FCA Now

This month the Department of Justice brought a “first of its kind” action against two pharmacies, their owner, and three pharmacists for allegedly dispensing and billing Medicare for prescriptions in violation of both the Controlled Substances Act (CSA) and the False Claims Act (FCA).  See United States v. Oakley Pharmacy, Inc., et al., No. 2:19-cv-00009 (M.D. Tenn).  The action, seeking both injunctive relief and civil monetary penalties, is a coordinated effort by the Department’s Prescription Interdiction & Litigation (PIL) Task Force, which is committed to using “all available . . . tools,” including the FCA, “to reverse the tide of opioid overdoses in the United States.”  In August 2018, the Department filed its first civil action under the CSA and FCA enjoining prescribers from “recklessly and unnecessarily distribut[ing] painkillers and other drugs.”  It is now clear that the Department will also target the pharmacies that fill illegitimate prescriptions, and that pharmacists can no longer claim they are following “doctor’s orders” to avoid enforcement action. The action alleges that several pharmacies, their owner, and several pharmacists (collectively “Defendants”) knowingly dispensed controlled substances without a valid prescription in violation of 21 U.S.C. § 842(a)(1); knowingly and intentionally distributed and dispensed controlled substances outside the usual course of the professional practice of pharmacy, in violation of 21 U.S.C. § 841(a); and billed Medicare programs to pay for controlled substances that were not used for a medically accepted indication and lacked a legitimate medical purpose in violation of the FCA,  31 U.S.C. 3729, et seq.  Controlled Substances Act Violations Under the CSA and implementing regulations, a prescription is legally valid only if it is issued for “a legitimate medical purpose by an individual practitioner acting in the usual course of his professional practice.”  21 C.F.R. § 1306.04(a).  Here, the Defendants allegedly dispensed prescriptions outside the usual course of professional practice and in violation of their responsibilities to ensure that prescriptions were issued for legitimate medical purposes. The Government alleges that a “pharmacist is required to refuse to fill a prescription if he or she knows or has reason to know that the prescription was not written for a legitimate medical purpose,” and has a corresponding legal duty to recognize “red flags” that raise a reasonable suspicion that a prescription for a controlled substance is not legitimate.  Defendants allegedly ignored “red flags” and warning signs of abuse, such as prescriptions for unusually high dosages of opioids, dangerous combinations of opioids and other controlled substances, and prescriptions from patients travelling long distances to have their prescriptions filled.  According to the Complaint, of the 68,000 community pharmacies in the United States, only three bought more opioid doses per capita than defendant Dale Hollow over the last three years. False Claims Act Violations The Government appears to assert an Escobar implied false certification theory under the False Claims Act.  In submitting claims for reimbursement for drugs dispensed to Medicare beneficiaries, pharmacists must certify compliance with all federal laws, regulations, and Centers for Medicare & Medicaid Services’ instructions, including the CSA.  Further, pharmacists must certify that the data determining payment is accurate, complete, and truthful to the best of their knowledge, and this certification is material to the Government’s payment decision.  42 C.F.R. § 423.505(k).  Claims for reimbursement that do not have a medically accepted indication do not contain accurate, complete and truthful information about the request for payment. The Government alleges that Defendants dispensed “scores of controlled substance prescriptions” that did not constitute valid prescriptions complying with federal and state law, and were not issued for a legitimate medical purpose or for a medically accepted indication.  Medicare does not cover drugs unless they have a medically accepted indication, are reasonable and necessary, and/or are issued for a legitimate medical purpose.  Had Medicare known the prescriptions were illegitimate and invalid, the Government argues, it would not have paid for the controlled substances medications.  Instead, from 2012 through 2018, Medicare paid one of the pharmacies over $1.4 million for controlled substances, over $1 million of which was for opioids alone. DOJ Enforcement Trends This action is the latest in a string of enforcement efforts by the Department to leverage existing tools to combat the prescription opioid crisis, which the Trump Administration declared a national public health emergency in 2017.  Since then-Attorney General Jeff Sessions announced the PIL task force in February 2018 (which itself is an outgrowth of the Opioid Fraud and Abuse Detection Unit), the Department has prioritized enforcement actions against opioid manufacturers, distributors, and prescribers, as opposed to opioid users.  At the Department’s National Opioid Summit in October, Deputy Attorney General Rod Rosenstein stressed that the Department would use “every tool – including both criminal and civil enforcement powers – [to] cut off the supply of pills from corrupt doctors and pharmacists.”  That effort is now clearly underway.

