbor,lobby– but for the OIG, more than 5 is simply that doesn’t mean the AKS has been violated.overkill. The five are: Instead, the parties would likely be required to(1) The False Claims Act Congress passed the demonstrate by analogy, that no kickback isFalse Claims Act on March 2, 1863, 12 Stat. 696. involved, (usually by comparing the FMV of the(31 U.S.C. §§ 3729–3733, also called the "Lincoln thing involved, and the amount paid for it. If theLaw.") The FCA imposes liability on persons and two are not equal, there may be a kickback.)companies (typically federal contractors) who (3) “Stark Law.” The Prohibition Againstdefraud governmental programs. A false claim Physician Self-Referral,42 U.S.C.§ 1395nn. Inmay be a “reverse false claim”– meaning a false 1989, Congressman Pete Stark sponsored a specialstatement about how much one owe’s the rule prohibiting certain Medicare referrals, whichgovernment (IRS matters are excluded.) only applied to physicians, and only to certain(2) The Anti-kickback Statute, 42 U.S.C.§ specific items of expense. In order to understand1320a-7b(b). Congress passed the AKS in 1972 why this was thought necessary, given the obviousMartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 6
  7. 7. overlap between Stark Law and the AKS, (and soon found out how difficult it is to “un-ring awhy most physicians feel betrayed by continued bell,” (for had they not, themselves declared itenforcement of the rule,) we must pull back the unethical for a physician to earn income fromlense, in order to gain a broader historical outside referrals.) As a consequence, (and in aperspective. twist of fate too strange for fiction,) the Over the course of the 20th century, government passed the Stark Act, whichAmerican physicians, through the AMA, tried essentially declared that physicians are the onlymightily to fend off not only the government, but entrepreneurs who may not earn passive incomealso corporate intrusion– which they termed, the from the investment in outside diagnostic“corporate practice of medicine.” (Little realizing facilities.one would lead directly to the other, as spending Unlike the AKS, the Stark Act is a stricton health care tripled between 1970 and 1980, liability statute, which applies only to physiciansthanks to Medicare.) What the AMA objected to and only to referrals for Designated Healthwas “for anyone else, such as an investor, to make Services to providers where they, or a close familya return from a physician’s labor.” See, Starr, Paul member has a financial relationship. Stark LawThe Social Transformation of American Medicine has safe harbors found in the main statute and as(New York: Basic Books, 1982.) So the AMA constantly tinkered with by the OIG and HHS indecided to erase capitalism from the picture. If 42 C.F.R. § 411.351, et seq., and a variousmedicine required capital beyond that which assortment of bulletins and advisories.doctors could provide, it would have to be (4) the Civil Monetary Penalty Statute , 42contributed gratis by the community, (instead of U.S.C.§ 1320a-7a. Civil penalties range frominvestors looking for a profit.) Id. Nonetheless, the $10,000 to $50,000 and may be assessed on a perAMA was wise enough to realize, as the legal incident, per person, or per day of non-ompliance,maxim goes: he who seeks equity, must do equity. as set forth in the Act. If the AMA were to have any credibility againstcritics who charged the AMA’s lofty ideals were (5) The Exclusionary Statue. 42 U.S.C.§ 1320a-“financially convenient,” physicians would need 7. Under the Social Security Act, exclusion isto “practice what they preached.” And so the mandatory for certain acts, and permissive inAMA adopted rules prohibiting their own others. Conviction for Criminal offenses, for fraudmembership from earing passive income from in billing, or the criminal neglect or abuse offinancial investment of capital. This was patients can result in automatic exclusion for fiveaccomplished by AMA Rule 8.03, which declared years. The government is mindful that exclusionit “unethical” for a physician to earn a profit from may have a detrimental effect upon thethe referral of a patient to an outside clinic, which availability of health care. Often, solutions aimedthe physician also owned. Physicians happily at compliance are employed specifically to avoidaccepted this trade-off, but only for so long as the harsh remedy of exclusion. If a person haseveryone played by the rules. But in the 70s and been excluded, OIG regulations state that an80s, the walls which held corporate interests at excluded person may not be employed by abay was finally breached. Private investors provider, if any federal dollars are used to(often by pretending to be “non-profit” entities,) compensate the excluded person. Thus, it isbegan earing a profit from physician’s referrals. extremely important for providers to carefully screen employees. Physicians responded (rightly orwrongly,) by taking the position that because thegoal posts had been moved, they were free to (b) Is it “Fraud,” or “Abuse.”disregard their own rules– with impunity. Whether a practice is “fraudulent” orPractically overnight, it seemed, every physician merely “abusive,” goes hand in hand with thealso owned a diagnostics laboratory. The AMA question: will a pattern of conduct result inMartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 7
  8. 8. criminal action, or simply civil money penalties? example, a physician may perfectly fit the AKSThe answer isn’t entirely simple to provide. A “safe harbor” for referrals of patients to a hospitalpractice or scheme will normally fall within a where he has ownership interest in the entirecontinuum, or range of mental states– from hospital. However, if it can be shown that theinnocence, to negligence, gross negligence, intent behind the practice was to refer patientsconscious indifference, willful ignorance, who don’t really need the treatment, then that isknowing, or intent to defraud. It is usually not “fraud,” even though he has complied with a safenecessary that a provider “know” or “intend” to harbor.violate a law, it is sufficient that the providerknowingly engage in an act that is forbidden. 