Kickbacks & The False Claims Act
The Evolution of Kickback Allegations
& Theories of Liability in FCA Litigation
Antonia F. Giuliana
March 28, 2012
Overview of Presentation
Part I:
The Changing Legal Standards
Part II:
The Evolution of Kickback Allegations
in FCA Cases (1995-2009)
Part III:
Case Example:
 United States ex rel. Jamison v. McKesson
Corp. et al., Civil Action No. 2:08-cv-214
(N.D. Mississippi).
 Currently on trial
2
Overview of the Federal AKS & FCA

The Anti-Kickback Statute, 42 U.S.C. §
1320a-7b(b)

The False Claims Act, 31 U.S.C. §§ 37293733

Enacted in 1972, seven years after
Medicare & Medicaid system created to
address potential problem of providers
making decisions based on their own
economic interest

Enacted in 1863 at the height of the Civil
War to combat rampant fraud by vendors
that sold broken guns, sick horses,
rancid food, and other worthless
equipment to the Union Army

Prohibits payment of kickbacks, bribes,
or other remuneration for the referral of
Medicare or Medicaid patients


Strengthened in 1977  Criminal felony
punishable by fines up to $25,000 and/or
five years in prison (instead of
misdemeanor, $10,000 fine, up to 1 year
in prison)
Imposes civil liability for treble damages
and penalties on those who submit false
claims or make false statements to
obtain payment from the government

Contains a whistleblower provision that
permits private citizens to sue on the
government’s behalf

Lay relatively dormant until Congress
significantly strengthened certain key
provisions, including the whistleblower
and damages provisions in 1986

No private right of action
3
The Expansion of the FCA to
Cover Violations of the AKS
2010 Patient Protection and Affordable Care Act (“PPACA”) Amendments
1. AKS – Intent Standard

With respect to AKS violations, “a person need not have actual
knowledge of this section or specific intent to commit a violation of this
section.” See 42 U.S.C. § 1320a-7b(h).

Overturns a series of cases that set a higher standard under which
prosecutors had to prove the specific intent to disobey the law.
2. AKS Violation  FCA Violation

“In addition to the penalties provided for in [the AKS], a claim that
includes items or services resulting from a violation of this section
constitutes a false or fraudulent claim for purposes of subchapter III of
chapter 37 of Title 31 [i.e., the FCA].” See 42 U.S.C. § 1320a-7b(h).
4
Consequences of the 2010 PPACA Amendment
United States ex rel. Bartz v. Ortho-McNeil Pharmaceutical, Inc. et
al. (2012 WL 695886, D. Mass March 2, 2012).
 Allegations of hidden discounts stated claim for illegal kickbacks.
 Court held there was no FCA violation predicated on alleged
kickbacks because the PPACA Amendment did not apply:
 “In March 2010, the AKS was amended to state that ‘a claim that
includes items or services resulting from a violation of this
section constitutes a false or fraudulent claim for the purposes of
the FCA.’ This amendment expressly applies only to drugs
dispensed after July 1, 2010. Bartz’s employment at J&J
terminated on April 20, 2007, and Bartz fails to identify any
illegal ‘kickback’ allegedly paid to Bartz’s Relator’s claim against
McKesson Specialty.” (Id. at 16.)
5
Express & Implied Certification Claims
 Even before the 2010 Amendments to the FCA, plaintiffs asserted
that AKS violations may serve as the basis for FCA claims pursuant
to “certification” theories of liability.
 FCA Claim
 1st Element: Falsity
 Factually false – goods or services were never provided or were
incorrectly described
 Legally false – goods or services were provided in violation of a
regulation, statute, or prescribed contractual term (despite a
certification by the defendant, either express or implied, to the
contrary)
6
Express & Implied Certification Claims
 Express Certification Claim
 Based on a false representation of compliance with a federal
statute or regulation, and in some instances, with a prescribed
contractual term or specification
 Majority view: a claim is legally false only if the party certifies
compliance with a statute or regulation that is a condition to
government payment
 Implied Certification Claim
 Based on the notion that the act of submitting a claim for
reimbursement itself implies compliance with the governing
federal rules that are a precondition of payment
 Not universally accepted – elements vary circuit-to-circuit (and, at
times, within circuits)
7
Implied Certification Claims – by Circuit

Second, Third, Eighth Circuits


Eleventh Circuit


A violation of a contractual obligation that was “material” to the government’s
obligation to pay a claim can form the basis for an FCA claim.
Seventh, Fourth, Fifth Circuits


