Life Science Compliance Update

August 11, 2015

District Court Rules on Reporting Overpayments and False Claims Act Liability


A number of important healthcare decisions have come out of the Southern District of New York over the last week. Yesterday, we wrote about the Amarin case, where the court held that a firm may promote truthful and non-misleading off-label information about a drug under the First Amendment. Last week, the court also handed down an important False Claims Act decision related to overpayments from Medicare and Medicaid. The Affordable Care Act provides that any person who has received an overpayment from the government and knowingly fails to report and return it within 60 days after the date on which it was identified has violated the False Claims Act. However, the ACA does not define what it means to “identify a false claim. Last week, the New York District Court was the first court to attempt to do so, and agreed with the government that the 60 day period begins when a “provider is put on notice of a potential overpayment, rather than the moment when an overpayment is conclusively ascertained.”

Read the opinion here

In Kane v. Healthfirst Inc., et al. and United States v. Continuum Health Partners Inc., et al., Mr. Kane, blew the whistle on his former employer, Continuum Health Partners Inc., after he allegedly provided his managers with an emailed spreadsheet of over 900 potential Medicare and Medicaid overpayments caused by a software glitch. He was fired soon after, and the company failed to return all of the overpayments due within 60 days; they instead spread payments out over several years.  

Both the Department of Justice and the State of New York intervened, arguing that by “intentionally or recklessly” failing to take necessary steps to timely identify claims affected by the software glitch or timely reimburse the government for the overbilling, the defendants violated the False Claims Act and its New York corollary.

In their motion to dismiss the government’s complaint, the defendants argued that Kane’s email was notice only of potential violations and was not sufficient to trigger the 60-day time. The court disagreed. “Permitting a healthcare provider that requests and receives an analysis showing over 900 likely overpayments to escape FCA liability by simply ignoring the analysis altogether and putting its head in the sand would subvert Congress’s intent," states the opinion. 

Despite this conclusion, the court did recognize the challenge imposed by the 60-day limit:

 “Under the definition of “identified” proposed by the Government, an overpayment would technically qualify as an “obligation” even where a provider receives an email like Kane’s, struggles to conduct an internal audit, and reports its efforts to the Government within the sixty-day window, but has yet to isolate and return all overpayments sixty-one days after being put on notice of potential overpayments.”

The court went on to say that “while such claims might qualify as 'obligations,' the mere existence of an 'obligation' does not establish a violation of the FCA." In this context, "it is only when an obligation is knowingly concealed or knowingly and improperly avoided or decreased that a provider has violated the FCA." The court added "[t]herefore, prosecutorial discretion would counsel against the institution of enforcement actions aimed at well-intentioned healthcare providers working with reasonable haste to address erroneous overpayments. Such actions would be inconsistent with the spirit of the law and would be unlikely to succeed.” 


July 08, 2015

AstraZeneca and Cephalon Agree to Pay $46.5 Million and $7.5 Million, Respectively, for Allegedly Underpaying Rebates Owed Under Medicaid Drug Rebate Program


The Department of Justice announced recently that AstraZeneca agreed to pay the United States and participating states a total of $46.5 million, plus interest, to resolve allegations that it knowingly underpaid rebates owed under the Medicaid Drug Rebate Program.  In a separate settlement arising out of the same case, Cephalon Inc. agreed to pay the United States and participating states a total of $7.5 million, plus interest, to resolve similar allegations. 

Pursuant to the Medicaid Drug Rebate Program, manufacturers are required to pay quarterly rebates to state Medicaid programs in exchange for Medicaid’s coverage of the manufacturers’ drugs. The quarterly rebates are based, in part, on the Average Manufacturer Prices (AMPs) that the manufacturers report to the government for each of their covered drugs.  The AMP is the average price paid by wholesalers to manufacturers for drugs distributed to retail pharmacies. “Generally, the higher the reported AMP for a drug, the greater the rebate the manufacturer pays to state Medicaid programs for the drug,” notes DOJ.

The whistleblower lawsuit was initially filed in 2008 by Ronald J. Streck, a pharmacist and lawyer who operated a network of regional pharmacy wholesaler and retailers. According to his complaint, through this position he became “thoroughly familiar with the distribution agreements that manufacturers [ ] execute with wholesalers.” He alleged that the defendants treated fees to wholesalers as price reductions in calculating and reporting quarterly AMPS, which had the effect of reducing the prices for the drugs.

"These settlements resolve allegations that AstraZeneca and Cephalon underreported AMPs for a number of their drugs by improperly reducing the reported AMPs for service fees they paid to wholesalers," states DOJ. "As a result, the government contends that AstraZeneca and Cephalon underpaid quarterly rebates owed to the states and caused the United States to be overcharged for its payments to the states for the Medicaid program." 

“The Medicaid Drug Rebate Program relies on drug manufacturers reporting accurate pricing information used in the rebate calculations,” said Principal Deputy Assistant Attorney General Benjamin C. Mizer, the head of the Justice Department’s Civil Division.  “These settlements demonstrate the Department of Justice’s commitment to ensuring that state Medicaid programs receive the full amount of rebates from manufacturers that Congress intended.”

“We will continue to police the pharmaceutical industry when the Medicaid program overpays for drugs,” said First Assistant U.S. Attorney Louis D. Lappen of the Eastern District of Pennsylvania.  “As these settlements demonstrate, it is critical for pharmaceutical manufacturers to comply with requirements of programs such as the Medicaid Drug Rebate Program to ensure that the government and the taxpayers are treated fairly in the reimbursement process.”

Life Science Compliance Update will include an in-depth discussion of this settlement and discount-related enforcement information in the coming issue.


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