kickbacks & the false claims act the evolution of kickback allegations & theories of...
TRANSCRIPT
Kickbacks & The False Claims Act
The Evolution of Kickback Allegations & Theories of Liability in FCA Litigation
March 28, 2012
Antonia F. Giuliana
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Overview of Presentation
Part I: The Changing Legal Standards
Part II: The Evolution of Kickback Allegations in FCA Cases (1995-2009)
Part III: Case Example: United States ex rel. Jamison v. McKesson
Corp. et al., Civil Action No. 2:08-cv-214 (N.D. Mississippi).
Currently on trial
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Overview of the Federal AKS & FCA
The Anti-Kickback Statute, 42 U.S.C. § 1320a-7b(b)
Enacted in 1972, seven years after Medicare & Medicaid system created to address potential problem of providers making decisions based on their own economic interest
Prohibits payment of kickbacks, bribes, or other remuneration for the referral of Medicare or Medicaid patients
Strengthened in 1977 Criminal felony punishable by fines up to $25,000 and/or five years in prison (instead of misdemeanor, $10,000 fine, up to 1 year in prison)
No private right of action
The False Claims Act, 31 U.S.C. §§ 3729-3733
Enacted in 1863 at the height of the Civil War to combat rampant fraud by vendors that sold broken guns, sick horses, rancid food, and other worthless equipment to the Union Army
Imposes civil liability for treble damages and penalties on those who submit false claims or make false statements to obtain payment from the government
Contains a whistleblower provision that permits private citizens to sue on the government’s behalf
Lay relatively dormant until Congress significantly strengthened certain key provisions, including the whistleblower and damages provisions in 1986
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The Expansion of the FCA to Cover Violations of the AKS
2010 Patient Protection and Affordable Care Act (“PPACA”) Amendments
1. AKS – Intent Standard
With respect to AKS violations, “a person need not have actual knowledge of this section or specific intent to commit a violation of this section.” See 42 U.S.C. § 1320a-7b(h).
Overturns a series of cases that set a higher standard under which prosecutors had to prove the specific intent to disobey the law.
2. AKS Violation FCA Violation
“In addition to the penalties provided for in [the AKS], a claim that includes items or services resulting from a violation of this section constitutes a false or fraudulent claim for purposes of subchapter III of chapter 37 of Title 31 [i.e., the FCA].” See 42 U.S.C. § 1320a-7b(h).
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Consequences of the 2010 PPACA Amendment
United States ex rel. Bartz v. Ortho-McNeil Pharmaceutical, Inc. et al. (2012 WL 695886, D. Mass March 2, 2012).
Allegations of hidden discounts stated claim for illegal kickbacks.
Court held there was no FCA violation predicated on alleged kickbacks because the PPACA Amendment did not apply:
“In March 2010, the AKS was amended to state that ‘a claim that includes items or services resulting from a violation of this section constitutes a false or fraudulent claim for the purposes of the FCA.’ This amendment expressly applies only to drugs dispensed after July 1, 2010. Bartz’s employment at J&J terminated on April 20, 2007, and Bartz fails to identify any illegal ‘kickback’ allegedly paid to Bartz’s Relator’s claim against McKesson Specialty.” (Id. at 16.)
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Express & Implied Certification Claims
Even before the 2010 Amendments to the FCA, plaintiffs asserted that AKS violations may serve as the basis for FCA claims pursuant to “certification” theories of liability.
FCA Claim
1st Element: Falsity
Factually false – goods or services were never provided or were incorrectly described
Legally false – goods or services were provided in violation of a regulation, statute, or prescribed contractual term (despite a certification by the defendant, either express or implied, to the contrary)
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Express & Implied Certification Claims
Express Certification Claim
Based on a false representation of compliance with a federal statute or regulation, and in some instances, with a prescribed contractual term or specification
Majority view: a claim is legally false only if the party certifies compliance with a statute or regulation that is a condition to government payment
Implied Certification Claim
Based on the notion that the act of submitting a claim for reimbursement itself implies compliance with the governing federal rules that are a precondition of payment
Not universally accepted – elements vary circuit-to-circuit (and, at times, within circuits)
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Implied Certification Claims – by Circuit
Second, Third, Eighth Circuits
Limited to where there is a statute or regulation that is a condition of payment.
Eleventh Circuit
Can be based on either a condition of payment or a condition of participation in a federal program.