Can be based on either a condition of payment or a condition of participation in a
federal program.
D.C. Circuit


Limited to where there is a statute or regulation that is a condition of payment.
Have taken positions that are incompatible with an implied certification theory.
First Circuit

Rejects certification framework completely. Liability may attach whenever claim
“misrepresented compliance with a precondition of payment so as to be false or
fraudulent” and misrepresentation was “material.”
(See Appendix A for list of cases.)
8
Evolution of Kickback Allegations
1995 - 2009
1995-2000
2001-2005
Expensive trips
Expensive trips and dinners
Lavish entertainment
Excess payments on a distribution
contract
Free goods
2006-2009
Fees for participating in “postmarket study” and “registry”
Encourage providers to bill for
overfill in drug vial
Financial bonuses to high-prescribers
Free samples
Improper placement in clinical
trials
Sponsor “CME” conducted by highprescribing physicians
Provide services to providers at
price below cost and/or fair
market value (even if a
competitor’s bid was lower)
“data purchase” fees
“educational grants”
“consultant meetings”
“consulting agreements,” “advisory
boards, ”“preceptorships,” “speaker
fees”
“advisory boards”
“educational grants” and “honoraria”
“training, consultation, or
market research” fees
“scientific study” participation fee
See Appendix B for listing of representative matters
Payments to providers for
hundreds of “speaker training”
meetings and programs
Kickback Allegation Trends

Increased focus on so-called “Sham Transactions”
 A seemingly legitimate transaction that is actually a façade for an
improper hidden transaction
 Form of transaction is proper, but substance is allegedly not

The types of “sham transactions” the government has been interested in
have shifted over time, making potentially problematic conduct difficult to
identify (except in hindsight)
 “data purchase” fees, “scientific study” participation fees

More aggressive and creative theories of what types of conduct may
constitute a “kickback”
 Overfill in drug vial, FMV challenges in competitive bidding situations
Sources to Assist in
Identifying Evolving Standards
 Corporate Integrity Agreements
 DOJ Press Releases Announcing FCA
Settlements
 FCA Settlement Agreements
 FCA Complaints-In-Intervention
United States ex rel. Jamison v. McKesson
Corp. et al. (N.D. Miss.) 2:08-cv-214

FCA Claim (conduct – 2002 to 2006)
 Predicated on AKS violation (prior to 2010 FCA amendment)
 AKS violation relating to illegal remuneration for business referrals in the
form of below fair market value pricing or discounts
 Fifth Circuit law applies (no implied certification theory)

The Defendants
 Beverly defendants (including subsidiary CSMS)
 large nursing home chain
 Allegedly induced kickback
 McKesson defendants (including subsidiary MediNet)
 National distributor
 Allegedly provided kickback
 Did not receive the business referral
12
The Jamison Case
(the facts)
The Medical Supply Contract (the alleged “bait”)
 Beverly contracted with Gulf South for its medical supplies (alleged
$50 million value). Set to expire in 2002.
 Summer 2002 – MediNet meets with CSMS to (1) pitch contract
billing services for enteral products and (2) discuss benefits of using
a related company to act as Beverly’s medical supply distributor.
 MediNet proposed $50 contract billing fee per patient if CSMS gave
the medical supply contract to a MediNet-affiliate and a $75 fee
without the supply contract.
13
The Jamison Case
(the facts)
The Contract Billing Services Contract (the alleged “kickback”)
 Four bids submitted during RFP process in Fall 2002:
 MediNet (defendant) -- $75 w/o supply K/$50 with supply K
 Pharmerica -- $210 (current provider)
 NCS -- $50
 Proclaim -- $74
 CSMS and MediNet further negotiate bid from $75 to $70.
 MediNet is awarded contract billing services agreement.
 Beverly re-signed its medical supply distribution contract with Gulf
South at the end of 2002.
14
The Jamison Case
(the allegations)
The Government’s Allegations
 The Beverly defendants “ ‘dangled’ the prospect of McKesson
obtaining its DME supply business relating to enteral nutrition
services in order to induce MediNet to provide it with the lowest
possible billing fees.”
 MediNet “offered its contract billing services below fair market value
in order to induce Beverly to refer the general medical supply
contract” to a McKesson-affiliate.
 Government relies on express certification on DME enrollment and
re-enrollment applications by CSMS (a Beverly defendant).
15
The Jamison Case
(the summary judgment motion)
Issue 1: Whether there was any “remuneration”?
 No  MediNet’s bid was in line with fair market value.
 Yes  No FMV because each bidder was motivated to bid low in the
hopes of landing the lucrative medical supply contract.
 No  Competitive bidding of the RFP process ensures that
MediNet’s pricing was fair market value, regardless of government’s
“hindsight calculations.”
 Yes  During the term of the contract billing agreement, a MediNet
financial analyst reviewed its impact to MediNet and determined that
at $70 per resident per month, MediNet either lost money, or at best
broke even.
16
The Jamison Case
(the summary judgment motion)
Issue 2: Whether the defendants acted knowingly and willfully?
 Yes  Beverly did not notify MediNet that McKesson was not going
to receive Beverly’s supply business until January 2003 – four
months after MediNet’s bid was submitted.
 Yes  MediNet’s $70 bid for contract billing services was
unreasonable considering that current provider, Pharmerica,
submitted a bid for $210.
 No  MediNet performed a profit projection analysis prior to entering
billing services contract and anticipated $34-38 in costs, well in line
with $70 per resident per month fee.
 No  Beverly defendants negotiations and determination of the best
bid was driven by their intent to get the best deal. MediNet was
chosen on the basis of other criteria aside from price.
17
The Jamison Case
(the summary judgment decision)
The Holding
 Deny summary judgment – issues raise questions of fact for trial
18
The Jamison Case
(parent liability)
McKesson Corporation’s Summary Judgment Motion
 McKesson, contends that, as MediNet’s parent corporation, it is not
liable for the actions of its subsidiary.
 Seeks dismissal from lawsuit because it:
 Was not a party to any of the transactions
 Is not a Medicare provider or supplier
 Does not submit claims to Medicare
 Does not directly own any MediNet shares
 No participation or control over MediNet’s actions
19
The Jamison Case
(parent liability)
McKesson Corporation’s Summary Judgment Motion

