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January 14, 2011 |
2010 Year-End Health Care Compliance Update

Printable PDF 2010 was another blockbuster year in health care compliance enforcement.  The trends commenced in 2009–historical settlements, increased enforcement activity, stricter settlement terms, and tougher penalties for individuals[1]–became entrenched in 2010. In the words of Attorney General Eric Holder, the government has taken the “fight against health-care fraud to a new level.”[2]  Indeed, as Tony West, the Assistant Attorney General for the Civil Division of the Department of Justice (“DOJ”), recently affirmed, “[f]rom Day One, President Obama and Attorney General Eric Holder have been focused like a laser beam on tackling health care fraud in all of its many forms.”[3] This “laser” focus is reflected in the sheer size of the financial settlements and penalties that government regulators have been able to extract.  The DOJ recently boasted that since January 2009 it has “commenced more health care fraud investigations, secured larger fines and judgments, and recovered more taxpayer dollars lost to health care fraud than in any other two-year period.”[4]  2009 was characterized by some record settlements, such as Pfizer’s ($2.3 billion) and Eli Lilly’s ($1.4 billion) settlements for off-label drug promotion.  Excluding those outsized amounts, settlements in 2010 almost tripled compared with 2009, totaling approximately $4 billion.  There can be no question that the industry as a whole has been hit harder and wider than ever before. If, as we predicted last year, the industry might grow to consider such fines and penalties as simply part of the cost of doing business, then the cost of doing business is exploding across a wide swath of the industry.  Large and small players alike have been targeted.  This means that companies hit hardest in the past may find themselves again the target of investigations, with the prospect of being considered recidivists and facing amplified penalties. Kickbacks, improper marketing targeting off-label uses, improper Medicare/Medicaid claims, and outright fraud–all were common subjects of enforcement activity in 2010.  With even more vigor than in years past, prosecutors employed the False Claims Act as one of their primary weapons–with more than 80% of False Claims Act recoveries coming from the health care industry.  Regulators also struck at core company products, including claims of adulterated drugs and other unsafe manufacturing conditions.  And prosecutors continued–and intensified–the recent trend of pursuing health care companies for violations of the Foreign Corrupt Practices Act. 2010 saw a concurrent trend toward increased liability for individuals.  The interagency efforts of the Department of Health and Human Services (“HHS”) and the DOJ have expanded considerably and have netted more and more prosecutions.  Officers of large corporations are finding themselves subject personally to scrutiny for company-wide practices.  While there is long-standing (but little-used) legal precedent for individual liability for corporate conduct in the health care arena, the Food and Drug Administration (“FDA”) has declared its intention to invoke those precedents and bring its enforcement activities closer to home for company officials–in the stated hope that this will affect a deeper change in corporate culture and compliance practices. Nonetheless, while many of the trends seen in 2009 continued in 2010, the future direction of health care compliance enforcement remains uncertain in crucial respects.  Enforcement will remain a likely focus of efforts to control waste and abuse in the future.  But the success of that strategy–which was promoted as a central component of the Obama Administration’s campaign to pass health care reform–will be closely monitored and debated in political and legislative circles.  The new Patient Protection and Affordable Care Act (“PPACA”), passed by Congress in 2010, brought an even greater emphasis on detecting and preventing health care fraud.  Still, the fight over the direction of national health care policy continues.  And, while that battle will be most intense on Capitol Hill, its implications will reverberate in every corner of the industry and take different forms–including hearings, subpoenas, investigations, and other forms of vigorous enforcement and regulatory activity. For health care companies, and their legal and compliance officers, the implications are clear.  Their efforts to strengthen company policies and procedures must be as relentless as the efforts of the state and federal regulators seeking to monitor and evaluate corporate conduct. This annual update provides a detailed review of notable settlements and judgments in the health care area in 2010 (Section II) as well as significant actions and investigations (Section III).  Section IV sets forth an analysis of current trends in health care enforcement and compliance, and Section V includes a projection of future trends that we anticipate based on the current environment. I.  Notable Settlements and Judgments State and federal governments continued to take in billions of dollars in settlements from the major health care companies in 2010–approximately $4 billion in total was recovered.  All of the top ten DOJ fraud settlements in 2010 were with pharmaceutical companies.[5]  2010 thus continued the trend of blockbuster health care settlements seen in recent years.  Indeed, according to a study by the Public Citizen’s Health Research Group that focused specifically on civil and criminal settlements in the pharmaceutical industry, “[o]f the 165 settlements comprising $19.8 billion in penalties during [the last] 20-year interval, 73 percent of the settlements (121) and 75 percent of the penalties ($14.8 billion) have occurred in just the past five years (2006-2010).”[6] In 2010, prosecutors were armed with the usual arsenal of statutory weapons, including the Food, Drug, and Cosmetic Act, the Anti-Kickback Statute, the Stark Act, HIPAA[7], and–now more than ever–the False Claims Act. Almost every 2010 health care settlement included a False Claims Act component, often combined with other statutory violations such as off-label marketing and illegal kickbacks.  Following the trend of the past decade, the overwhelming majority of False Claims Act recoveries last year came from the health care arena.[8]  For its fiscal year ending September 30, 2010, the DOJ secured over $3 billion under the False Claims Act–more than 80% of which came from health care companies.[9] Off-label marketing allegations were also prominent, resulting in some of the largest settlements of 2010, with Allergan, AstraZeneca and Novartis all paying out nine-figure settlements.  Interestingly, the largest settlement in 2010 was with GlaxoSmithKline in connection with allegations that one of its Puerto Rico plants produced adulterated drugs due to unsafe conditions–a potential investigative focus that strikes at core products and manufacturing processes rather than at marketing tactics or relationships with health care providers. Off-Label Marketing Allergan Allergan entered a guilty plea and agreed to pay $600 million to resolve criminal and civil allegations arising from the company’s alleged illegal off-label promotion of Botox Therapeutic.  The settlement included a criminal fine and forfeiture totaling $375 million and a civil settlement with the federal government and several states totaling $225 million.[10] In 1989, the FDA approved Botox to treat strabismus (crossed eyes) and involuntary eyelid muscle contraction.  The FDA later approved Botox for use for excessive underarm sweating, neck muscle contractions, and upper-limb spasticity.  Allergan pleaded guilty for marketing the drug for off-label uses, including headache and pain relief, general spasticity relief, and controlled juvenile cerebral palsy.[11] As part of the settlement, Allergan resolved three separate False Claims Act lawsuits.  The suits alleged that Allergan’s unlawful marketing of Botox caused false claims to be submitted to government health care programs such as Medicare, Medicaid, TRICARE, the Federal Employee Health Benefit Program, the Department of Veterans’ Affairs, and the Department of Labor’s Office Workers’ Compensation Programs.  Allergan also entered into a five-year Corporate Integrity Agreement with HHS.[12] AstraZeneca AstraZeneca LP and AstraZeneca Pharmaceuticals LP paid $520 million to resolve allegations that they illegally marketed the anti-psychotic drug Seroquel–the largest amount ever paid by a company in a civil-only settlement for off-label marketing.[13]  The drug was approved to treat acute manic episodes associated with bipolar disorder and schizophrenia, but allegedly was marketed by AstraZeneca to treat anger management, attention deficit hyperactivity disorder, Alzheimer’s disease, and sleeplessness, among other unapproved uses.[14]   The government alleged that Medicare and Medicaid paid millions of dollars in false claims for prescriptions for off-label uses.  As part of the settlement, the federal government will receive upwards of $301 million, and state Medicaid programs will share approximately $218 million.  AstraZeneca entered into a five-year Corporate Integrity Agreement with HHS as part of the settlement.[15] Novartis In September 2010, Novartis Pharmaceuticals Corporation agreed to pay more than $422 million to settle criminal and civil claims in connection with the company’s alleged off-label marketing of several drugs. Novartis pled guilty to a misdemeanor and agreed to pay a $185 million combined criminal fine and civil forfeiture for the alleged off-label promotion of the drug Trileptal in violation of the Food, Drug and Cosmetic Act.  The FDA had approved Trileptal as an anti-epileptic, but the company allegedly marketed the drug for psychiatric uses and as a pain medication. Novartis also agreed to pay $237.5 million to resolve a False Claims Act case alleging that the company unlawfully marketed Trileptal and five other drugs, causing the government, through Medicare, to pay for unapproved uses of the drug.  The False Claims suit also alleged that Novartis paid kickbacks to health care professionals to induce them to prescribe Trileptal and five other drugs (Diovan, Zelnorm, Sandostatin, Exforge and Tekturna).  Novartis entered into a five-year Corporate Integrity Agreement with the government as part of the settlement.[16] Earlier, in May 2010, Novartis Vaccines & Diagnostics, Inc. and Novartis Pharmaceuticals Corporation agreed to pay more than $72 million to resolve False Claims Act allegations arising from the off-label marketing of the cystic fibrosis drug TOBI.  The settlement resolved allegations that between 2001 and 2006 Novartis and its predecessor, Chiron Corporation, caused false claims to be submitted to federal health care programs for off-label uses of the drug.[17] Elan Corporation and Eisai Inc. Irish pharmaceutical manufacturer Elan Corporation PLC and its U.S. subsidiary Elan Pharmaceuticals Inc. agreed to pay more than $203 million to resolve criminal and civil investigations arising from their advertising of the epilepsy drug Zonegran.  Elan allegedly promoted the drug for mood stabilization for mania and bipolar disorder, eating disorders, obesity, weight loss, and other unapproved uses.  Elan agreed to pay a criminal fine of just under $1 million, and will forfeit $3.6 million in assets.  Elan will also pay $102 million to resolve civil allegations under the False Claims Act.  The civil settlement resolves a whistleblower lawsuit brought by a Massachusetts physician, who will receive approximately $11 million as part of the settlement. In a related civil settlement, Japanese drug marketer Eisai Inc. agreed to pay $11 million to settle civil liability for its off-label marketing of the drug Zonegran.[18] Johnson & Johnson Two subsidiaries of Johnson & Johnson (Ortho-McNeil Pharmaceutical LLC and Ortho-McNeil-Janssen Pharmaceuticals, Inc.) agreed to pay more than $81 million to resolve criminal and civil claims arising from alleged off-label illegal promotion of the epilepsy drug Topamax.  The company will pay $6.14 million as a criminal fine, and $75 million to resolve civil allegations made under the False Claims Act.[19] The government alleged that Ortho-McNeil Pharmaceuticals promoted the sale of Topamax for off-label psychiatric uses through its “Doctor-for-a-Day” program.  The company allegedly hired outside physicians to join sales representatives in visits to the offices of health care providers and to speak at meetings and dinners about prescribing Topamax for unapproved uses and doses.  As part of the settlement, Ortho-McNeil entered into a Corporate Integrity Agreement.[20] Anti-Kickback Statute and Stark Act Kos Pharmaceuticals (Abbott Laboratories) Kos Pharmaceuticals, Inc., a subsidiary of Abbott Laboratories, Inc., agreed to pay more than $41 million to resolve criminal and civil claims alleging off-label marketing and violations of the Anti-Kickback Statute. Kos agreed to pay more than $38 million to settle civil allegations brought under the False Claims Act that it offered to pay doctors, physicians groups and other managed care organizations illegal kickbacks in the form of money, free travel, grants, honoraria and other goods and services to induce doctors to prescribe or recommend the drugs Niaspan and Advicor.  Kos also entered into a Deferred Prosecution Agreement which carried with it a $3.36 million criminal fine. The civil settlements came as a result of two whistleblower lawsuits brought under the False Claims Act.  The whistleblowers were all former employees of Kos, who will receive payments totaling more than $6.4 million from the federal share of the civil recovery.  The company also settled claims that it off-label marketed the drug Advicor.[21] Detroit Medical Center Detroit Medical Center agreed to pay $30 million to settle allegations that it violated the Anti-Kickback Statute, Stark Act and False Claims Act.  Detroit Medical Center voluntarily disclosed that it had improper office lease agreements and independent contractor relationships that were either inconsistent with fair market value or not memorialized in writing.  Detroit Medical Center learned of these relationships as it prepared for its sale to Vanguard Health Systems, Inc.  Vanguard participated in the signing of the settlement.[22] Exactech Orthopedic implant maker Exactech, Inc. agreed to pay $3 million to settle allegations that it offered or solicited payments to orthopedic surgeons in exchange for the surgeons’ use of Exactech’s hip and knee reconstruction and replacement products in violation of the Anti-Kickback Statute.  As part of the settlement, the company entered into a Deferred Prosecution Agreement, which requires an independent monitor for at least one year.[23] Wright Medical Technology, Inc. Wright Medical Technology, Inc. entered into a deferred prosecution agreement and agreed to pay $7.9 million to settle allegations that the medical device maker’s marketing practices and consulting deals with orthopedic surgeons amounted to illegal kickbacks and induced false claims.  As part of the settlement, Wright Medical entered into a five-year Corporate Integrity Agreement.[24] Medical Device Manufacturer A medical device manufacturer paid $3.8 million to resolve a False Claims Act allegation that it paid illegal kickbacks to two hospitals in Ohio and Kentucky to secure business.  The kickbacks included alleged rebates that were paid retroactively after the hospitals had decided to purchase the equipment from the manufacturer.  Rebates were also allegedly paid to induce hospitals to buy the equipment to replace similar equipment sold to the hospitals by the manufacturer’s competitors.[25] Cincinnati Hospitals The Health Alliance of Greater Cincinnati and one of its former hospitals, The Christ Hospital, agreed to pay $108 million to settle claims that they violated the Anti-Kickback Statute and the False Claims Act by paying unlawful remuneration to doctors in exchange for referring cardiac patients to The Christ Hospital in a pay-to-play scheme.  This case, like so many others in 2010, was initiated by a whistleblower under the False Claims Act.[26] Cochlear Americas Cochlear Americas, a Colorado-based hearing-aid implant manufacturer, agreed to pay $880,000 to resolve allegations that it illegally paid health care providers to encourage purchases of its implants.  The original lawsuit was brought by a whistleblower under the False Claims Act in 2004.  The DOJ intervened in 2007 and resolved the case in June 2010.[27] St. Joseph Medical Center St. Joseph Medical Center in Maryland agreed to pay $22 million to resolve False Claims Act allegations that it paid kickbacks to MidAtlantic Cardiovascular Associates.  The government alleged that St. Joseph entered into professional services agreements in return for referrals of patients to the medical center for lucrative cardiovascular procedures.  The settlement concluded an investigation into 11 professional services agreements which allegedly provided for remuneration above fair market value or provided for services that were not commercially reasonable or not rendered at all.  As part of the settlement, the company entered into a five-year Corporate Integrity Agreement with HHS.[28] Florida Orthopedic Surgeon A Florida orthopedic surgeon entered into a civil monetary penalty settlement with HHS, which included a $650,000 fine, to settle allegations that the surgeon had received kickbacks from device makers.  The government alleged that the physician received consulting payments from device makers DePuy Orthopaedics and Smith & Nephew in exchange for ordering, or continuing to order, those manufacturers’ products.[29]  The investigation followed the DOJ’s investigation of the top five orthopedic device makers which resulted, in 2007, in Deferred Prosecution Agreements with four companies, including DePuy and Smith & Nephew, and a Non-Prosecution Agreement with a fifth company. Unapproved and Adulterated Drugs Forest Labs Forest Pharmaceuticals agreed to pay over $300 million, including $164 million in criminal penalties, for allegedly selling unapproved and misbranded drugs and for obstructing the government’s investigation of the company.  The company has entered into a five-year Corporate Integrity Agreement. [30] The company pled guilty for its improper marketing of Levothroid, an unapproved drug for the treatment of hypothyroidism.  According to the government, Levothroid was considered a “new drug” within the meaning of the Food, Drug and Cosmetic Act, and Forest was supposed to obtain approval from the FDA by August 2000 to continue marketing the drug.  Forest did not obtain the approval, and was told by the FDA to phase out the product by mid-2003.  Instead, Forest allegedly increased distribution of Levothroid and ignored a subsequent warning letter to stop the manufacture and distribution of the drug. Forest was also charged with off-label marketing and misbranding of Celexa, a drug approved for treating depression in adults.  Forest allegedly marketed the drug for pediatric use.[31] Schwarz Pharma Schwarz Pharma, Inc. agreed to pay $22 million to settle False Claims Act allegations that it failed to advise the Centers for Medicare and Medicaid Services that two unapproved products did not qualify for coverage under the federal health care programs.  The company allegedly submitted false quarterly reports to the government relating to the drugs Deponit, a skin patch used to prevent angina, and Hyoscyamine Sulfate ER, an anti-spasmodic mediation used to treat stomach and intestinal issues. The government claimed that the company obtained payments from Medicare and Medicaid for the drugs despite their unapproved status. [32] GlaxoSmithKline The largest monetary settlement of 2010 came from GlaxoSmithKline in connection with allegations of adulterated drugs.  The company agreed to pay a $150 million criminal fine and $600 million to settle a False Claims Act suit alleging that 20 different drugs were made with questionable or inappropriate safety measures at the company’s now-closed Puerto Rico plant.  The suit originally was brought by a whistleblower, the company’s quality manager at the plant, who allegedly was fired after complaining to supervisors at the company about the inappropriate safety standards.  The drugs affected included Avandia, Coreg, and Paxil.[33] Medicare Price Fraud At the end of 2010, the DOJ announced several major settlements for Medicare price fraud and drug price inflation in connection with suits originally brought by False Claims Act relators (private individual whistleblowers).  The state of Wisconsin claimed a major settlement as well. Boehringer Ingelheim A subsidiary of German-based Boehringer Ingelheim, Roxane Laboratories, Inc., and affiliated entities agreed to pay $280 million to settle claims that they engaged in a scheme to report false and inflated prices for numerous pharmaceutical products knowing that federal healthcare programs relied on those reported prices to set payment rates.  The actual sale prices for the drugs were allegedly far less than what Roxane Laboratories reported.  The DOJ intervened in a False Claims suit brought against the company alleging price inflation for the drugs Azathioprine, Diclofenac Sodium, Furosemide, Hydromorphone, Ipratropium Bromide, Oramorph SR, Roxanol, Roxicodone and Sodium Polystyrene Sulfonate.[34] Separately, Boehringer Ingelheim agreed to pay $7.75 million to settle allegations that four of its subsidiaries committed price fraud in Wisconsin.  The subsidiaries were accused of reporting inflated drug prices to the agencies that determine Medicaid reimbursements, resulting in Medicaid paying more than the actual price of the drug.  The company agreed to pay $7 million to the state of Wisconsin and another $750,000 for the state’s legal costs.[35] Abbott Laboratories Abbott Laboratories, Inc. agreed to pay $126.5 million to resolve allegations that it inflated the price of dextrose solutions, sodium chloride solutions, sterile water, and vancomycin, in order to obtain higher rates from Medicare.  Abbott was named in two separate False Claims Act cases, the second filed by a whistleblower, involving Abbott’s pricing of the drug Erythromycin, an oral antibiotic.[36] Braun Medical, Inc. B. Braun Medical, Inc., a U.S. subsidiary of German pharmaceutical company B. Braun Melsungen AG, agreed to pay $14.7 million to resolve allegations that it caused Medicare and Medicaid to pay inflated amounts for 49 different drugs.  The drugs and products involved in the investigation included water-based solutions that facilitate the intravenous infusion of other drugs and fluid replacement, intravenous nutritional solutions and other intravenously administered drugs.[37] Dey Inc. Dey Inc., Dey Pharma L.P. (formerly known as Dey, L.P.), and Dey L.P. Inc. agreed to pay $280 million to resolve allegations that they engaged in a scheme to report false and inflated prices for numerous drugs, including Albuterol Sulfate, Albuterol MDI, Cromolyn Sodium and Ipratropium Bromide.  The settlement resolved a whistleblower action filed under the False Claims Act by Ven-A-Care of the Florida Keys Inc., a Florida home-infusion company, and its principals.  As part of this settlement, the Ven-A-Care whistleblowers will receive a share of approximately $67.2 million.[38] HIPAA Rite-Aid Rite Aid Corporation and its 40 affiliated entities agreed to pay $1 million to settle potential violations of HIPAA.  Rite Aid was investigated by HHS’s Office for Civil Rights and the Federal Trade Commission.  Those agencies videotaped incidents in which pharmacies allegedly disposed of prescriptions and labeled pill bottles containing patient information in industrial trash containers that were accessible to the public.[39] II.  Notable Investigations and Actions Matching the rapid rise in settlements and judgments in the health care compliance area, numerous health care investigations and lawsuits were initiated in 2010, both at the federal and state levels, against corporations and individuals alike.  Over the past year, the targeted conduct included a wide range of practices, including off-label marketing, False Claims Act violations, Medicare and Medicaid fraud, kickback schemes, fraudulent marketing practices, and violations of the Foreign Corrupt Practices Act. Stryker Biotech LLC Stryker Biotech, LLC, along with its former and current executives, was charged criminally in federal court in Massachusetts with participating in a fraudulent marketing scheme relating to the use of certain medical devices meant to stimulate bone growth.  The company and its former CEO were also charged with making false statements to the FDA.[40] The indictment alleges that the defendants participated in an illegal marketing scheme to promote and sell a combination of Calstrux, a bone void filler, and OP-1, a protein that promotes bone growth, to surgeons and medical staff despite the fact that the FDA had not approved the combination.  Two versions of OP-1 had been approved by the FDA pursuant to a highly restrictive Humanitarian Device Exemption.  One of the restrictions was that the device could only treat conditions that affect fewer than 4,000 patients in the United States when comparable devices do not exist, and the devices could not be sold for a profit.  Calstrux was approved to be sold on its own, but Stryker allegedly marketed a combination of the two compounds in a manner not approved by the FDA.[41]  In August 2010, Stryker agreed to pay $1.4 million to Massachusetts to settle a civil suit related to the marketing of Calstrux and OP-1.[42] Johnson & Johnson The Department of Justice filed a civil False Claims Act complaint (in the form of two consolidated whistleblower lawsuits) in Massachusetts federal court against Johnson & Johnson and two of its subsidiaries, Ortho-McNeil-Janssen Pharmaceuticals and Johnson & Johnson Health Care Systems.  The complaint alleged that the companies paid millions of dollars in kickbacks to Omnicare Inc., the nation’s largest pharmacy specializing in dispensing drugs to nursing home patients.  In late 2009, Omnicare reached a $98 million settlement with several states and the federal government to resolve allegations related to kickbacks.[43]  The complaint alleges that the kickbacks were intended to induce Omnicare to purchase and recommend Johnson & Johnson drugs, including Risperdal, for use in nursing homes.[44]  Risperdal was once Johnson & Johnson’s top seller with almost $5 billion in sales in 2007, before it faced competition from cheaper generic brands.[45] Separately, in August 2010, the FDA issued a warning letter to Johnson & Johnson subsidiary DePuy Orthopaedics, Inc., stating that DePuy had failed to get appropriate marketing approval or clearance for its TruMatch Personalized Solutions System and Corail Hip System in violation of the Food, Drug, and Cosmetic Act.  The FDA informed DePuy that the Corail Hip System had been misbranded and asked the company to immediately halt marketing Corail for unapproved uses.  The FDA warned that should DePuy fail to immediately take steps to address the problems, the FDA would take action, including injunctive relief or monetary penalties.[46] Wyeth In September 2010, the DOJ sought to intervene in a whistleblower suit against Wyeth (which was purchased by Pfizer last year) involving allegations of off-label marketing of the transplant drug Rapamune.  The lawsuit was filed by two former Wyeth sales representatives and alleges that the company marketed Rapamune for off-label uses and gave kickbacks to doctors to induce them to prescribe Rapamune to their patients.[47] Separately, the DOJ filed suit against Wyeth for offering big discounts to hospitals across the country for the stomach drug Protonix.  According to the government, hospitals that met certain market-share targets received discounts of up to 94% on the oral form of Protonix and 80% on the IV form.  The DOJ’s lawsuit alleges that Wyeth did not pass similar discounts on to Medicaid–which by law should receive the lowest prevailing price for any given drug–costing Medicaid programs hundreds of millions in rebates.  In May 2010, 17 states sought to intervene in the suit.[48] GlaxoSmithKline In October 2008, the DOJ launched an investigation of GlaxoSmithKline in connection with allegations that the company tried to suppress the fact that its diabetes drug Avandia increased the risk of heart attacks.  A Senate report filed earlier in 2010 accused GlaxoSmithKline of suppressing the risks of Avandia by intimidating scientists and withholding data, and indicated that many officials at the FDA had been advocating for a recall of Avandia.[49] Abbott Laboratories The U.S. Attorney’s Office for the Western District of Virginia is investigating Abbott Laboratories for potential violations relating to its alleged off-label marketing of the drug Depakote.  Depakote is approved by the FDA to treat seizure disorders and acute manic episodes associated with bipolar disorder, and to prevent migraine headaches.  The government alleges that Abbott improperly promoted use of the drug to treat agitation and aggression in the elderly.[50] Boston Scientific The U.S. Attorney’s Office in Massachusetts launched a criminal investigation of Boston Scientific.  Though the details of the investigation have not been publicly disclosed, Boston Scientific received a grand jury subpoena just one week after it instituted a recall of its implantable cardioverter defibrillators and cardiac resynchronization therapy defibrillators.  As part of the recall, Boston Scientific indicated that it had not received approval from federal regulators for changes made to its manufacturing processes.[51] Guidant Corporation A Minnesota district court judge rejected a plea agreement between the federal government and Guidant Corporation which would have resolved claims that Guidant failed to alert doctors and patients that some of its defibrillators had a defect that might cause them to fail, allegedly resulting in at least six deaths.  The deal would have required Guidant to plead guilty to two misdemeanors and pay a $296 million fine.  The court found that the plea agreement did not hold the company sufficiently accountable for its actions, and that prosecutors should have sought, among other things, probation for Guidant and its parent company as well as charitable activities by Guidant to improve heart device safety and medical care among minority patients.[52] Allergan Allergan received an “investigative demand” from the DOJ regarding its acne drug Aczone.  Allergan also received a subpoena from the Delaware Attorney General’s Office relating to dry-eye drug Restasis and Acular LS, an eye-drops brand.[53] Medical Device Manufacturer The DOJ intervened in a whistleblower lawsuit against a medical device manufacturer in Massachusetts federal court.  The whistleblower, a technical service specialist hired by the company in 2004, filed suit in 2006, alleging that the company’s corporate accounts division had offered special deals to hospitals that purchased minimum amounts of the company’s products.  The DOJ intervened, alleging that the company had given doctors and hospitals kickbacks in return for use of the company’s pacemakers and defibrillators.[54]  The DOJ also alleges that the company used clinical trials as a platform to pay doctors for implanting its devices.[55]  In fall 2010, the company and the DOJ began to engage in settlement talks, and there are indications that a settlement may be close.[56] Bradford Regional Medical Center The District Court for the Western District of Pennsylvania found that Bradford Regional Medical Center’s relationship with two physicians violated the Stark Act, which prohibits hospitals from submitting claims to Medicare based on referrals from physicians with whom the hospitals have a financial relationship.  The lawsuit alleged that Bradford received thousands of improper inpatient and outpatient referrals resulting in several millions of dollars of Medicare payments.  The original suit was brought by a whistleblower under the False Claims Act.[57] Medtronic Inc. The U.S. Attorney’s Office for the Western District of New York issued a subpoena to Medtronic Inc. relating to the company’s sales, marketing and reimbursement support practices regarding certain neurostimulation devices.  Medtronic manufactures neurostimulators to relieve pain, control overactive bladders, and treat movement and psychiatric disorders.[58] Edwards Lifesciences The FDA issued a warning letter to Edwards Lifesciences alleging the company failed to appropriately report complaints concerning serious problems in patients treated with Edwards’ heart devices, specifically its annuloplasty ring devices and pericardial heart valve device.  The FDA asked that the company correct the violations or face product seizure, injunctions, or fines.[59] FCPA Investigations  Also on the rise in 2010 were investigations and actions by the DOJ and the Securities and Exchange Commission (“SEC”) involving alleged violations of the Foreign Corrupt Practices Act (“FCPA”). The DOJ and the SEC launched an investigation of Merck’s foreign operations related to possible violations of the FCPA.  The details of the investigation have not been made public.[60] The DOJ and the SEC also began an investigation of SciClone Pharmaceuticals for possible violations of the FCPA.  The government has sought information concerning the company’s sale, licensing, and marketing of products in foreign countries, including but not limited to China, where the company has a major presence with its hepatitis B drug Zadaxin.[61] In addition, the DOJ and the SEC expanded an investigation of Eli Lilly & Co. in connection with allegations of FCPA violations.  The SEC notified Lilly in 2003 that it was investigating whether Polish units of certain drug makers, including Lilly, had violated the FCPA.  In 2010, the DOJ and the SEC expanded the investigation to several other countries.[62] AstraZeneca, Bristol-Meyers Squibb and GlaxoSmithKline have also come under investigation by the DOJ and the SEC for alleged FCPA violations, as has Baxter International.[63] Finally, Pfizer and Johnson & Johnson are reportedly close to reaching an agreement with the DOJ to settle allegations of FCPA violations.[64] Actions Against Individuals 2010 saw a number of significant lawsuits and enforcement actions against individual corporate executives and physicians. Perhaps most notable among these is the DOJ’s criminal indictment of a former GlaxoSmithKline executive for allegedly covering up the company’s off-label marketing of its Wellbutrin SR drug.  The executive faces a number of charges including obstruction of justice and making false statements.  The indictment alleges that the executive signed letters to the FDA that hid the company’s promotion of Wellbutrin SR for off-label uses, including weight loss.  The executive allegedly knew that two doctors had repeatedly promoted the drug for off-label use but failed to turn over that evidence during an agency probe, and made affirmative statements that the company had, apart from isolated deficiencies, only promoted Wellbutrin for approved uses.[65] Another important development was the nationwide investigation by the Health Care Fraud Prevention and Enforcement Action Team (“HEAT”) Medicare Fraud Strike Force, which resulted in charges against 94 individuals across the country–in Brooklyn, Miami, Baton Rouge, Detroit, and Houston–for their roles in various Medicare fraud schemes.[66]  The government alleges that the schemes involved submission of more than $251 million in false Medicare claims, and billing for medical equipment and services that were medically unnecessary and, in some cases, never provided.[67] Separately, in what was referred to as the “largest Medicare fraud scheme ever perpetrated by a single criminal enterprise,” 73 people were charged with submitting to Medicare more than $163 million in phony bills from 118 non-existent medical clinics spanning 25 states.  The alleged scam netted the participants nearly $36 million.  Many of the defendants were allegedly members of an Armenian-American organized crime syndicate, which also allegedly masterminded a similar fraud scheme involving staged car accidents and false claims to insurance companies.[68] The Colorado U.S. Attorney’s office filed a 12-count criminal indictment accusing three former executives of Spectranetics Corporation with illegally importing unapproved medical devices.  The charges included conspiracy, making false statements, receipt of illegal imports, sales of adulterated and misbranded medical devices, and other offenses.[69] In the United Kingdom, a senior marketing executive for a medical products firm pleaded guilty to conspiring to channel $9 million in bribes to Greek surgeons to induce them to use his company’s products.  This conviction was noteworthy as the defendant cooperated extensively with the Serious Fraud Office.  Notwithstanding, the judge in the case said that the public expected an individual involved in what he called “substantial and long-term” corruption to be jailed immediately rather than be given a suspended sentence, as the Serious Fraud Office had recommended.  The executive was sentenced to one year in prison.[70] A Massachusetts anesthesiologist was accused of taking research money from the pharmaceutical industry and fabricating results.  Specifically, prosecutors allege the physician faked data that suggested after-surgery benefits from various painkillers, including Merck’s Vioxx and Pfizer’s Bextra and Celebrex drugs.  The physician faces a maximum of 10 years in prison and a $250,000 fine. [71] III.  Current Trends In addition to the significant enforcement actions discussed above, the health care compliance landscape continued to trend heavily toward increased regulatory enforcement in 2010.  Intensive public focus on the health care arena has led to numerous legislative, regulatory, and enforcement efforts aimed at returning monies lost through fraud and waste to the public treasuries.  As was the case in 2009, these actions have in turn spawned a movement toward greater self-regulation by companies who perceive a benefit in being ahead of the curve. Continued Congressional Scrutiny Led by Senator Grassley Senator Charles Grassley of Iowa, the ranking Republican on the Senate Committee on Finance, which has jurisdiction over the Medicare and Medicaid programs, has focused a great deal of attention over the past few years on the relationships between physicians and the health care industry.  Senator Grassley has sought to expose those relationships that could create a conflict of interest between corporations and physicians, and has led the debate on whether the federal government should do more to legislate in this area. In the past several years, Senator Grassley has used the oversight tools available to him to seek disclosure of health care industry financial ties with research physicians, medical schools, medical journals, continuing medical education companies, and patient advocacy non-profit organizations, among others.  Most recently, Senator Grassley conducted an inquiry into industry money paid to pharmacy benefit managers, or PBMs.  In March 2010, Senator Grassley sent letters to CVS Caremark Corporation, Express Scripts, Inc., and Pharmaceutical Care Management Association, requesting a description of those PBMs’ efforts to enhance the transparency of financial benefits they receive from drug makers.[72] Senator Grassley has also pressed the pharmaceutical industry to adhere to the whistleblower protections of the False Claims Act.  In a July 1, 2010 letter to 16 pharmaceutical companies, Senator Grassley asked a range of questions on this topic, including how employees are informed about the whistleblower protections and how the non-retaliation policies are enforced.[73] The Physician Payment Sunshine Act Becomes Law Senator Grassley’s long-standing efforts to enact the Physician Payment Sunshine Act came to fruition in 2010 with the passage of the new health care legislation, the PPACA, which incorporated the major components of the Sunshine Act. The PPACA focuses on the disclosure of the financial relationships between industry and physicians.  “The goal of our legislation is to lay it all out, make the information available for everyone to see, and let people make their own judgments about what the relationships mean or don’t mean,” Senator Grassley said in a 2009 statement.[74]  The PPACA does not seek to govern the substance of the relationships between industry and health care providers, but does aim to make those relationships transparent. Under this legislation, beginning in 2012, health care companies are required to report all consulting fees, honoraria, gifts, entertainment, travel, meals, research, charitable contributions, and many other benefits provided to physicians.  Moreover, the PPACA establishes a national online registry for all industry payments of $10 or more to physicians–a sharp change from earlier versions of the Sunshine Act which included a $100 threshold.  Companies will be required to report payments by March 31, 2013, with a searchable database available beginning September 30, 2013.  Fines for failure to comply–whether intentional or not–are severe.  Companies could be fined up to $150,000 per year for inadvertent violations, and up to $1 million for knowing violations.[75] The new law only preempts state laws that are less restrictive than the federal law.  As a result, given that a number of states already have or are looking to enact tougher laws (as detailed below), there will likely be inconsistencies in the application of the PPACA’s disclosure requirements. State Laws With More Teeth Than the PPACA A number of states have enacted laws that go beyond the new federal disclosure legislation by altogether prohibiting certain types of gifts or payments to physicians.  As explained in our 2009 Year-End Health Care Compliance Update, and briefly summarized below, Massachusetts and Vermont passed sweeping legislation targeting disclosures in 2009.  These laws followed Minnesota’s 2005 law, which prohibits “any manufacturer or wholesale drug distributor, or any agent thereof, to offer or give any gift of value to a practitioner.”[76]  New York and New Jersey have considered enacting similar legislation. Massachusetts Any company doing business in Massachusetts is subject to a strict health care compliance regime that prohibits providing health care professionals with any entertainment or recreation, travel for continuing medical education or other meetings, or meals other than modest meals provided at a training event.  Even the giving of small complimentary items, like branded pens, mugs, and calendars, is prohibited.[77]  In 2010, the Massachusetts legislature considered ending the ban on small complimentary items, but ultimately rejected this idea.[78] Massachusetts requires all pharmaceutical and medical device companies to adopt training programs, conduct annual audits to ensure compliance, develop and implement policies and procedures for investigating and correcting violations, and identify a compliance officer.  All companies doing business in Massachusetts must file annual reports with the Department of Public Health outlining their adherence to the new law, and on an annual basis must also disclose payments to health care professionals.  