DOJ Denies Alleged Circuit Split on Particularity Requirement in FCA Cases

In a much-anticipated filing by the Department of Justice (DOJ), following the US Supreme Court’s request for briefing by the US Office of the Solicitor General, DOJ advised the Court that a Circuit split on Federal Rule of Civil Procedure 9(b) ’s particularity requirement in False Claims Act (FCA) cases “has now subsided.” DOJ’s amicus brief in Johnson v. Bethany Hospice urged the Court to reject the petitioner’s petition for certiorari, arguing that federal Circuit Court jurisprudence has “largely converged on a more flexible standard” that does not require a plaintiff to allege specific examples of fraudulent billing at the pleadings stage. Instead, the courts require an “indicia of reliability to support a strong inference that the defendant submitted false claims for payment to the government.”  

When the Supreme Court last solicited the federal government’s views on Rule 9(b) nearly a decade ago in Nathan v. Takeda Pharmaceuticals, DOJ asserted that the Circuit split appeared to be resolving itself. In its latest brief, the government argued that the evolution it predicted had indeed occurred. It further argued that any lingering distinctions among the courts are “unsurprising,” given the “fact-intensive” nature of FCA cases and that “courts of appeals have expressed different degrees of willingness to infer the submission of false claims” through circumstantial evidence. Disparities could further be attributed to “different judges’ subjective assessments of the reliability of the particular allegations at issue, as opposed to a choice among competing legal standards.” DOJ’s brief contended, moreover, that even if a Circuit split remained, Johnson was an “unsuitable vehicle” for resolution because the district court held that the whistleblowers’ pleading, which accused Bethany Hospice and Palliative Care LLC of paying kickbacks to doctors in exchange for Medicare patient referrals, failed to sufficiently describe the kickbacks.

The brief filed by DOJ did not address the separate FCA case in which the Supreme Court similarly solicited the Solicitor General’s views, as discussed in last week’s blog post.

The case is Johnson et al. v. Bethany Hospice and Palliative Care LLC, case number 21-462, before the Supreme Court of the United States.

Defendants Sentenced in Multimillion Telemedicine Pharmacy Fraud Scheme

A federal judge in Greeneville, Tennessee, sentenced seven individuals and related corporate entities for their roles in a multimillion-dollar health care fraud scheme.     

According to court documents, the individual defendants, and the companies they controlled, defrauded pharmacy benefit managers (PBMs), such as Express Scripts and CVS Caremark, into authorizing tens of thousands of prescriptions worth millions of dollars that both commercial and government insurers paid to pharmacies controlled by the co-conspirators.

Court documents and evidence presented at trial established that the defendants employed HealthRight, a Florida telemarketer, to generate prescriptions for pain creams, scar creams, and vitamins. HealthRight allegedly cold-called consumers and deceived them into agreeing to accept the drugs and providing their personal insurance information. HealthRight then paid doctors to authorize the prescriptions, despite that the doctors never communicated directly with patients and relied solely on the telemarketers’ screening process as the basis for the prescriptions. As a result of this fraudulent prescription process, the drugs were considered misbranded under the Food, Drug and Cosmetic Act, but the pharmacies nonetheless dispensed the drugs to the patients, and false claims were submitted for their reimbursement.

The evidence showed that the defendants paid millions of dollars to buy at least 60,000 invalid prescriptions generated by HealthRight, which were specifically selected so that claims for reimbursement could be submitted at inflated prices for a profit.

One of the individual co-conspirators was sentenced to 14 years in prison, $2.5 million in forfeiture, and $25 million in restitution, while other individual defendants received prison sentences of 10 to 42 months. The now-defunct corporate entities also received hefty restitution sentences: Alpha Omega Pharmacy, Germaine Pharmacy, Zoetic Pharmacy, ULD Wholesale LLC, and Tanith Enterprises were ordered to pay nearly $25 million in restitution each; Sterling Knight was sentenced to pay $21 million in restitution, and HealthRight was ordered to pay $4.25 million in restitution.

Alleged Kickback Scheme by Avanir Subject of New Proposed Class Action 

MSP Recovery Claims Series LLC (MSP), an assignee of organizations that provide health care benefits to Medicare beneficiaries, filed a proposed class action complaint in California federal court against Avanir Pharmaceuticals (Avanir). The complaint alleged that Avanir engaged in an unlawful kickback scheme to pay doctors to prescribe its drug Nuedexta, which is intended to treat pseudobulbar affect—the involuntary crying or laughing episodes that can occur with a neurological disease or brain injury. The complaint further alleged that the “ultimate targets and victims of Avanir’s scheme” were the third-party payers that paid for the drug prescribed as a result of the kickbacks. According to the complaint, “Avanir kept the price of Nuedexta fairly low to ensure the drug was predominately paid by” the third-party payers that would be part of the putative class, thereby causing “the class members to pay more for Nuedexta than they otherwise would have had they known of Avanir’s scheme to push off-label Nuedexta and provide kickbacks to physicians.”

The complaint alleged that the US Food and Drug Administration had only approved Nuedexta for those suffering from Lou Gehrig’s disease, but “Avanir aggressively marketed and shoved it into the market by any means necessary” to expand the illness that the drug could treat. Avanir allegedly financially supported a study that was written mostly by doctors who were paid by Avanir and by one author who actively worked for the company. The complaint also cited a DOJ criminal case against Avanir, which resulted in a proposed deferred prosecution agreement and a settlement requiring the company to pay millions of dollars.

The case is MSP Recovery Claims Series LLC v. Avanir Pharmaceuticals Inc., case number 8:22-cv-01026, in the US District Court for the Central District of California.