Will Physician Payment Sunshine Act Data Usher in a New Era of False Claims Act Litigation?

This post was authored by Scot Hasselman, Elizabeth Carder-Thompson, Katie Pawlitz and Jillian Riley.

While attention has been focused on Medicare physician payment data released by CMS yesterday, upcoming Sunshine Act data will shine a new spotlight on financial relationships between physicians and pharmaceutical and medical device companies – with potential FCA implications.

Last week marked the deadline for pharmaceutical and medical device manufacturers and group purchasing organizations (GPOs) to register with and submit aggregate 2013 payment and investment interest data to the Centers for Medicare & Medicaid Services (CMS) on certain financial relationships between themselves and physicians and teaching hospitals, as required by the Physician Payment Sunshine Act.1 In May, manufacturers and GPOs will be required to submit to CMS detailed 2013 payment data. With some exceptions, CMS will be making these data public by September 1, 2014. While the publicly available data are intended to provide more transparency for patients – to allow them to have a better understanding of the financial relationships between physicians and pharmaceutical and medical device companies – patients will certainly not be the only group interested in this public information. The Department of Health and Human Services (HHS) Office of the Inspector General (OIG), Department of Justice (DOJ), and relators’ attorneys will likely utilize these data to initiate investigations and support complaints under the federal False Claims Act (FCA). As with the recent release of the 2012 Medicare Part B Physician Fee Schedule data, members of the media will likely make inferences about certain financial relationships.

The U.S. government recovered $3.8 billion in settlements and judgments from civil cases involving fraud against the government in the fiscal year ending Sept. 30, 2013.2 Fiscal 2014 looks to be a record-breaking year, with ever-increasing civil settlements by major pharmaceutical companies.3

As the reporting deadlines approach, it is worth considering an interesting, and largely unknown, potential implication of the public availability of these data: How will it affect future FCA litigation? The publically available Sunshine Act data could become relevant to FCA litigation in a variety of ways; two in particular are discussed below.

Anti-Kickback Statute Violations

The data could give rise to suspicions of violations of the federal Anti-kickback Statute (AKS). The AKS makes it a criminal offense to knowingly and willfully offer or pay remuneration to induce the referral of, or arrange for the provisions of, federal health care program business.4 In other words, the law prohibits any person or entity from giving, receiving – or offering to give or receive – anything of value in return for or to induce referrals for businesses covered by Medicare, Medicaid, or any other federally funded health care program. Violators of the AKS face imprisonment, criminal, and civil fines, as well as exclusion from federal health care programs.5

It is easy to see how publishing information regarding payments from pharmaceutical and medical device manufacturers to physicians and teaching hospitals could implicate the AKS, and by extension, the FCA. The Patient Protection and Affordable Care Act (ACA) made explicit that violations of the AKS are also violations of the FCA.6 Any payment from a pharmaceutical or medical device manufacturer to a physician who prescribes a product manufactured by the company providing the payment could be viewed as potentially inappropriate remuneration intended to influence prescribing behavior.

Off-Label Promotion

Publically available information reported as a result of the Sunshine Act may also have off-label promotion implications. Notably, reports to CMS must include the name of the drug or the type of device that forms the basis of the payment.7 Tying the payment to a particular drug or type of device could raise suspicions of off-label promotion. A pharmaceutical or medical device manufacturer that promotes its products for uses for which the product has not yet been approved by the United States Food and Drug Administration (FDA), i.e., off-label uses, is at risk of FCA liability. A false claim can arise when a manufacturer promotes a product for off-label, non-covered uses (that is, for a use that both has not been approved by FDA and is not covered by the federal health care programs). Payments going to physicians who specialize in an area that is outside the scope of a pharmaceutical or medical device’s approved indication could necessarily raise suspicions that the manufacturer is promoting the product for unapproved uses.

Potential Limits

Besides the risk of government identifying potential issues for further investigation and prosecution as a result of reported Sunshine Act data, private parties may also mine the publically available data. One substantial impediment to relators’ attorneys using Physician Sunshine Payment data in FCA litigation is the limitation that publicly available data cannot form the basis of a whistleblower claim.8 This is known as the public disclosure bar, although the effectiveness of this defense has been diminished with recent FCA amendments.

That said, the Sunshine Act data, even if not the basis of a claim, could nonetheless impact the litigation in many ways. For example, it could provide additional evidence for the government to review in reaching its decision whether to intervene in a qui tam action. Both OIG and DOJ could review the data before it is publicly available to assist in the determination that a given matter warrants intervention. Additionally, the publicly available data – beyond providing flavor in support of an FCA claim and assisting with meeting the heightened pleading standard associated with fraud allegations9 – could be a potential mine for plaintiff attorneys to locate areas of focus. Relators’ attorneys will no doubt track the data to ascertain potential problem drugs or companies about which they can then dedicate efforts to uncovering fraud and abuse in the federal health care system.

