Time for another update…
The United States Asserts Its Position on Rule 9(b) Before Supreme Court in Response to Owsley Cert Petition
The Solicitor General’s office has once again expressed its view that the Supreme Court should deny a petition for a writ of certiorari requesting that the Court clarify the pleading standard – specifically the level of particularity required under Federal Rule of Civil Procedure 9(b) – to plead a claim under the False Claims Act (FCA). On September 9, 2022, the Solicitor General submitted an amicus brief in United States ex rel. Owsley v. Fazzi Associates, Inc., 21-936, expressing that it was the view of the United States that the Supreme Court should deny the petition for writ of certiorari. In May 2022, the Solicitor General urged the Supreme Court to deny a petition for writ of certiorari in another Rule 9(b) FCA case – Johnson et al. v. Bethany Hospice and Palliative Care LLC, 21-462.
The writ for petition of certiorari in Owsley requests review of a Sixth Circuit decision affirming dismissal of a relator’s FCA complaint for failure to meet Rule 9(b)’s particularity standard. In Owsley, the relator, a quality assurance nurse, alleged that her employer, a home health agency, and the other respondents consisting of other home health agencies and healthcare organizations, altered patient data to make patients appear sicker in order to submit upcoded or inflated claims for Medicare reimbursement.
The Sixth Circuit affirmed the district court’s dismissal of the relator’s complaint, reasoning that although the complaint “describe[d] in detail, a fraudulent scheme,” and alleged “personal knowledge of the billing practices employed in the fraudulent scheme,” the relator had “ma[de] little effort . . . to identify any specific claims that [the Appellee] submitted pursuant to the scheme.” The Sixth Circuit explained that “the touchstone is whether the complaint provides the defendant with notice of a specific representative claim that the plaintiff thinks was fraudulent.” The relator had failed to meet this burden.
Solicitor General’s Amicus Brief
Although there has been much discussion in recent years surrounding the application of Rule 9(b) by federal courts, the Solicitor General’s brief asserts that courts “have largely converged” on an approach that provides relators with two paths to satisfy the requirements of Rule 9(b): Relators can either “identify specific false claims,” or “plead other sufficiently reliable indicia supporting a strong inference that false claims were submitted to the government.”
Contrary to Petitioner’s assertions that circuit courts were divided on the requirements of the 9(b) pleading standard, the Solicitor General’s brief argued that “[t]he divergent outcomes in the courts of appeals . . . simply reflect courts’ application of a fact intensive standard to a range of different types of allegations.” As a result, the Solicitor General argued, the Supreme Court’s further review would be unlikely to produce greater uniformity or clarify the Rule 9(b) pleading standard. The Solicitor General also noted that in an invited amicus curiae brief in United States ex rel. Nathan v. Takeda Pharmaceuticals North America, Inc., 572 US 1033 (2014) (No. 12-1349), the United States opposed adoption of a “per se rule that a relator must plead the details of particular false claims – that is, the dates and contents of bills or other demands for payment – to overcome a motion to dismiss.” According to the United States, such a rule would undermine the FCA’s effectiveness. Rather, a relator’s complaint satisfies Rule 9(b) if it “alleges particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted.” The Solicitor General’s brief asserts that the circuit courts have consistently applied this standard.
Takeaways: There are three pending petitions for writ of certiorari before the Supreme Court requesting that the Court resolve the purported Circuit split as to the FCA pleading standard. For two of those petitions – Owsley and Johnson v. Bethany Hospice and Palliative Care LLC, Case No. 21-462 – the Court invited the Solicitor General to submit briefs expressing the views of the United States. In both instances, the Solicitor General urged the Court to decline review. It remains to be seen whether the Court will take up any of the three cases. While the Solicitor General has indicated that the Supreme Court’s review is not necessary, greater clarity regarding the heightened pleading standard for FCA complaints could discourage the filing of baseless FCA qui tam complaints or encourage the resolution of such complaints at the motion to dismiss stage.
DOJ Announces First Ever FCA Settlement Involving PPP Lender
Summary: The Department of Justice (DOJ) recently announced its “first ever” False Claims Act settlement received from a Paycheck Protection Program (PPP) Lender. According to DOJ, Prosperity Bank, a regional bank, approved and processed a PPP loan in the amount of $213,400 for Woodlands Pain Institute PLLC, a primary care institute, even though bank employees knew that Dr. Emad Bishai – the sole owner of Woodland Pain Institute – had falsely certified that no one with more than 20% equity in the applicant entity was subject to an indictment, criminal information, arraignment or other means by which formal criminal charges are brought in any jurisdiction. Contrary to Dr. Bishai’s response of “no,” Dr. Bishai was facing criminal charges related to the prescribing of opioid medicines. Bank employees were apparently aware of these criminal charges and processed the loan anyway. Prosperity Bank received a 5% processing fee ($10,670). Prosperity has agreed to pay the government $18,000 as part of its settlement.
