2019’s False Claims Act enforcement continues the long-standing tradition of the government’s sending of mixed messages. On the one hand, the DOJ’s increased willingness to move to dismiss declined qui tams would seem to indicate a potential scaling back of FCA enforcement. But, on the other hand, the DOJ has also signaled a willingness to attempt to expand the reach of the FCA in novel ways. Below are some of the key developing areas we will watch in 2020 as we navigate these uncharted waters.
First, the DOJ increasingly seeks to enforce the FCA in areas not typically subject to FCA scrutiny. For example, in May and December 2019 DOJ entered into FCA settlements with two manufacturers of generic pharmaceutical products to resolve allegations of, in essence, price fixing, bid rigging, and market division.1 Also, in December 2019, the Eastern District of Virginia US Attorney’s Office and the Civil Division resolved an alleged sanctions violation under an FCA fraud in the inducement theory. The government alleged that a false certification of compliance with sanctions laws fraudulently induced a prime contractor and the U.S. Army to award contracts to a defense contractor for logistical support to U.S. troops in Afghanistan.2 While all of these FCA settlements were part of larger resolutions that included criminal and civil remedies that have been traditionally relied on in these types of enforcement actions, the addition of the FCA angle to these cases is noteworthy. The DOJ has myriad divisions and areas of enforcement. Where else will it seek to expand its use of the FCA beyond the areas it has traditionally enforced?
Second, the DOJ is not immune from the allure of hot button, headline-grabbing topics; that translates into how it chooses to enforce the FCA. An example is the rising cost of prescription drugs. Although there is no law that prevents manufacturers from pricing drugs as they see fit, or from increasing drug prices, the DOJ has begun to use the FCA to target manufacturers of high-priced drugs, particularly where the DOJ contends that the manufacturers engaged in some behavior that enabled them to increase prices without having to pay more in rebates or face public backlash. For example, the DOJ has entered into FCA settlements with companies for alleged violations of government price reporting regulations, asserting that the DOJ is attacking “pricing schemes that attempt to manipulate and overcharge federal health care programs”3 and noting where companies have increased drug prices without paying a correspondingly higher rebate to the government.4 Another example is the wide-ranging investigation of copay charities led by the U.S. Attorney’s Office for the District of Massachusetts. Those prosecutors have been clear that, in their view, manufacturer’s efforts to ameliorate patients’ copay obligations (by donating to copay charities) take patients’ “skin out of the game” and allow manufacturers to increase prices without public outcry.5 In investigations like these and others, the DOJ’s motivation appears to stem from an apparent desire to affect hot button issues and implement policy goals – such as stemming the rising costs of drugs – even though the FCA does not directly restrict drug pricing practices. What other timely and controversial topics might the DOJ attempt to tackle via the FCA in 2020? Third, when Congress passed the FCA, it could not have imagined that one day venture capital funded companies would be created solely to bring FCA actions against industry actors in the hope of attaining windfalls for its investors. But that is the world now. A burgeoning industry of qui tam funders seeking promising cases where the rewards are high, the defendants can pay, the government is interested, and success prospects are strong has emerged. But how many more non-meritorious matters will be artificially encouraged by this newfound funding source? When the DOJ filed ten motions to dismiss qui tams filed by Health Choice Group professional relators across the country a little over a year ago, it sent a message to institutional relators and litigation funders that such arrangements will invite serious scrutiny. Will the DOJ place even greater emphasis on stifling this apparently budding industry of professional relators in 2020?
Fourth, and similarly, while law enforcement agencies have long used data analytics to prioritize enforcement efforts, a new kind of qui tam complaint based solely or primarily on the relator’s analysis of data – not any firsthand knowledge – has emerged and threatens to drastically expand the FCA liability landscape. Although these relators may not be investor-backed profit-seekers, they are far from the true whistleblower with firsthand knowledge of an alleged fraud that the FCA drafters envisioned. Should a data analysis report that has been recast as a qui tam complaint allow a private party to stand in the shoes of the government to police fraud? Will the courts allow these types of relators to get past a motion to dismiss and engage in cost-intensive discovery to build their cases, or will the courts keep the gates of litigation closed?
