The Justice Department recently announced a False Claims Act settlement with Houston-based food distribution company FreshPoint Inc. FreshPoint has agreed to pay $4.2 million “to resolve allegations that it overcharged the Department of Defense for fresh fruit and vegetables purchased under 15 separate contracts.” The settlement resolves allegations that FreshPoint “overcharged the government on hundreds of sales of fresh fruit and vegetables by improperly inflating its prices to the government to reflect FreshPoint’s view of the prevailing market price of the goods at the time of sale.” The government alleged that, in this way, FreshPoint violated its contracts with the government that required it to provide produce at cost, plus a set mark-up, but did not allow it to make additional price adjustments “based upon perceived changes in market prices.” The FCA case arose from a lawsuit filed by a whistleblower, a former FreshPoint employee, who will receive a $798,000 relator’s share, according to the government’s press release.
The Justice Department announced last week that Johnson & Johnson will pay $1.273 billion to the federal government and most states to settle a civil False Claims Act investigation into its off-label marketing of its antipsychotic drug Risperdal. J&J will settle a criminal investigation into the matter for an additional $800 million.
Hodgson Russ is proud to represent two of the plaintiffs who blew the whistle on J&J. The team is led by Daniel C. Oliverio, and other team members were Joseph V. Sedita and Robert J. Fluskey, Jr.
After the local case against J&J was filed in Western New York in 2004 for its off-label marketing of Risperdal, the federal government consolidated this case in Philadelphia with four other similar cases related to Ripserdal marketing. In False Claims Act cases like this one, whistleblowers are entitled to a share of the proceeds; the two whistleblowers represented by Hodgson Russ will share in 15 percent of the settlement awards.
Mr. Oliverio said, “As one of only a few major law firms to represent both selected whistleblowers as well as selected companies accused by whistleblowers of wrongdoing, we feel we were exceptionally well positioned to represent our remarkable clients in this case.”
Mr. Oliverio continued, “This settlement, which is the largest FCA relator share settlement in history, follows on the heels of another whistleblower suit, in which we served as lead counsel, that resulted in the largest FCA settlement in Western New York history. I am incredibly proud of the work our team is doing to support these whistleblowers as they go up against powerful corporations that choose to defraud the government—and the taxpayers.”
Risperdal, once J&J’s best-selling drug, was approved by the FDA in 1993 for psychiatric disorders including schizophrenia. According to documents filed with the court, the company also sought to sell Risperdal for unapproved uses that included bi-polar disorder, dementia, and mood and anxiety disorders, among others.
The New York False Claims Act (NY FCA) was amended in August 2010 to expressly apply to knowing violations of the New York State Tax Law. As reported in a previous blog entry, a whistleblower filed an action against Sprint Nextel Corporation alleging that it failed to collect or pay New York State sales taxes on receipts from the sale of certain wireless telephone services. After an investigation, the attorney general for the State of New York, Eric T. Schneiderman, intervened and filed a superseding complaint adopting the FCA claims and alleging additional claims against the mobile telecommunications service provider. Among those claims were claims premised on conduct predating 2010, when the NY FCA was amended to include tax violations. In response, Sprint argued that claims based on pre-2010 conduct violate the ex post facto clause of the U.S. Constitution. The ex post facto clause prohibits Congress and the states from enacting any law that, among other things, retroactively imposes a punishment for an act that was not punishable when it was committed. After a lengthy analysis, the court concluded that “[The statute], like its federal counterpart, is not sufficiently punitive in nature and effect as to warrant preclusive application of the ex post facto clause prior to Aug. 10, 2010, when the act was amended to expressly apply to knowing violations of the tax law.” Although the decision is likely to be appealed, for now, the ruling opens the door to FCA cases with allegations that predate the 2010 amendments.
According to a recent Justice Department press release, a D.C. federal court entered a $17 million False Claims Act judgment against Dr. Ishtiaq Malik and his two companies, Ishtiaq Malik M.D., P.C. and Advanced Nuclear Diagnostics, for submitting “false nuclear cardiology claims to federal and state health care programs.”
