We have identified 30 health care–related qui tam cases that have been unsealed in whole or in part.
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A substantial majority of the unsealed cases had been under seal for periods well in excess of the required statutory period. Of the 30 complaints filed, just under half of the complaints (14 of 30) were filed before 2015, with two unsealed complaints dating back to May 2007 and three others dating back to 2009 and 2010. Of the remaining complaints, two were filed in 2012, two in 2013, five in 2014, nine in 2015, and seven in 2016. As these cases illustrate, extensions of the seal on qui tam actions – sometimes for lengthy periods of time – continue to be routine.
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The identified cases were filed in federal district courts in 19 different states and the District of Columbia, including Arizona (3), California (4), Florida (3), Georgia (1), Indiana (1), Kansas (1), Massachusetts (1), Michigan (1), Mississippi (1), New Jersey (1), New York (3), Ohio (2), Pennsylvania (1), South Carolina (1), Tennessee (1), Texas (2), Utah (1), Vermont (1), and Washington (1).
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The federal government declined to intervene in 20 of the 30 cases and elected to intervene, either in whole or in part, in four cases. In two cases, the federal government intervened for purposes of settlement. State governments intervened in one case. Federal government intervention is either unclear or still pending in six cases.
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Nature of the Claims
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Fourteen of the recently unsealed cases involved both state and federal claims.
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Nine involved allegations of unlawful kickbacks. Of these, one also alleged violations of the Stark Law.
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Claims for relief under state or federal anti-whistleblower retaliation provisions appeared in 8 of the 30 recently unsealed cases.
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In over 66% of the unsealed cases, the relator was a current or former employee of the defendant. In one case the relator was a private investigator who discovered the alleged fraud. In another case the relator was a salesperson who interacted with the defendants.
Complaint Filed: April 15, 2014
Complaint Unsealed: September 2016
Intervention Status: On September 26, 2016, the United States intervened in part for settlement and declined to intervene in part.
Claims: False Claims Act (“FCA”), 31 U.S.C. § 3729 et seq.; California False Claims Act, Cal. Gov’t Code § 12650, et seq.; State of Nevada Submission of False Claims to State or Local Government Act, Nev. Rev. Stat. § 357.010, et seq.
Name of Relator: John Blohm.
Defendants’ Business: Defendants operate orthopedic clinics.
Relator’s Relationship to Defendants: The relator spent eight years as a sales representative for a major manufacturer of viscosupplements (injections used to treat osteoarthritic knee pain). Relator allegedly learned through his relationships with defendants and his colleagues that defendants were purportedly reimporting his company’s products.
Relator’s Counsel: Lieff Cabraser Heimann & Bernstein, LLP.
Summary of Case: The relator alleged that numerous orthopedic clinics knowingly submitted claims for reimported viscosupplements to government health care programs for reimbursement. Reimported goods are ones that are shipped from the United States for distribution abroad, and then illegally shipped back into the United States by black market distributors and sold at discounts. The relator alleged that the reimported viscosupplements were adulterated within the meaning of the Food Drug and Cosmetic Act (“FDCA”), 21 U.S.C. § 351, and were misbranded within the meaning of the FDCA, 21 U.S.C. § 352. Specifically, relator alleged that reimported viscosupplements could have unapproved foreign labeling; been subjected to tampering; been stored improperly; expired; or been “outright counterfeit.” Reimported viscosupplements that are adulterated and misbranded are ineligible for reimbursement by government health care programs.
The relator further alleged that the defendants’ schemes enabled them to reap windfalls because they were submitting claims for reimported viscosupplements that they had purchased at lower prices than they would have had to pay for lawfully obtained domestic viscosupplements.
The relator found out about the alleged conduct of Defendant Reno Orthopedic Clinic (“ROC”) through his job as a viscosupplement sales representative for a large United States manufacturer. When the relator was training to begin his job in 2006, his manager told him that ROC was reimporting viscosupplements. The relator later reached out to ROC, and they confirmed that they used his company’s products, but the relator’s company’s records did not show purchases. Furthermore, ROC even contacted the relator’s company asking if the company would stand by its products despite their reimported status. ROC told the relator’s company that ROC would continue to use reimported products unless the relator’s company lowered its prices on domestic products.