The penalty for violations is a fine of up to $5,000 for each violation.  Vermont Vermont similarly prohibits certain kinds of gifts or payments to physicians and other health care professionals, and requires disclosure to the state of most other kinds of gifts or payments, regardless of the amount.  This legislation is more comprehensive than the new federal legislation, and more sweeping than other states’ gift disclosure laws. The law’s broad definition of “gift” includes “anything of value provided to a health care provider for free” and, with a few named exceptions, “any payment, food, entertainment, travel, subscription, advance, service, or anything else of value provided to the health care provider.”  Certain gifts are exempt under the law–though they still need to be disclosed–such as patient samples, normal rebates and discounts, devices loaned for evaluation, academic literature, and FDA-approved labels. All gifts must be disclosed–there is no de minimus exception to the reporting requirement.  The manufacturer is required to disclose information about the value, nature, and recipient for every gift.  The law provides for penalties of up to $10,000 for each unlawful gift or $10,000 for failure to report a lawful gift.[79] New Jersey New Jersey continues to contemplate legislation that would ban gifts to physicians. On December 3, 2009, the New Jersey Attorney General released a report from the Division of Consumer Affairs recommending new regulations to curtail the potential for conflicts of interest between physicians and industry.  The report sets forth new policies to be considered by the Board of Medical Examiners, the Board of Pharmacy, the Department of Health and Senior Services, and academic medical centers.  The new policies would go beyond the voluntary industry codes (PhRMA and AdvaMed), and would ban doctors from accepting any gifts or travel expense reimbursements from any pharmaceutical or medical device manufacturer.  In addition, the proposed reforms bar physicians from accepting free food in office settings or at promotional dinners. Recommended regulations would also require doctors who serve as consultants to pharmaceutical companies or medical device manufacturers to publicly disclose every two years the acceptance of more than $200 in consulting fees, honoraria, or funding for research or education. The report also recommends tight controls on what is known in the pharmaceutical industry as “data mining,” or tracking physician prescription information.  All physicians would have to be notified when renewing their licenses that they can opt out of having information about their prescriptions sold by pharmacists to health care information organizations, which collect information on prescriptions for pharmaceutical company marketing. In the area of continuing medical education, the report recommends that CME credit only be available for courses that are accredited by the Accreditation Council for Continuing Medical Education, and specifically bars the CME provider from obtaining advice from a company that subsidizes the course, thus creating a separation between educational content and the source of the subsidy.[80] Although New Jersey did not move forward with legislation in this area in 2010, Governor Chris Christie has historically been a proponent of transparency in the health care industry, and New Jersey thus may be poised to re-examine these proposals in 2011. New York New York has similarly toyed with the possibility of banning industry gifts to physicians.  Outgoing Governor David Paterson noted in 2010 that he supported such legislation.[81]  The New York legislature did not act on the proposal during Paterson’s final year in office.  Incoming Governor Andrew Cuomo has not made public comments on the matter, but as Attorney General was active in investigating health care compliance matters.  Movement Toward Voluntary Disclosures of Physician-Industry Relationships There is a clear movement toward voluntary disclosure of the industry’s financial relationships with physicians.  In 2010, an increasing number of companies voluntarily disclosed payments to physicians.  Several companies, including Eli Lilly, Merck, and GlaxoSmithKline, began disclosing payments in 2009.  Others, including Pfizer, Cephalon, Johnson & Johnson, Medtronic, and AstraZeneca, joined the ranks in 2010. The voluntary disclosures have come under varying terms.  For example, Medtronic discloses payments of $5,000 or more.[82]  Eli Lilly uses a much lower threshold, but its disclosures are limited to payments to speakers and health care professionals who provide advice on educational and promotional efforts; the disclosures do not include other forms of compensation to health care professionals, though the company is required, under the terms of its Corporate Integrity Agreement, to begin tracking and reporting these payments beginning in 2011.[83] Many companies that have chosen to disclose have made their databases searchable.  Although the databases have generally been formatted to prevent users from downloading and analyzing the data, independent investigators have already begun piecing the information together and cross referencing it against other public sources.  One of these investigative groups has reportedly discovered hundreds of physicians who had a history of misconduct or discipline, or who lacked proper credentials for the products they were being paid to promote.  That group’s findings include a physician who earned nearly a quarter of a million dollars from three drug companies after being ordered by the FDA to stop making “false or misleading” statements about the drug; 92 speakers on one drug company’s payroll who had been sanctioned or received FDA warnings; and another physician who earned over $100,000 just one year before pleading no contest to fraud-related charges.[84] Doctors who received payments from health care companies found themselves subject to scrutiny as well.  A report released by the Archives of Internal Medicine found that more than half of the physicians who earned greater than $1 million in consulting fees from the medical device industry failed to disclose those ties in their publications.[85]  Of course, the failure by a physician to disclose such payments may reflect poorly on the sponsoring company as well and may even invite scrutiny from enforcement agencies. As public disclosures become the norm over the next few years, public interest groups will likely continue to mine the data to discover evidence of questionable payments to health care providers.  Companies should bear in mind that these groups not only review the consultants’ histories, but also closely scrutinize possible patterns in the payments.[86] Increased Relevance of Foreign Corrupt Practices Act The aggressive enforcement efforts by federal and state prosecutors in the national arena are matched and perhaps even surpassed by the recent skyrocketing of international anti-corruption enforcement efforts.  Because of the nature of the health care systems in many countries, health care companies come into constant contact with government officials internationally.  So it should come as no surprise that the DOJ, HHS, and the SEC have begun to aggressively investigate perceived international corruption in the health care industry.  As Assistant Attorney General Lanny A. Breuer recently declared, “FCPA enforcement is stronger than it’s ever been — and getting stronger.”[87] Indeed, the DOJ has moved swiftly to investigate the practices of health care companies abroad.  While the full extent of the government’s interest is not known, many of the industry’s heavy-hitters–including Merck, AstraZeneca, Bristol-Meyers Squibb, GlaxoSmithKline, and Eli Lilly–have disclosed that they are under investigation for possible FCPA violations.[88]  Other companies, such as Pfizer,[89] Johnson & Johnson,[90] SciClone,[91] and Baxter International[92] have also been linked to DOJ and/or SEC investigations for violations of the FCPA.  The companies have indicated that they are part of a broader review by the DOJ of industry practices in foreign countries.[93] Intensified Focus of HHS In 2009, Corporate Integrity Agreements (“CIAs”) imposed by HHS increasingly required companies to retain one or more “compliance experts,” similar to the corporate monitors often required by the DOJ as part of Deferred Prosecution Agreements (“DPAs”)–in addition to the Independent Review Organization (“IRO”), which HHS has traditionally required.  The compliance experts were vested with the authority to review the company’s compliance program and to make binding recommendations, similar to a DPA monitor.  Often, these experts were tasked with reporting directly to the company’s Board of Directors. In 2010, HHS transitioned away from requiring “compliance experts” in its CIAs.  Instead, the more recent CIAs have significantly bolstered the responsibilities and powers of the IRO.  IROs have traditionally undertaken a “systems review” and a “transactions review.”  The scope of both these areas of review grew substantially in the 2010 CIAs:[94] The systems review is a comprehensive look at the company’s compliance policies and procedures.  While the nature of the systems review has not changed in the more recent CIAs, because the new CIAs require companies to establish certain policies and procedures (as described below), the breadth of the IRO’s role in the systems review has increased from years past. The scope of the transactions review has been significantly augmented.  Older CIAs required that the IRO review records relating to a sample of payments to health care providers, and also provided for a review by the IRO of up to three additional items identified by HHS.  In 2010, CIAs also included:  a review of a sample of requests from health care providers for information about the company’s government reimbursed products; a review of the company’s plans for calling on, and distributing samples to, health care providers; and a review of “sampling events” (instances where the company provided samples of the product to health care providers). As a result, IROs are now vested with much more authority and, like DPA monitors, are tasked with overseeing often significant changes in a company’s compliance infrastructure. HHS’s tougher stance on health care compliance is also evidenced by a number of new requirements in its recent CIAs, many of which are substantial undertakings.  The onerous requirements of the recent CIAs include:[95] Needs Assessment:  CIAs now require companies to conduct extensive “needs assessments” that establish the bona fide need for services conducted by health care providers for the upcoming year and validate the retention of each consultant hired. Policies and Procedures:  The most recent CIAs mandate that the company draft and implement over 20 policy and procedure documents.  The policy documents are broad in nature and govern nearly every aspect of the company’s relationships with health care professionals.  The policy documents are then subject to review by the IRO. Consulting Monitoring Program:  Companies are required to create a “consultant monitoring program,” which entails conducting live monitoring of at least 30 consultant arrangements per year to ensure that these arrangements are in line with the company’s needs assessment, its policies and procedures, and its contractual obligations. Field Force Monitoring Program:  Companies must establish a comprehensive “field force monitoring program” to evaluate and monitor sales representatives’ interactions with health care professionals.  This program includes field observations of sales representatives, which entails “full day ride-alongs” with sales representatives to observe meetings between the sales representative and health care professionals. Inquiries Database:  Companies are required to develop a database to track all requests for information about government reimbursed products from health care professionals as well as the company’s response to the request (including a record of the materials provided to the health care professional).  This database is the subject of extensive review by the IRO. Cooperation between HHS and DOJ Now more than ever, the DOJ and HHS are conducting a coordinated battle against health care fraud.  Last year, the departments created an interagency group known as HEAT, which was specifically tasked with combating health care fraud.  As part of HEAT’s efforts, the government expanded the Medicare Fraud Strike Force operations from South Florida and Los Angeles to an additional five health care fraud hot spots including Houston, Detroit, Brooklyn, Baton Rouge, and Tampa. The DOJ and HHS also held four health care fraud regional summits this year–in Miami, Los Angeles, Brooklyn, and most recently Boston.  The purpose of the summits was to bring together a wide array of federal, state and local partners, beneficiaries, and providers to discuss innovative ways to eliminate fraud within the U.S. health care system.[96]  Each summit coincided with major announcements of arrests or settlements, most notably the nearly $700 million in settlements immediately prior to the December 16 conference in Boston.[97] Moreover, as noted in Section III, an investigation by HEAT’s Medicare Fraud Strike Force resulted in charges against 94 individuals across the country for their alleged roles in various Medicare fraud schemes that allegedly involved submission of more than $250 million in false Medicare claims. Increased Focus of the FDA Not to be outdone by federal and state prosecutors, in May 2010, the FDA announced that it was launching a new endeavor, dubbed the “Bad Ad Program,” in an effort to deputize health care professionals to anonymously report false or misleading advertising to the FDA.  The FDA had traditionally reviewed promotional materials by relying on submissions of the sponsoring companies, industry complaints, and limited field surveillance.  But the agency found it was constrained by staffing limitations and was unable to adequately review the considerable universe of industry advertising.  The new program appeals directly to health care professionals.[98] Importantly, the FDA has indicated that it intends to revive the Park doctrine and prosecute corporate officials for off-label marketing violations by their companies.  The Food, Drug, and Cosmetic Act is one of the few statutes that permits vicarious criminal liability.  As the Supreme Court held in United States v. Park, 421 U.S. 658 (1975), a corporate executive can be held criminally liable for his company’s violation of the Act if that individual “had a responsible relation to the situation and by virtue of his position . . . had . . . authority and responsibility to deal with the situation.”  But prosecutors have traditionally declined to seek criminal liability for corporate officials.  This long-standing practice is changing.  On October 13, FDA Deputy Chief for Litigation Eric Blumberg made public remarks suggesting that large monetary payments by corporations were not enough to curb illegal behavior, and that pursuing individual criminal liability was needed to disincentivize companies from violating the law.[99] There are other signs that more individual prosecutions may be on the way.  After GlaxoSmithKline settled with the DOJ over manufacturing violations, the U.S. Attorney for Massachusetts, Carmen M. Ortiz, was conspicuously coy when asked if there would be individual liability in the case.  Her responses that “the corporate aspect is finally settled” and that “the investigation is ongoing” have led to speculation that individual prosecutions may be in the pipeline.[100] Growing Strength of the False Claims Act As discussed in detail in Gibson Dunn’s 2010 Year-End False Claims Act Update, 2010 saw sweeping legislative changes to the False Claims Act.[101]  The PPACA made widespread changes to the Act, including (a) a change to the public disclosure bar for qui tam suits that made it easier for putative relators (or whistleblowers) to bring suit; and (b) an expansion of the definition of a “false claim” that increased the scope of conduct giving rise to a False Claims Act violation, including an explicit provision that makes violating the Anti-Kickback Statute a false or fraudulent claim under the False Claims Act.  Furthermore, the Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law in 2010, includes an amendment to the False Claims Act that expands protected whistleblower conduct to anyone “associated” with the whistleblower as well as to a broad range of activities related to bringing a False Claims Act suit or stopping potential violations under the Act.[102] As Assistant Attorney General Tony West remarked halfway through 2010, recent “legislation has greatly increased the [False Claims] Act’s power and effectiveness.“[103]  With the increased strength of the False Claims Act, it is likely that prosecutors will continue to use this statute to garner more record settlements in the years to come. IV.  Future Trends Although the PPACA was passed by Congress in 2010, the debate over health care reform threatens to rage on.  No consensus has emerged over national health care policy, except perhaps, as noted in our 2009 Year-End Health Care Compliance Update, that any workable approach must focus on limiting costs to the greatest extent possible while still striving to expand coverage. That focus–on the costs of health care and the funding of government programs that regulate the industry and finance coverage–is by no means new.  As in the past, we would expect oversight of existing programs, such as Medicare and Medicaid, to be tightened in the future, and for litigation under the False Claims Act and other regulations governing these federal programs to remain commonplace.  The sheer volume of settlements in 2010, totaling over $4 billion–nearly triple 2009’s total when excluding the two large, outsized settlements with Pfizer and Eli Lilly last year–speaks to the growing importance of enforcement actions to state and federal regulators.  Also telling is the ever-increasing use of the Foreign Corrupt Practices Act as a prosecutorial tool, as the DOJ and the SEC have both focused on the foreign operations of health care companies in recent years. With the entry of a new Congress in 2011, Congressional involvement is also anticipated to intensify.  This will take several forms.  As in the past, Senator Grassley and other avowed industry watchdogs will likely continue hearings and other inquiries into federal health care entitlement programs.  But in the coming year also expect a new front to open in Congress in the battle over how to reverse the federal government’s expanding health care obligations. One of the signature goals of the PPACA was to reign in the practices that raise health care costs for all and bloat the federal deficit.  President Obama highlighted this during his campaign for the law, decrying “a system that is currently full of waste and abuse.”[104]  The costs of this legislation were in large part to be “paid for by finding savings within the existing health care system,” and by “eliminat[ing] . . . hundreds of billions of dollars in waste and fraud.”[105] Several Republican legislators have publicly declared the intention to fight against financing for the new health care law.  The effect of this ongoing struggle over the PPACA is likely to result in hearings and counterproposals for regulatory reform, as well as possibly subpoenas and other inquiries.  Several provisions of that law are not designed to go into effect for several years in any case, and it is widely acknowledged that the full effect of the law on the industry and the federal budget is currently unclear.  The coming Congressional skirmishes between supporters of the law and its detractors threaten to muddy the waters even further. At the state level, leaders in the health care enforcement field–such as former Attorney General Andrew Cuomo and U.S. Attorney Chris Christie–have now moved into the governors’ mansions in New York and New Jersey.  We would expect their agendas to continue to focus on civil and criminal investigations and other strategies for controlling health care costs for individuals and government agencies. In this legislative and regulatory environment–short on widely-accepted solutions or broadly-popular comprehensive strategies–the focus is likely to remain on tactical methods, “tried-and-true” techniques, as well as ad hoc, but potentially innovative, approaches. At the federal level, regulators enter 2011 retooled and well positioned to continue their efforts to stem unlawful health care practices.  In the area of rules and regulations, less controversial elements of the new health care legislation contain numerous anti-fraud provisions and also strengthen existing ones, including making violations of the Anti-Kickback Statute also illegal under the False Claims Act.  In the area of funding, the PPACA allocates an additional $350 million over the next decade to health care fraud enforcement.[106]  And HHS is poised to receive a $250 million increase in anti-health care fraud financing, bringing the annual total in this area to a record $1.7 billion.[107]  HHS already has made clear its intention to pursue violators more aggressively, as evidenced by the arduous requirements of the more recent Corporate Integrity Agreements. 2010 saw how monies are being put to use by federal agencies–and points in the direction of future enforcement trends.  For example, HEAT–HHS’s interagency effort with DOJ–took down nearly 100 individuals accused of Medicare fraud.[108] This emphasis on individual liability is perhaps most prominently reflected in the FDA’s stated intention to invoke the Park doctrine in prosecuting corporate officials for off-label marketing violations.  FDA Deputy Chief for Litigation Eric Blumberg:  “If you’re a corporate executive or are advising a corporate executive, now is the time to comply. . . .  That conduct may already be under the criminal microscope.”[109]  Whether it is a reaction to popular resentment and a poor economy, or a hardheaded assessment of what will work best in this environment, expect high-profile enforcement actions against more and more individuals in 2011. One thing is not expected to change in the coming year.  For the practitioner, the in-house legal advisor, or the corporate executive, health care compliance is and will remain a crucial focus area.  It is more important than ever for companies to take a hard look at their policies and procedures and act to strengthen them.  For companies with long-standing compliance programs, now is the time to re-evaluate and re-energize them in light of existing enforcement priorities and trends.  And for companies that have struggled with under-resourced compliance programs, now is the time to invest in the policies, procedures, and personnel necessary to protect not only the companies themselves, but the executives who run them.   [1]   See Gibson Dunn’s 2009 Year-End Health Care Compliance Update.   [2]   Press Release, Office of Pub. Affairs, Dept. of Justice, Departments of Justice and Health and Human Services Team Up to Crack Down on Health Care Fraud (Nov. 5, 2010), available at http://www.justice.gov/opa/pr/2010/November/10-ag-1256.html.   [3]   Tony West, Assistant Attorney Gen. for the Civil Div., Dept. of Justice, Remarks at the GlaxoSmithKline Press Conference (Oct. 26, 2010) available at http://www.justice.gov/civil/opa/pr/speeches/2010/civ-speech-101026.html.   [4]   Press Release, Dept. of Justice, Department of Justice Recovers $3 Billion in False Claims Cases in Fiscal Year 2010 (Nov. 22, 2010), available at http://www.justice.gov/opa/pr/2010/November/10-civ-1335.html.   [5]   Patrick Burn, Over $3 Billion in Fraud Recoveries Under the False Claims Act in FY 2010, Taxpayers Against Fraud Education Fund (Oct. 25, 2010), available at http://www.taf.org/whistle295.htm.   [6]   Sammy Almashat, Charles Preston, Timothy Waterman & Sidney Wolfe, Rapidly Increasing Criminal and Civil Monetary Penalties Against the Pharmaceutical Industry: 1991-2010, PublicCitizen (Dec. 16, 2010), available at http://www.citizen.org/hrg1924.    [7]   HIPAA refers to the Health Insurance Portability and Accountability Act of 1996.    [8]   See also Gibson Dunn’s 2010 Year-End False Claims Act Update.    [9]   Press Release, Dept. of Justice, Department of Justice Recovers $3 Billion in False Claims Cases in Fiscal Year 2010 (Nov. 22, 2010), available at http://www.justice.gov/opa/pr/2010/November/10-ag-1256.html. [10]   Press Release, Dept. of Justice, Allergan Agrees to Plead Guilty and Pay $600 Million to Resolve Allegations of Off-Label Promotion of Botox (Sept. 1, 2010), available at http://www.justice.gov/opa/pr/2010/September/10-civ-988.html. [11]   Id. [12]   Id. [13]   Eric Holder, U.S. Attorney Gen., Remarks Regarding the AstraZeneca Settlement Announcement (Apr. 27, 2010), available at http://www.justice.gov/ag/speeches/2010/ag-speech-100427.html. [14]   Press Release, Dept. of Justice, Pharmaceutical Giant AstraZeneca to Pay $520 Million for Off-label Drug Marketing (Apr. 27, 2010), available at http://www.justice.gov/opa/pr/2010/April/10-civ-487.html. [15]   Id. [16]   Press Release, Dept. of Justice, Novartis Pharmaceuticals Corp. to Pay More Than $420 Million to Resolve Off-Label Promotion and Kickback Allegations (Sept. 30, 2010), available at http://www.justice.gov/opa/pr/2010/September/10-civ-1102.html. [17]   Press Release, Dept. of Justice, Novartis Vaccines & Diagnostics to Pay More Than $72 Million to Resolve False Claims Act Allegations Concerning TOBI (May 4, 2010), available at http://www.justice.gov/opa/pr/2010/May/10-civ-522.html. [18]   Press Release, Dept. of Justice, Pharmaceutical Companies to Pay $214.5 Million to Resolve Allegations of Off-label Promotion of Zonegran (Dec. 15, 2010), available at http://www.justice.gov/opa/pr/2010/December/10-civ-1444.html. [19]   Press Release, Dept. of Justice, Epilepsy Drug Approved by FDA Promoted for Psychiatric Uses (Apr. 29, 2010), available at http://www.justice.gov/opa/pr/2010/April/10-civ-500.html. [20]   Id. [21]   Press Release, Dept. of Justice, Kos Pharmaceuticals to Pay More Than  $41 Million to Resolve Kickback and Off-Label Promotion Allegations (Dec. 7, 2010), available at http://www.justice.gov/opa/pr/2010/December/10-civ-1402.html. [22]   Press Release, Dept. of Justice, Detroit Medical Center Pays U.S. $30 Million to Settle False Claims Act Allegations (Dec. 30, 2010), available at http://www.justice.gov/opa/pr/2010/December/10-civ-1484.html. [23]   Jacqueline Bell, Exactech to Pay $3M to Settle Kickbacks Case, Law 360, New York (Dec. 7, 2010), available at http://www.law360.com/competition/articles/213954. [24]   Eric Hornbeck, Wright Medical to Pay $7.9M Over False Marketing, Law 360, New York (Oct. 1, 2010), available at http://www.law360.com/web/articles/198013. [25]   Press Release, Dept. of Justice, Heart Device Manufacturer in Minnesota and Hospitals in Ohio & Kentucky to Pay Nearly $4 Million to Resolve Fraud Allegations (June 4, 2010), available at http://www.justice.gov/opa/pr/2010/June/10-civ-658.html. [26]   Press Release, Dept. of Justice, The Health Alliance of Greater Cincinnati and the Christ Hospital to Pay $108 Million for Violating Anti-Kickback Statute and Defrauding Medicare and Medicaid (May 21, 2010), available at http://www.justice.gov/opa/pr/2010/May/10-civ-602.html. [27]   Press Release, Dept. of Justice, United States Settles False Claims Act Allegations with Cochlear Americas for $880,000 (June 9, 2010), available at http://www.justice.gov/opa/pr/2010/June/10-civ-673.html. [28]   Press Release, Dept. of Justice, St. Joseph Medical Center in Maryland to Pay U.S. $22 Million to Resolve False Claims Act Allegations (Nov. 9, 2010), available at http://www.justice.gov/opa/pr/2010/November/10-civ-1271.html. [29]   Nina Yangstrom, Swept Up in Major Medical Device Case, Physician Pays $650,000 to Settle Kickback Charges, AIS Health Business Daily (May 3, 2010), available at http://www.aishealth.com/Compliance/ResearchTools/RMC_MD_Pays650K.html. [30]   News Release, U.S. Food & Drug Admin., Forest Pharmaceuticals agrees to guilty plea for violating FDA laws (Sept. 15, 2010), available at http://www.fda.gov/NewsEvents/Newsroom/PressAnnouncements/ucm225890.htm. [31]   Id. [32]   Press Release, Dept. of Justice, Schwarz Pharma Pays $22 Million to Settle False Claims Allegations Concerning Reimbursements for Unapproved Drugs (Apr. 29, 2010), available at http://www.justice.gov/opa/pr/2010/April/10-civ-499.html. [33]   Liz Jones Hollis, GSK to Pay $750M Over Adulterated Drugs, fiercepharma.com (Oct. 26, 2010), available at http://www.fiercepharma.com/story/gsk-pay-750m-over-adulterated-drugs/2010-10-26. [34]   Press Release, Dept. of Justice, Pharmaceutical Manufacturers to Pay $421.2 Million to Settle False Claims Act Cases (Dec. 7, 2010), available at http://www.justice.gov/opa/pr/2010/December/10-civ-1398.html. [35]   Dinesh Ramde, Drugmaker Settles Price-Fraud Lawsuit with Wis., Associated Press (April 20, 2010), available at http://www.dddmag.com/news-Boehringer-Ingelheim-Settles-Fraud-Suit-42110.aspx. [36]   Press Release, Dept. of Justice, Pharmaceutical Manufacturers to Pay $421.2 Million to Settle False Claims Act Cases (Dec. 7, 2010), available at http://www.justice.gov/opa/pr/2010/December/10-civ-1398.html. [37]   Id. [38]   Press Release, Dept. of Justice, Pharmaceutical Manufacturer to Pay $280 Million to Settle False Claims Act Case (Dec. 20, 2010), available at http://www.justice.gov/opa/pr/2010/December/10-civ-1464.html. [39]   Press Release, U.S. Dept. of Health and Human Services, Rite Aid Agrees to Pay $1 Million to Settle HIPAA Privacy Case (July 27, 2010), available at http://www.hhs.gov/news/press/2010pres/07/20100727a.html. [40]   Ian Thoms, Feds Hit Back At Stryker Biotech’s Dismissal Bids, Law 360, New York (Nov. 10, 2010), available at http://www.law360.com/health/articles/208342. [41]   Id. [42]   Id. [43]   Press Release, Dept. of Justice, U.S. Files Suit Against Johnson & Johnson for Paying Kickbacks to Nation’s Largest Nursing Home Pharmacy (Jan. 15, 2010), available at http://www.justice.gov/opa/pr/2010/January/10-civ-042.html. [44]   Id. [45]   Tracy Station, J&J in Talks for Risperdal Marketing Settlement, fiercepharma.com (Nov. 11, 2010), available at http://www.fiercepharma.com/story/jj-jnj-talks-risperdal-marketing-settlement/2010-11-11. [46]   Maya Jackson Randall, FDA Warns Johnson & Johnson On Joint-Replacement Products, Wall Street Journal (Aug. 24, 2010), available at http://hiprecallinfo.org/. [47]   Tracy Station, Feds Ask to Join Pfizer Whistleblower Suit, fiercepharma.com (Sept. 22, 2010), available at http://www.fiercepharma.com/story/feds-ask-join-pfizer-whistleblower-suit/2010-09-22. [48]   Tracy Station, States Aim To Join Wyeth Whistleblower Suits, fiercepharma.com (May 11, 2010), available at http://www.fiercepharma.com/story/states-aim-join-wyeth-whistleblower-suits/2010-05-11. [49]   AboutLawsuits.com, Glaxo Subpoenaed by DOJ Over Problems with Avandia (Oct. 22, 2010), available at http://www.aboutlawsuits.com/glaxo-subpoena-problems-with-avandia-13692/. [50]   Peter Loftus, Abbott Told to Turn Over Emails, Wall Street Journal (Apr. 14, 2010). [51]   Liz Jones Hollis, Boston Sci Gets Document Request From Grand Jury, Boston Globe (Aug. 10, 2010), available at http://www.fiercemedicaldevices.com/story/boston-sci-gets-document-request-grand-jury/2010-08-10. [52]   Barry Meier, Judge Rejects Plea Deal on Guidant Heart Device, N.Y. Times (Apr. 28, 2010), available at http://www.nytimes.com/2010/04/28/health/28device.html. [53]   Jim Edwards, Justice Department’s Botox Probe Costing Allergan $100M — And There’s No End In Sight (Mar. 4, 2010). [54]   Massachusetts Medical Device Journal (Aug. 26, 2010), available at http://www.medcitynews.com/2010/08/st-jude-medical-and-its-kick-back-scheme/. [55]   Id. [56]   Jon Kamp (Nov. 29, 2010), available at http://online.wsj.com/article/BT-CO-20101129-714132.html. [57]   Sandra Yin, Hospital Owes $20M for Violating Stark Act, Fierce Pharma (Nov. 15, 2010), available at http://www.fiercehealthcare.com/story/hospital-owes-20m-violating-stark-act/2010-11-15. [58]   Peter Loftus, U.S. Subpoenas Medtronic, Wall Street Journal (Dec. 9, 2010). [59]   Letter from Food and Drug Administration to Edwards Lifesciences, LLC, dated Mar. 1, 2000, available at http://www.fda.gov/ICECI/EnforcementActions/WarningLetters/ucm207028.htm. [60]   Tracy Station, Feds Probe Merck in FCPA Enforcement Push, fiercepharma.com (Aug. 9, 2010), available at http://www.fiercepharma.com/story/feds-probe-merck-fcpa-enforcement-push/2010-08-09. [61]   Reuters, SciClone Shares Plunge On SEC Probe (Aug. 10, 2010), available at http://www.reuters.com/article/idUSTRE6792QH20100810. [62]   Peter Loftus, U.S. Expands Probe Of Lilly’s Compliance With Antibribery Laws (Feb. 23, 2010). [63]   Michael Rothfeld, Drug Firms Face Bribery Probe, Wall Street Journal (Oct. 5, 2010). [64]   Christopher M. Matthews, Pfizer and Johnson & Johnson Are Close to Settling FCPA Allegations, MainJustice.com (May 19, 2010). [65]   Tracy Station, Feds Charge Former GSK Exec With Off-Label Cover-Up, fiercepharma.com (Nov. 10, 2010), available at http://www.fiercepharma.com/story/feds-charge-former-gsk-exec-label-cover/2010-11-10. [66]   Press Release, Dept. of Justice, Assistant Attorney General Lanny A. Breuer Speaks at Medicare Fraud Strike Force Press Conference, available at http://www.justice.gov/criminal/pr/speeches/2010/crm-speech-100716.html. [67]   Id. [68]   Dan Bowman, Mammoth Medicare Fraud Bust Targets Organized Crime Group (Oct. 14, 2010), available at http://www.fiercehealthcare.com/story/mammoth-medicare-fraud-bust-targets-organized-crime-group/2010-10-14. [69]   Former Spectranetics Execs Named in 12-Count Indictment, Denver Business Journal (Aug. 30, 2010), available at http://www/bizjournals.com/denver/stories/2010/08/30/daily8.html?t=printable. [70]   Rob Evans, First British Executive Jailed for Corrupting Foreign Officials, Guardian (Apr. 14, 2010), available at http://www.guardian.co.uk/uk/2010/apr/14/british-executive-jailed-john-dougal. [71]   Feds Accuse Doc of Faking Research on Pfizer & Merck Drugs, Wall Street Journal (Jan. 15, 2010), available at http://blogs.wsj.com/health/2010/01/15/feds-accuse-doc-of-faking-research-on-pfizer-merck-drugs/tab/print/. [72]   Press Release, Office of Senator Charles Grassley, Grassley continues work for transparency of drug company money in medicine (Mar. 16, 2010), available at http://grassley.senate.gov/news/Article.cfm?customel_dataPageID_1502=25752. [73]   Press Release, Office of Senator Charles Grassley, Grassley works to empower whistleblowers, protect tax dollars (July 1, 2010), available at http://grassley.senate.gov/news/Article.cfm?customel_dataPageID_1502=27347. [74]   Press Release, Office of Senator Charles Grassley, Grassley works to disclose financial ties between drug companies and doctors (Jan. 22, 2009), available at http://grassley.senate.gov/news/Article.cfm?customel_dataPageID_1502=18901. [75]   42 U.S.C. 1301 Sec. 1128G. [76]   151.461, 2009 Minnesota Statutes, https://www.revisor.mn.gov/statutes/?id=151.461. [77]   105 CMR 970.000, Pharmaceutical and Medical Device Manufacturer Conduct (Apr. 3, 2009), available at http://www.mass.gov/Eeohhs2/docs/dph/regs/105cmr970.pdf. [78]   Katherine Hobson, Follow-Up: Massachusetts Gift Ban Won’t Be Repealed (Aug. 2, 2010), Wall Street Journal, available at http://blogs.wsj.com/health/2010/08/02/follow-up-massachusetts-gift-ban-wont-be-repealed/. [79]   Vermont Legislation 247572.1, Bill S.48 (June 8, 2009), available at www.leg.state.vt.us/docs/2010/bills/Passed/S-048.pdf. [80]   Press Release, Office of the Attorney General of New Jersey, Tighter controls recommended to prevent conflicts of interest between doctors and pharmaceutical companies (Dec. 3, 2009), available at http://www.nj.gov/oag/newsreleases09/pr20091203b.html. [81]    Valerie Bauman, NY gov wants new regs on gifts to docs, Associated Press (Jan. 24, 2010), available at http://www.fiercepharma.com/story/ny-governor-lets-ban-pharma-gifts/2010-01-25. [82]   Press Release, Medtronic, Medtronic Announces Posting of Physician Payments, Enhancements to Physician Collaboration Practices (July 1, 2010), available at http://wwwp.medtronic.com/Newsroom/NewsReleaseDetails.do?itemId=1274992132963. [83]   Eli Lilly, Transparency, available at http://www.lilly.com/responsibility/business/transparency/. [84]   Charles Ornstein, Tracy Weber & Dan Nguyen, Docs on Pharma Payroll Have Blemished Records, Limited Credentials (Oct. 18, 2010), ProPublica, available at http://www.propublica.org/article/dollars-to-doctors-physician-disciplinary-records. [85]   Michelle Fay Cortez, Doctors Given Millions by Device Makers Fail to Disclose Pay in Research (Sept. 13, 2010), Bloomberg News, available at http://www.bloomberg.com/news/print/2010-09-13/doctors-given-millions-by-device-makers-fail-to-disclose-pay-in-research.html. [86]   Tracy Staton, Doc-payment database details industry ties (Oct. 19, 2010). [87]   Lanny A. Breuer, Assistant Attorney Gen., Dept. of Justice, Assistant Attorney General Lanny A. Breuer Speaks at the 24th National Conference on the Foreign Corrupt Practices Act (Nov. 16, 2010), available at http://www.justice.gov/criminal/pr/speeches/2010/crm-speech-101116.html [88]   Michael Rothfeld, Drug Firms Face Bribery Probe, Wall Street Journal (Oct. 5, 2010). [89]   Christopher M. Matthews, Pfizer and Johnson & Johnson Are Close to Settling FCPA Allegations, MainJustice.com (May 19, 2010). [90]   Id. [91]   Krishnakali Sengupta & Maju Samuel, SciClone shares plunge on SEC probe, Reuters (Aug. 10, 2010), available at http://www.reuters.com/article/idUSTRE6792QH20100810. [92]   Michael Rothfeld, Drug Firms Face Bribery Probe, Wall Street Journal (Oct. 5, 2010). [93]   See also Gibson Dunn’s 2010 Year-End FCPA Update, available at https://www.gibsondunn.com/publications/pages/2010Year-EndFCPAUpdate.aspx. [94]   See, e.g., Corporate Integrity Agreement Between the Office of Inspector General of the Department of Health and Human Services and AstraZeneca Pharmaceuticals LP and AstraZeneca LP, dated Apr. 27, 2010, available at http://oig.hhs.gov/fraud/cia/agreements/astrazeneca_04272010.pdf. [95]   Id. [96]   Press Release, U.S. Dept. of Health and Human Services, Sebelius and Holder announce new tools to prevent and fight fraud at Boston regional health care fraud prevention summit (Dec. 16, 2010), available at http://www.hhs.gov/news/press/2010pres/12/20101216a.html. [97]   These included settlements with Elan Pharmaceuticals, Exactech Inc., Kos Pharmaceuticals, Abbott Laboratories, B. Braun Medical, and Roxane Laboratories, Inc. (see Section II). [98]   FDA: ‘Bad Ad Program’ to Help Health Care Providers Detect, Report Misleading Drug Ads, fiercepharma.com (May 11, 2010), available at http://www.fiercepharma.com/press_releases/fda-bad-ad-program-help-health-care-providers-detect-report-misleading-drug-ads. [99]   Anna Edney, Drugmaker Chiefs May Be FDA Targets for Off-Label Use, Bloomberg Businessweek (Oct. 14, 2010), available at http://www.businessweek.com/news/2010-10-14/drugmaker-chiefs-may-be-fda-targets-for-off-label-use.html. [100]  Duff Wilson, Glaxo Case May Not Be Over,  N.Y. Times (Oct. 27, 2010), available at http://prescriptions.blogs.nytimes.com/2010/10/27/glaxo-case-may-not-be-over/?ref=health. [101]  Gibson Dunn’s 2010 Year-End False Claims Act Update, available at https://www.gibsondunn.com/publications/Pages/2010Year-EndFalseClaimsActUpdate.aspx. [102]  Dodd-Frank Wall Street Reform and Consumer Protection Act, Pub. L. No. 111-203, § 1079A (2010), available at http://www.govtrack.us/congress/bill.xpd?bill=h111-4173. [103]  Tony West, Assistant Attorney Gen. for the Civil Div., Dept. of Justice, Remarks at the American Bar Association National Institute on the Civil False Claims Act and Qui Tam Enforcement, at 1 (June 3, 2010) available at http://www.scribd.com/doc/32485437/Tony-West-Aba-Fca-qui-Tam-6-3-10. [104]  Press Release, Remarks by the President to a Joint Session of Congress on Healthcare (Sept. 9, 2007). [105]  Id. [106]  Press Release, Office of Pub. Affairs, Dept. of Justice, Departments of Justice and Health and Human Services Team Up to Crack Down on Health Care Fraud (Nov. 5, 2010), available at http://www.justice.gov/opa/pr/2010/November/10-ag-1256.html. [107]  Alex Wayne, Government Fraud ‘Strike Forces’ to Expand Under Obama Spending Plans, Bloomberg News (Aug. 6, 2010). [108]  See Section III above. [109]  Anna Edney, Drugmaker Chiefs May Be FDA Targets for Off-Label Use, Bloomberg Businessweek (Oct. 14, 2010). The White Collar Defense and Investigations Practice Group of Gibson, Dunn & Crutcher LLP successfully defends corporations, senior corporate executives, and public officials in a wide range of federal and state investigations and prosecutions, and conducts sensitive internal investigations for leading companies in almost every business sector. The Group has members in every domestic office of the Firm and draws on more than 75 attorneys with deep government experience, including numerous former federal and state prosecutors and officials, many of whom served at high levels within the Department of Justice and the Securities and Exchange Commission.  Our attorneys bring a unique breadth of experience and talent to handle complex health care enforcement matters, as well as to conduct delicate internal investigations in the health care arena. We have used that experience and perspective for a wide range of health care compliance counseling engagements, including, as examples, reviews of company protocols and policies concerning interactions with health care providers, conceptualizing and instituting needs assessment reviews for the utilization of physician-consultants, and conducting analyses of how compliance policies are effectuated in the field. Our practice is cross-disciplinary in nature, at times relying on experts in various areas to address issues such as health care privacy and data breaches, intellectual property licensing, and fair market value rates, including members of our Health Care and Life Sciences practice groups. Los Angeles Debra Wong Yang (213-229-7472, dwongyang@gibsondunn.com) Marcellus McRae (213-229-7675, mmcrae@gibsondunn.com) Michael M. Farhang (213-229-7005, mfarhang@gibsondunn.com) Douglas Fuchs (213-229-7605, dfuchs@gibsondunn.com) Kevin S. Rosen (213-229-7635, krosen@gibsondunn.com) New York Joel M. Cohen (212-351-2664, jcohen@gibsondunn.com) Lee G. Dunst (212-351-3824, ldunst@gibsondunn.com) Mark A. Kirsch (212-351-2662, mkirsch@gibsondunn.com) Randy M. Mastro (212-351-3825, rmastro@gibsondunn.com) Orin Snyder (212-351-2400, osnyder@gibsondunn.com) Alexander H. Southwell (212-351-3981, asouthwell@gibsondunn.com) Jim Walden (212-351-2300, jwalden@gibsondunn.com) Lawrence J. Zweifach (212-351-2625, lzweifach@gibsondunn.com) Orange County Nicola T. Hanna (949-451-4270, nhanna@gibsondunn.com) Washington, D.C. F. Joseph Warin (202-887-3609, fwarin@gibsondunn.com) Michael Bopp (202-955-8256, mbopp@gibsondunn.com) David P. Burns (202-887-3786, dburns@gibsondunn.com) Denver Robert C. Blume (303-298-5758, rblume@gibsondunn.com) Dallas Robert B. Krakow (214-698-3124, rkrakow@gibsondunn.com) © 2011 Gibson, Dunn & Crutcher LLP Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

