Health Care Enforcement Quarterly Roundup - Q4 | January 2019

In December, DOJ’s Civil Division issued its annual report cataloguing FCA statistics for FY 2018, reflecting a total recovery from FCA judgments and settlements of over $2.8 billion.[1] While total FCA recoveries declined for the second year in a row—and, in fact, represented the lowest total recovery since 2009—this decrease was due to a drop in non-health care related cases. In health care related FCA cases, the upward trend continued, growing from $2.4 billion in recoveries in FY 2017 to over $2.5 billion in recoveries in FY 2018. This $2.5 billion represented a remarkable 89 percent of the total recovery in FCA cases involving various types of health care companies, including drug and medical device manufacturers, managed care providers, hospitals, pharmacies, hospice organizations and laboratories. In its press release announcing the FY 2018 results, DOJ emphasized that—in addition to the $2.5 billion of losses recovered for federal health care programs—DOJ “was instrumental in recovering additional millions of dollars for state Medicaid programs.”[2]

With recoveries from health care related cases exceeding $2 billion for the ninth straight year, it is clear that DOJ’s primary focus for FCA enforcement is in this sector. It is also apparent that incentives remain strong for whistleblowers, as $1.9 billion of the $2.5 billion in recoveries came from qui tam cases, which resulted over $266 million in relator share awards.

Along with the decline in overall FCA recoveries, the number of new FCA cases also fell for the second year in a row—767 new cases were filed in 2018, 645 of which were filed by relators. This compares to 799 cases filed in 2017, 674 of which were filed by relators. Interestingly, while recoveries from health care related cases rose from $2.4 billion in FY 2017 to $2.5 billion in FY 2018, the number of new HHS cases is trending slightly downward, with 506 new HHS cases in 2018, 446 of which were filed by relators. For comparison, DOJ reported 550 new HHS cases (495 from relators) in 2017 and 573 new HHS cases (503 from relators) in 2016.

As we consider expected trends for the coming year, DOJ’s press release emphasized three policy priorities that dominated its FCA activities in 2018: (1) continued focus on alleged violations of the Anti-Kickback Statute, 42 U.S.C. § 1320-7b; (2) affirmative action to seek dismissal of meritless cases pursuant to the guidance in the Granston Memorandum to “prioritize the use of government resources” (discussed in greater detail below); and (3) “holding individuals accountable” by seeking monetary resolutions with individuals in addition to corporations (which aligns with the revised guidance pursuant to the Yates Memorandum, discussed below). We expect each of these priorities to persist in 2019.

Practice Note: The health care industry remains a top target of DOJ enforcement activity, particularly with regard to FCA cases. While DOJ sought to dismiss a large swath of cases in late 2018, incentives remain strong for relators to come forward with their claims.

[1] See Press Release, US Dep’t of Justice, Justice Department Recovers Over $2.8 Billion from False Claims Act Cases in Fiscal Year 2018 (Dec. 21, 2018), https://www.justice.gov/opa/pr/justice-department-recovers-over-28-billion-false-claims-act-cases-fiscal-year-2018.

[2] Id.

In our first Quarterly Roundup of 2018, we discussed the Granston Memo—a memorandum that reiterates DOJ’s long-standing authority under 31 USC § 3730(c)(2)(A) to dismiss qui tam FCA lawsuits in cases where the United States has declined to intervene. What was particularly interesting about the Granston Memo, however, was that, for the first time, DOJ provided detailed guidance on when it might seek to dismiss non-intervened cases and suggested that DOJ might exercise that authority with greater frequency. Outlining a series of circumstances under which it may be appropriate for DOJ to seek dismissal of a meritless qui tam, the Granston Memo emphasizes that DOJ’s trial lawyers should consider the FCA’s dismissal provision as an “important tool” to “advance the government’s interests, preserve limited resources, and avoid adverse precedent.”[3]

Since the Granston Memo was issued a year ago, DOJ has sought dismissal in a number of noteworthy FCA matters. In December, DOJ moved to dismiss nearly a dozen FCA qui tam cases brought by the National Health Care Analysis (NHCA) Group in Illinois, Massachusetts, Pennsylvania, Texas and Washington.

Collectively, the suits involve companies across the spectrum of the biopharma industry.[4] In its motions to dismiss, DOJ stated that the complaints were filed by “shell company” whistleblowers backed by NHCA Group and that the pleadings largely consisted of apparently boilerplate allegations of the same type of conduct, involving certain patient access service arrangements commonly entered into by pharmaceutical manufacturers and service vendors.[5] DOJ was specific in explaining why dismissal of the various cases was in the United States’ interest, challenging the relators’ allegations, articulating the government’s policy interests and specifying how the cases could impact the biopharma industry. DOJ’s arguments generally included the following key points:

• First, DOJ rejected the legal basis for relators’ allegations that the provision of educational information, instruction, and certain patient support services related to various drugs—and based on the specific facts in each case—constitutes illegal kickbacks to physicians.[6]
• Second, it argued that because the government spends “vast sums” on the medications at issue, it has a strong policy interest in ensuring that patients have access to information and product support from the drug manufacturers.[7]
• Third, DOJ argued that the relators should not be allowed to “indiscriminately advance” claims against the entire biopharma industry, as it would weaken common industry practices that the government has concluded are beneficial and appropriate to federal healthcare programs and their beneficiaries.[8]
• Finally, DOJ also argued that permitting the cases to proceed would cause the government to incur significant costs in monitoring the litigation and responding to discovery requests.[9]

In its various papers, DOJ argued that dismissal was appropriate under either of the two standards that have been developed to guide application of 31 USC § 3730(c)(2)(A). In particular, DOJ argued that dismissal was appropriate under the standard developed in Swift v. United States, 318 F.3d 250, 252 (D.C. Cir. 2003), where the Court of Appeals for the District of Columbia interpreted the FCA to grant the Government “an unfettered right to dismiss” a qui tam action. DOJ also argued that under the burden-shifting “valid purpose” test articulated in United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139 (9th Cir. 1998), dismissal was warranted because it was related to the “valid governmental purposes of preserving scarce government resources and protecting important policy prerogatives of the federal government’s healthcare programs.”[10]

In the Q3 Quarterly Roundup, we discussed the emerging split over what the government must prove to warrant dismissal under the competing “valid purpose test” and the government’s “unfettered right” to dismiss. With the NHCA Group motions to dismiss, DOJ is hedging its bets and arguing under both standards.[11]

The Granston Memo also received attention during the confirmation hearing of Attorney General nominee, William Barr.[12] In a colloquy with Barr during Senate Judiciary Committee proceedings, Senator Chuck Grassley pointedly noted that the Granston Memo provides reasons that DOJ can dismiss FCA cases, including “preserving government resources.”[13] Senator Grassley then remarked “just think of all the mischief those three words can bring.”[14] While Barr acknowledged that he was not familiar with the Granston Memo, he was pointedly asked by Senator Grassley: “In circumstances where the government doesn’t intervene in False Claims cases, if confirmed, will you commit to ensuring the Department doesn’t unnecessarily dismiss False [Claims] Act cases?”[15] Barr responded in the affirmative, indicating he would enforce the law in good faith.[16]

Practice Note: FCA defendants should continue to view the Granston Memo as a guidepost to...