D.C. Circuit
A violation of a contractual obligation that was “material” to the government’s obligation to pay a claim can form the basis for an FCA claim.
Seventh, Fourth, Fifth Circuits
Have taken positions that are incompatible with an implied certification theory.
First Circuit
Rejects certification framework completely. Liability may attach whenever claim “misrepresented compliance with a precondition of payment so as to be false or fraudulent” and misrepresentation was “material.”
(See Appendix A for list of cases.)
Evolution of Kickback Allegations 1995 - 2009
1995-2000 2001-2005 2006-2009Expensive trips Lavish entertainment Free goods Free samples Improper placement in clinical trials “educational grants” “consultant meetings” “advisory boards” “training, consultation, or market research” fees
Expensive trips and dinners
Excess payments on a distribution contract Financial bonuses to high-prescribers Sponsor “CME” conducted by high-prescribing physicians “data purchase” fees “consulting agreements,” “advisory boards, ”“preceptorships,” “speaker fees”
“educational grants” and “honoraria” “scientific study” participation fee
Fees for participating in “post-market study” and “registry” Encourage providers to bill for overfill in drug vial Provide services to providers at price below cost and/or fair market value (even if a competitor’s bid was lower)
Payments to providers for hundreds of “speaker training” meetings and programs
See Appendix B for listing of representative matters
Kickback Allegation Trends
Increased focus on so-called “Sham Transactions”
A seemingly legitimate transaction that is actually a façade for an improper hidden transaction
Form of transaction is proper, but substance is allegedly not
The types of “sham transactions” the government has been interested in have shifted over time, making potentially problematic conduct difficult to identify (except in hindsight)
“data purchase” fees, “scientific study” participation fees
More aggressive and creative theories of what types of conduct may constitute a “kickback”
Overfill in drug vial, FMV challenges in competitive bidding situations
Sources to Assist in Identifying Evolving Standards
Corporate Integrity Agreements
DOJ Press Releases Announcing FCA Settlements
FCA Settlement Agreements
FCA Complaints-In-Intervention
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United States ex rel. Jamison v. McKesson Corp. et al. (N.D. Miss.) 2:08-cv-214
FCA Claim (conduct – 2002 to 2006)
Predicated on AKS violation (prior to 2010 FCA amendment)
AKS violation relating to illegal remuneration for business referrals in the form of below fair market value pricing or discounts
Fifth Circuit law applies (no implied certification theory)
The Defendants
Beverly defendants (including subsidiary CSMS) large nursing home chain
Allegedly induced kickback
McKesson defendants (including subsidiary MediNet) National distributor
Allegedly provided kickback
Did not receive the business referral
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The Jamison Case(the facts)
The Medical Supply Contract (the alleged “bait”)
Beverly contracted with Gulf South for its medical supplies (alleged $50 million value). Set to expire in 2002.
Summer 2002 – MediNet meets with CSMS to (1) pitch contract billing services for enteral products and (2) discuss benefits of using a related company to act as Beverly’s medical supply distributor.
MediNet proposed $50 contract billing fee per patient if CSMS gave the medical supply contract to a MediNet-affiliate and a $75 fee without the supply contract.
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The Jamison Case(the facts)
The Contract Billing Services Contract (the alleged “kickback”)
Four bids submitted during RFP process in Fall 2002:
MediNet (defendant) -- $75 w/o supply K/$50 with supply K
Pharmerica -- $210 (current provider)
NCS -- $50
Proclaim -- $74
CSMS and MediNet further negotiate bid from $75 to $70.
MediNet is awarded contract billing services agreement.
Beverly re-signed its medical supply distribution contract with Gulf South at the end of 2002.
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The Jamison Case(the allegations)
The Government’s Allegations
The Beverly defendants “ ‘dangled’ the prospect of McKesson obtaining its DME supply business relating to enteral nutrition services in order to induce MediNet to provide it with the lowest possible billing fees.”
MediNet “offered its contract billing services below fair market value in order to induce Beverly to refer the general medical supply contract” to a McKesson-affiliate.
Government relies on express certification on DME enrollment and re-enrollment applications by CSMS (a Beverly defendant).
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The Jamison Case (the summary judgment motion)
Issue 1: Whether there was any “remuneration”?
No MediNet’s bid was in line with fair market value.
Yes No FMV because each bidder was motivated to bid low in the hopes of landing the lucrative medical supply contract.
