A ‘Game Changing’ Ruling For Whistleblowers
26 CommentsBy Ed Silverman // June 3rd, 2011 // 9:52 am
In what is being called a game-changing decision, a federal court has ruled that a drug or device maker remains liable under the False Claims Act even when a pharmacy or hospital was unaware that a kickback was made to a doctor to induce the sale of a product for which reimbursement was sought from Medicare and Medicaid.
The ruling, which was issued earlier this week by US Court of Appeals for the First Circuit, has the potential to alter the outcome of countless whistleblower lawsuits that were filed against drug and device makers defending kickback charges, according to lawyers who have reviewed the decision ( you can read the ruling here).
Other courts, for instance, have previously ruled that the False Claims Act could not have been violated if a pharmacy does not know that a prescription was only written because a drugmaker gave a kickback to a doctor. Whistleblowers have argued, however, that a violation occurs once reimbursement is sought from Medicaid or Medicare.
One recent example involved a whistleblower lawsuit brought by former Pfizer exec Peter Rost, who charged the drugmaker with marketing the Genotropin human growth hormone for unapproved uses. Last fall, a US District Court Judge in Boston ruled against him, in part, because a pharmacist could not have known that a doctor wrote a prescription due to a kickback from a drugmaker (read here). He plans to appeal.
“This means that you can’t play games and use somebody indirectly to accomplish the dirty work for you and get away with avoiding a false claims,” says Stephen Sheller, an attorney in Philadelphia who represents whistleblowers. “You can’t just simply pay off a doctor to write scrips and then when the pharmacy fills it, Medicaid and Medicare can’t recover.”
Adds Jeb White of Nolan & Auerbach, which has also brought whistleblower, or qui tam, lawsuits against the pharmaceutical industry: “This decision is a game-changer, for it rejects a lot of the judicially-created obstacles for legitimate FCA cases.”
In the case that prompted the latest ruling, a regional manager for Blackstone Medical filed a whistleblower lawsuit charging the device maker with paying kickbacks in the form of consulting agreements, research grants and other inducements, such as travel, in order to use its spinal surgical devices. Hospitals then sought reimbursement from Medicare and Medicaid (read the lawsuit).
In explaining its decision, the court dispensed with Blackstone’s arguments by noting that none of the cases cited by the device maker “addressed the possibility of imposing FCA liability on a defendant who had caused another entity to present a materially false or fraudulent claim for payment to the government.” Blackstone argued that “no court has held that a hospital’s truthful certification” can be rendered false “by the acts of an unrelated third party somewhere in the supply chain.”
The appeals court also noted that an earlier ruling by US District Court in Boston “concluded its analysis with the statement that ‘the Amended Complaint contains no allegations that the hospitals themselves received kickbacks, or that they knew or should have known about the kickbacks received by the doctors.’ ” The appeals court then promptly disagreed.
“When the defendant in an FCA action is a non-submitting entity, the question is whether that entity knowingly caused the submission of either a false or fraudulent claim or false records or statements to get such a claim paid. The statute makes no distinction between how non-submitting and submitting entities may render the underlying claim or statements false or fraudulent…(in previous rulings) We have made clear that unlawful acts by non-submitting entities may give rise to a false or fraudulent claim even if the claim is submitted by an innocent party.”
The appeals court continued by noting that Blackstone argued that “only persons who knowingly submit or cause the submission of a false or fraudulent claim can be held liable for violating the FCA. (But) the term ’causes’ is hardly boundless; it has been richly developed as a constraint in various areas of the law.”
“The device maker was saying ‘they can’t hold us responsible because the hospital believed it was doing the right thing and had no knowledge,” says Sheller. “They thought they would get away with it as long as it was an indirect kickback. What’s pretty clear is they better stop bribing doctors.”
pic thx to katerha on flickr
Yipeee!
Great News! Thanks Ed!
What Next !
What’s so “Great”? An innocent party can be held in, even though that party had absolutely no knowledge of the act. One can now be responsible for something they don’t even know about.
This will be overturned.
industry insider
I don’t think they are going after the hospital. THey are going after the manufacturer that bribed the physician. THe idea is that the manufacturer can not get away with bribing the physician when the hospital is the one that processes the claim. I think you are mistaken “what Next”. Sounds like a great idea to help move a bunch of cases forward!
Yipeee!
What next,
I think you may have misunderstood the ramifications of this decision.
Pharma companies can no longer use as a defense against the Anti-Kickback allegations by saying, “Technically, we are not guilty because the bribed doctor never actually filled the Medicare billed script, the pharmacies filled those scripts.”
It was the original decision by a lower court that needed to be corrected and I believe that is exactly what has happened.
These companies have been trying to hide behind this defense for quite some time.