2. What is the government trying to prevent? Some behavior is designated a “crime,” The government is primarily concerned with two(malum prohibitum) even though it isn’t actually things: (a) “Fee Splitting,” or receivingimmoral, or “fraud,” (malum in se.) One example “Kickbacks” for referrals, including “self-is taking kickbacks (especially “in-kind”) for referrals,” and (b) billing the government forreferrals, where the patient did actually need the things, when you don’t have a right to be paid.treatment. This isn’t so much immoral as it is,simply a crime, because congress, through the (a) Fee Splitting, Kickbacks and SelfAKS says it is. Perhaps in recognition of the fact Referrals.that some behaviors are always morally wrong, Fee Splitting and Kickbacks have always been(stealing) while others are wrong because a statute medically unethical. See, AMA Code of Medicalsays so, (accepting office space at below market Ethics Rule 6.02 (Doctors can’t pay for referrals);rates, then referring cases to the landlord); Rule 6.03 (“Clinics, laboratories, hospitals, orwhether a provider will be prosecuted criminally other health care facilities that compensatevs. civilly under a statute like the AKS, (which physicians for referral of patients are engaged incalls for either,) often depends upon the evidence, fees splitting which is unethical; Rule 6.04 (A(including past “run-ins” with enforcement) that physician may not accept any kind of payment ordemonstrates the provider knew his activity was compensation for prescribing drugs or devicesillegal, but did it anyway. While the violation is from the manufacturer.) Fee splitting is not illegalcomplete by knowingly engaging in behavior, in other businesses. As stated in the main rule:(thus, legally sufficient) juries are often slow to “Rule 6.02: Payment by or to a physician solelyconvict doctors and professionals of a crime, for the referral of a patient is fee splitting and isabsent such aggravating factors,(only then is the unethical. A physician may not accept payment ofcharge factually sufficient to support conviction.) any kind, in any form, from any source, such as a It is up to a prosecutor to decide which pharmaceutical company or pharmacist, an opticalcharge, or allegation to bring, based upon the company, or the manufacturer of medicalstrength of the evidence. It is up to the jury to appliances and devices, for prescribing ordecide if the charge or allegation is true. referring a patient to said source. In each case, the In practice, “Fraud or Abuse” is usually payment violates the requirement to deal honestlyprosecuted as a crime for behaviors which are with patients and colleagues. The patient reliesfairly close to “stealing.” See, Hooper, Patrick, upon the advice of the physician on matters ofHealth Care Fraud And Abuse, Los Angeles: referral. All referrals and prescriptions must beABA Health Law Section, pp. 197-251 (2001) based on the skill and quality of the physician to“Abuse,” is more or less synonymous with whom the patient has been referred or the quality“medically unethical”. . . but without the intent to and efficacy of the drug or product prescribed.defraud or steal. Further, even a practice thatfalls within a “safe harbor” could still be“fraudulent,” depending upon “intent.” For Self Referral (Stark Law) Stark Law is takenMartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 8
  9. 9. from AMA “Conflict of Interest” Rule 8.032 (and the Amgen case cited in Part II. This includes:its predecessors) which held, “In general, a (1) charging for services that were neverphysician should not refer a patient to a facility performed, (if intentional, this is just plainoutside of their office, where they do not provide fraud,”)the service or care, when they have an ownershipor investment interest in the facility.” A major (2) “Upcoding,” which can be a form of fraud,difference between Stark Law and the AKS, lies (depending upon intent,) in which a providerin the fact that under Stark Law, any referral for deliberately assigns a higher reimbursement codeDHS’s (where a financial relationship exists than it deserves,involving a referring physician,) is per se illegal– (3) “Unbundling,” which is abusive, because thethere need not be a colorable “kickback” involved. government says it is: charging for a service thatA defendant (who need not be a physician) under should have been included in a bundle, rather thanthe AKS may escape liability by proving there separately, (Although note: In U.S. v. Krizek , aactually was no kickback, (either under a safe psychiatrist was sued for $80 million, $245k inharbor, or simply as a matter of mathematical alleged actual damages, because he did notfact.) Because Stark Law has its basis in both “fee unbundle an hours worth of time into smallersplitting” and “conflict of interest” ethical rules, units.)physicians are simply held to the higher ethical (4) Failing to disclose discounts or pricestandard– this is also true because of a peculiar reductions, either when the government is basingcircumstance: the patient’s limited concern over payment on the belief a provider paid full pricethe cost of treatment authorized. for supplies, or if the if a physician routinely The OIG explains this in its “Roadmap waives 20% co-pays. This often consideredfor Physicians,” because the government (and not “fraud,” and not simply abuse.the patient) is paying the bill, the usual market (5) Claiming expenses when they weren’tforces do not apply. (Patients simply do what they incurred, including selling free samples ofare told without regard to cost.) Both the patient prescriptions, then billing the government asand the government must be assured that the though the provider actually purchased the drugsreferral is being made solely on the basis of for resale.reasonable medical necessity, (not because the (6) Billing for work done by an excluded provider.physician owns the imaging center) and to themost capable provider– not simply to the provider (7) And the catch all– “false certification.” Thiswho is the “highest bidder.” occurs when the provider falsely certifies to the government that the provider has complied with all laws and regulations entitling the provider to a payment (Stark Law and the AKS for starters,(b) Billing the Government, When Provider and more and more so, the Civil MonetaryDidn’t Have a Right to Payment. Penalties Statute and the Exclusionary State have Under this broad heading falls almost added false certification definitions ) when if fact,everything else that will get you in trouble with the provider has not.the government, subjected to a RAC audit claim 3. Damages and Penalties.for reimbursement, (or sued by a qui tam relator Violations of “fraud and abuse”on behalf of the government.) Items in this regulations carry heavy penalties, which oftencategory may either be forbidden by a federal rule, bear no relationship to the damage done. If the(which for the most part are made unethical under government is billed for services for a patient whoAMA Rules 2.035, 2.09, 2.19, 4.04, 4.06, 8.03) or has been referred in violation of Stark Law or themay be something that smacks of fraud, (even if AKS, then every single bill can be considered aHHS is yet to pass a rule on the subject,) such as “False Claim” under the False Claims Act, andMartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 9
