DOJ Seeks Unprecedented Dismissal of 11 False Claims Act Qui Tam Cases on Policy Grounds

The Department of Justice has exercised its discretionary authority to curtail a string of declined False Claims Act suits against pharmaceutical manufacturers based on practices that a plaintiff consortium alleges have violated the Anti-Kickback Statute. Earlier this week, DOJ moved to dismiss 11 different qui tam suits filed against various manufacturers by relators tied to a company called National Health Care Analysis Group (NHCA).¹ All of the suits similarly allege that pharmaceutical manufacturers offered certain services to help providers assist patients that actually constitute illegal kickbacks to promote drug sales. The Government’s filings continue a trend announced earlier this year in the Department’s “Granston Memo,” which explained that DOJ will exercise its dismissal authority more aggressively in declined cases that it views as lacking merit in order to preserve litigation resources or minimize discovery burdens to the Government. Two weeks ago, the Solicitor General’s office asked the Supreme Court to deny a plaintiff’s request to review an appeals court judgment in an unrelated case against Gilead Sciences on multiple grounds and advised the Court in passing that DOJ planned to seek dismissal if the case were remanded to the district court.

In the latest briefs, DOJ mentions that it does not consider the challenged practices to be illegal, but focuses the bulk of its attention on objections to NHCA’s conduct in filing the complaints. DOJ describes NHCA as “a corporate entity created by an investment group that exists solely to file qui tam actions, has no inside knowledge of the pharmaceutical industry[,] and has brought sweeping allegations against the defendants based on information that it obtained—often under false pretenses—from paid third-party witnesses.” DOJ cites with disapproval statements by NHCA’s managing agent identifying CMS’s release of Medicare data as an opportunity to pursue litigation for profit. It accuses NHCA of employing deception in order to gain access to further information to support its suits. In particular, DOJ describes as misleading NHCA’s practice of paying current and former employees of litigation targets to participate in what it tells them are “research studies” in order to ask them questions about the companies’ activities. DOJ also juxtaposes the text of the complaints filed in various cases, disparagingly pointing out that NHCA copy/pasted certain allegations that it asserted against as many as six companies in connection with their separate patient support programs.

DOJ then addresses the legal standard for dismissing a private relator’s qui tam suit under the FCA at the Government’s request. The FCA states that when a private relator brings suit, “[t]he Government may dismiss the action notwithstanding the objections of the person initiating the action if the person has been notified by the Government of the filing of the motion and the court has provided the person with an opportunity for a hearing on the motion.” 31 U.S.C. § 3730(c)(2)(A). DOJ describes a circuit split on the issue, noting that “the Court of Appeals for the District of Columbia Circuit interpreted section 3730(c)(2)(A) to grant the Government ‘an unfettered right to dismiss’ a qui tam action.” Swift v. United States, 318 F.3d 250, 252 (D.C. Cir. 2003). The purpose of the hearing required by the law, DOJ argues, is merely to give the relator an opportunity to persuade the Government to change its mind. Importantly, DOJ takes the position that this liberal standard for granting dismissal at the Government’s request best serves the intent of the FCA. DOJ acknowledges, however, that the Ninth Circuit has adopted a different standard, requiring that the Government demonstrate that dismissal of the suit bears a “rational relationship” to accomplishment of a “valid Government purpose.” U.S. ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139, 1145 (9th Cir. 1998). Under the Ninth Circuit test, a Relator can also overcome the Government’s showing by proving that the decision to seek dismissal was “fraudulent, arbitrary and capricious, or illegal.” Id.

DOJ claims that its motion satisfies either standard. It argues that if the suits proceed it will be required to expend resources to monitor the litigation in order to file statements of interest and to comply with requests for discovery. In explaining its decision to seek dismissal, DOJ notes that it “has had extensive discussions with relators’ counsel and has reviewed various information that they have provided,” in addition to conducting its own investigation. Based on those reviews, it “concluded that further expenditure of government resources is not justified” in pursuit of the allegations. The Government’s citation of communication between DOJ and the plaintiff’s lawyers is significant, as most relators allege that their communications with the Government are privileged based on the idea that they have a joint prosecution privilege and a common interest in the litigation. DOJ’s conclusion in these cases suggests that a relator cannot assume that DOJ necessarily shares its interest in prosecuting declined qui tam complaints, which may undercut claims to privilege, even though the Government still stands to benefit from the lion’s share of any qui tam recovery.

With respect to the substantive dispute, DOJ opined that allowing the claims to proceed would “conflict with important policy and enforcement prerogatives of the federal government’s healthcare programs.” The complaints each pursue several theories holding that pharmaceutical manufacturers’ efforts to provide clinical support and better access to treatment for patients who use their products violate the AKS. Submitting a claim for reimbursement to a Government payor (such as Medicare or Medicaid) for goods or services tainted by an AKS violation is itself a violation of the FCA. The complaints allege that the various defendants all hired nurses who acted under the pretense of providing advice to patients in adapting to treatment, when their true goal was to market the products. The complaints also allege that the defendants hired nurses and administrative personnel to assist physicians with patient education and pursuing insurance coverage on patients’ behalf, thereby providing remuneration by absorbing costs that the prescribing physicians would otherwise have borne.

In response to these allegations, DOJ advances the view that the patient education services that pharmaceutical companies provide actually offer a public benefit and help to promote the effectiveness of treatments for which the Government pays. DOJ notes “HHS-OIG has advised that the provision of educational materials or informational programs to patients, without more, does not constitute ‘remuneration.’” In seeking dismissal, DOJ did not comment specifically on the allegation that helping to secure insurance coverage for drugs for the patients constitutes a kickback to prescribing physicians.

These dismissal motions represent a strong repudiation of opportunistic qui tam litigation under the FCA. They also demonstrate that DOJ may continue to review FCA litigation trends and seek to curtail actions that it views as unwarranted. DOJ requests for dismissal have the ability to drastically alter the litigation landscape in a given area of government contracting. In one NHCA case, the district court went as far as to order the plaintiff’s counsel to show cause why they should not face consequences “for prosecuting an action without sufficient factual and legal support.” More expansive dismissals by DOJ may deter aggressive plaintiffs’ attorneys seeking to advance novel and creative theories of liability under the FCA, and it may make qui tam litigation a less attractive investment target for litigation financing firms such as the ones that backed the NHCA cases.

O’Melveny’s Health Care and Life Sciences teams are focused on key legal developments that impact our clients’ businesses. Our ranks include former high-level federal prosecutors, along with former scientists and medical professionals, who understand what is required to comply with anti-kickback and self-referral laws, Medicare and Medicaid reimbursement laws, and privacy laws. Our litigators have extensive experience defending False Claims Act investigations and defeating qui tam actions, as well as state and federal enforcement actions.

¹ For an example, see Brief in Support of the United States’ Motion to Dismiss, U.S. ex rel. SMSF, LLC v. Biogen, Inc., Inventiv Health, Inc., and Ashfield Healthcare, LLC, No. 1:16-cv-11379-IT, (D. Mass. Dec. 17, 2018).

© 2018 O’Melveny & Myers LLP. All Rights Reserved. Portions of this communication may contain attorney advertising. Prior results do not guarantee a similar outcome. Please direct all inquiries regarding New York’s Rules of Professional Conduct to O’Melveny & Myers LLP, Times Square Tower, 7 Times Square, New York, NY, 10036, T: +1 212 326 2000.