The relator learned about the alleged reimportation practices of Defendant Orthopedic Associates of Northern California (“OANC”) after starting his job in 2006, when he reached out to the clinic to discuss its needs. He discovered that OANC used his company’s products even though his company’s records showed no lawful purchases. When OANC hired a new administrator in 2013 who was opposed to reimportation, OANC began purchasing directly from the relator’s company.
The relator claimed to have found out from conversations with colleagues that defendants San Bernardino Medical Orthopaedic Group, Inc. (“SBMOG”) and Michael Keller, M.D., Inc. d/b/a San Diego Arthritis Medical Clinic (“SDAMC”) had long purchased reimported products and had rejected the relator’s colleagues’ attempts to convert them into lawful purchasers.
Current Status: On September 26, 2016, the United States partially intervened for settlement purposes. ROC, OANC, and SBMOG settled for a combined $2.39 million. The claims against SDAMC were dismissed for reasons that are not disclosed in the record. The relator received approximately $430,000 of the recovery proceeds.
Reasons to Watch: The relator in this action occupied a somewhat unique role compared to most of the relators we see. It is common for relators to be billing specialists or claims processors who see the alleged fraudulent conduct first-hand during their work at defendant companies. It is less common for relators to bring cases based on their sales experience. Here, the relator was a sales representative for a medical supply manufacturer who gained information about the alleged wrongdoing through his relationships with and exposure to the defendant orthopedic centers. This case illustrates that relators need not be employees or insiders; they can also be persons doing business with a defendant or knowledgeable industry participants who assert claims based on allegedly fraudulent or abusive practices believed to be common in the field.
The press release from the U.S. Attorney for the Eastern District of California announcing the settlement noted the office’s concerns about reimported drugs and devices arising from the fact that they lack accountability and assurances as to whether they have been tampered with, whether they have been properly stored, and whether they are too old to be useful. Thus, HHS will, in its own words, “vigorously pursue providers who use and bill for [reimported] substances.” It remains to be seen whether reimported medical products will become the basis for more qui tam complaints given the government’s stated concerns.
Complaint Filed: April 14, 2014
Complaint Unsealed: September 15, 2016
Intervention Status: On October 18, 2016, the United States filed a complaint in intervention. On October 27, 2016, the State of New York intervened. On the same day, United States District Court Judge Kenneth M. Karas issued an order accepting both federal and state settlement agreements and dismissing the state and federal claims. The settlement agreement stipulates that Hudson Valley admits to and accepts responsibility for allegations in the complaint and agrees to pay a total of $5.5 million. New York State will receive $186,000, and the remaining $5.31 million will be paid to the United States.
Claims: The relator’s original complaint remains under seal, but the United States’ complaint in intervention and New York’s intervention for the purpose of settlement offer some understanding of the claims raised in this case. The United States brought claims under the FCA, 31 U.S.C. § 3729(a)(1)(A)-(B). The United States alleged that Hudson Valley routinely violated the Anti-Kickback and False Claims for Payment statutes when it waived copayments without a lawful basis, thus offering what the government contended were illegal inducements for Medicare referrals. The United States complaint in intervention also asserted that Hudson Valley inflated the cost of services provided to Medicare patients by including the routinely waived copayment amounts in claims submitted to Medicare. Typically, a copayment can be included in a calculation of the total cost of a patient’s care, but the total cost can only include expenses that the provider reasonably expects will be paid. If the provider knows that the copayment will be routinely waived, the provider does not expect payment of that amount and that amount should not be included in a Medicare claim. See CMS Pub. 100-04, ch. 23 § 80.8.1. The United States also alleged that Hudson Valley perpetrated a fraudulent scheme in which doctors signed the progress notes of patients only seen by registered nurses (“R.N.”). The State of New York brought claims under the New York False Claims Acts.
Name of Relator: The relator, Lucille Abrahamsen, is a resident of New York.
Defendant’s Business: Defendant operates physician-led cancer centers in six locations at which sixteen certified specialists provide specialized care for individuals with cancer and blood disorders.
Relator’s Relationship to Defendant: The relator is a former Accounts Receivable Representative at Hudson Valley. During her employment there, Abrahamsen was responsible for coding and billing entry.
Relator’s Counsel: Guttman Buschner & Brooks PLLC.
Summary of Case: The relator and the United States alleged that between the period of 2010 and 2015, Hudson Valley and a list of key employees engaged in two false and fraudulent schemes to defraud the government.