  10. 10. subject to a penalty for each claim submitted. This (i.e., “knows” about the claim), the provider mustis how in the Krizeck case, a physician earing return the payment within (a) 60 days, or (b) the$100,000.00 per year ended up with a lawsuit for date the corresponding cost report is due.$82 million. ($10,000 fine for each of 8,000claims submitted.) In addition, a provider may beexcluded from the program under the 5. The Holder Memorandum.“Exclusionary Statute.” It is worthy of note, the To the actual participants, how one feltgovernment does not need to prove that the about the Fall of Jericho might largely haveservices were not reasonably necessary. It is depended up which side one was standing whenenough that the referral was poisoned in some the walls crumbled. As for the rest of us, weway, and if so, the patient receives the care for would really rather see disputes resolved beforefree, the government receives the benefit of the they become a war of annihilation. Thetreatment without paying for it, and the provider government, unlike qui tam relators, also has amust pay a substantial penalty for each claim vested interest in the survival of the regulated, andsubmitted. is therefore, often more interested in compliance, than convictions. (CMS simply cannot shut down the only hospital in a region, no matter how badly4. FERA it is mismanaged. See, e.g., The problem withWith the Fraud Enforcement and Recovery Act of D a l l a s ’ P a r k l a n d .2009 (“FERA”), the federal government’s “most http://dallashealthcare.blogspot.com/)potent weapon” to fight fraud against the United As for smaller providers, in 1999, theStates became even stronger. Since its inception, “Holder Memorandum” was issued by the Deputythe False Claims Act has punished anyone who Attorney General, Eric Holder, to all Unitedknowingly submits a “false” claim for payment to States Attorneys, and government civilthe United States. A claim is “false” when the enforcement lawyers, aimed at providing guidanceperson or entity who submits the claim is not for both US Attorneys and trial attorneys in theentitled to be paid. In the healthcare context, the Civil Division of the US Government. Themost basic example of a false claim is a provider Holder Memorandum instructed governmentwho intentionally submits claims for services that lawyer to use the “sledge hammer” of fraud andwere never provided. Penalties under the False abuse laws under the FCA in a fair andClaims Act are severe, and include treble damages responsible manner. The gist of the Holder(three times the amount of claims improperly Memorandum was to encourage governmentpaid), administrative sanctions, and potential lawyers to (1) not treat everyone as unrepentantexclusion from participation in federal healthcare felons, unless they act like unrepentant felons, (2)programs. In some cases, criminal liability is also remember the difference between “knowingly”a possibility. false statements, (which are illegal) and false “Unknowingly” submitting a false claim statements by mistake, (which are not) (3) takedoes not violate the False Claims Act – at least not into account how much notice was provided of aprior to FERA. With FERA, Congress amended position taken by the government, (was thethe False Claims Act to cover the knowing provider they warned? Had the government beenretention of payments received pursuant to a false prosecuting prior to the enforcement in aclaim (a “reverse” false claim), even when the particular case) (4) consider how bad the conductfalse claim was not knowingly submitted. The was, and was it institution-wide, or just one badPatient Protection and Affordable Care Act of actor? (5) consider cooperation and willingness to2011 further strengthened FERA by adding the comply in assessing punishment, (6) try to resolve“60 Day Rule.” Under the rule, once a provider the case by “contact letters” rather than sue first,“identifies” a payment to which it is not entitled (7) consider alternative remedies tailored to theMartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 10
  11. 11. situation, (8) consider ability to pay in accessing following are examples of questionable features,civil money penalties, and fines (8) don’t railroad which separately or taken together may result in apeople who can’t afford attorneys, just because it business arrangement that violates the anti-is easy, (9) don’t shut peoples business down kickback statute. Please note that this is not(unless they really deserve it) while attempting to intended as an exhaustive list, but rather givesinvestigate and ferret out abuse. examples of indicators of potentially unlawful To be consistent with my observation activity.regarding those memoranda I consider “bad” for (1) Investors are chosen because they are in amy clients, note that the Holder Memorandum, position to make referrals.(though “good” for clients,) is not a statute or (2) Physicians who are expected to make a largeeven a regulation. It is an internal memo, number of referrals may be offered a greatercirculated within the government, which was then investment opportunity in the joint venture thanrepublished in the appendicies to books, such as those anticipated to make fewer referrals.Health Care Fraud and Abuse, Bauman, L. ABABooks, (2002.) The point being, we health (3) Physician investors may be activelylawyers literally hang on every word published by encouraged to make referrals to the joint venture,the government. and may be encouraged to divest their ownership interest if they fail to sustain an ``acceptable I include the Holder Memorandum also to level of referrals.compare and contrast government actions fromqui tam lawsuits. Notice that the government will (4) The joint venture tracks its sources ofnotify a defendant and take into account various referrals, and distributes this information to thesocial concerns, before imposing penalty. In qui investors.tam actions, there is no pre-lawsuit discussion, in (5) Investors may be required to divest theirfact a defendant may not know he has been sued ownership interest if they cease to practice in thefor years. Qui tam relators do not have any service area, for example, if they move, becomeinterest in the continued viability of a target– they disabled or retire.don’t care if they kill the host. Therefore, if apotential defendant gets wind of the fact he may The point of this is not to provide anbe sued, he may wish to consider the value of self exhaustive treatise on what the government isreporting– whatever the government might do, it looking for, but to give you an idea that a greatis certainly preferable to total war. deal of information is out there, which you need to know if you advise clients in federal fraud and6. OIG Bulletins, Open Letters, and abuse compliance.Memoranda In the decade of the 2000s, the OIG 7. Steps for Staying out of Trouble with theissued a number of internal bulletins and Governmentmemoranda which were eventually published afterthe fact, to help guide providers as to what thegovernment is looking for, when it comes to As attorneys advising clients in the areacertain practices, such as “joint ventures,” office of healthcare fraud and abuse, Rule #1 : Anyspace, etc, under the title, “What to look for” for advice you provide a client, based upon the factsexample, with Joint Ventures; he has given you, may provide a defense to a(See,http://oig.hhs.gov/fraud/docs/alertsandbulle “knowing” violation. Ordinarily, communicationstins/121994.html): between attorney and client are privileged. However, that privilege belongs to the client, and“Suspect Joint Ventures: What To Look For To he may (and likely will) waive it. In fact, as thehelp you identify these suspect joint ventures, theMartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 11
