From the monthly archives:

March 2011

False Claims Act (Sometimes) Reaches Indirect Reverse False Claims

by Nolan and Auerbach on March 30, 2011

Recently, a federal court of appeals wrestled with the thorny issue of whether a defendant can be liable under the False Claims Act when it causes a third party to submit a false statement to the federal government, which, in turn, permits the defendant to retain government funds. Working through this legal jujitsu of “indirect reverse false claims,” the Court held that the Reverse False Claims Act provision, 31 U.S.C. § 3729(a)(7), applies . . . sometimes.

This issue reared its ugly head in a 12-year-old intervened qui tam action against Caremark, a pharmacy benefits management (PBM) company that administers pharmacy benefits for insurance companies, managed care organizations, and public and private health plans and organizations. United States ex rel. Ramadoss v. Caremark Inc., No. 09-50727 (5th Cir. February 24, 2011).

Medicaid is supposed to be the payor of last resort. However, Caremark allegedly shifted the costs to Medicaid by refusing to pay for the pharmacy benefits of individuals who were eligible for both Medicaid and a plan administered by a Caremark. Specifically, when these so-called “dual eligibles” identified themselves at a pharmacy as Medicaid recipients, instead of privately-insured individuals, Caremark would subsequently refuse to reimburse Medicaid, leaving the Medicaid program with the tab.

Significantly, if the state Medicaid agency discovers that a Medicaid recipient is a dual-eligible individual, the federal law requires the agency to seek reimbursement from the private insurer, such as Caremark.

The lower court held that the Reverse FCA did not apply, for Caremark submitted false statements to state Medicaid agencies, not the federal government, and it had no “obligation” to the federal government.

On appeal, federal and State governments argued that Caremark’s actions violated the Reverse FCA, for its false statements caused the state Medicaid agencies to make false statements to the federal government, which, in turn, impaired the agencies’ obligations to the federal government.

Claims under the Reverse FCA provision require proof that the defendant “knowingly makes, uses, or causes to be made or used, a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government.” 31 U.S.C. § 3729(a)(7).

In endorsing the governments’ reading of the Act, the Court of Appeals highlighted that FCA provides that a person who causes a false statement to be made “to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government” is liable under the FCA. 31 U.S.C. § 3729(a)(7). Notably, the statute does not require that the statement impair the defendant’s obligation; instead, it merely requires that the statement impair “an obligation to pay or transmit money or property to the Government.” 31 U.S.C. § 3729(a)(7) (emphasis added).

Here, FCA liability hinged on the fact that Caremark’s actions impaired the State Medicaid Agencies’ obligations to recover and return Medicaid funds.

Notably, the court was able to sidestep the trickier question of whether the Reverse FCA applies when the defendant has no direct obligations to the federal government and the innocent party has no obligation to recover the funds for the federal government. This dormant issue continues to percolate below the surface.

For more information about qui tam law and health care fraud, contact Nolan & Auerbach, P.A.

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Judge Gives Green Light to Johnson & Johnson Whistleblower Case

by Nolan and Auerbach on March 21, 2011

A federal judge refused to dismiss an intervened qui tam action, which alleges Johnson & Johnson paid millions of dollars in illegal kickbacks to Omnicare, the nation’s largest nursing home pharmacy, for the purpose of driving up sales of its antipsychotic drug Risperdal.

According to the government’s complaint, Johnson & Johnson paid $50 million to Omnicare between 1999 and 2004 to get it to push Risperdal to elderly patients with dementia, and then hid those kickbacks as payments for services that Omnicare never actually provided. Omnicare then enacted intervention programs such as the “Risperdal Initiative” to persuade physicians to prescribe the drug to elderly dementia patients.

In an effort to derail the action, Johnson & Johnson argued that the so-called “illegal kickbacks” were actually legal rebates, permissible under the controlling Medicare regulations. However, after extensive briefing, Judge Sterns sided with the plaintiffs and denied Johnson & Johnson’s motion to dismiss.

This case was originally filed nearly eight years ago by an Omnicare pharmacist that was troubled by his employer’s business practices of accepting kickbacks from drug makers. Ultimately, he decided to take a stand and filed qui tam actions against Ominicare and several pharmaceutical companies.

In 2009, Omnicare settled the FCA allegations for $98 million, quieting claims that the company accepted kickbacks that were hidden as data fees, education fees and as payments to attend Omnicare meetings. However, Johnson & Johnson sought to silence the whistleblower’s action through the legal system. Now, with the government intervening in the action in 2010 and the court giving a green light to the action last week, Johnson & Johnson might be reconsidering options.

For more information about qui tam law and health care fraud, contact Nolan & Auerbach, P.A.

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Industry-Wide Allegations of Fraud Do Not Silence Defendant-Specific Qui Tam Actions

by Nolan and Auerbach on March 14, 2011

A few weeks ago, the Seventh Circuit published a ground-breaking court decision that was largely off the radar for FCA experts. However, the implications of this court decision, United States ex rel. Baltazar v. Advanced Healthcare Associates, S.C., No. 09-2167 (7th Cir.  Feb. 18, 2011), will have a lasting impact for years to come. This opinion, penned by respected Chief Judge Easterbrook, removed much of the confusion surrounding the old FCA public disclosure bar and cemented the reach of the recently revised FCA public disclosure bar.

The FCA public disclosure bar, 31 U.S.C. 3730(e)(4), was grafted into the False Claims Act in 1986 to silence parasitic qui tam suits. However, because the government needs the assistance of relators to uncover fraudulent behavior, Congress narrowly tailored the bar to only preclude those actions that actually copied fraud allegations from specific types of public disclosures. In short, Congress wanted to ensure that non-parasitic qui tam suits could survive, particularly if they provided additional information that assisted the government’s fraud-fighting efforts.

However, over the course of nearly a quarter of century, courts increasingly misapplied and misinterpreted the FCA public disclosure bar, such that non-parasitic qui tam suits were regularly derailed by the public disclosure bar. In one clear example, involving a healthcare fraud case, the Seventh Circuit seemed to rule in United States ex rel. Gear v. Emergency Medical Associates, 436 F.3d 726 (7th Cir. 2006), that the public disclosure bar applied when public allegations raised industry-wide fraud allegations, even when the allegations did not mention the specific defendant identified in a later filed qui tam action.

Congress recently responded, in part, by amending the FCA public disclosure bar, clarifying that the bar is only triggered when the publicly disclosed allegations are “substantially the same” as those allegations detailed in the qui tam action. In turn, Congress stressed that the public disclosure bar does not apply when the public allegations generally allege fraud against an entire industry.

In Baltazar, the Seventh Circuit was faced with making sense of this new language. As an initial matter, while the court stated that the new language did not apply to the case at bar, the Congress intent behind the amendment certainly colored its interpretation of the old public disclosure bar. Through this lens, the court held that a qui tam suit alleging “defendant-specific facts” is not “substantially similar” to publicly disclosed allegations of “industry-wide” fraud. Thus, while not explicitly rejecting its earlier Gear ruling, the Seventh Circuit clearly stated that a “defendant-specific” complaint clears the public disclosure bar.

With the “substantially similar” language now codified into the FCA public disclosure bar, the Baltazar reading of “substantially similar” clarifies that industry-wide public disclosure allegations do not derail allegations that detail fraud of a specific industry player. This is a giant step forward for the public disclosure bar and the qui tam community.

For more information about qui tam law and health care fraud, contact Nolan & Auerbach, P.A.

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