No Competitive bidding of the RFP process ensures that MediNet’s pricing was fair market value, regardless of government’s “hindsight calculations.”
Yes During the term of the contract billing agreement, a MediNet financial analyst reviewed its impact to MediNet and determined that at $70 per resident per month, MediNet either lost money, or at best broke even.
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The Jamison Case(the summary judgment motion)
Issue 2: Whether the defendants acted knowingly and willfully?
Yes Beverly did not notify MediNet that McKesson was not going to receive Beverly’s supply business until January 2003 – four months after MediNet’s bid was submitted.
Yes MediNet’s $70 bid for contract billing services was unreasonable considering that current provider, Pharmerica, submitted a bid for $210.
No MediNet performed a profit projection analysis prior to entering billing services contract and anticipated $34-38 in costs, well in line with $70 per resident per month fee.
No Beverly defendants negotiations and determination of the best bid was driven by their intent to get the best deal. MediNet was chosen on the basis of other criteria aside from price.
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The Jamison Case(the summary judgment decision)
The Holding
Deny summary judgment – issues raise questions of fact for trial
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The Jamison Case(parent liability)
McKesson Corporation’s Summary Judgment Motion
McKesson, contends that, as MediNet’s parent corporation, it is not liable for the actions of its subsidiary.
Seeks dismissal from lawsuit because it:
Was not a party to any of the transactions
Is not a Medicare provider or supplier
Does not submit claims to Medicare
Does not directly own any MediNet shares
No participation or control over MediNet’s actions
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The Jamison Case(parent liability)
McKesson Corporation’s Summary Judgment Motion
Government contends:
McKesson had input into the strategy for securing Beverly’s business
A senior McKesson executive was “over the management” of MMS at the time the “Beverly strategy” was implemented
The McKesson executive had knowledge of and approved MediNet’s strategy.
McKesson had a deliberate corporate strategy to blur MMS and MediNet into the McKesson corporate name as evidence of McKesson’s direct involvement with the fraud
Court held:
Genuine issue of material fact as to the level of control and input McKesson Corporation had with respect to MediNet’s contract with CSMS
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The Jamison Case(the trial)
The Trial
Bench trial started in February; will recommence in April
Estimated 10-20 days
Important Issues Raised Under the AKS and FCA
Whether a “discount” that does not result in a price that is below FMV is actionable under the AKS?
Whether proof of damages is a required element to prove a violation of the FCA?
Assuming an FCA violation is proven, whether civil penalties may be awarded if damages are not proven?
If civil penalties may be awarded, how should they be assessed? Per claim submitted? Per express false certification?
Whether the applicable standard of proof for the element of an AKS violation is “beyond a reasonable doubt” or “by a preponderance of the evidence”?
March 28, 2012
Thank you!
Appendix A
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Implied Certification Cases by Circuit
First Circuit: New York ex rel. Westmoreland et al. v. Amgen, Inc. et al., 2011 WL 2937420 (1st Cir. July 22, 2011); United States ex rel. Hutcheson et al. v. Blackstone Medical, Inc., 2011 WL 2150191 (1st Cir. June 1, 2011).
Second Circuit: Mikes v. Straus, 274 F.3d 687 (2d Cir. 2001).
Third Circuit: United States ex rel. Wilkins v. United Health Group, Inc., 2011 WL 2573380, at *9 (3d Cir. June 30, 2011).
Fourth Circuit: Harrison v. Westinghouse Savannah River Co., 176 F.3d 776, 786-87 n.8 (4th Cir. 1999).
Fifth Circuit: United States ex rel. Steury v. Cardinal Health, Inc., 2010 WL 4276073 (5th Cir. 2010); United States ex rel. Marcy v. Rowan Cos., 520 F.3d 384, 389 (5th Cir. 2008).
Sixth Circuit: United States ex rel. Augustine v. Century Health Services, Inc., 289 F.3d 409 (6th Cir. 2002).
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Implied Certification Cases by Circuit
Seventh Circuit: United States ex rel. Yannacopoulos v. General Dynamics, 2011 WL 3084932, at *3 n.4. (7th Cir. July 26, 2011).
Eighth Circuit: United States ex rel. Vigil v. Nelnet, Inc., 639 F.3d 791, 795–96 (8th Cir. 2011).
Ninth Circuit: United States v. Lungwitz et al., 2010 WL 3092637 (9th Cir. 2010).
