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Health Care Enforcement Year in Review & 2019 Outlook: New DOJ Policies Applicable to FCA Litigation

Last year there were two significant Department of Justice (DOJ) policy developments that are applicable to False Claims Act (FCA) litigation: (1) the “Granston Memo” (issued by DOJ Civil Fraud Director Michael Granston), which set forth direction for DOJ’s exercise of its authority to dismiss declined qui tam FCA cases; and (2) the “Brand Memo” (issued by Associate Attorney General Rachel Brand), which instructed DOJ’s FCA litigators not to use any sub-regulatory guidance to create legal obligations. 

The Granston Memo

The Granston Memo, now incorporated into the Justice Manual (formerly known as the U.S. Attorneys’ Manual), instructed DOJ attorneys and Assistant U.S. Attorneys handling FCA cases to routinely consider whether to exercise DOJ’s authority to dismiss declined qui tam FCA actions established under Section 3730(c)(2)(A) of the FCA, which DOJ rarely did from 1986 through 2017.  Because a relator can proceed with a declined qui tam FCA case and thus stand in DOJ’s shoes, section 3730(c)(2)(A) allows DOJ to play “an important gatekeeper role in protecting” the FCA, according to the Granston Memo. Given the increasing volume of qui tam FCA cases, the Granston Memo states that dismissal of certain declined qui tam actions may be in DOJ’s interest to “preserve limited resources” and “avoid adverse precedent.” The Memo lists seven non-exclusive factors to consider when deciding whether to seek dismissal of a qui tam action, over the relator’s objections, and they include:

  • curbing meritless qui tams; preventing “parasitic” or “opportunistic” qui tams;

  • preventing interference with agency programs or policies;

  • controlling litigation brought on behalf of the U.S.; and

  • preserving government resources.

When the Granston Memo became public in early 2018, no one knew if the Memo signaled a new approach that would result in more DOJ dismissals of declined FCA cases or if it simply codified DOJ’s longstanding approach and would not result in an increase in dismissals.  Examination of DOJ’s use of this authority throughout the year demonstrates that DOJ was more willing in 2018 to use its dismissal power to protect federal health care programs, preserve DOJ’s resources, terminate cases in which the federal agency at issue was not defrauded, and eliminate clear abuses of the FCA’s qui tam provisions.

DOJ’s dismissal of declined FCA cases reached a crescendo in late 2018. As described in a previous post, on November 30th, DOJ filed an amicus curiae brief with the Supreme Court in a long-running, closely watched FCA case, U.S. ex rel. Campie v. Gilead Sciences, Inc., 862 F.3d 890 (9th Cir. 2017) (DOJ substantively addressed “materiality” under the FCA in its brief). In its brief, DOJ surprised observers by advising the Supreme Court that DOJ will move to dismiss the qui tam FCA lawsuit under Section 3720(c)(2)(A) if remanded to the district court because the case is “not in the public interest.”  DOJ made this determination “based in part on the government’s thorough investigation of [relators’] allegations and the merits thereof.” The burden of discovery on the relevant agency, the FDA, was an important factor; according to DOJ, discovery “would distract from the agency’s public-health responsibilities.’”  DOJ asserted that “allowing this suit to proceed to discovery (and potentially a trial) would impinge on agency decision making and discretion and would disserve the interests of the United States.” On January 7, 2019, the Supreme Court denied cert. in Campie, which means that the Ninth Circuit’s decision on materiality will remain intact, and that the case will be remanded at which time DOJ will presumably seek to dismiss it.

Next, as reported previously, DOJ filed motions on December 17th to dismiss eleven declined FCA cases brought by the same relator (which is an LLC formed to file the lawsuits) in seven jurisdictions against nearly 40 defendants. The cases allege that pharmaceutical assistance services provided to patients and physicians by drug manufacturers constitute illegal promotional activity, or “white coat marketing,” and therefore unlawful kickbacks.  DOJ sought dismissal because, after extensive investigation, it concluded that the allegations lack sufficient factual and legal support. DOJ also asserted that dismissal would preserve “scarce government resources” and would protect “important policy prerogatives of the federal government’s health care programs.”

The Granston Memo and DOJ’s recent requests for dismissal provide useful guidance regarding the factors that may motivate DOJ to move to dismiss a FCA case, and they include:

  • a determination, following a thorough investigation, that the relator’s allegations lack merit;

  • a significant discovery burden on the government agency that would detract from the agency’s ability to carry out its mission;

  • lack of harm to the agency at issue; and

  • improper conduct on the part of the relator that should preclude the relator from pursuing claims on behalf of the U.S.

