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06 February 2019
The Department of Justice (DOJ) recently stepped in to seek the dismissal of high-profile False Claims Act litigation being pursued by relators after the government initially declined to intervene. The DOJ's recent action pertains to approximately a dozen lawsuits filed primarily in 2016 and 2017, which were unsealed during 2018 as the DOJ declined to intervene. Each of the cases was filed by a limited liability company relator formed for the purpose of pursuing the litigation and alleging that pharmaceutical manufacturers, and third-party service providers who contracted with them, violated the Anti-kickback Statute (and thus the False Claims Act) by providing various support services for the manufacturers' drugs.
The cases focused on three types of activity. First, the defendants deployed nurse educators who allegedly promoted the manufacturers' drugs to physicians and patients through a 'white coat marketing' scheme. Second, the nurse educators allegedly instructed patients on the proper use of the medication. Third, the defendants allegedly communicated with insurance companies to determine whether the plans would reimburse the manufacturers' drugs for specific patients and what process was required to ensure such reimbursement. The relators alleged that the second and third categories of conduct violated the Anti-kickback Statute because they provided physician practices with expense relief.
In December 2018 the DOJ unexpectedly filed motions to dismiss these cases across the country. While arguing that its power to dismiss False Claims Act cases (even those in which it did not intervene) is unfettered, the DOJ nevertheless articulated several reasons underlying its request. First, the DOJ argued that the burden of allowing the litigation to proceed was not justified in light of the lack of sufficient legal and factual support for the relators' claims. Regarding the merits of the claims, the DOJ stated that "based on its extensive investigation of all of the various [partnerships'] complaints, the government has concluded that the relators' allegations lack sufficient factual and legal support". In terms of burden, the DOJ noted that the its attorneys alone had already spent 1,500 hours investigating issues raised by the complaints, and that many more hours would be required in the course of further litigation, both in terms of monitoring the litigation and responding to discovery requests on various government agencies. Given these considerations, "[t]he government has rationally concluded based on its extensive investigation of relators' various cases that the relators' sweeping allegations lack adequate support and are unlikely to yield any recovery sufficient to justify the significant costs and burdens".
Second, the DOJ explained that a finding of False Claims Act liability in these cases would "conflict with important policy and enforcement prerogatives of the federal government's healthcare programs". It noted that the government invests vast sums of money in healthcare, and that the government therefore has an interest in ensuring that patients have access to "basic product support relating to their medication… such as access… [and] instructions on how to properly inject or store their medication". In sum, the DOJ argued that:
relators should not be permitted to indiscriminately advance claims on behalf of the government against an entire industry that would undermine common industry practices the federal government has determined are, in this particular case, appropriate and beneficial to federal healthcare programs and their beneficiaries.
In addition to these express reasons, the DOJ's action appears to have been motivated significantly by the nature and conduct of the relators – or the entities underlying the relators. As the DOJ explained, the relators were "limited liability compan[ies] established for the sole purpose of serving as the named relator[s] in [these] action[s]". The relators were established by the National Health Care Analysis Group, a "pseudonym for a partnership comprised of limited liability companies set up by investors and former Wall Street investment bankers". The scope of the partnership's False Claims Act activities has been "sweeping": "The partnership, acting through shell company relators, has filed eleven qui tam complaints against a total of thirty-eight different defendants for essentially the same alleged conduct." The DOJ also expressed significant concern about the tactics employed by the relators in their pre-complaint investigations. As the DOJ explained, the National Health Care Analysis Group obtained information from industry participants through paid interviews conducted under the guise of unbiased industry research, without revealing that "the information [was] actually being collected for use in qui tam complaints". The DOJ described this activity as seeking information under "false pretenses".
The DOJ's action is further evidence that the Granston memo, in which the DOJ articulated clearer standards for seeking dismissal of non-intervened cases, has real teeth.(1)
An example of one of the motions to dismiss the DOJ filed in December 2018 can be found here.
For further information on this topic, please contact Scott D Stein or Neil G Nandi at Sidley Austin LLP by telephone (+1 312 853 7000) or email (firstname.lastname@example.org or email@example.com). The Sidley Austin website can be accessed at www.sidley.com.
(1) Sidley, "Internal DOJ memo encourages dismissal of more non-intervened qui tams", 26 January 2018.
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