Going Forward

It remains to be seen how all of these risks will play out going forward. Courts will have to decide how these new data will fit into FCA litigation. OIG and DOJ will have to determine how much to rely on the new information. And relators’ attorneys will need to make decisions about how many resources to dedicate to mining the Sunshine Act data.

One potential consequence that we are already starting to see occur is that pharmaceutical and medical device manufacturers may halt or limit payments to physicians, and/or that physicians themselves will be reluctant to accept such payments, e.g., for research, for expenses associated with training on a device, and the like. Companies may decide to do so for a variety of reasons, including avoiding the administrative burdens associated with tracking and reporting such payments for purposes of the Sunshine Act, fear of FCA litigation, or for public relations reasons. Many physicians simply do not want their names publicized. It remains to be seen how these trends will evolve.

1 42 C.F.R. § 403.908(a).
2 DOJ Press Release, available at: http://www.justice.gov/opa/pr/2013/December/13-civ-1352.html. 3 See, e.g., DOJ Press Release, available at: http://www.justice.gov/opa/pr/2013/November/13-ag-1170.html.
4 42 U.S.C. § 1320a-7.
5 Id.
6 42 U.S.C. § 1320a-7b(g). Note that manufacturers may submit “assumptions documents” as part of Sunshine reporting. Although CMS stated in the preamble to the Sunshine regulations its belief that the contents of such documents “should not be made public,” it acknowledged that it could provide access to the documents during an audit or investigation by other HHS divisions, the Office of Inspector General, or the Department of Justice.
7 42 C.F.R. 403.94(c)(8).
8 31 U.S.C. § 3730(e)(4).
9 Fed. R. Civ. P. Rule 9(b).

Congressional Health Policy Hearings

 A number of Congressional committees have held hearings recently to address various health policy issues, including the following:

DOJ Touts $3.8 Billion in FY 2013 False Claims Act Recoveries

The Department of Justice (DOJ) recently announced that it recovered $3.8 billion in settlements and judgments in civil False Claims Act cases in fiscal year (FY) 2013, including health care fraud recoveries totaling approximately $2.6 billion. The DOJ notes that about $1.8 billion in recoveries involved alleged false claims for drugs and medical devices under federally insured health programs (with an additional $443 million recovered for state Medicaid programs). The Department also reports that in FY 2013, a record 752 qui tam/whistleblower suits were filed and $2.9 billion was recovered in such suits (with whistleblowers recovering $345 million).

OSHA, IRS, and OPM Release ACA Regulations

Several agencies besides HHS have recently issued regulations on ACA various provisions, including the following:

  • The Occupational Safety and Health Administration (OSHA) has published an interim final rule with comment period that protects employees against retaliation by an employer for reporting alleged violations of various insurance provisions under Title I of the Act or for receiving a tax credit or cost-sharing reduction as a result of participating in an Exchange. The interim final rule is effective February 27, 2013; comments will be accepted through April 29, 2013. OSHA also has released a fact sheet about filing whistleblower complaints under the Affordable Care Act.
  • The Internal Revenue Service published proposed regulations on March 4, 2013 implementing the ACA’s annual fee on covered entities engaged in the business of providing health insurance. The IRS estimates that the aggregate fee amount for all covered entities will be $8 billion for calendar year 2014, increasing thereafter. A public hearing on the proposal is scheduled for June 21, 2013.
  • The Office of Personnel Management (OPM) published a final rule on March 11 setting forth requirements for multistate insurance plans that will be offered on state health insurance exchanges beginning in January 2014. Under the ACA, health insurance issuers will offer at least two multi-State plans (MSPs) on each of the Exchanges through contracts with OPM.

Justice Department Reports Nearly $5 Billion in False Claims Act Recoveries for FY 2012

The Department of Justice recently announced that it secured a record $4.9 billion in settlements and judgments in civil fraud cases in FY 2012, including health care fraud recoveries totaling more than $3 billion. The Department notes that some of the largest recoveries during the year – representing nearly $2 billion -- involved false claims for drugs and medical devices under federally insured health programs (with an additional $745 million returned to state Medicaid programs). The Department also reports that in FY 2012, a record 647 qui tam/whistleblower suits were filed and a record $3.3 billion was recovered in such suits.

