Overview
In this issue:
- FCA defendants may be in for a "SuperValu" when the Supreme Court reevaluates the FCA's scienter requirements
- SCOTUS denies Pfizer cert. leaving heartless HGG OIG kickbacks ruling in place
- PVA gets credit where credit is due.
"Objectively Reasonable" Circuit Split
United States ex rel. Schutte v. SuperValu Inc., No. 21-1326
The Supreme Court has agreed to consider a circuit split over the required scienter for FCA violations – i.e., whether a defendant can "knowingly" violate the FCA if its conduct is "objectively reasonable" in light of prevailing law and the relevance of a defendant’s subjective understanding of the lawfulness of its conduct. The Seventh Circuit held in SuperValu and its companion case United States ex rel. Proctor v. Safeway, Inc., No. 22-111, that where the defendant’s conduct was "objectively reasonable" under the law, regardless of the defendant’s subjective intent, and there was no authoritative guidance warning the defendant away from its interpretation of the relevant legal requirement, there is no scienter under the FCA. Several circuits agree that a defendant can rely on a reasonable, albeit wrong, interpretation of an ambiguous legal requirement to negate scienter. Other circuits, however, have held that scienter for FCA cases depends on whether the defendant knew or should have known its conduct violated a regulation, in light of any ambiguity at the time of the violation. And yet other circuits require a defendant to inquire regarding its compliance with regulations to avoid a finding that it "recklessly disregarded" a regulation.
The Supreme Court is expected to unify the circuits in one approach. Adopting the SuperValu standard would likely mean ambiguous statutory or regulatory schemes could no longer form the basis of an FCA claim where the allegation is that the defendant failed to comply with that scheme and falsely certified to the contrary. If the Court rejects that standard, a defendant’s argument against scienter becomes more challenging because the government need only show that the defendant should have known its conduct constituted a violation, or should have conducted an inquiry into whether its conduct complied with any applicable regulations, further heightening corporate compliance burdens.
Co-Pay Aid = Kickbacks?
Pfizer Inc. v. U.S. Dept. Health & Hum. Servs., No. 21-2764 (2d Cir. July 25, 2022).
The Supreme Court has denied certiorari and declined to hear Pfizer’s appeal of a Second Circuit ruling upholding an HHS Office of Inspector General (HHS OIG) advisory opinion rejecting Pfizer’s proposed co-pay assistance program for a $225,000 per year heart treatment because it would violate the Anti-Kickback Act. Pfizer sought an advisory opinion from the HHS OIG regarding whether its proposed plan to provide financial assistance for Medicare enrollees to access expensive medical treatment prescribed by a physician violated the Anti-Kickback Statute (AKS). The HHS OIG issued an advisory opinion concluding the program, if implemented, would violate the AKA. Pfizer brought an Administrative Procedure Act (APA) action challenging the advisory opinion, which the Second Circuit rejected.
Pfizer’s plan would have aided middle-income patients who could not qualify for co-pay support and would otherwise be forced to pay $13,000 out-of-pocket annually for prescribed medical treatment. In its APA challenge, Pfizer argued that the HHS OIG’s advisory opinion arbitrarily and capriciously concluded that because a primary purpose of the program was to “induce Medicare beneficiaries to purchase [Pfizer’s] federally reimbursable Medications” with the costs being shifted to US taxpayers, it would likely violate the AKS as construed by the D.C. Circuit in Krizek and other circuit courts. In seeking cert, Pfizer asked the Supreme Court, which has yet to address the AKS’s scienter requirement, to impose a requirement of “corrupt intent,” arguing that an intent to induce federal healthcare program beneficiaries to purchase a federally reimbursable drug should not be sufficient to establish an AKS violation, and indeed would lead to negative health outcomes. The Court’s denial of cert thus leaves in place the Second Circuit decision endorsing HHS OIG’s advisory opinion.
The Court’s refusal to disturb the lower court’s ruling leaves in a place an expansive but longstanding view of the scienter required under the AKS. As a result, it remains difficult for drug manufacturers and healthcare providers to provide co-pay assistance to individuals who need life-saving but expensive drugs. The denial of cert here could also have a ripple effect on pending FCA cases alleging similar AKS violations by pharma companies, and could further incentivize relators to bring FCA suits under this theory.
Money First, Service Later
United States ex rel. Tiffany Montcrieff v. Peripheral Vascular Assocs., P.A., No. SA-17-CV-00317-XR, 2023 WL 139319 (W.D. Tex. Jan. 9, 2023).
Following a jury trial, on January 9, 2023, a federal district court denied in part and granted in part defendant Peripheral Vascular Associates, P.A.’s (PVA) renewed motion for judgment as a matter of law and granted Relators’ motion for statutory damages in an FCA matter arising from allegations that PVA engaged in fraudulent billing practices.
Relators alleged that PVA, a full-service vascular surgery practice, fraudulently billed Medicare for services it had not performed in violation of the FCA. Specifically, Relators alleged that when PVA billed Medicare for vascular ultrasounds, it billed both the technical component (administering the ultrasound) and the professional component (interpreting the ultrasound) before completing the professional component – essentially pre-billing Medicare.
The court addressed PVA’s argument that no reasonable jury would have a legally sufficient evidentiary basis to find for Relators on the issue of issue of materiality because the evidence showed only minimal damages as a result of the alleged false claims. In rejecting this argument, the court noted that a false claim can be material regardless of how minimal, or even non-existent, the damages are. PVA also argued that, because the government analyzed claims in deciding to intervene on the qui tam action, it knew or should have known that payments were false by the time it declined to intervene. The court rejected this argument also, explaining that materiality is determined at the time of the government’s payment decision, not after, meaning that the government’s post-hoc knowledge of falsity and decision not to intervene did not impact the materiality determination.
The court also rejected PVA’s argument that the government did not incur damages because PVA eventually completed the interpretation of the ultrasounds (the professional component) that they billed the government in advance, and therefore the government was going to pay PVA for the services eventually in any event. The jury found that the government incurred damages based on its conclusion that payment now is not the same as payment later due to the time value of money. The court also noted that defrauding the United States, even where there is ultimately “no harm no foul,” is innately harmful to the administration of benefit programs. However, the court ultimately accepted PVA’s post-trial argument that, because PVA eventually performed the services, it deserved credit for having done so and set aside the jury’s verdict, in favor of an interest-based approach to damages based on the difference between what the government paid and what it should have paid.
Finally, the court addressed Relators’ motion for $21,825,592 in statutory penalties, which amounted less than the applicable statutory range of $64,144,311 to $128,288,622 but was nonetheless substantial in a case with de minimis damages. Acknowledging that federal law is unclear on whether the Eighth Amendment applies to FCA damage awards, the court declined to answer that question because it found that (1) Relators’ proposed penalty was not grossly disproportionate to the gravity of PVA’s conduct, (2) PVA was a member of the class of defendants the FCA was designed to deter, (3) the amount of statutory penalties here were not punitive and (4) it is irrelevant whether PVA could pay the total statutory penalties.
The court’s holding in PVA demonstrates that even where the element of materiality is met in the context of pre-billing Medicare, FCA defendants may be able to reduce or altogether eliminate their damages where the services were ultimately rendered. However, in the context of claims submitted to federal health care programs, even where companies can defeat claims of actual damages, they could, as PVA reminds us, still be subject to steep per-claim penalties. Because Eighth Amendment and ability-to-pay arguments are often rejected by courts, companies must aggressively argue the equities that favor the imposition of per-claim penalties at the low end of the statutory range.
