In what is being called a game-changing decision, a federal court has ruled that a drug or device maker remains liable under the False Claims Act even when a pharmacy or hospital was unaware that a kickback was made to a doctor to induce the sale of a product for which reimbursement was sought from Medicare and Medicaid.
The ruling, which was issued last week by U.S. Court of Appeals for the First Circuit, has the potential to alter the outcome of countless whistleblower lawsuits that were filed against drug and device makers defending kickback charges, according to lawyers who have reviewed the decision (you can read the ruling here).
Other courts, for instance, have previously ruled that the False Claims Act could not have been violated if a pharmacy does not know that a prescription was only written because a drugmaker gave a kickback to a doctor. Whistleblowers have argued, however, that a violation occurs once reimbursement is sought from Medicaid or Medicare.
One recent example involved a whistleblower lawsuit brought by former Pfizer (PFE) Executive Peter Rost, who charged the drugmaker with marketing the Genotropin human growth hormone for unapproved uses. Last fall, a U.S. District Court Judge in Boston ruled against him, in part, because a pharmacist could not have known that a doctor wrote a prescription due to a kickback from a drugmaker (read here). He plans to appeal.
"This means that you can't play games and use somebody indirectly to accomplish the dirty work for you and get away with avoiding a false claims," says Stephen Sheller, an attorney in Philadelphia who represents whistleblowers. "You can't just simply pay off a doctor to write scrips and then when the pharmacy fills it, Medicaid and Medicare can't recover."
Adds Jeb White of Nolan & Auerbach, which has also brought whistleblower, or qui tam, lawsuits against the pharmaceutical industry: "This decision is a game-changer, for it rejects a lot of the judicially-created obstacles for legitimate FCA cases."
In the case that prompted the latest ruling, a regional manager for Blackstone Medical filed a whistleblower lawsuit charging the device maker with paying kickbacks in the form of consulting agreements, research grants and other inducements, such as travel, in order to use its spinal surgical devices. Hospitals then sought reimbursement from Medicare and Medicaid (read the lawsuit).
In explaining its decision, the court dispensed with Blackstone's arguments by noting that none of the cases cited by the device maker "addressed the possibility of imposing FCA liability on a defendant who had caused another entity to present a materially false or fraudulent claim for payment to the government." Blackstone argued that "no court has held that a hospital's truthful certification" can be rendered false "by the acts of an unrelated third party somewhere in the supply chain."
The appeals court also noted that an earlier ruling by U.S. District Court in Boston "concluded its analysis with the statement that ‘the Amended Complaint contains no allegations that the hospitals themselves received kickbacks, or that they knew or should have known about the kickbacks received by the doctors.' " The appeals court then promptly disagreed.
"When the defendant in an FCA action is a non-submitting entity, the question is whether that entity knowingly caused the submission of either a false or fraudulent claim or false records or statements to get such a claim paid. The statute makes no distinction between how non-submitting and submitting entities may render the underlying claim or statements false or fraudulent…(in previous rulings) We have made clear that unlawful acts by non-submitting entities may give rise to a false or fraudulent claim even if the claim is submitted by an innocent party."
The appeals court continued by noting that Blackstone argued that "only persons who knowingly submit or cause the submission of a false or fraudulent claim can be held liable for violating the FCA. (But) the term 'causes' is hardly boundless; it has been richly developed as a constraint in various areas of the law."
"The device maker was saying ‘they can't hold us responsible because the hospital believed it was doing the right thing and had no knowledge," says Sheller. "They thought they would get away with it as long as it was an indirect kickback. What's pretty clear is they better stop bribing doctors."