October 1, 2010 |
Overview of the New Colorado Medicaid False Claims Act

Denver partner Robert Blume, of counsel Jessica Sanderson and associate Brian Baak are the authors of “Overview of the New Colorado Medicaid False Claims Act,” [PDF] published by The Colorado Lawyer on October 1, 2010.

July 19, 2010 |
Major Multi-City Takedown Signals Prosecutors’ Continued Focus on Health Care Fraud and Compliance in the U.S.

In a sign of the Obama administration’s continued emphasis on anti-fraud enforcement in the health care field, the joint Department of Justice-Health and Human Services Medicare Fraud Strike Force charged ninety-four people on Friday for their alleged participation in schemes to collectively submit more than $251 million in false claims to the Medicare program.  The takedown, which included arrests in Brooklyn, Miami, Baton Rouge, Detroit, and Houston, was the largest operation by the task force since its inception in 2007. The arrests were announced by officials at the highest level of the Department of Justice (DOJ) and the Department of Health and Human Services (HHS), including Attorney General Eric Holder, HHS Secretary Kathleen Sebelius, Assistant Attorney General Lanny A. Breuer, and various United States Attorneys, signaling that health care enforcement remains a top priority for federal prosecutors. Trend of Increased Enforcement Includes Corporate Wrongdoers Last year, the DOJ and HHS created an interagency group–the Health Care Fraud Prevention and Enforcement Action Team (known as HEAT)–specifically tasked with combating health care fraud.  Health care fraud is now a top-five priority at the DOJ, as well as a key area of focus for the Federal Bureau of Investigation (FBI).  In his statement to the Senate Judiciary Committee, Assistant Attorney General Tony West, citing to the billions of dollars that are "wasted on fraud and abuse," reiterated that "the Department of Justice, through its Civil, Criminal, and Civil Rights divisions, along with U.S. Attorneys’ Offices and the FBI–the entities responsible for enforcing laws against all forms of health care fraud–has prioritized much of our enforcement efforts on protecting the integrity of health care that is provided to patients." President Obama’s 2010 budget invests $311 million–a 50 percent increase from 2009 funding–to strengthen program integrity activities within the Medicare and Medicaid programs.  These funds are not limited to investigating "street-level" fraud by individuals.  In Senate testimony, Assistant Attorney General Breuer stated that the DOJ is committed to prosecuting all who commit health care fraud, including "corporate wrongdoers."  And beginning last November, the DOJ has added several high-profile names to lead its Fraud Section, including a new chief of the Fraud Section, and continues to add "in-the-trenches" attorneys with a special focus on health care fraud to bolster the Section as well.  In fact, Obama administration officials have described fighting health care fraud as a priority of the DOJ, and health care fraud investigations as "among the highest priority investigations within the FBI’s White Collar Crime Program." Friday’s operation was aimed at physicians, medical assistants, and health care company owners and executives running Medicare fraud schemes.  But it also serves as a strong indication that the joint DOJ-HHS Medicare Fraud Strike Force and HEAT are fully active and engaged in pursuing their missions, including health care compliance enforcement. With this in mind, health care enforcement activity will likely continue to increase in the future.  As we have advised in prior client alerts, investigations by HHS, DOJ, and state attorneys general will likely continue in the "tried-and-true" areas, such as relationships with physician consultants, misbranding, false claims, and violations of the anti-kickback statute and Stark laws.  Enforcement officials have also begun adding to their list of practices under scrutiny, including, most recently, billing practices, "ghostwriting" and executive compensation at non-profit health care companies.  Furthermore, health care companies conducting business overseas are increasingly under scrutiny for possible FCPA violations. The collection of factors including the political climate, the success of recent enforcement actions, the injection of new funds and federal enforcement officials, the additional practices now facing scrutiny, and the state prosecutors and regulators who have joined the fray, all point to an obvious conclusion:  Health care compliance will continue to be a burgeoning enforcement area.  In this climate, it is more important than ever before that companies institute and maintain rigorous health care compliance systems and practices. The White Collar Defense and Investigations Practice Group of Gibson, Dunn & Crutcher LLP successfully defends corporations, senior corporate executives, and public officials in a wide range of federal and state investigations and prosecutions, and conducts sensitive internal investigations for leading companies in almost every business sector. The Group has members in every domestic office of the Firm and draws on more than 75 attorneys with deep government experience, including numerous former federal and state prosecutors and officials, many of whom served at high levels within the Department of Justice and the Securities and Exchange Commission.  Our attorneys bring a unique breadth of experience and talent to handle complex health care enforcement matters, as well as to conduct delicate internal investigations in the health care arena. We have used that experience and perspective for a wide range of health care compliance counseling engagements, including, as examples, reviews of company protocols and policies concerning interactions with health care providers, conceptualizing and instituting needs assessment reviews for the utilization of physician-consultants, and conducting analyses of how compliance policies are effectuated in the field. Our practice is cross-disciplinary in nature, at times relying on experts in various areas to address issues such as health care privacy and data breaches, intellectual property licensing, and fair market value rates, including members of our Health Care and Life Sciences Practice Group. Los AngelesDebra Wong Yang (213-229-7472, dwongyang@gibsondunn.com)Marcellus McRae (213-229-7675, mmcrae@gibsondunn.com)Michael M. Farhang (213-229-7005, mfarhang@gibsondunn.com)Douglas Fuchs (213-229-7605, dfuchs@gibsondunn.com)Kevin S. Rosen (213-229-7635, krosen@gibsondunn.com) New YorkJoel M. Cohen (212-351-2664, jcohen@gibsondunn.com)Lee G. Dunst (212-351-3824, ldunst@gibsondunn.com)Mark A. Kirsch (212-351-2662, mkirsch@gibsondunn.com)Randy M. Mastro (212-351-3825, rmastro@gibsondunn.com)Orin Snyder (212-351-2400, osnyder@gibsondunn.com)Alexander H. Southwell (212-351-3981, asouthwell@gibsondunn.com)Jim Walden (212-351-2300, jwalden@gibsondunn.com)Lawrence J. Zweifach (212-351-2625, lzweifach@gibsondunn.com) Orange CountyNicola T. Hanna (949-451-4270, nhanna@gibsondunn.com) Washington, D.C.F. Joseph Warin (202-887-3609, fwarin@gibsondunn.com)Michael Bopp (202-955-8256, mbopp@gibsondunn.com)David P. Burns (202-887-3786, dburns@gibsondunn.com) DenverRobert C. Blume (303-298-5758, rblume@gibsondunn.com) DallasRobert B. Krakow (214-698-3124, rkrakow@gibsondunn.com) © 2010 Gibson, Dunn & Crutcher LLP Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