Government contends:
 McKesson had input into the strategy for securing Beverly’s business
 A senior McKesson executive was “over the management” of MMS at
the time the “Beverly strategy” was implemented
 The McKesson executive had knowledge of and approved MediNet’s
strategy.
 McKesson had a deliberate corporate strategy to blur MMS and MediNet
into the McKesson corporate name as evidence of McKesson’s direct
involvement with the fraud

Court held:
 Genuine issue of material fact as to the level of control and input
McKesson Corporation had with respect to MediNet’s contract with
CSMS
20
The Jamison Case
(the trial)
The Trial

Bench trial started in February; will recommence in April

Estimated 10-20 days
Important Issues Raised Under the AKS and FCA

Whether a “discount” that does not result in a price that is below FMV is
actionable under the AKS?

Whether proof of damages is a required element to prove a violation of the
FCA?

Assuming an FCA violation is proven, whether civil penalties may be
awarded if damages are not proven?

If civil penalties may be awarded, how should they be assessed? Per claim
submitted? Per express false certification?

Whether the applicable standard of proof for the element of an AKS violation
is “beyond a reasonable doubt” or “by a preponderance of the evidence”?
21
Thank you!
March 28, 2012
Appendix A
Implied Certification Cases by Circuit

First Circuit: New York ex rel. Westmoreland et al. v. Amgen, Inc. et al.,
2011 WL 2937420 (1st Cir. July 22, 2011); United States ex rel. Hutcheson
et al. v. Blackstone Medical, Inc., 2011 WL 2150191 (1st Cir. June 1, 2011).

Second Circuit: Mikes v. Straus, 274 F.3d 687 (2d Cir. 2001).

Third Circuit: United States ex rel. Wilkins v. United Health Group, Inc.,
2011 WL 2573380, at *9 (3d Cir. June 30, 2011).

Fourth Circuit: Harrison v. Westinghouse Savannah River Co., 176 F.3d
776, 786-87 n.8 (4th Cir. 1999).

Fifth Circuit: United States ex rel. Steury v. Cardinal Health, Inc., 2010 WL
4276073 (5th Cir. 2010); United States ex rel. Marcy v. Rowan Cos., 520
F.3d 384, 389 (5th Cir. 2008).

Sixth Circuit: United States ex rel. Augustine v. Century Health Services,
Inc., 289 F.3d 409 (6th Cir. 2002).
24
Implied Certification Cases by Circuit

Seventh Circuit: United States ex rel. Yannacopoulos v. General
Dynamics, 2011 WL 3084932, at *3 n.4. (7th Cir. July 26, 2011).

Eighth Circuit: United States ex rel. Vigil v. Nelnet, Inc., 639 F.3d 791,
795–96 (8th Cir. 2011).

