Florida Court Concludes that Whistleblower Has Standing to Pursue FCA Civil Penalties Despite No Damages

In many FCA cases, the potential liability for civil penalties is vastly higher than potential damages, even after trebling. For that reason, defendants have often asserted various challenges, including Constitutional challenges, to the applicability or imposition of civil penalties.  Recently, in a February 6 opinion, U.S. ex rel. Baklid-Kunz v. Halifax Hospital Medical Center, a district court in Florida rejected the argument that a relator who foregoes a claim for damages, and seeks only civil penalties under the FCA, lacks Article III standing. The court relied primarily on the Supreme Court’s 2000 opinion in Vermont Agency of Natural Resources, and concluded that the long tradition of qui tam actions – including those for recovery of civil penalties – dating back centuries, which was cited in Vermont Agency, supported the conclusion that qui tam suits seeking recovery of civil penalties only are properly understood to be “cases” or “controversies” within the meaning of Article III. The district court also cited in support the December 2013 opinion in U.S. ex rel. Bunk v. Gosselin World Wide Moving, N.V., in which the Fourth Circuit similarly held that relators have standing to pursue qui tam claims for civil penalties, even in the absence of any claim for damages.

Court Rules Whistleblower Case Against Abbott Laboratories Concerning TriCor to Move Forward

In an Order entered on January 31, 2014, District Judge Darnell Jones, II found the whistleblower Complaint filed by former Abbott employee, Amy Bergman, under Federal and State False Claims Acts, alleged sufficient facts regarding kickbacks to physicians and improper off-label marketing of the blockbuster drug TriCor.

Abbott Laboratories, a pharmaceutical company that has already pleaded guilty and paid over $1.5 billion to U.S. federal and state authorities after multiple separate investigations into alleged illegal marketing and false claims regarding several of its prescription drugs and those of its subsidiaries, was unsuccessful in its attempt to dismiss this similar case regarding its blockbuster drug TriCor.  TriCor is a fibrate that was approved by the FDA for use in certain limited circumstances in patients with elevated triglycerides or a particular type of cholesterol imbalance.  The Relator in the current case, a former salesperson for Abbott, filed a whistleblower lawsuit alleging Abbott marketed TriCor to doctors in a deceptive manner for medically unnecessary and unapproved uses, resulting in hundreds of millions of dollars in inappropriate prescription costs paid by Medicare and Medicaid.  The lawsuit also alleges that Abbott paid kickbacks and other improper incentives to high volume prescribers and other physicians in order to encourage or reward them for prescribing TriCor.

In denying the Motion to Dismiss, Judge Jones observed that the Amended Complaint “provides myriad details of Abbott’s marketing statements that contradict its FDA-approved label. Specifically, relator alleges that there were no clinical data supporting the use of TriCor as a first-line therapy for diabetics to treat cardiovascular morbidity and mortality, which was an off-label use. Nevertheless, Abbott directed its representatives to respond strategically to these kinds of objections from physicians and to provide studies of a different, albeit similar, drug to support the off-label claims Abbott was making about TriCor.”  Judge Jones went on to state, “These marketing activities, if they in fact occurred as Relator alleges, flout the provision on the FDA-approved package insert for TriCor which notes that the drug’s effects on cardiovascular morbidity and mortality have not been established.”

Annual sales of TriCor increased dramatically in the United States during the time period that the  illegal marketing activities alleged in the Amended Complaint occurred  — from approximately $403 million in 2002, to approximately $1.3 billion in 2008.

The lawsuit seeks to benefit the United States government and a number of states by having Abbott repay Medicare and Medicaid the hundreds of millions of dollars in prescription costs paid as a result of the deceptive off-label marketing and kickbacks.  Federal law provides protection and compensation to employee whistleblowers that bring evidence of false claims to the government. The lawsuit was filed by attorneys at Nicholson & Eastin, LLP and the Kelley/Uustal law firm.