It looks like that loophole has officially been closed.
Kudos to the law firm whom made all this possible, Morgan & Verkamp. All wb’s will benefit from this decision.
xxx
Lazy reporting, Ed. He’s willing to offer an opinion on anything - Toyota cars, Duck boats…
Ed Silverman
Dear Triple X,
Thanks for the note. Although I disagree. I have rarely quoted either attorney (and you didn’t say which one prompted your remark). Please do a search on Pharmalot and you will find their names have only appeared a few times going back to 2007, when the site was launched.
And candidly, I have no idea how often or where either one may have been quoted elsewhere. I reached out because I wanted feedback on how they believe this ruling will affect their cases. In my view, such reactions have value because they provide a window into the implications.
By the way, if you happen to be an attorney and have a view of your own, please share. Or feel free to reach out to me directly.
Hope this helps,
ed
What Next !
Whatever you folks surmise or interpret, courts have their own way of doing business. I have seen throughout the years, some real nutty decisions; some were appealed and overturned.
I feel that this court was errant.
Conclusion: The health care mess will continue for years, and may never be above board. I don’t know of any business that doesn’t have some sort of illegal activity, given the thousands of legislative and case laws.
Doc
This ruling will hopefully stand. The argument used by pharma companies is bogus (that’s a legal term).
If you are paying MDs to write, the government (us taxpayers)is being ripped off, regardless who fills the script.
Why I’d say even irregardless who fills the Rx.
Regulatory Law Group
I’m not trying to split hairs, however you mention that “a federal court has ruled that a drug or device maker remains liable under the False Claims Act. . . .” This particular ruling involves a motion to dismiss arguing that the plaintiff failed to state a claim upon which relief could be granted. In ruling on the motion, the Court assumes that all of the allegations in the plaintiff’s complaint are true.
This ruling just means that the case won’t be dismissed on its pleadings. The plaintiff still has a long way to go to prove the liability that you presume in your opening paragraph.
With that being said, I do agree that this is favorable to the plaintiff’s bar, but its just one circuit’s opinion.
Bought Off by PAC Donations
This is very good news! The argument used by these companies is, “Let me piss on your head, and I’ll tell you it’s raining, why it’s the weathers fault! Right?” Very good ruling by the appellate court!
Evelyn Pringle
As usual, great reporting Ed.
I don’t know why you let drive-by anonymous attack bloggers like triple x post comments on your site at all.
Why should you have to waste your time reading and/or responding to such nonsense?
Or the rest of us for that matter.
What Next !
Evelyn,
Who are you to suggest “pick and choose”? Maybe, Ed will offer you the editor’s job. When I read something I don’t care for, I put them on “Ignore” or just move on, as if it didn’t exist.
The great majority are excellent additions to these blogs.
Walter
For every briber there is a bribee, but not much comment here on the responsibility of those accepting bribes.
If you are accepting bribes to write, the government (us taxpayers)is being ripped off, regardless who fills the script.
Rx72
What Walter said +1. When might we expect the providers, to be held accountable for their actions which are incompatible with their responsibilities to patients and the payors?
What Next !
Rx72,
Simple answer, ‘when hell freezes over’! This practice has been going on since the oldest trade on earth started. It’s called prostitution. Here is an oxymoron, how about an ‘honest politician’? Or an insider who doesn’t trade before anyone else finds out?
Every time something happens, make a new law. Yet, how many more cops can we afford to make it work? Yes, even the cops do it!
It seems we NEVER run out of ‘high horses’!
Thomas Jefferson
Regulations make me sad. It slows down many completely legitimate and responsible business processes.
But the real reason regulations make me sad is because it is a strong indication of design failure. If we need to pay our government to keep on top of companies that put carcinogens into baby toys, something along the line went terrible wrong. This problem in this article is a small part of a very larger picture.
A healthy revolution every now and then may be a good thing. The way things are going these days, now may be one of those times.
Ed, you mention drug and devices. Since 2006, the FDA has regulated Dietary Supplements / Nutritionals (beware, non-prescription drug takers. Assume nothing. Nothing good, anyway) under 21 CFR 111. The majority of these supplements are made at a centralized “hub” of sorts that manufacture tens, if not hundreds of nutritionals “as needed” and my sources tell me that the blatant product safety issues are unacceptably horrendous. I’ve been told by a consultant that one contract manufacturer allowed two analogs of the Active Pharmaceutical Ingredient used in Viagra / Cialis type products got into the manufacturer’s / clients “supplements” to treat those same conditions. So, If you are allergic to the Actives in Viagra and / or Cialis, and bought this supplement from a Vitamin Shoppe, etc., thinking that you won’t die from an allregic reaction, well, you assumed too much. These have been incorporated, packaged, and sold. And none of you heard of this “blunder” (whether mistakenly or intentional - you’d be surprised,) I can guarantee you of that.