July 15, 2010 |
U.S. Supreme Court to Decide the Scope of Materiality under Federal Securities Laws

On June 14, 2010, the United States Supreme Court granted a writ of certiorari to review the decision of the Ninth Circuit in Siracusano v. Matrixx Initiatives, Inc., 585 F.3d 1167 (9th Cir. 2009).  In this case, the Ninth Circuit reversed the District of Arizona’s grant of a motion to dismiss plaintiffs’ complaint alleging violations of Section 10(b) of the Securities Exchange Act of 1934, holding that the plaintiffs had adequately pled materiality, and that the lack of statistical significance of patient complaints regarding a product was not a proper basis to find that the alleged omissions were not material. The Ninth Circuit held that courts are required to consider whether the undisclosed information available to the defendants would be material to a reasonable investor even if there was no statistically significant evidence that the product was unsafe. The Ninth Circuit’s decision creates a split of authority with the First, Second, and Third Circuits, which have held that drug companies have no duty to disclose adverse event reports until those reports provide statistically significant evidence that the adverse events may be caused by, and are not simply randomly associated with, a drug’s use.  See, e.g., N.J. Carpenters Pension & Annuity Funds v. Biogen IDEC Inc., 537 F.3d 35, 50 (1st Cir. 2008); In re Carter-Wallace, Inc. Securities Litigation, 220 F.3d 36, 41-42 (2d Cir. 2000) (“Carter-Wallace I“); In re Carter-Wallace, Inc. Sec. Litig., 150 F.3d 153, 157 (2d Cir. 1998) (“Carter-Wallace II“); Oran v. Stafford, 226 F.3d 275, 284 (3d Cir. 2000). The direct question presented by the cert. petition to the Supreme Court is whether a plaintiff can state a claim under Section 10(b) of the Securities Exchange Act and SEC Rule 10b-5 based on a pharmaceutical company’s nondisclosure of adverse event reports, even though the reports are not alleged to be statistically significant.  The broader question, however, is how the Supreme Court will view the role of statistical significance and materiality in securities fraud cases more generally.  As the Court’s June 2010 ruling in Morrison v. National Australia Bank (Case No. 08-1191) suggests, the Court may address the issue before it more expansively than it was strictly framed by the lower courts. Summary of Siracusano In Siracusano, plaintiffs alleged that Matrixx and three individual defendants failed to disclose reports that its product, Zicam, could cause anosmia (loss of smell).  The allegations stated that, as early as December 1999, Matrixx was aware of reports linking anosmia to Zicam use.  The Neurological Director of the Smell & Taste Treatment and Research Foundation, Ltd., called Matrixx’s customer service line and reported that at least one of his patients had developed the condition after using Zicam.  He also told the Zicam representative that “other studies had indicated potential problems with ‘intranasal application of zinc.'”  585 F.3d at 1170. In September 2002, another doctor reported that his patient had lost the sense of smell after using Zicam and was allegedly told by an individual defendant that Matrixx had received other, similar complaints.  The individual defendant told the doctor that the company “had hired a consultant to review the product.”  Id. In September 2003, a researcher contacted Matrixx about a presentation he would be making at a medical conference discussing the cases of several individuals who claimed to have lost their sense of smell after using the drug.  Matrixx management forbade the researcher from referring to Zicam or Matrixx in the presentation. On October 14, 2003, the first of several products liability cases was filed.  However, Matrixx was not served until October 23, 2003, the day of an earnings conference call in which Matrixx expressed “optimism” for the future.  Id. at 1172.  The Company’s 10-Q, filed in November 2003, discussed the risk of products liability litigation but did not discuss the lawsuit that had been filed or reveal that numerous claims of anosmia related to Zicam use had been brought to the company’s attention.  In January 24, 2004, Matrixx upwardly revised its earnings guidance for that year. On January 30, 2004, there were news reports that the FDA was investigating Zicam in light of at least three products liability suits.  Plaintiffs alleged that Matrixx’s stock price declined following the report.  The Company issued a press release three days later stating that the assertions that “intranasal Zicam products cause anosmia … are completely unfounded and misleading” and attacking the credibility of the reporter.  585 F.3d at 1173.  In doing so, it cited two studies of Zicam’s safety and efficacy. On February 6, 2004, Good Morning America televised a story about Zicam, reporting one of the researchers’ findings and that lawsuits had been filed.  Again, Matrixx’s stock price is alleged to have “plummeted, falling from $13.05 per share on February 5, 2004, to close at $9.94 per share on February 6–a one-day drop of 23.8% on unusually heavy trading volume.”  Id. at 1174.  The company responded by assuring their customers that their products were manufactured according to FDA standards and that no study had linked anosmia and Zicam use.  Less than two weeks later, Matrixx convened a panel of experts that determined that there was insufficient evidence to determine whether Zicam could cause anosmia. Plaintiffs allege that by October 2004, Matrixx was sued by approximately 284 individuals in 19 separate lawsuits alleging that Zicam had damaged their sense of smell. The Ninth Circuit Decision The District of Arizona dismissed the complaint, reasoning that the allegations regarding Zicam users’ claims were not material because they were not statistically significant.  It determined that the complaint failed properly to allege materiality “absent allegations Defendants knew there was a definitive and statistically significant link between Zicam and anosmia during the Class Period that was ‘sufficiently serious and frequent to affect future earnings.'”  585 F.3d at 1177 (emphasis in original) (internal quotations omitted). The Ninth Circuit reversed, holding that the district court improperly relied on a statistical significance standard to determine that the plaintiffs’ complaint did not allege “a material misrepresentation or omission of fact.”  Id. at 1178.  Instead of determining that the omitted information relating to patient complaints regarding anosmia was immaterial as a matter of law, the Ninth Circuit held that the district court should have allowed the finder of fact to conduct a fact-specific inquiry in order to determine whether the information would have been material to a reasonable investor. The First, Second and Third Circuits In N.J. Carpenters Pension & Annuity Funds v. Biogen IDEC Inc., ten days after two participants died from “opportunistic infections” in a clinical trial of a drug developed to combat multiple sclerosis and other autoimmune disorders, the defendant drug manufacturer announced that it was suspending all clinical trials and withdrawing the drug from the market.  537 F.3d at 37.  Securities actions were filed immediately following the announcement.  Id. at 47.  However, because the incidence of opportunistic infections in clinical trials was small, there was no basis to conclude that those results were statistically significant.  Id. at 50-51.  The First Circuit held that, where there was no allegation that defendants were aware of a “causal relationship” between the deaths and defendant’s product, plaintiffs had not adequately alleged scienter.  Id. at 49. Similarly, the Second Circuit, in Carter-Wallace I, held that a drug company’s statements failing to disclose deaths alleged to be related to its anti-epileptic medication were not materially misleading, because the company had no information that the number of deaths linked to its product were statistically significant.  150 F.3d at 157.  The Second Circuit held that “[d]rug companies need not disclose isolated reports of illnesses suffered by users of their drugs until those reports provide statistically significant evidence that the ill effects may be caused by–rather than randomly associated with–use of the drugs and are sufficiently serious to affect future earnings.”  Id.  In a subsequent appeal arising from that litigation, the Second Circuit again applied the statistical significance standard in determining that plaintiffs had not alleged scienter adequately, because it was not “reckless” for defendants not to disclose statistically insignificant reports of drug-related deaths.  Carter-Wallace II, 220 F.3d at 41-42. The Third Circuit has held likewise.  In an opinion authored by then-Circuit Judge Samuel Alito, the Third Circuit in Oran v. Stafford considered whether the maker of weight loss drugs made material representations and omissions regarding the safety of those drugs when they did not disclose several studies linking the drugs to heart valve damage.  226 F.3d at 279-80.  In affirming the district court’s dismissal of the claim, the Third Circuit held that where “plaintiffs never clearly explain how the accumulation of additional anecdotal data, short of the point of statistical significance, would have added anything” to previous disclosures, and “the link between the two drugs and heart-valve disorders was never definitively established,” the disclosure of that data “would not have significantly altered the ‘total mix’ of information” available to investors.  Id. at 284. Consideration by the Supreme Court In taking this case, the Supreme Court will resolve the conflict over whether statistical significance is a prerequisite to the required disclosure of event reports under the securities laws.  Although the case is important for the pharmaceutical industry, medical device manufacturers, and others subject to the FDA premarket approval and reporting regime, it will also have implications for industries subject to analogously pervasive federal or state regulation. More broadly, the case gives the Court the opportunity to clarify the standards for materiality in securities cases.  There is little guidance in this area other than TSC Indus. Inc. v. Northway, Inc., 426 U.S. 438 (1976), which stands for the threshold proposition that “[a]n omitted fact is material if there is a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote,” or, put differently, that materiality requires a “substantial likelihood that the disclosure would have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of information made available.”  Id. at 449.  However, the Court also has recognized that too much disclosure can be counterproductive as investors and others are overwhelmed by irrelevant information.  See, e.g., TSC Indus., 426 U.S. at 448-49 (“management’s fear of exposing itself to substantial liability may cause it simply to bury the shareholders in an avalanche of trivial information[,] a result that is hardly conducive to informed decision-making”); see also Buckman Co. v. Plaintiffs’ Legal Committee, 531 U.S. 341, 351 (2001).  Thus, the case should be of interest to issuers and other participants in the primary and secondary securities markets charged with disclosure obligations, including accountants and lawyers. Gibson, Dunn & Crutcher lawyers are available to assist in addressing any questions you may have regarding these issues. Please contact the Gibson Dunn lawyer with whom you work or any of the following members of the Securities Litigation Practice Group: Jonathan C. Dickey – Practice Co-Chair, New York (212-351-2399, jdickey@gibsondunn.com) Robert F. Serio – Practice Co-Chair, New York (212-351-3917, rserio@gibsondunn.com) Wayne W. Smith – Practice Co-Chair, Orange County (949-451-4108, wsmith@gibsondunn.com) Paul J. Collins – Bay Area (650-849-5309, pcollins@gibsondunn.com) George B. Curtis – Denver (303-298-5743, gcurtis@gibsondunn.com) Ethan Dettmer – San Francisco (415-393-8292, edettmer@gibsondunn.com) Gareth T. Evans – Los Angeles (213-229-7734, gevans@gibsondunn.com) Daniel S. Floyd – Los Angeles (213-229-7148, dfloyd@gibsondunn.com) Barry R. Goldsmith – Washington, D.C. (202-955-8580, bgoldsmith@gibsondunn.com) Mark A. Kirsch – New York (212-351-2662, mkirsch@gibsondunn.com) John C. Millian – Washington, D.C. (202-955-8213, jmillian@gibsondunn.com) John H. Sturc – Washington, D.C. (202-955-8243, jsturc@gibsondunn.com) M. Byron Wilder – Dallas (214-698-3231, bwilder@gibsondunn.com) Meryl L. Young – Orange County (949-451-4229, myoung@gibsondunn.com) © 2010 Gibson, Dunn & Crutcher LLP Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

April 23, 2010 |
The Complexities of Litigating Generic Drug Exclusion Claims in the Antitrust Class Action Context

Over the last decade, there has been an explosion in the number of cases challenging alleged exclusion of generic drugs by branded pharmaceutical manufacturers.  Often, when a branded pharmaceutical manufacturer is unsuccessful in making patent, scientific, or regulatory arguments in opposition to a prospective generic entrant, the branded manufacturer is faced with high-stakes high-stakes antitrust claims brought on behalf of purported classes of direct and indirect purchasers seeking a significant portion of the branded manufacturer’s revenues in compensatory damages. Sean Royall and Joshua Lipton of Gibson Dunn are co-authors of the attached article, "The Complexities of Litigating Generic Drug Exclusion Claims in the Antitrust Class Action Context," which addresses the complex issues raised at virtually every stage of these cases and offers practical considerations to help branded manufacturers prepare for potential lawsuits of this nature. Reprinted with permission from Antitrust, Vol. 24, No. 2 (Spring 2010), © 2010 the American Bar Association. Gibson Dunn lawyers are available to assist in addressing any questions you may have about these issues.  Please contact the Gibson Dunn lawyer with whom you work, any member of the firm’s Antitrust and Trade Regulation Group or its Health Care and Life Sciences Group, or the following article co-authors: M. Sean Royall – Dallas and Washington, D.C. (214-698-3256 or 202-955-8546, sroyall@gibsondunn.com)Joshua Lipton – Washington, D.C. (202-955-8226, jlipton@gibsondunn.com) © 2010 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

April 16, 2010 |
Federal Circuit Issues Important Decision Construing the Hatch-Waxman Counterclaim and Section viii Carve-Outs

On April 14, 2010, the U.S. Court of Appeals for the Federal Circuit issued its decision in Novo Nordisk A/S v. Caraco Pharmaceutical Laboratories, Ltd., No. 2010-1001.  This decision offers the first extensive construction of the counterclaim that was added to the Hatch-Waxman Act in 2003.  See 21 U.S.C. § 355(j)(5)(C)(ii)(I).  The counterclaim provision authorizes a generic drug maker to challenge the "patent information" submitted by an innovative pharmaceutical company if the patent does not claim an approved drug or method of using the drug product. Relying on the plain meaning of the relevant statutory text, the Federal Circuit held that, with respect to method claims, this counterclaim is available only in a narrow set of circumstances where the patent-in-suit does not claim any approved method of using the Orange Book-listed drug for which the generic applicant seeks approval.  Moreover, the court held, the counterclaim only authorizes the correction or deletion of the patent number or expiration date, and not any other information listed in the Orange Book in connection with the patent, such as a use code. Background.  Section 505 of the Hatch-Waxman Act, codified as amended at 21 U.S.C. § 355, regulates the process by which drug makers can secure FDA approval of new drugs, as well as the avenues of judicial relief available to patent holders and their generic competitors.  Section 505(b) requires innovators who file New Drug Applications (NDAs) to provide specified "patent information" to the Food and Drug Administration (FDA): "The applicant shall file with the application the patent number and the expiration date of any patent which claims the drug … or which claims a method of using such drug."  21 U.S.C. § 355(b)(1) (emphases added).  Separate and apart from the "patent information" specifically required of NDA filers by subsections (b) and (c), the FDA has promulgated regulations that require NDA applicants to provide substantial additional information not mandated by statute.  See 68 Fed. Reg. 36,671, 36,677 (June 18, 2003) (codified at 21 C.F.R. pt. 314).  This information is provided to FDA on Form 3542, and must include "the description of the approved indication or method of use" for a drug.  See 21 C.F.R. § 314.53(c)(ii)(P).  This description is popularly known as the "use code narrative."  The FDA publishes a list of patents claiming approved drugs, along with their associated use codes, in the "Orange Book." Section 505(j) requires generic companies making Abbreviated New Drug Application (ANDA) filings to include a certification that (I) no patent covering the listed drug has been listed in the Orange Book; (II) the patent has expired; (III) the patent will expire on a particular date and approval of the ANDA should be deferred until expiration; or (IV) the patent is invalid or will not be infringed by the manufacture, use, or sale of the generic drug.  21 U.S.C. § 355(j)(2)(A)(vii). The Hatch-Waxman Act provides that the filing of a Paragraph IV certification by an ANDA applicant is an act of patent infringement.  35 U.S.C. § 271(e)(2)(A); Eli Lilly & Co. v. Medtronic, Inc., 496 U.S 661, 678 (1990).  If the pioneer company brings suit within 45 days of receiving notice of the Paragraph IV certification, the FDA may not approve the ANDA for 30 months.  21 U.S.C. § 355(j)(5)(B)(iii). In 2003, the Hatch-Waxman Act was amended to authorize a limited counterclaim for ANDA filers sued for infringement:  If an owner of the patent or the holder of the approved application under subsection (b) of this section for the drug that is claimed by the patent or a use of which is claimed by the patent brings a patent infringement action against the [ANDA] applicant, the applicant may assert a counterclaim seeking an order requiring the holder to correct or delete the patent information submitted by the holder under subsection (b) or (c) of this section on the ground that the patent does not claim either–(aa) the drug for which the application was approved; or (bb) an approved method of using the drug. 21 U.S.C. § 355(j)(5)(C)(ii)(I) (added by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, Pub. L. 108-173, 117 Stat. 2066). Following the issuance of a patent for PRANDIN®, Novo Nordisk’s patented repaglinide-metformin combination drug, in 2004, Novo Nordisk submitted a proposed use code narrative to the FDA that read, "Use of repaglinide in combination with metformin to lower blood glucose."  The FDA assigned use code U-546.  In 2005, Caraco filed an ANDA for generic repaglinide that included a Paragraph IV certification that Novo Nordisk’s patent was invalid or would not be infringed by the sale of generic repaglinide.  Novo Nordisk sued for infringement under the provisions of the Hatch-Waxman Act.  Caraco then amended its ANDA, splitting its certification and submitting a section viii statement carving out repaglinide-metformin combination therapy from its label for Claim 4 of the patent.  The FDA indicated that it would permit such a carve-out, and Novo Nordisk moved for reconsideration. In December 2008, Novo revised its PRANDIN® label pursuant to an FDA directive "requesting changes to the professional labeling of all oral anti-diabetic drugs."  In May 2009, Novo submitted an amended FDA Form 3542, which included an updated use code narrative to reflect precisely the new FDA-mandated indication for PRANDIN®.  The new use code read, "A method for improving glycemic control in adults with type 2 diabetes mellitus," and was assigned use code U-968.  Based on the new use code, the FDA determined that Novo’s request for reconsideration of the section viii carve-out was now "moot," because the "factual predicate" on which FDA’s permissive carve-out decision had rested no longer applied.  Despite repeated entreaties from Caraco, FDA declined to allow its section viii statement.  Caraco then counterclaimed against Novo Nordisk under 21 U.S.C. § 355(j)(5)(C)(ii)–the special counterclaim added by the 2003 amendments to Hatch-Waxman–for "an order requiring [Novo] to correct the use code information submitted by [Novo]" to the FDA by filing an amended Form 3542 that would have asked the FDA to revert to the previous U-546 use code. The district court issued an injunction, requiring Novo Nordisk to change the use code narrative for PRANDIN®.  Novo Nordisk brought an interlocutory appeal to challenge that injunction. Federal Circuit Opinion.  The Federal Circuit, in an opinion authored by Judge Rader, reversed and vacated the injunction that had directed Novo Nordisk to change its use code. In holding that Caraco "does not have a statutory basis to assert a counterclaim requesting such injunctive relief," Op. at 1, the court adopted each of Novo Nordisk’s statutory interpretation arguments, and emphasized that "Caraco’s real complaint should lie with the FDA, not Novo." Id. at 12. Judge Clevenger joined Judge Rader’s analysis of the relevant statutory provisions in full, and wrote a separate concurrence emphasizing that "there is nothing illegal, or even incorrect, about Novo’s current use code" and that the denial of Caraco’s request for a section viii carve-out was the result of FDA policies, and not anything that Novo Nordisk had done wrong.  Concurring Op. at 3. Judge Dyk issued a dissenting opinion. In the majority opinion, the court made clear that, as Novo Nordisk had argued, the Hatch-Waxman Act provides only "a limited counterclaim to a generic manufacturer in a Paragraph IV infringement action," and that such a limited claim "strike[s the proper] balance of the pioneering and generic manufacturers’ interests."  Op. at 9, 12.  In its detailed analysis of the statute and the legislative history, the court adopted each prong of Novo Nordisk’s argument, providing multiple bases for its decision:   First, the court ruled that there is "no ambiguity in the statutory language."  Novo Nordisk had read the counterclaim statute to be limited to cases in which the listed drug does not claim any approved method of using the drug, while Caraco had read the statute far more broadly to permit a counterclaim whenever a drug does not claim all approved methods.  The court adopted Novo Nordisk’s plain meaning argument because, "[w]hen an indefinite article is preceded and qualified by a negative, standard grammar generally provides that ‘a’ means ‘any.’"  The court also agreed with Novo Nordisk that "[t]he rest of the counterclaim provision also does not support Caraco’s interpretation."  Op. at 10. Second, the court explained that the historical background–in particular, the fact that Congress added the use code counterclaim to "correct the specific issues raised in [the Federal Circuit’s 2002 decision in] Mylan [Pharms. v. Thomson], i.e., to deter pioneering manufacturers from listing patents  that were not related at all to the patented product or method"–supported the court’s interpretation of the statute that "on its face presents no ambiguities."  Op. at 10-11 (emphasis supplied).  The court thereby rejected Caraco’s far broader reading of the relationship between Mylan and the use code counterclaim.  Third, the court held that the counterclaim provision does not authorize an order compelling the patent holder to change its use code narrative because "the [Hatch-Waxman] Act defined the term ‘patent information’ as ‘the patent number and expiration date,’" and the counterclaim provision therefore "only authorizes suits to correct or delete an erroneous patent number and expiration date[, and t]he authorization does not extend to the use code narrative."  Op. at 12-13.   Fourth, the court decided that FDA interpretations or congressional floor statements invoked by Caraco were either at odds with the plain language of the statute or helplessly ambiguous.  Op. at 13-14. In addition to the detailed statutory analysis, the court made clear that its decision comported with central policy aim of the Hatch-Waxman Act, which is to strike a balance between the interests of generic and innovator manufacturers.  Thus, it was proper, according to the court, to limit the use code counterclaim so that generic manufacturers would need to go through the Paragraph IV lawsuit process to "provide proof that the[] use [of a generic drug] will not cause infringement of the patented use"; doing so "ensure[s] that a generic drug for non-patented purposes will not be used for patented purposes via a simple section viii certification" and ensures that such uses will instead be evaluated at trial "in a proceeding that fully tests for infringement and its implications, including potential health and safety risks."  Op. at 11-12. In his concurring opinion, Judge Clevenger stated that he "agree[d] with Judge Rader’s analysis of the relevant statutory provisions . . . and therefore join[e]d the opinion he wr[o]te[] for the court."  Concurrence at 1.  He wrote separately to address the dissent and emphasize that it was the FDA that requested a change in the approved indications for PRANDIN®, which "required Novo to use FDA’s new approved labeling . . . [and] permitted Novo to revise its use code."  Id.  He made clear that "[n]othing in the record suggests that Novo is responsible for the labeling change, which, given the statutory and regulatory framework, happens to benefit Novo at Caraco’s expense."  Id. at 2.  Indeed, he emphasized and reiterated numerous times that "there is nothing illegal, or even incorrect, about Novo’s current use code," that "[l]aying blame on Novo is wrong," and that "[i]f a fix is in order under the circumstances of this case, it lies with the FDA and Congress . . . to remedy the situation," and not with Novo Nordisk.  Id. at 3. Judge Dyk dissented, arguing that the Hatch-Waxman counterclaim authorized the injunction issued by the district court. Conclusion.  In this groundbreaking case, the Federal Circuit made clear that the Hatch-Waxman counterclaim for correction or deletion of patent information submitted by innovator drug manufacturers to the FDA is quite narrow: The counterclaim is available, for method of use patents, only where both of the following conditions are met: (1) the listed patent does not claim any approved method of using the drug that the ANDA applicant seeks approval for; and (2) the only patent information that the counterclaimant seeks to have corrected or deleted is the patent number or expiration date.  In light of these limitations, the court held, the Hatch-Waxman Act does not authorize a counterclaim for correction or deletion of other information listed in the Orange Book, such as the use code.  This decision should benefit innovator drug companies facing Hatch-Waxman counterclaims; this is especially so in the method of use context, where the FDA looks to use codes provided by NDA-holders for listing in the Orange Book in evaluating requests by ANDA applicants for section viii carve-outs.   This Alert was prepared by Mark A. Perry, who represented Novo Nordisk on appeal and argued the case to the Federal Circuit on Novo Nordisk’s behalf, and Josh Krevitt, Michael A. Sitzman, and Wayne Barsky, who represented Novo Nordisk at the district court and on appeal.  Any questions about Novo Nordisk or other litigation involving the Hatch-Waxman Act may be directed to the Gibson Dunn lawyer with whom you work or any of the following: Mark A. Perry – Washington, D.C. (202-887-3667; mperry@gibsondunn.com)Josh Krevitt – New York (212-351-2490, jkrevitt@gibsondunn.com)Michael A. Sitzman – San Francisco (415-393-8221, msitzman@gibsondunn.com)Wayne Barsky – Los Angeles (310-557-8183, wbarsky@gibsondunn.com) © 2010 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice

April 9, 2010 |
A Summary of the Financial Reporting and Disclosure Implications of the Health Care Reform Legislation

On March 23, 2010, President Obama signed into law the Patient Protection and Affordable Care Act. Seven days later, the president signed into law a reconciliation measure, the Health Care and Education Reconciliation Act of 2010. The passage of the Patient Protection and Affordable Care Act and the reconciliation measure (collectively, the "Act") has resulted in comprehensive health care reform legislation. The effects of the Act on the U.S. economy could be as sweeping as those resulting from the passage of Medicare and Social Security. Brian Lane, Michael Scanlon and Brad Blank of Gibson Dunn are co-authors of the attached Summary of the Financial Reporting and Disclosure Implications of the Health Care Reform Legislation (April 2010), which summarizes key provisions of the Act and their potential business and financial impacts. Reprinted with permission from Deloitte (April 2010), © 2010 Deloitte Development LLC. Gibson Dunn lawyers are available to assist in addressing any questions you may have about these developments.  Please contact the Gibson Dunn lawyer with whom you work or any of the following co-authors of the Summary: Brian J. Lane – Washington, D.C. (202-887-3646, blane@gibsondunn.com)Michael J. Scanlon – Washington, D.C. (202-887-3668, mscanlon@gibsondunn.com)Brad W. Blank – Orange County (949-451-4035, bblank@gibsondunn.com) © 2010 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

April 2, 2010 |
U.S. Health Care Reform Legislation Significantly Expands the False Claims Act

