Perspectives From Experienced Government Counsel,

Relator’s Counsel & Defense Counsel

17th Annual FLABOTA Convention Friday, July 18th, 2014

The BreakersPalm Beach, Florida

QUI TAM - QUI WHAT?

SPEAKERS

• Government Counsel– Jeffrey W. Dickstein, Esq.

• Assistant United States Attorney, United States Attorney’s Office for the Southern District of Florida

• (jeffrey.dickstein@usdoj.gov)

• Relator’s Counsel– Marc S. Raspanti, Esq.

• Partner, Pietragallo Gordon Alfano Bosick & Raspanti, LLP in Philadelphia, PA• (www.Pietragallo.com / www.FalseClaimsAct.com /

www.FraudWhistleblowersBlog.com)

• Defense Counsel– Meredith S. Auten, Esq.

• Partner, Morgan Lewis & Bockius, LLP in Philadelphia, PA• (www.MorganLewis.com)

THE FALSE CLAIMS ACT OVERVIEW

• Enacted during the Civil War by Abraham Lincoln to combat Defense Contractor fraud

– Also called the Qui Tam Statute, the Whistleblower Law or the “Lincoln Law”

• Strengthened in 1986 during the Cold War

• Expansive reach – all goods/services provided with any federal funds, now heavily focused on fraud in Healthcare programs

• Vibrant Future – Recently amended substantially by Congress

• Can affect any institution, entity or individuals doing business directly or indirectly with the government

1863 - 2014

THE FALSE CLAIMS ACT

• False Claims Acts apply to all types of goods, services and Government contracting, and have been particularly effective in combating– Healthcare (Medicare and Medicaid) Fraud– Pharmaceutical Fraud– Financial Industry Fraud– Defense Contracting Fraud– Energy (Oil and Gas) Contracting Fraud– Iraq Reconstruction Fraud– Environmental Fraud– Disaster Relief Fraud– Construction and Procurement Fraud– Research Fraud

STATE FALSE CLAIMS ACT

• 29 states currently have their own False Claims Act

• The Florida FCA was passed in 1994 and amended in 2007– Morgan Lewis partner Bobby Brochin was a drafter

• California• Colorado• Connecticut• Delaware• Florida• Georgia• Hawaii• Illinois• Indiana• Iowa• Louisiana• Maryland• Massachusetts• Michigan

• Minnesota• Montana • Nevada• New Hampshire• New Jersey• New Mexico• New York• North Carolina• Oklahoma• Rhode Island• Tennessee• Texas• Virginia• Washington• Wisconsin

STATE FALSE CLAIMS ACT29 States now have their own FCAs

The following municipalities have their own False Claims Acts:• Chicago• New York City• District of Columbia• Philadelphia• Allegheny County, PA

MUNICIPALITY FALSE CLAIMS ACT

FEDERAL FALSE CLAIMS ACT

• Qui tam cases produced $39 billion in settlements - hundreds of millions to over $1 billion in some cases

• Examples of top civil recoveries:– GlaxoSmithKline - $2 billion– Johnson & Johnson - $1.7 billion– Pfizer - $1 billion– Bank of America - $1 billion– Tenet Health - $900 million– Abbott - $800 million– Home America Mortgage - $320 million

FEDERAL FALSE CLAIMS ACT

• What it does NOT cover:

– FCA does NOT cover tax fraud

– New IRS Whistleblower Provision • 26 U.S.C. § 7623

– New SEC Whistleblower Program• 15 U.S.C. 78a et seq.

FEDERAL FALSE CLAIMS ACTPROHIBITED CONDUCT

• FCA prohibits:– Knowing submission or causing submission of false or

fraudulent claims for payment– Knowing submission or causing submission of false or

fraudulently records in support of a false claim– Conspiracy to submit a false claim– Submission of false records to reduce money owed to

the United States• 31 U.S.C. § 3729

FEDERAL FALSE CLAIMS ACTPROHIBITED CONDUCT

• Not limited to classic fraud• “Knowing” falsity broadly defined

– Actual knowledge– Reckless disregard / deliberate ignorance of the truth

or falsity of the information – “ostrich with its head in the sand”

• Regulatory / contractual violations can be recast as knowing falsity

WHAT IS A CLAIM UNDER FCA?

• Any request or demand, whether under a contract or otherwise, for money or property which is made to a contractor, grantee, or other recipient if the U.S. provides or reimburses any portion of the money or property

• Examples of Claims Under the Act:– Direct requests for payment– Indirect requests for payment– Obligations owed to the Government– Bids– Loan applications– Grant documents– Cost reports

FEDERAL FALSE CLAIMS ACT

• What Defendants can owe if held liable:

– Defendant liable for mandatory treble damages sustained by the Government

– Defendant also liable for penalty of between $5,500 and $11,000 per claim for each false claim to the Government

– Defendant liable for attorney’s fees and litigation costs

– Joint and several liability with no right of contribution or indemnity

FEDERAL FALSE CLAIMS ACT

• Who can be a “relator?”

