With Bexis having originally conceived the preemption argument that became Buckman Co. v. Plaintiffs Legal Committee, 531 U.S. 341 (2001), we are always on the lookout for ways in which plaintiffs attempt to circumvent Buckman’s result and thus  to pursue private litigation over fraud on the FDA.

Plaintiffs love to claim fraud on the FDA. It’s their all-purpose response to any FDA action that they don’t like.  For over fifteen years, now, Buckman has severely cramped their style.

One group of plaintiffs thought they had found their way around Buckman – relators bring cases under a federal statute, the False Claims Act, 31 U.S.C. §3729 (“FCA”).  Since the FCA is a federal statute, the preemption rationale by which the FDCA, and specifically 21 U.S.C. §337(a), prohibiting private enforcement, bars conflicting state-law theories would not apply.  These plaintiffs thought they had reached the promised land.

Not so fast.

Actually, all they’d come up with were a few bits of legal trumpery. The Oxford Dictionary offers four definitions for trumpery:

  • “Attractive articles of little value or use.”
  • “Practices or beliefs that are superficially or visually appealing but have little real value or worth.”
  • “Showy but worthless.”
  • “Delusive or shallow.”

When the word fits, use it. All the definitions (the first two are nouns; the last two adjectives) fit here.

We saw the end coming, in this post, discussing United States ex rel. D’Agostino v. EV3, Inc., 153 F. Supp.3d 519 (D. Mass. 2015), and it has now drawn nigh.  First, D’Agostino was affirmed. D’Agostino v. ev3, Inc., 845 F.3d 1 (1st Cir. 2016).  We discussed that decision, with great glee, here.  Fraud on the FDA, unless the FDA actually found fraud, didn’t cut it under the FCA, because causation would be entirely speculative – plaintiffs would have to prove a counterfactual hypothesis, that the FDA would have done something other than what it in fact did:

If the representations did not actually cause the FDA to grant approval it otherwise would not have granted, [the government] would still have paid the claims.  In this respect, [relator’s] fraudulent inducement theory is like a kick shot in billiards where the cue ball “could have” but did not in fact bounce off the rail, much less hit the targeted ball.

Id. at 7.  Where the FDA didn’t act on an FCA plaintiff’s allegations, those claims are mere trumpery.  The materiality standard for FCA claims is tough – “[i]t is a ‘demanding’ standard.”  Id. (quoting Universal Health Services, Inc. v. United States, 136 S.Ct. 1989, 2003 (2016)).  If it’s not enough to impress the FDA directly under the FDCA, purported fraud on the FDA is certainly not enough to move the needle under the FCA.

D’Agostino was good, but a more recent case, United States ex rel. Nargol v. DePuy Orthopaedics, Inc., 865 F.3d 29 (1st Cir. 2017), is even better.  The allegations in Nargol were practically indistinguishable from what the Bone Screw plaintiffs alleged two decades ago in Buckman itself.  The plaintiff, a pair of doctors who “claim to be experts in hip-replacement techniques and devices,” id. at 31, claimed that the manufacturer of a such a device “made a series of false statements to the FDA . . ., but for which the FDA would not have approved the [product] or would have withdrawn that approval.”  Id. at 32.  Sounds like a broken record to us:

Plaintiffs say petitioner made fraudulent representations to the Food and Drug Administration (FDA or Administration) in the course of obtaining approval to market the [product]. . . .  Had the representations not been made, the FDA would not have approved the devices, and plaintiffs would not have been injured.

Buckman, 531 U.S. at 343.  This plaintiff-side trumpery also reminds us of an advertising “slogan” from the Onion.  The only difference between Nargol and Buckman were the purported damages – while Buckman invoked fraud on the FDA to allege that every use of the device in question was automatically a tort, Nargol pushed the same theme to claim that every such use (on Medicare and certain other patients) was automatically a false claim.

Talk about allegations “of little use or value.”

Focusing on the claims, “whether direct or indirect, that rest on the allegation that [defendant] misrepresented the safety and effectiveness of the product’s design in order to secure or maintain FDA approval,” the panel “appl[ied and extend[ed]” D’Agostino to affirm dismissal.  Id. at 31, 34.  Unlike D’Agostino, which had involved a PMA medical device, Nargol involved a device that had been cleared for marketing as “substantially equivalent” under so-called “§510(k) clearance.” Id. at 34.  That difference didn’t matter, since the claims in both cases sought to attack the integrity of the process by which the FDA allowed the products in question to be marketed.