On March 23, 2010, President Obama signed into law the Patient Protection and Affordable Care Act, Pub. L. 111-148, 124 Stat. 119 (PPACA).  Media coverage and public scrutiny of this legislation has been extensive, but falling largely outside the spotlight are several provisions extending the reach of the False Claims Act, 31 U.S.C. §§ 3729-33 (FCA).  This expansion is not limited to the health care industry and increases the liability exposure of every company that does business with the federal government or supplies goods or services that are reimbursed by federal dollars.  This Alert provides an overview of the changes, which reverse the recent judicial trend toward limiting FCA qui tam actions and will likely increase both the number and type of whistleblower suits. Weakening the Public Disclosure Bar As reported in our previous FCA alerts and updates (available here) federal courts have construed the "public disclosure bar" broadly to dismiss numerous qui tam actions where the allegations are based on public disclosures and the relator is not an original source.  Section 10104 of the PPACA lowers the disclosure bar by amending the FCA to reverse this trend. Let Justice Decide The PPACA eliminates what was an absolute jurisdictional bar in favor of providing the Department of Justice with discretion over public disclosure dismissals.  As amended, the FCA now states that "the Court shall dismiss an action or claim under this section, unless opposed by the Government, if substantially the same allegations or transactions alleged in the action or claim were publicly disclosed."  31 U.S.C. 3730(e)(4)(A) (emphasis added).  This expansion of prosecutorial power will likely breathe new life into lawsuits that would previously have died, increasing the threat to potential FCA defendants. Only Federal Disclosures Count Broadening the realm of potential liability even further, the new law effectively preempted what would have been an important victory for FCA defendants in the Supreme Court.  Just one week after the PPACA’s enactment, the Court decided Graham County Soil and Water Conservation District v. U.S. ex rel. Wilson.  No. 08-304, slip op. (March 30, 2010).  The 7-2 Graham majority resolved a circuit-split by holding that whistleblowers cannot file lawsuits based upon information that is publicly available in state and local administrative reports, audits, and investigations.  However, as Justice Stevens noted for the Court, what would have been a landmark case will in fact have little impact going forward. The PPACA legislatively overrules Graham for all new cases by specifically amending the FCA to bar only those actions based on disclosures from federal sources or the news media.  Reversing what was the law in several circuits and would have been the law of the land, the PPACA grants qui tam relators the power to initiate lawsuits based on information in state and local government publications.  Graham is not entirely impotent, as it will apply to cases pending at the time the PPACA was enacted.  Unlike the FCA Amendments enacted as part of the Fraud Enforcement and Recovery Act of 2009 (FERA), which spawned a litany of litigation over retroactive application, the PPACA makes no mention of retroactivity.  Defendants currently facing qui tam allegations derived from state or local administrative sources therefore have a means of contesting the action against them.  This does nothing, however, to offset the increased likelihood going forward of "parasitic" or opportunistic lawsuits rooted in state or local government disclosures that would otherwise have been barred. Expanding the Original Source Exception The PPACA also bucks the judicial consensus on the "original source" exemption, which allowed whistleblowers to bring qui tam actions based upon public disclosures only if the relator had "direct and independent knowledge" of the information and provided it to the government before filing suit.  Further diluting the public disclosure bar, the amended FCA eliminates the direct knowledge requirement in favor of "knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions…"  31 U.S.C. § 3730(e)(4)(B).  This implies that companies interacting with the federal government now face the threat of lawsuits if a relator can add anything material to publicly available information, substantially increasing the pool of potential plaintiffs qualifying as an "original source." Additional FCA-Related Risks In addition to strengthening the FCA directly, the PPACA further expands the range of future FCA suits by applying the FCA to specific aspects of the new legislation. Exchange Payments The PPACA creates state-run "exchanges" intended to increase competition among health insurance providers by supplying a mechanism for individuals to shop different policies.  Section 1313 specifies that any payments made "by, through, or in connection with" an exchange are subject to the FCA if they include any federal funds.  As FCA violations are subject to treble damages, this creates significant incentives for participants to closely monitor any exchange-related activities. Overpayments As noted in our 2009 Year-End False Claims Act Update, FERA redefined "obligation" under the FCA to include "the retention of any overpayment."  This amendment opened potentially new avenues of exposure for federal contractors or grantees who knowingly retain government funds exceeding what they are owed.  Section 6402 of the PPACA amends the Social Security Act (SSA) to require the report and return of any Medicare or Medicaid overpayments within 60 days of identification or when any corresponding cost report is due.  Retention of any overpayment past these deadlines creates a risk of FCA liability. Kickbacks Section 6402 of the PPACA also amends the SSA to provide that any claim submitted in violation of the Anti-Kickback Statute constitutes a false and fraudulent claim for purposes of the FCA.  As we reported when this provision was initially proposed, cosponsor Senator Ted Kaufman (D-DE) declared that it applies to all payments stemming from an illegal kickback, defining such claims as false "even when the claims are not submitted directly by the wrongdoers themselves."  The amendment, according to Kaufman, "leverages the private sector to help detect and recover money paid pursuant to these illegal claims." Conclusion Together, these PPACA provisions reverse judicial precedent and trends by broadening the scope of potential FCA liability and expanding the class of private individuals empowered to bring an action on the government’s behalf.  The likely result is an increase in both the number and type of FCA claims.  Gibson Dunn will continue to monitor this legislation closely. Gibson, Dunn & Crutcher lawyers are available to assist in addressing any questions you may have regarding these issues.  Our attorneys have handled more than 100 FCA investigations and have a long track record of litigation success.  The firm has more than 30 attorneys with substantive FCA expertise and 20 former Assistant U.S. Attorneys and DOJ attorneys.  Please contact the Gibson Dunn attorney with whom you work, or any of the following:  Washington, D.C.F. Joseph Warin ( 202-887-3609  202-887-3609 , fwarin@gibsondunn.com)Andrew Tulumello ( 202-955-8657  202-955-8657 , atulumello@gibsondunn.com)Joseph D. West ( 202-955-8658  202-955-8658 , jwest@gibsondunn.com)Karen Manos ( 202-955-8536  202-955-8536 , kmanos@gibsondunn.com) New YorkRandy Mastro ( 212-351-3825  212-351-3825 , rmastro@gibsondunn.com) Jim Walden ( 212-351-2300  212-351-2300 , jwalden@gibsondunn.com) DenverRobert C. Blume ( 303-298-5758  303-298-5758 , rblume@gibsondunn.com)Jessica H. Sanderson ( 303-298-5928  303-298-5928 , jsanderson@gibsondunn.com)Laura Sturges ( 303-298-5929  303-298-5929 , lsturges@gibsondunn.com) DallasRobert B. Krakow (214-698-3124, rkrakow@gibsondunn.com)Evan S. Tilton ( 214-698-3156  214-698-3156 , etilton@gibsondunn.com) Orange CountyNick Hanna ( 949-451-4270  949-451-4270 , nhanna@gibsondunn.com) Los AngelesTimothy Hatch ( 213-229-7368  213-229-7368 , thatch@gibsondunn.com)   © 2010 Gibson, Dunn & Crutcher LLP Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

April 2, 2010 |
The Impact of U.S. Health Care Reform on Employers

On March 23, 2010, President Obama signed into law the Patient Protection and Affordable Care Act (the "Act").[1]  The Act fundamentally alters the U.S. health care delivery system through sweeping changes that include reforms to the health insurance market (including the establishment of "exchanges" to facilitate the purchase of insurance), an individual health insurance mandate, and various revenue-raising provisions.  The Act also imposes significant new requirements on employers and the group health plans that they sponsor, and these requirements are the focus of this Alert. Many of the most controversial provisions of the Act — including the "pay-or-play" rule for employers, automatic enrollment, and voucher requirements — generally do not take effect until 2014.  However, many changes are effective earlier, in some cases as soon as the first plan year beginning on or after September 23, 2010 (i.e., January 1, 2011 for calendar-year plans) or even earlier.  In order to assist employers in complying with their new legal obligations, this Alert reviews key provisions, beginning with those that take effect most quickly. Small Employer Tax Credit Effective January 1, 2010 The Act provides a tax credit of up to 35% of a small employer’s health insurance contributions.  Small employers generally include employers with fewer than 25 full-time employees with annual wages of less than $40,000 per employee.  The amount of the tax credit increases beginning in 2014. Early Retiree Medical Reinsurance Effective 90 Days After Enactment The Act directs the Department of Health & Human Services ("HHS") to establish a temporary $5 billion reinsurance program to reimburse employers that provide medical coverage to early retirees (generally retirees who are at least age 55 but not yet eligible for Medicare).  The program will reinsure 80% of annual claims between $15,000 and $90,000 (adjusted for inflation) for each eligible retiree.  The reinsurance program ends on the earlier of December 31, 2013 or when the $5 billion is expended.  It can be expected that many employers will seek to utilize the program, so employers interested in the program should closely monitor when HHS makes it available and comply with all procedures that HHS implements. Provisions Effective for Plan Years Beginning On or After September 23, 2010 While a number of the Act’s provisions take effect for plan years beginning on or after September 23, 2010 (January 1, 2011 for calendar year plans), "grandfathered" plans, which generally include plans in effect on March 23, 2010, are exempt from these requirements (and certain other requirements discussed below) except where specifically noted.  The grandfathering generally is tied to whether the "plan" at issue was in effect on that date, and is not limited to individuals who were covered by the plan on that date.[2]  Some of the most important provisions of the Act that apply to non-grandfathered group health plans beginning with the first plan year starting on or after September 23, 2010 include: Elimination of Annual and Lifetime Limits on Benefits.  Plans may not impose lifetime limits, and only restricted annual limits, on the value of "essential" benefits.  In addition, for plan years beginning in 2014 and thereafter, no annual limits may apply to essential benefits.  Essential benefits are defined by the Act to include, inter alia, emergency services, hospitalization, maternity and newborn care, mental and substance abuse services, and pediatric services.  Notably, this rule applies even to grandfathered plans. No Rescission of Coverage.  Plans may not rescind coverage except when the covered person committed fraud or intentionally misrepresented a material fact.  Again, even grandfathered plans are subject to this rule. Preventive Care.  No deductibles or other cost-sharing may apply to preventive care. Adult Children.  A plan that provides dependent coverage must allow such coverage to continue until a participant’s child (whether married or unmarried) turns 26.  This rule applies to grandfathered plans; however, until 2014, it applies only if the adult child is not eligible to enroll in another group health plan. Nondiscrimination.  Section 105(h) of the Internal Revenue Code has long imposed adverse tax treatment on highly compensated employees who participate in self-insured health plans that discriminate in favor of such employees in plan eligibility or coverage. The Act extends a similar nondiscrimination rule to non-grandfathered insured health plans. However, it is unclear whether the Act totally prohibits new insured plans from discriminating in favor of highly compensated employees, or merely imposes adverse tax treatment on those employees if the plan does discriminate in their favor. "Ensuring Quality of Care."  Plans must annually report to HHS and to participants and beneficiaries regarding benefits under the plan that improve health, such as case management and wellness activities. Uniform Explanation of Coverage to Enrollees.  The Act directs HHS to develop standards regarding this requirement, which is in addition to the ERISA-required summary plan description.  The plan administrator must prepare and distribute a summary of coverage to all eligible participants, both at the time of initial enrollment and during the annual enrollment process.  This rule applies to grandfathered plans. Appeal Procedures.  The Act imposes detailed additional requirements on internal and external claims procedures.  The requirements are substantially more expansive than the 2003 changes to ERISA’s claims procedure regulations. "Patient Protections."  If a plan requires or permits an enrollee to designate a primary care provider, then the plan must permit each enrollee to elect any such provider available under the plan who is willing to accept the enrollee.  In addition, various requirements regarding access to emergency treatment are imposed by the Act. No Use of Health FSAs for Over-the Counter Drugs.  Health flexible spending accounts ("FSAs") generally allow employees to use pre-tax money to pay health-related expenses.  Beginning in 2011, FSA monies cannot be used for reimbursement of over-the-counter drugs other than insulin (this limitation also applies to health savings accounts and health reimbursement accounts).  The grandfathering exception does not apply to this new requirement. Changes Effective in 2013 One key change that has already generated controversy (due to earnings restatements by AT&T, Verizon, and a number of other large companies) is a change to the Medicare Part D subsidy.  When Medicare Part D (prescription drug coverage) was enacted, a 28% employer tax credit was included in order to incentivize employers to continue providing retiree prescription drug coverage.  The Act eliminates the deduction for amounts allocable to this subsidy, effective for tax years beginning on or after January 1, 2013, thereby indirectly reducing the value of the subsidy to affected employers. In addition, two other changes made by the Act that impact employers and their health plans generally are effective beginning in 2013: Limitations on Health FSAs.  Employer contributions to a health FSA will no longer count as "qualified benefits" that are not taxable to the employee unless the plan limits employees’ annual health FSA salary reduction contributions to $2,500, indexed for inflation (currently there is no limit). Increase in Medicare Tax.  Beginning in 2013, individuals with wages above $200,000 for a single return and $250,000 for a joint return will be subject to an additional 0.9% tax on wages in excess of these thresholds.  The increase will apply to only the "employee" portion of the Medicare tax and not to the "employer" portion.  The employer is still required to withhold the employees’ taxes, including this increase. Changes Effective in 2014 As noted above, many of the Act’s provisions generally become effective in 2014.  With one exception, each of the most significant changes for employers noted below applies even to grandfathered plans: Automatic Enrollment.  Employers with 200 or more full-time employees that offer one or more health benefit plans must automatically enroll new full-time employees in the plan.  The employer must notify the employees about the automatic enrollment program and provide an opportunity to opt out of plan coverage.  "Pay or Play."  This is commonly referred to as the employer mandate.  Employers with 50 or more full-time employees must either provide specified minimum levels of coverage to their employees or pay an excise tax.  If an employer does not offer health coverage and at least one employee enrolls in a state insurance exchange and receives a subsidy from the federal government, the excise tax for each month that such minimum essential coverage was not provided is $167 for each full-time employee (whether or not a particular employee received a subsidy), excluding the first 30 employees.  If the employer does offer the required minimum level of coverage but an employee nevertheless enrolls in a state insurance exchange and qualifies for the subsidy (generally because the employee’s cost for insurance under the employer’s plan exceeded 9.5% of such employee’s household income), the employer will be assessed a monthly penalty of $250 for each such employee.  Minimum essential coverage generally includes the "essential" benefits noted above, and consists of emergency services, hospitalization, maternity and newborn care, and various other services. "Free Choice" Vouchers.  Employers that offer coverage will be required to provide any employee whose income is less than 400% of the poverty level a "free-choice voucher" if the employee’s cost of coverage is more than 8%, but less than 9.8%, of household income.  This voucher must be in an amount equal to what the employer would have contributed toward the employee’s health coverage and can be used by the employee to pay the premium for a plan purchased through a state-sponsored insurance exchange.  These vouchers are excludible from employees’ taxable incomes and are deductible by the employer. Voucher recipients are not eligible for subsidies through the insurance exchanges. Notice Requirements.  Employers must satisfy various notice requirements, including providing employees with a description of the applicable insurance exchange and a description of the subsidy provided by the Act. Maximum Waiting Period.  The maximum employment-based waiting period for health plan coverage is 90 days.  Prohibition on Preexisting Exclusion Limitations.  No such limitations are permitted (a more limited version of this rule applies beginning 90 days after the President signed the Act).  Grandfathered plans are subject to this rule. Prohibition on Discrimination Based on Health Status.  Plan eligibility rules may not take into account health status-related factors, including medical condition, claims history, and certain other factors.  Cost-Sharing Limitations.  Health plans may not impose cost-sharing amounts greater than the dollar amounts in effect under section 223(c)(2)(A)(ii) of the Internal Revenue Code applicable to high-deductible health plans (currently $5,000 for individual coverage, $10,000 for family coverage).  The threshold is adjusted upward beginning in 2015.  Grandfathered plans are exempt from this requirement. Conclusion Many provisions of the Act impact employers and their group health plans, in some cases beginning as early as September 23, 2010.  This Alert presents a high-level overview of some key provisions, but it obviously cannot cover all provisions of the Act that will impact employers.  Your Gibson Dunn attorney is happy to assist you with any questions regarding the Act.  [1]  In this Alert, references to the Act include revisions made by the Health Care and Education Tax Credit Reconciliation Act of 2010 (often referred to as the reconciliation bill), which includes several changes that were required by House Democrats in order to vote in favor of the Act.  [2]  A number of issues will impact the determination whether a plan is "new" or qualifies for grandfathered status, and these issues will need to be reviewed on a case-by-case basis.  In addition, despite the broad definition of grandfathered plan in the Act, there are concerns that the Obama Administration will issue guidance that substantially narrows the scope of the grandfathering (e.g., relatively minor changes in plan design may be deemed to result in a "new" plan). Gibson, Dunn & Crutcher lawyers are available to assist in addressing any questions you may have regarding these issues. Please contact the Gibson Dunn attorney with whom you work, or any of the following: Stephen W. Fackler – Palo Alto (650-849-5385, sfackler@gibsondunn.com)Karl G. Nelson -Dallas (214-698-3203, knelson@gibsondunn.com)Charles F. Feldman – New York (212-351-3908, cfeldman@gibsondunn.com)David West – Los Angeles (213-229-7654, dwest@gibsondunn.com)David I. Schiller – Dallas (214-698-3205, dschiller@gibsondunn.com)Michael J. Collins – Washington, D.C. (202-887-3551, mcollins@gibsondunn.com)Sean Feller – Los Angeles (213-229-7579, sfeller@gibsondunn.com)Amber Busuttil Mullen – Los Angeles (213-229-7023, amullen@gibsondunn.com)Chad Mead – Dallas (214-698-3134, cmead@gibsondunn.com) Meredith C. Shaughnessy – Los Angeles (213-229-7857, mshaughnessy@gibsondunn.com) Jonathan Rosenblatt – Palo Alto (650-849-5317, jrosenblatt@gibsondunn.com)John C. Cook – Washington, D.C. (202-887-3665, jcook@gibsondunn.com)Dina R. Bernstein – Los Angeles (213-229-7206, dbernstein@gibsondunn.com) Aaron K. Briggs – Los Angeles (213-229-7953, abriggs@gibsondunn.com)Krista Hanvey – Dallas (214-698-3425, khanvey@gibsondunn.com) © 2010 Gibson, Dunn & Crutcher LLP Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

March 1, 2010 |
Health Care Compliance in 2009 and Going Forward

Los Angeles partner Debra Wong Yang, Orange County partner Nick Hanna and New York Partner Alexander Southwell are the authors of "Health Care Compliance in 2009 and Going Forward: Part 1" [PDF] and "Health Care Compliance in 2009 and Going Forward: Part 2" [PDF] published in the March and April 2010 issues of Westlaw Journal’s Health Care Fraud.   Gibson Dunn associates Ladan Stewart, Melissa Epstein Mills, Adam Cohen, Ross Halper, Hane Kim and Kristy Grant also contributed to the articles. 

