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Kickbacks & The False Claims Act


Kickbacks & The False Claims Act The Evolution of Kickback Allegations & Theories of Liability in FCA Litigation Antonia F. Giuliana March 28, 2012 – PowerPoint PPT presentation

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Title: Kickbacks & The False Claims Act

Kickbacks The False Claims Act
  • The Evolution of Kickback Allegations Theories
    of Liability in FCA Litigation

Antonia F. Giuliana
March 28, 2012
Overview of Presentation
  • Part I The Changing Legal Standards
  • Part II The Evolution of Kickback Allegations
    in FCA Cases (1995-2009)
  • Part III Case Example
  • United States ex rel. Jamison v. McKesson Corp.
    et al., Civil Action No. 208-cv-214 (N.D.
  • Currently on trial

Overview of the Federal AKS FCA
  • The Anti-Kickback Statute, 42 U.S.C.
  • Enacted in 1972, seven years after Medicare
    Medicaid system created to address potential
    problem of providers making decisions based on
    their own economic interest
  • Prohibits payment of kickbacks, bribes, or other
    remuneration for the referral of Medicare or
    Medicaid patients
  • Strengthened in 1977 ? Criminal felony punishable
    by fines up to 25,000 and/or five years in
    prison (instead of misdemeanor, 10,000 fine, up
    to 1 year in prison)
  • No private right of action
  • The False Claims Act, 31 U.S.C. 3729-3733
  • Enacted in 1863 at the height of the Civil War to
    combat rampant fraud by vendors that sold broken
    guns, sick horses, rancid food, and other
    worthless equipment to the Union Army
  • Imposes civil liability for treble damages and
    penalties on those who submit false claims or
    make false statements to obtain payment from the
  • Contains a whistleblower provision that permits
    private citizens to sue on the governments
  • Lay relatively dormant until Congress
    significantly strengthened certain key
    provisions, including the whistleblower and
    damages provisions in 1986

The Expansion of the FCA to Cover Violations of
the AKS
  • 2010 Patient Protection and Affordable Care Act
    (PPACA) Amendments
  • 1. AKS Intent Standard
  • With respect to AKS violations, a person need
    not have actual knowledge of this section or
    specific intent to commit a violation of this
    section. See 42 U.S.C. 1320a-7b(h).
  • Overturns a series of cases that set a higher
    standard under which prosecutors had to prove the
    specific intent to disobey the law.
  • AKS Violation ? FCA Violation
  • In addition to the penalties provided for in
    the AKS, a claim that includes items or
    services resulting from a violation of this
    section constitutes a false or fraudulent claim
    for purposes of subchapter III of chapter 37 of
    Title 31 i.e., the FCA. See 42 U.S.C.

Consequences of the 2010 PPACA Amendment
  • United States ex rel. Bartz v. Ortho-McNeil
    Pharmaceutical, Inc. et al. (2012 WL 695886, D.
    Mass March 2, 2012).
  • Allegations of hidden discounts stated claim for
    illegal kickbacks.
  • Court held there was no FCA violation predicated
    on alleged kickbacks because the PPACA Amendment
    did not apply
  • In March 2010, the AKS was amended to state that
    a claim that includes items or services
    resulting from a violation of this section
    constitutes a false or fraudulent claim for the
    purposes of the FCA. This amendment expressly
    applies only to drugs dispensed after July 1,
    2010. Bartzs employment at JJ terminated on
    April 20, 2007, and Bartz fails to identify any
    illegal kickback allegedly paid to Bartzs
    Relators claim against McKesson Specialty.
    (Id. at 16.)

Express Implied Certification Claims
  • Even before the 2010 Amendments to the FCA,
    plaintiffs asserted that AKS violations may serve
    as the basis for FCA claims pursuant to
    certification theories of liability.
  • FCA Claim
  • 1st Element Falsity
  • Factually false goods or services were never
    provided or were incorrectly described
  • Legally false goods or services were provided
    in violation of a regulation, statute, or
    prescribed contractual term (despite a
    certification by the defendant, either express or
    implied, to the contrary)

Express Implied Certification Claims
  • Express Certification Claim
  • Based on a false representation of compliance
    with a federal statute or regulation, and in some
    instances, with a prescribed contractual term or
  • Majority view a claim is legally false only if
    the party certifies compliance with a statute or
    regulation that is a condition to government
  • Implied Certification Claim
  • Based on the notion that the act of submitting a
    claim for reimbursement itself implies compliance
    with the governing federal rules that are a
    precondition of payment
  • Not universally accepted elements vary
    circuit-to-circuit (and, at times, within

Implied Certification Claims by Circuit
  • Second, Third, Eighth Circuits
  • Limited to where there is a statute or regulation
    that is a condition of payment.
  • Eleventh Circuit
  • Can be based on either a condition of payment or
    a condition of participation in a federal
  • D.C. Circuit
  • A violation of a contractual obligation that was
    material to the governments obligation to pay
    a claim can form the basis for an FCA claim.
  • Seventh, Fourth, Fifth Circuits
  • Have taken positions that are incompatible with
    an implied certification theory.
  • First Circuit
  • Rejects certification framework completely.
    Liability may attach whenever claim
    misrepresented compliance with a precondition of
    payment so as to be false or fraudulent and
    misrepresentation was material.
  • (See Appendix A for list of cases.)