The claim in this case is not quite on all fours with the claim we confronted in D’Agostino because the FDA does not independently assess the safety and effectiveness of a [510(k)] medical device. . . .

Nevertheless, the process constitutes the government’s method of determining whether a device is safe and effective as claimed.  That determination is what makes the product marketable, and Relators offer no suggestion that government reimbursement rules require government health insurance programs to rely less on section 510(k) approval than they do other forms of FDA approval.

Id. (emphasis added) (citations to Lohr and Buckman omitted).  We would be remiss if we failed to note that, in this respect Nargol is congruent with what the FDA itself said earlier this year – that, yes, the 510(k) process does involve determinations of device safety and effectiveness.  Lohr is anachronistic on this point, and will eventually be reconsidered.

But we digress.  Back to fraud on the FDA, where Buckman, by comparison, isn’t out-of-date at all.

The FDA, as Buckman observed, wields plenty of tools to protect itself from being defrauded and to punish anyone so bold as to try.  531 U.S. at 349 (listing administrative powers).  Its lack of exercise of such powers in Nargol demonstrates the trumpery nature of the plaintiffs’ claims:

The FDA, in turn, possesses a full array of tools for “detecting, deterring, and punishing false statements made during . . . approval processes.”  Its decision not to employ these tools in the wake of Relators’ allegations so as to withdraw or even suspend its approval of the . . . device leaves Relators with a break in the causal chain between the alleged misstatements and the payment of any false claim.

865 F.3d at 34 (emphasis added) (Buckman citation omitted).  For this reason, the FDA’s decision not to act “also renders a claim of materiality implausible.”  Id.

Even in an ordinary situation not involving a misrepresentation of regulatory compliance made directly to the agency paying a claim, when “the Government pays a particular claim in full despite its actual knowledge that certain requirements were violated, that is very strong evidence that those requirements are not material.”

Id. at 34-35 (quoting UHS, 136 S. Ct. at 2003).  Such evidence is not just “strong,” but “compelling” when “an agency armed with robust investigatory powers to protect public health and safety is told what Relators have to say, yet sees no reason to change its position.”  Id. at 35.

Thus, without an FDA finding that it was defrauded, fraud on the FDA allegations by FCA relators are both too speculative to plead causation plausibly and not material.  That’s not quite preemption but is satisfyingly close.  Fraud on the FDA allegations, without support from the FDA itself, amount to trumpery:

[T]here is no allegation that the FDA withdrew or even suspended product approval upon learning of the alleged misrepresentations.  To the contrary, the complaint alleges that Relators told the FDA about every aspect of the design of the . . . device that they felt was substandard, yet the FDA allowed the device to remain on the market. . . .  Such evidence does show that the FDA was paying attention.  But the lack of any further action also shows that the FDA viewed the information, including that furnished by Relators, differently than Relators do.

Id. at 35 (emphasis added).  Right.  The FDA considered these allegations to be fake news.

Plaintiffs had a fallback position – that even after the device was approved, its mere use could constitute a “false claim.”  To wit:  “In theory, a product may be sufficiently ‘safe’ and ‘effective’ to secure FDA approval for a given use, yet its use might nonetheless not be sufficiently ‘reasonable and necessary’ for patient care to warrant Medicare reimbursement.”  Id.  More trumpery, held Nargol.  The “complaint was devoid of particularized allegations,” the differences being claimed were within the “maximum failure rate provided under industry guidelines,” and ultimately “simply runs Relators back into” their fraud on the FDA claims.  Id. at 36.  Thus, no causation and no materiality:

We see no reason, though, why such a likely and customary repetition of the statements made to the FDA renders it more plausible that a materially false statement caused the payment of a claim that would not have been made otherwise.  The government, having heard what Relators had to say, was still paying claims . . . but because the government through the FDA affirmatively deemed the product safe and effective.

Id..  Yes, a 510(k) clearance means “the FDA affirmatively deemed the product safe and effective.”