First, the United States contended, Hudson Valley engaged in an unlawful “copayment waiver scheme.” Medicare permits waiver of a copayment in exceptional circumstances in which a particular patient’s financial hardship warrants waiver. Medicare reimbursement is based on the lesser of the actual reasonable charges or the applicable fee schedule amount. 42 C.F.R. § 414.21. Copayments, “[d]eductible and coinsurance amounts are taken into account (included) in determining the reasonable charge for a service or item.” CMS Pub. 100-04, ch. 23 § 80.8.1. However, “a billed amount that is not reasonably related to an expectation of payment is not considered the “actual” charge for the purpose of processing a claim or for the purpose of determining customary charges.” Id. In other words, if providers routinely waive copayments, they do not expect to be paid that amount. Therefore, routinely waived copayments should not be included in the reasonable charges submitted to Medicare. In this case, the United States alleged that Hudson Valley was routinely waiving copayments as a “write-off” or “professional courtesy,” which is not a permissible reason to waive a copayment. Additionally, Hudson Valley included the routinely waived copayments in their calculation of reasonable charges submitted to Medicare. The United States alleged that this scheme violated the Anti-Kickback Statute, and resulted in inflated and false charges being submitted to Medicare.
The second set of allegations stemmed from evaluation and management (“E/M”) codes. The United States alleged that Hudson Valley placed patients on one of two schedules. The less severe cases would be assigned to the registered nurses’ schedule, while the more serious cases would be added to a physicians’ schedule. Typically, a physician did not examine patients on the registered nurses’ schedule. Yet, at the end of the day, a physician would update and sign a patient’s chart regardless of whether the patient had been seen by a nurse or by a physician. The United States contended that when physicians updated and signed these charts, they falsely certified that the patients received E/M services and that the encounters should be coded and billed accordingly.
Current Status: On October 26, 2016, United States District Court Judge Kenneth M. Karas accepted the parties’ settlement agreement and dismissed both the state and federal claims. The settlement requires Hudson Valley to pay $5.5 million to New York State and the United States.
Reasons to Watch: This case is notable, in part, because of the allegations relating to the physicians’ supervision of registered nursing work. In other recent qui tam cases, courts have grappled with how to bill appropriately for a physician’s time if the doctor has only briefly participated in the encounter in a supervisory capacity. This case reminds physicians to include clear documentation regarding the scope and duration of their involvement in an encounter.
This case also highlights the government’s strengthening commitment to holding individuals, not just their institutional employers, responsible for fraudulent acts. In a September 2015 Department of Justice memorandum, the government stated that it is taking a stronger stance on pursuing individuals who participate in fraudulent schemes. Individuals should be cognizant of their personal practices and ensure that they comply with the law.
Finally, the relator in this case, Lucille Abrahamsen, was a Hudson Valley employee. Abrahamsen worked as an Accounts Receivable Representative with responsibilities for coding and charge entry for billing purposes. This case reminds us that relators are often employees of the defendant. Employees responsible for billing and coding have direct access to information that may reveal the possible existence of false or fraudulent claims. Maintaining a robust, diligent and responsive compliance function can help protect against employees becoming relators. A culture that encourages reporting compliance issues – and then responds to any issues that surface – can help avoid whistleblower actions.
Complaint Filed: January 13, 2016
Complaint Unsealed: October 11, 2016
Intervention Status: The government declined to intervene on September 21, 2016.
Claims: Submitting and causing to be submitted false claims to the federal government in violation of the FCA, 31 U.S.C. § 3729 et seq., premised on defendants’ failure to inform the government of the alleged invalidity of the only remaining patent on the pharmaceutical drug nebivolol hydrocholoride (proprietary name “Bystolic®”).
Name of Relator: Lower Drug Prices for Consumers, LLC. Corporate filings for the relator disclose that it is a subsidiary of Foxhill Capital Partners, a New Jersey–based hedge fund specializing in distressed investments. It would appear that the relator is a special purpose entity created for purposes of bringing this lawsuit, although further information is not available. The relator’s complaint does not disclose the names of any individuals whose knowledge or information served as the basis for the allegations in its complaint.
Defendant’s Business: Defendant is a global pharmaceutical company.