Ninth Circuit: United States v. Lungwitz et al., 2010 WL 3092637 (9th Cir.
2010).

Tenth Circuit: United States ex rel. Lemmon v. Envirocare of Utah, Inc.,
2010 WL 3025021 (10th Cir. 2010).

Eleventh Circuit: McNutt ex rel. United States v. Haleyville Medical
Supplies, Inc., 423 F.3d 1256, 1259 (11th Cir. 2005).

D.C. Circuit: United States v. Science Applications Int’l Corp., 626 F.3d
1257, 1261 (D.C. Cir. 2010).
25
Appendix B
Evolution of Kickback Allegations
(1995-2009)
Settlement Time
SUMMARY OF KICKBACK ALLEGATIONS
Date
period
of
alleged (Sources: DOJ Press Releases & FCA Complaints-in-Intervention 2001-2011)
conduct
Oct. 2001 1990s
Company’s “employees sought to influence the doctors’ decisions about what drug
to prescribe to patients by giving them kickbacks and bribes, from free samples to
free consulting services to expensive trips to golf and ski resorts to so-called
educational grants.”
Company’s “inducements to physicians included free products; free consulting
services; trips to expensive golf and ski resorts; money disguised as ‘educational
grants,’ but in fact was used and intended to be used for many purposes, including
cocktail party bar tabs, office Christmas parties, medical equipment, travel
expenses for urologists and their staff to attend conferences.”
May 2004
1995–
2001
Company “paid doctors to attend so-called ‘consultants meetings’ in which
physicians received a fee for attending expensive dinners or conferences during
which presentations about off-label uses of [drug] were made. These events
included lavish weekends and trips to Florida, the 1996 Olympics and Hawaii.
There was little or no significant consulting provided by the physicians”
Evolution of Kickback Allegations
(1995-2009)
May
2004
1995–
2001
Oct.
2005
19962004
Aug.
2006
19982001
Company “paid physicians to allow a sales representative to accompany the physician
while he or she saw patients, with the representative offering advice regarding the
patient’s treatment”
Company “offer[ed] physicians an all expense-paid trip to a medical conference in
Cannes, France in return for the doctors writing up 30 new prescriptions of [drug],
which cost $21,000 per course of treatment, for a total of $630,000 per doctor.”
Company “induced physicians to start patients on [drug] for Hepatitis C by paying
them remuneration through three marketing programs.”
Company “induced physicians to use [drug A] for certain patients with brain tumors
and brain metastases and to use [drug B] for certain patients with superficial bladder
cancer through improper preceptorships, sham advisory boards, lavish
entertainment, and improper placement of clinical trials.”
Apr.
2007
20002003
Company “violated the Anti-Kickback Act by offering to make excess payments on a
distribution contract, in the amount of $12.3 million, to a subsidiary of a pharmacy
benefit manager, in the expectation of obtaining improved formulary positioning and
improved formulary ancillary benefits from the pharmacy benefit manager for
[company’s] drug products.”
Evolution of Kickback Allegations
(1995-2009)
Apr.
2007
20002003
Company “offered to overpay a subsidiary of a PBM for work on a drug
distribution contract in the expectation that the PBM would in turn recommend
[company’s] drug products, including by means of formulary recommendations, to
certain of the PBM’s clients.”
Sep.
2007
20012005
Jul.
2007
2005
Sep.
2007
20002003
Company “used illegal kickbacks to induce physicians to prescribe [drug]. Under
‘sham consulting agreements’ physicians were paid $500 - $1,000 to attend dinners
or conferences on the off-label uses of [drug]. These meetings were held at
expensive resorts and restaurants. Doctors who wrote large numbers of
prescriptions for [drug] for off-label uses were asked to speak at various events for
additional financial bonuses.”
Company “relied on a psychiatrist to give talks around the country promoting
[drug] to physicians for ‘off-label’ uses and paid him tens of thousands of dollars
for such promotional speaking engagements. With the approval of [company’s]
sales personnel, the psychiatrist allegedly made misleading statements about [drug]
in the course of promoting the drug for ‘off-label’ use, including minimizing the
dangers of a [drug] overdose…”
Company “knowingly and willfully paid illegal remuneration to physicians and
other health care providers to induce them to purchase [company’s] drugs.”
Evolution of Kickback Allegations
(1995-2009)
Sep.
2007
20002003
Company “paid the alleged remuneration in the form of consulting fees and
expenses to physicians and other health care providers to participate in various
consulting programs, advisory boards, and preceptorships. Some of these
programs involved travel to luxurious resorts.”
Sep.
2007
1994 –
2001
Company “knowingly and willfully paid illegal remuneration suck as stocking
allowances, price protection payments, prebates, market share payments, and free
