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August 15, 2019 |
Gibson Dunn Lawyers Recognized in the Best Lawyers in America® 2020

The Best Lawyers in America® 2020 has recognized 158 Gibson Dunn attorneys in 54 practice areas. Additionally, 48 lawyers were recognized in Best Lawyers International in Belgium, Brazil, France, Germany, Singapore, United Arab Emirates and United Kingdom.

August 14, 2019 |
2019 Mid-Year FDA and Health Care Compliance and Enforcement Update – Providers

Click for PDF Halfway through 2019 and the third year of the Trump Administration, we continue to observe complex trends in the health care regulatory and enforcement environment impacting providers. The Trump Administration continues to aggressively pursue its high priority initiatives, such as combatting the opioid crisis and reducing health care costs, through various measures extending to many types of providers. And the U.S. Department of Justice (“DOJ”) continues to pursue and announce significant civil and criminal enforcement actions against health care providers. But in certain other ways, the government has also signaled a softening of its health care enforcement agenda. For example, DOJ has taken a more aggressive approach to reining in non-meritorious qui tam suits brought under the False Claims Act, one of the government’s primary tools for enforcing the health care laws and recovering government health program funds. In a speech at the 2019 Advanced Forum on False Claims and Qui Tam Enforcement earlier this year, Deputy Associate Attorney General Stephen Cox described the DOJ as a “gatekeeper” against frivolous or even low-value qui tam cases, and stated that DOJ attorneys have been instructed to consider dismissal when a qui tam case is not in the government’s interest.[1] This shift in tone is further reflected in the issuance of recent guidance and Justice Manual revisions, discussed in more detail below, that incentivize cooperation and voluntary disclosure by entities under investigation in False Claims Act cases, suggesting a more collaborative, thoughtful, and less rigid overall enforcement approach. Consistent with this shift, the overall number of DOJ and U.S. Department of Health and Humans Services (“HHS”) resolutions involving health care providers, while still reflecting historically high levels of recoveries, continues to decrease from its peak during the Obama Administration. HHS similarly saw a decrease in enforcement efforts against health care providers, continuing the downward trend we’ve observed since 2017. However, opioid enforcement efforts are unwavering, and we continue to see substantial civil and criminal cases being brought against a variety of health care entities as part of combating the opioid crisis. We review recent opioid-related enforcement actions and other health care enforcement developments below. Additionally, we provide updates on other HHS activity, including efforts surrounding conscience and religious freedom protection as they pertain to health care providers. Also addressed in this update are recent case law developments particularly salient to health care providers, including several related to False Claims Act interpretation and application and continued litigation regarding the Affordable Care Act. Finally, we discuss recent developments related to the Anti-Kickback Statute (“AKS”) and the Stark Law, key statutory schemes for health care provider compliance. A collection of recent publications and presentations on health care issues impacting providers is available on our website. As always, we are eager to discuss these recent developments, and their relevance to your business, with you. I.   DOJ Enforcement Activity A.   False Claims Act Enforcement Activity Between January 1 and June 30, 2019, the DOJ announced approximately $645 million in FCA recoveries from settlements with health care providers. This figure is more than triple the DOJ’s recovery of $201 million from settlements from January 1 through June 30, 2018, but it still marked a reduction from the $817 million the DOJ recovered during the same period of 2017.[2] The DOJ’s significant recovery during the first half of 2019 can likely be attributed to the fact that the DOJ reached several particularly large resolutions with providers during this period, including one $269 million settlement and four others over $35 million each. Of note, however, the 33 total health care provider settlements the DOJ announced during the first half of 2019 fell below the 40 health care provider settlements it announced during the first half of 2018 and considerably below the 54 health care provider settlements the DOJ announced during the first half of 2017.[3] The DOJ’s lower count of health care provider settlements during the first half of 2019 could reflect the shift in enforcement tone at the top, except that the amount of recoveries reflected in those settlements have been at historic highs: the DOJ’s average FCA settlement against a health care provider in the first half of 2019 was $19.5 million, nearly four times the average provider settlement the DOJ recovered against health care providers during the same time period last year.[4] Even excluding from this calculation the DOJ’s largest provider settlement of the period—an outlier $269 million settlement in January—the average settlement with a health care provider in the first six months of 2019 was still more than twice the average settlement reached during the same period last year.[5] Consistent with the DOJ’s new approach to using its dismissal authority for more declined qui tams, these numbers could reflect an attempt to put the government’s resources into higher-value cases. The FCA settlements the DOJ has announced this year featured many of the same legal theories the government has used to support actions against providers in years past. Also as in prior years, the DOJ’s provider settlements in the first six months of 2019 featured actions against a wide range of types of providers, including hospitals, clinics and single providers, providers of skilled nursing and rehabilitation services, and pharmacies. The DOJ also announced several settlements with entities we’ve classified as providers of “other” medical services, such as providers of medical records software. It remains to be seen whether this data point is an anomaly or whether it marks an increasing focus by the DOJ on providers of medical technology as the health care field continues to digitize and undergo technological innovation. As indicated in the chart above, during the first half of 2019, most FCA settlements with health care providers involved clinics and single providers as in years past. However, during the first half of 2019, the DOJ also completed numerous settlements with hospitals and entities providing skilled nursing and/or rehabilitation services. Unlike health care provider settlements from the same period of 2018, the vast majority of which involved clinics and single providers, settlements from the first half of 2019 were more evenly spread across provider types.[6] Continuing the trends of the recent past, the most prevalent legal theory among health care provider settlements in the first half of 2019[7] was the theory that providers defrauded the government by billing for services that lacked the medical necessity required by government health programs. The DOJ announced these settlements in roughly a half dozen different jurisdictions around the country, revealing that it had again used this theory in cases against providers of various stripes. Aside from cases involving medically unnecessary procedures or services, the first six months of 2019 also revealed a jump in the number of settlements involving allegations of “upcoding”—where an entity allegedly assigns billing codes for more expensive medical procedures or treatments, or for services of a greater quantity or duration, than it actually provided its patients in order to increase the amount of reimbursement. While only two settlements in 2018 featured upcoding allegations,[8] nine settlements from the first half of 2019 contained allegations of this kind. Indeed, through one enforcement action in the Northern District of Illinois against multiple health care providers of skilled nursing services accused of increasing their Medicare reimbursements through upcoding, the DOJ obtained six separate settlements totaling nearly $10 million.[9] Notably, by far the largest average source of recovery for the DOJ in the first half of 2019 were those settlements with providers involving allegations of either AKS and/or Stark Law violations. Although comprising just eight of the DOJ’s 33 settlements with providers during this period, actions involving allegations of AKS and/or Stark Law violations featured average settlement amounts of just over $22 million. All but three involved qui tam lawsuits. In general, the first half of 2019 featured many large, headline-grabbing settlement amounts. One of the top resolutions, announced in January, was a settlement with a pathology laboratory company resolving allegations of giving subsidies for electronic health records systems (“EHR”) and free and/or discounted consulting services to physicians who referred patients to the lab in violation of the AKS and the Stark Law. [10] As United States Attorney Maria Chapa Lopez of the Middle District of Florida stated in the press release announcing the settlement, “[p]atients deserve the unfettered, independent judgment of their health care professionals. Offering financial incentives to physicians and medical practices in exchange for referrals undermines citizens’ trust in our health care system[.]”[11] The pathology laboratory agreed to pay $63.5 million to settle these allegations.[12] Another top provider settlement from the first half of 2019 was the DOJ’s $57.5 million settlement in February with an EHR vendor, an emerging theme in DOJ resolutions. This settlement resolved allegations that the vendor had caused users of its EHR systems to submit false claims under federal healthcare programs after misrepresenting the nature of what its EHR product could do and providing unlawful remunerations to entice users to recommend its product.[13] As part of the settlement, the company agreed to enter into an “innovative” five-year Corporate Integrity Agreement requiring it to retain an Independent Review Organization to assess the company’s software quality control and compliance systems and to periodically review the company’s dealings with health care providers for compliance with the AKS.[14] Announcing the settlement and Corporate Integrity Agreement, United States Attorney Christina E. Nolan for the District of Vermont stated that going forward her office would be “unflagging in [its] efforts to preserve the accuracy and reliability of Americans’ health records and guard the public . . . against corporate greed.” Per U.S. Attorney Nolan, “EHR companies should consider themselves on notice.”[15] Other actions against EHR vendors in recent years, such as DOJ’s $155 million recovery against an EHR software vendor in 2017, discussed in detail in our 2017 Mid-Year Update,[16] underscore this warning. B.   Case Law Updates 1.   False Claims Act Developments a)   Statute of Limitations Clarified In the first half of 2019, courts have ruled on questions presented in several cases of concern for health care providers. Most notably, on May 13, 2019, the Supreme Court addressed a circuit split relating to the FCA’s statute-of-limitation tolling provisions, 31 USC § 3731(b).[17] The FCA requires that an action be brought by the later of (1) six years after the alleged FCA violation or (2) three years after the date when facts material to the right of action are known or reasonably should have been known by the official of the United States charged with responsibility to act in the circumstances, but no later than 10 years after the alleged violation.[18] As we previewed in our 2018 Year-End Update, at issue in Cochise Consultancy Inc. v. United States, ex rel. Hunt was whether the latter provision, 31 U.S.C. § 3731(b)(2), applies in qui tam cases in which the government does not intervene, and if so, whether the relator’s knowledge of the facts relevant to the alleged FCA violation is sufficient to trigger the three-year period.[19] In the decision on appeal to the Supreme Court,[20] the Eleventh Circuit found that it does, and the relator’s knowledge is not sufficient to trigger the limitations period.[21] Other circuits had found that the provision does not apply to qui tam suits in which the U.S. does not intervene[22] or, if it does, the limitations period begins when the relator has knowledge of the facts giving rise to the alleged FCA violation.[23] The Court affirmed the Eleventh Circuit’s decision, finding based on the plain language of the statute that (1) the longer limitations period of section 3731(b)(2) was available to qui tam relators even if the government declined to intervene in the case, and (ii) the three-year limitations period began when the government—not the relator—had actual or constructive knowledge of the fraud allegations.[24] This decision will have substantial implications for providers and the FCA bar: following this ruling, some qui tam relators may have up to ten years from the date of the alleged violation to bring suit under the FCA. We will continue to monitor lower court applications of this decision and report back in future updates. b)   Public Disclosure Bar Updates The FCA’s public disclosure bar requires dismissal of qui tam suits based on information that has already been “publicly disclosed” unless the relator is an “original source” of the information.[25] In 2010, the FCA was amended to provide that a relator may qualify as an original source, even regarding an alleged FCA violation that has been publicly disclosed, if the relator’s knowledge is “independent of and materially adds” to the information in the public domain.[26] The Tenth Circuit recently weighed in on the meaning of “materially adds” in United States ex rel. Reed v. KeyPoint Government Solutions.[27] Adopting a standard set forth by the First Circuit, the court held that new information that is “sufficiently significant or important that it would be capable of ‘influenc[ing] the behavior of the recipient’—i.e., the government—” satisfies the materially-adds standard, whereas “background information or details about a known fraudulent scheme” typically will not.[28] In this particular case, the court found that relator’s information identifying individuals and an entity allegedly involved in a worthless services scheme did not materially add to publicly disclosed information because they provided only additional color.[29] Relator’s allegations regarding an additional scheme and the supervisors’ attempts to conceal it, however, materially added to the publicly disclosed information because her “allegations had the effect of ‘expanding the scope of the fraud’ revealed in the public disclosures and introducing ‘knowledge of scienter that is not specifically contained in a qualifying public disclosure.’”[30] In reaching this conclusion, the Tenth Circuit rejected differing interpretations of “materially adds” adopted by the Seventh and Third Circuits. The Seventh Circuit assesses whether the relator’s allegations are “substantially similar” to the public source information; the Tenth Circuit found this test conceptually indistinct from the inquiry that requires a court to assess whether the relator is an original source to begin with—whether the relator’s allegations are “substantially the same” as those publicly disclosed under 3730(e)(4)(A).[31] The Third Circuit requires that the relator provide information “that adds in a significant way to the essential factual background: ‘the who, what, when, where and how of the events at issue.’”[32] The Tenth Circuit found this interpretation insufficiently case-specific. For example, in a case such as the one before the Tenth Circuit, where “the publicly disclosed fraud exists within an industry with only a few players, a relator who identifies a particular industry actor engaged in the fraud (i.e., the ‘who’) is unlikely to materially add to the information that the public disclosures had already given the government.”[33] c)   Developments in Implied False Certification Theory We have long been reporting on interpretive difficulties faced by the lower courts following the Supreme Court’s 2016 decision in Universal Health Services, Inc. v. United States ex rel. Escobar.[34] That decision adopted the implied false certification theory of FCA liability; it also set forth new requirements for proving that the false statement was “material” and made with scienter.[35] In our 2018 Year-End Update, we describe the widening circuit splits relating to the interpretation of both elements. The Supreme Court has been asked repeatedly to resolve these circuit splits and clarify the meaning of materiality and scienter. However, in the first half of the year the Court denied five petitions for certiorari that presented the opportunity, including one we reported on at the end of 2018: Brookdale Senior Living Communities, Inc., v. United States ex rel. Prather.[36] The Supreme Court’s silence perpetuates uncertainty for providers, who must grapple with conflicting standards across the circuits. We will continue to report on post-Escobar developments in future updates. d)   Scrutiny of Government Dismissal of AKS Qui Tam Cases A cluster of twelve related qui tam actions filed in eight district courts by the same relator are pushing courts to consider the standard of review applicable to government motions to dismiss qui tam actions. Under the FCA, even where the government declines to intervene, it “may dismiss the action notwithstanding [the relator’s] objections” if the relator receives notice of the government’s motion to dismiss and an opportunity for a hearing.[37] However, the statute does not supply a standard for adjudicating these dismissals, and the courts of appeal are split on the standard to apply. The D.C. Circuit holds that the provision “give[s] the government an unfettered right to dismiss an action” that, like a government decision not to prosecute a case, is presumptively “unreviewable.”[38] The Ninth and Tenth Circuits, by contrast, apply a burden-shifting test: if the government demonstrates a “valid government purpose” for dismissing the case and a “rational relation between dismissal and accomplishment of the purpose,” then the burden shifts to the relator to show that the government’s dismissal is “fraudulent, arbitrary and capricious, or illegal.”[39] As discussed in our prior updates, in a January 2018 memo, Michael D. Granston, the Director of the DOJ’s Civil Fraud Section, Commercial Litigation Branch, indicated that the DOJ would take a more active role in curbing meritless qui tam actions by encouraging government attorneys to dismiss suits that appear meritless or likely to strain government resources.[40] Since the release of the Granston Memo, the DOJ has cited its principles in petitioning for dismissal,[41] and the courts have continued to grapple with the relevant standard applicable to these dismissals. The impact of this circuit split has become particularly clear in courts’ review of DOJ motions to dismiss claims predicated on essentially identical allegations made by one relator against pharmaceutical companies in twelve different cases. Relator alleges that the pharmaceutical companies engaged in three different AKS-violating schemes to induce additional prescriptions of their drugs: (1) “free nursing services” offered to induce prescriptions, (2) sending paid nurse educators to prescribers who purported to provide independent advice but in fact marketed defendants’ products, and (3) “reimbursement support services” offered to induce prescriptions.[42] In an April 2019 decision, a District Court in the Southern District of Illinois denied the government’s motion to dismiss a declined FCA case predicated upon an AKS violation.[43] Applying the burden-shifting standard for reviewing government dismissals of qui tam actions adopted by the Ninth and Tenth Circuits,[44] the court held that the government “failed to fully investigate the allegations against the specific defendants in [the] case” and failed to “assess or analyze the costs it would likely incur versus the potential recovery that would flow to the government if [the] case were to proceed.”[45] Accordingly, the court held that the government’s investigation “falls short of a minimally adequate investigation to support the claimed governmental purpose” for the dismissal, which was the avoidance of litigation costs.[46] The district court also noted that “the Government devoted a significant portion of its briefing – 6 ½ pages and all exhibits – to deriding the relator’s business model and litigation activities” and that the government contended, during the dismissal hearing, that “disapproval of ‘professional relators’ is a valid governmental purpose for dismissal.”[47] Under these circumstances, the court found that “one could reasonably conclude that the proffered reasons for the decision to dismiss are pretextual and the Government’s true motivation is animus towards the relator.”[48] Conversely, a magistrate judge in the United States District Court for the Eastern District of Texas upheld the government’s dismissal of two FCA claims predicated upon AKS violations.[49] Rather than adopt the Ninth and Tenth Circuit’s burden-shifting test to government dismissals, the magistrate judge adopted the D.C. Circuit’s view that the government has an “unfettered right” to dismiss qui tam cases.[50] In the alternative, however, the magistrate judge concluded that even under the burden-shifting standard adopted by the Ninth and Tenth Circuits, the relator’s claim should be dismissed. The magistrate judge found that the government’s stated purpose for dismissing the case – avoiding litigation costs – was valid and rationally related to the dismissal, relying in part on the government’s assertion that “DOJ attorneys in the Civil Division’s Fraud Section have collectively spent more than 1,500 hours” on relator’s cases.[51] The magistrate judge also rejected the relator’s claim that the government’s investigation was inadequate and found that the government was not obligated to present evidence of a cost-benefit analysis to justify its decision to dismiss.[52] As these cases continue to percolate through the district courts and up to the courts of appeal, we expect additional circuits will weigh in on the standard applicable to government dismissals of qui tam claims. 2.   Affordable Care Act Developments First, as we reported in our 2018 Year-End Update, a federal district court in Texas recently struck down the Affordable Care Act (“ACA”), holding that the ACA’s individual mandate provision will no longer be a valid exercise of congressional taxing power when the Tax Cuts and Jobs Act of 2017 eliminates the mandate’s tax penalty in 2019, and that the remainder of the Act is not severable.