GAO Spotlights Top Provider Types for Criminal/Civil Health Fraud

A new Government Accountability Office (GAO) report breaks down the provider types most frequently involved with Medicare, Medicaid, and Children’s Health Insurance Program fraud cases in 2010.  Highlights include the following: 

  • Medical facilities (including medical centers, clinics, or practices) and DME suppliers were the most-frequent subjects of criminal health care fraud investigations, comprising about 40% of subjects. Of the 7,848 subjects associated with criminal cases, about 1,100 were charged and 85% of those charged were found guilty or pled guilty or no contest. 
  • Hospitals and medical facilities were the most-frequent subjects investigated in civil health fraud cases (38% of 2,339 subjects), but more than half of the subjects of civil cases were not pursued for various reasons. In 2010, 88% of subjects investigated in civil cases were investigated in qui tam cases. Of these, 52% cases were either voluntarily dismissed by the relator (34%) or were declined by the US Attorney’s Offices or the Department of Justice’s Civil Division (18%).
  • Almost 2,200 individuals and entities were excluded from federal programs for health care fraud convictions and other reasons (including license revocation and program-related convictions). About 60% of excluded individuals were in the nursing profession. 
  • Based on data from 10 state Medicaid Fraud Control Units (MFCU), over 40% of the 2,742 subjects investigated for health care fraud in Medicaid and CHIP in 2010 were home health care providers and health care practitioners. Civil health care fraud cases pursued by these MFCUs in 2010 resulted in judgments and settlements totaling nearly $829 million, with pharmaceutical manufacturers paying more than 60% of that amount.

U.S. District Court Decides Whistleblower Cannot Rely on Stolen Patient Records

Reed Smith’s Life Sciences Legal Update blog discusses a recent decision by the United States District Court for the Southern District of Ohio that may make it much harder for qui tam relators to rely upon stolen medical records or patient information in False Claims Act ("FCA") whistleblower actions. In the decision, Cabotage v. Ohio Hospital for Psychiatry, No. 11-cv-50 (S.D. Ohio July 27, 2012), the district court held that a registered nurse was not permitted to support her allegations of FCA violations by relying on confidential protected health information that she surreptitiously removed from the hospital where she was employed.

Fifth Circuit Upholds Ability of Government Employee Fraud Investigators to Bring Qui Tam False Claims Actions

Reed Smith's Global Regulatory Enforcement Law Blog recently featured a post on the Fifth Circuit’s ruling in United States ex rel. Little v. Shell Exploration & Production Co., in which the Court held that government employees are entitled to bring qui tam actions under the False Claims Act (FCA) – even if their federal job function is to investigate fraud on behalf of the government.

False Claims Act Developments: 2nd Circuit to Consider Whether In-House Lawyer can be a Qui Tam Relator

This post was written by Matthew R. Sheldon and Alexander Y. Thomas.

The Second Circuit Court of Appeals is reviewing a lower court decision disqualifying a former in-house attorney from acting as a False Claims Act qui tam relator against his former employer. The relator was formerly general counsel to Unilab, a subsidiary of Quest Diagnostics Inc. The qui tam suit alleged that Unilab violated the Federal Health Care Anti-Kickback Act by engaging in a fraudulent scheme to increase medical testing referrals under the Medicare and Medicaid programs. To read the full post on Reed Smith's Global Regulatory Enforcement Law Blog, click here.


Interesting health care fraud prosecution data contained in letter to Senator Charles Grassley

This post was written by Scot T. Hasselman.

In response to a letter dated December 17, 2010, the Department of Justice (DOJ) and the Department of Health and Human Services (HHS) have outlined statistics associated with health care fraud prosecutions.  In the letter, dated January 24, 2011, DOJ and HHS detail criminal and civil prosecutions for health care fraud.  Among the highlights:

  • As of January 4, 2011, there were 1,341 FCA cases under seal. Of those, 885 cases allege health care fraud. Of those 180 involve pharmaceutical pricing or marketing, and 80 cases involve hospitals.
  • Since the end of fiscal year 2006 (October 1, 2006) DOJ has resolved 716 cases (541 in qui tam cases and 175 in direct actions). In addition, 1,244 qui tam cases have been declined. The average length of time a case is under seal is 13 months (during the same period of time).
  • DOJ has intervened in 22.20 percent of qui tam cases in the past five years.

DOJ Announces Health Fraud Recovery Amounts for FY 2010

The U.S. Department of Justice (DOJ) recovered $3 billion in False Claims Act civil settlements and judgments in fiscal year (FY) 2010 – a record $2.5 billion of which involved health care fraud recoveries -- the DOJ announced November 22, 2010. Most of the FY 2010 settlements and judgments (over $2.3 billion) were recovered in qui tam (whistleblower) lawsuits, resulting in $385 million in awards to relators. The largest FY 2010 False Claims Act recoveries involved the pharmaceutical and medical device industries, which accounted for $1.6 billion in settlements. 

American Recovery and Reinvestment Act -- Health Information Privacy/Incentives, Medicaid Funding & Other Health Provisions

This post was written by Karl A. Thallner, Jr., Carol C. Loepere, Debra A. McCurdy, Brad M. Rostolsky, Jacqueline B. Penrod, and Amie E. Schaadt.

On February 17, 2009, President Obama signed into law H.R. 1, the American Recovery and Reinvestment Act (the “ARRA”). The sweeping $790 billion economic stimulus package includes a number of health care policy provisions. Reed Smith's Health Care Memorandum summarizes the major health policy provisions of the Act.

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