Lead Attorney Robert Nicholson commented that, “Judge Jones engaged in a very thoughtful and thorough analysis of the allegations and the law, and appropriately denied Abbott’s Motion to Dismiss the Amended Complaint.  As detailed in the case filings, Abbott has a documented history of improper off-label marketing, with multiple prior settlements with the Government regarding other drugs.  We view the decision as a significant victory for the Relator in her effort to expose Abbott’s conduct regarding TriCor, and we are confident that this case will resolve in favor of the United States and the Relator.”

The case is pending before the Honorable C. Darnell Jones, II, in the United States District Court for the Eastern District of Pennsylvania under Case No. 09-4264

For more information, or a copy of the Amended Complaint, contact Robert Nicholson, at Nicholson & Easton, LLP, Robert@NicholsonEastin.com or (954) 634-4400.

DOJ Releases False Claims Acts Statistics

The DOJ just released its annual compilation of False Claims Act (FCA) statistics.  Overall, the DOJ recovered $3.8 billion during FY 2013 – an amount second only to last year’s record-breaking recovery of almost $5 billion.  Neither of these figures reflects criminal fines and forfeitures or state recoveries for Medicaid fraud, which actually drive up the government’s total fraud recoveries by billions more.  This past year also marks the fourth consecutive year that the DOJ has recovered an excess of $3 billion.  Interestingly, these numbers do not include the $2.2 billion settlement with Johnson & Johnson announced in November for claims that J&J illegally promoted its drugs Risperdal, Invega, and Natrecor, as well as engaged in a widespread kickback scheme with physicians.

All in all, the FCA is clearly alive and well, and more and more cases get filed each year.

Abbott Laboratories to Pay $5.475 Million to Settle Kickback Allegations

On January 2, 2013, the Department of Justice (DOJ) announced that Abbott Laboratories (Abbott) agreed to pay $5.475 million to settle allegations that Abbott paid physicians kickbacks in exchange for influencing decisions to implant Abbott devices in patients in violation of the False Claims Act (FCA). Although Abbott made no admissions of liability, the DOJ’s press release explained the settlement is in resolution of allegations that Abbott knowingly arranged payments to physicians for teaching assignments, speaking arrangements, and conferences expecting that those physicians’ action would result in the implantation of the Abbott carotid, biliary, and peripheral vascular products in patients at the hospitals with which the physicians were associated.

The recent settlement announced by the DOJ resulted from a qui tam suit filed by two former Abbott employees, Steven Peters and Douglas Gray. Acting as whistleblowers and alleging violation of the FCA on behalf of the government, Peters and Gray claimed that Abbott’s payments made in exchange for physicians’ influencing hospitals to implant Abbott products in patients amounted to kickbacks in violation of FCA and in the submission of false claims to Medicare for procedures in which the Abbott products were used. Peters and Gray will share in the recovery of the government under the settlement, collecting a total of $1 million in damages for themselves.

If you are aware of any similar illegal conduct, contact us now.

Fourth Circuit Holds That a $24 Million FCA Penalty Is Not An “Excessive Fine” Despite No Proof of Actual Damages

In United States ex rel. Bunk v. Gosselin World Wide Moving, N.V., No. 12-1369 (4th Cir. Dec. 19, 2013), the Fourth Circuit reversed a district court’s judgment that awarded nothing on a prevailing $50 million False Claims Act claim for civil penalties.

The panel first ruled that FSA relator Kurt Bunk had “standing” because the harm to the federal government (from a scheme to fix prices and rig bids on charges for moving goods of U.S. military personnel) satisfied the injury-in-fact requirement for constitutional standing to sue.