[53] A coalition of Democratic attorneys general who intervened as defendants in the Texas case have appealed to the Fifth Circuit. In the district court, the DOJ did not defend the constitutionality of the individual mandate, but it argued that the remainder of the Affordable Care Act was severable and, therefore, should remain standing even if the individual mandate were invalidated. Before the Fifth Circuit, however, the DOJ now argues that the individual mandate is not severable and the district court’s opinion should be affirmed in full.[54] If the Fifth Circuit agrees and the decision is not overturned by the Supreme Court, the decision could have much further-reaching ramifications than just the ACA’s well-known health exchange and individual mandate provisions, such as invalidating an array of ACA regulatory and enforcement provisions relating to drug pricing, Medicare payments, and AKS amendments. Oral arguments were heard before a Fifth Circuit panel on July 9, 2019; we will update you on the status of this development in our 2019 Year-End Update. Second, on June 24, 2019, the Supreme Court agreed to hear a dispute relating to specific provisions of the ACA that establish insurer incentives to offer exchange coverage.[55] Under the ACA’s risk corridors program, if insurers’ claims costs exceeded the premiums collected in benefits years 2014 through 2016, “the Secretary [of HHS] shall pay” an amount set by a statutory formula designed to compensate insurers for their losses.[56] However, in appropriations legislation for the 2015 fiscal year, Congress included a rider prohibiting HHS from making risk corridor program payments to insurers with the appropriated funds. When HHS failed to make these risk corridor payments, three insurers sued in the Court of Federal Claims. The insurers claim that HHS owes all insurers, including appellants, over $12 billion. In fact, one of the appellant insurers contends that it became insolvent in 2016 because it relied on risk corridor payments that never materialized in setting its premiums.[57] Although one insurer prevailed in the lower court, on appeal the U.S. Court of Appeals for the Federal Circuit found HHS had no obligation to pay the insurers because “Congress suspended the government’s obligation” to make risk corridor payments “through clear intent manifested in appropriations riders.”[58] The insurers’ petition for certioriari was granted by the Supreme Court, which will hear the case next term. C.   Opioid Crisis Enforcement and Updates Combatting the opioid epidemic remains a top priority for the DOJ. In 2018, the DOJ announced the expansion of its Medicare Fraud Strike Force, the formation of an Appalachian Regional Prescription Opioid (“ARPO”) Strike Force to target the “medically unnecessary prescription and dispensing of opioid-based controlled substances by licensed medical professionals across the region,”[59] and a 28 percent increase in the number of defendants charged with federal opioid-related crimes. This year, the DOJ’s enforcement efforts remain robust: in the first half of 2019, the DOJ brought charges against 62 medical professionals and eight other individuals involved in prescribing or filling prescriptions for opioids. As further demonstrated by the developments described below and throughout this update, DOJ continues to prioritize opioid-related issues in its enforcement and prosecution efforts against defendants ranging from manufacturers and prescribers to testing companies and treatment centers. Most significantly, on April 17, 2019, the DOJ announced charges against 60 individuals involved in opioid distribution, including 53 medical professionals, across 11 districts, brought by the ARPO Strike Force.[60] HHS Secretary Alex Azar explained in connection with the announcement that “[r]educing the illicit supply of opioids is a crucial element of President Trump’s plan to end this public health crisis.”[61] Many of these indictments allege that providers issued prescriptions for opioids and other controlled substances without a legitimate medical purpose and outside the scope of professional practice in violation of the Controlled Substances Act. For example, indictments allege that providers signed blank prescriptions, did not examine patients or conducted inadequate examinations, ignored or did not conduct drug screens, and ignored or failed to monitor for signs of addiction.[62] Some of the healthcare providers were also charged with criminal health care fraud for issuing medically unnecessary opioid prescriptions that were filled and reimbursed by Medicaid, Medicare, or Tricare.[63] DOJ has been pursuing opioid-related cases against a variety of health care providers. In May of this year, DOJ announced a settlement with a provider of behavioral healthcare services that resolved allegations involving seven of the provider’s West Virginia-based addiction treatment centers.[64] Specifically, the suit alleged that the facilities would send urine and blood analysis tests to an out-of-state lab, pay out of pocket for the tests, and then bill Medicaid for the services; Medicaid reimbursed the centers far more than the amounts charged by the lab. The DOJ’s Prescription Interdiction & Litigation (“PIL”) Task Force also brought a “first of its kind action” and obtained a temporary restraining order (“TRO”) to prevent two pharmacies in the Middle District of Tennessee, their owner, and three pharmacists from filling prescriptions for opioids.[65] In a complaint unsealed in February 2019, the DOJ alleges that the pharmacy and pharmacists filled prescriptions despite “red flags” that the medications were being diverted or abused, then falsely billed Medicaid for the prescriptions. For example, patients filled prescriptions for unusually high dosages of oxycodone and other opioids, in dangerous “cocktails” known to have a “synergistic” effect, paid cash, and travelled extremely long distances to fill prescriptions.[66] The DOJ seeks permanent injunctive relief and monetary penalties. In May 2019, the PIL Task Force announced a second TRO issued by the Northern District of Texas against two physicians who allegedly prescribed opioids despite similar “red flags” of abuse in violation of the Controlled Substances Act.[67] The Medicare Fraud Strike Force announced charges against three opioid prescribers in the first six months of 2019. Most recently, on June 25, 2019, it announced the indictment of a New Jersey physician on five counts of AKS violations for allegedly accepting kickbacks from an opioid manufacturer in exchange for writing medically unnecessary opioid prescriptions.[68] In March 2019, a Regional Medicare Fraud Strike force filed an information against a physician in the Eastern District of Pennsylvania charging him with eight counts of violating the Controlled Substances Act for improper opioid prescriptions.[69] The physician pleaded guilty to all eight counts ten days later; he will be sentenced in September 2019.[70] In April 2019, the Medicare Fraud Strike Force filed a two-count information against an Eastern District of Louisiana physician for conspiring to distribute controlled substances and conspiring to defraud Medicare and Medicaid for prescribing unnecessary opioid prescriptions.[71] The physician pleaded guilty in May 2019 and will be sentenced this September.[72] One additional individual was sentenced this year for charges brought in 2018 by the Medicare Fraud Strike Force in the Southern District of Florida. The pain-management clinic owner was sentenced to 78 months’ imprisonment and agreed to repay approximately $1.4 million in proceeds obtained from opioid prescriptions falsely billed to Medicare.[73] The DOJ has also engaged in substantial prosecution efforts against opioid manufacturers, to be detailed further in our upcoming 2019 Mid-Year Update (Drugs and Devices). Consistent with DOJ’s opioid enforcement efforts, thus far this year there have been six civil monetary penalty cases (“CMPs”) assessed by HHS OIG[74] against providers who allegedly sought Medicare reimbursement for specimen validity testing (“SVT”).[75] SVT is, in HHS OIG’s words, “a quality control process that evaluates a urine drug screen sample to determine if it is consistent with normal human urine and to ensure that the sample has not been substituted, adulterated, or diluted.”[76] According to HHS OIG, SVT is “not a separately billable Medicare‑covered service” if used to determine whether a urine sample has been adulterated, whereas use of the test for diagnostic or treatment purposes may be reimbursable.[77] Significantly, five of these six CMP assessments involved providers in Kentucky and Ohio,[78] two states that HHS OIG identified in April 2019 as focal points of the opioid crisis.[79] D.   DOJ Guidance Consistent with the shift, evidenced by DOJ’s movement toward dismissing qui tam actions, that we observed in the wake of the Granston Memo and described above, this spring the DOJ announced two sets of new guidance that may mark a further softening in the DOJ’s approach to companies who proactively address potential FCA issues. As described at greater length below, the DOJ’s new cooperation guidelines in civil FCA matters roll back the “all or nothing approach” to cooperation laid out in the Yates Memo of 2015 and give DOJ attorneys greater “flexibility to accept settlements that remedy the harm and deter future violations.”[80] The DOJ’s criminal division also announced new guidance designed to provide “additional transparency” into how the DOJ evaluates company compliance programs.[81] As noted by Assistant Attorney General Brian A. Benczkowski in announcing the new guidance, “if done right” a well-designed compliance program “has the ability to keep the company off our radar screen entirely.”[82] 1.   Civil Division Guidance on Cooperation On May 7, 2019, the DOJ announced new guidance on cooperation: “Guidelines for Taking Disclosure, Cooperation, and Remediation into Account in False Claims Act Matters.”[83] This guidance follows the DOJ’s November 2018 announcement that it was revising its cooperation policies because the “all or nothing approach to cooperation” introduced in the Yates Memo and requiring companies to identify all individuals responsible in underlying misconduct to receive any cooperation credit “was counterproductive in civil cases.”[84] The guidance, incorporated into the Justice Manual and described in detail in our client alert, explains how DOJ will award credit for cooperation and remedial measures in resolving FCA cases. The guidelines emphasize voluntary self-disclosure of misconduct unknown to the government. However, they also provide for credit for steps such as preserving and disclosing documents “beyond existing business practices or legal requirements;” identifying individuals aware of, or involved in, potential misconduct; and “[a]ssisting in the determination or recovery of the losses caused by the organization’s misconduct.”[85] To earn “maximum credit,” an entity or individual should “undertake a timely self-disclosure that includes identifying all individuals substantially involved in or responsible for the misconduct, provide full cooperation with the government’s investigation, and take remedial steps designed to prevent and detect similar wrongdoing in the future.” The guidance provides that the minimum possible penalty, after the award of maximum cooperation credit, is “full compensation for the losses caused by the defendant’s misconduct (including the government’s damages, lost interest, costs of investigation, and relator share).”[86] In a May 20, 2019 speech, Principal Deputy Associate Attorney General Claire McCusker Murray stated that the guidelines provide the DOJ’s enforcement attorneys with “significant flexibility” to credit cooperation.[87] 2.   Criminal Division Guidance on Corporate Compliance Programs This past April, the DOJ’s Criminal Division issued updated guidance regarding corporate compliance programs.[88] The guidance expands upon the Criminal Fraud Section’s February 2017 guidance, and aims to “better harmonize the guidance with other Department guidance and standards while providing additional context to the multifactor analysis of a company’s compliance program.”[89] Among the guidance’s notable features is its focus on providing examples of specific factors DOJ considers in evaluating compliance programs. For example, the guidance discusses the importance of “risk-tailored resource allocation” and ensuring that companies focus their energies on monitoring high-risk practices and transactions.[90] Likewise, the guidance instructs prosecutors to consider whether a company’s assessment of its own risk landscape is “current and subject to periodic review,” and whether lessons learned from periodic re-assessments are being incorporated into the company’s policies and procedures.[91] Other aspects of the guidance that are of particular relevance to health care providers are its instruction that prosecutors consider whether compliance trainings have been conducted “in a manner tailored the audience’s size, sophistication, or subject matter expertise,”[92] and its emphasis on effective implementation of compliance programs and on the extent to which senior management have demonstrated (not just stated) their commitment to compliance.[93] This guidance and other statements provide helpful contours to health care providers in developing compliance programs consistent with best practices and the expectations of the DOJ. II.   HHS Enforcement Update A.   HHS OIG Activity 1.   2018 and 2019 Developments and Trends In the period between October 1, 2018, and March 31, 2019,[94] HHS OIG reported 421 criminal actions.[95] This marked a decrease of less than 1% from the 424 criminal actions HHS OIG reported in the first half of FY 2018.[96] The number of civil actions, however, declined more significantly as compared to the same period in the last two fiscal years. There were 331 civil actions in the first half of FY 2019, compared to 349 in the first half of FY 2018 and 461 in the first half of FY 2017.[97] FY 2018 saw the first year-over-year decrease in civil actions in the FY 2012 through FY 2018 period. Also of note, as the chart below shows, FY 2018 marked the first time in several years that the number of civil actions surpassed the number of criminal actions. We will report back on the final 2019 numbers and emerging trends at the end of this year. HHS OIG’s expected recoveries for the first half of FY 2019 were $2.3 billion, approximately 58% higher than in the same period in FY 2018.[98] The expected recoveries for the first half of 2019 already equal nearly 80% of the total investigative recoveries for all FY 2018,[99] suggesting that FY 2019 may mark a reversal in what has otherwise been a gradual decrease in overall expected recoveries since FY 2012. This trend is shown in the chart below. The high sum of expected recoveries thus far this year is likely due to several large settlements, including one $625 million False Claims Act settlement involving a pharmaceutical company.[100] This settlement alone equals nearly half of the approximately $1.32 billion in settlements with pharmaceutical companies highlighted in HHS OIG’s year-end reports for FY 2014 through FY 2017.[101] 2.   Significant HHS OIG Enforcement Activity a)   Exclusions HHS is required to exclude from participation in the federal health care programs any individual or entity that is convicted of (1) a crime related to Medicare or state health care program, (2) a crime related to patient abuse or neglect, (3) felony health care fraud, or (4) a felony related to the manufacturing, distribution, prescription, or dispensing of a controlled substance.[102] HHS also has permissive authority to exclude individuals and entities falling into sixteen other categories, including those convicted of fraudulent conduct related to health care, those excluded or suspended from a federal or state health care program, and those HHS determines have paid kickbacks as defined by the AKS.[103] HHS OIG reported 1,440 exclusions from the federal health care programs in the first half of calendar year 2019.[104] Of that number, 18 exclusions were of entities rather than individuals, a 40% drop compared to the same period in calendar year 2018[105] and a 55% drop compared to the same period in calendar year 2017.[106] Of these entities, six were physician practices, two were home health agencies, and the remaining ten were a mix of other types of providers.[107] No single provider category dominated the entity exclusions list. The remaining 1,422 exclusions reported in the Exclusions Database for the first half of calendar year 2019 were of individuals, 173 of whom were classified as business owners or executives, and 116 of whom were classified as physicians.[108] Of the latter category, 56 were classified as family practitioners, pediatricians, internists, or general practitioners.[109] The remaining physicians practiced a mix of specialties, with psychiatry, pain management, neurology, cardiology, and anesthesiology dominating.[110] b)   Civil Monetary Penalties The first half of calendar year 2019 witnessed a significant downturn in both the number of civil monetary penalty (“CMP”) cases and the value of CMP settlements, as compared with the same period in 2018. Whereas in the first half of 2018 HHS OIG announced 61 CMPs totaling approximately $46 million,[111] in the first half of 2019 there were only 37 CMPs totaling only about $17 million.[112] This equates to a 39% decrease in the number of cases, and a 63% decrease in the total recovery amount. However, the CMP settlements from the first half of the year shared some characteristics with prior settlements. As in the first half of 2018, CMPs resulting from self-disclosures represented the lion’s share of the CMPs in terms of dollar value, at 82%. Thirty of the CMP cases settled for amounts under $500,000, with the remaining seven settlements accounting for 78% of the total dollar amount recovered. As in prior years, cases involving allegations of improper or false billing accounted for the bulk of the CMPs recovered—approximately $10.7 million across 17 cases. Six cases imposing a total of approximately $5.5 million in CMPs involved kickback allegations, representing approximately 32% of the total CMP recoveries by dollar value compared with only about 19% for the same period last year. In the first half of this year, there were also thirteen cases involving employment of individuals excluded from participation in the federal health care programs, though those settlements totaled less than $842,000. The three largest CMPs assessed against providers in the first half of 2019 all involved self-disclosures and are summarized below: After making a self-disclosure to HHS OIG, on April 4, 2019, an Iowa-based health system settled allegations that it paid a physician excessive compensation that constituted illegal remuneration. As part of the settlement, the health system agreed to pay $3,008,326.50.[113] On April 3, 2019, after self-disclosing conduct to HHS OIG, a Mississippi-based medical group agreed to pay $2,022,904.96 to resolve allegations that it submitted claims for inpatient behavioral health services that were not medically necessary and that involved “cloning of documentation for multiple dates of treatment for the same patients and for multiple patients on the same dates of treatment.”[114] On January 9, 2019, after self-disclosing conduct to HHS OIG, a Texas county agreed to pay $4,526,740.26 to settle allegations that it submitted improper claims for ambulance transport services. The crux of HHS OIG’s allegations was that the county did not obtain the required beneficiary authorization for the transports.[115] B.   Significant CMS Activity 1.   Transparency and Data Accessibility As reported in past updates, the Center for Medicare & Medicaid Services (“CMS”) has continued to prioritize improving access to data related to the use of Medicare and Medicaid services. The Trump Administration has continued to explore a wide range of approaches to reducing health care costs, including by increasing patient access to the cost of their care and facilitating competition among providers to drive down costs. A number of recently proposed rules came out of that effort. In February, HHS announced two proposed rules intended to “improve the interoperability of electronic health information” and “ensure patients can electronically access their electronic health information” by “increas[ing] choice and competition while fostering innovation that promotes patient electronic access to and control over their health information.”[116] One of the proposed rules, issued by CMS, would require Medicaid, the Children’s Health Insurance Program, Medicare Advantage plans and Qualified Health Plans in Federally-facilitated exchanges to provide patients with immediate electronic access to medical claims and health information by the year 2020. In addition, the rule would require these plans to implement open data sharing technologies to facilitate patients changing plan types. CMS received nearly 2,000 public comments on the proposed rule before the comment period ended on June 3, 2019, and has not yet officially responded to the received submissions.[117] 2.   Compliance Review Program The CMS Division of National Standards announced last year that it is launching a Compliance Review Program “to ensure compliance among covered entities with HIPAA Administrative Simplification rules for electronic health care transactions.”[118] CMS piloted the program in 2018 with health plan and clearinghouse volunteers, and officially began the program in April 2019 by randomly selecting nine HIPAA-covered entities for Compliance Reviews. The review program uses a “progressive penalty process” to address noncompliance. For less serious violations, HHS works collaboratively with an entity to remedy the issue, including by issuing a Corrective Action Plan; for “willful and egregious” instances of noncompliance, the agency may assess more severe monetary penalties.[119] 3.   CMS Guidance Regarding Co-Location of Hospitals and Health Care Facilities On May 6, 2019, CMS issued draft guidance to state survey agency directors regarding permissible hospital co-location with other hospitals or health care facilities, which would amend a prior interpretation of the Medicare Conditions of Participation that prohibited such co-location.[120] Among other things, the new guidance would allow healthcare entities to be co-located on the same campus or within the same building—including sharing staff and/or services—while prohibiting entities from sharing patient care spaces (e.g. nursing stations, exam and procedure rooms, outpatient clinics, operating rooms, etc.). The public comment period for the draft guidance ended on July 2, 2019, and CMS has not yet officially responded to the comments or issued final guidance. C.   OCR Enforcement Efforts 1.   HIPAA Enforcement HHS’s Office of Civil Rights (“OCR”) has been increasingly active in recent years in pursuing alleged violations of the privacy and security patient information protections under the Health Information Portability and Accountability Act (“HIPAA”). OCR reported that as of June 30, 2019, it had received over 211,109 HIPAA complaints and initiated 971 compliance reviews since HIPAA privacy rules took effect in April 2003.[121] To date, OCR’s enforcement efforts have yielded $102,681,582 in settlements and civil penalties.