Dr. Bishai entered into a separate settlement for $523,331 in November 2021 to resolve his liability arising from fraudulent medical billing and his submission of the PPP loan application. According to DOJ’s press release, Dr. Bishai repaid the PPP loan in full in 2022.
Akorn Operating Company, LLC Settlement
Topics: Medicare Part D; Federal Food, Drug, and Cosmetic Act
DOJ recently announced that it had reached a settlement with pharmaceutical firm Akorn Operating Company LLC (hereinafter Pharmaceutical Company), which agreed to pay $7.9 million to resolve allegations that it had violated the FCA by causing the submission of false claims to Medicare Part D for three generic drugs that were no longer eligible for Medicare coverage.
Medicare Part D provides coverage for drugs that may be dispensed only upon a prescription, and excludes coverage for “over the counter” (OTC) drugs. The Food and Drug Administration (FDA) approved three generic pharmaceutical products manufactured and sold by Pharmaceutical Company as “prescription use only” (Rx-only) drugs based on the approval given for the equivalent “Reference Listed Drug” (RLD) for each product.
In certain circumstances, drug manufacturers may initiate a change in marketing status for their products from Rx-only to OTC through a process referred to as an “Rx-to-OTC switch.” However, both Rx-only and OTC versions of the same drug may not be marketed at the same time pursuant to the Federal Food, Drug, and Cosmetic Act (FDCA). Therefore, when the RLD for a generic drug is approved for a switch to OTC use, the manufacturer of a generic equivalent must either seek FDA approval for its own product to switch to OTC status or withdraw its generic’s Rx-only status and stop marketing it.
The FDA approved full Rx-to-OTC conversions of the brand names of three generic drugs manufactured and sold by Pharmaceutical Company in February 2020 and June 2021. This meant that each of these RLDs could be marketed by the relevant application holders for OTC use, could no longer be marked as an Rx-only drug, and were no longer approved to state “Rx-only” on its label or packaging.
The United States alleged that Pharmaceutical Company submitted or caused to be submitted false claims to Medicare Part D, in violation of the FCA, by continuing to sell three generic drugs under Rx-only labeling after the RLDs were converted to OTC drugs. As part of the settlement, Pharmaceutical Company admitted, acknowledged, and accepted responsibility for delaying seeking the required OTC conversions for its three generic drugs, even after learning that their RLDs had been converted to OTC status. In particular, Pharmaceutical Company delayed these conversions because it believed that selling them as Rx-only would be profitable for the company. Pharmaceutical Company also caused the submission of false claims to Medicare Part D by continuing to sell each product under its Rx-only labeling because Medicare does not cover non-prescription drugs and no meaningful difference existed between these products and their now-OTC RLDs.
The settlement resolves a lawsuit brought under the qui tam or whistleblower provisions of the FCA.
Takeaway: Pharmaceutical Company’s settlement demonstrates that the FCA is a powerful tool for combatting misbranding violations under the FDCA.
Other Noteworthy Decisions:
United States ex rel. Clarissa Zafirov v. Fla. Med. Assocs. LLC, 2022 WL 4134611 (M.D. Fla. Sept. 12, 2022)
Topics: Medicare Advantage, Public-Disclosure Bar, Rule 9(b)
Summary: Relator Clarissa Zafirov, a family care physician, brought suit against Florida Medical Associates doing business as VIPcare, Physician Partners, LLC, and Anion Technologies, LLC (collectively, the Provider Defendants) as well as Medicare Advantage (MA) insurers Freedom Health, Inc, and Optimum Healthcare, Inc. (the MA Defendants), alleging that the Provider Defendants acted in concert with the MA Defendants to artificially increase the risk adjustment scores of their MA enrollees, which in turn fraudulently increased their capitated payments from the government. The Provider Defendants were alleged to have pressured physicians through various means to falsely select only “risk-adjusting diagnosis codes” for patients and submitted unsupported codes if physicians did not comply; “risk-adjusting diagnosis codes” are codes which are predicted to require more expensive treatments and lead to increased Medicare reimbursements. The MA Defendants were alleged to have in turn submitted these incorrect diagnosis codes to Centers for Medicare and Medicaid Services (CMS) in order to increase the capitated payments; the MA Defendants allegedly failed to conduct the oversight of the Provider Defendants required by Medicare, and to take an active role in the Provider Defendants’ operations.