The court also concluded that the award of zero in civil penalties was improper and ordered the trial court to impose $24 million in FCA penalties against the defendants following a trial at which the relator sought no FCA damages and no proof of economic harm to the United States was ever established.  The panel observed that the FCA contains a statutory requirement of at least a $5,500 penalty for each of the 9,136 false invoices at issue — over $50 million! — and that the number seemed harsh in light of the $2 million or so in possible losses to the government.  But fortunately the Relator had agreed to take far less — just $24 million. The court held, “Under the circumstances before us, we are satisfied that the entry of judgment on behalf of Bunk for $24 million on the DPM claim would not constitute an excessive fine under the Eighth Amendment. That amount, we think, appropriately reflects the gravity of [price-fixer/bid-rigger] Gosselin’s offenses and provides the necessary and appropriate deterrent effect going forward.” Id. at 44.

Government Seeks To Limit Caronia

The Second Circuit previously held in U.S. v. Caronia that truthful, non-misleading off-label promotion is constitutionally-protected commercial speech. Recently, the United States filed a Statement of Interest in U.S. ex rel. Cestra, et al. v. Cephalon, Inc., 10 Civ. 6457 (S.D.N.Y.) setting forth the government’s views on the application of Caronia to an FCA claim based on alleged off-label marketing and promotion.

In its Statement, the government acknowledged that “the FCA does not prohibit off-label promotion of prescription drugs.” However, the government argues, Caronia does not “preclude a cause of action under the False Claims Act based on a manufacturer’s off-label marketing.” According to the government, the First Amendment is “not implicated in the context of an FCA claim . . . where the defendant causes others to submit false claims for payment to the Government for non-reimbursable prescription drugs.”  The government argues that the “central question” is “whether the defendant’s marketing caused the submission of false claims, i.e., claims for off-label uses that are not covered or reimbursable by federal health care programs.”

Cephalon argued, however, that the distinction between the submission of “false claims” and protected First Amendment conduct is artificial because the relator seeks to hold Cephalon responsible for “causing” false claims (i.e., claims for non-reimbursable uses) to be submitted, but conduct that is alleged to have “caused” the submission of the claims is (according to Cephalon) truthful, non-misleading promotion—the same type of conduct that Caronia held to be protected speech. As Cephalon notes, “[b]ecause it is the ‘marketing’ that allegedly ‘causes’ the false claim, and because it is this ‘causation’ that is the alleged violation of the FCA by Cephalon, it is this ‘marketing’ that is sought to be sanctioned.”

It is currently unclear whether the Court will resolve or sidestep this dispute.


SEC Releases Encouraging Report Regarding Its Whistleblower Program

The 2013 numbers are in for the Dodd-Frank whistleblower program and they are encouraging.  The SEC released its 2013 Annual Report on the program earlier this week which revealed that tips – and rewards – have increased since 2012.   The young whistleblower program is gaining steam and if it stays on course, it will no doubt be hugely successful in the coming years, perhaps even rivaling the success of the 150-year-old False Claim Act program.

The Report shows that tipsters are flooding in with reports of potentially fraudulent conduct.  Tips went up approximately 8% in 2013, increasing from 3,001 for 2012 to 3,238 for 2013.  That amounts to roughly 9 tips a day.  The tips poured in from all fifty states, with the bulk coming from California, New York, Texas, and Florida.  Tips also originated from the outer territories of Puerto Rico, Guam, and the US Virgin Islands.  And tips from abroad were up by 25% from 2012, coming in from 55 countries, with the most originating in the UK, Canada, China, Russia and India.  As in 2012, the three most common tips involved Corporate Disclosures and Financials (17.2%), Offering Fraud (17.1%), and Manipulation (16.2%).

Read more here:

Lance Armstrong doping suit likely to proceed

A federal judge said on Monday he likely will allow a lawsuit to move forward accusing cyclist Lance Armstrong and his business partners of defrauding the U.S. Postal Service of endorsement money through Armstrong’s use of performance-enhancing drugs.

U.S. District Judge Robert Wilkins said at a court hearing in Washington that he planned to rule in writing within 30 days on requests by Armstrong and the other defendants to dismiss the suit.

“It might get dismissed as to some defendants. I can tell you I doubt it as to all,” Wilkins said. He was not specific about which defendants might still face claims.