According to the Justice Department, the FCA case was based on allegations that Dr. Malik submitted “inappropriate claims for myocardial perfusion studies,” which are commonly called nuclear stress tests. These tests are usually performed in two separate phases – stress and rest – and they must be coded and submitted as one test. The government alleged that Dr. Malik and his companies violated these requirements and “double-billed for multiday nuclear stress test studies.” In addition, the government alleged that Dr. Malik and his companies “billed under codes that did not apply to the nuclear stress test studies he administered and billed for services already included in the payment for nuclear stress test codes, such as intravenous injections, drug infusions, 3D rendering, and drug administration.”
According to the release, the case covers Medicare, District of Columbia Medicaid, Maryland Medicaid, TRICARE, and the Federal Employees Health Benefits Plan. The State of Maryland and the District of Columbia had joined the lawsuit under their respective state False Claims Acts.
Keith Schenker, MD, a client of Hodgson Russ, will receive a substantial portion of the $15 million settlement ISTA Pharmaceuticals will pay to resolve allegations that the company aggressively and systematically promoted the off-label use of the prescription drug Xibrom, resulting in the submission of fraudulent claims to the United States for Medicare and Medicaid reimbursement.
Xibrom has only been approved by the Food and Drug Administration (FDA) for the treatment of postoperative inflammation and reduction of ocular pain in patients who have undergone cataract extraction. Law prohibits prescription drug retailers for marketing prescription drugs for any use not approved by the FDA.
The allegations against ISTA arose when Dr. Schenker, a former ISTA sales representative with first-hand knowledge of the fraudulent practices, who returned to medical school during the pendency of the case, filed a lawsuit against the company under the qui tam provisions of the False Claims Act. Hodgson Russ attorneys Daniel C. Oliverio, Joseph V. Sedita, and Kyle C. Reeb, who represented Dr. Schenker, helped show that ISTA knowingly and unlawfully marketed Xibrom for the prevention and treatment of cystoid macular edema (CME), for use for pre-cataract surgery, as an aid to securing better surgical results, and for use with high-risk patients. They further showed that the company’s off-label marketing scheme, which included elaborate training programs and financial incentives for its sales representatives, caused medical professionals to submit claims to the United States for payment and/or reimbursement to cover the use of Xibrom to treat the unapproved conditions. Unaware of the fraud, the United States paid the claims, thus sustaining substantial financial damages.
ISTA also pleaded guilty to a crime in the U.S. District Court of the Western District of New York. The company will pay the government $15 million to settle the civil claims, a portion of which will be awarded to Dr. Schenker for his contribution to the investigation and recovery.
In recent years, elected and appointed members of the federal government and others have estimated that seven percent—or as much as 15 percent or 20 percent—of federal spending is consumed by fraud. With the federal government spending $3.8 trillion a year, even seven percent lost to fraud equates to a quarter of a trillion dollars a year. That’s more than $800 per American, per year lost to fraud. As the government spends more and more each year, the False Claims Act and the qui tam whistleblowers it incentivizes become more and more important. In fact, the Justice Department is recovering record amounts under the False Claims Act—$5 billion alone last year. But as the scale of these recoveries demonstrates, there is still a lot of fraud left every year for whistleblowers to uncover and report.
Relators who have claims based on frauds that extend farther than the False Claims Act’s statute of limitations are in for good news—a recent decision regarding the Wartime Suspension of Limitations Act may mean that claims that would have been time-barred under the False Claims Act may still be actionable.
The False Claims Act provides that a claim under the act cannot be brought: 1) more than six years after the date of the violation, or 2) more than three years after the date when facts underlying the violation are known or reasonably should have been known by the relevant government official, but in no event beyond 10 years from the date of the violation. But a little known statute called the Wartime Suspension of Limitations Act (WSLA), 18 U.S.C. § 3287, provides that the running of any statute of limitations for an offense involving fraud against the United States is suspended when the United States is “at war” and remains suspended until five years after the termination of hostilities.