goods in order to induce its retail pharmacy and wholesaler customers to purchase
its products.”
Feb.
2008
19972001
May
2008
20022003
Company “had approximately fifteen different programs used by its sales
representatives to induce physicians to use its many products. These programs
primarily consisted of excess payments to physicians that were disguised as fees
paid to them for ‘training,’ ‘consultation’ or ‘market research.’ In fact, the
government alleged that these fees were illegal kickbacks intended to induce the
purchase of [company’s] products.”
Company “implemented a program to induce medical prescribers to prescribe
[drug] for their patients. [Company] presented the program to Medical prescribers
and others as a scientific study of the performance of [drug] when the program was
actually designed to induce prescribers to prescribe the product for their patients
by paying prescribers up to $1,000.”
Evolution of Kickback Allegations
(1995-2009)
Sep.
2009
20022005
Company “paid kickbacks to physicians to induce them to prescribe [drugs] in
violation of the Federal Anti-Kickback Statute.”
Nov.
2009
19992004
Large nursing home pharmacy “solicited or paid a variety of kickbacks. The
company allegedly solicited and received kickbacks from a pharmaceutical
manufacturer in exchange for agreeing to recommend that physicians prescribe
[drug] to nursing home patients.”
Alleged kickbacks include “rebates that were conditioned on [company] engaging in
an “Active Intervention Program” for [drug] and payments disguised as data
purchase fees, educational grants, and fees to attend [company] meetings.”
Sep.
2010
19982005
Sep.
2010
20002004
Company “regularly paid kickbacks to nursing homes by providing consultant
pharmacist services at rates below the company’s cost and below the fair market
value of such services in order to induce the homes to refer their patients to
[company] for pharmacy services.”
Company “used illegal kickbacks to induce physicians and others to prescribe
[drugs]. Kickbacks allegedly included cash payments disguised as grants or
consulting fees, expensive meals and lavish entertainment.”
Company “paid kickbacks to health care professionals to induce them to prescribe
[drugs].”
Evolution of Kickback Allegations
(1995-2009)
Dec.
2010
Dec.
2010
Jan.
2011
20002005
20022006
20032008
Company “paid illegal kickbacks to physicians in an effort to persuade them to
prescribe [drug] for off-label uses”
Company “offered and paid doctors, other medical professionals, physician groups
and managed care organizations, illegal kickbacks in the form of money, free travel,
grants, honoraria and other valuable goods and services, in violation of the AntiKickback Statute to get them to prescribe or recommend [drugs].”
Company “two doctors proposed that they would endorse the use of [drug] for the
treatment of cholesterol in exchange for a series of payments. Between January 2002
and June 2006, one of the doctors wrote 4,130 prescriptions for [drug]….From 2002
to 2005, [company] made a series of payments to the two doctors or a third party
intermediary in the form of “sponsorship” of continuing medical education classes
conducted by the doctors and purported speakers’ fees.”
Device manufacturer “used three post-market studies and a registry
(together, the "Subject Studies and Registry") in part as vehicles to pay
participating physicians kickbacks to implant [company’s] pacemakers and ICDs.
Although [company] collected data and information from participating physicians,
it knowingly and intentionally used the Subject Studies and Registry as a means of
increasing device sales by paying certain physicians to select [company’s]
pacemakers and ICDs to implant in
Evolution of Kickback Allegations
(1995-2009)
their patients. Each of the Subject Studies and Registry required the implant of a
[company] CRM device in each patient and the submission of data regarding each
patient. In each case, [company] paid each participating physician a fee that
ranged up to $1,000 to $2,000 per patient.”
May
2011
Pending
case
20022009
20022009
Company “paid health care providers from the launch of [drug] in about January
2002 through December 2009 to induce them to promote or prescribe [drug].”
Company “made payments to providers for hundreds of speaker training
meetings and programs, as well as payments for attending consultant, marketing
and advisory board meetings, all at upscale resorts and other locations.”
Company “knowingly offered kickbacks to medical providers in the form of
overfill contained in vials of [drug] and encouraged medical providers to submit
claims for payment for the free product”
Company “offered kickbacks to medical providers, including . . . sham
consultancy agreements, weekend retreats, and/or other services, to induce [drug]
sales and prescriptions.”
Contact
Antonia F. Giuliana
PARTNER
Litigation
Phone: (212) 808-7941
agiuliana@kelleydrye.com