[122] In the first half of 2019, OCR reported only two settlements amounting to just over $3 million in fines for HIPAA violations.[123] In May, a diagnostic medical imaging services company agreed to pay $3 million to settle charges that it violated the HIPAA Security and Breach Notification Rules by allowing uncontrolled access to patients’ protected health information.[124] Later that month, a medical records service agreed to pay $100,000 to settle potential violations of the HIPAA Privacy and Security Rules by failing to conduct a comprehensive risk analysis prior to a data breach involving the protected health information of approximately 3.5 million patients.[125] If OCR’s enforcement continues at this pace, 2019 will see a dramatic decline in HIPAA enforcement actions from last year, when OCR reported ten settlements and one judgment totaling $28.7 million in fines—the highest ever total recovery from HIPAA settlements and rulings.[126] a)   Developments in HIPAA Compliance Guidance As noted in past updates, HHS continues to prioritize the protection of patients’ electronically stored confidential information. To that end, OCR issues cybersecurity newsletters “to help HIPAA covered entities and business associates remain in compliance with the HIPAA Security Rule by identifying emerging or prevalent issues, and highlighting best practices to safeguard [personal health information].”[127] The newsletters do not establish legally enforceable responsibilities or create safe harbors for companies that adhere to the guidance therein; rather, they outline recommendations for complying with the HIPAA Security Rule and highlight best practices to safeguard electronically stored confidential information. The Spring 2019 newsletter focused primarily on “advanced persistent threats” (“APTs”), or long-term cybersecurity attacks consisting of continuous attempts to exploit weaknesses in a target’s information systems, as well as “zero day vulnerabilities,” or attacks that take advantage of a previously unknown hardware, firmware, or software vulnerability.[128] The newsletter notes that APTs are a particularly serious threat to the healthcare industry due to the value of medical research information, genetic data, experimental treatment testing results, and other individual health information. With respect to zero day vulnerabilities or exploits, the newsletter advises entities to implement appropriate safeguards, including encryption and access controls, and to ensure that measures are in place to assess the need for software patches and implement them in a timely manner. 2.   Federal Conscience Protection Efforts We are beginning to see the impact of the 2018 launch of OCR’s Conscience and Religious Freedom Division and enforcement efforts pertaining to this administration’s emphasis on conscience protection generally. In January, OCR sent a letter to the California Attorney General asserting that a California state law requiring pregnancy resource centers to post information about abortion services—which had recently been invalidated in court—violated the federal Weldon and Coats-Snowe Amendments, which prohibit state and local government recipients of certain federal funds from discriminating against providers who do not perform or refer for abortions.[129] After investigating complaints from several pregnancy centers, OCR’s Conscience and Religious Freedom Division concluded that California’s Reproductive Freedom, Accountability, Comprehensive Care, and Transparency Act (“FACT Act”) violates federal law by (1) requiring license covered facilities to refer for abortion and (2) discriminating against unlicensed covered facilities by targeting them for burdensome and unnecessary notice requirements when they fail to make arrangements for abortions. Following the Supreme Court’s decision in National Institute of Family and Life Advocates v. Becerra[130] in June 2018, a federal district court enjoined the state of California from enforcing the FACT Act against any pregnancy resource center in the state. As such, OCR is closing the complaint as favorably resolved for all complainants. Similarly, in March, OCR issued a Notice of Resolution to the state of Hawaii after the state’s Attorney General took corrective action in response to an investigation regarding whether the state had discriminated against non-profit pregnancy resource centers.[131] Two pregnancy centers filed a complaint with OCR claiming that Hawaii had discriminated against them in violation of federal conscience laws by enacting notice requirements under Act 200, a law requiring pregnancy centers to disseminate notices promoting abortion. After OCR’s Conscience and Religious Freedom Division initiated an investigation, Hawaii’s Attorney General issued a memorandum indicating that the state will not enforce the notice provisions against any limited service pregnancy center. As such, OCR is closing the complaint as favorably resolved for all complainants.[132] Further bolstering its conscience protection efforts, OCR issued a final conscience rule in May—after receiving over 242,000 submissions during the public comment period—aimed at protecting individuals and health care entities from discrimination on the basis of their exercise of conscience as part of HHS-funded programs.[133] Among other things, the final rule expands OCR’s authority to enforce 25 federal conscience protection laws and broadens the definition of “covered entity” to include state governments, federally-recognized tribes, hospitals, skilled nursing facilities, home health care providers, doctor’s offices, front desk staff, insurance companies, ambulance providers, pharmacists, pharmacies, and non-health employers that offer insurance to their employees. The new rule empowers OCR to use the full scope of its investigative and enforcement authority to pursue relevant claims and requires covered entities to cooperate with any such enforcement efforts, submit certifications of compliance to HHS, and maintain records of any such compliance.[134] Although the rule was originally scheduled to take effect on July 22, HHS has since agreed to postpone this date until November 22, at the request of a group of plaintiffs—including a coalition of 23 cities and states led by the New York Attorney General— in three related lawsuits challenging the rule’s legality.[135] We will continue to monitor these developments and report back on updates at the end of the year. III.   Anti-Kickback Statute Developments The Anti-Kickback Statue remains one of the most important federal fraud and abuse laws applicable to providers. Given the connection between AKS violations and FCA liability – and the significant damages potentially at stake – it is perhaps unsurprising that the elements of an AKS violation remain actively contested in courts and that AKS-related regulatory developments are closely watched. Below, we discuss recent developments in AKS case law, prosecution of the largest health care fraud scheme ever charged, significant advisory opinions, and a relevant (but subsequently withdrawn) regulatory proposal. A.   Notable Case Law Involving the AKS Judicial interpretation of “remuneration” continues to evolve as courts discuss whether remuneration includes anything of value, even when the relators could not show a quid pro quo relationship between remuneration and referrals. In United States ex rel. Charles Arnstein v. Teva Pharm. USA, Inc., the United States District Court for the Southern District of New York declared that a quid pro quo relationship between remuneration and referrals is not a requirement under the AKS. The case centered around the question of whether a pharmaceutical company’s promotional speaker program, which allegedly offered speaker fees and expensive meals in exchange for prescribing certain products, constituted an illegal kickback scheme.[136] The court denied summary judgment for defendants, declining to adopt their argument that plaintiff’s failure to demonstrate a quid pro quo relationship between speaker fees and future prescriptions written by the speakers “entitle[d] them to summary judgment.”[137] The court held that “offering or paying a person ‘remuneration’” with the intent of inducing the person to recommend a drug, was sufficient to constitute an AKS violation, even if the attempt did not succeed in securing referrals, stating that to conclude otherwise would be to ignore the difference between separate causes of action for “offer[ing] or pay[ing] unlawful remuneration” and 2) “solicit[ing] or receiv[ing] it.”[138] A recent decision from the United States District Court for the Southern District of Texas narrowed the scope of AKS liability by requiring that the alleged remuneration flow directly to the person making the unlawful referrals.[139] The relator alleged that a health services company gave free items to elementary schools and transitional living shelters, and subsequently placed an independent contractor at each facility to provide “skills building services” through which patients were then referred to the company for mental health services.[140] The court held that because the independent contractor, not the organizations in receipt of the alleged remunerations, made the referrals, the relator failed to provide the “link” between the kickbacks and the inducement of referrals.[141] B.   Criminal AKS Prosecutions In April of 2019, a federal jury found a South Florida nursing home facility owner guilty in “the largest health care fraud scheme ever charged” by the DOJ.[142] The prosecution alleged that from 1998 through 2016, the facility owner bribed doctors to refer patients to his skilled nursing care facility, where he would keep them for the maximum 100 days chargeable to Medicare, then transfer them to assisted living facilities before moving them back to the skilled nursing care facility to repeat the cycle.[143] In sum, the scheme involved $1.3 billion in fraudulent claims.[144] The facility owner allegedly used the proceeds to purchase luxury goods and pay bribes to secure his son’s admission at an Ivy League school.[145] The facility owner is appealing his conviction.[146] C.   Notable HHS OIG Advisory Opinions The first half of 2019 proved to be a relatively quiet period for HHS OIG advisory opinions, with only three opinions released in the first six months of the year. The recent opinions, however, offer guidance for providers on important issues, namely the provision of waivers for cost-sharing amounts and arrangements promoting access to care. Below, we summarize two opinions of particular applicability to providers. 1.   Cost-Sharing Waivers On January 9, 2019, HHS OIG issued a favorable opinion regarding an arrangement by a charitable pediatric clinic to waive routine Medicare and Tricare cost-sharing amounts for pediatric patients who receive services not covered by Medicaid or another state insurance program.[147] HHS OIG determined that the arrangement did not fall under the cost-sharing waiver under the CMP Law because the clinic waives its cost-sharing amounts routinely and does not verify the financial need of all patients.[148] Nonetheless, HHS OIG determined that the arrangement presented a low risk of AKS violations because the clinic: (i) treats very few patients not covered by Medicaid or another state insurance program; (ii) does not offer waivers of cost-sharing amounts as part of an advertisement or solicitation; (iii) does not offer financial incentives to its health care providers to order unnecessary care or to steer patient referrals to requestor; (iv) serves an especially vulnerable patient population; and (v) demonstrated that it minimized the risk posed by the arrangement by implementing proper safeguards.[149] Though this favorable opinion contrasts with other instances in which HHS OIG has expressed concerns about arrangements involving routine waivers of cost-sharing amounts,[150] it is significant that (i) the number of Medicare beneficiaries who may benefit from this arrangement is very small, as it is limited to children with end-stage renal disease, and (ii) Tricare beneficiaries comprise less than one percent of the requestor’s patient population.[151] 2.   Free In-Home Follow-up Care On March 1, 2019, HHS OIG opined on an existing arrangement by a medical center to provide free, in-home follow-up care to eligible individuals with congestive heart failure, as well as a proposed expansion of the existing program to include individuals with chronic pulmonary disease.[152] Patients are eligible for the program if they, among other things, (i) have a high risk of readmission according to a medical assessment performed at the medical center and (ii) have arranged to receive follow-up care at the medical center. Under the terms of the program, eligible patients receive two free in-home follow-up care visits per week from a paramedic who, for instance, reviews the patient’s medication, performs a home safety inspection, and checks the patients vitals. When further care is needed, the paramedic directs the patient to follow up with his or her established provider.[153] Though the medical center typically is patient’s established provider, the program allows the patient to obtain care from the provider of his or her choice.[154] HHS OIG determined that the program technically could generate prohibited remuneration because it only offered the free care to those patients planning to receive follow-up care from the medical center, and therefore could influence patients to select the medical center for federally reimbursable items or services.[155] Further, HHS OIG found that the Promotes Access to Care Exception did not apply because “the full suite of [s]ervices offered,” such as the home safety assessments, did more than promote patient access to care.[156] Nonetheless, HHS OIG declined to impose sanctions upon the medical center for several enumerated reasons specific to the requestor’s case.[157] Notably, in the opinion, HHS OIG referenced the “broad reach” of the AKS and acknowledged that it can serve as a “potential impediment to beneficial arrangements that would advance coordinated care.”[158] HHS OIG also referenced back to its August 27, 2018 request for information which, as discussed in our 2018 Year-End Update, sought feedback about regulations that may act as “barriers to coordinated care” or “value-based care.” The request drew 359 public comments, but HHS has not yet published a proposed rule in response. D.   Regulatory Developments On February 6, 2019, HHS OIG proposed a rule to narrow the existing regulatory discount safe harbor under the AKS and create two new safe harbors.[159] The rule was subsequently withdrawn on July 10, 2019. As proposed, the rule would have (1) excluded rebates provided to Medicare Part D plans, Medicaid managed care organizations (“MCOs”), and pharmacy benefit managers (“PBMs”) from the existing safe harbor protections and (2) added two new safe harbors, one to protect point-of-sale drug price reductions under specific circumstances, and the other to protect written, fair market value fixed-fee arrangements between PBMS and manufacturers.[160] During the comment period, over 25,000 comments poured in from manufacturers, pharmacies, health plans, and policy and advocacy groups.[161] While comments from pharmaceutical industry commenters were generally favorable, other stakeholder, including providers and PBMs, opposed the proposal for fear that the proposal to eliminate an existing rebate-related safe harbor would increase costs for patients, particularly seniors. HHS abandoned the rule on July 10, 2019, citing the Trump Administration’s commitment to move away from administrative rulemaking and focus on passing bi-partisan legislation. Secretary Azar added that Congress has the ability to “look more holistically at changes to the system that could also mitigate or protect seniors from rate increases.”[162] Although the rule was not enacted, the efforts to refine existing safe harbors shows a continuing focus on the Trump Administration’s efforts to decrease drug pricing by closing loopholes and creating safe harbors commensurate with the practical experiences of industry stakeholders. IV.   Stark Law Developments The year 2019 marks the 30th anniversary of the enactment of the physician self-referral law, or Stark Law, a strict liability civil statute prohibiting hospitals and other providers of “designated health services” from submitting Medicare claims for services rendered as a result of patient referrals from a physician who has a “financial relationship” with the hospital, unless certain exceptions apply.[163] Due to the breadth of the definition of “financial relationship” under the Stark Law and the opaqueness of the enumerated exceptions, it remains a hotly debated topic and area of focus for the Trump Administration. The Patients over Paperwork initiative, launched in 2017, solicited feedback from the medical community about how CMS regulations affect their daily work. Among the responses gathered from over 2,000 stakeholders, one of the top complaints raised was about “the challenges associated with complying with the Stark law.”[164] In reaction to the challenges identified, we anticipate CMS may propose changes to Stark Law regulations this coming year. A.   Regulatory and Legislative Developments As reported in our 2018 Mid-Year Update, CMS has solicited feedback from stakeholders in connection with its efforts to reform some aspects of the Stark Law. Though proposed regulations have not been issued, according to public remarks by CMS Administrator Seema Verma, the agency is “actively working” on reforming Stark Law regulations, promising updated regulations in 2019 that would “represent the most significant changes to the Stark law since its inception.”[165] Administrator Verma’s remarks also foreshadowed some of the topics that are likely to be impacted by the future changes. In her comments, Administrator Verma highlighted the need to clarify “regulatory definitions of volume or value, commercial reasonableness and fair market value.”[166] She also suggested that the regulations will address issues related to technical noncompliance—for example, lack of signature or incorrect dates on a medical record.[167] The regulations are also expected to address modern dynamics related to electronic health records requirements, cybersecurity, and data privacy concerns. The anticipated proposed regulations are part of HHS’s “Regulatory Sprint to Coordinated Care,” a department-wide initiative under which various agencies have issued requests for information (“RFIs”) to solicit feedback from industry stakeholders on removing regulatory obstacles.[168] The proposed regulations are expected later this year.[169] B.   Notable Stark Law Enforcement In March 2019, the United States intervened in a FCA suit alleging that a struggling hospital engaged in a wide ranging referral scheme to save itself from financial ruin.[170] As part of the efforts, the hospital allegedly hired a large number of physicians as employees in order to secure those physicians’ referrals as a revenue stream for the hospital. According to the complaint, the compensation arrangements with the referring physicians failed to satisfy any statutory or regulatory exception to the Stark Law. The complaint explained that because inpatient and outpatient hospital services are designated health services under the Stark law, any fees billed to Medicare for hospital inpatient and outpatient services provided by the physicians were deemed a referral from the physician to the hospital.[171] In May 2019, the DOJ filed an intervenor complaint in a suit alleging that a home health care company violated the Stark Law by hiring the spouses of doctors they worked with and paying them based on the “volume or value” of referrals the doctors made.[172] The United States intervened in the case nearly four years after the commencement of the relator’s suit, which alleged violations of both the AKS and Stark Law. The defendant, a home health care company, allegedly entered into sham medical director agreements with three doctors, agreeing to pay them kickbacks if they made patient referrals to the home health care company. The home health care company also hired the spouses of the physicians to conduct sales and marketing efforts to refer patients to the company. The spouses were compensated by commissions based on the referrals they generated, which constituted a financial relationship that allegedly fell outside any defined Stark Law exception.[173] The DOJ announced four settlements related to Stark Law claims in the first half of 2019 , which collectively illustrate that a “financial relationship” with a health care provider can take many forms. For example, a January 30 settlement with a pathology laboratory centered around allegations that the laboratory offered physicians free or discounted technology consulting services as well as subsidies for electronic health records systems.[174] On June 7, the DOJ announced settlements in two cases against a home health agency that allegedly established a financial relationship with referring physicians in two ways: first, by offering a paid “medical directorship” position to referring physicians; and second, by employing spouses of physicians and paying them in a manner that took into consideration the volume of referrals made by their physician spouses.[175] We anticipate that the second half of 2019 may bring many long-anticipated proposed changes to Stark Law regulations, and we will continue to monitor developments in this area. V.   Conclusion The first half of 2019 brought notable developments, including a continued downturn in enforcement efforts and the issuance of DOJ guidance related to corporate compliance programs and cooperation credit. Many more potential developments have been foreshadowed or are pending in courts. As always, we will continue to monitor for updates and reports back at the end of the year.   __________________ [1] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Deputy Associate Attorney General Stephen Cox Delivers Remarks at the 2019 Advanced Forum on False Claims and Qui Tam Enforcement (Jan. 28, 2019), https://www.justice.gov/opa/speech/deputy-associate-attorney-general-stephen-cox-delivers-remarks-2019-advanced-forum-false. [2] See Gibson Dunn 2018 Mid-Year FDA and Health Care Compliance and Enforcement Update – Providers (July 26, 2018) [hereinafter “Gibson Dunn 2018 Mid‑Year Update”]; See Gibson Dunn 2017 Mid-Year FDA and Health Care Compliance and Enforcement Update – Providers (Sept. 4, 2017) [hereinafter “Gibson Dunn 2017 Mid‑Year Update”]. [3] Gibson Dunn 2018 Mid-Year Update; Gibson Dunn 2017 Mid-Year Update. [4] See Gibson Dunn 2018 Mid-Year Update. [5] Id. [6] See id. [7] The total is greater than 33 because some cases had multiple claims. [8] See Gibson Dunn 2018 Mid-Year Update. [9] Press Release, U.S. Dep’t of Justice, U.S. Attorney’s Office, N.D. of Ill., Chicago-Area Physical Therapy Center and 4 Nursing Facilities to Pay $9.7 Million to Resolve False Claims Act Allegations (June 11, 2019), https://www.justice.gov/usao-ndil/pr/chicago-area-physical-therapy-center-and-4-nursing-facilities-pay-97-million-resolve. [10] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Pathology Laboratory Agrees to Pay $63.5 Million for Providing Illegal Inducements to Referring Physicians (Jan. 30, 2019), https://www.justice.gov/opa/pr/pathology-laboratory-agrees-pay-635-million-providing-illegal-inducements-referring. [11] Id. [12] Id. [13] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Electronic Health Records Vendor to Pay $57.25 Million to Settle False Claims Act Allegations (Feb. 6, 2019), https://www.justice.gov/opa/pr/electronic-health-records-vendor-pay-5725-million-settle-false-claims-act-allegations. [14] Id. [15] Id. [16] Gibson Dunn 2017 Mid-Year Update. [17] Cochise Consultancy, Inc. v. United States ex rel. Hunt, 139 S.Ct. 1507 (2019). [18] See 31 U.S.C. § 3731(b)(1)-(2). [19] Cochise Consultancy, 139 S.Ct. at 1514. [20] Gibson Dunn represented the petitioners challenging this decision. [21] Cochise Consultancy, Inc. v. United States ex rel. Hunt, 887 F.3d 1081 (11th Cir. 2018). [22] United States ex rel. Sanders v. N. Am. Bus Indus., Inc., 546 F.3d 288, 293-94 (4th Cir. 2008). [23] United States ex rel. Hyatt v. Northrop Corp., 91 F.3d 1211, 1216-18 (9th Cir. 1996). [24] Cochise Consultancy, 139 S.Ct. at 1512-14. [25] 31 U.S.C. § 3730(e)(4)(A). [26] Id. at § 3730(e)(4)(B) (emphasis added). [27] 923 F.3d 729 (10th Cir. 2019). [28] Id. at 757 (quoting United States ex rel. Winkelman v. CVS Caremark Corp., 827 F.3d 201, 211 (1st Cir. 2016)). [29] Reed, 923 F.3d at 759–60. [30] Reed, 923 F.3d at 762 (quoting Joel D. Hesch, Restating the “Original Source Exception” to the False Claims Act’s “Public Disclosure Bar” in Light of the 2010 Amendments, 51 U. Rich. L. Rev. 991, 1023, 27 (2017)). [31] Reed, 923 F.3d at 757. [32] Id. (quoting United States ex rel. Moore & Co., P.A. v. Majestic Blue Fisheries, LLC, 812 F.3d 294, 307 (3d Cir. 2016)). [33] Reed, 923 F.3d at 758. [34] 136 S. Ct. 1989 (2016). [35] See Escobar, 136 S. Ct at 2002. [36] United States ex rel. Prather v. Brookdale Senior Living Cmtys., Inc., 892 F.3d 822 (6th Cir. 2016), cert. denied, 139 S. Ct. 1323 (2019); see also United States ex rel. Rose v. Stephens Inst., 909 F.3d 1012 (9th Cir. 2018), cert. denied, 139 S. Ct. 1464 (2019); United States ex rel. Berg v. Honeywell Int’l, Inc., 740 F. App’x 535 (9th Cir. 2018), cert. denied, 139 S. Ct. 1456 (2019); United States ex rel. Harman v. Trinity Indus. Inc., 872 F.3d 645 (5th Cir. 2017), cert. denied, 139 S. Ct. 784 (2019); United States ex rel. Campie v. Gilead Scis., Inc., 862 F.3d 890 (9th Cir. 2017), cert. denied, 139 S. Ct. 783 (2019). [37] 31 U.S.C. § 3730(c)(2)(A). [38] Swift v. United States, 318 F.3d 250, 252 (D.C. Cir. 2003). [39] Ridenour v. Kaiser-Hill Co., 397 F.3d 925, 940 (10th Cir. 2005) (internal quotation marks omitted); United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139, 1145 (9th Cir. 1998) (internal quotation marks omitted). [40] Memorandum from Michael D. Granston, Director, United States Department of Justice, Civil Division, Commercial Litigation Branch, Fraud Section, to Commercial Litigation Branch, Fraud Section (Jan. 10, 2018), https://www.insidethefca.com/wp-content/uploads/sites/300/2018/12/Granston-Memo.pdf. [41] See, e.g., Order Granting Motion to Dismiss, United States ex rel. Stovall v. Webster Univ., No. 3:15-cv-03530-DCC (D.S.C. Aug. 8, 2018) (arguing that “dismissal will further [the government’s] interest in preserving scarce resources by avoiding the time and expense necessary to monitor this action”); Order Granting Motion to Dismiss, United States ex rel. Toomer v. Terrapower, LLC, No. 4:2016cv00226 (D. Idaho Oct. 10, 2018) (arguing that the case will “waste substantial government time and resources” due to the continued need “to monitor the case”). [42] E.g., United States ex rel. Health Choice All., LLC v. Eli Lilly & Co., Inc., No. 5:17-cv-123, 2018 WL 4026986, at *3 (E.D. Tex. July 25, 2018), report and recommendation adopted, No. 5:17-CV-123, 2018 WL 3802072 (E.D. Tex. Aug. 10, 2018). [43] United States ex rel. CIMZNHCA, LLC v. UCB, INC., No. 17-CV-765-SMY-MAB, 2019 WL 1598109, at *1–4 (S.D. Ill. Apr. 15, 2019); see also United States ex rel. Harris v. EMD Serono, Inc., 370 F. Supp. 3d 483, 488–91 (E.D. Penn. 2019) (adopting Ninth and Tenth Circuit heightened scrutiny standard, but upholding government dismissal). [44]Ridenour v. Kaiser-Hill Co., 397 F.3d 925, 940 (10th Cir. 2005) (requiring government to identify a valid government purpose and a rational relation between dismissal and accomplishment of purpose; if government satisfies two-step test, burden switches to relator to demonstrate that dismissal is fraudulent, arbitrary and capricious, or illegal); United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139, 1145 (9th Cir. 1998) (same). [45] CIMZNHCA, 2019 WL 1598109, at *3. [46] Id. at *3. [47] Id. at *4. [48] Id. [49] Amended Report and Recommendation of the United States Magistrate Judge, United States ex rel. Health Choice All. v. Eli Lilly & Co., Inc., No. 5:17-CV-123-RWS-CMC (E. D. Tex. June 20, 2019); see also United States ex rel. Davis v. Hennepin Cty., No. 18-CV-01551, 2019 WL 608848, at *15 (D. Minn. Feb. 13, 2019) (holding that if courts constrain government’s ability to dismiss, “they would effectively be policing the Government’s right to dismiss, interfering with prosecutorial discretion in violation of an important separation-of-powers principle”). [50] Health Choice All., supra note 54, at 12 (quoting Swift v. United States, 318 F.3d 250, 252 (D.C. Cir. 2003)). [51] Health Choice All., supra note 54, at *28. [52] See id. at *34. [53] Texas v. United States, 340 F. Supp. 3d 579, 619 (N.D. Tex. 2018). [54] See Brief for Defendants-Appellants United States of America et al., Texas v. United States, No. 19-10011 (filed May 1, 2019). [55] Moda Health Plan Inc. v. United States, No. 18-1028 (Fed. Circ. 892 F.3d 1311; granted June 24. 2019). [56] The Patient Protection and Affordable Care Act of 2010, Pub. L. No. 111-148, § 1342(b). [57] See Pet. for a writ Writ of Cert., Moda Health Plan Inc. v. United States (filed Feb. 4, 2019). [58] Moda Health Plan Inc. v. United States, 892 F.3d 1311, 1330-31 (Fed. Circ. 2018). [59] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Deputy Assistant Attorney General Matthew S. Miner Gives Remarks at the 29th Annual National Institute on Health Care Fraud (May 9, 2019), https://www.justice.gov/opa/speech/deputy-assistant-attorney-general-matthew-s-miner-gives-remarks-29th-annual-national. [60] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Appalachian Regional Prescription Opioid (ARPO) Strike Force Takedown Results in Charges Against 60 Individuals, Including 53 Medical Professionals (April 17, 2019), https://www.justice.gov/opa/pr/appalachian-regional-prescription-opioid-arpo-strike-force-takedown-results-charges-against. [61] Id. [62] See, e.g., Indictment, U.S. v. Petway, No. 1:19-cr-10041, (W.D. Tenn. Apr. 15, 2019); Indictment, U.S. v. Young, No. 1:19-cr-10040, (W.D. Tenn. Apr. 15, 2019); Indictment, U.S. v. Brown, No. 3:19-cr-00068, (S.D. Ohio Apr. 9, 2019); Indictment, U.S. v. Prasad, No. 2:19-cr-00071, (E.D. La. Apr. 16, 2019). [63] See, e.g., Indictment, U.S. v. Prasad, No. 2:19-cr-00071, (E.D. La. Apr. 16, 2019); Indictment, U.S. v. Mahmood, No. 3:19-cr-00059, (W.D. Ky. Apr. 3, 2019); U.S. v. Assured Rx LLC, No. 3:19-cr-00058, (W.D. Ky. Apr. 3, 2019). [64] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, United States Attorney Announces $17 Million Healthcare Fraud Settlement (May 6, 2019), https://www.justice.gov/usao-sdwv/pr/united-states-attorney-announces-17-million-healthcare-fraud-settlement. [65] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Justice Department Files First of its Kind Action to Stop Tennessee Pharmacies’ Unlawful Dispensing of Opioids (Feb. 8, 2019), https://www.justice.gov/opa/pr/justice-department-files-first-its-kind-action-stop-tennessee-pharmacies-unlawful-dispensing. [66] Complaint, U.S. v. Oakley Pharmacy Inc., No. 2:19-cv-00009, (M.D. Tenn. Feb. 7, 2019). [67] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Justice Department Files Action to Enjoin Texas Doctors From Illegally Prescribing Highly Addictive Opioids and Other Controlled Substances (May 10, 2019), https://www.justice.gov/opa/pr/justice-department-files-action-enjoin-texas-doctors-illegally-prescribing-highly-addictive. [68] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, New Jersey/Pennsylvania Doctor Indicted For Accepting Bribes And Kickbacks From A Pharmaceutical Company In Exchange For Prescribing Powerful Fentanyl Drug (June 25, 2019), https://www.justice.gov/opa/pr/new-jerseypennsylvania-doctor-indicted-accepting-bribes-and-kickbacks-pharmaceutical-company. [69] Information, U.S. v. Mintz, No. 19-cr-00132, (E.D. Pa. Mar. 4, 2019). [70] Press Release, U.S. Dep’t of Justice, U.S. Attorney’s Office, E.D. Pa., Philadelphia-Area Doctor Pleads Guilty to Eight Counts of Unlawfully Distributing Oxycodone (Mar. 13, 2019), https://www.justice.gov/usao-edpa/pr/philadelphia-area-doctor-pleads-guilty-eight-counts-unlawfully-distributing-oxycodone. [71] Information, U.S. v. Prasad, No. 2:19-cr-0007, (E.D. La. Apr. 16, 2019). [72] Press Release, U.S. Dep’t of Justice, U.S. Attorney’s Office, E.D. La., Mandeville, Louisiana Neurologist Pleads Guilty For Role in Scheme to Unlawfully Dispense Controlled Substances and To Commit Health Care Fraud (May 30, 2019), https://www.justice.gov/usao-edla/pr/mandeville-louisiana-neurologist-pleads-guilty-role-scheme-unlawfully-dispense. [73] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, South Florida Pill Mill Owner Sentenced to Prison for Role in $2.2 Million Medicare Fraud Scheme (June 30, 2019), https://www.justice.gov/opa/pr/south-florida-pill-mill-owner-sentenced-prison-role-22-million-medicare-fraud-scheme. [74] CMP Assessments discussed further in Section II of this update. [75] See Data gathered through HHS OIG press releases and publicly available information.  See generally U.S. Dep’t of Health & Human Servs., Office of the Inspector Gen., Civil Monetary Penalties and Affirmative Exclusions, http://oig.hhs.gov/fraud/enforcement/cmp/index.asp  (last visited June 21, 2019) [hereinafter “CMP Assessments”]. [76] Id. [77] U.S. Dep’t of Health & Hum. Servs., Office of Inspector Gen., Medicare Improperly Paid Providers for Specimen Validity Tests Billed in Combination with Urine Drug Tests (Feb. 2018), at 2, https://oig.hhs.gov/oas/reports/region9/91602034.pdf. [78] See id. [79] See U.S. Dep’t of Health & Hum. Servs., Office of Inspector Gen., Concerns about Opioid Use in Medicare Part D in the Appalachian Region (Apr. 2019), https://oig.hhs.gov/oei/reports/oei-02-18-00224.pdf (noting that, in 2017, 36% of Medicare Part D beneficiaries in Alabama, Kentucky, Ohio, Tennessee, and West Virginia received a prescription opioid). [80] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Deputy Attorney General Rod J. Rosenstein, Remarks at the American Conference Institute’s 35th International Conference on the Foreign Corrupt Practices Act (Nov. 29, 2018), https://www.justice.gov/opa/speech/deputy-attorney-general-rod-j-rosenstein-delivers-remarks-american-conference-institute-0. [81] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Assistant Attorney General Brian A. Benczkowski, Keynote Address at the Ethics and Compliance Initiative (ECI) 2019 Annual Impact Conference (Apr. 30, 2019), https://www.justice.gov/opa/speech/assistant-attorney-general-brian-benczkowski-delivers-keynote-address-ethics-and. [82] Id. [83] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Department of Justice Issues Guidance on False Claims Act Matters and Updates Justice Manual (May 7, 2019), https://www.justice.gov/opa/pr/department-justice-issues-guidance-false-claims-act-matters-and-updates-justice-manual. [84] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Deputy Attorney General Rod J. Rosenstein, Remarks at the American Conference Institute’s 35th International Conference on the Foreign Corrupt Practices Act (Nov. 29, 2018), https://www.justice.gov/opa/speech/deputy-attorney-general-rod-j-rosenstein-delivers-remarks-american-conference-institute-0. [85] Justice Manual § 4-4.112, available at https://www.justice.gov/jm/jm-4-4000-commercial-litigation#4-4.112. [86] Justice Manual § 4-4.112, available at https://www.justice.gov/jm/jm-4-4000-commercial-litigation#4-4.112. [87] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Principal Deputy Associate Attorney General Claire McCusker Murray, Remarks at the Compliance Week Annual Conference (May 20, 2019), available at https://www.justice.gov/opa/speech/remarks-principal-deputy-associate-attorney-general-claire-mccusker-murray-compliance. [88] See generally U.S. Dep’t of Justice, Criminal Division, Evaluation of Corporate Compliance Programs (Apr. 2019), https://www.justice.gov/criminal-fraud/page/file/937501/download [hereinafter “April 2019 Compliance Guidance”]. [89] Press Release, U.S. Dep’t of Justice, Criminal Division Announces Publication of Guidance on Evaluating Corporate Compliance Programs (Apr. 30, 2019), https://www.justice.gov/opa/pr/criminal-division-announces-publication-guidance-evaluating-corporate-compliance-programs. [90] April 2019 Compliance Guidance at 3. [91] Id. [92] Id. at 4. [93] Id. at 9. [94] HHS reporting is on a fiscal-year basis; the Oct. 1, 2018 – March 31, 2019 period encompasses the first half of FY 2019. [95] U.S. Dep’t of Health & Human Servs., Office of Inspector Gen., Semiannual Report to Congress (Oct. 1, 2018, through Mar. 31, 2019), at 5, https://oig.hhs.gov/reports-and-publications/archives/semiannual/2019/2019-spring-sar.pdf [hereinafter “2019 SA Report”]. [96] See U.S. Dep’t of Health & Human Servs., Office of Inspector Gen., Semiannual Report to Congress (Oct. 1, 2017, through Mar. 31, 2018), at 4, https://oig.hhs.gov/reports-and-publications/archives/semiannual/2018/sar-spring-2018.pdf [hereinafter “2018 SA Report”]. [97] See 2019 SA Report at 5; 2018 SA Report at 4; U.S. Dep’t of Health & Human Servs., Office of the Inspector Gen., Semiannual Report to Congress (Oct. 1, 2016 – Mar. 31, 2017), at ix, https://oig.hhs.gov/reports-and-publications/archives/semiannual/2017/sar-spring-2017.pdf [hereinafter “2017 SA Report”]. [98] Compare 2019 SA Report at 5 with 2018 SA Report at 4. [99] See U.S. Dep’t of Health & Human Servs., Office of Inspector Gen., Semiannual Report to Congress (Apr. 1, 2018, through Sept. 30, 2018), at 4, https://oig.hhs.gov/reports-and-publications/archives/semiannual/2018/2018-fall-sar.pdf [hereinafter “FY 2018 Report”]. [100] See 2019 SA Report at 29. [101] See U.S. Dep’t of Health & Human Servs., Office of the Inspector Gen., Semiannual Report to Congress (Apr. 1, 2014 – Sept. 30, 2014), https://oig.hhs.gov/reports-and-publications/archives/semiannual/2014/sar-fall2014.pdf; U.S. Dep’t of Health & Human Servs., Office of the Inspector Gen., Semiannual Report to Congress (Apr. 1, 2015 – Sept. 30, 2015), https://oig.hhs.gov/reports-and-publications/archives/semiannual/2015/sar-fall15.pdf; U.S. Dep’t of Health & Human Servs., Office of the Inspector Gen., Semiannual Report to Congress (Apr. 1, 2016 – Sept. 30, 2016), https://oig.hhs.gov/reports-and-publications/archives/semiannual/2016/sar-fall-2016.pdf; U.S. Dep’t of Health & Human Servs., Office of the Inspector Gen., Semiannual Report to Congress (Apr. 1, 2017 – Sept. 30, 2017), https://oig.hhs.gov/reports-and-publications/archives/semiannual/2017/sar-fall-2017.pdf. [102] 42 U.S.C. § 1320a‑7(a). [103] 42 U.S.C. § 1320a‑7(b). [104] See U.S. Dep’t of Health & Human Servs., Office of the Inspector Gen., LEIE Downloadable Databases, https://oig.hhs.gov/exclusions/exclusions_list.asp (last visited June 21, 2019) [hereinafter “Exclusions Database”]. [105] See Gibson Dunn 2018 Mid-Year Update. [106] See Gibson Dunn 2017 Mid-Year Update. [107] See Exclusions Database. [108] See Exclusions Database. [109] See id. [110] See id. [111] Gibson Dunn 2018 Mid-Year Update. [112] CMP Assessments; U.S. Dep’t of Health & Human Servs., Office of the Inspector Gen., Provider Self-Disclosure Settlements, http://oig.hhs.gov/fraud/enforcement/cmp/psds.asp (last visited June 21, 2019) [hereinafter “Provider Self-Disclosure Settlements”]. [113] Provider Self-Disclosure Settlements. [114] Id. [115] Id. [116] Press Release, U.S. Dep’t of Health & Human Servs., HHS Proposes New Rules to Improve the Interoperability of Electronic Health Information (February 11, 2019), https://www.hhs.gov/about/news/2019/02/11/hhs-proposes-new-rules-improve-interoperability-electronic-health-information.html. [117] Press Release, U.S. Dep’t of Health & Human Servs., HHS Extends Comment Period for Proposed Rules to Improve the Interoperability of Electronic Health Information (April 19, 2019),  https://www.hhs.gov/about/news/2019/04/19/hhs-extends-comment-period-for-proposed-rules-to-improve-the-interoperability-of-electronic-health-information.html; 84 Fed. Reg. 7424 (Mar. 4, 2010), https://www.federalregister.gov/documents/2019/03/04/2019-02224/21st-century-cures-act-interoperability-information-blocking-and-the-onc-health-it-certification. [118] U.S. Dep’t of Health & Human Servs., CMS.gov, Enforcement and Compliance Overview (April 10, 2019), https://www.cms.gov/Regulations-and-Guidance/Administrative-Simplification/Enforcements/index.html. [119] U.S. Dep’t of Health & Human Servs., CMS.gov, Compliance Review Program (June 18, 2019), https://www.cms.gov/Regulations-and-Guidance/Administrative-Simplification/Enforcements/Compliance-Review-Program.html. [120] Draft Only-Guidance for Hospital Co-Location with Other Hospitals or Healthcare Facilities, U.S. Dep’t of Health & Human Servs., Center for Medicare & Medicaid Services (May 3, 2019), available at https://www.cms.gov/Medicare/Provider-Enrollment-and-Certification/SurveyCertificationGenInfo/Policy-and-Memos-to-States-and-Regions-Items/QSO-19-13-Hospital.html. [121] U.S. Dep’t of Health & Human Servs., Health Information Privacy, Enforcement Highlights (April 30, 2019), https://www.hhs.gov/hipaa/for-professionals/compliance-enforcement/data/enforcement-highlights/index.html. [122] Id. [123] Data gathered through HHS press releases and other publicly available information. See generally U.S. Dep’t of Health & Human Servs., HIPAA News Releases & Bulletins, https://www.hhs.gov/hipaa/newsroom (last visited June 18, 2019). [124] Press Release, U.S. Dep’t of Health & Human Servs., Office of Civil Rights, Tennessee diagnostic medical imaging services company pays $3,000,000 to settle breach exposing over 300,000 patients’ protected health information (May 6, 2019), https://www.hhs.gov/about/news/2019/05/06/tennessee-diagnostic-medical-imaging-services-company-pays-3000000-settle-breach.html. [125] Press Release, U.S. Dep’t of Health & Human Servs., Office of Civil Rights, Indiana Medical Records Service Pays $100,000 to Settle HIPAA Breach (May 23, 2019), https://www.hhs.gov/hipaa/for-professionals/compliance-enforcement/agreements/mie/index.html. [126] Press Release, U.S. Dep’t of Health & Human Servs., Office of Civil Rights, OCR Concludes 2018 with All-Time Record Year for HIPAA Enforcement (February 7, 2019), https://www.hhs.gov/hipaa/for-professionals/compliance-enforcement/agreements/2018enforcement/index.html. [127] U.S. Dep’t of Health & Human Servs., Office of Civil Rights, Cybersecurity Newsletters Archive, https://www.hhs.gov/hipaa/for-professionals/security/guidance/cybersecurity/cybersecurity-newsletter-archive/index.html. In 2019, OCR moved to quarterly, rather than monthly, cybersecurity newsletters. [128] U.S. Dep’t of Health & Human Servs., Office of Civil Rights, Spring 2019 OCR Cybersecurity Newsletter, https://www.hhs.gov/sites/default/files/spring-2019-ocr-cybersecurity-newsletter.pdf. [129] U.S. Dep’t of Health & Human Servs., Office of Civil Rights, OCR Finds the State of California Violated Federal Law in Discriminating Against Pregnancy Resource Centers (January 18, 2019), https://www.hhs.gov/about/news/2019/01/18/ocr-finds-state-california-violated-federal-law-discriminating-against-pregnancy-resource-centers.html. [130] 585 U.S. ___ (2018). [131] U.S. Dep’t of Health & Human Servs., Office of Civil Rights, OCR Issues Notice of Resolution to the State of Hawaii after Hawaii Takes Action in Safeguarding Conscience Protections for Pregnancy Care Centers (March 22, 2019), https://www.hhs.gov/about/news/2019/03/22/ocr-issues-notice-resolution-state-hawaii-after-hawaii-takes-action-safeguarding-conscience.html. [132] Id. [133] U.S. Dep’t of Health & Human Servs., Office of Civil Rights, HHS Announces Final Conscience Rule Protecting Health Care Entities and Individuals (May 2, 2019), https://www.hhs.gov/about/news/2019/05/02/hhs-announces-final-conscience-rule-protecting-health-care-entities-and-individuals.html. [134] 84 Fed. Reg. 23170 (May 21, 2019), https://www.federalregister.gov/documents/2019/05/21/2019-09667/protecting-statutory-conscience-rights-in-health-care-delegations-of-authority. [135] New York, et al., v. United States Dep’t of Health and Human Services, et al., 1:19-cv-04676-PAE (S.D.N.Y. 2019), ECF 95. [136] No. 13 CIV. 3702 (CM), 2019 WL 1245656, at *1 (S.D.N.Y. Feb. 27, 2019). [137] Id. at *10. [138] Id. at *3 (comparing 42 U.S.C. § 1320a-7b(b)(2) with § 1320a-7b(b)(1)). [139] United States v. Abundant Life Therapeutic Servs. Texas, LLC, No. CV-H-18-773, 2019 WL 1930274, at *7 (S.D. Tex. Apr. 30, 2019). [140] Id. at *2. [141] Id. at *7–8. [142] Press Release, U.S. Dep’t of Justice, South Florida Health Care Facility Owner Convicted for Role in Largest Health Care Fraud Scheme Ever Charged by The Department of Justice, Involving $1.3 Billion in Fraudulent Claims (Apr. 5, 2019), https://www.justice.gov/opa/pr/south-florida-health-care-facility-owner-convicted-role-largest-health-care-fraud-scheme-ever. [143] Id. [144] Id. [145] Id. [146] Adriana Gomez Licon, South Florida businessman convicted in $1B Medicare fraud, largest ever charged by Justice Department, Sun Sentinel (Apr. 5, 2019), https://www.sun-sentinel.com/news/crime/fl-ne-ap-philip-esformes-convicted-medicaid-fraud-20190405-story.html. [147] U.S. Dep’t of Health & Human Servs., Office of Inspector Gen., OIG Advisory Op. 19-01 (Jan. 9, 2019), https://oig.hhs.gov/fraud/docs/advisoryopinions/2019/AdvOpn19-01.pdf. [148] Id. at 6. [149] Id. at 7–8. [150] See U.S. Dep’t of Health & Human Servs., Office of Inspector Gen., OIG Advisory Op. 17-02 (June 29, 2017), https://oig.hhs.gov/fraud/docs/advisoryopinions/2017/AdvOpn17-02.pdf. [151] OIG Advisory Op. 19-01 at 4, n.3. [152] U.S. Dep’t of Health & Human Servs., Office of Inspector Gen., OIG Advisory Op. 19-03 (Mar. 1, 2019), https://oig.hhs.gov/fraud/docs/advisoryopinions/2019/AdvOpn19-03.pdf. [153] Id. at 4. [154] Id. [155] Id. at 7. [156] Id. [157] Id. at 8–9. [158] Id. at 9. [159] U.S. Dep’t of Health & Human Servs., Office of Inspector Gen., Fraud and Abuse; Removal of Safe Harbor Protection for Rebates Involving Prescription Pharmaceuticals and Creation of New Safe Harbor Protection for Certain Point-of-Sale Reductions in Price on Prescription Pharmaceuticals and Certain Pharmacy Benefit Manager Service Fees, 84 Fed. Reg. 2340 (proposed Feb. 6, 2019) (to be codified at 42 C.F.R. pt. 1001), https://www.federalregister.gov/documents/2019/02/06/2019-01026/fraud-and-abuse-removal-of-safe-harbor-protection-for-rebates-involving-prescription-pharmaceuticals [hereinafter Proposed Rule]. [160] Id. at 2344. [161] Fraud and Abuse: Removal of Safe Harbor Protection for Rebates Involving Prescription Pharmaceuticals and Creation of New Safe Harbor Protection for Certain Point-of-Sale Reductions in Price on Prescription Pharmaceuticals and Certain Pharmacy Benefit Manager Service Fees, Regulations.gov (last visited Aug. 8, 2019), https://www.regulations.gov/document?D=HHSIG-2019-0001-0001. [162] Shira Stein, Trump Kills Drug Rebate ‘Safe Harbor’ Rule That Favored Pharma (5), Bloomberg Law (July 11, 2019) https://news.bloomberglaw.com/health-law-and-business/trump-kills-drug-rebate-safe-harbor-rule-that-favored-pharma. [163] 42 U.S.C. § 1395nn. [164] Seema Verma, Administrator, Remarks at the Federation of American Hospitals 2019 Public Policy Conference (Mar. 4, 2019), https://www.cms.gov/newsroom/press-releases/speech-remarks-administrator-seema-verma-federation-american-hospitals-2019-public-policy-conference. [165] Id. [166] Id. [167] Id. [168] See, e.g., Press Release, Dep’t of Health & Human Servs., Office of Civil Rights, HHS seeks public input on improving care coordination and reducing the regulatory burdens of the HIPAA Rules (Dec. 12, 2018), https://www.hhs.gov/about/news/2018/12/12/hhs-seeks-public-input-improving-care-coordination-and-reducing-regulatory-burdens-hipaa-rules.html. [169] See Roxanna Guilford-Blake, Sprinting Toward Value: HHS & Congress May Be Ready to Reconsider the Stark Law, Cardiovascular Business (Nov. 18, 2018), https://www.cardiovascularbusiness.com/topics/healthcare-economics/sprinting-toward-value-hhs-congress-may-be-ready-reconsider-stark-law. [170] See Intervenor Complaint, United States ex rel. Long v. Wheeling Hospital, No. 2:17-cv-01654 (W.D.P.A. Mar. 25, 2019). [171] Id. [172] See Intervenor Complaint, United States ex rel. Herbold v. Doctor’s Choice Home Care, Inc., No. 8:15-cv-1044 (M.D. Fl. May 24, 2019). [173] Id. [174] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Pathology Laboratory Agrees to Pay $63.5 Million for Providing Illegal Inducements to Referring Physicians (Jan. 30, 2019), https://www.justice.gov/opa/pr/pathology-laboratory-agrees-pay-635-million-providing-illegal-inducements-referring. [175] Press Release, U.S. Atty’s Off., U.S. Dep’t of Justice, United States Settles False Claims Act Cases Against Home Health Agency (June 7, 2019), https://www.justice.gov/usao-mdfl/pr/united-states-settles-false-claims-act-cases-against-home-health-agency. The following Gibson Dunn lawyers assisted in the preparation of this client update: Jonathan Phillips, John Partridge, Julie Rapoport Schenker, Claudia Kraft, Jasper Hicks, Erin Morgan, Michael Dziuban, Lucie Duvall, Susanna Schuemann, and summer associate Anna Aguillard. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments. Please contact the Gibson Dunn lawyer with whom you usually work or any of the following members of the firm’s FDA and Health Care practice group: Washington, D.C. F. Joseph Warin (+1 202-887-3609, fwarin@gibsondunn.com) Jonathan M. Phillips (+1 202-887-3546, jphillips@gibsondunn.com) Marian J. Lee (+1 202-887-3732, mjlee@gibsondunn.com) Daniel P. Chung (+1 202-887-3729, dchung@gibsondunn.com) Los Angeles Debra Wong Yang (+1 213-229-7472, dwongyang@gibsondunn.com) San Francisco Charles J. Stevens (+1 415-393-8391, cstevens@gibsondunn.com) Winston Y. 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July 16, 2019 |