Evolution of Kickback Allegations 1995 - 2009
See Appendix B for listing of representative
Kickback Allegation Trends
  • Increased focus on so-called Sham Transactions
  • A seemingly legitimate transaction that is
    actually a façade for an improper hidden
  • Form of transaction is proper, but substance is
    allegedly not
  • The types of sham transactions the government
    has been interested in have shifted over time,
    making potentially problematic conduct difficult
    to identify (except in hindsight)
  • data purchase fees, scientific study
    participation fees
  • More aggressive and creative theories of what
    types of conduct may constitute a kickback
  • Overfill in drug vial, FMV challenges in
    competitive bidding situations

Sources to Assist in Identifying Evolving
  • Corporate Integrity Agreements
  • DOJ Press Releases Announcing FCA Settlements
  • FCA Settlement Agreements
  • FCA Complaints-In-Intervention

United States ex rel. Jamison v. McKesson Corp.
et al. (N.D. Miss.) 208-cv-214
  • FCA Claim (conduct 2002 to 2006)
  • Predicated on AKS violation (prior to 2010 FCA
  • AKS violation relating to illegal remuneration
    for business referrals in the form of below fair
    market value pricing or discounts
  • Fifth Circuit law applies (no implied
    certification theory)
  • The Defendants
  • Beverly defendants (including subsidiary CSMS)
  • large nursing home chain
  • Allegedly induced kickback
  • McKesson defendants (including subsidiary
  • National distributor
  • Allegedly provided kickback
  • Did not receive the business referral

The Jamison Case (the facts)
  • The Medical Supply Contract (the alleged bait)
  • Beverly contracted with Gulf South for its
    medical supplies (alleged 50 million value).
    Set to expire in 2002.
  • Summer 2002 MediNet meets with CSMS to (1)
    pitch contract billing services for enteral
    products and (2) discuss benefits of using a
    related company to act as Beverlys medical
    supply distributor.
  • MediNet proposed 50 contract billing fee per
    patient if CSMS gave the medical supply contract
    to a MediNet-affiliate and a 75 fee without the
    supply contract.

The Jamison Case (the facts)
  • The Contract Billing Services Contract (the
    alleged kickback)
  • Four bids submitted during RFP process in Fall
  • MediNet (defendant) -- 75 w/o supply K/50 with
    supply K
  • Pharmerica -- 210 (current provider)
  • NCS -- 50
  • Proclaim -- 74
  • CSMS and MediNet further negotiate bid from 75
    to 70.
  • MediNet is awarded contract billing services
  • Beverly re-signed its medical supply distribution
    contract with Gulf South at the end of 2002.

The Jamison Case (the allegations)
  • The Governments Allegations
  • The Beverly defendants dangled the prospect
    of McKesson obtaining its DME supply business
    relating to enteral nutrition services in order
    to induce MediNet to provide it with the lowest
    possible billing fees.
  • MediNet offered its contract billing services
    below fair market value in order to induce
    Beverly to refer the general medical supply
    contract to a McKesson-affiliate.
  • Government relies on express certification on DME
    enrollment and re-enrollment applications by CSMS
    (a Beverly defendant).

The Jamison Case (the summary judgment motion)
  • Issue 1 Whether there was any remuneration?
  • No ? MediNets bid was in line with fair market
  • Yes ? No FMV because each bidder was motivated to
    bid low in the hopes of landing the lucrative
    medical supply contract.
  • No ? Competitive bidding of the RFP process
    ensures that MediNets pricing was fair market
    value, regardless of governments hindsight
  • Yes ? During the term of the contract billing
    agreement, a MediNet financial analyst reviewed
    its impact to MediNet and determined that at 70
    per resident per month, MediNet either lost
    money, or at best broke even.

The Jamison Case (the summary judgment motion)
  • Issue 2 Whether the defendants acted knowingly
    and willfully?
  • Yes ? Beverly did not notify MediNet that
    McKesson was not going to receive Beverlys
    supply business until January 2003 four months
    after MediNets bid was submitted.
  • Yes ? MediNets 70 bid for contract billing
    services was unreasonable considering that
    current provider, Pharmerica, submitted a bid for
  • No ? MediNet performed a profit projection
    analysis prior to entering billing services
    contract and anticipated 34-38 in costs, well in
    line with 70 per resident per month fee.
  • No ? Beverly defendants negotiations and
    determination of the best bid was driven by their
    intent to get the best deal. MediNet was chosen
    on the basis of other criteria aside from price.