A company facing declined FCA litigation should assess whether the factors set out in the Granston Memo – especially those discussed in DOJ’s recent motions to dismiss – are present and, if so, consider advocating to DOJ to dismiss the case.  Based on DOJ’s activity in 2018, DOJ may be more receptive to such arguments in the future.

We will continue to monitor DOJ’s exercise of its dismissal authority in 2019, in an effort to control FCA litigation, or if recent developments are merely a blip on the radar.

The Brand Memo

Since the Brand Memo became public, some defense counsel have argued that DOJ’s theories that rely on sub-regulatory guidance are against DOJ policy because the sub-regulatory materials are being used impermissibly to create “legal obligations.”  But the Brand Memo has limited utility, as it set forth internal guidelines applicable to DOJ attorneys, but not relators’ counsel, and did not create any legal obligations. But as we noted last January, the policy reflected in the Brand Memo may help ensure due process and fair notice of legal obligations – essential elements of all punitive statutes – by restricting what many viewed as FCA fraud cases built on agency “compliance guidance” and other sub-regulatory materials, such as alerts, advisories, and manuals (which can still be used to demonstrate “knowledge”). 

The Granston and Brand Memos signal a commitment to use the FCA to protect federal interests, both programmatic and pecuniary, while curbing FCA lawsuits that are not in the federal interest and ensuring that allegations of fraud are well-grounded in statutes and regulations. These steps are essential to restoring the confidence of those who do business with the federal government or receive federal payments or reimbursements, and to ensuring that federal interests, not the unbridled private interests of relators, remain paramount.

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About this Author

Brian P. Dunphy, Pharmaceutical Attorney, Mintz Levin, Anti-Kickback Lawyer,Health Care Enforcement & Investigations Health Care Compliance, Fraud & Abuse, and Regulatory Counseling Complex Commercial Litigation
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Brian has handled a wide range of health care litigation matters, government investigations, and voluntary disclosures for an array of health care providers, life sciences companies, and private equity funds and their portfolio companies. He defends clients against allegations of false claims for payment to the government, in SEC investigations and enforcement proceedings, and represents clients in complex business disputes. Brian also counsels clients on health care regulatory issues, including telemedicine laws, compliance with the federal Physician Payments Sunshine Act and analogous...

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Laurence J. Freedman, Litigation Attorney, Mintz, Enforcement Defense Law
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Larry has a deep understanding of what drives government enforcement actions, and how to defend against them, in the health care and life sciences industries. As a trial lawyer and then official in the Civil Fraud Section of the U.S. Department of Justice, he litigated and supervised hundreds of False Claims Act and qui tam cases nationally. In his litigation practice, Larry has successfully represented hospitals and health care systems, laboratories, pharmaceutical and device manufacturers, and health care executives against fraud and abuse allegations and investigations brought by federal and state agencies. He is consistently recognized among the nation’s leading health care defense attorneys.

Larry’s health care and life sciences litigation practice focuses on defending clients against allegations and investigations of fraud and abuse involving governmental programs. He is highly experienced in representing clients against actions brought by federal and state agencies including the US Department of Justice (DOJ), the Department of Health and Human Services Office of the Inspector General (HHS OIG), the United States Attorneys’ Offices, and state OIGs and Medicaid Fraud Control Units (MFCUs).

Larry’s practice is based on his 24-years of experience handling complex civil litigation, often in the context of parallel proceedings, and achieving global resolutions. In addition to enforcement defense, Larry counsels clients through internal investigations, corporate compliance, investor due diligence reviews, and health care bankruptcies involving governmental liabilities. His clients include hospitals and health systems, dialysis providers, clinical laboratories, medical equipment companies, pharmaceutical and device manufacturers, and health care executives.

Prior to private practice, Larry served as an Assistant Director with the Civil Fraud Section of the DOJ and focused solely on the False Claims Act and its qui tam provisions. At DOJ he supervised hundreds of qui tam cases filed in US district courts throughout the country, was part of the leadership team for the pharmaceutical enforcement initiative, and managed high-profile actions often involving multiple US Attorneys’ Offices and federal agencies.

Prior to his position as Assistant Director, Larry served with the Civil Fraud Section as a trial attorney focused on health care fraud and defense procurement. He co-led the notable investigation and prosecution of national independent clinical laboratories known as “Operation LABSCAM.” For his achievements, Larry was highly-recognized by the Attorney General with the Department’s highest and second highest awards, as well as multiple awards from the HHS OIG and the MFCUs.

Following law school, Larry served as a law clerk for the Honorable Richard Cardamone of the U.S. Court of Appeals for the Second Circuit.

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