2019 Mid-Year False Claims Act Update

Click for PDF As we progress through the Trump Administration’s third year, robust False Claims Act (“FCA”) enforcement continues. At the same time, the Administration has continued to signal a greater openness to tempering overly aggressive FCA theories. In the past six months, the Department of Justice (“DOJ”) issued long-awaited guidance about cooperation credit in FCA cases and also continued to seek dismissal of some declined cases pursued by whistleblowers (albeit with mixed success). Aside from these efforts, however, DOJ has not evidently relaxed its approach to enforcement: the first half of the year saw DOJ announce recoveries of nearly three-quarters of a billion dollars in settlements, largely from entities in the health care and life sciences industries. The next year should provide insight as to whether the Administration’s policy refinements are the vanguard of a more meaningful shift by DOJ away from its historical enforcement efforts. But even if that were the case, enterprising relators and aggressive state enforcers may end up filling any gaps. In just the past half year, several states took steps to enact or strengthen existing FCA statutes. Regardless of what direction DOJ and the Trump Administration head, federal courts’ FCA decisions from the last six months serve as a reminder that FCA litigation remains hard-fought, given the enormous stakes. At the highest level, the U.S. Supreme Court weighed in on the FCA again this year, resolving a circuit split about the FCA’s statute of limitation in favor of whistleblowers. This marked the third time in four years the land’s highest court interpreted the FCA. Meanwhile, lower courts also remained active in FCA jurisprudence, issuing a number of notable opinions that we have summarized herein. Below, we begin by addressing enforcement activity at the federal and state levels, turn to legislative developments, and then analyze significant court decisions from the past six months. As always, Gibson Dunn’s recent publications regarding the FCA may be found on our website, including in-depth discussions of the FCA’s framework and operation, industry-specific presentations, and practical guidance to help companies avoid or limit liability under the FCA. And, of course, we would be happy to discuss these developments—and their implications for your business—with you. I.  NOTEWORTHY DOJ ENFORCEMENT ACTIVITY DURING THE FIRST HALF OF 2019 DOJ has announced more than $750 million in settlements this year, a slight uptick from this point in 2018, but somewhat down from half-year highs set in recent years. The dollar totals tell only part of the story, however, as neither DOJ nor qui tam relators have scaled back FCA investigations or whistleblower complaints considerably. As in recent years, DOJ secured the lion’s share of its FCA recoveries from enforcement actions involving health care and life sciences entities. Although DOJ’s recoveries came from cases reflecting a wide variety of theories of FCA liability, cases involving alleged violations of the Anti-Kickback Statute (“AKS”) and the Stark Law, which generally prohibit various types of remunerative arrangements with referring health care providers, continued to predominate. This year, DOJ’s AKS enforcement activity includes several large recoveries, totaling nearly $250 million, from pharmaceutical companies accused of unlawfully covering Medicare copays for their own products through charitable foundations. Further, DOJ backed up its statements regarding its plans to combat the opioid epidemic as it recovered more than $200 million from an opioid manufacturer accused of paying kickbacks. Below, we summarize these and some of the other most notable settlements thus far in 2019. A.  Health Care and Life Science Industries On January 28, a hospital and six of its owners agreed to pay the federal government $8.1 million to settle claims that it violated the FCA by submitting false claims to Medicare and Medicaid programs in violation of the AKS and Stark Law. DOJ alleged that the hospital, its subsidiary, and at least two affiliates recruited a medical director in order to secure his referrals of patients by offering the physician compensation that exceeded fair market value for his services. The whistleblower will receive $1.6 million from the federal government.[1] On January 30, a pathology laboratory agreed to pay $63.5 million to settle allegations that it violated the FCA by engaging in improper financial relationships with referring physicians. The settlement resolves allegations that the company violated the AKS and the Stark Law by providing subsidies to referring physicians for electronic health records (“EHR”) systems and free or discounted technology consulting services. The allegations stem from three whistleblower lawsuits, and the whistleblowers’ share of the settlement had not been determined at the time the settlement was announced.[2] On February 6, a Florida-based developer of EHR software agreed to pay $57.25 million to resolve allegations that it caused its users to submit false claims to the government by (1) misrepresenting the capabilities of its EHR product (thereby enabling them to seek meaningful use incentive payments) and (2) violating the AKS (by financially incentivizing its client health care providers to recommend its product to prospective customers).[3] On February 6, a Georgia-based hospital agreed to pay $5 million to resolve allegations that it violated the FCA by engaging in improper financial relationships with referring physicians between 2012 and 2016. DOJ alleged that the hospital compensated the physicians in amounts that were above fair market value or in a manner that took into account the volume or value of the physicians’ referrals.[4] On February 27, a Tennessee-based health care company and its related companies agreed to pay more than $18 million to resolve a lawsuit brought by DOJ and Tennessee alleging they billed the Medicare and Medicaid programs for substandard nursing home services. The settlement also resolves claims brought by DOJ against the company’s majority owners and CEO, as well as the LLC’s former director of operations, who agreed to pay $250,000 toward the settlement.[5] On March 11, a medical technology company agreed to pay more than $17.4 million to resolve allegations that it violated the FCA by providing free or discounted practice development and market development support, allegedly amounting to “in-kind” payments to induce physicians in California and Florida to purchase the company’s ablation products. Under the settlement, the company also will pay approximately $1.4 million to California and approximately $1.0 million to Florida for claims paid for by the states’ Medicaid programs. The two whistleblowers, former company employees, will receive approximately $3.1 million as their share of the federal recovery.[6] On March 21, a Maryland-based health care company and its affiliates agreed to pay $35 million to settle allegations under the FCA that it paid kickbacks to a Maryland cardiology group in exchange for referrals, through a series of contracts with two Maryland hospitals. The settlement resolved two whistleblower lawsuits brought by cardiac surgeons and former patients, who alleged that the company and its affiliates performed medically unnecessary cardiac procedures for which they submitted false claims to Medicare. The whistleblowers’ share had not been disclosed yet.[7] In April, several pharmaceutical companies reached settlements with DOJ over allegations involving charitable funds. For example: As part of a string of investigations by the U.S. Attorney’s Office for the District of Massachusetts, three pharmaceutical companies agreed to pay a total of $122.6 million to resolve allegations that they violated the FCA by illegally paying the Medicare or Civilian Health and Medical Program copays for their own products through purportedly independent foundations that were allegedly used as mere conduits. The government contended that the companies’ payments of the copays were kickbacks aimed at inducing patients to use the companies’ drugs. In all three matters, the government alleged that the foundations were used to generate revenues from prescriptions for patients who would have otherwise been eligible for the companies’ free drug programs. One company agreed to pay $57 million; the second company agreed to pay $52.6 million, and the third company agreed to pay $13 million.[8] On April 30, a Kentucky-based pharmaceutical company agreed to pay $17.5 million to resolve allegations that it violated the FCA and AKS by paying kickbacks to patients and physicians to induce prescriptions of two of its drugs. DOJ alleged that the company increased the drugs’ prices in January 2012, which increased Medicare patients’ copays. Then, DOJ asserted, the company paid these patients’ copays through a third-party Parkinson’s Disease fund, thereby providing illegal inducements to patients to purchase the drugs. The allegations underlying the settlement were originally raised by whistleblowers, who will receive $3.15 million as their share of the recovery.[9] On April 12, a California-based health care services provider and several affiliated entities agreed to pay $30 million to resolve allegations that the affiliated entities submitted false information about the health status of beneficiaries enrolled in Medicare Advantage plans, which purportedly resulted in overpayments to the provider.[10] On May 6, a West Virginia-based health care company agreed to pay $17 million to resolve allegations of a billing scheme that allegedly defrauded Medicaid of $8.5 million. This represented the largest health care fraud settlement in the history of West Virginia, and the state will collect $2.2 million from the settlement. DOJ alleged that the company, acting through a subsidiary and several of its drug treatment centers, sent blood and urine samples to outside laboratories for testing, and then submitted reimbursement claims to West Virginia Medicaid as if the treatment centers had performed the tests themselves. According to the government, since the company paid the outside laboratories a lower rate than its requested reimbursement to Medicaid, the company wrongfully collected $8.5 million.[11] On May 30, a Kansas-based cardiologist agreed to pay $5.8 million to resolve allegations that he and his medical group violated the FCA by improperly billing federal health care programs for medically unnecessary cardiac stent procedures. This marked the DOJ’s third False Claims settlement with the cardiologist and his medical group, who concurrently agreed with U.S. Department of Health and Human Services (“HHS”) to be excluded from participation in federal health programs for three years. The settlement announcement resolves allegations in a whistleblower lawsuit filed by another cardiologist, who will receive approximately $1.16 million from the settlement.[12] On May 31, a New Jersey-based pharmaceutical company was charged under the Sherman Act for conspiring with competitors to fix prices, rig bids, and allocate customers. In a separate civil resolution, the company agreed to pay $7.1 million to resolve allegations under the FCA related to the alleged price fixing conspiracy. DOJ asserted that between 2012 and 2015, the company paid and received remuneration through arrangements on price, supply, and allocation of customers with other pharmaceutical manufacturers for certain generic drugs, in violation of the AKS, and that its sale of such drugs resulted in claims submitted to or purchases by federal health care programs.[13] On June 5, an opioid manufacturing company agreed to a $225 million global resolution to settle the government’s criminal and civil investigations. DOJ alleged that the company paid kickbacks and engaged in other unlawful marketing practices to induce physicians and nurse practitioners to prescribe its opioid to patients. As part of the criminal resolution, the company entered into a deferred prosecution agreement with the government, and its subsidiary pleaded guilty to five counts of mail fraud. The company also agreed to pay a $2 million criminal fine and a $28 million forfeiture. As part of the civil resolution, the company agreed to pay $195 million. The allegations stem from five whistleblower lawsuits, and the whistleblowers’ share of the settlement has yet to be determined.[14] On June 30, the nation’s largest operator of inpatient rehabilitation centers agreed to pay $48 million to resolve allegations that its centers provided medically unnecessary treatment, and also submitted false information to Medicare to achieve higher levels of reimbursement. The settlement involved allegations across multiple facilities and was part of DOJ’s broader efforts to target inpatient treatment facilities nationally. B.  Government Contracting On January 28, a corporation that provides information and technology services agreed to pay $5.2 million to resolve allegations that it violated the FCA by falsely billing labor under its contract with the United States Postal Service (“USPS”). Under the contract, the company would bill the USPS for personnel performing services at rates established by certain billing categories. DOJ alleged that the corporation knowingly billed the USPS for certain personnel services at higher category rates, even though the personnel did not have the education and/or experience to be in these categories.[15] On March 25, a private university in North Carolina agreed to pay the government $112.5 million to resolve allegations that it violated the FCA by submitting applications and progress reports that contained purportedly falsified research on federal grants to the National Institutes of Health (“NIH”) and to the Environmental Protection Agency. Among other allegations, DOJ asserted that the university fabricated research results related to mice to claim millions of grant dollars from the NIH. The allegations stem from a whistleblower lawsuit brought by a former university employee, who will receive $33.75 million from the settlement.[16] On May 13, a California-based software development company agreed to pay $21.57 million to resolve allegations that it caused the government to be overcharged by providing misleading information about its commercial sales practices, which was then used in General Services Administration (“GSA”) contract negotiations. DOJ alleged that the company knowingly provided false information concerning its commercial discounting practices for its products and services to resellers. These resellers then allegedly used that information in negotiations with GSA for government-wide contracts. DOJ alleged this caused GSA to agree to less favorable pricing, which led the government purchasers to be overcharged. The allegations stemmed from a whistleblower lawsuit filed by a former company employee, who will receive over $4.3 million from the resolution.[17] II.  LEGISLATIVE AND POLICY DEVELOPMENTS A.  Federal Developments 1.  Guidance Regarding Cooperation Credit The first half of 2019 did not witness major legislative developments at the federal level pertaining to the FCA. But DOJ has advanced its recent efforts to more publicly and transparently articulate its approach to FCA cases, as evidenced by the May 2019 release of long-awaited guidance regarding cooperation credit in FCA investigations.[18] We covered this development in detail in our May 14, 2019 alert entitled “Cooperation Credit in False Claims Act Cases: Opportunities and Limitations in DOJ’s New Guidance.” Several key points regarding the guidance bear mention here. The guidance is the latest chapter in a broader effort by DOJ to scale back the “all or nothing” approach to cooperation credit set forth in the 2015 Yates Memorandum. This initiative stems from a belief that that approach, in the words of former Deputy Attorney General Rod J. Rosenstein, had been “counterproductive in civil cases” because it deprived DOJ attorneys of the “flexibility” they needed “to accept settlements that remedy the harm and deter future violations.”[19] In keeping with Mr. Rosenstein’s statements, the new DOJ guidance—codified at Section 4-4.112 of the Justice Manual[20]—provides that defendants may receive varying levels of cooperation credit depending on their efforts across ten non-exhaustive categories of cooperation.[21] These include: “[i]dentifying individuals substantially involved in or responsible for the misconduct”; making individuals available who have “relevant information”; “[a]dmitting liability or accepting responsibility for the relevant conduct”; and “[a]ssisting in the determination or recovery” of losses.[22] The guidance also notes that cooperation must have value for DOJ, as measured by the “timeliness and voluntariness” of the cooperation, the “truthfulness, completeness, and reliability” of the information provided, the “nature and extent” of the cooperation, and the “significance and usefulness of the cooperation” to DOJ. Under the guidance, DOJ’s determination of cooperation credit will consider remediation undertaken by the defendant, including remediation focused on root causes and discipline of relevant individuals.[23] The guidance states that to receive full credit, entities should “undertake a timely self-disclosure that includes identifying all individuals substantially involved in or responsible for the misconduct, provide full cooperation with the government’s investigation, and take remedial steps designed to prevent and detect similar wrongdoing in the future.”[24] Unlike DOJ’s guidance regarding cooperation in criminal cases, the new FCA guidance does not provide for percentage reductions in penalties (or damages) for various levels of cooperation. Instead, the guidance focuses on DOJ’s “discretion . . . [to] reduc[e] the penalties or damages multiple sought by the Department,” and provides that no defendant may receive cooperation credit so great as to result in the payment of an amount less than single damages (including relator’s share, plus lost interest and costs of investigation).[25] The new guidance provides a measure of clarity regarding DOJ’s overall approach to cooperation credit, and the flexible standards the guidance sets forth provide opportunities for defendants to formulate creative negotiation and litigation strategies. On the other hand, the guidance lacks specificity regarding several critical issues (e.g., what constitutes cooperation and how to assess the value that cooperation provides to DOJ). 2.  Application of the Granston Memorandum As we have previously discussed, DOJ signaled last year that it will increasingly consider moving to dismiss some FCA qui tam actions. Specifically, in January 2018, Michael Granston, the Director of the Fraud Section of DOJ’s Civil Division, issued a memorandum (the “Granston Memo”) stating that “when evaluating a recommendation to decline intervention in a qui tam action, attorneys should also consider whether the government’s interests are served, in addition, by seeking dismissal pursuant to section 3730(c)(2)(A).”[26] The Granston Memo established a list of non-exhaustive factors for DOJ to evaluate when considering whether to dismiss a case under section 3730(c)(2)(A), which states that the government may dismiss an FCA “action notwithstanding the objections of the person initiating the action if the person has been notified by the Government of the filing of the motion and the court has provided the person with an opportunity for a hearing on the motion.”