So how would Qui Tam function / play into that type of scenario? Should we just expect such risk? That industry is a discraceful hazard in itself. But, it is FDA and NSF (non governmental) regulated.
TJ
Thomas Jefferson
In the comment above, its worthy to note that a fingerpointing session ensued between the contract manufacturing firm, and its client who it manufactured this adulterated supplement for.
cliffintokyo
TJ:
Agree, but we have to deal with the real world [i.e. real dirty world] as we find it.
Need to start somewhere, i.e. on the part of the *iceberg of corruption* we can see.
This is a significant Plus for common sense, as in sense of fairness.
BTW: WN is clearly suffering from reactionary neofascist *God Disease*
Sigh
I’m with you, Tom…a revolution is called for - the sooner, the better. Meanwhile, this ruling appears to close a legal loophole, and now pharma will just try to find another one IMO.
Stone's Throw
How pleb! Here’s a courtesy yawn! How about a tea party to liven the moment?
Thomas Jefferson
Cliff in Tokyo,
The massive nature of the revolution needed, would call for a nuke on the whole effing iceberg, baby boomers stand aside, support the handcuffing rog egulators while they fail to prevent carcinogens in the meds you take, disappear beccause of that, and let the next generation of bright futurists take over. You don’t care about future generations and you will soon fund out the hard truths when you can’t give yourself a bath that they dont give two poopies about you. Don’t hinder progress. Don’t live as if our Gross Domestic Product is your God. Stop your whining that your retirement age expectations extended for a few years. Many of us will never retire. But, once the next generation of thinkers take root and shape our world, workweeks will be much shorter, waste will be much less, and living with a truly good Quality of Life will be very possible within that context. Regardless of what your damn misleading GDP numbers tell you.
Stand aside. Trust us.
TJ
Dave
Filing false claims are a big issue and the more regulations that are placed on it hopefully it will begin to control some of these filings.
cliffintokyo
Dave: Let’s focus on the real culprits here.
See: Ed’s original post -
1) “This decision is a game changer [because] it rejects a lot of the judicially created obstacles for legitimate FCA cases”
2)RE: Medicare/Medicaid reimbursement -
“….unlawful acts by non-submitting entities [i.e. of reimbursement claims] may give rise to a false or fraudulent claim [i.e. by a hospital, etc] even if the claim is submitted by an innocent party”
“……the Amended Complaint contains no allegations that the hospitals themselves received kickbacks, or that they knew…..about the kickbacks received by the doctors. The appeals court then promptly disagreed.”
3)“They [i.e. company accused of unethical practice] thought they would get away with it as long as it was an indirect kickback. What’s pretty clear is they had better stop bribing doctors.”
Thomas Jefferson
Hey! Massive flooding over the past couple of days along the Mississippi (I believe) were destroyed due to flooding, and even more lost in 230,000 acres in wildfires in Arizona (I believe) today. Rebuilding all of those homes will greatly raise our GDP for the year, and those of the cleanup groups that eventually develop lung cancer from inhaling the smoke will infuse our GDP with every visit to the oncologist, and every chemo session and radiation treatment they receive.
Why don’t we send the marines to the edges of the polar ice caps with blow torches to speed up sea level rise which will speed up the increasingly severe flood occurrences that will require rebuilding and increase our GDP?
We need to start thinking differently. While this new rule makes things “less bad”, it is not in the position of making it “good”. As a blogger mentioned above, another loophole will be found. Someone probably already found it.
The entire system needs to be leveled and rebuilt to not allow by designt, without question nor exception, these kickbacks and other fraudulent issues in the public health and environmental system to occur.
Being “less bad” simply won’t work. Not near sufficiently, anyway.
TJ
cliffintokyo
TJ
Quiet revolution from within is the only viable way to bring about meaningful change without a bloodbath.
We had all better support the visions of the likes of the EU and Obama if we want to have the good life for the hard-working majority, not just the lotus-eating rich & the banksters.
BTW, I do know about QOL; in Tokyo we just dropped down a few rungs from *The Good Life* to *Bearable*
The radioactive fallout cleanup in Fukushima (just another type of pollution, right?) will take many years, or may never be completed if the gov runs out of support/money.
As you implied, *Less bad* = *Reality* for most people. Its all relative, there are no absolutes.
Thomas Jefferson
Amen Cliff,
It’s a matter of getting the quiet revolutionaries on board, in sync, and in mass. People risk their careers for what they believe in and see what needs to be done for society. These are good people.
Mitt Romney sure as hell would not help the situation.
Godspeed,
TJ