Ultimately D’Agostino prevailed.  Plaintiffs “offer[ed] no rebuttal at all to D’Agostino’s observation that six jurors should not be able to overrule the FDA.”  Id.  Their arguments “offer[ed] no solution to the problems of proving that the FDA would have made a different approval decision in a situation where a fully informed FDA has not itself even hinted at doing anything.”  Id.

Between them, D’Agostino and Nargol should slam the door on plaintiffs’ attempt to assert fraud on the FDA under the guise of FCA claim (unless the FDA itself has reached the same conclusion).  See In re Plavix Marketing, Sales Practice & Products Liability Litigation (No. II), 2017 WL 2780744, at *21-23 (D.N.J. June 27, 2017) (rejecting similar FCA fraud on the FDA allegations against prescription drug).  Moreover, the emphasis in these cases on the speculative nature of attempting proof of what the FDA might have done if presented with a different set of facts also casts doubt on the Third Circuit’s terrible Fosamax decision, which, as we have pointed out, would saddle juries with the task of doing just that.

Our day job has been keeping us busy, so busy with depositions, motions, delayed flights, and assorted drama that we have not posted in more than a month.  After such a long layoff, we had hoped to return with a vengeance, a “the North remembers” sort of vengeance.  Instead, we get fair market value, Current Procedural Terminology codes, and a Daubert challenge to a defense expert accountant.  Eh.  The decision is in a False Claims Act case about Medicare fraud and kickbacks, about which we care and have even spent some billable time.  But the reason we are writing about U.S. ex rel Lutz v. Berkeley Heartlab, Inc., No. 9:14-cv-00230-RMG, 2017 U.S. Dist. LEXIS 107481 (D.S.C. July 12, 2017), is because the rejection of opinions offered by the expert in this case undercuts the damages claims we see in other cases.

Lutz involves allegations that the defendants overbilled Medicare in connection with blood tests.  One part of the alleged scheme was that the defendant labs charged high processing and handling fees.  (We will ignore the issues of FCA materiality and causation that seem to flow from the absence of evidence of Medicare payment on processing and handling charges.) From what we can tell, the defendant’s expert opined that these fees were consistent with the fair market value—a defined term under the, aptly named, Stark Act—and did not represent kickbacks to referring physicians.  He offered a “charge-based methodology” to conclude that the fees were consistent with fair market value because physicians allegedly expected to recover for time spent on processing handling, not just for the actual blood draw.

“[I]t is no secret that the sticker price of services listed in physician bills and hospital chargemasters are totally unmoored from the reality of arm’s-length transactions actually taking place in the marketplace.” Id. at *12.  We think you can see where we are going with this.  In product liability cases, economic damages related to medical care, past and future, are typically based on amounts incurred.  The collateral source rule is often used offensively to create a windfall of the difference between the amount on the bills and the portion of that amount anybody ever paid or will pay.  We have called this “phantom damages.”  In FCA, RICO, and consumer protection cases, for instance, the plaintiff’s theory of price gouging or other impropriety sometimes relies on the list price of a drug or the amounts appearing on bills, regardless of what typically gets paid.  Although in the context of granting a challenge to an expert for healthcare providers that wanted the charges to matter, the Lutz decision supports the more typical defense position.

Actual transactions, not just bills, are a better indicator of fair market value because “physicians deliberately set their fees higher than the amount they either expect to receive or do in fact receive to ensure that no money is left on the table.” Id. at *16.  The court identified a number of decisions, from various types of cases, recognizing that “physicians’ billed charges do not necessarily reflect the market value of physician services.” Id. at **17-18 (citing cases).  So, the next time you have a case where the plaintiff says her damages include the total of all her medical bills and the only support she needs is her expert mouthing that “the charges were all reasonable and necessary,” think about whether Lutz and the cases it cites help you push back.  That was our return:  brief, a little bloody, and with the promise of more to come.

The New Jersey Supreme Court has ruled that once the Attorney General declines to take over a qui tam action, he can no longer use administrative subpoenas to compel testimony and documents from defendants and witnesses. In the Matter of the Enforcement of New Jersey False Claims Act Subpoenas, __ A.3d__, 2017 WL 2458163 (N.J. June 7, 2017).

