Top False Claims Act Developments

November 23, 2021

Jeffrey S. Bucholtz, Ethan P. Davis, Amy B. Boring, and Hamilton Craig, King & Spalding LLP

OVERVIEW

This week’s top False Claims Act (FCA) developments include:  another example of opioid-related FCA enforcement; continued FCA settlement activity involving allegations of kickbacks; the Department of Justice’s intervention in an FCA case alleging fraudulent price reporting against a company that supplies ingredients to compounding pharmacies; and a settlement of FCA allegations against the Archdiocese of New Orleans relating to alleged fraud against the Federal Emergency Management Agency (FEMA).

1. DOJ continues opioid-related enforcement efforts under the FCA

Overview:  On November 9, DOJ announced a $12.7 million settlement with kaléo Inc., a Virginia-based pharmaceutical manufacturer.  The settlement resolves the FCA and Anti-Kickback Statute allegations related to kaléo’s drug Evzio, an injectable form of naloxone hydrochloride used to reverse opioid overdose.

The Settlement:  According to DOJ, Evzio was the highest priced version of naloxone available on the market during the relevant period, meaning that insurers often required prior authorization as a condition of coverage.  DOJ claimed that kaléo encouraged or directed doctors to steer Evzio prescriptions to certain specialty pharmacies based on their perceived success in obtaining insurance coverage.

DOJ alleged that the pharmacies would misrepresent to insurers the origin of prior authorization requests and the patients’ medical histories and would dispense the drug without attempting to collect co-payments from government beneficiaries.

DOJ also claimed that kaléo violated the AKS by rewarding physicians and their office staff for prescribing Evzio, including by providing food and beverages and holiday gifts unrelated to educational or business purposes.  The relator is a former kaléo employee.

Our Take:  Like many recent resolutions, this case exemplifies DOJ’s vigorous use of the FCA and the AKS to address perceived misconduct related to opioids and opioid-overdose drugs.  As the opioid crisis continues, we expect to see DOJ focus more resources on manufacturers, distributors, pharmacies, and doctors who sell, distribute, or prescribe opioids or overdose-reversal medications.

2. DOJ deploys the AKS against another medical device company

Overview:  On November 8, DOJ announced a $16 million settlement with Arthrex Inc., a Florida-based medical device company.  The settlement resolves allegations that Arthrex caused the submission of false claims by providing kickbacks to a Colorado-based surgeon.  In connection with the settlement, Arthrex agreed to enter into a five-year corporate integrity agreement with HHS-OIG.

The Settlement:  DOJ claimed that Arthrex paid royalties to an orthopedic surgeon in connection with two Arthrex product lines in order to induce the surgeon to purchase, order, or recommend Arthrex’s products.  DOJ alleged that Arthrex had originally refused to pay royalties to the surgeon in 2006, but changed course in August 2010 and agreed to pay royalties on the products (at an even higher rate than was ordinary company practice) when the surgeon threatened to use a competitor’s products.

Our Take:  DOJ routinely uses the AKS in conjunction with the FCA to pursue allegations of inappropriate relationships between pharmaceutical companies or medical device manufacturers and doctors.  This resolution is notable insofar as DOJ based its kickback allegations on royalty payments (as opposed to more common subjects of FCA cases such as meals, consulting agreements, or entertainment).

3. DOJ files FCA complaint against Professional Compounding Centers of America Inc. alleging fraudulent reporting of pricing information for drug ingredients

Overview:  On November 8, DOJ announced it had filed a complaint in partial intervention in a case against Professional Compounding Centers of America Inc. (“PCCA”), a Houston-based company that sells pharmaceutical ingredients to compounding pharmacies.  The complaint alleges that PCCA reported fraudulent Average Wholesale Prices (“AWPs”) for its ingredients from March 2012 until May 2015, causing the compounding pharmacies to submit inflated prescription claims to TRICARE, the federal health care program for uniformed service members, retirees, and their families.

Details of the Allegations:  Compounding pharmacies purchase ingredients from suppliers such as PCCA to prepare compounded drugs.  Reimbursement for compounded drugs under federal programs is based in part on the AWPs reported for the drug’s ingredients.  DOJ alleged that PCCA reported inflated pricing information for its ingredients to TRICARE, then sold those ingredients to compounding pharmacies at lower rates in order to increase the reimbursement that its pharmacy customers received from TRICARE.  DOJ alleged that PCCA marketed inflated AWPs, and the potential resulting profits for pharmacies, to induce pharmacies to purchase from PCCA.  The relator in the case is a former part owner of a pharmacy that purchased ingredients from PCCA.

Our Take:  DOJ continues its enforcement efforts against companies relating to drug price reporting.  These types of cases have been common for years, and DOJ will continue to pursue them given public concern about drug prices and healthcare spending.

4. Archdiocese of New Orleans agrees to pay more than $1 million to resolve Hurricane Katrina-related FCA allegations

Overview:  On November 15, DOJ announced a $1,050,000 settlement with the Roman Catholic Archdiocese of New Orleans to resolve allegations that it violated the FCA by submitting false claims for payment to FEMA to cover the repair and replacement of facilities damaged by Hurricane Katrina.  The settlement alleges that the Archdiocese knowingly signed certifications for FEMA funding that contained fraudulent descriptions of damages and repair estimates.

Details of the Settlement and Allegations: The settlement resolves allegations originally filed in 2016 under the whistleblower provisions of the FCA by an employee of AECOM, an architecture and engineering firm that allegedly worked with the Archdiocese.  The relator alleged that AECOM inflated repair estimates for the Archdiocese (and others) and that the Archdiocese knowingly signed certifications that, for example, contained descriptions of damage to a nonexistent HVAC infrastructure and misstated the square footage of a facility.  The Archdiocese previously filed for bankruptcy and is seeking approval of the settlement in bankruptcy proceedings.  The suit against AECOM remains ongoing.

Our Take:  While FCA enforcement involving FEMA has been relatively uncommon, it could become more frequent if FEMA increases spending in response to large natural disasters.

In the News:

DOJ uses the AKS to pursue an alleged kickback arrangement between anesthesia providers and surgery centers - On November 9, DOJ announced a $28 million settlement with three anesthesia providers and several Georgia-based outpatient surgery centers, as well as their physician-owners and an administrator.  The settlement resolves DOJ’s allegations that the anesthesia providers paid for drugs, supplies, equipment, and labor and provided free staffing to a number of outpatient surgery centers.  According to DOJ, the payments and free staffing were intended to induce the surgery centers to select the anesthesia providers as their exclusive providers.  This case is another example of how DOJ uses the AKS in conjunction with the FCA to pursue allegedly inappropriate financial relationships between providers.

Jeffrey S. Bucholtz is a partner in the Trial and Global Disputes Practice Group in the firm’s Washington, D.C. office, Ethan P. Davis is a partner in the Special Matters and Government Investigations Practice Group in the firm’s San Francisco office, Amy B. Boring is a Senior Associate in the Special Matters and Government Investigations Practice Group in the firm’s Atlanta office, and Hamilton Craig is an Associate in the Special Matters and Government Investigations Practice Group in the firm’s Washington, D.C. office.