Tenth Circuit: United States ex rel. Lemmon v. Envirocare of Utah, Inc., 2010 WL 3025021 (10th Cir. 2010).
Eleventh Circuit: McNutt ex rel. United States v. Haleyville Medical Supplies, Inc., 423 F.3d 1256, 1259 (11th Cir. 2005).
D.C. Circuit: United States v. Science Applications Int’l Corp., 626 F.3d 1257, 1261 (D.C. Cir. 2010).
Appendix B
Evolution of Kickback Allegations (1995-2009)
Settlement Date
Time period of alleged conduct
SUMMARY OF KICKBACK ALLEGATIONS
(Sources: DOJ Press Releases & FCA Complaints-in-Intervention 2001-2011)
Oct. 2001 1990s Company’s “employees sought to influence the doctors’ decisions about what drug to prescribe to patients by giving them kickbacks and bribes, from free samples to free consulting services to expensive trips to golf and ski resorts to so-called educational grants.”
Company’s “inducements to physicians included free products; free consulting services; trips to expensive golf and ski resorts; money disguised as ‘educational grants,’ but in fact was used and intended to be used for many purposes, including cocktail party bar tabs, office Christmas parties, medical equipment, travel expenses for urologists and their staff to attend conferences.”
May 2004 1995–2001
Company “paid doctors to attend so-called ‘consultants meetings’ in which physicians received a fee for attending expensive dinners or conferences during which presentations about off-label uses of [drug] were made. These events included lavish weekends and trips to Florida, the 1996 Olympics and Hawaii. There was little or no significant consulting provided by the physicians”
Evolution of Kickback Allegations (1995-2009)
May 2004
1995–2001
Company “paid physicians to allow a sales representative to accompany the physician while he or she saw patients, with the representative offering advice regarding the patient’s treatment”
Oct. 2005
1996-2004
Company “offer[ed] physicians an all expense-paid trip to a medical conference in Cannes, France in return for the doctors writing up 30 new prescriptions of [drug], which cost $21,000 per course of treatment, for a total of $630,000 per doctor.”
Aug. 2006
1998-2001
Company “induced physicians to start patients on [drug] for Hepatitis C by paying them remuneration through three marketing programs.” Company “induced physicians to use [drug A] for certain patients with brain tumors and brain metastases and to use [drug B] for certain patients with superficial bladder cancer through improper preceptorships, sham advisory boards, lavish entertainment, and improper placement of clinical trials.”
Apr. 2007
2000-2003
Company “violated the Anti-Kickback Act by offering to make excess payments on a distribution contract, in the amount of $12.3 million, to a subsidiary of a pharmacy benefit manager, in the expectation of obtaining improved formulary positioning and improved formulary ancillary benefits from the pharmacy benefit manager for [company’s] drug products.”
Evolution of Kickback Allegations (1995-2009)
Apr. 2007
2000-2003
Company “offered to overpay a subsidiary of a PBM for work on a drug distribution contract in the expectation that the PBM would in turn recommend [company’s] drug products, including by means of formulary recommendations, to certain of the PBM’s clients.”
Sep. 2007
2001-2005
Company “used illegal kickbacks to induce physicians to prescribe [drug]. Under ‘sham consulting agreements’ physicians were paid $500 - $1,000 to attend dinners or conferences on the off-label uses of [drug]. These meetings were held at expensive resorts and restaurants. Doctors who wrote large numbers of prescriptions for [drug] for off-label uses were asked to speak at various events for additional financial bonuses.”
Jul. 2007
2005 Company “relied on a psychiatrist to give talks around the country promoting [drug] to physicians for ‘off-label’ uses and paid him tens of thousands of dollars for such promotional speaking engagements. With the approval of [company’s] sales personnel, the psychiatrist allegedly made misleading statements about [drug] in the course of promoting the drug for ‘off-label’ use, including minimizing the dangers of a [drug] overdose…”
Sep. 2007
2000-2003
Company “knowingly and willfully paid illegal remuneration to physicians and other health care providers to induce them to purchase [company’s] drugs.”
Evolution of Kickback Allegations (1995-2009)
Sep. 2007
2000-2003
Company “paid the alleged remuneration in the form of consulting fees and expenses to physicians and other health care providers to participate in various consulting programs, advisory boards, and preceptorships. Some of these programs involved travel to luxurious resorts.”