[27] The Granston Memo’s release prompted cautious optimism among FCA observers that DOJ would step in to dismiss unmeritorious cases, but the Memo also left many open questions regarding exactly how DOJ would exercise its discretion. Since the Memo’s release, FCA defendants routinely have pushed DOJ to dismiss cases, and in some cases, DOJ has done just that. But a little more than a year after the Memo’s release, there are signs that DOJ is continuing to calibrate its approach, in response both to defendants’ insistent entreaties and scrutiny by the courts (which must approve any dismissal). First, the memorandum’s namesake, DOJ Civil Fraud Section Director Michael Granston, recently elaborated on how DOJ will apply the Granston Memo’s principles. In remarks at the Federal Bar Association’s FCA Conference in March, Mr. Granston explained that DOJ will not be persuaded to dismiss qui tam actions “[j]ust because a case may impose substantial discovery obligations on the government.”[28] The decision to seek dismissal, he said, will instead be evaluated on a case-by-case basis, with the cost-benefit analysis focusing on the likelihood that the relator can prove the allegations brought on behalf of the government.[29] Mr. Granston cautioned that defendants “should be on notice that pursuing undue or excessive discovery will not constitute a successful strategy for getting the government to exercise its dismissal authority,” and that “[t]he government has, and will use, other mechanisms for responding to such discovery tactics.”[30] Overall, Mr. Granston stated, “dismissal will remain the exception rather than the rule.”[31] Second, Deputy Associate Attorney General Stephen Cox delivered remarks at the 2019 American Conference Institute’s Advanced Forum on False Claims and Qui Tam Enforcement that explained DOJ’s approach to dismissals.[32] Regarding the Granston Memo, Mr. Cox characterized the relationship between qui tam relators and the government as a “partnership,” formed on the belief that relators “are often uniquely situated to bring fraudulent practices to light.”[33] He emphasized, however, that DOJ plays a “gatekeeping role” in ensuring that when a relator prosecutes a non-intervened FCA case, it does not do so in a way that harms the government’s financial interests or creates bad law for the government.[34] Mr. Cox stated that the Granston Memo “is not really a change in the Department’s historical position,” but he acknowledged that DOJ’s use of its dismissal authority has increased since 2017.[35] Mr. Cox told listeners that while DOJ “will remain judicious,” it “will use this tool more consistently to preserve our resources for cases that are in the United States’ interests.”[36] In more recent remarks, Mr. Cox has added that DOJ’s “more consistent[]” use of its dismissal authority will aim at “reign[ing] in overreach in whistleblower litigation.”[37] With DOJ’s increased use of its statutory dismissal authority has come greater judicial scrutiny of the scope of that authority and the standards to be applied in determining whether dismissal is appropriate. In the wake of the Granston Memo, lower courts have been forced to analyze the standard that courts should apply when the government moves to dismiss qui tam cases. These cases have pitted two competing standards against each other, with mixed results. Previously, in United States ex rel. Sequoia Orange Co. v. Baird-Neece Packing Corp., 151 F.3d 1139 (9th Cir. 1998), the Ninth Circuit held that the government’s dismissal is first examined for: (1) an identification of a valid government purpose by the government; and (2) a rational relation between the dismissal and accomplishment of the government’s purpose. Id. at 1145. If the government’s dismissal meets the two-step test, the burden shifts to the relator to show that the “dismissal is fraudulent, arbitrary and capricious, or illegal.” Id. (quoting United States ex rel. Sequoia Orange Co. v. Sunland Packing House Co., 912 F. Supp. 1325, 1353 (E.D. Cal. 1995)). The Tenth Circuit adopted the Sequoia standard and also applies the above test. Ridenour v. Kaiser-Hill Co., 397 F.3d 925, 936, 940 (10th Cir. 2005). In contrast, in Swift v. United States, 318 F.3d 250, 253 (D.C. Cir. 2003), the D.C. Circuit rejected the Ninth Circuit’s Sequoia standard, holding that nothing in section 3730(c)(2)(A) “purports to deprive the Executive Branch of its historical prerogative to decide which cases should go forward in the name of the United States.” The court observed that the purpose of the hearing provided for in section 3730(c)(2)(A) “is simply to give the relator a formal opportunity to convince the government not to end the case.” Id. Therefore, the D.C. Circuit held that the government has “an unfettered right to dismiss” FCA actions, and so government dismissals are basically “unreviewable” (with a possible exception for dismissals constituting “fraud on the court”). Id. at 252-53. However, the remainder of the federal circuit courts have not weighed in on the standard for government dismissals of qui tam actions thus far. In the meantime, several district courts have confronted this issue, with some following Sequoia, while others followed Swift. Among the courts following Sequoia were the following: In United States v. EMD Serono, Inc., 370 F. Supp. 3d 483 (E.D. Pa. 2019), the U.S. District Court for the Eastern District of Pennsylvania adopted the Ninth Circuit’s Sequoia standard after critiquing the D.C. Circuit’s approach in Swift. The court then held that the government’s dismissal had met the Sequoia standard because the government had “articulated a legitimate interest” when it argued that the “allegations lack merit, and continuing to monitor, investigate, and prosecute the case will be too costly and contrary to the public interest.” at 489. Id. at 489. In United States ex rel. CIMZNHCA, LLC v. UCB, Inc., No. 17-CV-765-SMY-MAB, 2019 WL 1598109 (S.D. Ill. Apr. 15, 2019), the U.S. District Court for the Southern District of Illinois adopted the Ninth Circuit’s Sequoia standard and rejected the D.C. Circuit’s approach in Swift. Applying the Sequoia standard, the court found that the government’s “decision to dismiss this action is arbitrary and capricious, and as such, not rationally related to a valid governmental purpose.” Id. at *4. Although the government had identified a valid interest of avoiding litigation costs, the court found the government had failed to conduct the requisite “minimally adequate investigation” because it collectively investigated the eleven claims that the relator’s group filed without specifically investigating the relator’s claim against the defendants in this case. Id. at *3. Other district courts have been persuaded by Swift’s “unfettered” dismissal standard. In United States ex rel. Davis v. Hennepin County, No. 18-CV-01551 (ECT/HB), 2019 WL 608848 (D. Minn. Feb. 13, 2019), the U.S. District Court for the District of Minnesota stated that the Swift standard was more consistent with section 3730(c)(2)(A)’s text and with the Constitution, but did not decide the issue because the government was entitled to dismissal under both the Swift and Sequoia standards. According to the court, the government could dismiss because “the Relators were notified of the motion and received the opportunity for a hearing.” Id. at *7. However, the court then observed that the government would still be entitled to dismissal even under Sequoia. Id. The court credited the government’s rationale of avoiding the cost and burden of a case that would likely result in no recovery, and also noted that the relators had put forth no factual evidence that the government was acting capriciously by ignoring evidence. Id. In United States ex rel. Sibley v. Delta Reg’l Med. Ctr., No. 17-CV-000053-GHDRP, 2019 WL 1305069 (N.D. Miss. Mar. 21, 2019), the U.S. District Court for the Northern District of Mississippi indicated its agreement with the Swift standard, but then observed that the government was entitled to dismissal under either standard. There, the government declined to intervene, then moved to dismiss her action, arguing that the action would interfere with the government’s efforts to enforce the Emergency Medical Treatment Act, would use scarce government resources, and that the complaint did not allege any viable claims. Id. at *2-*3. Aligning with Swift, the court explained that the government “possesses the unfettered discretion to dismiss a qui tam [FCA] action” and therefore that the court must grant the government’s motion. Id. at *7. Regardless, the government was entitled to dismissal even under Sequoia, as the government had stated a “valid reason for dismissal” that the relator could not refute. Id. at *8. In United States ex rel. De Sessa v. Dallas Cty. Hosp. Dist., No. 3:17-CV-1782-K, 2019 WL 2225072 (N.D. Tex. May 23, 2019), the U.S. District Court for the Northern District of Texas also echoed Swift’s reasoning, while concluding that the government was entitled to dismissal under either standard. In a short decision, the court cited to Swift and granted the government’s motion to dismiss the relator’s FCA fraud claim. Id. at *2. The court then explicitly noted that its holding did not dismiss the relator’s FCA retaliation claim, as that claim was not brought on behalf of the U.S. government. Id. B.  State Developments As detailed in our 2018 Mid-Year and Year-End False Claims Act Updates, Congress created financial incentives in 2005 for states to enact their own false claims statutes that are as effective as the federal FCA in facilitating qui tam lawsuits, and that impose penalties at least as high as those imposed by the federal FCA.[38] States passing review by HHS’s Office of Inspector General (“OIG”) may be eligible to “receive a 10-percentage-point increase in [their] share of any amounts recovered under such laws” in actions filed under state FCAs.[39] As of June 2019, HHS OIG has approved laws in twenty states (California, Colorado, Connecticut, Delaware, Georgia, Illinois, Indiana, Iowa, Massachusetts, Montana, Nevada, New York, North Carolina, Oklahoma, Rhode Island, Tennessee, Texas, Vermont, Virginia and Washington), while nine states are still working towards FCA statutes that meet the federal standards (Florida, Hawaii, Louisiana, Michigan, Minnesota, New Hampshire, New Jersey, New Mexico, and Wisconsin).[40] Five approvals have occurred in 2019 to date (California, Delaware, Georgia, New York, and Rhode Island).[41] While HHS OIG did not publicly state the reasons for these approvals, they likely stemmed at least in part from the fact that all five states recently amended their false claims statutes to peg their civil penalties to those imposed by the federal FCA, including as adjusted for inflation under the Federal Civil Penalties Inflation Adjustment Act of 1990.[42] Some states have continued to consider (or implement) revisions to their false claims acts after federal approval. Most notably, in May 2019, the California Assembly passed Assembly Bill No. 1270, which would amend the California False Claims Act’s definition of materiality, for purposes of the “false record or statement” prong of the statute, to consider only “the potential effect of the false record or statement when it is made, not . . . the actual effect of the false record or statement when it is discovered.”[43] This change could mark a significant pro-plaintiff limiting of the concept of materiality in the wake of Escobar, which held that materiality is a matter of the “effect on the likely or actual behavior of the recipient of an alleged misrepresentation.”[44] The California bill also would expand the state false claims act to apply to certain claims, records, or statements made under the California Revenue and Taxation Code. Specifically, the bill extends the California false claims act to tax-related cases where the damages pleaded exceed $200,000, and where the state-taxable income or sales of any person or corporation against whom the action is brought exceeds $500,000.[45] The new law would require the state Attorney General or prosecuting authority, prior to filing or intervening in any false claims act case related to taxes, to consult with the relevant tax authority.[46] Under the bill, the state Attorney General or prosecuting authority, but not a qui tam relator, would be authorized to obtain from state government agencies otherwise confidential records relating to taxes, fees, or other obligations under California’s Revenue and Taxation Code.[47] The amendment would prohibit the state government authorities from disclosing federal taxation information to the state Attorney General or prosecuting authority without IRS authorization. The amendment would also prohibit disclosure by the state Attorney General or prosecuting authority of any taxation information it does receive, “except as necessary to investigate and prosecute suspected violations” of the California false claims act.[48] The bill is currently being considered by committees in the California Senate.[49] Other states lack false claims statutes and have moved in fits and starts towards enacting them. For example, as of June 2019, a bill to enact the South Carolina False Claims Act remained pending in the state’s legislature after being referred to the state senate’s judiciary committee in January.[50] The bill is nearly identical to the last false claims act bill introduced in South Carolina’s Senate, which died in that body’s judiciary committee after being referred in January 2015.[51] Other states that lack broad false claims acts have nonetheless moved incrementally towards endowing themselves with robust enforcement powers. West Virginia, for example, lacks a false claims statute broadly defined, but does prohibit Medicaid fraud through a statute that in some ways resembles the FCA.[52] Until early 2019, the state’s Medicaid Fraud Control Unit (“MFCU”), which holds the power to investigate possible violations of the statute, sat within the state department of health and human services. However, a bill was passed on March 7, 2019, which will relocate the MFCU to the Office of the Attorney General.[53] Once effective on October 1, 2019, the new law will give primary prosecution authority to the Office of the Attorney General; only if that office declines prosecution will attorneys employed or contracted by the state department of health and human services have authority to take the case forward.[54] This consolidation of power in the Office of the Attorney General could be the first step in a push for enactment of broader false claims enforcement powers. III.  NOTABLE CASE LAW DEVELOPMENTS With a U.S. Supreme Court decision, more than a dozen notable circuit court decisions, and a handful of important district court decisions too, the first half of 2019 was an active period on the case law front (as detailed below). A.  U.S. Supreme Court Extends the Statute of Limitations in Cases Where the Government Does Not Intervene The FCA provides two different limitations periods for “civil action[s] under section 3730”—(1) six years after the statutory violation occurs, or (2) three years “after the United States official charged with the responsibility to act knew or should have known the relevant facts, but not more than [ten] years after the violation.” 31 U.S.C. § 3731(b). Whichever period is longer applies. In Cochise Consultancy, Inc. v. United States ex rel. Hunt, 139 S. Ct. 1507 (2019), the Supreme Court resolved a circuit split regarding the FCA’s statute of limitations for qui tam actions pursued only by a whistleblower, without government participation. Specifically, the question that had split the circuit courts is whether a relator—pursuing a case where the government has declined to intervene—can take advantage of the longer statute of limitations period of up to ten years. In Cochise, the relator conceded that more than six years had elapsed before he filed his suit from when the alleged FCA violations occurred. Id. at 1511. However, the relator argued that fewer than three years had elapsed between when the relator had revealed the alleged FCA violations to federal agents and when the relator filed his suit. Id. Thus, the relator argued that he should be able to take advantage of the longer statute of limitations period, triggered from when he had disclosed his allegations to the government. Id. The district court initially dismissed the suit, holding that section 3731(b)(2)’s three-year period does not apply to relator-initiated suits in which the government declines to intervene. Id. But the Eleventh Circuit reversed, and held that the longer period could apply to relator-initiated suits in which the government declines to intervene. Id. The Supreme Court, looking to resolve a circuit split, unanimously affirmed the Eleventh Circuit’s ruling. Id. at 1510. The Court reasoned that, because section 3731(b)’s two statute of limitations periods apply to “civil action[s] under section 3730” and because both government and relator-initiated FCA suits constitute “civil action[s] under section 3730,” the statute’s plain text made both of the limitations periods applicable to both types of suits. Id. at 1511-12 (quoting section 3731(b)). The Court also held that private relators in non-intervened suits do not constitute “the official of the United States charged with responsibility to act in the circumstances” under section 3731(b)(2). Id. at 1514. In other words, section 3731(b)(2)’s three-year period does not begin when a private relator who initiates the suit knows or should have known about the fraud. Id. Thus, because section 3731(b)(2)’s three-year period is available in relator-initiated non-intervened suits and because the private relator’s learning of the facts does not begin this three-year period, dismissal of the relator’s suit was not warranted on statute-of-limitations grounds. Id. B.  Courts Continue to Interpret the FCA’s Materiality Requirement Post-Escobar As we have previously discussed, courts continue to wrestle with the implications of the Supreme Court’s decision in Universal Health Services v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016), the landmark decision that addressed the implied certification theory of liability, and in the process gave renewed emphasis to the concepts of materiality and government knowledge under the FCA. 1.  The Fifth Circuit Applies Escobar in Analyzing Materiality In United States ex rel. Lemon v. Nurses To Go, Inc., 924 F.3d 155 (5th Cir. 2019), the Fifth Circuit, reviewing a district court’s dismissal of claims, engaged in a thorough application of Escobar, articulating three non-exhaustive “factors” for determining materiality. First, the court asked whether the government expressly conditioned payment on meeting the statutory or regulatory requirements at issue. Second, the court considered whether the government would have denied payment if it had known of the violations, a factor which the court referred to as “government enforcement.” And third, the court asked whether the defendant’s noncompliance was substantial or minor. In Lemon, the relators alleged that a hospice provider submitted claims affirming it had complied with various Medicare statutory and regulatory requirements, despite allegedly violating several requirements related to certifications, face-to-face physician patient encounters, and writing plans of care. Id. at 157. They also alleged that the hospital billed for ineligible services and patients, such as billing for already deceased patients. Id. at 157-58. Applying each of its articulated Escobar factors in turn, the Fifth Circuit began by addressing conditions of payment. The court acknowledged that Escobar held that violating a requirement which is labeled a condition of payment does not alone “conclusively establish materiality.” Id. at 161. Nevertheless, conditioning payment on a requirement is “certainly probative evidence of materiality.” Id. (quoting United States ex rel. Rose v. Stephens Institute, 909 F.3d 1012, 1020 (9th Cir. 2018)). Because the Medicare statute expressly noted that payment can only be made if the certification, face-to-face encounter, and plan-of-care requirements that the defendants allegedly violated were met, the court held that the defendants’ allegedly fraudulent certifications that they had complied with the statutory and regulatory requirements violated the government’s express conditions of payment. Id. Second, the court turned to government enforcement. Id. at 161-62. Here, the relators alleged in their complaint that HHS OIG had previously pursued enforcement actions against other hospice providers that had committed violations similar to the defendants’ alleged violations—namely submitting bills for ineligible services and patients and failing to conduct the required certifications. Id. at 162. Because of these past enforcement actions, the Court held that the relators here had created a reasonable inference that the government would have denied payment had it known of the defendants’ violations. Id. The Court found additional support for this conclusion in the Sixth Circuit’s holding in United States ex rel. Prather v. Brookdale Senior Living Communities, Inc., 892 F.3d 822 (6th Cir. 2018) (previously discussed here and here). There, the Sixth Circuit concluded that Escobar does not require relators to allege specific previous government prosecutions for claims similar to the relator’s. Id. Third, the Fifth Circuit analyzed whether the noncompliance was substantial or minor. Id. at 163. Citing Escobar, the court noted that a violation is material either when a reasonable person would “attach importance” to the noncompliance or when the defendant knew or had reason to know that the false representation’s recipient would attach importance to it, even though a reasonable person would not. Id. Because the court had determined in its government enforcement analysis that the government would have denied payment had it known of the defendants’ violations, the court therefore held that government would have attached importance to the violations. Id. Thus, the relators had also satisfied the third factor, showing that the noncompliance was substantial. Id. Given that all three factors were satisfied, the court held that the relators had sufficiently alleged material violations to survive the motion to dismiss. Id. 2.  The Third Circuit Analyzes Post-Escobar Materiality Standards on Summary Judgment In United States ex rel. Doe v. Heart Solutions, PC, 923 F.3d 308 (3d Cir. 2019), the Third Circuit explored materiality and causation in light of Escobar. There, the government filed an FCA claim alleging that the defendants, an individual and her health care company, had violated Medicare regulations requiring all diagnostic testing to be performed under the proper level of physician supervision. Id. at 311. Specifically, the government alleged that the defendants had falsely represented that a licensed neurologist performed all their company’s neurological testing as required by regulation, when their testing allegedly was not supervised by a neurologist in reality. Id. Applying Escobar to the government’s motion for summary judgment, the Third Circuit found that the government met its initial summary judgment burden to show materiality by submitting evidence that Medicare would not have paid the testing claims without a supervising neurologist’s certification, per regulation. Id. 318. When the defendants failed to introduce any evidence to rebut this, the court held that the government had met its materiality burden. Id. Notably, the court also held that by establishing materiality, the government also had adequately demonstrated causation. Id. According to the court, “because these misrepresentations were material, they caused damage to Medicare,” and therefore “but for the misrepresentations, Medicare would never have paid the claims.” Id. This ruling, which appears to conflate the separate elements of causation and materiality by hinging causation entirely on materiality, will be one to watch in future decisions. C.  