In recent weeks, the United States Department of Justice (“DOJ”) issued two memoranda that might change the calculus of False Claims Act (“FCA”) cases.  The memoranda at a minimum provide organizations with new—or at least invigorated—defenses to qui tam actions and civil enforcement matters. First, on January 10, Michael Granston, Director of DOJ’s Civil Frauds section, issued a memorandum encouraging DOJ trial attorneys to consider dismissing unmeritorious qui tam cases (even over the objection of the relator).  The DOJ’s authority to dismiss FCA cases has long been built directly into the governing statute, 31 U.S.C. § 3730(c)(2)(A), which provides that: The 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. In practice, DOJ trial attorneys rarely use this power, preferring to allow qui tam cases they declined to intervene in to continue being prosecuted by the relator.  The Granston Memo encourages a shift in practice by suggesting that DOJ attorneys should dismiss qui tam cases that lack substantial merit.  Meritless qui tam cases drain limited government resources and may “generate adverse decisions that may affect the government’s ability to enforce the FCA.”  To aid in determining whether a DOJ attorney should seek dismissal of a declined qui tam action, the Granston Memo sets forth seven factors, including curbing parasitic qui tams and preserving government resources. Second, on January 25, the Associate Attorney General (“AAG”) issued a memorandum prohibiting reliance on government agency “guidance documents” as a basis for liability in DOJ affirmative civil enforcement matters—including FCA cases.  Such “guidance documents” include all non-statutory or regulatory documents that purport to advise the public of legal rights or obligations, as are commonly issued by agencies like the US Environmental Protection Agency and the Department of Health and Human Services.  The memo advises DOJ litigators that because “[g]uidance documents cannot create binding requirements that do not already exist by statute or regulation . . . [DOJ] litigators may not use noncompliance with guidance documents as a basis for proving violations of applicable law.”  The AAG's memo acknowledges that sub-regulatory guidance serves a valuable function, and does not likely presage a government-wide change in agency’s use of such documents.  But FCA matters—qui tam or otherwise—that are built on such sub-regulatory guidance are on shakier ground. These memoranda create interesting implications for FCA cases.  First, the AAG’s memo narrows potential FCA liability by excluding a wide range of agency documents from being the basis of FCA violations.  The AAG’s memo also raises interesting questions about what agency materials might be evidence of “materiality,” particularly after the Supreme Court’s recent Escobar decision.  Second, although the authority of the DOJ to dismiss qui tam actions has not changed, the government may be newly receptive to arguments for the dismissal of plainly deficient qui tam cases.  The memo thus presents an opportunity for legal counsel to affirmatively seek dismissal of a weak FCA case—a move that could potentially save the accused violator the time and expense of otherwise defending against the case. The two memoranda are available here and here.

Until very recently, no case existed in which FCA liability arose from a violation of the Health Insurance Portability and Accountability Act (“HIPAA”). But in United States v. America at Home Healthcare and Nursing Services, Ltd., Judge John Robert Blakely of the United States District Court for the Northern District of Illinois, Eastern Division, allowed an FCA claim premised on a HIPAA violation to survive a motion to dismiss. In America at Home Healthcare, plaintiff Amy O’Donnell filed a qui tam action under the FCA against her previous employer, America at Home Healthcare Nursing Service, Ltd. (“AAH”).  As defendant’s name suggests, AAH is a provider of home health services. Among other allegations of wrongdoing, plaintiff claimed that AAH violated the FCA by unlawfully soliciting patients. More specifically, plaintiff alleged that AAH searched medical charts of individuals who were not AAH patients in order to generate a list of persons to target as new home health patients. In June 2017, Judge Blakely dismissed plaintiff’s solicitation claim because plaintiff failed to allege that defendant’s solicitations were unlawful. However, in July 2017, plaintiff amended her complaint, and this time alleged that defendant’s solicitations violated HIPAA. Section 1320d-6-d(a) of HIPAA criminalizes knowingly using, obtaining, or disclosing an individual’s identifiable health information without authorization. According to Judge Blakely, a violation of § 1320d-6-d(a) can result in FCA liability if: (1) defendant knowingly billed the government for unnecessary medical services after obtaining patients’ information unlawfully; and (2) defendant submitted claims and cost reports to the government that impliedly certified compliance with Medicare laws and regulations, but knowingly failed to disclose its HIPAA violations. With respect to the second basis for FCA liability under HIPAA, defendant argued that plaintiff’s “implied certification” theory failed to satisfy the Supreme Court’s materiality standard from Universal Health Services, Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989, 195 L. Ed. 2d 348 (2016), because HIPAA violations are not material to the government’s decision to pay claims. The FCA defines “material” as having “a natural tendency to influence, or be capable of influencing, the payment or receipt of money or property.” Judge Blakely rejected defendant’s materiality argument. Instead, the court referenced plaintiff’s allegation that HIPAA violations go to the very essence of the bargain between the government and health care providers, because an unlawful solicitation subjects patients to abusive marketing practices. The court further referenced plaintiff’s allegation the government does not knowingly pay claims to providers who violate § 1320d-6(a) of HIPPA. Finally, the court was untroubled by the fact that “no HIPAA-based FCA cases exist.” Instead, Judge Blakely analogized this case to kickback cases, and concluded: “[I]nformation that a home health agency has pilfered protected health data to solicit patients has a good probability of affecting a payment decision. These allegations suffice to keep [plaintiff’s] solicitation theory alive for now.” Judge Blakely’s decision is found at: United States v. America at Home Healthcare and Nursing Services, Ltd., 2018 U.S. Dist. LEXIS 2592 (E.D. Ill. Jan. 8, 2018).