  12. 12. U.S. v. Campbell case, (Cited in Part II) alleged wrongdoing compared with the rule beingdemonstrates, one of the first things a client will enforced.do is report to the government that “my lawyer (B) Do whatever the “Safe Harbor,” thesaid this was legal.” In the Campbell case, the regulation, fraud alert, or bulletin says you areattorneys responded, “the client didn’t tell us supposed to do.everything.” We don’t need to look at thecrime/fraud exception to privilege, because the (C) Document efforts to comply. If theclient just waived privilege. Knowing this, regulation requires payment of “Fair MarketRule#2: Document everything. Your opinion Value” for something, hire a consultant to tell youletter should state in clear terms every fact upon what FMV is. Don’ t just pick a number out ofwhich your opinion is based, and that no other thin air.facts have been given or considered. Doctors have (D) Haggle. The opposite of just picking along held to the heuristic maxim: “If it didn’t get number out of the clear blue sky, as a “give andwritten down, it didn’t happen.” What you must take” negotiation. This includes not only the price,not do is get caught in this trap: If you “lie, and for example, of office space, but also theagree with the client,” as to what he now claims amenities, and use of common areas and facilities.he told you– he gets off the hook for millions of This can sometimes be difficult where the sellerdollars, but if you tell the truth, (he didn’t give me doesn’t really care what it is paid. (For example,all the facts) the opposite result happens. If you where a lessor of office space would be happyfind yourself in this dilemma, the best advice I can with $1 a year in lease payment.)give you is , (1) Do not lie to the FBI, (2) Hire thebest ethics lawyer you can find. (E) Be prepared to defend the number. The Advising clients is “art” not “science.” dollar amount of and arms length transaction isEven the official OIG bulletins carry a disclaimer, usually a range of numbers between x and y. Be“Don’t rely on us to know what we are talking prepared to show why the number is what it is.about. The statutes and regulations are the law. For example, if more fringe benefits are included,You are responsible for following the law, not the number should reflect that.what we say the law is. ” (Well, that’scomforting!) The point being, you must know all (2) Drafting the Contract. Track the language ofthe rules and regulations, as well as anything the the regulation or Safe Harbor in the contract.government has written on a subject. With that Legally, it may make no difference what thewarning in mind, here are a few ideas I think we contract says. However, putting the language incan all agree on. the contract does show that the parties where trying to comply, and more importantly, may be of(1) Before an arrangement is in place. If you are great evidentiary value in negating the “scienter”fortunate enough to be involved before an or “knowing violation” element of thearrangement is in place: government’s case. Therefore, for example, if the(A) Read and understand not only the statues, regulation requires that the price struck in thebut also everything the government has written on bargain does not include the “value of referrals,”a particular practice or arrangement. As the contract should expressly state that the partiesmentioned earlier, the rules and regulations are agree to this very thing.difficult to locate or digest. This problem is (3) Post Contract Behavior. After the contractcompounded by the fact that congress, and is in place, educate the client in the followingvirtually every lesser agency (from a problem areas:Constitutional law standpoint) is constantlytinkering with the questions of what is actually (A) Conversations Kill. Particularly in myillegal. If your client is facing enforcement practice, which is restricted to physicians– no oneaction, pay very close attention to the dates of the needs to know the doctor’s business, except theMartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 12
  13. 13. doctor, and maybe the office manager. Instruct that the doctor may have been paid above the fairyou clients to keep the circle of people who know market value for the services actually renderedyour client’s business to a “need to know,” and the excess payments could violate the self-absolute minimum. Instruct those people to keep referral constraints of the Stark Act. The violationtheir mouths shut! Qui tam relators are of Stark caused the Medicare claims to be false,everywhere. Especially disgruntled former thus exposing the hospital and doctor to Falseemployees. They cannot blow the whistle on what Claims Act liability. While the doctor wasthey don’t know. I am not saying, “actively ultimately exonerated in a jury trial, this caseencourage fraud.” That is illegal. What I am nonetheless demonstrates the risks associated withsaying, is if there is open talk about everything the employment, and agreements that are notpractice does, but there is a “black box” around a operationally enforced.particular transaction, people notice, and what toinvestigate. Better to keep quiet about all financialrelationships. Part II: Qui Tam Actions(B) Educate the Sales Team. Physicians and Under the False Claims Act,licensed healthcare professionals all know theAMA Code of Ethics. Licensed professionals 2011 Judicial Year in Review.know in their bones when something is when The False Claims Actsomething is wrong. Don’ t assume the sales teamdoes. It is amazing the number of qui tam caseswhich reveal the marketing team has no concept A. Introduction:about medical ethics. Reign them in early and Congress passed the False Claims Act onoften. March 2, 1863, 12 Stat. 696. (31 U.S.C. §§(C) That’s Not Funny! There should be a “no 3729–3733, also called the "Lincoln Law.") Thejokes” policy in place. Especially in emails. In the FCA imposes liability on persons and companiesera of Electronic Discovery, and entire cottage (typically federal contractors) who defraudindustry has sprung up, with providers, such as governmental programs. The law includes a "quiHudson Legal, who will assemble and army of tam" provision that allows people who are notlawyers, many recent graduates of law schools, at affiliated with the government to file actions ona rate of $20 per hour to pour over emails, looking behalf of the government (informally calledfor something that constitutes a “Hot Doc.” The "whistleblowing"). Persons filing under the ActNeurontin case, cited below in Part II, might have stand to receive a portion (usually about 15–25been a little easier to defend, if the marketing percent) of any recovered damages. Claims underteam hadn’t taken to calling the drug, “Snake the law have typically involved health care,Oil.” military, or other government spending programs.(D) Do the Work Called for Under the The government has recovered nearly $22 billionContract. For example, if the a clinic or hospital under the False Claims Act between 1987 (afterretains a physician as a medical director, and the the significant 1986 amendments) and 2008.contract price is based upon, say 5 hours a month, The Justice Department secured morethen the physician and the clinic or hospital must than $3 billion in settlements and judgments indocument the time was actually worked. In U.S. civil cases involving fraud against the governmentv. Campbell, a case in federal court in New Jersey, in the fiscal year ending Sept. 30, 2011.the court ruled that a False Claims Act suit could http://www.justice.gov/opa/pr/2011/December/1proceed against a doctor who entered into a part- 1-civ-1665.html. This is the second year in a rowtime employment relationship with a hospital but that the department has surpassed $3 billion inwas not required to actually perform the services recoveries under the False Claims Act, bringingidentified in the contract. Thus, the court decidedMartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 13