Zafirov’s first FCA complaint was dismissed without prejudice for: (1) failure to allege the FCA violations with the particularity required by Rule 9(b); (2) failure to clear the public-disclosure bar; and (3) because the initial complaint was a “shotgun pleading.” Zafirov filed an Amended Complaint and the Defendants again moved to dismiss the Amended Complaint (1) for failure to plead the FCA claims with particularity; and (2) based on the government action bar.
Regarding Defendants’ Rule 9(b) argument, the Court previously dismissed the initial complaint because it failed to “provide the dates these codes were submitted, the name of the individual or individuals that submitted the codes, how these codes impacted the amount of money that the defendants received from the federal government (materiality), or copies of a single bill or payment,” and because the relator did not allege any personal knowledge of the MA Defendants’ conduct. The Court held that these defects were now cured in the Amended Complaint. Indeed, the Amended Complaint added nearly 100 pages of detailed allegations, including more than twenty examples of specific patients and claims. The Amended Complaint also newly alleged that Zafirov had access to the MA Defendants’ online portal and access to the records of the diagnosis codes submitted to the government. The Court held that Zafirov’s statements in the Amended Complaint alleging personal knowledge of the Provider Defendants’ medical records and access to the MA Defendants’ online portal provided the requisite indicia of reliability and, therefore, satisfied the Rule 9(b) standard. Defendants also alleged that Zafirov failed to sufficiently allege Defendants’ knowledge of falsity, the materiality of the alleged false statements, and causation, all of which the Court rejected.
The government-action bar prevents relators from bringing FCA suits “based upon allegations or transactions which are subject to a civil suit or an administrative civil money penalty proceeding in which the [g]overnment is already a party.” 31 USC. § 3730(e)(3). In deciding whether the government-action bar applies, courts look to whether the qui tam case brought by the relator receives support or advantage from the case in which the government is a party without giving anything useful or proper in return to the government. Here, Defendants asserted that the Amended Complaint tracks the allegations set forth in United States ex rel. Sewell v. Freedom Health, et al., Civil Action No. 8:09-CV-01625 (M.D. Fla.), an FCA suit in which the MA Defendants had already agreed to pay $31,695,593 to settle similar allegations of submitting “unsupported diagnosis codes to CMS, which resulted in inflated reimbursements from 2008 to 2013 in connection with two of their Medicare Advantage plans operating in Florida.” The Court determined that the Defendants’ arguments were inapplicable for two reasons. First, the Amended Complaint did not rely upon Sewell with respect to the Provider Defendants because the Provider Defendants were “neither named nor specifically identified in Sewell and none of the allegations against them were ever raised in that case.” Second, the Court found material differences between the allegations against the MA Defendants in the Amended Complaint and Sewell such that if Zafirov succeeded, the government would receive a financial recovery beyond what was recovered in Sewell. The Court further noted that courts have considered the government’s views as a factor in applying the government-action bar and here, the government opposed dismissal and indicated a belief that Zafirov’s theory of the case is sound (even though it had decided not to intervene).
Takeaways: This decision highlights that allegations providing multiple specific examples of conduct alleged to violate the False Claims Act supported by a relator’s personal knowledge possess indicia of reliability sufficient to meet the Rule 9(b) particularity requirement. In addition, it is noteworthy that the Court placed significant weight on the government’s perception of the relator’s allegations and their lack of overlap with related proceedings in evaluating whether the government-action bar applies.
 United States ex rel. Owsley v. Fazzi Associates, Inc., 16 F.4th 192 (6th Cir. 2021)
 Id. at 196-97 (internal citations and quotation marks omitted).
 Id. at 197.
 Brief for the United States as Amicus Curiae at 8, United States ex rel. Owsley v. Fazzi Associates Inc., No. 21-936 (US Sept. 9, 2022).
 Id. at 9 (internal quotation marks omitted).
 United States v. Fla. Med. Assocs. LLC, 2022 WL 4134611, at *4 (M.D. Fla. Sept. 12, 2022).
 United States v. Fla. Med. Assocs. LLC, 2022 WL 4134611, at *8 (M.D. Fla. Sept. 12, 2022).
 DOJ Press Release, Medicare Advantage Organization and Former Chief Operating Officer to Pay $32.5 Million to Settle False Claims Act Allegations (May 30, 2017), https://www.justice.gov/opa/pr/medicare-advantage-organization-and-former-chief-operating-officer-pay-325-million-settle.
 United States v. Fla. Med. Assocs. LLC, 2022 WL 4134611, at *8 (M.D. Fla. Sept. 12, 2022)