January 14, 2010 |
2009 Year-End Health Care Compliance Update

I.  Overview of Developments Enforcement in the health care compliance arena exploded in 2009, with more enforcement actions, bigger financial penalties, tougher settlement terms, and higher stakes for individuals–including prison sentences.  Many of the top companies in the health care industry found themselves in the government’s crosshairs this year, with some entering into record-breaking settlements.  But smaller players were hardly immune from scrutiny, with many similarly targeted in 2009.  This increased regulatory and prosecutorial emphasis on health care compliance was hardly an anomaly; all signs point to a continuation of this upward trend in 2010 and beyond. With the current push for reform, health care’s significance in the American dialogue has increased markedly this year.  The multi-trillion dollar question at the center of the current health care debate is how to provide quality health care to the American public, including the millions of Americans who lack health insurance, while keeping costs manageable and eliminating waste.  A key factor cited in the rising costs is health care fraud, and combating fraud is often depicted as a silver bullet. Against this backdrop, prosecutors and regulators are focusing with increasing intensity on issues of health care compliance.  Tapping into public anger over rising costs and reports of abuse, more and more politicians and public officials look to assign blame for perceived or actual problems in the current system.  From conflicts of interest in the use of consultants and creative accounting systems to instances of outright fraud, there is continued pressure to weed out all sources of waste in the system.  This is coupled with a formidable populist backlash, as also experienced by other industries, against big corporations allegedly padding their pockets by circumventing the rules, and bolstered by the current focus on key areas of revenue generation for the government. The result?  Over $5 billion in settlements and judgments relating to health care fraud recovered by the federal government in 2009.[1]  State governments have collected hundreds of millions more.[2]  The U.S. Department of Justice (DOJ) currently has nearly 1,000 pending civil cases involving health care fraud.[3]  Recent settlements serve as concrete examples of the increased exposure of the health care industry.  In January 2009, Eli Lilly agreed to pay over $1.4 billion to resolve allegations of off-label promotion of Zyprexa.  And in August 2009, for alleged off-label promotion of the drugs Bextra, Geodon, Zyvox, and Lyrica, Pfizer and its subsidiary Pharmacia & Upjohn agreed to pay $2.3 billion–in the largest health care fraud settlement in the history of the DOJ.  Moreover, health care fraud does not simply result in corporate financial losses.  In addition to significant reputational and business implications for companies (such as debarment from participation in Medicare and Medicaid), individual executives and employees are also at risk.  Individuals can face not only heavy fines, but also criminal conviction and imprisonment.  The concern that companies may view corporate fines–even hefty ones–as simply a cost of doing business has led the government to seek new and creative ways to raise the stakes for the health care industry.  As more companies are viewed as "repeat offenders," the government has increasingly focused on combating recidivism.  For example, according to Michael Louks, the acting U.S. Attorney in Massachusetts, referring to Pfizer’s $2.3 billion settlement, "[a]mong the factors we considered in calibrating this severe punishment was Pfizer’s recidivism."[4] Government investigations into health care compliance violations are intensifying.  This year, the DOJ and the Department of Health and Human Services (HHS) created an interagency group–the Health Care Fraud Prevention and Enforcement Action Team (known as HEAT)–specifically tasked with combating health care fraud.  Health care fraud is now a top-five priority at the DOJ, as well as a key area of focus for the Federal Bureau of Investigation (FBI).  In his statement to the Senate Judiciary Committee, Assistant Attorney General Tony West, citing to the billions of dollars that are "wasted on fraud and abuse," reiterated that "the Department of Justice, through its Civil, Criminal, and Civil Rights divisions, along with U.S. Attorneys’ Offices and the FBI–the entities responsible for enforcing laws against all forms of health care fraud–has prioritized much of our enforcement efforts on protecting the integrity of health care that is provided to patients."[5] Other players are also taking an interest.  With Senator Charles Grassley of Iowa in the lead, several U.S. senators have established themselves as industry watchdogs, spurring new investigations and legislation.  States are also taking a closer look at the health care industry, with new laws regulating physician-industry interactions and state attorneys general becoming increasingly active in the field.  And HHS has recently taken a tougher stance against health care fraud, with a new approach requiring that many Corporate Integrity Agreements (CIAs) include a provision whereby the company must hire a "compliance expert" similar to the monitors often mandated by the DOJ in Deferred Prosecution Agreements (DPAs).  If this trend continues, CIAs would, as a matter of course, impose some of the same onerous monitoring requirements as DPAs. On the industry side, players are responding to the heightened scrutiny.  Increasingly, companies are strategically adopting stricter policies than the law requires.  Several have chosen to voluntarily disclose compensation paid to physicians.  These individual corporate initiatives have been matched by the two leading industry professional associations, both of which adopted more stringent ethical codes in 2009. These recent developments–the national health care debate, the number and magnitude of recent settlements, the increased scrutiny by the government at all levels, and the changes by the industry–mean that companies must vigilantly ensure that health care compliance is, and remains, a priority.  Avoiding missteps requires adapting quickly to the changing political and legal environment.  Now more than ever, health care compliance must be viewed as a business necessity.  This annual update provides a detailed review of notable settlements, judgments, actions, and investigations from 2009, an analysis of current trends in health care enforcement and compliance, and a projection of future trends that we anticipate based on the current environment. II.  Notable Settlements and Judgments This past year saw increased settlement activity, with health care companies paying record amounts to resolve claims of health care compliance violations at both the federal and state levels.  2009 was also marked by significant judgments against companies and individuals alike.  The conduct covered by these settlements and judgments ranged from off-label marketing and False Claims Act violations to Medicaid fraud and kickback schemes.  The defendants in these cases varied widely as well, from small regional companies to dominant global players like Pfizer, Lilly, and AstraZeneca. Pfizer, Inc. In September 2009, Pfizer, Inc. reached a $2.3 billion settlement with the DOJ, which amounted to "the largest health care fraud settlement in the history of the Department of Justice, the largest criminal fine of any kind imposed in the U.S., and the largest ever civil fraud settlement against a pharmaceutical company."[6]  The settlement included a $1.19 billion criminal penalty, the highest ever imposed for alleged health care fraud.  According to the DOJ, the "settlement is an example of the department’s ongoing and intensive efforts to protect the public and to recover funds for the federal treasury from those who seek to profit from fraud."[7]  The case was handled by the U.S. Attorney’s Office in Boston. Pfizer pled guilty to a federal criminal charge of illegally marketing the painkiller Bextra, arising from alleged "off-label" promotion of the drug by Pfizer’s subsidiary Pharmacia & Upjohn Company, Inc.  According to the settlement agreement, Pfizer encouraged doctors to prescribe Bextra to treat acute pain, a use not approved by the Food and Drug Administration (FDA).  The settlement included a $1 billion fine to resolve related whistleblower complaints relating to alleged off-label promotion of Bextra, along with the drugs Geodon, Zyvox and Lyrica.  Pfizer also pled guilty to marketing the anti-psychotic drug Geodon for use by children, which was not approved by the FDA.  The settlement also resolved charges that Pfizer treated doctors to meals, paid them for speaking engagements and subsidized their travel to induce them to prescribe off-label uses for thirteen separate Pfizer drugs.  In addition to the fine, Pfizer signed a five-year CIA with HHS, which provides for the appointment of an Independent Review Organization and an Outside Reviewer.[8]  Eli Lilly & Co. Just months before the Pfizer settlement, Eli Lilly & Co. paid $1.4 billion to settle criminal and civil suits related to its marketing of the anti-psychotic drug Zyprexa.  The drug was approved to treat schizophrenia, but was allegedly promoted to the elderly as a treatment for dementia and Alzheimer’s disease, a use not approved by the FDA.  Eli Lilly agreed to pay $615 million to settle the criminal investigation, which was handled by the U.S. Attorney’s Office in Philadelphia.  The company pled guilty to a misdemeanor charge of off-label promotion.  It paid $800 million to settle civil claims brought by the State Medicaid Fraud Control Units of various states.  As with Pfizer, Eli Lilly entered into a CIA with HHS.[9] AstraZeneca Drugmaker AstraZeneca P.L.C. announced on October 29, 2009 that it had set aside $520 million as part of a tentative agreement to resolve an investigation by the U.S. Attorney’s Office in Philadelphia into the company’s marketing practices.  The investigation focused on whether AstraZeneca promoted its antipsychotic drug Seroquel, which is approved to treat schizophrenia and bipolar disorder, as a treatment for other illnesses.  According to the company, the investigation dealt with separate allegations of the off-label marketing of Seroquel, as well as allegations regarding "selected physicians who participated in clinical trials involving Seroquel." Both sets of allegations were prompted by whistleblower suits filed under the False Claims Act.  The company said it would not comment on whether it would admit to wrongdoing as part of the settlement, and did not reveal the terms of the expected agreement, except to say that it will include a CIA.  AstraZeneca reached the deal with federal prosecutors in September, after a prolonged period of negotiations.[10] WellCare Health Plans, Inc. WellCare Health Plans, Inc. pled guilty to one count of conspiracy to commit health care fraud against Florida Medicaid and the Healthy Kids program.  The government alleged that WellCare engaged in several fraudulent strategies to avoid returning unspent money to the Florida health care programs.  WellCare entered into a 36-month DPA with the DOJ, and agreed to the appointment of a federal monitor as well as a fine of $80 million.[11]  Quest Diagnostics Quest Diagnostics agreed to pay $302 million to settle criminal and civil claims involving alleged misbranding and False Claims Act violations.  The DOJ claimed that a subsidiary of Quest Diagnostics had knowingly marketed and sold testing kits that provided unreliable results.  The settlement included a $40 million criminal fine to resolve the misbranding charges and a $262 million civil fine to settle the False Claims Act allegations. The investigation was started by a qui tam plaintiff, a whistleblower who reported that the test kits provided consistently incorrect results.  The plaintiff received $45 million as part of the settlement.[12]  Mylan, UDL, AstraZeneca, and Ortho McNeil On October 19, 2009, the DOJ announced that Mylan Pharmaceuticals, UDL Laboratories, AstraZeneca Pharmaceuticals, and Ortho McNeil Pharmaceutical had entered into settlement agreements totaling $124 million to resolve claims that they violated the False Claims Act by failing to pay appropriate rebates to state Medicaid programs for drugs paid for by those programs.  The precise amount of a rebate is determined in part by whether a drug is considered an "innovator" drug or a "non-innovator" drug.  The rebate paid for innovator drugs is higher than the rebate for non-innovator drugs.  The settlements resolve allegations that each company sold innovator drugs that were manufactured by other companies and had classified those drugs as non-innovator drugs for Medicaid rebate purposes.  As a result of the improper classification of these drugs, the companies allegedly underpaid their rebate obligations under the Medicaid Rebate Program. Mylan and UDL together agreed to pay $118 million to resolve the allegations that they had underpaid their rebate obligations with respect to several drugs.  As part of the settlement, the federal government will receive $60.1 million, the states will receive $50 million, and $7.3 million will be paid to entities that participated in the Public Health Service’s Drug Pricing Program.  Separately, AstraZeneca paid $2.6 million to resolve allegations that it underpaid its rebate obligations with respect to Albuterol. Ortho McNeil paid $3.4 million to resolve similar allegations with respect to Dermatop. The suit was initiated by a whistleblower, Ven-A-Care, a corporation located in Key West, Florida.  The whistleblower will receive a total of $10.8 million as its share of the recovery.[13] Omnicare On November 3, 2009, the DOJ announced that Omnicare Inc. would pay $98 million to settle charges that it engaged in several kickback schemes with drug makers and nursing homes.   In addition, IVAX Pharmaceuticals, a unit of Teva Pharmaceutical Industries Ltd., will pay $14 million to settle allegations that it paid $8 million in kickbacks in exchange for Omnicare’s agreement to buy $50 million of IVAX drugs.  The case was brought under the False Claims Act. The DOJ alleged that Omnicare, a provider of geriatric pharmaceutical services, regularly paid kickbacks to nursing homes to induce the homes to refer their patients to Omnicare for pharmacy services.  Moreover, it was alleged that Omnicare solicited and received kickbacks from Johnson & Johnson in exchange for agreeing to recommend that doctors prescribe J&J’s antipsychotic drug Risperdal.[14]  The DOJ indicated that it was still contemplating whether to intervene in a lawsuit against J&J, and J&J corporate filings suggest that employees of several subsidiaries have been subpoenaed to testify before a grand jury in connection with the investigation.[15]  Boston Scientific Boston Scientific Corporation announced on November 6, 2009, that it had reached an agreement in principle with the U.S. Attorney’s Office in Minneapolis to settle claims that product advisories issued by its Guidant subsidiary in 2005 violated the Food, Drug, and Cosmetic Act.  Under the terms of the agreement, Guidant will plead to two misdemeanor charges related to failure to include information in reports to the FDA, and Boston Scientific will pay $296 million on behalf of Guidant.  VENTAK PRIZM 2, the CONTAK RENEWAL and the CONTAK RENEWAL 2 devices, which were the subjects of the 2005 product advisories, were the only drugs involved in the settlement.[16] Pharmacia, Inc. A state court in Wisconsin imposed a forfeiture award of $4.5 million against Pharmacia, Inc., a subsidiary of Pfizer, in connection with the fraudulent pricing litigation brought by the Wisconsin Attorney General.  The court imposed a $1,000 forfeiture for each of the 4,578 acts of misrepresentation it found Pharmacia to have made or caused to be made that purportedly defrauded the Wisconsin Medicaid program. The court order follows the Pharmacia trial in February 2008, where the jury found damages totaling $9 million arising from alleged fraudulent pricing violations.  In total the State of Wisconsin has brought actions against 36 pharmaceutical companies, alleging violations of the state’s Medicaid Fraud laws.  Pharmacia was the first of the defendants to contest the allegations at trial.  Amgen, Immunex and Baxter Healthcare settled prior to the Pharmacia trial.  There are 32 remaining defendants in the litigation with more trials scheduled for March through May of 2010.[17] Synthes In the first settlement in connection with recent inquiries into potential conflicts of interest with health care providers, medical device manufacturer Synthes reached a settlement with the New Jersey Attorney General arising from allegations that Synthes had failed to disclose financial conflicts of interest among doctors involved in clinical research activities for the company.  The settlement called for Synthes to disclose any future payments or investments held by doctors involved in clinical research trials; the company agreed to make this information publicly available through its website.  Synthes also agreed to stop paying doctors who conduct clinical trials of its products with stock or stock options.  In addition, the company paid a fine of over $230,000.  The State of New Jersey had pursued the case as a matter of consumer fraud.  As discussed below, the State Attorney General had issued subpoenas to the five major device makers requesting information on conflicts of interest with physicians involved in clinical research activities.  Synthes is the only device maker to date to settle these claims.[18] UMDNJ In September 2009, the University of Medicine and Dentistry of New Jersey (UMDNJ) agreed to pay $8.3 million to settle charges that it paid illegal kickbacks to cardiologists.  According to the DOJ, in 1995, UMDNJ was having trouble finding enough patients to perform the minimum number of cardiac procedures needed to keep its governmental funding and accreditation as a Level One trauma center.  UMDNJ created part-time employment contracts with community cardiologists who in turn referred patients to UMDNJ.  The DOJ alleged that the part-time contracts were masked kickbacks to cardiologists for patient referrals.  Six cardiologists involved in the scheme settled with the DOJ as part of this prosecution. This is not the first time the DOJ has settled with UMDNJ.  In the last several years, a federal monitor found that the school had double-billed Medicaid for $5 million in procedures.  The school paid $2 million to settle that claim.  In 2005, the school paid $4.9 million to the federal government and the State of New Jersey as part of a DPA.[19] Actions Against Individuals In addition to these enforcement actions involving corporations, 2009 saw a number of notable individual prosecutions and settlements.  For example, one Miami physician was sentenced to 97 months in prison along with an order to return $9 million in restitution for Medicare fraud.  The physician co-owned a clinic that allegedly had routinely billed Medicare for unnecessary or unperformed services relating to HIV patients.[20]  Another Miami-area clinic was found to have charged Medicare for willfully performing improper services for HIV patients, resulting in four criminal convictions and hefty fines. The clinic purposely removed platelets from blood samples of HIV patients, then billed Medicare for treatment for those low-platelet-count patients.  Participants in the scheme were fined over $20 million in combined restitution payments and were given prison sentences ranging from 37 months to 90 months.[21] Health care executives were not spared in 2009.  In April, a former Bristol-Myers Squibb senior executive pled guilty to making a false statement in connection with a false certification to the Federal Trade Commission that no agreement had been made to delay the release of a generic version of Plavix, the most widely prescribed blood-thinning drug in the world.  He was sentenced to a $5,000 fine and two years probation, during which the judge ordered him to write a book about his experiences in order to deter future similar conduct.  That individual prosecution followed from a 2007 guilty plea by Bristol-Myers Squibb for the same conduct.  In the earlier case, the company was fined $1 million, the statutory maximum, for allegedly making illegal agreements with competitors and misleading the government regarding the patent for Plavix.[22]  In another case, the owner of a health care agency pled guilty in October to soliciting and collecting kickbacks for referring Medicare patients to home health care agencies.  The individual is currently awaiting sentencing.  She faces 57 months in prison, restitution to Medicare of $5.2 million, a $25,000 fine, and forfeiture of assets.[23] Finally, a former CEO of InterMune, Inc., a biopharmaceutical company, was convicted in September of a felony charge of wire fraud for his role in the alleged creation and dissemination of false and misleading information about the efficacy of the drug Actimmune.  The DOJ indicted the former CEO in 2008, about a year and a half after InterMune had resolved its claims with the DOJ and HHS by entering into a DPA and a CIA and paying nearly $37 million in fines. The government’s case against the executive primarily relied on a press release issued by InterMune which publicly announced the results of a clinical trial of Actimmune for the treatment of idiopathic pulmonary fibrosis (IPF).  The DOJ alleged that the defendant had caused the issuance and distribution of this press release, which misstated the results of the clinical trial by suggesting that Actimmune helped IPF patients live longer.  According to the DOJ, the clinical trial had in fact failed.  After a seven-week jury trial, the executive was acquitted of a misbranding charge under the Food, Drug, and Cosmetic Act, but convicted of wire fraud.  The maximum statutory penalty for wire fraud is 20 years in prison, a $250,000 fine, and three years’ supervised release.[24]   False Claims Act Actions and Collateral Civil Actions One crucial factor in health care compliance is the interplay between civil and government actions.  Qui tam, or whistleblower, lawsuits have often resulted in government intervention.  In the 2009 fiscal year, the Justice Department recovered $2.4 billion in settlements and judgments from False Claims Act cases, about $2 billion of which was a result of qui tam actions.[25]  Health care fraud recoveries, many of which are outlined above, accounted for two-thirds of the total, amounting to $1.6 billion.[26]  In addition, as detailed below, many of the investigations initiated by the government in 2009 spawned from a whistleblower suit.[27] Conversely, news of a government settlement can generate related civil lawsuits, thus further increasing a targeted health care company’s exposure to liability.  For example, after the government anti-kickback settlement with the five largest orthopaedic companies, culminating in a dismissal of charges in 2009, a family of salespeople who worked for a smaller competitor filed a lawsuit charging that the companies had illegally steered business away from the smaller companies, thus depriving the salespeople of commissions.  Although a federal judge dismissed the case against two of the companies, the remaining three companies ultimately settled.[28]  III. Notable Investigations and Actions Matching the rapid rise in significant settlements and judgments in the health care compliance area, numerous significant health care investigations and lawsuits were initiated in 2009 at both the federal and state levels.  Like the matters resolved in 2009, those instigated in the past year targeted a wide range of alleged conduct, including off-label marketing, False Claims Act violations, Medicare and Medicaid fraud, kickback schemes, and fraudulent marketing practices. Amgen On October 30, 2009, 14 states and the District of Columbia filed suit against the biotechnology giant Amgen Inc., accusing the company of engaging in illegal kickbacks to promote sales of the Aranesp anemia drug.  The lawsuit alleges that Amgen provided free samples to doctors and clinics by putting tiny extra amounts of the drug in each vial.  The medical practices could then make a profit by billing insurers, including state Medicaid programs, for the extra drug.  The lawsuit also alleges that Amgen, in cooperation with a division of AmerisourceBergen, invited doctors to weekend retreats, paying for their food and lodging and giving them extra payments as "advisers."  The suit joins a whistleblower suit with similar allegations filed by a former Amgen sales representative.[29] Biomet In January 2009, the U.S. Attorney’s Offices in Massachusetts and West Virginia launched separate investigations into Biomet, Inc., a leading orthopedic device manufacturer, for improper sales, promotion, and billing by its spinal device unit, EBI.  The company allegedly promoted the off-label use of its spine stimulation devices, resulting in fraudulent Medicare and Medicaid billing.  The West Virginia investigation stemmed from a whistleblower lawsuit alleging that a surgeon engaged in clinical research implanted the devices without asking for the consent of the patients.  The complaint also alleges that on 15 occasions, a representative of the EBI unit was in the operating room while the spinal products were used for off-label proposes.  The Massachusetts investigation may have stemmed from another whistleblower suit, which claimed that Biomet was improperly billing bone-growth stimulators as devices that must be purchased, rather than rented.[30]  Stryker Biotech Stryker Biotech, LLC, along with its former president and three current sales managers, were charged criminally on October 28, 2009 in federal court with participating in a fraudulent marketing scheme of medical devices used during invasive spinal and long bone surgeries. The company and its former CEO were also charged with making false statements to the FDA. The indictment alleges that the defendants participated in an illegal marketing scheme to promote medical devices used during invasive surgeries, and in doing so defrauded medical professionals and the FDA.  These devices were approved by the FDA only pursuant to a highly restrictive Humanitarian Device Exemption. One of the restrictions was that the device could only treat a condition that affected fewer than 4,000 patients in the United States, and could not be sold for a profit.  The indictment charges that the defendants promoted the use of these devices in a manner that was different from their FDA-approved uses.[31] Stryker, Biomet, DePuy, Medtronic Just a week after its settlement with Synthes, in May 2009, the Attorney General of New Jersey issued to Stryker Corp., Biomet, Inc., DePuy Orthopaedics, Inc., and Medtronic Inc. subpoenas seeking documents related to the financial interests of, and the companies’ arrangements with, physicians participating in clinical trials on behalf of the companies.  Each company disclosed receipt of the subpoena in various public fillings.[32]  The subpoenas sought documents regarding clinical studies, financial arrangements with certain physicians and health care providers, and research by certain physicians and health care providers. Scios, Inc. In December 2009, it was reported that the DOJ was considering filing off-label marketing charges against Johnson & Johnson subsidiary Scios, Inc.  The government apparently believes that Scios methodically pitched the drug Natrecor for chronic heart problems besides heart failure.  According to reports, doctors gave patients off-label infusions of the IV drug, helping to push sales to $111.2 million in 2002–more than double the $47.3 million the previous year.  By 2005, safety worries arose, leading Medicare to restrict reimbursement for the drug; the government program would only pay when Natrecor was used in hospitals. The Scios case began with a whistleblower.  In 2005, a qui tam suit accused Scios of an "extensive and far reaching" off-label marketing campaign for Natrecor.  According to those allegations, sales representatives were told to talk up the off-label uses to doctors, and the company sponsored seminars about the benefits of using Natrecor off-label.[33]  Siemens Medical Solutions Criminal investigators from the U.S. Department of Defense (DoD) raided the Siemens Medical Solutions headquarters facility in Malvern, Pennsylvania, in April 2009, just weeks after Siemens had won a $267 million medical-imaging contract from the DoD.  The raid, which sought documents and other information, was reportedly related to a False Claims Act whistleblower lawsuit filed in January 2009.  That suit alleged that Siemens had disregarded the best-value requirements in federal contracts for a range of medical imaging equipment by offering commercial customers deeper discounts than it gave federal customers, including the DoD, the Department of Veterans Affairs, and the Federal Bureau of Prisons.[34]  IV.  Current Trends In addition to the significant enforcement actions discussed above, 2009 has seen dramatic developments on several fronts.  The intensive public focus on the health care arena has prompted a heightened degree of legislative and regulatory scrutiny as well as groundbreaking new legislation at the federal and state levels.  These actions have in turn spawned a movement toward greater self-regulation, both by the pharmaceutical and medical-device industries and by individual companies who perceive a benefit in being ahead of the curve.  Finally, in late 2009, the government gave the industry a sharp and unequivocal warning of its intent to launch a targeted assault on international corruption in the health care field. Continued Congressional Scrutiny Led by Senator Grassley Senator Charles Grassley of Iowa, the ranking Republican on the Senate Committee on Finance, which has jurisdiction over the Medicare and Medicaid programs, has focused a great deal of attention over the past few years on the relationships between physicians and industry.  Senator Grassley’s stated goals are twofold:  First, to shed light on relationships that may create a conflict of interest between corporations and physicians; and second, to determine whether the federal government should do more to legislate in this area.   Senator Grassley’s committee lately has investigated various aspects of the health care industry, concentrating in particular on the relationships between health care professionals and the pharmaceutical industry–and on a perceived lack of transparency as to those relationships.[35]  Throughout 2009, Senator Grassley’s subpoenas to companies and doctors have been making headlines in major national newspapers including the New York Times and the Wall Street Journal.   One representative area of Senator Grassley’s focus is an inquiry into industry money paid to three Harvard psychiatrists who promoted antipsychotic medicines for children.  Based on records Senator Grassley obtained from drug companies, the professors were accused of failing to properly report at least $4.2 million in payments from 2000 to 2007.  In March 2009, the Senator asked Pfizer to provide details of payments made to at least 149 faculty members at Harvard Medical School since January 1, 2007, as well as any Pfizer e-mails, faxes, letters, or photos regarding Harvard medical students who have protested against drug company influence.[36] Additionally, Senator Grassley’s focus on "ghostwriting"–articles drafted by drug company-sponsored ghostwriters and then attributed to independent academic authors–has garnered attention and calls for change.[37]  In a recent editorial, the editors of the medical journal PLoS Medicine, from the Public Library of Science, called for a zero-tolerance policy under which medical journals would identify and retract ghostwritten articles, and refuse to publish future work by their authors.[38]  That editorial comes on the heels of a July 2009 request in which the Senator asked eight leading medical journals to describe their policies and practices regarding ghostwriting.  This request followed Senator Grassley’s earlier communications with Wyeth and DesignWrite, a medical education and communications company, regarding allegations that Wyeth hired DesignWrite to draft articles promoting the company’s hormone therapy products and to seek academic investigators to sign on as the primary authors.  Senator Grassley had previously written to Merck and Scientific Therapeutics Information, a medical publishing company, regarding similar allegations reported in the Journal of the American Medical Association related to articles on Merck’s VIOXX studies.   The Physician Payment Sunshine Act of 2009 On January 22, 2009, Senator Grassley, along with Wisconsin Democratic Senator Herb Kohl, introduced the Physician Payment Sunshine Act of 2009.  The Physician Payment Sunshine Act of 2009 is a strengthened version of a bill previously introduced in 2007, which some health care companies had supported.  The 2009 version focuses on the disclosure of the financial relationships between industry and physicians, but does not govern those relationships.  The bill includes language mandating online disclosure of physician investments in and ownership of manufacturers, and it has sharper teeth.  "The goal of our legislation is to lay it all out, make the information available for everyone to see, and let people make their own judgments about what the relationships mean or don’t mean," Senator Grassley said in a statement.[39]  The legislation would also require companies to report all consulting fees, honoraria, gifts, entertainment, travel, meals, research, charitable contributions, and many other benefits given to physicians.  And it would establish a national online registry for all industry payments of $100 or more to physicians.  Proposed fines for failure to comply–whether intentional or not–are severe.  Companies could be fined up to $150,000 per year for inadvertent violations, and up to $1 million for knowing violations. Several major industry players, including the Pharmaceutical Research and Manufacturers of America (PhRMA), the Advanced Medical Technology Association (AdvaMed), AstraZeneca, Merck, and Eli Lilly, have voiced support for the legislation, but have advocated for a higher threshold reporting requirement and have stressed that the bill must expressly preempt state marketing and reporting laws to ensure consistency in application. While the bill itself languished at the committee level, all of the major elements of the Physician Payments Sunshine Act appear in both the House and Senate versions of the health care reform bill.[40]  This legislation would not be the only new statute governing these interactions.  As drafted, the federal law will not preempt state law, and some states already have enacted even tougher rules.  Other states are looking to follow suit, as detailed below.  And of course, while the proposed federal legislation focuses only on the disclosure of relationships, Congress could always seek to govern the substance of those relationships in the future.    New State Laws in 2009 Several states passed new legislation in 2009 aimed at regulating interactions between health care professionals and the industry.  These laws follow Minnesota’s 2005 law, which prohibits "any manufacturer or wholesale drug distributor, or any agent thereof, to offer or give any gift of value to a practitioner."[41] Massachusetts Continuing the trend of rising concern over physician-industry relationships, Massachusetts passed legislation, effective June 1, 2009, aimed at regulating these interactions.[42]  The new law provides a fairly strict health care compliance regime applicable to any company doing business in Massachusetts. This law requires all pharmaceutical and medical device companies to adopt training programs, conduct annual audits to ensure compliance, develop and implement policies and procedures for investigating and correcting violations of the code, and identify a compliance officer.  The companies must file annual reports with the Department of Public Health outlining their adherence to the code, and on an annual basis must also disclose payments to health care professionals.  