  14. 14. the total since January 2009 to $8.7 billion – the presented a false claim for payment or approval;largest three-year total in the Justice Department’s (2) Knowingly making, using, or causing to behistory. Id. made or used, a false record or statement material to a false or fraudulent claim; “Qui tam” is an abbreviated form of the (3) Conspiring to commit any violation of theLatin legal phrase qui tam pro domino rege quam False Claims Act;pro se ipso in hac parte sequitur ("he who brings (4) Falsely certifying the type or amount ofa case on behalf of our lord the King, as well as property to be used by the Government;for himself") In a qui tam action, the citizen filingsuit is called a "relator." As an exception to the (5) Certifying receipt of property on a documentgeneral legal rule of standing, courts have held without completely knowing that the informationthat qui tam relators are "partially assigned" a is true;portion of the governments legal injury, thereby (6) Knowingly buying Government property fromallowing relators to proceed with their suits. an unauthorized officer of the Government, and; The private plaintiff qui tam provisions (7) Knowingly making, using, or causing to bewere thought necessary because the federal made or used a false record to avoid, or decreasegovernment lacked the resources to detect and an obligation to pay or transmit property to thedeter fraud. (On the other hand, it seemed Government.blissfully simple to “fight greed with greed.”) See, 31 U.S.C. § 3729.One small tweak in the law was necessary To establish a violation, a plaintiff "musthowever, and is one which has become significant show that defendants (1) made a claim, (2) to thein the defense of qui tam cases in modern times. United States government, (3) that is false orThe problem simply was there was no prohibition fraudulent, (4) knowing of its falsity, and (5)against the “parasitic” practice of filing a claim seeking payment from the federal treasury." U.S.for a part of the recovery after the qui tam relator ex rel. Mikes v. Strauss, 274 F.3d 687, 695 (2dlearned of the fraud from sources such as reading Cir. 2001) The FCA defines "knowingly" asreports of criminal indictments by the federal having "actual knowledge," or acting ingovernment. (Remember the whole point of a qui "deliberate ignorance" or with "recklesstam provision in the FCA was that the government disregard" of truth or falsity. 31 U.S.C. § 3729(b)lacked the resources to detect the fraud in the first (2005). Thus, the requisite intent is more thanplace.) Today, the “Public disclosure” rule bars negligence or innocent mistake. Mikes, 274 F.3dthe filing of a qui tam action if the government, or at 703 . Put another way, "knowingly" presentingthe public, is already aware of the practice, unless a false claim "does not mean the claim is incorrectthe relator was the original source of the as a matter of proper accounting, but rather meansinformation. The defense forms a major part of it is a lie." Id. (citation omitted).the body of cases in 2011 cited below. The PatientProtection and Affordable Care Act, 124 Stat. Most, if not all of the opinions cited here119, amended the public disclosure bar, as are qui tam actions. The most important thing, (ordiscussed in Shindler Elevator v. US ex rel Kirk, things) to understand about the False Claims Act131 S.Ct. 1885 (2011). is (1) the United States government does not need the False Claims Act in order to recover The False Claims Act establishes liability damages or penalties and usually doesn’t use thewhen any person or entity improperly receives courts. (There are literally dozens of federalfrom or avoids payment (reverse false claims) to statutes that can accomplish this, including thethe Federal government (tax fraud is excepted). exclusionary statute and the civil monetaryThe Act prohibits: penalties statute,) usually the government handles(1) Knowingly presenting, or causing to be enforcement administratively, and will often useMartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 14
  15. 15. the courts as a last resort. (2) qui tam relators must court for “good cause” may, (and normally)use the False Claims Act and meet the grants a number of extensions that can last years.requirements of the Act, or the claim and the (Thus, a defendant may be the target of a hundredlawsuit must fail. This is important because any million-dollar lawsuit, and be completely unawaredefense which is valid and results in dismissal of it for years.) How long does the governmentagainst the first relator to file, is a bar against any have to decide? Case law construing the "goodother relator. cause" requirement of 31 U.S.C. § 3730(c)(3) is scarce. At least one court has found that the requirement was implemented to protect the interest of relators. In U.S. ex rel. Stone v. Rockwell Intern. Corp., 950 F.Supp. 1046 (D.Col. 1996), the Court reviewed the Senate Report regarding the 1986 amendment to the FalseB. Procedure Claims Act, which implemented the "good cause" requirement for government intervention. The(1) Sealing. Qui tam relators suits are filed under 1986 amendments altered the reward provisions ofseal, and may remain under seal for years, pending the False Claims Act, permitting relators tothe government’s decision to intervene. Under 31 recover 25 to 30 percent of the alleged fraud ifU.S.C. §§ 3730(b)(4) and (c)(3), if the they proceeded alone, but only 15 to 25 percent ifGovernment elects not to proceed by taking over the government intervened. Id. at 1048-49. Givena qui tam action, the Plaintiffs-Relators "shall the new reward provisions, the Stone court noted,have the right to conduct the action." Although the "[g]overnment intervention late in the proceedingsGovernment is entitled under such circumstances may be unfair to a relator who has expendedto be served with copies of all pleadings and considerable resources to advance the case andcertain discovery material, there is no express then loses up to half of the reward for bringing theright to keep files sealed from the Defendant action." Id. at 1049.indefinitely. U.S. v. CACI International Inc., 885F. Supp. 80, 81 (S.D.N.Y. 1995). That being said, (3) The “First to File Rulethe statute does not specifically address whetherfile materials beyond the complaint are to be "When a person brings an action under [the quiunsealed once the Court enters its order. Several tam] subsection, no person other than thecourts, after having considered this issue, have Government may intervene or bring a relatedfound that a court has the authority to retain the action based on the facts underlying the pendingfiled documents under seal, or conversely, to action." 