Three former employees of Bristol Myers Squibb, Inc. (BMS) brought a qui tam action alleging that BMS violated California’s Insurance Frauds Prevention Act, California Insurance Code section 1871.7 et seq. (IFPA), by giving physicians lavish gifts to induce them to prescribe its drugs or to reward high-prescribing physicians. The California Insurance Commissioner intervened in the case. According to the second amended complaint, BMS “engaged in a course of illegal and fraudulent conduct aimed at doctors, health care providers, pharmacists, and insurance companies” in marketing several drugs. Specifically, the plaintiffs allege that BMS gave physicians lavish gifts to induce them to prescribe its drugs or reward high-prescribing physicians, rendering false and fraudulent the claims for payment submitted to insurers in connection with the drugs prescribed by these physicians.

The IFPA prohibits, among other things, the employment of any person to procure patients to obtain services or benefits that will be the basis for an insurance claim. It also imposes civil liability on any person who presents or causes to be presented a false and fraudulent insurance claim. Pursuant to the parties’ stipulation, BMS asked the court to decide whether BMS’ liability may be inferred under the IFPA assuming either of these factual scenarios: (1) if BMS provided or promised to provide a gift to a physician to try to influence the physician to prescribe a medically appropriate BMS drug, and the physician prescribed the medically appropriate drug after being promised or receiving the gift; and (2) if BMS provided or promised to provide a gift to a physician to try to influence the physician to prescribe a medically appropriate BMS drug, the physician prescribed the medically appropriate drug after being promised or receiving the gift, and information in the insurance claim submitted in connection with the prescription was accurate, but did not disclose the gift.

The court answered both questions “no.” L.A. Superior Court Judge Kenneth Freeman explained in the court’s order (available here) that the critical question at the heart of the first issue is whether the IFPA requires relators to prove causation. In other words, did the relators have to prove that the gift caused the physician to prescribe the drug, assuming it was medically appropriate? Or as the court noted, “[p]ut another way, is the ‘taint’ enough?” The court found that because the statute requires that the claim not only be fraudulent, but also “presented” to the insurer, “the only way the statute makes sense is to find a causation requirement is necessarily implied therein.” Thus, the court found that “the only way to assess whether BMS violated the statute is to examine the reasons a given physician wrote a prescription for a BMS drug. If the reasons amounted to a quid pro quo arrangement, then this may violate the statute. If, instead, the reason was attributed to the physician’s independent medical judgment, regardless of whether an item of value was promised, then this would not violate the statute. If the drugs were not medically appropriate (contrary to the stipulated facts), the results may be different.” Accordingly, to prove liability, the relators must prove “that the arrangement caused the fraudulent claim to be presented.” The court rejected the plaintiffs’ assertion that the California Legislature’s intent in enacting the IFPA was to prohibit kickbacks under Business & Professions Code section 650 because that statute is penal in nature, and is not one of the statutes referenced in the IFPA. It also rejected the plaintiffs’ attempt to analogize this case to cases dealing with violations of the federal Anti-Kickback Statute.

To answer the second question, the court considered what the term “fraudulent claim” means as it is used in the IFPA. The relators asserted that the IFPA does not require a claim to be factually false to impose liability. BMS asserted that a claim containing only truthful information is not fraudulent, and thus not actionable. The court agreed with BMS. It found that “[i]f the express factual assertions on the claim were not misstated, then the claim would not be a ‘fraudulent’ one subjecting the presenter of the claim to liability under [the IFPA] – notwithstanding the nondisclosure of the item or service of value promised to the prescribing physician.” Notably, the court rejected the plaintiffs’ argument that liability attaches under the false certification theory, which federal courts have applied in False Claims Act cases. The court reasoned that there is nothing in the IFPA which purports to impose a “false certification” standard as a precursor to liability. It found that “IFPA refers only to the specific act of presenting a ‘fraudulent claim’ to an insurer and imposing liability on a defendant which employs a ‘runner, capper, steerer, or other person’ to achieve that end.” The court also distinguished the false certification FCA cases, finding that they do not appear to apply to fraudulent claims presented to private insurers. They apply to fraudulent claims made to the federal government.

The court noted that that its order presented controlling questions of law and that appellate resolution of these issues may assist with the resolution of the litigation. We will continue to monitor this case and any appeal from the court’s order.