Finally, don’t count the states out. Although this publication is focused on the federal FCA, we have seen exponentially increasing efforts by states’ attorneys general and other state agencies and commissions to enforce state laws similar to the FCA or use their existing consumer protection laws to extract high dollar penalties. One example of course is the California Department of Insurance, noted above, but there are many others. For example, less than a year ago, the New York State Department of Financial Services (NYDFS) reorganized seven of its branches into one Consumer Protection and Financial Enforcement branch tasked with investigating alleged financial and insurance fraud. The newly revamped NYDFS jumped right into the opioids fray, announcing that it was commencing a far-reaching investigation, which would include public hearings, designed to recover the $2 billion New York asserts its citizens were defrauded by opioids manufacturers.6 Of course, the FCA has been used as one of the government’s tools to combat the opioid crisis, but more and more states are utilizing or creating FCA-like mechanisms to target the same perceived ills. What other state authorities are lurking on the horizon?
Staying on top of these and other potential developments in FCA enforcement will be critical for businesses moving forward. The FCA practice at Hogan Lovells stands ready to help you with our market-leading lawyers.
1. Pharmaceutical Company Admits to Price Fixing in Violation of Antitrust Law, Resolves Related False Claims Act Violations, U.S. Dep’t of Just., Off. of Pub. Aff., (May. 31, 2019), https://www.justice.gov/opa/pr/pharmaceutical-company-admitsprice- fixing-violation-antitrust-law-resolves-related-false; Second Pharmaceutical Company Admits to Price Fixing, Resolves Related False Claims Act Violations, U.S. Dep’t of Just., Off. of Pub. Aff., (Dec. 3, 2019), https://www.justice.gov/opa/pr/secondpharmaceutical- company-admits-price-fixing-resolves-related-false-claims-act.
2. Defense Contractor Agrees to Pay $45 Million to Resolve Criminal Obstruction Charges and Civil False Claims Act Allegations, U.S. Dep’t of Just., Off. of Pub. Aff., (Dec. 4, 2019) https://www.justice.gov/opa/pr/defense-contractor-agrees-pay-45- million-resolve-criminal-obstruction-charges-and-civil-false.
3. Wyeth and Pfizer Agree to Pay $784.6 Million to Resolve Lawsuit Alleging that Wyeth Underpaid Drug Rebates to Medicaid, U.S. Dep’t of Just., Off. of Pub. Aff., (Apr. 27, 2016) https://www.justice.gov/opa/pr/wyeth-and-pfizer-agree-pay-7846-millionresolve- lawsuit-alleging-wyeth-underpaid-drug-rebates.
4. Mylan Agrees to Pay $465 Million to Resolve False Claims Act Liability for Underpaying EpiPen Rebates, U.S. Dep’t of Just., Off. of Pub. Aff, (Aug. 17, 2017) https://www.justice.gov/opa/pr/mylan-agrees-pay-465-million-resolve-false-claimsact- liability-underpaying-epipen-rebates.
5. One DOJ press release explained that “Congress included copay requirements . . . in part, to encourage market forces to serve as a check on health care costs – including the prices that pharmaceutical manufacturers can demand for their drugs.” See Drug Maker United Therapeutics Agrees to Pay $210 Million to Resolve False Claims Act Liability for Paying Kickbacks, U.S. Dep’t of Just., Off. of Pub. Aff., (Dec. 20, 2017), https://www.justice.gov/opa/pr/drug-maker-united-therapeutics-agrees-pay-210- million-resolve-false-claims-act-liability.
6. Governor Cuomo Announces Action Against Opioid Industry To Recover $2 Billion In Overcharges For Defrauded New Yorkers, The Official Website of New York State, (Sept. 10, 2019), https://www.dfs.ny.gov/reports_and_publications/press_releases/ pr1909101 [last visited Dec. 17, 2019].