Relator’s Relationship to Defendant: The relator, on its own accord, undertook an investigation to determine the validity of a patent owned by Forest Laboratories Holdings Ltd. and subsequently filed a Petition with USPTO’s Patent Trial and Appeal Board requesting an inter partes review of certain of the patent’s claims. Relator’s challenge to the validity of the patent is the basis of its claims under the FCA.
Relator’s Counsel: Nelson Bumgardner, P.C. & Parker, Bunt & Ainstworth, P.C.
Summary of Case: The relator filed a qui tam action against Allergan and its wholly owned subsidiaries, Forest Laboratories LLC and Forest Laboratories Holdings, Ltd., for purported violations of the FCA based on the defendants’ actions, which allegedly caused and continue to cause nebivolol to be sold in the United States at what the relator claims to be a fraudulently inflated price, resulting in overpayments by various federal agencies and programs. Relator asserted that the defendants have sold nebivolol, either directly or through an agent, to various U.S. federal government programs.
On December 7, 2016, the relator moved to voluntarily dismiss the complaint without prejudice because the Patent Trial and Appeal Board of the United States Patent and Trademark Office (“PTAB”) issued a final written decision denying Inter Partes review of U.S. Patent No. 6,545,040. Relator’s legal theory rested on his assertion that Allergan/Forest Labs U.S. Patent No. 6,545,040 is invalid. By way of background, until June 2, 2015, there were two U.S. Patents listed in the Food and Drug Administration’s publication, Approved Drug Products with Therapeutic Equivalence Evaluations, commonly known as the “Orange Book,” as covering nebivolol. According to the complaint, U.S. Patent No. 5,759,580 expired on June 2, 2015, leaving only U.S. Patent No. 6,545,040 B1. Relator alleged that upon the expiration of U.S. Patent No. 5,759,580, had it not been for the continued presence of the U.S. Patent No. 6,545,040 B1 in the Orange Book, several pharmaceutical companies would have entered the market to sell generic versions of nebivolol, which would have caused a significant drop in its price (allegedly between just 10-20% of the current market price).
Relator contended that the defendants knew that U.S. Patent No. 6,545,040 B1 is invalid, failed to disclose this information to the U.S. Patent and Trademark Office, and continued to take affirmative steps to prevent the validity of U.S. Patent No. 6,545,040 B1 from being adjudicated in the United States.
The complaint further alleged that in at least the United Kingdom, and potentially in other foreign jurisdictions, foreign counterparts to U.S. Patent No. 6,545,040 B1 have been declared invalid. On December 22, 2015, the relator filed a Petition with the USPTO Patent Trial and Appeal Board for Inter Partes review pursuant to 35 U.S.C. § 311, et seq., seeking to invalidate U.S. Patent No. 6,545,040 B1. The petition was initially denied on July 1, 2016, and the relator filed a motion for reconsideration of the denial on July 29, 2016. On October 19, 2016 PTAB denied the motion for reconsideration, a decision which is final and not appealable.
Current Status: After the United States declined to intervene on September 21, 2016, the judge unsealed the complaint and ordered the relator to serve it on the defendants. The relator moved to voluntarily dismiss the case without prejudice on December 7, 2016.
Reasons to Watch: Although the relator moved to voluntarily dismiss the action due to PTAB’s final decision denying Inter Partes review of U.S. Patent No. 6,545,040 B1, this suit presents a creative and novel usage of the FCA and raises the question of whether an invalid patent can result in an FCA violation. Resolution of this case relied on the threshold issue of whether U.S. Patent No. 6,545,040 B1 was invalid. Even had the patent been shown to be invalid, the relator likely would have faced an uphill battle in establishing that the patentee had knowledge of such invalidity.
Another challenge that the relator would likely have faced would have involved proving that the submission of a reimbursement request for the then applicable price of nebivolol constituted a knowing false claim. It appears that the relator’s falsity theory was that the prevailing market price itself was a false overprice maintained solely by U.S. Patent No. 6,545,040 B1, which defendants knew to be invalid.
Allegations of “inflated” drug prices and efforts of entities like the relator to lower the costs of pharmaceuticals are on the rise in the United States. However, even with growing pressure on the government to control prescription drug expenditures, the government’s declination of this case suggests that the government has little enthusiasm for FCA claims premised on patent invalidity. Because the case did not move on to substantive motion practice, it remains unclear whether this novel theory of FCA liability is viable.
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