31 U.S.C. § 3730(b)(5). This rule carriesmake them fully available to the parties. See e.g., hidden implications. Unlike class action cases,U.S. ex. Rel. Howard v. Lockheed Martin Corp., there is no hearing to determine the relator’sNo. 1:99-285, 2007 WL 1513999, *2 (S.D. Ohio ability to represent the government. Even where aMay 22, 2007); U.S. ex rel. Yannacopolous v. case may have merit, if the relator fails to selectGeneral Dynamics, 457 F. Supp.2d 854, 858 experienced counsel, there may be only one qui(N.D. Ill.2006); U.S. ex rel. Health Outcomes tam action. Thus, motions to dismiss becomeTechnologies v. Hallmark Health System, Inc., crucial.349 F. Supp. 2d 170, 173 (D. Mass. 2004). (4) Motions to Dismiss.(2) The Decision to Intervene. Although the Statue allows the Once the government makes a decision ongovernment 60 days to decide to intervene, the intervention, (“yes,” or “no,”) then the case isMartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 15
  16. 16. unsealed and the defendant is served. The first to weigh mixed fact and law issues in a 12.b.1responsive pleading will normally contain the motion to a greater degree than under 12.b.6. See,12.b.1, an Iqbal/Twombly 12.b.6 motion and/or a Osborn v. United States, 918 F.2d 724, 729-30 &Rule 9.b motion, although subject matter n.6 (8th Cir. 1990) ("Because at issue in a factualjurisdiction. None of these allege the defendant 12(b)(1) motion is the trial courts jurisdiction —“didn’t do it.” Instead, these motions seek its very power to hear the case — there isdismissal because the plaintiff didn’t plead substantial authority that the trial court is free toenough facts to remain in court. weigh the evidence and satisfy itself as to the existence of its power to hear the case.") (ii) Rule 9(b) Pleading Fraud with Particularity It is well established that the heightened pleading requirements of Fed. R. Civ. P. 9(b) apply to claims brought under the False Claims Act. This requires pleading “who, what when,(i) 12.b.1 Motion to Dismiss for Lack of Subject where.” See Gagne, 565 F.3d at 45. AlthoughMatter Jurisdiction Rule 9(b) may be satisfied where "some questions remain unanswered [but] the complaint as a whole is sufficiently particular to pass muster under theUnder the False Claims Act ("FCA"), federal FCA," id. at 46, quoting United States ex rel. Rostcourts lack jurisdiction over a qui tam action if the v. Pfizer, Inc., 507 F.3d 720, 732 (1st Cir. 2007),allegations in a relators complaint have been "Karvelas requires the complaint to provide,publicly disclosed in a federal hearing, in a federal among other fraud specifics, `details concerningreport or audit, or in the news media — unless the the dates of the claims, the content of the forms orrelator is an original source of the information. bills submitted, their identification numbers, [and](The relator does not lose the ability to sue, by the amount of money charged to the government."going to the government agency before filing Gagne, 565 F.3d at 46, quoting Karvelas, 360suit.) See,31 U.S.C. § 3730(e)(4)(A), which F.3d at 233.provides: (iii) Rule 12.b.6. Iqbal/Twombly“No court shall have jurisdiction over an action Before 2009, the only reason to file a 12.6.bunder this section based upon the public motion would have been if the Complaint weredisclosure of allegations or transactions in a perhaps written in crayon, or otherwise,criminal, civil, or administrative hearing, in a embarrassingly childlike. That all changed withcongressional, administrative, or Government Iqbal. To satisfy Fed. R. Civ. P. 12(b)(6), "aAccounting Office report, hearing, audit, or complaint must contain sufficient factual matter,investigation, or from the news media, unless the accepted as true, to `state a claim to relief that isaction is brought by the Attorney General of the plausible on its face." Ashcroft v. Iqbal, 129 S. Ct.person bringing the action is an original source of 1937, 1949 (2009); Bell Atlantic Corp. v.the information. Twombly, 550 U.S. 544, 570 (2007). Iqbal and Tombly mark a dramatic departure from prior On March 23, 2010, 31 U.S.C. § federal practice, (for example, the 2002 version3730(e)(4) was amended, but the legislation is of the Federal Procedure Hornbook by Wrightsilent as to retroactivity. See Section 10104(j)(2) & Miller dismissed as “insignificant,” andof the Patient Protection and Affordable Care Act, devoted less than a page to the subject ofPub. L. 111-148, 124 Stat. 119; Schindler dismissal for failure to state a claim upon whichElevator Corp. v. United States ex rel. Kirk, 131 relief could be granted.)S. Ct. 1885, 1889 n.1 (2011). Courts are permitted Why the sudden change? TheMartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 16
  17. 17. Iqbal/Twombly decisions were specifically Cases?designed to address growing concerns that (1) Notwithstanding the practical benefits ofabsent a strengthened rule 12(b)(6), summary a strengthened dismissal practice, k,.Whistlejudgment would be the first chance a court might blower relators may have particular difficultyhave to dismiss a claim, (2) summary judgment meeting the “who, what , when, where” standardnormally could only be determined after under rule 9, and the “plausibility” standard underdiscovery had been fully developed, (3) given the Iqbal, because the relator may either be amodern practice of electronically saving every “stranger” to the transaction, or a formerdocument which would then be discoverable, (4) employee who has no access to the records. Therethe costs of discovery, even if the defense were to may also be confidentiality issues under ethicsbe successful, would constitute at best, a Pyrrhic rules and HIPAA. Courts are still in the processvictory. Thus, Iqbal/Twombly motions have of figuring out how to comply with the Supremebecome a powerful tool for defendants who seek Court’s opinions in Iqbal/Twombly and Congress’dismissal of cases, before the keys to discovery express instructions that the False Claims Act is tohave been handed over. be treated as an important tool of government. One of the most abrupt paradigm shifts Some solutions have been to relax the standard forfrom the old “notice pleading” rules, under pleading where the relator has no way to comply,Iqbal/Twombly is the new concentration upon the or to permit limited discovery. The Fifth Circuitdistinction between pleading facts vs. conclusions. recently noted that the standard for stating a claimAny litigator worth his salt, is familiar with for relief with particularity is lower in the FCAevidentiary prohibitions against conclusory