The background of the case is set out in the Appellate Court’s decision at 134 A.3d 1012 (N.J. Super. App. Div. Mar. 18, 2016). The underlying complaint in federal court is a qui tam action alleging that a pharmacy benefits manager defrauded the state by retaining rebates that were supposed to be passed along to its clients in violation of the federal False Claims Act and the New Jersey False Claims Act (“NJFCA”). Id. at 1013. When a private citizen brings a qui tam action seeking to enforce the NJFCA on behalf of himself and the state, the complaint must be filed under seal and served on the Attorney General. The Attorney General then has 60 days to decide whether to intervene and take over the action. That time can be extended upon the Attorney General’s request and upon a showing of good cause. Id. at 1015.

In this case, that extension provision was liberally and repeatedly applied to afford the Attorney General approximately 600 days to decide whether to intervene, with the “final” intervention deadline set for June 2, 2015. Id. at 1014. The appellate decision mentions in passing that it was both not convinced and need not decide whether defendants engaged in delay tactics as “it neither explains nor excuses the Attorney General’s failure to proceed more expeditiously for such an extraordinary length of time. Id. The final deadline passed and the Attorney General did not exercise his option to take over the case. Id. at 1015. After June 2, however, the Attorney General sought enforcement of a subpoena previously served on the defendant and two subpoenas served after June 2 on additional witnesses. The federal court decided that the issue of the enforceability of the subpoenas was best resolved by the New Jersey state courts. Id.

The Attorney General argued that his right to investigate the claims did not disappear with the passing of the intervention deadline citing his statutorily granted subpoena power. But the court concluded that was not an “additional or separate font of power” once the Attorney General declines to intervene. Id. at 1016. The Attorney General has a duty to investigate possible NJFCA violations and is given tools to do so, but is also given a time period in which to do so. The Attorney General’s broad interpretation would mean that he could investigate “for so long as he cared” and “seek leave to intervene . . . at any time up until the entry of final judgment.” Id. That would render the 60-day deadline meaningless and it is the goal of the court to interpret statutes “in a way that gives meaning to every part.” Id. The court also pointed out that the Attorney General’s repeated requests for extensions of the 60-day deadline contradict his argument that his right to continue his investigation and enforce subpoenas survives that deadline. Id. at 1017. Why else would he need the extensions?

Indeed the landscape changes once the Attorney General decides not to proceed. From that point forward, the person who initiated the action has the right to conduct the action and the Attorney General’s decision to opt out is final and not reviewable. Id. In other words, “there is no turning back.” Id. The Attorney General then becomes a bystander. He can request copies of the pleadings, motions and depositions only at his own cost. And finally, he remains on the sidelines unless he can convince the court that he has “good cause” to intervene at a later date. Id. The Attorney General urged a broad reading of that final provision, but the court said it had to be construed with the other three provisions, all of which heavily favor a legislative intent that the relator be allowed to control the qui tam action uninhibited. Id.

The appellate court also found that the Attorney General should not be allowed to proceed with a separate investigation that might interfere with the federal judge’s management of the qui tam action to which the Attorney General is not a party. Id. at 1018.

The New Jersey Supreme Court adopted the reasoning of the appellate decision, but elaborated on an additional argument advanced by the Attorney General that NJFCA does not contain the same provision as the federal False Claims Act which expressly bars U.S. Attorney Generals from enforcing subpoenas after electing not to intervene. In the Matter of the Enforcement of New Jersey False Claims Act Subpoenas, __ A.3d__, 2017 WL 2458163 at *4. Because the NJFCA does not contain the same provision, the Attorney General argued that the New Jersey legislature must have intended to allow the issuance of administrative subpoenas after opting out.

But the FCA and the NJFCA differ in many ways. The NJFCA was not modeled on the FCA such that deletion of a specific provision would be evidence of a specific legislative intent to diverge from the federal approach. Id. The NJFCA tracks neither the structure nor the text of the FCA. So instead the court must look to the provisions of the NJFCA. As set out above, those provisions all support that the Attorney General’s right to enforce subpoenas ends with the decision not to take over the action. Id. at *5. So defendants don’t have to defend NJFCA violation allegations on competing fronts, thankfully.