Sep. 2007
1994 – 2001
Company “knowingly and willfully paid illegal remuneration suck as stocking allowances, price protection payments, prebates, market share payments, and free goods in order to induce its retail pharmacy and wholesaler customers to purchase its products.”
Feb. 2008
1997-2001
Company “had approximately fifteen different programs used by its sales representatives to induce physicians to use its many products. These programs primarily consisted of excess payments to physicians that were disguised as fees paid to them for ‘training,’ ‘consultation’ or ‘market research.’ In fact, the government alleged that these fees were illegal kickbacks intended to induce the purchase of [company’s] products.”
May 2008
2002-2003
Company “implemented a program to induce medical prescribers to prescribe [drug] for their patients. [Company] presented the program to Medical prescribers and others as a scientific study of the performance of [drug] when the program was actually designed to induce prescribers to prescribe the product for their patients by paying prescribers up to $1,000.”
Evolution of Kickback Allegations (1995-2009)
Sep. 2009
2002-2005
Company “paid kickbacks to physicians to induce them to prescribe [drugs] in violation of the Federal Anti-Kickback Statute.”
Nov. 2009
1999-2004
Large nursing home pharmacy “solicited or paid a variety of kickbacks. The company allegedly solicited and received kickbacks from a pharmaceutical manufacturer in exchange for agreeing to recommend that physicians prescribe [drug] to nursing home patients.” Alleged kickbacks include “rebates that were conditioned on [company] engaging in an “Active Intervention Program” for [drug] and payments disguised as data purchase fees, educational grants, and fees to attend [company] meetings.” Company “regularly paid kickbacks to nursing homes by providing consultant pharmacist services at rates below the company’s cost and below the fair market value of such services in order to induce the homes to refer their patients to [company] for pharmacy services.”
Sep. 2010
1998-2005
Company “used illegal kickbacks to induce physicians and others to prescribe [drugs]. Kickbacks allegedly included cash payments disguised as grants or consulting fees, expensive meals and lavish entertainment.”
Sep. 2010
2000-2004
Company “paid kickbacks to health care professionals to induce them to prescribe [drugs].”
Evolution of Kickback Allegations (1995-2009)
Dec. 2010
2000-2005
Company “paid illegal kickbacks to physicians in an effort to persuade them to prescribe [drug] for off-label uses”
Dec. 2010
2002-2006
Company “offered and paid doctors, other medical professionals, physician groups and managed care organizations, illegal kickbacks in the form of money, free travel, grants, honoraria and other valuable goods and services, in violation of the Anti-Kickback Statute to get them to prescribe or recommend [drugs].” Company “two doctors proposed that they would endorse the use of [drug] for the treatment of cholesterol in exchange for a series of payments. Between January 2002 and June 2006, one of the doctors wrote 4,130 prescriptions for [drug]….From 2002 to 2005, [company] made a series of payments to the two doctors or a third party intermediary in the form of “sponsorship” of continuing medical education classes conducted by the doctors and purported speakers’ fees.”
Jan. 2011
2003-2008
Device manufacturer “used three post-market studies and a registry (together, the "Subject Studies and Registry") in part as vehicles to pay participating physicians kickbacks to implant [company’s] pacemakers and ICDs. Although [company] collected data and information from participating physicians, it knowingly and intentionally used the Subject Studies and Registry as a means of increasing device sales by paying certain physicians to select [company’s] pacemakers and ICDs to implant in
Evolution of Kickback Allegations (1995-2009)
their patients. Each of the Subject Studies and Registry required the implant of a [company] CRM device in each patient and the submission of data regarding each patient. In each case, [company] paid each participating physician a fee that ranged up to $1,000 to $2,000 per patient.”
May 2011
2002-2009
Company “paid health care providers from the launch of [drug] in about January 2002 through December 2009 to induce them to promote or prescribe [drug].” Company “made payments to providers for hundreds of speaker training meetings and programs, as well as payments for attending consultant, marketing and advisory board meetings, all at upscale resorts and other locations.”
Pending case
2002-2009
Company “knowingly offered kickbacks to medical providers in the form of overfill contained in vials of [drug] and encouraged medical providers to submit claims for payment for the free product” Company “offered kickbacks to medical providers, including . . . sham consultancy agreements, weekend retreats, and/or other services, to induce [drug] sales and prescriptions.”