The penalty for violations is a fine of up to $5,000 for each transaction, occurrence, or event that violates the code.  The law also directs the Massachusetts Department of Public Health to adopt a marketing code of conduct, which must be at least as restrictive as the AdvaMed Code of Ethics and the parallel PhRMA Code.  Adherence to the marketing code is mandatory for all health care companies operating in Massachusetts.  The new law is strict.  The trigger for disclosure of payments is a mere $50.  And under the law, companies may not provide any entertainment or recreation, travel for continuing medical education or other meetings, or meals other than modest meals provided at a training event.  Even the giving of small complimentary items, like branded pens, mugs, and calendars, is prohibited.[43] Vermont Not to be outdone by its New England neighbor, Vermont passed legislation, effective July 1, 2009, prohibiting manufacturers of prescription drug, device, and biologics products from providing certain kinds of gifts or payments to physicians and other health care professionals.  The Vermont legislation also requires disclosure to the state of most other kinds of gifts or payments, regardless of amount.  This legislation is more comprehensive than the Physician Payments Sunshine Act, and more sweeping than comparable gift disclosure laws in other states.  The law’s definition of "gift" is broad, including "anything of value provided to a health care provider for free" and, with a few named exceptions, "any payment, food, entertainment, travel, subscription, advance, service, or anything else of value provided to the health care provider."  Some examples of exempt gifts under the law, which are allowed but must be reported, include patient samples, normal rebates and discounts, devices loaned for evaluation, academic literature, and FDA-approved labels.  Where a company permissibly gives a health care provider an item of value subject to these rules, the manufacturer must disclose information about the value, nature, and recipient for those permitted items.  There is no de minimus exception.  The law provides for penalties of up to $10,000 per unlawful gift or $10,000 per failure to report.[44]  New Jersey On December 3, 2009, the New Jersey Attorney General released a report from the Division of Consumer Affairs recommending new regulations to curtail the potential for conflicts of interest between doctors and pharmaceutical companies and medical device manufacturers.  The report sets forth new policies to be considered by the Board of Medical Examiners, the Board of Pharmacy, the Department of Health and Senior Services and academic medical centers.  The new policies would go beyond the voluntary industry codes (PhRMA and AdvaMed), and would ban doctors from accepting any gifts or fees or travel expense reimbursement from any pharmaceutical or medical device manufacturer.  In addition, the proposed reforms bar physicians from accepting free food and meals in office settings or at promotional dinners. Recommended regulations would also require doctors who do serve as consultants to pharmaceutical companies or medical device manufacturers to publicly disclose every two years the acceptance of more than $200 in consulting fees, honoraria, or funding for research or education. The report recommends tight controls on what is known in the pharmaceutical industry as "data mining," or tracking physician prescription information.  All physicians would have to be notified when renewing their licenses that they can opt out of having information about their prescriptions sold by pharmacists to health care information organizations, which collect information on prescriptions for pharmaceutical company marketing.  In the area of continuing medical education, the report recommends that CME credit only be received by doctors for courses that are accredited by the Accreditation Council for Continuing Medical Education (ACCME) and specifically bar the CME provider from obtaining advice from a company that subsidizes the course, creating a separation between educational content and the source of the subsidy.[45] Increased Focus of HHS In recent months, HHS has taken a tougher stance against health care fraud.  Increasingly, CIAs imposed by HHS require companies to retain one or more "compliance experts," similar to the corporate monitors often required by the DOJ as part of DPAs.  The compliance experts are vested with the authority to review the company’s compliance program and to make binding recommendations, similar to a DPA monitor.  Often, these experts are tasked with reporting directly to the company’s Board of Directors.  Signed in late 2008, Bayer’s CIA mandated a Compliance Expert Panel.[46]  Similarly, Quest’s CIA in 2009 required a Compliance Expert.[47]  And Pfizer’s CIA, signed in 2009, in addition to requiring a more expansive mandate for the Independent Review Organization than most CIAs, also called for an Outside Reviewer to monitor the company’s compliance with its obligations.[48]  If this trend continues, it will constitute an important development in health care compliance enforcement.  Companies signing CIAs would be bound by some of the same onerous monitoring requirements imposed by DPAs.  HHS Strengthening HIPAA Enforcement On October 30, 2009, HHS issued an interim final rule, with request for comments, to strengthen its enforcement of the rules promulgated under the Health Insurance Portability and Accountability Act (HIPAA).  The Health Information Technology for Economic and Clinical Health (HITECH) Act, which was enacted as part of the federal government’s economic stimulus package in February 2009, modified HHS’s authority to impose civil monetary penalties for violations occurring after February 18, 2009.  These HITECH Act revisions substantially increase the penalty amounts that may be imposed for violations of the HIPAA rules and encourages prompt corrective action.  The HITECH Act significantly strengthened the civil monetary penalty scheme by establishing tiered ranges of increasing minimum penalty amounts, with a maximum penalty of $1.5 million for all violations of an identical provision.  A covered entity can no longer bar the imposition of a civil monetary penalty for an unknown violation unless it corrects the violation within 30 days of discovery.[49] 2009 Advancements in Industry Codes of Conduct New PhRMA Code The Pharmaceutical Research and Manufacturers of America represents the country’s leading pharmaceutical research and biotechnology companies. On July 10, 2008, PhRMA’s Board of Directors adopted measures to enhance the 2002 PhRMA Code on Interactions with Health Care Professionals. The revised PhRMA Code, which is voluntary, took effect in January 2009. The revised PhRMA Code prohibits the distribution of all non-educational items, including small branded promotional items such as pens, mugs, and pads, to health care professionals and staff.  It also provides restrictions on meals provided by company sales representatives and reaffirms the PhRMA Code’s pre-existing prohibition on providing entertainment or recreation to health care professionals.  And it mandates training on applicable laws and standards that govern interactions with health care professionals, provides various compliance certification guidelines, and requires detailed standards on the independence of continuing medical education programs.[50] New AdvaMed Code In December 2008, the Board of Directors of the Advanced Medical Technology Association unanimously approved a major update of AdvaMed’s Code of Ethics on Interactions with Health Care Professionals.  AdvaMed represents its member companies which develop, provide, market, and manufacture medical products, technologies, and related services and therapies.  The revised Code, effective as of July 1, 2009, further clarifies and distinguishes between appropriate and inappropriate activity between health care professionals and representatives of AdvaMed member companies.  It also presents non-member companies with an opportunity to adopt the AdvaMed Code’s principles and seeks to unite industry in addressing common issues in a consistent manner.  AdvaMed’s revised Code explicitly prohibits companies from providing to health care providers any entertainment or recreation, as well gifts of any type or value–including minor branded promotional items.  It also provides strict guidelines on meals, requiring that they be both modest in nature and incidental to a bona fide professional meeting in an appropriate setting.  Additionally, the new AdvaMed Code provides guidelines on such topics as giving of demonstration products, royalty agreements, consulting agreements, training and education, grants, and many other areas.[51] Companies Adopting Stricter Policies Than Required By Law The Pharmaceutical Research and Manufacturers of America represents the country’s leading pharmaceutical research and biotechnology companies. On July 10, 2008, PhRMA’s Board of Directors adopted measures to enhance the 2002 PhRMA Code on Interactions with Health Care Professionals. The revised PhRMA Code, which is voluntary, took effect in January 2009. The voluntary disclosures have come under varying terms.  For example, Eli Lilly was the first drug-maker to voluntarily disclose payments to physicians; it began doing so in mid-2009 on its public website.[52]  The company’s website disclosure includes all payments (since January 1, 2009) of more than $500 made to individual physicians for advice, speeches and other services, as well as educational grants for medical conferences.  Lilly eventually will disclose payments to physicians for travel, entertainment and gifts, and clinical research.  Pfizer has also indicated it will disclose all payments that total over $500 annually to a physician.[53]  Merck’s public disclosures vary by category.  Beginning in the fourth quarter of 2009, Merck started to disclose all payments to U.S.-based health care professionals who speak on behalf of Merck and its products.  Starting in October 2008, Merck began reporting grants over $500 provided by the company’s Global Human Health division to U.S. organizations in support of independent accredited educational programs for health care professionals.  Over the course of 2009, Merck expanded this disclosure to include other types of grants.  Starting in March 2009, Merck began reporting all philanthropic grants made through the Office of Corporate Philanthropy and The Merck Company Foundation.  Information includes the name of the organization, program name/description, and the amount of the grant provided.  Merck will update this list annually, providing a full 2009 report in the first quarter of 2010.[54] Medtronic’s disclosures are scheduled to begin in 2011.  These disclosures will include consulting fees, royalties, or honoraria for physicians who receive payments of $5,000 or more annually from Medtronic.[55] In late 2009, GlaxoSmithKline began disclosing payments made to U.S. health care professionals in connection with clinical trials, consulting services, and speaking engagements, and eventually will disclose payments for other types of research to health care professionals and institutions outside the U.S.[56]  The company also announced that beginning in 2010, it will no longer fund commercial CME programs; instead, it will only sponsor medical education provided by academic medical centers and their affiliated teaching hospitals, and by "national-level" professional medical associations.  The company will invite grant applications from 20 education providers and will choose programs that do the most to close "clinical gaps" in patient care, according to a company statement. And all the grants will be posted on the Glaxo website.[57] Focus on International Corruption These aggressive enforcement efforts are matched and perhaps even surpassed by the recent skyrocketing of anti-corruption enforcement efforts.  So it should come as no surprise that both in the U.S. and abroad, government officials have been cracking down on perceived corruption in the health care industry. DOJ Focus on FCPA In the keynote address of the November 12, 2009 Tenth Annual Pharmaceutical Regulatory and Compliance Congress and Best Practices Forum, Assistant Attorney General Lanny Breuer warned of increased DOJ enforcement of the Foreign Corrupt Practices Act (FCPA) in the pharmaceutical industry.[58]  He noted that about one-third of total sales of PhRMA members were generated outside of the U.S., and that the "depth of government involvement in foreign health systems, combined with fierce industry competition and the closed nature of many public formularies, creates a significant risk that corrupt payments will infect the process."  He explained that "the types of corrupt payments that violate the FCPA because they are given to obtain or retain business in other countries are not any different than the items of value that would violate the Anti-Kickback Statute if given within the United States–cash, gifts, charitable donations, travel, meals, entertainment, grants, speaking fees, honoraria, and consultant arrangements."[59] Mr. Breuer described increased DOJ staffing and expertise in the FCPA generally, and in the pharmaceutical context specifically, and noted that the DOJ’s FCPA and health care fraud units "are already working together to investigate FCPA violations in the pharmaceutical and device industries."  Further, the DOJ is working with the SEC and foreign law enforcement in various investigations.    DePuy International In December 2009, Britain’s Serious Fraud Office (SFO) charged a former Vice President of Marketing Development at DePuy International Ltd. with conspiracy to corrupt in connection with payments to medical professionals in the Greek public health care system.  The SFO alleges that the defendant made corrupt payments to Greek medical professionals in order to sell orthopedic devices.[60] In 2007, DePuy International’s parent company, Johnson & Johnson, made voluntary disclosures to U.S. government officials that foreign subsidiaries were believed to have made improper payments in connection with the sale of medical devices in two small-market countries.[61]  These disclosures may have triggered the SFO investigation, which reportedly began in 2008. V.   Future Trends The debate over health care reform this year has revealed a near-unanimous consensus that any national health care policy should strive towards providing coverage for the maximum number of people at the lowest cost.  Implicit in this movement is a sense of urgency to root out practices that bloat the cost of health care without providing value to patients.  President Obama highlighted this during his September 9, 2009, address to a joint session of Congress, when he said that most of his health care plan "can be paid for by finding savings within the existing health care system, a system that is currently full of waste and abuse.  Right now, too much of the hard-earned savings and tax dollars we spend on health care don’t make us any healthier….  [T]his plan would eliminate…hundreds of billions of dollars in waste and fraud."[62] This is not the first time President Obama has warned that health care fraud is in his crosshairs.  As discussed above, in May, the Administration announced that the DOJ and HHS were creating an interagency program, known as HEAT, to investigate and prosecute health care fraud.     President Obama’s 2010 budget invests $311 million–a 50 percent increase from 2009 funding–to strengthen program integrity activities within the Medicare and Medicaid programs.[63]  These funds are not limited to investigating "street-level" fraud by individuals.  In Senate testimony, Assistant Attorney General Lanny Breuer stated that the DOJ is committed to prosecuting all who commit health care fraud, including "corporate wrongdoers."[64]  And the DOJ is looking to add high-profile names to its leadership as well as several "in-the-trenches" attorneys to bolster its fraud section, with a special focus on health care fraud.[65]  In fact, Obama administration officials have described fighting health care fraud as a priority of the DOJ, and health care fraud investigations as "among the highest priority investigations within the FBI’s White Collar Crime Program."[66] Enforcement officials have not lost sight of their goal to help reduce the cost of health care in the United States.  While anti-fraud funding has yielded a 441% return on investment ($4.41 returned to victims of health care fraud for every $1 spent on enforcement), Assistant Attorney General Breuer has testified that "we believe that the deterrent effects from our efforts may produce far greater ‘returns on investment’ through dramatic reductions in fraudulent billings to and payments from Medicare."[67] With this larger purpose in mind, and armed with bigger budgets and staff, we can expect that enforcement actions will continue to increase in the future.  Investigations by HHS, DOJ, and state attorneys general will likely continue in the "tried-and-true" areas, such as relationships with physician consultants, misbranding, false claims, and violations of the anti-kickback statute and Stark laws.  But enforcement officials have recently begun adding to their list of practices under scrutiny, including, most recently, billing practices,[68] "ghostwriting"[69] and executive compensation at non-profit health care companies.[70]  Furthermore, health care companies conducting business overseas are increasingly under scrutiny for possible FCPA violations.[71] The field of enforcement officials scrutinizing health care companies is growing as well.  Whereas federal prosecutors once were predominant in this arena, state attorneys general are becoming more active, with Martha Coakley of Massachusetts and Anne Milgram of New Jersey being most involved.  New York’s Andrew Cuomo has also been active in the related field of conflicts of interest in the health insurance industry. The collection of these factors–the political climate, the success of recent enforcement actions, the injection of new funds and federal enforcement officials, the additional practices now facing scrutiny, and the state prosecutors who have joined the fray–all point to an obvious conclusion:  Health care compliance will continue to be a burgeoning enforcement area.  In this climate, it is more important than ever before that companies institute and maintain rigorous health care compliance systems and practices.     [1]   See, infra, Section II (Notable Settlements and Judgments).  [2]   Id.   [3]   Brent Kendall, Health Care Caseload Grows at Justice Department, Wall Street Journal (Nov. 20, 2009), available at http://online.wsj.com/article/SB125866334028656261.html.  [4]   Gardiner Harris, Pfizer Pays $2.3 Billion to Settle Marketing Case, N.Y. Times (Sept. 3, 2009), available at http://www.nytimes.com/2009/09/03/business/03health.html.   [5]   Statement of Assistant Attorney General Tony West Before the Senate Judiciary Committee, Effective Strategies for Preventing Health Care Fraud (Oct. 28, 2009), available at http://www.justice.gov/dag/testimony/2009/dag-testimony-091028.html.  [6]   Id.  [7]   Tom Perrelli, Associate Attorney General, Remarks as Prepared for Delivery by Associate Attorney General Tom Perrelli at Pfizer Settlement Press Conference (Sept. 2, 2009), available at http://www.justice.gov/asg/speeches/2009/aag-speech-090902.html.  [8]   Corporate Integrity Agreement Between the Office of Inspector General of the Department of Health and Human Services and Pfizer Inc. (Aug. 31, 2009), available at http://oig.hhs.gov/fraud/cia/agreements/pfizer_inc.pdf.  [9]   Corporate Integrity Agreement Between the Office of Inspector General of the Department of Health and   Human Services and Eli Lilly and Company (Jan. 14, 2009), available at http://oig.hhs.gov/fraud/cia/agreements/eli_lilly_and_company_01142009.pdf.  [10]    Duff Wilson, AstaZeneca Pays Millions to Settle Seroquel Cases, N.Y. Times (Oct. 30, 2009),  available at http://www.nytimes.com/2009/10/30/business/30drug.html.  [11]    Deferred Prosecution Agreement Between the United States Attorney’s Office for the Middle District of Florida, the Florida Attorney General’s Office and Wellcare Health Plans, Inc. and its Affiliates and Subsidiaries (May 5, 2009), available at http://www.wellcare.com/WCAssets/corporate/assets/00_dpa_complete.pdf.   [12]   Dep’t of Justice Press Release, Quest Diagnostics to Pay U.S. $302 Million to Resolve Allegations That a Subsidiary Sold Misbranded Test Kits (Apr. 15, 2009), available at http://www.justice.gov/opa/pr/2009/April/09-civ-350.html.  [13]   Dep’t of Justice Press Release, Four Pharmaceutical Companies Pay $124 Million for Submission of False Claims to Medicaid (Oct. 19, 2009), available at http://www.usdoj.gov/opa/pr/2009/October/09-civ-1120.html.  [14]   Dep’t of Justice Press Release, Nation’s Largest Nursing Home Pharmacy and Drug Manufacturer to Pay $112 Million to Settle False Claims Act Cases (Nov. 3, 2009), available at http://www.justice.gov/opa/pr/2009/November/09-civ-1186.html.  [15]   Brent Kendall, Omnicare Settles Charges in Kickback Case, Wall Street Journal (Nov. 30, 2009).  [16]    Boston Scientific Press Release, Boston Scientific Announces Agreement with DOJ on Pre-Acquisition Investigation of Guidant (Nov. 6, 2009), available at http://bostonscientific.mediaroom.com/index.php?s=43&item=875.  [17]   Dep’t of Justice Press Release, Jury Finds Pharmacia Committed Fraud on Wisconsin Medicaid Program; Van Hollen’s Department of Justice Wins State $9 Million (Feb. 17, 2009), available at http://www.doj.state.wi.us/absolutenm/anmviewer.asp?a=1076.  [18]   New Jersey Attorney General Press Release, Landmark Settlement Reached with Medical Device Maker Synthes (May 5, 2009), available at http://www.nj.gov/oag/newsreleases09/pr20090505a.html.  [19]   Dep’t of Justice Press Release, UMDNJ to Pay More Than $8 Million to Settle Kickback Case Related to Cardiology Program (Sept. 30, 2009), available at www.justice.gov/usao/nj/press/press/files/pdffiles/umdnj0930%20rel.pdf.  [20]  Dep’t of Justice Press Release, Miami Physician Sentenced to 97 Months in Prison for Role in $10 Million Medicare Fraud Scheme (June 29, 2009), available at http://www.justice.gov/opa/pr/2009/June/09-crm-637.html. [21]   Dep’t of Justice Press Release, Four Miami-Area Residents Sentenced in $10 Million Medicare Fraud Scheme (June 5, 2009), available at http://www.justice.gov/usao/fls/PressReleases/090605-04.html.  [22]  Dep’t of Justice Press Release, Former Bristol-Myers Squibb Senior Executive Pleads Guilty for Role in Dishonest Dealings with the Federal Government (Apr. 6, 2009), available at http://www.justice.gov/opa/pr/2009/April/09-at-313.html.  [23]   Dep’t of Justice Press Release, Owner of Health Care Agency Pleads Guilty in Medicare Kickback Scheme (June 15, 2009), available at http://www.justice.gov/opa/pr/2009/October/09-crm-1176.html.  [24]   Dep’t of Justice Press Release, W. Scott Harkonen, Former Biotech CEO, Convicted of Wire Fraud (Sept. 29, 2009).  [25]   Dep’t of Justice Press Release, Justice Department Recovers $2.4 Billion in False Claims in Fiscal Year 2009; More Than $24 Billion Since 1986 (Nov. 19, 2009), available at  http://www.justice.gov/opa/pr/2009/November/09-civ-1253.html.  [26]   Id.  [27]   See Gibson Dunn 2009 Year-End False Claims Act Update, available at http://www.gibsondunn.com/Publications/Pages/2009Year-EndFalseClaimsActUpdate.aspx.  [28]   McCullough v. Zimmer, Inc., et al.,  Civ. 08cv1123, 2009 WL 775402 (W.D. Pa. Mar. 18, 2009).  [29]    United States v. Amgen, Inc., Civ. 06-10972-WGY (D. Mass. Filed Oct. 30, 2009).  See also Andrew Pollack, Amgen Is Accused of Illegal Kickbacks, N.Y. Times (Oct. 30, 2009), available at http://www.nytimes.com/2009/10/31/business/31drug.html?_r=1&pagewanted=print.  [30]   Thomas M. Burton and David Armstrong, Biomet Sales of Bone-Growth Devices Investigated, Wall Street Journal (Apr. 20, 2009), available at http://online.wsj.com/article/SB124001278046330905.html.  [31]   Grand Jury Indictment, United States v. Stryker Biotech LLC, et al. (D.C. Mass. Oct. 28, 2009), available at http://www.justice.gov/usao/ma/Press%20Office%20-%20Press%20Release%20Files/HealthCareFraud/Stryker%20et%20al-%20Indictment%2010-28-09.pdf.  [32]    Stryker Corp. Form 8-K (May 11, 2009); Johnson & Johnson Form 10-Q (Aug. 4, 2009), available at http://www.investor.jnj.com/secfiling.cfm?filingID=950123-09-29672; Biomet, Inc. Form 8-K (May 4, 2009), available at http://www.sec.gov/Archives/edgar/data/351346/000119312509105699/d8k.htm; Medtronic Inc. Form 10-Q (Dec. 9, 2009).    [33]   Dan Levine, Marketing Tactics Put Johnson & Johnson Under DOJ Microscope, www.law.com (Dec. 3, 2009), available at http://www.law.com/jsp/article.jsp?id=1202436012057&Marketing_Tactics_Put_Johnson__Johnson_Under_DOJ_Microscope.  [34]   MaryClaire Dale, Defense investigators raid Siemens Medical in Pa., FoxNews.com (Apr. 22, 2009), available at http://www.foxnews.com/wires/2009Apr22/0,4670,USSiemensMedicalRaid,00.html.  [35]   Letter from Senator Charles Grassley to Jeffrey B. Kindler, Chairman of the Board and Chief Executive Officer of Pfizer, Inc. (Mar. 3, 2009), available at http://graphics8.nytimes.com/packages/pdf/business/2009_03_03_Pfizer_letter.pdf.  [36]   Duff Wilson, Senator Asks Pfizer About Harvard Payments, N.Y. Times (Mar. 3, 2009), available at http://www.nytimes.com/2009/03/04/business/04pfizer.html.  [37]    Press Release, Office of Senator Charles Grassley, Grassley Asks Top Medical Journals About Ghostwriting (July 2, 2009), available at http://grassley.senate.gov/news/Article.cfm?customel_dataPageID_1502=21624.  [38]   Natasha Singer and Duff Wilson, Medical Editors Push for Ghostwriting Crackdown, N.Y. Times (Sept. 17, 2009), available at http://www.nytimes.com/2009/09/18/business/18ghost.html.  [39]   Press Release, Office of Senator Charles Grassley, Grassley works to disclose financial ties between drug companies and doctors (Jan. 22, 2009), available at http://grassley.senate.gov/news/Article.cfm?customel_dataPageID_1502=18901.  [40]   Press Release, United States Senate Special Committee on Aging, Kohl Hails Passage of Health Reform Legislation (Dec. 24, 2009), available at http://www.aging.senate.gov/record.cfm?id=321138.  [41]   151.461, 2009 Minnesota Statutes, https://www.revisor.mn.gov/statutes/?id=151.461.  [42]   Press Release, State of Massachusetts Office of Health and Human Services, Patrick Administration Passes Tough New Rules Governing Pharmaceutical and Medical Device Industries (Mar. 11, 2009).  [43]   105 CMR 970.000, Pharmaceutical and Medical Device Manufacturer Conduct (Apr. 3, 2009), available at http://www.mass.gov/Eeohhs2/docs/dph/regs/105cmr970.pdf.   [44]   Vermont Legislation 247572.1, Bill S.48 (June 8, 2009), available at www.leg.state.vt.us/docs/2010/bills/Passed/S-048.pdf.  [45]   Press Release, Office of the Attorney General of New Jersey, Tighter controls recommended to prevent conflicts of interest between doctors and pharmaceutical companies (Dec. 3, 2009), available at http://www.nj.gov/oag/newsreleases09/pr20091203b.html.  [46]   Corporate Integrity Agreement Between the Office of Inspector General of the Department of Health and Human Services and Bayer Healthcare LLC (Nov. 21, 2008), available at http://oig.hhs.gov/fraud/cia/agreements/fully_executed_bayer_cia_112508.pdf.  [47]   Corporate Integrity Agreement Between the Office of Inspector General of the Department of Health and Human Services and Quest Diagnostics Incorporated (Apr. 14, 2009), available at http://oig.hhs.gov/fraud/cia/agreements/quest_diagnostics_incorporated_04142009.pdf.  [48]   Corporate Integrity Agreement Between the Office of the Inspector General of the Department of Health and Human Services and Pfizer, Inc. (Aug. 31, 2009), available at http://oig.hhs.gov/fraud/cia/agreements/pfizer_inc.pdf.  [49]    Press Release, U.S. Department of Health & Human Services, HHS Strengthens HIPAA Enforcement (Oct. 30, 2009), available at http://www.hhs.gov/news/press/2009pres/10/20091030a.html.  [50]   PhRMA Code on Interactions with Health care Professionals (July 10, 2008), available at http://www.phrma.org/code_on_interactions_with_healthcare_professionals.  [51]   AdvaMed Code of Ethics on Interactions with Health Care Professionals (Dec. 18, 2008), available at http://www.advamed.org/MemberPortal/About/code/.  [52]   Eli Lilly Press Release, Lilly Set to Become First Pharmaceutical Research Company to Disclose Physician Payments (Sept. 24, 2008), available at http://newsroom.lilly.com/releasedetail.cfm?ReleaseID=336444.  [53]   Pfizer, Inc. Press Release, Pfizer to Publicly Disclose Payments to U.S. Physicians, Healthcare Professionals and Clinical Investigators (Feb. 9, 2009), available at http://mediaroom.pfizer.com/portal/site/pfizer/?ndmViewId=news_view&newsId=20090209006347&newsLang=en.  [54]   Merck, Disclosure of Grants and Payments, available at http://www.merck.com/corporate-responsibility/business-ethics-transparency/ethics-financial-support-third-parties/home.html.   [55]   Medtronic Press Release, Medtronic to Voluntarily Disclose Payments to U.S. Physicians (Feb. 24, 2009), available at http://wwwp.medtronic.com/Newsroom/NewsReleaseDetails.do?itemId=1235482300024%26%239001%3B=en_US.  [56]   GlaxoSmithKline, Fees Paid to US Based Healthcare Professionals for Consulting & Speaking Services, 2nd Quarter 2009, available at http://gsk-us.com/docs-pdf/responsibility/hcp-fee-disclosure-2q2009.pdf.  [57]   Andrew Jack, GSK to Publish Level of Doctors’ Advisory Fees, Financial Times (Oct. 22, 2008), available at http://www.ft.com/cms/s/0/7f6917aa-a067-11dd-80a0-000077b07658.html?nclick_check=1.  [58]   The FCPA prohibits giving or promising anything of value to a foreign government official, political party or party official with the intent to influence that official in his official capacity or to secure an improper advantage in order to obtain or retain business.  Global health care companies are particularly susceptible to FCPA issues.  The many customers and business partners employed by public health systems in foreign countries, including physicians working at state-owned facilities, qualify as non-US "public officials" under the FCPA, and any payment made to these persons to inappropriately influence their business decisions may be considered an illegal bribe.  [59]   Lanny A. Breuer, Assistant Attorney General, Criminal Division, Prepared Keynote Address to The Tenth Annual Pharmaceutical Regulatory and Compliance Congress and Best Practices Forum (Nov. 12, 2009), available at http://www.mainjustice.com/2009/11/12/criminal-division-chief-breuers-fcpa-pharma-speech/comment-page-1/.  [60]   Former Johnson & Johnson exec charged in Britain, Associated Press (Dec. 1, 2009), available at http://www.sfexaminer.com/economy/ap/78217512.html.  [61]   Katharine Q. Seelye, Johnson & Johnson Says Improper Payments Were Made, N.Y. Times (Feb. 13, 2009), available at http://www.nytimes.com/2007/02/13/business/worldbusiness/13iht-web.0213drug.4577086.html.  [62]   Press Release, Remarks by the President to a Joint Session of Congress on Healthcare (Sept. 9, 2007), available at http://www.whitehouse.gov/the_press_office/Remarks-by-the-President-to-a-Joint-Session-of-Congress-on-Health-Care/.  [63]   Press Release, Attorney General Holder and HHS Secretary Sebelius Announce New Interagency Health Care Fraud Prevention and Enforcement Action Team (May 20, 2009), available at http://www.hhs.gov/news/press/2009pres/05/20090520a.html.  [64]   Lanny A. Breuer, Assistant Attorney General, Criminal Prosecution as a Deterrent to Health Care Fraud (May 20, 2009), available at http://judiciary.senate.gov/pdf/09-05-20BreuerTestimony.pdf.  [65]   Mike Scarcella, DOJ Looks for ‘Rock Star’ to Run Top-Priority Fraud Cases, National Law Journal (Aug. 11, 2009), available at http://www.law.com/jsp/cc/PubArticleCC.jsp?id=1202432928990.  [66]   Statement of Assistant Attorney General Tony West Before the Senate Judiciary Committee, Effective Strategies for Preventing Health Care Fraud (Oct. 28, 2009), available at http://www.justice.gov/dag/testimony/2009/dag-testimony-091028.html.  [67]   Lanny A. Breuer, Assistant Attorney General, Criminal Prosecution as a Deterrent to Health Care Fraud (May 20, 2009), available at http://judiciary.senate.gov/pdf/09-05-20BreuerTestimony.pdf.  [68]   Office of Attorney General Press Release, Attorney General Cuomo Announces Expansion of Historic Health Insurance Reform: Aetna Will End Relationship with Company that Manipulated Rates to Overcharge Patients by Hundreds of Millions of Dollars (Jan. 15, 2009), available at http://www.oag.state.ny.us/media_center/2009/jan/jan15a_09.html; see also http://www.oag.state.ny.us/media_center/2009/feb/feb2a_09.html.  [69]   Oregon Dep’t of Justice Press Release, Attorney General John Kroger Announces Multi-State Pharmaceutical Settlement Concerning Slow Disclosure of Negative Drug Study Results of Vytorin (July 15, 2009), available at http://www.doj.state.or.us/releases/2009/rel071509.shtml.   [70]   Massachusetts Attorney General Press Release, Massachusetts Attorney General Martha Coakley Announces Enhanced Oversight of Non-Profit Executive and Board Compensation (Sept. 2, 2009).  [71]   Jonathan N. Halpern, DOJ to Scrutinize Pharmaceutical Industry Conduct for FCPA Violations, www.martindale.com (Dec. 9, 2009), available at http://www.martindale.com/health-care/article_Bracewell-Giuliani-LLP_861680.htm. The White Collar Defense and Investigations Practice Group of Gibson, Dunn & Crutcher LLP successfully defends corporations, senior corporate executives, and public officials in a wide range of federal and state investigations and prosecutions, and conducts sensitive internal investigations for leading companies in almost every business sector. The Group has members in every domestic office of the Firm and draws on more than 75 attorneys with deep government experience, including numerous former federal and state prosecutors and officials, many of whom served at high levels within the Department of Justice and the Securities and Exchange Commission.  Our attorneys bring a unique breadth of experience and talent to handle complex health care enforcement matters, as well as to conduct delicate internal investigations in the health care arena. We have used that experience and perspective for a wide range of health care compliance counseling engagements, including, as examples, reviews of company protocols and policies concerning interactions with health care providers, conceptualizing and instituting needs assessment reviews for the utilization of physician-consultants, and conducting analyses of how compliance policies are effectuated in the field. Our practice is cross-disciplinary in nature, at times relying on experts in various areas to address issues such as health care privacy and data breaches, intellectual property licensing, and fair market value rates, including members of our Health Care and Life Sciences Practice Group. Los AngelesDebra Wong Yang (213-229-7472, dwongyang@gibsondunn.com)Marcellus McRae (213-229-7675, mmcrae@gibsondunn.com)Michael M. Farhang (213-229-7005, mfarhang@gibsondunn.com)Douglas Fuchs (213-229-7605, dfuchs@gibsondunn.com)Kevin S. Rosen (213-229-7635, krosen@gibsondunn.com) New YorkJoel M. Cohen (212-351-2664, jcohen@gibsondunn.com)Lee G. Dunst (212-351-3824, ldunst@gibsondunn.com)Mark A. Kirsch (212-351-2662, mkirsch@gibsondunn.com)Randy M. Mastro (212-351-3825, rmastro@gibsondunn.com)Orin Snyder (212-351-2400, osnyder@gibsondunn.com)Alexander H. Southwell (212-351-3981, asouthwell@gibsondunn.com)Jim Walden (212-351-2300, jwalden@gibsondunn.com)Lawrence J. Zweifach (212-351-2625, lzweifach@gibsondunn.com) Orange CountyNicola T. Hanna (949-451-4270, nhanna@gibsondunn.com) Washington, D.C.F. Joseph Warin (202-887-3609, fwarin@gibsondunn.com)Michael Bopp (202-955-8256, mbopp@gibsondunn.com)David P. Burns (202-887-3786, dburns@gibsondunn.com) DenverRobert C. Blume (303-298-5758, rblume@gibsondunn.com) DallasRobert B. Krakow (214-698-3124, rkrakow@gibsondunn.com) © 2010 Gibson, Dunn & Crutcher LLP Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

