Life Science Compliance Update

April 20, 2018

The Escobar Hurdle – False Claims, Materiality, and Dismissal

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U.S. ex rel. Ruckh v. CMC II LLC et al. (“Ruckh”) was a closely followed False Claims Act case, because a Florida Federal Court opted to vacate a nearly $350 Million FCA verdict involving a nursing home operator. The case is significant because it demonstrates the ongoing impact of a party’s failure to meet the Escobar materiality standard.

For many months, we have followed the U.S. Supreme Court decision in case of Universal Health Services, Inc. v. United States ex rel. Escobar (“Escobar”). Back in August 2016, we noted that it appeared neither side won a decisive victory, but time would tell.

Starting with a case involving Genentech, we have seen the Escobar standards used to curtail false claims liability. Fast forward to 2018 and we can now say with some authority that Escobar and its progeny have created a significant hurdle restricting what up to now seemed to be the unlimited reach of the Federal False Claims Act (“FCA”) in the healthcare context. Most recently, the case of United States ex. rel. Ruckh v. CMC II LLC et al. in the U.S. District Court in Florida’s middle district involving a nursing home operator continues the trend.

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March 26, 2018

Alere Settles False Claims Act Allegations for $33.2 Million

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Massachusetts-based medical device manufacturer Alere (acquired by Abbott Laboratories in 2017) and its subsidiary Alere San Diego recently entered into a settlement agreement with the federal government to pay $33.2 million. The settlement stems from allegations that Alere’s faulty diagnostic devices misinformed clinicians, and therefore, led to unnecessary medical care.

According to the United States Department of Justice (DOJ), from 2006 to 2012, Alere sold its Triage-branded devices to hospitals, even though the company was on the receiving end of many customer complaints warning of erroneous results. Those devices were then used in emergency departments to diagnose acute coronary syndromes, heart failure, drug overdoses, and other serious conditions.

Using a sample of a patient’s blood, clinicians could use certain Triage devices to diagnose cardiac conditions. Other devices were used for toxicology testing by collecting a urine sample. According to the government, some of Alere’s devices specifications differed materially from the product labeling, which resulted in certain devices having less precision than was indicated.

One of the issues the DOJ took with Alere was that the company failed to take appropriate corrective actions to solve the problem, though Alere personnel were aware of the issue and the fact that the decreased precision put the company at a considerable regulatory and financial risk. It wasn’t until a United States Food and Drug Administration (FDA) inspection and subsequent recall in 2012 that Alere heeded the warnings.

In that inspection, FDA personnel allegedly identified (1) statistically significant disparities between the actual cardiac Triage Device coefficient of variation (CV) specifications and the CV specifications marketed to clinicians on the product labeling; (2) an unacceptably high degree of variability when conducting quality control testing of the cardiac Triage Devices; and (3) changes to the manufacturing and release specifications for toxicology Triage Devices that resulted in the release to market of certain product lots containing products that potentially had significantly decreased precision. After that inspection, Alere recalled the devices.

According to a settlement agreement, Alere denied the allegations. In a statement, Abbott disclaimed any liability by noting that Alere had agreed to settle this case prior to its acquisition. As is typical, the DOJ noted that the claims resolved are “allegations only, and there has been no determination of liability.”

“Physicians who work to treat patients with suspected myocardial infarctions rely upon devices such as Alere’s Triage Cardiac products for quick and accurate readings," said Stephen M. Schenning, Acting United States Attorney for the District of Maryland. "When manufacturers such as Alere make changes to the specifications that affect the product’s reliability without informing physicians or the FDA, patient care is put at substantial risk.”

Of the total $33.2 settlement, $28.4 million will go to the federal government while nearly $4.9 million will be returned to individual states that jointly funded claims for Triage devices submitted to state Medicaid programs. Amanda Wu, a former senior quality control analyst for Alere and the whistleblower who filed the suit, will receive approximately $5.6 million.

Wu’s attorneys, Nolan Auerbach & White, released a statement, which in part read, “Previous medical device qui tam cases have exposed manufacturers that sold defective products or marketed their products for unapproved uses. However, in this case, Alere San Diego allegedly knowingly sold unreliable diagnostic devices.”

September 27, 2017

Taking Center Stage - Washington State’s Medicaid Fraud Control Unit, the False Claims Act and Celgene

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On July 26, 2017, the Washington State Attorney General (“AG”) Bob Ferguson (“Ferguson”) announced one of the State’s largest recoveries against the Pharmaceutical Company Celgene (“Celgene”) for allegations involving violations of the Medicaid False Claims Act, in particulars claims related to the company’s off-label marketing, fraudulent billing and providing kickbacks to doctors. The Washington State AG recovery represents a pivotal point in life science compliance, where State AGs similar to Seattle, are actively seeking recoveries against companies that violate state and federal Medicare programs.

The pharmaceutical company Celgene, headquartered in Summit, New Jersey, describes itself as an “integrated global biopharmaceutical company engaged primarily in the discovery, development and commercialization of innovative therapies for the treatment of cancer and inflammatory diseases through next-generation solutions in protein homeostasis, immuno-oncology, epigenetics, immunology and neuroinflammation.”

In a significant settlement involving twenty-eight states, including Washington, Celgene agreed to pay $280 million to settle a variety of claims including off-label promotion, fraudulent billing and the provision of kickbacks to doctors. The case involved two products: Revlimid and Thalomid.

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