context than it is in the securities or common lawtestimony. After Iqbal/Twombly parties must also fraud contexts. See, United States ex rel. Grubbsapply the same standard to pleadings. The v. Kanneganti, 565 F.3d 180, 185 (5th Cir.Supreme Court has declared post Iqbal/Twombly 2009)(Noting that in medical FCA cases, thethat the trial court is to disregard any conclusions Defendant will often be in sole possession of thecontained in the pleadings when determining necessary medical records.)whether the Complaint states a plausible claim for If dismissal is granted, the relator may berelief. Compliance with Iqbal/Twombly, in most permitted to replead, depending upon a number ofcases, is not so much a matter of substance, as it factors, as set out in Rule 15 and the cases thatis a matter of form, but in FCA cases, the burden follow.can be quite difficult to overcome. The most striking difference between government initiated enforcement and qui tam Why? Because the “one-two-punch” of actions lies the fact that the government has greatthe application of Iqbal/Twombly– plus the need to ensure the continued survival of theheightened pleading standard under Rule 9(b)– , industry being regulated, and a great deal ofeven where the evidence of a fraudulent scheme is concern, as set out in the Holder Memorandum,so strong that “fraud must be occurring” courts whether or not jobs will be lost due to anhave dismissed FCA cases where the relator could excessive penalty. Qui tam relators have no suchnot state with specificity “who, what, when, and concern or duty.where” false clams were actually presented. See, (5) Issues related to Settlement.US ex rel NATHAN v. Takeda Pharmaceuticals(ist. Court, ED Virginia, Case No. 1:09-cv-1086 Unlike Class Action lawsuits, the(September 6, 2011)(Discussed in Part II) plaintiff/relator need not prove fitness to represent the government. This does not imply that the relator is free to settle a case as it sees fit. Under the federal False Claims Act, a person may bring(iv.) A Reduced Burden in Whistle Blower an action "in the name of the Government"MartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 17
  18. 18. seeking civil remedies for fraud against the United became one of the top selling drugs in the world.States. 31 U.S.C. § 3730(b)(1). Id. "The action Sales rose from fewer than 50,000 prescriptions inmay be dismissed only if the court and the 1995 to more than 1.4 million in 2004. TheAttorney General give written consent to the success of the drug was due to the illegal activitiesdismissal and their reasons for consenting." . of Parke-Davis, Warner-Lambert and Pfizer,Thus, the government has "an absolute veto power companies that undertook a nationwide effort toover voluntary settlements in qui tam False unlawfully market this drug for off-label uses forClaims Act suits." Searcy v. Philips Elecs. N. Am. which there was little or no scientific evidence ofCorp., 117 F.3d 154, 158 (5th Cir. 1997); accord efficacy. The Food, Drug and Cosmetic ActUnited States v. Health Possibilities, P.S.C., 207 (FDCA) prohibits such off-label marketing byF.3d 335, 339 (6th Cir. 2000). This veto power is pharmaceutical companies. See 21 U.S.C. §necessary because: 355(a). Dubbed "snake oil" by Pfizers own sales team, “relators can manipulate settlements in ways Neurontin was promoted through a publicationthat unfairly enrich them and reduce benefits to strategy that suppressed negative clinical trialsthe government . ... In qui tam litigation, [ there is and showcased positive ones. Pfizer alsoa danger that a relator can boost the value of sponsored continuing medical education programssettlement by bargaining away claims on behalf of and detailed doctors to promote off-label uses ofthe United States . ... If the government decides the drug. Eventually Warner-Lambert pled guiltythe settlement isnt worth the cost, § 3730(b)(1) to criminal violations of the FDCA and paid civilallows the government to resist these tactics and fines and criminal penalties totaling $430 million.protect its ability to prosecute matters in the Multi-district litigation (MDL) that consolidatesfuture. for pretrial purposes Neurontin-related civilSearcy, 117 F.3d at 160. Without this veto power, lawsuits brought nationwide. One group of MDLthe public relator would "retain sole authority to cases consists of products liability actionsbroadly bargain away government claims." Health claiming that Neurontin caused someone toPossibilities, 207 F.3d at 340. The government commit or attempt to commit suicide. Anothermay veto a settlement agreement that it believes group of cases involves lawsuits related to theprovides too broad a release by refusing to sales and marketing of Neurontin. Kaiserconsent pursuant 31 U.S.C. § 3730(b)(1). Foundation Health Plan and Kaiser Foundation Hospitals (collectively, "Kaiser"), bring this case against Pfizer, Inc. and Warner-Lambert CompanySELECTED CASES REPORTED IN 2011: (collectively, "Pfizer"), alleging violations of the Racketeer Influenced and Corrupt Organizations Act (RICO) and the California UnfairIN RE NEURONTIN MARKETING AND Competition Law ("UCL"). See 18 U.S.C. §SALES PRACTICES LITIGATION 1962(c) (RICO); Cal. Bus. & Prof. Code § 17200THIS DOCUMENT RELATES TO: KAISER (UCL). Kaiser spent about $200 million onFOUNDATION HEALTH PLAN, INC., et al. Neurontin from 1996 to 2004. After a five-weekv. PFIZER, INC., et al. Civil Action No. trial, on March 25, 2010 a federal jury found that04-cv-10739-PBS. U. S. District Court, D. Pfizer engaged in a RICO enterprise thatMassachusetts. (August 31, 2011.) committed mail and wire fraud by fraudulently marketing Neurontin for off-label conditions such as bipolar disorder, neuropathic pain, andOpinion Excepts: Approved by the Food and migraine, and at doses greater than 1800 mg/day.Drug Administration (FDA) in 1993 as a The jury found for defendants with respect tosecondary treatment for epilepsy, Neurontin plaintiffs claims of fraudulent promotion ofMartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 18