The Jamison Case (the summary judgment decision)
  • The Holding
  • Deny summary judgment issues raise questions of
    fact for trial

The Jamison Case (parent liability)
  • McKesson Corporations Summary Judgment Motion
  • McKesson, contends that, as MediNets parent
    corporation, it is not liable for the actions of
    its subsidiary.
  • Seeks dismissal from lawsuit because it
  • Was not a party to any of the transactions
  • Is not a Medicare provider or supplier
  • Does not submit claims to Medicare
  • Does not directly own any MediNet shares
  • No participation or control over MediNets

The Jamison Case (parent liability)
  • McKesson Corporations Summary Judgment Motion
  • Government contends
  • McKesson had input into the strategy for securing
    Beverlys business
  • A senior McKesson executive was over the
    management of MMS at the time the Beverly
    strategy was implemented
  • The McKesson executive had knowledge of and
    approved MediNets strategy.
  • McKesson had a deliberate corporate strategy to
    blur MMS and MediNet into the McKesson corporate
    name as evidence of McKessons direct involvement
    with the fraud
  • Court held
  • Genuine issue of material fact as to the level of
    control and input McKesson Corporation had with
    respect to MediNets contract with CSMS

The Jamison Case (the trial)
  • The Trial
  • Bench trial started in February will recommence
    in April
  • Estimated 10-20 days
  • Important Issues Raised Under the AKS and FCA
  • Whether a discount that does not result in a
    price that is below FMV is actionable under the
  • Whether proof of damages is a required element to
    prove a violation of the FCA?
  • Assuming an FCA violation is proven, whether
    civil penalties may be awarded if damages are not
  • If civil penalties may be awarded, how should
    they be assessed? Per claim submitted? Per
    express false certification?
  • Whether the applicable standard of proof for the
    element of an AKS violation is beyond a
    reasonable doubt or by a preponderance of the

Thank you!
March 28, 2012
Appendix A
Implied Certification Cases by Circuit
  • First Circuit New York ex rel. Westmoreland et
    al. v. Amgen, Inc. et al., 2011 WL 2937420 (1st
    Cir. July 22, 2011) United States ex rel.
    Hutcheson et al. v. Blackstone Medical, Inc.,
    2011 WL 2150191 (1st Cir. June 1, 2011).
  • Second Circuit Mikes v. Straus, 274 F.3d 687 (2d
    Cir. 2001).
  • Third Circuit United States ex rel. Wilkins v.
    United Health Group, Inc., 2011 WL 2573380, at 9
    (3d Cir. June 30, 2011).
  • Fourth Circuit Harrison v. Westinghouse
    Savannah River Co., 176 F.3d 776, 786-87 n.8 (4th
    Cir. 1999).
  • Fifth Circuit United States ex rel. Steury v.
    Cardinal Health, Inc., 2010 WL 4276073 (5th Cir.
    2010) United States ex rel. Marcy v. Rowan Cos.,
    520 F.3d 384, 389 (5th Cir. 2008).
  • Sixth Circuit United States ex rel. Augustine
    v. Century Health Services, Inc., 289 F.3d 409
    (6th Cir. 2002).

Implied Certification Cases by Circuit
  • Seventh Circuit United States ex rel.
    Yannacopoulos v. General Dynamics, 2011 WL
    3084932, at 3 n.4. (7th Cir. July 26, 2011).
  • Eighth Circuit United States ex rel. Vigil v.
    Nelnet, Inc., 639 F.3d 791, 79596 (8th Cir.
  • Ninth Circuit United States v. Lungwitz et al.,
    2010 WL 3092637 (9th Cir. 2010).
  • Tenth Circuit United States ex rel. Lemmon v.
    Envirocare of Utah, Inc., 2010 WL 3025021 (10th
    Cir. 2010).
  • Eleventh Circuit McNutt ex rel. United States
    v. Haleyville Medical Supplies, Inc., 423 F.3d
    1256, 1259 (11th Cir. 2005).
  • D.C. Circuit United States v. Science
    Applications Intl Corp., 626 F.3d 1257, 1261
    (D.C. Cir. 2010).

Appendix B
Evolution of Kickback Allegations (1995-2009)
Evolution of Kickback Allegations (1995-2009)
Evolution of Kickback Allegations (1995-2009)
Evolution of Kickback Allegations (1995-2009)
Evolution of Kickback Allegations (1995-2009)
Evolution of Kickback Allegations (1995-2009)
Evolution of Kickback Allegations (1995-2009)
Antonia F. Giuliana PARTNER Litigation Phone
(212) 808-7941