It has not been clear, however, whether the WSLA applies to relator actions under the act, with a district court holding that it did not. But the U.S. Court of Appeals for the Fourth Circuit recently issued a decision rejecting that holding and unequivocally finding that the WSLA did apply to actions brought by relators under the False Claims Act. Continue Reading
According to the Justice Department, Par Pharmaceutical Companies Inc. recently pleaded guilty and agreed to pay $45 million to resolve its liability for the promotion of prescription drug Megace ES “for uses not approved as safe and effective by the Food and Drug Administration (FDA) and not covered by federal health care programs.” The court fined Par $18 million and ordered $4.5 million in criminal forfeiture. Par also agreed to pay $22.5 million to resolve its civil liability.
The settlement resolves qui tam lawsuits that had been filed under the whistleblower provisions of the False Claims Act. As part of this resolution, the relators who brought these cases will receive $4.4 million.
According to the government’s press release, Par had been charged with misbranding Megace ES in violation of the Federal Food, Drug and Cosmetic Act. Specifically, Megace ES “was approved by the FDA to treat anorexia, cachexia, or other significant weight loss suffered by patients with AIDS. The Megace ES distributed nationwide by Par was criminally misbranded because its FDA-approved labeling lacked adequate directions for use in the treatment of non-AIDS-related geriatric wasting, a use that was intended by Par but never approved by the FDA. The FDCA requires companies such as Par to specify the intended uses of a product in its new drug application to the FDA. Once approved, a drug may not be distributed in interstate commerce for unapproved or ‘off-label’ uses until the company receives FDA approval for the new intended uses.” Continue Reading
The federal government recently settled a $15 million False Claims Act (FCA) case against American Sleep Medicine LLC, according to a recent Justice Department press release. In particular, American Sleep Medicine will pay $15,301,341 to resolve Medicare fraud and TRICARE fraud allegations that it charged for ineligible sleep diagnostic services.
According to the release, American Sleep “owns and operates 19 diagnostic sleep testing centers throughout the United States, including in Alabama, California, Delaware, Florida, Illinois, Indiana, Kansas, Kentucky, Maryland, Missouri, New Jersey, Tennessee, Texas and Virginia.” Its primary business “is to provide testing for patients suffering from sleep disorders such as obstructive sleep apnea. The test results are used by doctors to determine the most appropriate course of treatment for patients. The most common tool used to diagnose sleep disorders, particularly sleep apnea, is a procedure called polysomnographic diagnostic sleep testing.” But the federal government’s requirements for reimbursement for this require that initial sleep studies be conducted by licensed technicians or technicians certified by a state or national credentialing body. According to the allegations, brought by a qui tam relator—or whistleblower—the government was improperly billed because diagnostic testing services were performed by technicians who lacked the required credentials or certifications, when American Sleep knew this violated the law.
As a result of this FCA settlement, the relator will receive his bounty of more than $2.6 million. Also as part of the deal, American Sleep entered into a Corporate Integrity Agreement with the Office of Inspector General of the Department of Health and Human Services, which requires “enhanced accountability and wide-ranging monitoring activities conducted by both internal and independent external reviewers.”
A False Claims Act case can be brought by a whistleblower (relator) to recover funds on behalf of the federal government. The government then has the option to “intervene” and proceed with the action. If the government does intervene, it has the primary role in prosecuting the action, although the relator remains entitled to a percentage of any recovery. Even if the government declines to intervene initially, it can later intervene upon a showing of “good cause.”
Government intervention can be the turning point in a False Claims Act case. Specifically, the Department of Justice statistics show that, for cases filed in fiscal year 2012, settlements and judgments in qui tam (or relator-initiated) cases where the government intervened amounted to approximately $670 million dollars. By contrast, for qui tam cases where the government did not intervene, settlements and judgments amounted to only approximately $6 million in the same time period.
Government intervention, therefore, is extremely helpful to the success of a False Claims Act case. In a recent case, United States v. Aseracare, Inc., 2012 WL 5289475 (N.D. Ala. Oct. 24, 2012), the court widely construed the government’s ability to intervene in a case under the act, even where there were problems with the relator’s initial suit and where the government initially declined intervention. In Aseracare, the government initially declined to intervene and then later asked the court to allow it to do so because of new evidence it discovered. Defendants, however, argued that the lawsuit itself failed because it was not the first-filed suit under the act and thus the government could not properly intervene. Defendants also argued that the government did not show “good cause” for its intervention request after its initial declination. Continue Reading