October 7, 2009 |
Health Care Executive Convicted of Wire Fraud in Connection with Misbranding Allegations

On September 29, 2009, a former CEO of a biopharmaceutical company was convicted of a wire fraud felony for his role in the alleged creation and dissemination of false and misleading information about the efficacy of a drug marketed by the company.  The indictment of this executive by the Department of Justice (the "DOJ"), and his eventual conviction, represent important developments in the burgeoning enforcement efforts currently underway in the health care industry.  Given recent trends in health care compliance enforcement, and in particular the government’s focus on holding individuals accountable, companies and executives alike should prepare for continued scrutiny. The Proceedings  The company, InterMune, Inc., allegedly marketed and sold the drug Actimmune as a treatment for idiopathic pulmonary fibrosis ("IPF"), despite the fact that Actimmune was not approved by the Food and Drug Administration as a safe and effective treatment for IPF.  According to the DOJ, the cost of Actimmune for one IPF patient for one year was approximately $50,000 and the vast majority of InterMune’s sales of Actimmune were for the off-label use of treating IPF. In October 2006, InterMune entered into a Deferred Prosecution Agreement with the DOJ and agreed to pay nearly $37 million to resolve criminal charges and civil liability arising from its alleged off-label marketing of Actimmune.  InterMune also entered into a five-year Corporate Integrity Agreement with the Department of Health and Human Services ("HHS"). Despite the company’s resolution of these claims, the DOJ indicted InterMune’s former CEO about a year and half later, in March 2008, charging him with wire fraud (in violation of 18 U.S.C. § 1343), as well as misbranding under the Food, Drug, and Cosmetic Act (in violation of 21 U.S.C. §§ 331(K), 333(A)(2), 352(A)).  The government’s case primarily relied on an August 2002 press release issued by InterMune which publicly announced the results of a clinical trial of Actimmune for the treatment of IPF.  The DOJ alleged that the defendant had caused the issuance and distribution of this press release, which misstated the results of the clinical trial by suggesting that Actimmune helped IPF patients live longer.  According to the DOJ, the clinical trial had in fact failed.   Last week, after a seven-week jury trial in California federal court, the defendant was acquitted of the misbranding charge but convicted of wire fraud.  The maximum statutory penalty for wire fraud is 20 years in prison, a $250,000 fine, and three years supervised release.   Implications for Health Care Enforcement  In bringing health care misrepresentation and fraud charges stemming from marketing statements, the DOJ has generally focused on companies and has rarely charged individuals.  But in this case, the DOJ diverged from its typical practice and charged an executive largely based on his role in preparing and disseminating a press release containing the alleged misrepresentation. As the InterMune case illustrates, with the growing focus on health care compliance issues and the recent interest in controlling costs, health care companies and executives can expect to face increasing scrutiny in the months and years to come.  Given that in many corners, health care fraud is cited as a key factor in rising costs, the current Administration is under pressure to ensure that such fraud is dealt with swiftly and aggressively.  Case in point:  DOJ and HHS have created an interagency group–the Health Care Fraud Prevention and Enforcement Action Team–which is specifically tasked with combating health care fraud.   The field of enforcement officials scrutinizing health care companies is expanding as well.  State attorneys general have become more active in the health care arena.  And HHS is increasingly mandating that Corporate Integrity Agreements require companies to retain one or more "compliance experts," similar to the corporate monitors often required by the DOJ as part of Deferred Prosecution Agreements.  Often times, these compliance experts are tasked with reporting directly to the Board of Directors. Not only has the scope of prosecutorial scrutiny increased, but so has its intensity.  In 2007 and 2008, for example, the federal government collected almost $3 billion in settlements from health care companies.  And this number has risen markedly in 2009–with almost $4 billion collected in just the first three quarters of the year.   But despite these fines, some government officials question their efficacy, fearing that companies may view these sums simply as a cost of doing business. It is therefore not surprising that prosecutors are seeking new ways to raise the stakes for the health care industry. By going after executives for criminal health care violations, and using creative approaches such as the invocation of the federal wire fraud statute in the InterMune case, the DOJ has made clear that it means business. More and more, health care executives are personally at risk. They can face not only hefty fines, but also imprisonment and criminal conviction.  In this climate, it is more important than ever before that companies institute and maintain rigorous health care compliance systems and practices. With executives increasingly having "skin in the game," the dynamics of health care compliance are likely to shift. No doubt, given these trends, corporate executives have even more incentive to build the infrastructure necessary to mitigate compliance risk at their companies. The White Collar Defense and Investigations Practice Group of Gibson, Dunn & Crutcher LLP successfully defends corporations, senior corporate executives, and public officials in a wide range of federal and state investigations and prosecutions, and conducts sensitive internal investigations for leading companies in almost every business sector. The Group has members in every domestic office of the Firm and draws on more than 75 attorneys with deep government experience, including numerous former federal and state prosecutors and officials, many of whom served at high levels within the Department of Justice and the Securities and Exchange Commission.  Our attorneys bring a unique breadth of experience and talent to handle complex health care enforcement matters, as well as to conduct delicate internal investigations in the health care arena. We have used that experience and perspective for a wide range of health care compliance counseling engagements, including, as examples, reviews of company protocols and policies concerning interactions with health care providers, conceptualizing and instituting needs assessment reviews for the utilization of physician-consultants, and conducting analyses of how compliance policies are effectuated in the field. Our practice is cross-disciplinary in nature, at times relying on experts in various areas to address issues such as health care privacy and data breaches, intellectual property licensing, and fair market value rates, including members of our Health Care and Life Sciences Practice Group. Los AngelesDebra Wong Yang (213-229-7472, dwongyang@gibsondunn.com)Marcellus McRae (213-229-7675, mmcrae@gibsondunn.com)Michael M. Farhang (213-229-7005, mfarhang@gibsondunn.com)Kevin S. Rosen (213-229-7635, krosen@gibsondunn.com)Douglas Fuchs (213-229-7605, dfuchs@gibsondunn.com) New YorkJim Walden (212-351-2300, jwalden@gibsondunn.com)Joel M. Cohen (212-351-2664, jcohen@gibsondunn.com)Lee G. Dunst (212-351-3824, ldunst@gibsondunn.com)Mark A. Kirsch (212-351-2662, mkirsch@gibsondunn.com)Lawrence J. Zweifach (212-351-2625, lzweifach@gibsondunn.com)Alexander H. Southwell (212-351-3981, asouthwell@gibsondunn.com) Orange CountyNicola T. Hanna (949-451-4270, nhanna@gibsondunn.com) Washington, D.C.F. Joseph Warin (202-887-3609, fwarin@gibsondunn.com)Michael Bopp (202-955-8256, mbopp@gibsondunn.com)David P. Burns (202-887-3786, dburns@gibsondunn.com) DenverRobert C. Blume (303-298-5758, rblume@gibsondunn.com) DallasRobert B. Krakow (214-698-3124, rkrakow@gibsondunn.com) © 2009 Gibson, Dunn & Crutcher LLP Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

August 3, 2009 |
Physician-Consultants: Five Lessons Learned From the Orthopaedic Monitorships

Orange County partner Nick Hanna and associate Melissa Mills are the authors of "Physician-Consultants: Five Lessons Learned From the Orthopaedic Monitorships" [PDF] published in the August 2009 issue of the Orange County Business Journal.

May 26, 2009 |
President Obama Signs Legislation Significantly Expanding the Scope of the False Claims Act

On May 20, 2009, President Obama signed into law significant changes to the False Claims Act, 31 U.S.C. § 3729 et seq. ("FCA").  The amendments will increase the liability exposure of every company that does business with the federal government and of every company that supplies goods or services that are reimbursed by federal government dollars.  This update provides an overview of the changes brought about by the new law, which (among other things), legislatively overturns the Supreme Court’s 9-0 ruling last term in Allison Engine Co., Inc. v. United States ex rel. Sanders, 128 S.Ct. 2123 (2008).  (For an overview of key FCA trends, see our 2008 year-end report on the FCA.)  Our February 26, 2009 Client Alert discussed two bills that Senator Grassley introduced to modify the False Claims Act.  Many of Senator Grassley’s proposed amendments were incorporated into a larger anti-fraud measure, the Fraud Enforcement and Recovery Act of 2009 ("FERA"), which President Obama signed into law on May 20.  Most press reports covering FERA have highlighted its primary purpose–to enable and fund investigations and prosecutions of financial fraud.  But in Section 4, FERA substantially broadened the FCA, and its enlarged scope will undoubtedly lead to increased qui tam lawsuits and enforcement activity. Section 4 of FERA amends the FCA in several fundamental ways. 1.  FERA Overrules Allison Engine and modifies the intent requirement for Section 3729(a)(2) claims. In Allison Engine, the Supreme Court held that Sections 3729(a)(2) and 3729(a)(3) of the FCA apply only to fraud directed against the federal government and not to frauds that subcontractors may commit against prime contractors working on projects funded with federal dollars.  The Court held that a defendant must "intend that a claim be paid … by the Government and not by another entity."  FERA legislatively overrules Allison Engine and imposes FCA liability even if the company that submitted a false claim to a non-government entity did not specifically intend to defraud the government.  Notably, FERA also contains a section making certain provisions retroactive to June 7, 2008–the date Allison Engine was decided.  Litigation will no doubt ensue over the constitutionality of this retroactivity provision. 2.  FERA overrules Totten and significantly expands the definition of a "claim." The FCA now extends to any false or fraudulent claim for government money or property, whether or not the claim is presented to a government official or employee, and whether or not the U.S. Government has title to, or physical custody of, the money or property.    This is a significant change.  The FCA previously penalized any person who "knowingly presents, or causes to be presented, to an officer or employee of the United States Government or a member of the Armed Forces of the United States a false or fraudulent claim for payment or approval," 31 U.S.C. § 3729(a)(1) (emphasis added).  FERA eliminates what had been called the "presentment" requirement and effectively overrules a D.C. Circuit decision (authored by then Judge John Roberts) in United States ex rel. Totten v. Bombardier Corp., 380 F.3d 488 (D.C. Cir. 2004).  Totten held that the FCA did not apply to a suit alleging fraud against Amtrak, because even though Amtrak was a recipient of federal dollars, the underlying false statements were submitted to Amtrak, and not the federal government.  By contrast, FERA would appear to apply to any fraud committed against any federal grantee. FERA also amends the definition of "claim" in a significant way.  The new definition of a "claim" is: (A) any request or demand, whether under a contract or otherwise, for money or property and whether or not the United States has title to the money or property, that– (i) is presented to an officer, employee, or agent of the United States; or (ii) is made to a contractor, grantee, or other recipient, if the money or property is to be spent or used on the Government’s behalf or to advance a Government program or interest, and if the United States Government– (I) provides or has provided any portion of the money or property   requested or demanded; or (II) will reimburse such contractor, grantee, or other recipient for any portion of the money or property which is requested or demanded; … The implications of this change are profound.  FCA liability will now apparently be triggered by any false claim made to any recipient of federal money so long as that money is used to "advance a Government program or interest"–a phrase that is not defined under the amendments.  FCA relators (and the Department of Justice) will certainly push to give this provision the broadest possible interpretation.  3.  FERA applies to retention of government "overpayments." The old FCA penalized any person who "knowingly makes, uses, or causes to be made or used, a false record or statement to conceal, avoid, or decrease an obligation to pay or transmit money or property to the Government."  31 U.S.C. § 3729(a)(7).  FERA now defines "obligation" to include "the retention of any overpayment."  This opens up new avenues of exposure against federal contractors or grantees for knowingly retaining government "overpayments." 4.  FERA provides that government claims "relate back" to the time of filing the original qui tam action for statute of limitations purposes. FERA provides that when the government intervenes in a qui tam case it can expand the relator’s allegations and include new substantive claims, and it deems these amendments to "relate back" to the filing date of the original qui tam complaint for statute of limitations purposes.  As a practical matter, the "relation-back" provision may operate to extend the statute of limitations in FCA suits.  5.  FERA expands whistleblower protections. Previously, the FCA afforded protection to "any employee who is discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment by his or her employer because of lawful acts done by the employee on behalf of the employee . . . ."  31 U.S.C. § 3730(h) (emphasis added).  FERA extends whistleblower protections beyond "employees" to a "contractor or agent" and no longer requires that any prohibited retaliatory action be taken by an employer.  Under FERA, Section 3730(h) now reads, "any employee, contractor, or agent shall be entitled to all relief necessary to make that employee, contractor, or agent whole, if that employee, contractor, or agent is discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment …."  6.  FERA permits greater sharing of materials during the seal period following the filing of qui tam complaints.  Qui tam complaints are filed under seal for at least sixty days.  31 U.S.C. § 3730(b)(2).  Under FERA, relators and the federal government may now share information during the seal period with State and Local governments:  "a seal on the action ordered by the court under section 3730(b) shall not preclude the Government or the person bringing the action from serving the complaint, any other pleadings, or the written disclosure of substantially all material evidence and information possessed by the person bringing the action on the law enforcement authorities that are authorized under the law of that State or local government to investigate and prosecute such actions on behalf of such governments."  7.  FERA permits the Attorney General to share information with relators and to delegate CID authority. FERA expressly authorizes the Attorney General to share information obtained through Civil Investigative Demands with qui tam relators if this disclosure is "necessary as part of any false claims act investigation."  It also authorizes the Attorney General to delegate the authority to issue CIDs to lower level officials in the Department of Justice.    * * * These are sweeping and significant changes for the FCA.  And, still pending in the House and Senate are the False Claims Clarification Acts of 2009 (S. 458 and H.R. 1788), which would expand the scope and reach of the FCA even further.  The House Bill (H.R. 1788) was introduced on March 30, 2009, referred to committee, and reported out of the House Judiciary committee on April 28, 2009.  The Senate bill (S. 458) was introduced on February 24, 2009 and referred to the committee on the judiciary.  Gibson Dunn is monitoring this legislation closely. Gibson, Dunn & Crutcher lawyers are available to assist in addressing any questions you may have regarding these issues.  Gibson Dunn’s Appellate and Constitutional Law Practice Group has analyzed the new bill and the defenses available under the Act.  Our attorneys have handled more than 100 FCA investigations and have a long track record of litigation success, including the 9-0 win in Allison Engine.  The firm has more than 30 attorneys with substantive FCA expertise and 20 former Assistant U.S. Attorneys and DOJ attorneys. Please contact the Gibson Dunn attorney with whom you work, or any of the following: Washington, D.C.F. Joseph Warin (202-887-3609, fwarin@gibsondunn.com)Joseph West (202-955-8658, jwest@gibsondunn.com) Karen L. Manos (202-955-8536, kmanos@gibsondunn.com)   Andrew Tulumello (202-955-8657, atulumello@gibsondunn.com)Matthew D. McGill (202-887-3680 , mmcgill@gibsondunn.com) New YorkRandy Mastro (212-351-3825, rmastro@gibsondunn.com)  James A. Walden (212-351-2300, jwalden@gibsondunn.com) DenverRobert C. Blume (303-298-5758, rblume@gibsondunn.com)Jessica H. Sanderson (303-298-5928, jsanderson@gibsondunn.com) DallasSean M. Royall (214-698-3256, sroyall@gibsondunn.com)Evan S. Tilton (214-698-3156, etilton@gibsondunn.com) Orange CountyNick Hanna (949-451-4270, nhanna@gibsondunn.com) Los AngelesTimothy Hatch (213-229-7368, thatch@gibsondunn.com)   © 2009 Gibson, Dunn & Crutcher LLP Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

February 26, 2009 |
Proposed Legislation Amending False Claims Act

In January, we provided you with our 2008 Year-End False Claims Act Update in which we discussed, among other things, legislation proposed in Congress in 2007 that would significantly broaden the scope of the False claims Act (the "FCA").  As we predicted, Senator Grassley (R-IA) recently introduced legislation to amend the FCA that, given the current economic environment, Congress is likely to pass.  Congress may feel more pressure to pass these bills this session to demonstrate a commitment to protect taxpayer’s dollars from fraud, waste, and abuse.  First, on February 5, 2009, Senator Grassley introduced the Fraud Enforcement and Recovery Act, S. 386 ("FERA").  The primary focus of FERA is to investigate and prosecute recent financial and mortgage frauds and to cover fraud in connection with TARP funds.  To that end, the bill authorizes $155 million a year for hiring fraud prosecutors and investigators at DOJ for FY 2010 and 2011 and proposes amendments to criminal fraud, money laundering, and securities statutes (principally by amending the definition of "financial institution" in Title 18 to include mortgage lending businesses).  Somewhat buried within the bill is a significant amendment to the FCA:  Specifically, concerned that the "effectiveness of the False Claims Act has recently been undermined by court decisions limiting the scope of the law allowing subcontractors and non-governmental entities to escape responsibility for proven frauds," FERA proposes amendments to the FCA that "clarify that the False Claims Act was intended to extend to any false or fraudulent claim for government money or property, whether or not the claim is presented to a government official or employee, whether or not the U.S. Government has physical custody of the money, and whether or not the defendant specifically intended to defraud the U.S. government."  This provision is similar to the amendments proposed in S.458, the principal focus of this client alert. Second, on February 24, 2009, Senator Grassley introduced a bill (S. 458) to the Senate Judiciary Committee to amend the False Claims Act.  The proposed legislation, known as the False Claims Clarification Act of 2009, is co-sponsored by Sen. Durbin (D-IL), Sen. Leahy (D-VT), Sen. Specter (R-PA), and Sen. Whitehouse (D-RI).  Sen. Grassley explained that the bill is intended to clarify, modify and strengthen the False Claims Act to combat fraud and waste in government spending, especially in light of the trillions of dollars in new government stimulus spending.  This legislation explicitly identifies and attempts to overturn four federal cases and to resolve a split in the Federal Circuit Courts of Appeal interpreting the False Claims Act.  Key Provisions of the Bill The proposed False Claims Clarification Act of 2009 expands the definition of "claim" and revises the categories of whistleblowers with standing to bring qui tam suits under the FCA, in addition to other technical amendments.  These changes are attempts to overturn four federal cases and to resolve a Federal Circuit split that Sen. Grassley asserts "threaten to undermine both the spirit and intent of the 1986 Amendments" to the FCA.  In fact, according to Senate Report 110-507 prepared in support of the similar 2008 version of this bill, the proposed amendments are consistent with positions taken by the Department of Justice in briefs filed in the first three cases discussed below. Expanded definition of "claim" under 31 U.S.C. 3729(b)(2).  In his statement introducing the bill, Sen. Grassley noted that recent cases have limited the applicability of the FCA, "cutting off many worthy cases from ever going forward."  For example, he notes that the Supreme Court decision in Allison Engine (discussed below) makes it difficult to recover taxpayer dollars wasted by subcontractor fraud.  Specifically, he expressed concern that bailout funds used to purchase distressed assets through a third party broker as originally envisioned by the Troubled Assets Relief Program ("TARP") could be exempted from FCA liability unless the amendments are adopted.  To address these concerns, the proposed legislation would supersede the FCA holdings discussed below by expanding the definition of "claim" in 31 U.S.C. 3729(b)(2) to include any request or demand … for money or property … whether or not the United States has title to the money or property, that is presented to an officer, employee or agent of the United States; or is made to a contractor, grantee, or other recipient if the United States Government provides or has provided any portion of the money or property requested or demanded; or will reimburse such contractor, grantee, or other recipient for any portion of the money or property. United States ex rel. Totten v. Bombardier Corp., 380 F.3d 488 (D.C. Cir. 2004).  In Totten, employees at Amtrak brought a case under the FCA for delivery of allegedly defective rail cars.  The contractor was paid by Amtrak only in part by funds from the government.  Then-Judge John Roberts dismissed the complaint holding that "under the plain language of Section 3729(a)(1), claims must be presented to an officer or employee of the government" not to a government grantee.  Id. at 490.  Allison Engine Co. v. United States, ex rel., Sanders, 471 F.3d 610 (6th Cir. 2006), cert granted, 128 S. Ct. 491 (2007), rev’d on other grounds, 128 S.Ct. 2123 (2008).  Successfully argued by Gibson Dunn’s Ted Olson, and described in more detail in a prior client alert, U.S. Supreme Court Narrows the Scope of the False Claims Act, in Allison Engine, the Supreme Court made clear that Sections 3729(a)(2) and 3729(a)(3) of the False Claims Act apply only to fraud directed against the federal government itself and do not encompass fraud upon federally funded private entities, such as government contractors and universities. To recover under those sections, a plaintiff "must prove that the defendant intended that [a] false record or statement be material to the Government’s decision to pay or approve [a] false claim."  The Court found that the defendant must "intend that a claim be paid … by the Government and not by another entity."  The Court explained "[i]f a subcontractor or another defendant makes a false statement to a private entity and does not intend the Government to rely on that false statement as a condition of payment, the statement is not made with the purpose of inducing payment of a false claim ‘by the Government’" and thus does not give rise to liability under the False Claims Act.  United States ex rel. DRC, Inc. v. Custer Battles, LLC, 376 F. Supp. 2d 617 (E.D. Va. 2006).  In Custer Battles, a jury held that a defense contractor in Iraq had defrauded the government of $10 million.  However, the judge overturned the jury verdict because the money lost was not U.S. taxpayer money but was Iraqi money under the control of the U.S. government.  The expanded definition of claim is designed to encompass this type of situation.  Senate Report 110-507 regarding the prior version the proposed legislation stated, "[w]hen the U.S. Government elects to invest its resources in administering funds belonging to another entity, or providing property to another entity, it does so because use of such investments for their designated purposes will further interest of the United States. False claims made against Government-administered funds harm the ultimate goals and U.S. interests and reflect negatively on the United States. The FCA should extend to these administered funds to ensure that the bad acts of contractors do not harm the foreign policy goals or other objectives of the Government." Standing in Qui Tam Whistleblower Claims.  The proposed legislation would also address two issues regarding the "public disclosure bar" in qui tam suits. United States ex rel. Stone v. Rockwell Int’l Corp., 127 S. Ct. 1397, 1411 (2007).  In Rockwell, the Supreme Court held that the qui tam whistleblower was barred from receiving a share of any money recovered because under the "public disclosure bar" the whistleblower was not an original source with "independent knowledge of the information on which the allegations are based."  Sen. Grassley noted that Rockwell provides a disincentive for a whistleblower to bring a case, even if the Justice Department is overloaded or does not chose to bring the case.  The proposed legislation seeks to eliminate procedural uncertainties by requiring the Justice Department to file a timely motion to dismiss claims that violate the "public disclosure bar."  United States ex rel. Holmes v. Consumer Ins. Group, 318 F.3d 1199 (10th Cir. 2003).  In Consumer Ins. Group, the Tenth Circuit allowed a federal employee to proceed as relator in a qui tam suit despite her status as a federal employee and the fact that her job duties included uncovering and investigating fraud.  However, in then-Chief Judge Tacha’s dissent in Consumer Ins. Group, Tacha argued that when the federal employee had a specific duty to report fraud, discovered fraud and is participating in the fraud investigation, the employee is acting on behalf of the government and had access to the information regardless of whether it had been publicly disclosed.  The proposed legislation codifies Tacha’s dissent by allowing a qui tam action by a federal employee based on information learned in the course of her employment only when 1) the employee discloses the fraud to her supervisor; 2) discloses the fraud to the Inspector General of the agency; and 3) discloses the fraud to the Attorney General and then waits 18 months without government action.  In addition, the proposed legislation allows the government to move to dismiss a government employee’s qui tam suit if the employee derives the information from an indictment or ongoing civil, criminal or administrative investigation into substantially the same fraud alleged, or the employee has a duty to investigate the fraud.   Gibson, Dunn & Crutcher lawyers are available to assist in addressing any questions you may have regarding these issues.  Gibson Dunn successfully argued the Allison Engine case in the Supreme Court, which resulted in a unanimous decision by the Court.  Our attorneys have handled more than 100 FCA investigations and have a long track record of litigation success.  The firm has more than 30 attorneys with substantive FCA expertise and 20 former Assistant U.S. Attorneys and DOJ attorneys.  Please contact the Gibson Dunn attorney with whom you work, or any of the following: Washington, D.C.F. Joseph Warin (202-887-3609, fwarin@gibsondunn.com)Karen L. Manos (202-955-8536, kmanos@gibsondunn.com)   Joseph West (202-955-8658, jwest@gibsondunn.com) Andrew Tulumello (202-955-8657, atulumello@gibsondunn.com) New YorkRandy Mastro (212-351-3825, rmastro@gibsondunn.com)  James A. Walden (212-351-2300, jwalden@gibsondunn.com) DenverRobert C. Blume (303-298-5758, rblume@gibsondunn.com)Jessica H. Sanderson (303-298-5928, jsanderson@gibsondunn.com)Laura Sturges (303-298-5929, lsturges@gibsondunn.com) DallasEvan S. Tilton (214-698-3156, etilton@gibsondunn.com) Orange CountyNick Hanna (949-451-4270, nhanna@gibsondunn.com) Los AngelesTimothy Hatch (213-229-7368, thatch@gibsondunn.com)   © 2009 Gibson, Dunn & Crutcher LLP Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

October 29, 2008 |
Deal Note: Gibson Dunn Represents Apria Healthcare in Its Sale to The Blackstone Group

Gibson, Dunn & Crutcher LLP’s Health Care and Life Sciences Group is pleased to announce its representation of Apria Healthcare Group Inc. in connection with the company’s successful sale to The Blackstone Group, a leading investment and advisory services firm.  The cash transaction, which closed yesterday, is valued at approximately $1.7 billion. Gibson Dunn’s team was led by Jeffrey Le Sage, a partner in the firm’s Corporate Transactions and Health Care and Life Sciences Practice Groups, and includes Andrew Bogen, Candice Choh, Kristin Blazewicz and Joelle Khoury on corporate, Jeff Hudson, Scott Jacobs and Stacia Neeley on finance, Dora Arash on tax, Sean Feller on benefits and Wayne Smith, Robert Palmer and Matthew Lilly on litigation. Details of this transaction are available on the Apria Healthcare website. Gibson Dunn’s Health Care and Life Sciences Group represents a broad array of companies involved in health care and the life sciences, including hospital and nursing home operators, pharmaceutical companies, medical device manufacturers, payors, and biotechnology companies, as well as investors in and advisors to such companies. Our corporate and transactional lawyers assist clients in connection with domestic and international public and private mergers and acquisitions, financings, securities offerings, corporate governance, licensing, development and distributorship arrangements, among other transactions. For additional information on this transaction, please contact the Gibson Dunn attorney with whom you work, Jeffrey Le Sage (213-229-7504, jlesage@gibsondunn.com) in Gibson Dunn’s Los Angeles office, or any member of the firm’s Health Care and Life Sciences Practice Group. © 2008 Gibson, Dunn & Crutcher LLP Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.  

April 15, 2008 |
Deal Note: Gibson Dunn Represents The TriZetto Group in Its Acquisition by Apax Partners

Gibson, Dunn & Crutcher LLP is pleased to announce its representation of The TriZetto Group, Inc. in its agreement to be acquired and taken private by Apax Partners, a private equity firm.  The transaction is valued at $1.4 billion.  TriZetto customers BlueCross BlueShield of Tennessee and The Regence Group will provide a portion of the funding and will be equity investors in the new company. Gibson Dunn’s team is led by Thomas Magill, a partner in the firm’s Mergers and Acquisitions Practice Group, and includes associates Erik Greupner, Drew Bordages and Kevin Schubert. Details of the transaction are available on The TriZetto Group website. For additional information on this matter, please contact the Gibson Dunn attorney with whom you work or Thomas D. Magill (949-451-3855, tmagill@gibsondunn.com) in Gibson Dunn’s Orange County office. Gibson Dunn’s Mergers and Acquisitions Practice Group has extensive experience in all types of domestic and cross-border M&A transactions, including negotiated and contested mergers of public and private companies, stock and asset purchases, tender and exchange offers, restructurings and acquisitions out of bankruptcy, leveraged buyouts, private equity investments and joint ventures. Our M&A attorneys also provide advice to senior management, boards of directors, board committees (including special committees) and shareholders on a wide range of corporate governance matters, including the implementation of anti-takeover defenses and proxy contests. Our Health Care and Life Sciences Practice Group represents a broad array of companies involved in health care and the life sciences, including hospital and nursing home operators, pharmaceutical companies, medical device manufacturers, payors, and biotechnology companies, as well as investors in and advisors to such companies. Our corporate and transactional lawyers assist clients in connection with domestic and international public and private mergers and acquisitions, financings, securities offerings, corporate governance, licensing, development and distributorship arrangements, among other transactions. © 2008 Gibson, Dunn & Crutcher LLP Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

December 7, 2007 |
Deal Note: Gibson Dunn Represents Apria Healthcare in Acquisition of Coram Healthcare

Gibson, Dunn & Crutcher LLP’s Health Care and Life Sciences Group is pleased to announce its representation of Apria Healthcare Group Inc. in connection with its acquisition of Coram, Inc., a provider of home infusion and specialty pharmaceutical services.  The cash transaction is valued at $350 million.  The combined infusion division, to be headquartered in Denver, Colorado, will provide care for more than 100,000 patients annually in all 50 states. Gibson Dunn’s team is led by Andrew Bogen, a partner in the firm’s Corporate Transactions Practice Group, and Jeffrey Le Sage, a partner in the firm’s Corporate Transactions and Health Care and Life Sciences Practice Groups, and includes Scott Davies, Candice Choh, Robyn Zolman, Kristin Blazewicz and Hari Raman on corporate, Jeff Hudson and Scott Jacobs on finance, Dora Arash on tax, Sean Feller on benefits, Sam Newman on bankruptcy and Sean Royall, Sandy Pfunder and Adam Di Vincenzo on antitrust. Details of this transaction are available on the Apria Healthcare website. Gibson Dunn’s Health Care and Life Sciences Group represents a broad array of companies involved in health care and the life sciences, including hospital and nursing home operators, pharmaceutical companies, medical device manufacturers, payors, and biotechnology companies, as well as investors in and advisors to such companies. Our corporate and transactional lawyers assist clients in connection with domestic and international public and private mergers and acquisitions, financings, securities offerings, corporate governance, licensing, development and distributorship arrangements, among other transactions. For additional information on this matter, please contact the Gibson Dunn attorney with whom you work, Jeffrey Le Sage (213-229-7504, jlesage@gibsondunn.com) in Gibson Dunn’s Los Angeles office, or any member of the firm’s Health Care and Life Sciences Practice Group. © 2007 Gibson, Dunn & Crutcher LLP Attorney Advertising: The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.