Former Armstrong teammate Floyd Landis brought the suit in 2010 under a federal law that allows whistleblowers to report fraud committed against the government in exchange for a reward.

The U.S. Justice Department joined the suit in February, seeking to recover at least some of the $40 million that the Postal Service paid from 1998 to 2004 to have Armstrong and his teammates from Tailwind Sports wear its logo during cycling wins.

Read more  from Reuters here:


Johnson & Johnson to Pay More Than $2.2 Billion to Resolve Criminal and Civil Investigations

Global health care giant Johnson & Johnson (J&J) and its subsidiaries will pay more than $2.2 billion to resolve criminal and civil liability arising from allegations relating to the prescription drugs Risperdal, Invega and Natrecor, including promotion for uses not approved as safe and effective by the Food and Drug Administration (FDA) and payment of kickbacks to physicians and to the nation’s largest long-term care pharmacy provider.  The global resolution is one of the largest health care fraud settlements in U.S. history, including criminal fines and forfeiture totaling $485 million and civil settlements with the federal government and states totaling $1.72 billion.

“The conduct at issue in this case jeopardized the health and safety of patients and damaged the public trust,” said Attorney General Eric Holder.  “This multibillion-dollar resolution demonstrates the Justice Department’s firm commitment to preventing and combating all forms of health care fraud.  And it proves our determination to hold accountable any corporation that breaks the law and enriches its bottom line at the expense of the American people.”

The resolution includes criminal fines and forfeiture for violations of the law and civil settlements based on the False Claims Act arising out of multiple investigations of the company and its subsidiaries.

“When companies put profit over patients’ health and misuse taxpayer dollars, we demand accountability,” said Associate Attorney General Tony West.  “In addition to significant monetary sanctions, we will ensure that non-monetary measures are in place to facilitate change in corporate behavior and help ensure the playing field is level for all market participants.”

In addition to imposing substantial monetary sanctions, the resolution will subject J&J to stringent requirements under a Corporate Integrity Agreement (CIA) with the Department of Health and Human Services Office of Inspector General (HHS-OIG).  This agreement is designed to increase accountability and transparency and prevent future fraud and abuse.

“As patients and consumers, we have a right to rely upon the claims drug companies make about their products,” said Assistant Attorney General for the Justice Department’s Civil Division Stuart F. Delery.  “And, as taxpayers, we have a right to ensure that federal health care dollars are spent appropriately.  That is why this Administration has continued to pursue aggressively – with all of our available law enforcement tools — those companies that

Summary Judgment Motion Denied

On July 23, a federal district court in Ohio issued an opinion denying a relator’s summary judgment motion and providing further guidance on how courts may view “swapping” arrangements under the Anti-Kickback Statute. The relator alleged that Omnicare, a pharmacy provider, gave a nursing home improper discounts on drugs provided to Medicare Part A patients in exchange for referrals of Medicare Part D business, a so-called “swapping” arrangement that the purportedly violated the Anti-Kickback Statute. The relator moved for summary judgment on the basis of a contract with a nursing home in which Omnicare agreed to charge a nursing home a rate for certain drugs for Medicare Part A patients, but a higher rate (“usual and customary charge”) for the same drugs billed under Medicare Part D.

The court denied the relator’s motion for summary judgment on liability under the AKS for two reasons. The first issue was whether the prices that Omnicare  offered under Medicare Part A constituted “remuneration.”  The Court concluded that “fair market value” is the appropriate benchmark for determining remuneration.  Similarly, the court explained, Omnicare’s costs of providing services would be relevant “because no rational market participant would intentionally lose money on its Part A patients unless otherwise compensated.”  The court concluded that Omnicare had presented evidence sufficient to raise a genuine issue of fact on the issue of remuneration. On the second issue, the court also held that Omnicare had raised a genuine issue of fact as to whether Omnicare intended “below-market” pricing on Part A patients to induce the nursing home to refer Part D business or rather, as Omnicare contended, its pricing “was merely the product of sloppy accounting and management at Omnicare.”


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