Courts Continue to Analyze Rule 9(b)’s Particularity Requirement in FCA Claims In last year’s year-end update, we noted that the circuit courts continue to struggle with how to apply Rule 9(b)’s particularity requirement in FCA cases. Rule 9(b) heightens the pleading standard required in fraud claims, stating that a party alleging fraud “must state with particularity the circumstances constituting fraud or mistake.” This year, several circuits further analyzed Rule 9(b)’s application to FCA cases. 1.  The Ninth Circuit Discusses the Relationship between Rule 9(b)’s Particularity Standard and the FCA’s Materiality Requirement In United States ex rel. Mateski v. Raytheon Co., 745 F. App’x 49 (9th Cir. 2018), cert. denied sub nom. Mateski v. Raytheon Co., No. 18-1312, 2019 WL 1643040 (U.S. May 13, 2019), the Ninth Circuit elaborated on Rule 9(b)’s particularity standard and, in particular, the effect of a lack of particularity on meeting the materiality requirement. In Mateski, the relator filed a qui tam action against his employer, a defense contractor, alleging that it falsely claimed compliance with contract requirements for a satellite system sensor. Id. at *50. The case had been to the Ninth Circuit once before, under the public disclosure bar, at which point the Ninth Circuit reversed the district court’s dismissal of the complaint. Id. This time, however, the Ninth Circuit affirmed dismissal of the case. Id. First, the court held that the complaint failed to meet Rule 9(b)’s particularity requirement with regard “to the ‘what,’ ‘when,’ and ‘how’ of the allegedly false claims.” Id. For example, the relator alleged the defendant failed to comply with its contractual requirements to complete tests and retests on component parts, but never specified which parts, which tests, whether the tests were never done or whether they were instead done incompletely, as well as failing to name approximate dates of these tests. Id. Without these details, the court held that the defendant did not have enough information to defend against the claims, and so the complaint failed to meet Rule 9(b)’s particularity requirement. Id. The Ninth Circuit also concluded that because of this lack of particularity regarding the false claims, the complaint also inadequately pleaded the materiality requirement. Id. Noting that the materiality requirement is a “demanding” standard pursuant to Escobar, the court found itself unable to assess whether the noncompliance was material or minor because of the lack of particularity regarding the false claims. Id. 2.  The Eighth Circuit Provides Further Guidance on Rule 9(b)’s Particularity Requirement In United States ex rel. Strubbe v. Crawford County Memorial Hospital, 915 F.3d 1158 (8th Cir. 2019), the Eighth Circuit elaborated on its prior holding in United States ex rel. Thayer v. Planned Parenthood of the Heartland, 765 F.3d 914, 918 (8th Cir. 2014), in which the court concluded that relators in FCA cases can meet Rule 9(b)’s particularity requirement either by: (1) pleading representative examples of false claims; or (2) pleading the “particular details of a scheme to submit false claims paired with reliable indicia that lead to a strong inference that claims were actually submitted.” Strubbe, 915 F.3d at 1163 (quoting Thayer, 765 F.3d at 918). In Strubbe, the relators, emergency medical technicians and paramedics, filed an FCA qui tam action against a hospital, alleging that it submitted false claims for Medicare reimbursement, made false statements to get false claims paid, and conspired to violate the AKS. Id. at 1162. The district court dismissed the claims for failure to plead with the required particularity, finding that the complaint did not allege facts showing any false claims were submitted or show how the relators acquired their information. Id. Over a dissent, the Eighth Circuit affirmed, holding that the complaint did not plead the fraud with the particularity required by Rule 9(b). Id. at 1166. First addressing the relator’s allegation that the hospital submitted false claims, the court found that the relators had not met Thayer’s first prong of submitting representative examples of false claims. Id. at 1164. For example, while they had alleged that the hospital made a false claim for an unnecessary treatment, they failed to include the requisite particularity because they did not identify the date of this incident, the provider, any specific information about the patient, what money was obtained, and crucially, whether the hospital actually submitted a claim for this specific patient. Id. Nor had relators met Thayer’s second prong, according to the court. Id. The court held that the complaint lacked sufficient indicia of reliability to create a strong inference that claims were actually submitted, because the complaint did not provide any details about the hospital’s billing practices. Id. at 1164-65. Moreover, the relators did not identify the basis for their allegations regarding billing; this was especially problematic given the relators lack of personal knowledge about the hospital’s billing due to their lack of access to the hospital’s billing department as EMTs and paramedics. Id. at 1165-66. The relators’ second claim that the hospital made false statements failed to meet Rule 9(b)’s particularity requirement for similar reasons as their first—namely, the complaint did not connect the false statements to claims submitted to the government and did not provide the basis on which the relators’ assertions were founded. Id. at 1166. Finally, their third claim, that the hospital conspired to violate the AKS, failed because they did not provide any details about the conspiracy, and so failed to plead with particularity. Id. Therefore, the court affirmed the complaint’s dismissal. Id. at 1170. 3.  Under Rule 9(b), the Fourth Circuit Requires Allegations Regarding a Sub-Contractor’s Billing and Payment Structure In United States ex rel. Grant v. United Airlines Inc., 912 F.3d 190 (4th Cir. 2018), the Fourth Circuit held that a relator failed to meet Rule 9(b)’s particularity requirement where his complaint alleged a fraudulent scheme without detailing the billing and payment structure. Because of this omission, the court found that relator’s allegations did not foreclose the possibility that the government was never billed or that the alleged fraud was remedied before billing or payment. The case involved allegations by a relator against his former employer, an airline, alleging that the airline violated the FCA by certifying airplane repairs that did not comply with various aviation regulations and contract requirements in the airline’s work as a sub-sub-contractor for the U.S. Air Force. Id. at 194. Specifically, the relator alleged that the defendant: (1) certified uncompleted work as completed; (2) certified repairs performed by uncalibrated and uncertified tools, in violation of the subcontract’s requirements; and (3) allowed inspectors to continue certifying repairs after their training and eye exams had expired. Id. at 194-95. Affirming dismissal of the claims, the Fourth Circuit held that Rule 9(b)’s “stringent” pleading standard requires the complaint to “provide ‘some indicia of reliability’ to support the allegation that an actual false claim was presented to the government.” Id. (quoting United States ex rel. Nathan v. Takeda Pharm. N. Am., Inc., 707 F.3d 451, 457 (4th Cir. 2013)). Relators can meet this standard either by: (1) alleging with particularity that specific false claims were actually submitted to the government or (2) alleging “a pattern of conduct that would ‘necessarily have led[ ] to submission of false claims’ to the government for payment.” Id. (quoting Nathan, 707 F.3d at 457). Over a dissent, the court concluded that the relator had not pleaded specific claims, and also failed to allege a pattern of conduct that would necessarily have led to the submission of false claims, because he had only particularly alleged that the defendant engaged in fraudulent conduct without connecting the fraudulent conduct to the necessary presentment of false claims to the government. Id. The court reasoned that the complaint failed “to allege how, or even whether, the bills for these fraudulent services were presented to the government and how or even whether the government paid [the defendant] for the services.” Id. at 198. Because the complaint alleged only an umbrella payment without describing the billing or payment structure, the court held that the complaint left open the possibility that no payments were ever made. The court held that alleging a link between the false claims and government payment is especially necessary to meet Rule 9(b)’s requirements where, as here, the defendant is several levels removed from the government because it is a sub-sub-contractor. Id. at 199. D.  Estoppel and the FCA As DOJ increasingly pursues parallel criminal and civil investigations in cases involving fraud on the government, the interplay between criminal and FCA charges becomes increasingly important. Several decisions during the first half of the year discussed issues relevant to this interplay. 1.  The Third Circuit Finds That a Company Is Not Estopped by an Individual Employee’s Criminal Conviction In United States ex rel. Doe v. Heart Solution, PC, 923 F.3d 308 (3d Cir. 2019) (discussed previously in relation to materiality), the Third Circuit held that, although an individual defendant was collaterally estopped from denying the falsity and knowledge elements of a civil FCA claim by her criminal conviction and plea colloquy regarding the same conduct, her employer was not. Id. at 316-17. The case involved an individual defendant who was convicted criminally of defrauding Medicare after having admitted at her plea colloquy that Medicare paid her company for diagnostic neurological testing that she falsely represented was supervised by a licensed neurologist. Id. at 312. After her conviction, the government intervened in a civil qui tam FCA case against her and her health care company regarding the same fraudulent neurologist certifications. Id. In granting summary judgment against the defendant company, the district court had relied on the individual defendant’s criminal conviction and plea colloquy. Id. at 313. But the Third Circuit held that the district court erred in finding that the health care company had conceded all of the essential elements of the FCA claim through the individual defendant’s plea. Id. at 316-17. In so holding, the court relied on the fact that collateral estoppel does not apply unless the party against whom the earlier decision is asserted previously had a “full and fair opportunity to litigate that issue.” Id. at 316 (internal quotation marks omitted) (quoting Allen v. McCurry, 449 U.S. 90, 95 (1980)). Here, the defendant company did not have any opportunity, let alone a “full and fair opportunity,” to contest the fraud claim at the individual’s separate criminal proceedings. Heart Sol., 923 F.3d at 317. Additionally, some of the elements of the FCA claim against the company, as opposed to the individual, were neither actually litigated nor determined by a final judgment in the individual’s criminal case, both of which are required for collateral estoppel to apply. Id. at 317. 2.  The Fourth Circuit Holds That Non-Intervened Qui Tam Actions Decided in Favor of the Defendant Do Not Collaterally Estop the Government from Pursuing Criminal Proceedings In United States v. Whyte, 918 F.3d 339 (4th Cir. 2019), the Fourth Circuit considered whether the government is collaterally estopped from pursuing its own criminal case by a prior qui tam FCA action in which it did not intervene. See id. at 344. There, the defendant, the owner of a company that supplied armored vehicles to multinational forces in Iraq, was indicted for criminal fraud in July 2012. Id. at 342-43. Then, in October 2012, a relator filed a civil FCA suit, in which the government declined to intervene, against the defendant. Id. at 343. The defendant ultimately prevailed at trial in his FCA civil suit, but then, over two years later, a jury convicted the defendant in the criminal case. Id. at 344. The defendant argued that the government was collaterally estopped in its criminal case by the defendant’s victory in the prior qui tam civil case, but the courts were not convinced. The Fourth Circuit affirmed the district court, holding as a matter of first impression that “the Government is not a party to an FCA action in which it has declined to intervene,” and so is not collaterally estopped by a prior FCA action in which it did not intervene. Id. at 345, 350. In so holding, the court first reasoned that collateral estoppel cannot bar a criminal prosecution when the government did not “have a full and fair opportunity to litigate the issue in the prior proceeding.” Id. at 345 (citation and internal quotation marks removed). Whether the government had that opportunity in turn depends on whether the government was a party to that prior proceeding. Id. Citing precedent, the FCA’s language and structure, and the government’s different interests in intervened versus non-intervened cases, the court held that the government is not a party to an FCA action in which it has not intervened. Id. at 345-49. Therefore, the court concluded that “the Government cannot be considered to have been a party with a full and fair opportunity to litigate” in a prior FCA action in which it declined to intervene, and so the government’s criminal prosecution was not collaterally estopped by a prior, nonintervened FCA qui tam action. Id. at 349-50. E.  The First Circuit Holds That Unsealing an FCA Complaint Begins the Statute of Limitations for Related Claims As we previously discussed, RICO suits mirroring FCA suits that challenge off-label drug marketing continue to appear. A recent First Circuit case held that the unsealing of an FCA complaint regarding off-label drug marketing begins the running of RICO’s four-year statute of limitations in these kinds of cases. In In re Celexa & Lexapro Marketing & Sales Practices Litigation, 915 F.3d 1 (1st Cir. 2019), the First Circuit addressed the relationship between FCA claims and the statute of limitations for RICO claims (as well as state consumer fraud claims). There, the government intervened in a qui tam FCA claim alleging that the defendant pharmaceutical companies engaged in illegal off-label drug marketing schemes intended to fraudulently induce doctors to prescribe their drugs for off-label uses. Id. at 5-6. The unsealing of the complaint led to more than a dozen consumers and entities that had paid for these drugs filing suit, including the suits in this case, alleging RICO and state consumer fraud violations related to the defendant’s alleged illegal off-label marketing schemes. Id. at 7. The First Circuit held that, as a matter of law, the unsealing of the government’s FCA complaint put the plaintiffs on notice that the defendants allegedly had been promoting off-label uses of their products. Id. at 15. Therefore, the unsealing of the government’s FCA complaint began the running of the four-year statute of limitations on the plaintiffs’ RICO claims related to the off-label marketing schemes alleged in the FCA complaint. Id. at 15-16. F.  The Ninth Circuit Upholds an FCA Settlement Agreement’s Confidentiality Provisions For companies involved in negotiations with DOJ about the terms of settlement agreements under the FCA, there was a bit of good news from the Ninth Circuit. In Brunson v. Lambert Firm PLC, 757 F. App’x 563 (9th Cir. 2018), the Ninth Circuit upheld the confidentiality provisions of an FCA settlement agreement, over objection from the relator. See id. at 566. In that case, the relator entered into an FCA settlement agreement with the defendants and the government, but later filed several post-settlement motions that put at issue the settlement agreement’s confidentiality provisions. See id. at 565. The Ninth Circuit held that the settlement agreement’s confidentiality provisions were not void on public policy grounds, because the settlement did not impede any whistleblower’s ability to bring information to the government, and so did not violate the public interest underlying the FCA’s provisions encouraging disclosures of fraud. Id. at 566. Additionally, the court held that the confidentiality provisions did not interfere with the public’s right to information, given that the entire qui tam complaint was still publicly available. Id. Finally, the Ninth Circuit held that the district court had not abused its discretion in maintaining the seal over the settlement agreement, because the settlement agreement was a “private agreement reached without court assistance” and was only in the judicial record through the relator’s efforts to void its confidentiality provisions. Id. G.  The Public Disclosure Bar and Its Original Source Exception The public disclosure bar, as amended in 2010 by the Affordable Care Act, requires courts to dismiss a relator’s FCA claims “if substantially the same allegations or transactions as alleged in the action or claim were publicly disclosed,” unless that relator “is an original source of the information.” § 3730(e)(4)(A). One of the statute’s definitions of an original source is an individual “who has knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions.” § 3730(e)(4)(B) (emphasis added). Although the “materially adds” language has been in effect for nearly a decade, the new language did not apply retroactively, and due to the long timeframe for many FCA cases, it is therefore just in recent years getting serious attention from the appellate courts. In April of this year, the Tenth Circuit became the latest court to opine on the meaning of the original source exception’s “materially adds” language. In United States ex rel. Reed v. KeyPoint Government Solutions, 923 F.3d 729 (10th Cir. 2019), the Tenth Circuit explored what a relator must allege to meet the original source exception by materially adding to publicly disclosed information. In defining the “materially adds” language in the original source exception, the Tenth Circuit cited United States ex rel. Winkelman v. CVS Caremark Corp., 827 F.3d 201 (1st Cir. 2016), and held that a relator satisfies the materially-adds requirement when she “discloses new information that is sufficiently significant or important that it would be capable of” influencing the government’s behavior, as contrasted with a relator who provides only background information or details about a previously disclosed fraud. Reed, 923 F.3d at 757. Under this standard, the court noted that a relator who merely identifies a new specific actor engaged in fraud usually would not materially add to public disclosures of alleged widespread fraud in an industry with only a few companies. Id. at 758. Ultimately, however, the court concluded that the relator here had materially added to the public disclosures about a specific program at her company. Id. at 760-63. Thus, the court held she met the original source exception’s materially-adds requirement, but remanded on whether her knowledge was “independent” and whether her claims should otherwise survive scrutiny under Rule 12(b)(6) and Rule 9(b). Id. at 763. H.  The First Circuit Holds That the First-to-File Bar Is Not Jurisdictional The First Circuit joined the D.C. and Second Circuits in holding that the FCA’s first-to-file bar is not jurisdictional, such that arguments under the first-to-file bar do not implicate the court’s subject matter jurisdiction, even if they are a cause for dismissal. This distinction can affect how, and when, arguments under the first-to-file bar may be made, and also the standard of review a court applies. In United States v. Millennium Laboratories, Inc., 923 F.3d 240 (1st Cir. 2019), Relator A, who filed first, alleged that the defendant used inexpensive point-of-care tests to induce physicians into excessive testing, including confirmatory testing, which was then billed to the government. Id. at 245-46. Another relator, Relator B, later filed a complaint against the same defendant related to confirmatory testing, not point-of-care testing, allegedly induced through improper custom profiles and standing orders. Id. at 246-47. The government intervened in Relator B’s action (but not Relator A’s) and pursued an FCA case focused on excessive confirmatory testing induced through improper custom profiles and standing orders. Id. at 247-48. The government and the defendant eventually settled for $227 million plus interest, without resolving which relator was entitled to the relator’s share. Id. at 247. The district court dismissed Relator B’s crossclaim for the relator’s share of the settlement, holding that Relator A was the first to file. Id. at 248. As Relator A was the first to file, the district court therefore held that it did not have subject matter jurisdiction over Relator B’s crossclaim, because the first-to-file bar was jurisdictional. Id. On appeal, the First Circuit reversed, and held that the first-to-file bar is not jurisdictional, overturning its prior precedent, for three reasons. Id. at 248-49. First, the First Circuit pointed to Kellogg Brown & Root Services, Inc. v. United States ex rel. Carter, 135 S. Ct. 1970 (2015), in which the Supreme Court addressed a first-to-file issue in an FCA qui tam action on “decidedly non-jurisdictional terms,” implying that the Supreme Court did not consider the first-to-file rule a jurisdictional one. Millennium Labs., 923 F.3d at 249 (internal quotation marks removed) (quoting United States ex rel. Heath v. AT&T, Inc., 791 F.3d 112, 121 n.4 (D.C. Cir. 2015)). Second, the First Circuit noted that its prior cases all predated Carter and also did not substantively analyze whether the first-to-file rule was jurisdictional, but rather assumed it was. Millennium Labs., 923 F.3d at 250. Third, applying the Supreme Court’s “bright line rule” in Arbaugh v. Y & H Corp., 546 U.S. 500 (2006), which held that provisions are only jurisdictional when Congress clearly states that they are, the First Circuit held that the first-to-file bar’s statutory text, context, and legislative history did not describe the bar in jurisdictional terms. Millennium Labs., 923 F.3d at 250-51. For these reasons, the First Circuit held that the first-to-file bar is not jurisdictional. Id. at 251. Therefore, the court held that it had jurisdiction over Relator B’s crossclaim. Id. Next, the First Circuit turned to the issue of whether Relator A or B was the first to file for purposes of the relator’s share of the government’s settlement. Id. at 252-53. To determine whether Relator A was the first to file in the action in which the government intervened, the court analyzed whether Relator A’s complaint contained “all the essential facts” of the fraud that Relator B alleged, on a claim-by-claim basis, looking at the specific mechanisms of fraud alleged. Id. at 252-53. Because Relator A’s complaint never alleged the specific mechanisms of fraud that Relator B alleged—custom profiles and standing orders in the confirmatory, not point-of-care, stage—Relator A’s complaint did not cover the essential facts of the fraud that Relator B and the government alleged. Id. at 254. Thus, as Relator A alleged a different fraud than the fraud that the government pursued, he was not the first to file in this case; Relator B was. Id. I.  