– A relator can be any “person,” including individuals, entities, and companies

QUI TAM LITIGATION

• How will investigation generally proceed?– Civil Investigative Demands– Inspector General Subpoenas– Search Warrants– Grand Jury– Interviews – voluntary– Criminal HIPAA Subpoenas

HOT BUTTON SECTIONS OF LAW

• First to File Bar - 31 U.S.C. § 3730(b)(5)

• Public Disclosure Bar - 31 U.S.C. § 3730(e)(4)(A)

• Original Source - 31 U.S.C. § 3730(e)(4)(B)

• Fair, Adequate & Reasonable - 31 U.S.C. § 3730(c)(2)(B)

• Relator Share Award - 31 U.S.C. § 3730(d)(1)

• Attorney Fees Award - 31 U.S.C. § 3730(d)(1)

• Anti-Retaliation Provision - 31 U.S.C. § 3730(h)

FEDERAL FALSE CLAIMS ACT

• Attorney’s Fees and Costs

– If found liable, Defendant must pay the Relator’s reasonable attorney’s fees and costs

– Attorney’s fees and costs are in addition to Relator’s share of the recovery by the Government

FEDERAL FALSE CLAIMS ACT

• Whistleblower Protection – 3730(h)

– FCA protects any employee, contractor or agent discriminated against because of lawful acts done in furtherance of an FCA action

– Entitled to “all relief necessary to be made whole,” including two times back pay, special damages, attorney’s fees and costs

FEDERAL FCA ANTI-RETALIATION PROVISION

31 U.S.C. 3730(h)(1)

Relief From Retaliatory Actions —

(1) In general — Any employee, contractor, or agent shall be entitled to all relief necessary to make that employee, contractor, or agent whole, if that employee, contractor, or agent is discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment because of lawful acts done by the employee, contractor, agent or associated others in furtherance of other efforts to stop 1 or more violations of this subchapter

RELATOR’S PRIVATE CAUSES OF ACTION

• Under Common Law– Intentional torts

• Breach of Contract• State Statutes

– New Jersey Conscientious Employee Protection Act– Watch preemption issues

FEDERAL FALSE CLAIMS ACT

• Important Legal Issues

– 6-year statute of limitations, but can be extended to 10 years in certain cases

– Only the Relator who is the “First-to-File” eligible to share in the recovery

QUI TAM LITIGATION

• Whistleblower – a.k.a. “Relator”• Files in the name of the Government• Complaint filed under seal• United States has 60 days to investigate and decide whether

to intervene or not – declination is 75% - 80% of cases– Decline and allow the private person to pursue the case on their own– File a notice of non-intervention at this time

• Relator shares in recovery (15% - 30%)• Relator recoveries are currently higher in DOJ-intervened

cases

QUI TAM LITIGATION

• Relator and his information:– Employee or ex-employee of defendant– May have been involved in fraud to limited extent– May be Government employee– Cannot be a member of the Armed Services for

actions arising out of military service– Second qui tam on same facts is barred– Public disclosure bar unless “original source”

• Now government discretion to oppose dismissal

QUI TAM LITIGATION

• Intervention:– Government may elect to intervene or decline– In some or all of allegations– Can file an amended complaint / common law causes

of action– Seal is lifted– If Government declines, it still remains real party in

interest– Relators may pursue case on behalf of the

government unless government moves to dismiss

QUI TAM LITIGATION

• Relators’ shares:

– If Government intervenes, 15% - 25% plus attorney fees and costs

– If Government declines, 25% - 30% plus attorney fees and costs

– Awards reduced for relators who planned and initiated fraud; no recovery if criminally convicted of fraud

THE MODERN FEDERAL FCA

• Two separate Causes of Action– Fraud Cause of Action – Whistleblower essentially

shares with the Government

– 31 U.S.C. § 3730(h) allegation – Relator’s Cause of Action only

HEALTH CARE FRAUD

• Since the 1986 amendments to the federal FCA, the federal Government has recovered over $30 Billion from False Claims Act cases.

• More than 67% of qui tam cases in the last decade have been health care fraud qui tam cases.

• Typical health care defendants: pharmaceutical companies; medical device companies; hospitals; durable medical equipment; physicians; medical suppliers

TYPICAL QUI TAM HEALTH CARE FRAUD WHISTLEBLOWERS

• Pharma Sales Reps & Managers• Medical Device Sales Reps• Any Sales Reps• Medical Directors• Physicians• Hospital Executives• Quality Control Personnel• Pharmacists• Nurses• Accountants• Contractors• Compliance Officers• Counsel

TYPICAL HEALTH CARE FRAUD ALLEGATIONS

• Drugs – (off label marketing; kickbacks; inflated pricing; PRM fraud)• Upcoding• Excessive or unnecessary medical / diagnostic tests being

performed on patients• No health care services actually provided to the patient• Kickback to illegally induce physician referrals• All types of hospital based fraud• Stark Violations• Ghost patients billed• Quality of health care services provided• Overcharging Government health programs for DME, services• Unlawful sales and promotion• Research grant fraud

TYPICAL HEALTH CARE FRAUD ALLEGATIONS

• Regulatory violations: any will do?

