Life Science Compliance Update

July 31, 2017

Punting on the Issue of FCA and Statistical Sampling

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In a much-anticipated U.S. Court of Appeals decision, the Fourth Circuit on February 14, 2017, in evaluating the issue of whether the government has veto power over False Claims Act (FCA) settlements, particularly where liability is established by use of statistical sampling, opted to forego rendering a decision on such issue, and leaving wide open the use and appropriateness of statistical sampling in FCA related cases.

In May of 2016, we briefly highlighted the case of United States ex rel. Michaels v. Agape Senior Cmty., Inc. It was case involving a qui tam action that alleged a network of “twenty-four nursing homes located throughout South Carolina” engaged in “a widespread fraudulent scheme of submitting false claims to the federal healthcare programs of Medicare, Medicaid, and Tricare, seeking reimbursement for nursing home-related services.”

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July 28, 2017

Pharmaceutical and Device Manufacturers: Buyer Seller Beware

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Pharmaceutical and medical device manufacturers continue to face intense scrutiny from regulatory and enforcement agencies, as well as whistleblowers seeking large payouts for disclosing potential wrongdoing. There are a number of risk areas (some new, some not-so-new) that provide the basis for the government and relators to pursue alleged violations of the False Claims Act liability. Some of those areas are discussed below.

Pharmaceutical and medical device manufacturers continue to be on the radar of government enforcers and whistleblowers. In particular, the government’s False Claims Act (“FCA”) enforcement efforts have continued to focus on key areas concerning the pharmaceutical and medical device industries. In fact, drug and device manufacturers accounted for nearly half of the enforcement recoveries from the healthcare industry last year. Manufacturers also saw enforcement agencies focus on product promotion and speaker program practices, as well as alleged violations of Current Good Manufacturing Practices (“cGMP”).

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May 04, 2017

Genentech Beats FCA Suit, Thanks to Escobar

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On Monday, May 1, 2017, the United States Court of Appeals for the Third Circuit stopped a False Claims Act suit that accused Genentech Inc. of defrauding Medicare by concealing certain side effects of its cancer drug Avastin, stating that the whistleblower did not show that failing to report such safety information was relevant to government reimbursement for medication.

Prior to filing his qui tam suit, The relator, Gerasimos Petratos, a prior global head of health care data analytics for Genentech, allegedly recommended implementing a different database that he believed would more accurately reflect the drug’s side effects. There were Genentech employees who agreed with Petratos but declined to follow his recommendations, citing “business risk.”

After Petratos brought his concerns to the heads of regulatory affairs and product development, the executives did not follow Petratos’ recommendations, and he received a “scathing email” from his supervisor. In June 2011, Petratos filed his initial complaint, arguing that Genentech based regulatory submissions off databases with inadequate information about Avastin’s risks and omitted electronic medical records that would have given better answers about the drug’s safety.

Petratos claimed Genentech concealed information about Avastin’s health risks in its reports to the United States Food and Drug Administration (FDA). Therefore, he alleged, doctors submitted more Medicare reimbursements than they would have if they had known all of the side effect risks, thereby resulting in lower prescription dosages.

District of New Jersey Decision

This follows an October 2015 decision by U.S. District Judge Madeline Cox Arleo of the District of New Jersey, dismissing the case. Petratos filed the qui tam suit on the grounds that Petratos failed to state a claim under the Act. The United States joined Petratos in the case (originally filed in U.S. District Court for the District of New Jersey) by the U.S. government, District of Columbia, and twenty-six states.

Petratos alleged that doctors prescribing Avastin made false claims when requesting reimbursement from Medicaid and Medicare because certain procedures were not “medically reasonable and necessary,” as required by law. Genentech argued that CMS makes the decision and that there are no allegations that the agency would have made a different decision about Avastin if it had additional information.

Judge Arleo held that the drug and health services agencies did not err in approving Avastin as medically reasonable and necessary for treating certain illnesses, dismissing the claim with prejudice.

Arleo noted that “Plaintiff [Petratos] cites nothing to show that the databases used violated any regulation at all, much less one which was a precondition of payment.”

Third Circuit Decision

In the opinion, Third Circuit Judge Thomas Hardiman noted that Petratos failed to prove the materiality element of a False Claims Act claim – “having a natural tendency to influence, or be capable of influencing, the payment or receipt of money.” He noted that “there are no factual allegations showing the [the Centers for Medicare and Medicaid Services] would not have reimbursed these claims had these [alleged reporting] deficiencies been cured.”

Hardiman continued, stating, “Petratos does not dispute this finding, which dooms his case. Simply put, a misrepresentation is not ‘material to the government’s payment decision,’ when the relator concedes that the government would have paid the claims with full knowledge of the alleged noncompliance.”

Attorneys for Petratos and Genentech did not respond to requests for comment.

We will be providing a full analysis of this case in the June issue of Life Science Compliance Update.

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