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Health Care Fraud and Abuse Class Three: Taking on False Claims Act Theories of Liability

This week’s class at BU Law School in Bob Thomas’ course on Health Care Fraud and Abuse started the deep dive into theories of liability under the False Claims Act, and recent ways in which the law has evolved.

What does False or Fraudulent Mean In the False Claims Act

The class began with question of what is “false or fraudulent” under the language of the False Claims Act.  Some “claims” are on their face truthful (e.g., provider treated patient in XYZ manner on ABC date).  However, fraud still taints these claims.  For example, because the claims were procured through the use of illegal kickbacks. So how does the statute capture concepts of falsity or fraud in these circumstances?

This is where theories of liability come into play. Courts came up with a body of judge-made law to explain when literally true claims can be legally false. The law uses concepts of certification” to hold that sometimes compliance with other laws is a condition of participation or payment from government programs.

Thus, the argument goes, the government requires that contractors obey applicable anti-fraud laws. It also contracts only for “taint-free” services and reimburses only where the claims lack the taint of illegality.  The entity engaged in the bad conduct “caused” the doctor to submit a tainted claim, the theory goes.

Supreme Court Addressed Implied Certification in Escobar

Some courts have had trouble with these concepts. This is particularly true if the non-compliant activity was, relatively speaking, trivial in nature.  The Supreme Court recently clarified this complicated landscape — to a degree — in its Escobar Decision of 2016.

In Escobar, the Court held that “implied certification” is among the valid False Claims Act theories of liability. However, the falsity “material” to the agency’s payment determination would count for liability under the False Claims Act.   In other words, if the transgression would likely have changed the agency’s decision to pay the claim, then it’s material.

Lawyers have been quick to point out, however, that “materiality” is a factual question requiring discovery from government agencies.  So while it may be easier for whistleblower suits to survive initial legal challenges (motions to dismiss), the discovery phase of a case could be tricky as defense lawyers try to prove that a paying agency such as the Center for Medicare and Medicaid Services (“CMS”) was sufficiently aware of the issue and didn’t care enough about it to deny the claims.  Lots of work for lawyers ahead on that front.

Implied Certification For Off-Label Promotion

As an example of an “implied certification” type claim, the seminar explored the current state of False Claims Act liability theories relating to “off-label promotion” of drugs and/or medical devices.  This theory applies False Claims Act liability to marketing of unapproved uses of drugs or devices.

While doctors are free to write prescriptions off label, companies are constrained by regulations from the Food and Drug Administration (“FDA”).  These regulations limit what they can say to promote such uses.  Running afoul of those restrictions has landed many a company in hot water on the theory of implied certification.

Defendants Have Attacked Off-Label Promotion Theories On First Amendment Grounds

Recently, however, the defense bar has successfully argued for a free speech (First Amendment) limitation on off-label marketing.  Defendants successfully advanced this argument in a Second Circuit case known as Caronia.  It holds that unless false or misleading marketing is protected by the “commercial speech” doctrine under the First Amendment.

The Supreme Court has not taken this question up directly, so Caronia only applies in the Second Circuit.  However, prosecutors now know that any off-label case they bring should include, at a minimum, some showing of falsity or deception. Otherwise, they risk challenge under the First Amendment.

Finally, as a way of tying together some of these concepts of “materiality” under Escobar and deceptive marketing, the class examined a tricky fact pattern often present in off-label scenarios.  Sometimes the FDA has expressly not approved a certain use, but CMS has decided, based on available data in certain “compendia”, to reimburse off-label claims anyway.  Under Escobar, the fact that the paying agency is aware of the off-label promotion and literature, even reviews it, and pays the claim anyway makes prosecution of an off-label case highly problematic.  A prosecutor or whistleblower lawyer would need, for an FCA case to survive, substantial evidence of false and deceptive practices, or other illegal conduct like kickbacks, to keep such a case alive.

Speaking of kickbacks, that’s what the class will talk about next week.