  19. 19. Neurontin for nociceptive pain. The jury rendered the Information are true.").) As a result of itsa verdict in plaintiffs favor on the remaining guilty plea, Warner-Lambert agreed to pay a $240claims in the amount of $47,363,092. The statute million criminal fine. (Id.) The guilty plearequires the Court to treble the award to included an admission that the company promoted$142,089,276. 18 U.S.C. § 1964(c). the sale and use of Neurontin for the off-labelIn 1994, Parke-Davis estimated that Neurontin indications of neuropathic pain, bipolar disorder,would generate $500 million in profits over the and migraine through the use of salesduration of its patent. In a memorandum representatives, medical liaisons, advisory boardcirculated within Parke-Davis, one executive meetings, consultants meetings, andsuggested a "strategic swerve" to increase the teleconferences.earning potential of Neurontin. Some of the As early as 1994, Parke-Davis identified Kaiser asstrategies explored included marketing the drug a potentially lucrative target for its marketingfor epilepsy monotherapy, bipolar disorder and campaign. Defendants conducted marketingsocial phobia, and neuropathic pain. Defendants largely through three tactics: direct marketing toadopted these new strategies, which turned out to physicians, publication of positive Neurontinbe stunningly successful: in 2003 alone, articles in medical journals and suppression ofNeurontin sales exceeded $2 billion. Beginning in negative trials, and the sponsorship of CME1995, Parke-Davis began developing strategies to events attended by physicians.market Neurontin for off-label conditions, that is, The Court finds that fraudulent marketingconditions not included on the official label activities took place during the following timeapproved by the FDA. The company was periods for each indication: (1) bipolar disorder:interested in Neurontins potential psychiatric July 1998 through December 2004; (2)uses, despite the uncertainty about its efficacy in neuropathic pain: November 1997 throughtreating bipolar disorder. December 2004; (3) migraine: April 1999 through December 2004; and (4) doses greater than 1800Dr. David Franklin, the whistleblower in the mg/day: November 1997 through December 2004.initial Neurontin litigation in 1996, testified about Beginning in July 1998 when Parke-Davisthe direct marketing of Neurontin to physicians obtained (and began to suppress) the negativefor off-label uses. Dr. Franklin was hired in 1996 results of the Pande trial, the defendants engagedas a medical liaison for Parke-Davis. As part of in the fraudulent marketing of Neurontin for thehis job he was provided training on off-label treatment of bipolar disorder. In addition tomarketing of Neurontin. ("[I]t was our job to . . . fraudulent detailing, Pfizer sponsored at least twoactually talk to physicians and sell Neurontin for fraudulent supplements, engaged in a fraudulentoff-label indications.").) His job was "99 percent publication strategy by publishing only positivefocused on off-label promotion." On May 13, information and suppressing negative; conducted2004 the Department of Justice filed a criminal at least two fraudulent continuing medicalinformation charging Warner-Lambert with illegal education programs; and made a fraudulentoff-label promotion of Neurontin. The same day, misrepresentation, through a half-truth, inPfizer caused Warner-Lambert (which it owned) published reviews.to plead guilty to two felony counts of marketingNeurontin for various unapproved uses, includingpainful diabetic neuropathy, bipolar disorder, Holding: On the one remaining claim (areflex sympathetic dystrophy (RSD), and migraine particular California statute) the court held Theheadaches. (stating that "Warner-Lambert Court finds the defendants liable under theexpressly and unequivocally admits that it California Unfair Competition Law for conductcommitted the crimes charged in the Information. related to the following off-label conditions: (1)Warner-Lambert agrees that the facts set forth in bipolar disorder; (2) neuropathic pain; (3)MartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 19
  20. 20. migraine; and (4) doses greater than 1800 mg/day. unapproved uses, including painful diabetic neuropathy, bipolar disorder, reflex sympathetic dystrophy (RSD), and migraine headaches. In thatNotes: plea, "Warner-Lambert expressly and1. The pharmaceutical industry has been so unequivocally admits that it committed the crimessuccessful controlling members of congress (and charged in the Information. Warner-Lambertthe FDA, by calling upon members of congress to agrees that the facts set forth in the Informationreign in the FDA) See, Mundy, Alice Dispensing are true." Although this is not a FCA case,with the Truth, The Dramatic Story Behind the (because the Federal Government did not pay thisBattle over Fen-Phen, New York: St. Martin’s claim for drug benefit,) the Neurontin scandalPress (2001), that the industry seems to have been illustrates the growing tendency of privatetotally blind-sided by the fact that law companies, such as the Kaiser Family of HMO’senforcement (OIG) play by a different set of rules. to file suit on state whistleblower grounds. (ThereUnlike virtually every other health care enterprise, were two classes of Neurontin cases, the product(most of whom are scared to death of the federal liability MDL cases relating to suicide, and thisgovernment) the pharmaceutical industry seems type of case, for false marketing claims. Here, theastonished that they cannot do anything they wish, whistleblower was a doctor hired to market theregardless of the rules. To be fair, the interests of drug.) While lacking the federal statutes and civilthe pharmaceutical industry is not easily separable monetary penalty provisions, these companies arefrom the interests of everyday working filing state law claims alleging they wereAmericans. Teacher’s retirement plans, municipal fraudulently induced to pay claims which wereworker’s plans, mutual funds, and almost every false or fraudulent, and they want there moneyother individual American investor are the actual back. This is the “findings of fact andowners of pharmaceutical companies. We cannot conclusions of law” memorandum supporting thecomplain about “them,” without complaining order of payment of $95 million in restitution toabout “us.” Kaiser, (in addition to the treble damages of $147Questions: million awarded by the jury) who was bilked into paying for a drug referred to as “snake oil.”Kaiser sought to prove that it spent too much money on1. Is the Federal False Claims Act the only the off-label prescription of the drug. Defensemeans by which a whistleblower could bring countered the physician’s prescription could beaction against a billion dollar industry? due to any of a number of factors. The defense2. For the Plaintiffs’ bar, what advantages do Qui also countered that the drug actually was effectiveTam whistleblower cases have over traditional for off-label use. Further, the defense argues theclass action and MDL mass tort lawsuits? statute of limitations precluded recovery.3. How important is it to a Defendant to knock The Court order defendants to pay restitution toout the Qui Tam relator from any case that could the Kaiser Foundation Health Plan in the amountbe brought by the government? of $95,286,518.Notes: 2. The advantage of FCA cases over class action and mass tort cases lies in the fact that there is only one plaintiff (not thousands.) The damages1. This case illustrates that you do not need awarded often bear no relationship to the harm(though it certainly helps) a federal statute to win done. (A technical defect in the provision ofhundreds of millions of dollars in a whistleblower services and products may result in huge awards,case. Pfizer caused its subsidiary, even if the services or product was good for theWarner-Lambert to plead guilty to two felony patient.) Further, the United States is the realcounts of marketing Neurontin for various party in interest, and the injury is complete by theMartinMerritt PLLC Health Care Fraud and Abuse Dallas Bar Assn Health Law Section Page 20

×