This guest post by Andrew C. Bernasconi, of Counsel at Reed Smith, is about a hopeful development in a False Claims Act case we’ve already blogged about once.  The previous post queried, what happens when a FCA relator, blinded by the dollar signs in his/her eyes, resorts to questionable means to gin up “facts” that substitute for the personal knowledge that the statute assumes the relator has, but in this case did not?

This time, the chickens came home to roost.  Read and enjoy.

As always, our guest bloggers are 100% responsible for their insights – entitled to all the credit (and any blame – maybe for the asides about the greatest Super Bowl ever played).

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“I’m sure you all share my view when I say, ‘Go, Patriots.’”

These words from Boston-based U.S. Judge Dennis Saylor IV of the District of Massachusetts, when closing out a motion to dismiss hearing just a few weeks prior to Super Bowl 51, undoubtedly intended to reference the mighty New England Patriots and their impending appearance in what would become a historic win over the outmatched Atlanta Falcons.

Judge Saylor’s recent decision dismissing a qui tam False Claims Act (FCA) case, based on what he determined were deceit and ethical violations by plaintiff’s counsel, calls to mind the words of a different kind of patriot, Chief Justice John Marshall:

“Let the end be legitimate, let it be within the scope of the constitution, and all means which are appropriate, which are plainly adapted to that end, which are not prohibited, but consist with the letter and spirit of the constitution, are constitutional.”

McCulloch v. Maryland 17 U.S. 316, 421 (1819) (interpreting the Necessary and Proper Clause).  While the context of Judge Saylor’s recent decision differs dramatically from the issues considered by Justice Marshall in 1819, the focus of both on just ends and means provides a common theme.

We first blogged back in November about the case of U.S. ex rel Leysock v. Forest Laboratories LLC, where we explained that the defendant filed a motion to dismiss the qui tam relator’s False Claims Act allegations that were premised on false claims tied to alleged off-label marketing of a drug indicated to treat Alzheimer’s Disease.  Although the court denied a prior motion to dismiss relator’s complaint, finding that it contained sufficient particularity to satisfy Rule 9(b)’s heightened pleading standard, the defendant took the unusual step of filing a subsequent motion to dismiss while discovery was ongoing.  In the subsequent motion to dismiss, the defendant relied on discovery showing that relator’s counsel had hired a physician as an “investigator” to persuade other unwitting physicians, under the guise of conducting a “research study,” to provide confidential patient medical records for what (unknown to these other physicians) turned out to be for litigation purposes.  Relator’s counsel, of course, vigorously opposed the motion and contended that they had not engaged in any wrongdoing.

On April 28, 2017, Judge Saylor issued his opinion (copy here), in which he granted the defendant’s motion and dismissed the relator’s complaint. Leysock, No. 12-11354-FDS, slip op, (D. Mass. Apr. 28, 2017).  In a well-reasoned decision, Judge Saylor found there was “no dispute” that relator’s counsel had engaged in a scheme that involved “an elaborate series of falsehoods, misrepresentation, and deceptive conduct,” including:  (1) designing an investigation to obtain confidential information from physicians under the guise of a medical research study and (2) employing a physician as their agent to tell other physicians that records supplied by physicians to facilitate the “study” would remain confidential.  Slip op. at 14.

According to the court, this conduct violated ethical rules prohibiting knowing false statements of material fact made to third persons (Mass. R. Prof. Conduct 4.1(a)), and engaging in conduct involving dishonesty, fraud, deceit, or misrepresentation (Mass. R. Prof. Conduct 8.4(c)).  Slip op. at 15.  While acknowledging limited exceptions to these rules, where counsel may employ deception in investigations (e.g., using “discrimination testers” or investigators to uncover evidence of racial discrimination), the court concluded that the extreme conduct authorized by relator’s counsel – obtaining the confidential health information of innocent and unsuspecting patients under false pretenses from innocent physicians, and then breaching the disclosing-physicians’ trust by publishing confidential patient information in a lawsuit – easily distinguished this case from those where counsel’s deception was permissible.  Id. at 15-21.  [Editor’s note:  As a fan of the Patriots, Judge Saylor was well-positioned to evaluate whether sleazy schemes involved permissible deception or something worse.  Take that how you want, good reader.]