• Conflicts of interest, violations of industry codes of ethics, state laws

• Various certifications of compliance

TYPICAL ALLEGATIONS AGAINST MEDICAL DEVICE AND DRUG

MANUFACTURERS

• Cozy financial relationships between and among owners;• Aggressive “off-label” marketing practices;• Inappropriate marketing efforts;• Unapproved or adulterated devices and drugs;• Safety issues;• Industry sponsoring and paying for research;• Clinical trial issues;• FDA indications;• Direct consumer advertising issues;• Shortcuts in quality of care;• KICKBACKS…KICKBACKS…KICKBACKS

ENFORCEMENT LANDSCAPE

• Skewed industry focus on one industry sector: health care

• Other industries ripe for focus: financial services, technology, retail, defense contractors, energy, educational institutions– Financial Fraud Enforcement Task Force– Procurement Fraud Task Force

• Well over 1,000 qui tams currently under seal – majority are health care, but many financial institution defense contractors as well

ENFORCEMENT LANDSCAPE

• Most civil and criminal cases have been and will continue to be driven by qui tam plaintiffs and their counsel

• 3.8 billion recovered in 2013

• 752 qui tam filed in 2013- 2.9 million in recoveries

• 2.6 billion of 3.8 billion recovered from health care matters

• Much better coordination between Feds and many State AGs

• High Level of coordination between civil and criminal prosecutors

• Over 160 federal qui tam actions spread across many judicial districts against medical device and pharmaceutical manufacturers

• $385 million to whistleblowers in 2013

ENFORCEMENT LANDSCAPE

• Judicial impatience with length of DOJ investigations under seal in some jurisdictions – internal DOJ 9-month rule

• Consortiums of relator counsel banding together• Professional whistleblowers• More sophisticated attorneys, more aggressive, more

willing to fight at all levels• More cases going through discovery to the courthouse

steps

HEALTH CARE FRAUD INVESTIGATIONS:

UNIQUE CHALLENGES• Complex regulatory framework• Complex payment and reimbursement system• Medicare, 49 Medicaid programs, other health care

programs – SCHIP, TRICARE, FEHB, VHA, HIS• Centers for Medicare and Medicaid Services, i.e.

CMS/OIG/FDA• CMS policies and the FCA law don’t always interact• Knowing where to find the answer is not always easy

HEALTH CARE FRAUD INVESTIGATIONS: UNIQUE ASPECTS

• Health care first or second largest expenditure of funds in the country

• Relators / whistleblowers are everywhere from the lunch room to the board room

• Nature of health care is “interaction” with all aspects of society

• Lots of claims / millions of submissions / billions of dollars

• Many disgruntled, downsized, displaced or demoted employees

• Exclusion from the Medicare and Medicaid program is a powerful deterrent

KEY STATUTES

• Federal False Claims Act – 31 USC 3729 et seq.

• False Claims Act Anti-Retaliation Provisions – 31 USC 3730(h)

• 29 State False Claims Acts

• Anti-Kickback Statutes – State and Federal

• The Stark Law, 42 USC §1395nn

• FERA (2009) and PPACA (2010) amendments

DEFENSE PERSPECTIVES• Well-developed body of case law favorable to defense – significant

battlegrounds– Scienter standard – negligent, innocent mistakes not enough;

ambiguous regulations not rise to level of knowing violations– Public disclosure and first-to-file bar – series of defense-

favorable recent decisions to prevent parasitic suit– Proper measure of damages – good recent decisions that

proper measure damages takes into account benefit government received

– Penalties – can violate 8th Amendment; maybe not per claims, but per act

– Enforceability of releases – more courts enforcing– Rule 9(b) requirement to plead fraud with particularity

DEFENSE PERSPECTIVES

• Goal #1: manage company’s credibility in all communications and strategic actions from first call to government forward

• Define strategy early• Determine what to fight about substantively on legal

issues: not on document production unless abuse through CID process

• Goal is always DOJ declination as well as relator dismissal

DEFENSE PERSPECTIVES

• Recent FCA amendments confirm proactive strategies are necessary before intervention

• CIDS and information sharing with relators and states may require defense interaction with the court

• Robust compliance programs remain the best defense• Encourage employees, agents and contractors to use

internal channels to address concerns• Investigate all of those calls

QUI TAM LITIGATION – IT’S COMPLICATED!

• Intricacies of Federal Programs/Agencies• Complexity of Liability and/or Damages Creates

Difficulties• Relationships/Reputation with Government and Other

Relator’s Counsel• Qui Tam Litigation: Relator + Government + Defendant =

Complicated³

COMPLEXITY CREATES OPPORTUNITIES

• The process of a qui tam lawsuit:

– A potential whistleblower’s first consideration

– False Claims Act lawyer’s screening of the Relator’s evidence

– Special aspects in drafting the FCA Complaint and statutory disclosures

– Filing the case and presenting the matter to the Government

– Company’s response to an investigation

– Government’s determination of whether to join the case

– Relator’s involvement during the seal period and beyond

– Settlement and/or litigation phase of the action

QUESTIONS