The court also rejected the argument by relator’s counsel that the ends justified the means.  Slip. op. at 21-23.  Relator’s counsel essentially argued that if relators are not permitted to use the type of deception at issue here, then it would be “difficult, if not impossible” for qui tam relators to satisfy the Rule 9(b) particularity requirement applicable to FCA cases.  Id. at 22.

This is where the concerns we mentioned in our earlier blog post, about opportunistic plaintiffs’ attorneys who manufacture cases lacking legitimate factual bases in hopes of obtaining financial windfalls, come to mind.  As Judge Saylor recognized, the FCA is designed to encourage claims by relators with actual, personal knowledge of fraudulent conduct, slip. op. at 22-23 – not by those who must resort to such deceptive tactics, like now-adjudicated unethical intrusions into the sanctity of the physician-patient relationship, as their only basis to prepare a complaint with sufficient information to survive a Rule 9(b) motion to dismiss.  A proper whistleblower has knowledge.  Different labels apply to those who mislead people for their own gain.

Employing the court’s inherent powers, Judge Saylor removed from relator’s complaint all information derived from the unethical investigation, and evaluated whether the remaining allegations could satisfy Rule 9(b).  They could not.  In other words, relator’s complaint had survived the defendant’s initial motion to dismiss only because of the information obtained from the unethical investigation.  Slip. op. at 23-27.  As a sanction, the court dismissed the relator’s complaint with prejudice to the relator (and without prejudice as to the United States, the real party in interest in qui tam cases).  Id. at 27.  But for a benevolent fan of patriots and Patriots (is there any other kind?), who determined that individual sanctions against relator’s attorneys were “not appropriate in this proceeding,” slip. op. at 24, there could have been more severe monetary or other sanctions for the use of deceptive or fraudulent means to advance that case.

As Judge Saylor held, the ends did not justify the unethical means employed by relator’s counsel.  Thus, for the defendant, justice finally (albeit belatedly) prevailed in this case.  If only relator’s counsel had been fans of patriots like Chief Justice Marshall, and employed only “means which are appropriate” to reach legitimate ends, this entire situation could have been avoided.

Happy birthday to Stan Lee, the main man behind Marvel Comics. He wrote the stories for The Amazing Spider Man which, when we were 10 years old, we read with a good deal more enthusiasm than we presently feel when encountering the deathless prose in (a) a plaintiff motion to compel, or (b) pretty much any opinion out of the Missouri state courts. When we were at Comic Con in San Diego last Summer, the only autograph we wanted was Stan Lee’s. But the line was indecently long. Hundreds of Thors, Daredevils, and X-men stood between us and the object of our adoration. We knew any hope of meeting our hero was pure fantasy. Anyway, if our friends at the Abnormal Use blog do not have a picture of a Marvel comic at the top of today’s post, we will be very much disappointed.

Happy birthday, also, to Denzel Washington. Most of you probably know him from his movies, such as Glory, Malcolm X, Training Day, and, currently, Fences. But we first laid eyes on Washington when he appeared in the very fine television show, St. Elsewhere. That program was set in a Boston hospital. It ran from 1982 to 1988. Denzel Washington was in the cast all six years. The entire cast was superb, and the writing was inventive. It is possible that the ending of St. Elsewhere (cleverly titled “The Last One”) was a little too inventive. It turned out that everything that happened in the series was the fantasy of an autistic child. To our eyes, it seemed a bit of a cheat. But maybe it was a commentary on art. Art is artifice. It is a lie in service of some bigger truth. It is a fine falsehood.

So fantasy and falsehood seem to be our themes for the day. Massachusetts has an interesting history of falsehoods in legal history. The Salem Witch trials had their origin in a silly girl’s lies. It is easy to read the trial transcripts of the Sacco and Vanzetti trial, or the trial of Lizzy Borden, and conclude that great injustices were done. More recently, and more to the point for the sort of law we practice, the history of False Claim Act cases against drug and device companies in the Bay State has been inglorious. Cases have marched forward and cost companies many millions of dollars in the absence of any actual falsehoods. We are even more dismayed when we consider the overly aggressive and incoherent positions sometimes adopted by our former employer, the Department of Justice. But maybe, just maybe, courts in the Bay State are starting to exercise some control over, and impose reasonable limits on, False Claims Act cases.

Continue Reading First Circuit Affirms Dismissal of False Claims Act Case