The Second Circuit Holds That a Relator Who Previously Voluntarily Dismissed His FCA Action Is Not Entitled to the Relator’s Share of the Government’s Subsequent Action In United States v. L-3 Communications EOTech, Inc., 921 F.3d 11 (2d Cir. 2019), the Second Circuit joined several other circuits in holding that a relator who previously voluntarily dismissed his qui tam action and had no other qui tam actions pending at the time the government pursued its own FCA claim is not entitled to the relator’s share of a later government settlement. Specifically, the court examined the FCA’s provision in section 3730(c)(5), which states that, notwithstanding the section of the FCA allowing qui tam actions, the government may pursue an “alternative remedy,” but if the government pursues an alternative remedy, then “the person initiating the action shall have the same rights in such proceeding as such person would have had if the action had continued under this section.” Id. at 24 (quoting § 3730(c)(5)). The court held that section 3730(c)(5) only applied if that relator had a pending qui tam action in which the government could intervene when the government initiated its own FCA action. Id. at 26. Thus, where, as here, the relator had no FCA action pending because the relator had voluntarily dismissed his FCA suit fourteen months before the government commenced its own FCA suit, the relator is not entitled to the relator’s share of the government’s action. Id. J.  FCA Retaliation Claims There were also a number of decisions from the courts of appeal that addressed issues under the FCA’s anti-retaliation provision, which protects would-be whistleblowers from retaliation based on certain protected activity undertaken in furtherance of a potential FCA claim. We very briefly summarize these decisions below. In United States ex rel. Reed v. KeyPoint Government Solutions, 923 F.3d 729 (10th Cir. 2019) (previously discussed regarding the public disclosure bar), the Tenth Circuit affirmed the district court’s dismissal of the relator’s retaliation claim, holding that the facts she pleaded were inadequate to show that the defendant was on notice that she was engaged in FCA-protected activity. Id. at 741, 764. Because the relator was a compliance officer, the court explained that she must plead facts to overcome the presumption that she was just doing her job in reporting fraud internally to her employer. That is, she must plead that the actions she took to report the alleged fraud internally went beyond what was required to fulfill her compliance job duties. Id. at 768-69. In that case, the relator did not adequately allege that her employer was on notice she was trying to stop FCA violations, and so the court affirmed the dismissal of her retaliation claim. Id. at 772. In United States ex rel. Strubbe v. Crawford County Memorial Hospital, 915 F.3d 1158 (8th Cir. 2019) (previously discussed regarding Rule 9(b)), the Eighth Circuit limited liability for FCA retaliation claims by affirming the district court’s ruling that relators’ retaliation claim was barred because the complaint did not allege that relators ever told their employer (a hospital) that its practices were fraudulent or potentially violated the FCA. Id. The court found that complaining about the hospital’s finances and changes the hospital made to certain treatments does not provide the hospital notice that the relators are taking action to stop an FCA violation or in furtherance of a qui tam action. Id. In addition, as a matter of first impression for FCA retaliation claims before the Eighth Circuit (but not whistleblower claims more generally), the court held that when there is no direct evidence of retaliation, the McDonnell Douglas framework—from McDonnell Douglas Corp. v. Green, 411 U.S. 792 (1973)—applies to FCA retaliation claims. Id. at 1168. Thus, for FCA retaliation claims, the plaintiff must show that: “(1) she engaged in protected conduct, (2) [her employer] knew she engaged in protected conduct, (3) [her employer] retaliated against her, and (4) ‘the retaliation was motivated solely by [the plaintiff’s] protected activity.’” Id. at 1167-68 (quoting Schuhardt v. Washington University, 390 F.3d 563, 566 (8th Cir. 2004)). If the plaintiff establishes a prima facie retaliation claim, then the burden shifts to the employer to “articulate a legitimate reason for the adverse action.” Id. at 1168 (quoting Elkharwily v. Mayo Holding Co., 823 F.3d 462, 470 (8th Cir. 2016)). Then, the burden again shifts back to the plaintiff to show that the employer’s reason was “merely a pretext and that retaliatory animus motivated the adverse action.” Id. (quoting Elkharwily, 823 F.3d at 470). In Guilfoile v. Shields, 913 F.3d 178 (1st Cir. 2019), the First Circuit explored the link between FCA retaliation claims and the AKS. The relator alleged that he was fired in retaliation for internally reporting that his employer, which provides specialty pharmacy services to chronically ill patients, was violating the AKS and making false representations in its contracts with hospitals. Id. at 182-83. The First Circuit affirmed dismissal with respect to his contract violation-based retaliation claim, but vacated the district court’s holding dismissing the plaintiff’s AKS-based retaliation claim, over a dissent. Id. at 195. In so doing, the First Circuit held that for FCA retaliation claims, plaintiffs do not need to meet Rule 9(b)’s particularity requirement, plead the submission of false claims, or plead that compliance with the AKS was material. Id. at 190. Instead, FCA retaliation plaintiffs “need only plead that their actions in reporting or raising concerns about their employer’s conduct ‘reasonably could lead to an FCA action.’” Id. at 189 (quoting United States ex rel. Booker v. Pfizer, Inc., 847 F.3d 52, 59 (1st Cir. 2017)). Under this standard, the court held that the plaintiff had plausibly pleaded that he was engaged in FCA-protected conduct, because by reporting his concerns about paying a consultant to secure contracts at hospitals at which the consultant worked, he was engaging in conduct that could reasonably lead to an FCA action based on the submission of claims resulting from an AKS violation. Id. at 193. Finally, in United States ex rel. Grant v. United Airlines Inc., 912 F.3d 190 (4th Cir. 2018) (discussed previously regarding Rule 9(b)), the Fourth Circuit held that an objective reasonableness standard applies to FCA retaliation claims’ new protected activity category, added in 2010, of “other efforts to stop 1 or more” FCA violations. Prior Fourth Circuit precedent applied a “distinct possibility” standard to evaluate protected activity under § 3730(h), which related to retaliation for actions taken “in furtherance” of an FCA action, meaning employees engage “in protected activity when ‘litigation is a distinct possibility, when the conduct reasonably could lead to a viable FCA action, or when . . . litigation is a reasonable possibility.’” Id. at 200 (quoting Mann v. Heckler & Koch Def., Inc., 630 F.3d 338, 344 (4th Cir. 2010)) (emphasis added). However, the court rejected the “distinct possibility” standard for “other efforts to stop 1 or more” FCA violations, and instead adopted an “objective reasonableness” standard. Id. at 201. Under the second category’s “objective reasonableness” standard, “an act constitutes protected activity where it is motivated by an objectively reasonable belief that the employer is violating, or soon will violate, the FCA.” Id. (emphasis added). IV.  CONCLUSION We will monitor these developments, along with other FCA legislative activity, settlements, and jurisprudence throughout the year and report back in our 2019 False Claims Act Year-End Update, which we will publish in January 2020. _________________________ [1] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Avanti Hospitals LLC, and Its Owners Agree to Pay $8.1 Million to Settle Allegations of Making Illegal Payments in Exchange for Referrals (Jan. 28, 2019), https://www.justice.gov/opa/pr/avanti-hospitals-llc-and-its-owners-agree-pay-81-million-settle-allegations-making-illegal. [2] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Pathology Laboratory Agrees to Pay $63.5 Million for Providing Illegal Inducements to Referring Physicians (Jan. 30, 2019), https://www.justice.gov/opa/pr/pathology-laboratory-agrees-pay-635-million-providing-illegal-inducements-referring. [3] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Electronic Health Records Vendor to Pay $57.25 Million to Settle False Claims Act Allegations Charges (Feb. 6, 2019), https://www.justice.gov/opa/pr/electronic-health-records-vendor-pay-5725-million-settle-false-claims-act-allegations. [4] See Press Release, U.S. Atty’s Office for the N. Dist. of GA., Union General Hospital to Pay $5 Million to Resolve Alleged False Claims Act Violations (Feb. 6, 2019), https://www.justice.gov/usao-ndga/pr/union-general-hospital-pay-5-million-resolve-alleged-false-claims-act-violations. [5] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Vanguard Healthcare Agrees to Resolve Federal and State False Claims Act Liability (Feb. 27, 2019), https://www.justice.gov/opa/pr/vanguard-healthcare-agrees-resolve-federal-and-state-false-claims-act-liability. [6] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Covidien to Pay Over $17 Million to The United States for Allegedly Providing Illegal Remuneration in the Form of Practice and Market Development Support to Physicians (Mar. 11, 2019), https://www.justice.gov/opa/pr/covidien-pay-over-17-million-united-states-allegedly-providing-illegal-remuneration-form. [7] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, MedStar Health to Pay U.S. $35 Million to Resolve Allegations that it Paid Kickbacks to a Cardiology Group in Exchange for Referrals (Mar. 21, 2019), https://www.justice.gov/opa/pr/medstar-health-pay-us-35-million-resolve-allegations-it-paid-kickbacks-cardiology-group. [8] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Three Pharmaceutical Companies Agree to Pay a Total of Over $122 Million to Resolve Allegations That They Paid Kickbacks Through Co-Pay Assistance Foundations (Apr. 4, 2019), https://www.justice.gov/opa/pr/three-pharmaceutical-companies-agree-pay-total-over-122-million-resolve-allegations-they-paid. [9] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Pharmaceutical Company Agrees to Pay $17.5 Million to Resolve Allegations of Kickbacks to Medicare Patients and Physicians (Apr. 30, 2019), https://www.justice.gov/opa/pr/pharmaceutical-company-agrees-pay-175-million-resolve-allegations-kickbacks-medicare-patients. [10] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Medicare Advantage Provider to Pay $30 Million to Settle Alleged Overpayment of Medicare Advantage Funds (Apr. 12, 2019), https://www.justice.gov/opa/pr/medicare-advantage-provider-pay-30-million-settle-alleged-overpayment-medicare-advantage. [11] See Press Release, U.S. Atty’s Office for the S. Dist. of W.V., United States Attorney Announces $17 Million Healthcare Fraud Settlement (May 6, 2019), https://www.justice.gov/usao-sdwv/pr/united-states-attorney-announces-17-million-healthcare-fraud-settlement. [12] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Kansas Cardiologist and His Practice Pay $5.8 Million to Resolve Alleged False Billings for Unnecessary Cardiac Procedures (May 30, 2019), https://www.justice.gov/opa/pr/kansas-cardiologist-and-his-practice-pay-58-million-resolve-alleged-false-billings. [13] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Pharmaceutical Company Admits to Price Fixing in Violation of Antitrust Law, Resolves Related False Claims Act Violations (May 31, 2019), https://www.justice.gov/opa/pr/pharmaceutical-company-admits-price-fixing-violation-antitrust-law-resolves-related-false. [14] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Opioid Manufacturer Insys Therapeutics Agrees to Enter $225 Million Global Resolution of Criminal and Civil Investigations (Jun. 5, 2019), https://www.justice.gov/opa/pr/opioid-manufacturer-insys-therapeutics-agrees-enter-225-million-global-resolution-criminal. [15] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Northrop Grumman Systems Corporation Agrees to Pay $5.2 Million to Settle Allegations of False Labor Charges (Jan. 28, 2019), https://www.justice.gov/opa/pr/northrop-grumman-systems-corporation-agrees-pay-52-million-settle-allegations-false-labor. [16] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Duke University Agrees to Pay U.S. $112.5 Million to Settle False Claims Act Allegations Related to Scientific Research Misconduct (Mar. 25, 2019), https://www.justice.gov/opa/pr/duke-university-agrees-pay-us-1125-million-settle-false-claims-act-allegations-related. [17] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Informatica Agrees to Pay $21.57 Million for Alleged False Claims Caused by Its Commercial Pricing Disclosures (May 13, 2019), https://www.justice.gov/opa/pr/informatica-agrees-pay-2157-million-alleged-false-claims-caused-its-commercial-pricing. [18] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Department of Justice Issues Guidance on False Claims Act Matters and Updates Justice Manual (May 7, 2019), https://www.justice.gov/opa/pr/department-justice-issues-guidance-false-claims-act-matters-and-updates-justice-manual. [19] Deputy Attorney General Rod J. Rosenstein Delivers Remarks at the American Conference Institute’s 35th International Conference on the Foreign Corrupt Practices Act (Nov. 29, 2018), https://www.justice.gov/opa/speech/deputy-attorney-general-rod-j-rosenstein-delivers-remarks-american-conference-institute-0. [20] See U.S. Dep’t of Justice, Justice Manual, Section 4-4.112. [21] Id. [22] Id. [23] Id. [24] Id. [25] Id. [26] See Memorandum, U.S. Dep’t of Justice, Factors for Evaluating Dismissal Pursuant to 31 U.S.C. 3730(c)(2)(A) (Jan. 10, 2018), https://assets.documentcloud.org/documents/4358602/Memo-for- Evaluating-Dismissal-Pursuant-to-31-U-S.pdf. [27] Id. at 2–3. [28] See Jeff Overly, DOJ Warns FCA Targets On Discovery Tactics, Law360 (Mar. 2, 2019), https://www.law360.com/articles/1134479/doj-atty-warns-fca-targets-on-discovery-tactics. [29] Id. [30] Id. [31] Id. [32] Press Release, U.S. Dep’t of Justice, Deputy Associate Attorney General Stephen Cox Delivers Remarks at the 2019 Advanced Forum on False Claims and Qui Tam Enforcement (Jan. 28, 2019), https://www.justice.gov/opa/speech/deputy-associate-attorney-general-stephen-cox-delivers-remarks-2019-advanced-forum-false. [33] Id. [34] Id. [35] Id. [36] Id. [37] Press Release, U.S. Dep’t of Justice, Deputy Associate Attorney General Stephen Cox Gives Remarks to the Cleveland, Tennessee, Rotary Club (Mar. 12, 2019), https://www.justice.gov/opa/speech/deputy-associate-attorney-general-stephen-cox-gives-remarks-cleveland-tennessee-rotary. [38] State False Claims Act Reviews, Dep’t of Health & Human Servs.—Office of Inspector Gen., https://oig.hhs.gov/fraud/state-false-claims-act-reviews/index.asp. [39] Id. [40] Id. Wisconsin repealed its false claims act in 2015. Assembly Bill 1021 would have reinstated the statute, but failed to pass in March 2018. See Wisconsin State Legislature, Assembly Bill 1021, http://docs.legis.wisconsin.gov/2017/proposals/reg/asm/bill/ab1021. [41] Id. [42] See Cal. Gov’t Code § 12651 (West 2018); Ga. Code Ann. § 49-4-168.1 (2018); Del. Code Ann. tit. 6, § 1201 (2018); N.Y. State Fin. Law §§ 189-190-b; 2018 R.I. Gen. Laws § 9-1.1-3 (2018). [43] Cal. AB-1270, 2019 Leg. Reg. Sess. (Cal. 2019). [44] Escobar, 136 S. Ct. at 2002 (emphasis added) (citation and internal quotation marks removed). [45] Cal. AB-1270, 2019 Leg. Reg. Sess. (Cal. 2019). [46] Id. [47] Id. [48] Id. [49] AB-1270 False Claims Act, California Legislative Information (July 9, 2019), http://leginfo.legislature.ca.gov/faces/billStatusClient.xhtml?bill_id=201920200AB1270. [50] See S. 40, A Bill to Amend Title 15 of the 1976 Code, by Adding Chapter 85, to Enact the “South Carolina False Claims Act” (123d Session), https://www.scstatehouse.gov/sess123_2019-2020/bills/40.htm. [51] See S. 223, A Bill to Amend the South Carolina Code of Laws, 1976, by Adding Chapter 85 to Title 15, so as to Enact the “South Carolina False Claims Act” (121st Session), https://www.scstatehouse.gov/sess121_2015-2016/bills/223.htm. [52] Notably, though, the statute covers claims a defendant “reasonably should have known” were false, thereby creating potential liability for mere negligence (unlike the federal FCA, which requires at least reckless disregard). The West Virginia law also lacks a qui tam provision. See W.Va. Code § 9-7-6 (2018). [53] See 2019 W.Va. Laws S.B. 318 (2019 Regular Session). [54] See id. at § 9-7-6. The following Gibson Dunn lawyers assisted in preparing this client update: F. Joseph Warin, Charles Stevens, Stuart Delery, Benjamin Wagner, Timothy Hatch, Joseph West, Robert Walters, Robert Blume, Andrew Tulumello, Karen Manos, Monica Loseman, Geoffrey Sigler, Alexander Southwell, Reed Brodsky, Winston Chan, John Partridge, James Zelenay, Jonathan Phillips, Ryan Bergsieker, Sean Twomey, Reid Rector, Allison Chapin, Michael Dziuban, Jillian N. Katterhagen Mills, and summer associate Marie Zoglo. Gibson Dunn’s lawyers have handled hundreds of FCA investigations and have a long track record of litigation success.  From U.S. Supreme Court victories, to appellate court wins, to complete success in district courts around the United States, Gibson Dunn believes it is the premier firm in FCA defense.  Among other notable recent victories, Gibson Dunn successfully overturned one of the largest FCA judgments in history in United States ex rel. Harman v. Trinity Indus. Inc., 872 F.3d 645 (5th Cir. 2017), and the Daily Journal recognized Gibson Dunn’s work in U.S. ex rel. Winter v. Gardens Regional Hospital and Medical Center Inc. as a Top Defense Verdict in its annual feature on the top verdicts for 2017.  Our win rate and immersion in FCA issues gives us the ability to frame strategies to quickly dispose of FCA cases.  The firm has dozens of attorneys with substantive FCA experience, including nearly 30 Assistant U.S. Attorneys and DOJ attorneys.  For more information, please feel free to contact the Gibson Dunn attorney with whom you work or the following attorneys. Washington, D.C. F. Joseph Warin (+1 202-887-3609, fwarin@gibsondunn.com) Stuart F. Delery (+1 202-887-3650, sdelery@gibsondunn.com) Joseph D. West (+1 202-955-8658, jwest@gibsondunn.com) Andrew S. Tulumello (+1 202-955-8657, atulumello@gibsondunn.com) Karen L. Manos (+1 202-955-8536, kmanos@gibsondunn.com) Jonathan M. Phillips (+1 202-887-3546, jphillips@gibsondunn.com) Geoffrey M. Sigler (+1 202-887-3752, gsigler@gibsondunn.com) New York Reed Brodsky (+1 212-351-5334, rbrodsky@gibsondunn.com) Alexander H. Southwell (+1 212-351-3981, asouthwell@gibsondunn.com) Denver Robert C. Blume (+1 303-298-5758, rblume@gibsondunn.com) Monica K. Loseman (+1 303-298-5784, mloseman@gibsondunn.com) John D.W. Partridge (+1 303-298-5931, jpartridge@gibsondunn.com) Ryan T. Bergsieker (+1 303-298-5774, rbergsieker@gibsondunn.com) Dallas Robert C. Walters (+1 214-698-3114, rwalters@gibsondunn.com) Los Angeles Timothy J. Hatch (+1 213-229-7368, thatch@gibsondunn.com) James L. Zelenay Jr. (+1 213-229-7449, jzelenay@gibsondunn.com) Deborah L. Stein (+1 213-229-7164, dstein@gibsondunn.com) Palo Alto Benjamin Wagner (+1 650-849-5395, bwagner@gibsondunn.com) San Francisco Charles J. Stevens (+1 415-393-8391, cstevens@gibsondunn.com)Winston Y. Chan (+1 415-393-8362, wchan@gibsondunn.com) © 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

May 20, 2019 |
Supreme Court Holds That Courts, Not Juries, Must Decide Whether The FDA’s Rejection Of A Proposed Warning Label Provides “Clear Evidence” To Preempt A State-Law Failure-To-Warn Claim

Click for PDF Decided May 20, 2019 Merck Sharp & Dohme Corp. v. Albrecht, No. 17-290  Today, the Supreme Court unanimously held that courts, not juries, must decide as a matter of law whether there is “clear evidence” that the FDA would not have approved a proposed label warning about a risk of a drug, thereby preempting a state-law failure-to-warn claim based on that same risk. Background: Patients sued Merck for failing to warn that its prescription drug Fosamax is associated with “atypical femoral fractures.”  Merck moved for summary judgment, arguing that the claims were preempted because the FDA had rejected Merck’s proposed label warning about the risk of the fractures.  Specifically, Merck submitted to the FDA a “Prior Approval Supplement”—which requires the agency’s preapproval to add language to a warning label—seeking to warn about the risk of “stress fractures,” but the FDA rejected the proposal on the basis that Merck’s justification was “inadequate” because “[i]dentification of ‘stress fractures’ may not be clearly related to the atypical subtrochanteric fractures that have been reported in the literature.”  Merck argued that the FDA’s decision made it impossible for the company to comply with both state law and federal law and, therefore, the patients’ state-law failure-to-warn claims were preempted.  The district court granted summary judgment to Merck, but the U.S. Court of Appeals for the Third Circuit reversed, holding that Wyeth v. Levine, 555 U.S. 555 (2009), established an evidentiary standard of proof that required the factfinder to conclude that there is “clear evidence”—i.e., that it is highly probable—that the FDA would not have approved a change to the drug’s label to include the warning allegedly required under state law.  And because there was a genuine issue of material fact as to why the FDA rejected Merck’s proposed label, Merck was not entitled to summary judgment. Issue:  Federal law preempts a state-law failure-to-warn claim where there is “clear evidence” that the FDA would not have approved a drug manufacturer’s proposed label warning about a particular risk of using that drug.  Wyeth, 555 U.S. at 571.  “Is the question of agency disapproval primarily one of fact, normally for juries to decide, or is it a question of law, normally for a judge to decide without a jury?”  Court’s Holding:  Whether there is “clear evidence” that the FDA would have rejected a proposed label warning is a question of law for the courts to decide.  “We here decide that a judge, not the jury, must decide the pre-emption question . . . . The question often involves the use of legal skills to determine whether agency disapproval fits facts that are not in dispute.” Justice Breyer, writing for the Court What It Means: The Court preserved the ability of manufacturers to assert an impossibility preemption defense to state-law claims for failure to warn about a certain risk when the FDA has rejected a proposed label warning about the same risk. The decision clarified that the “clear evidence” phrase in Wyeth does not refer to an evidentiary standard of proof that applies to preemption questions, and reiterated that courts must answer such questions by asking whether state and federal law “irreconcilably conflict.” The Court explained that state and federal law “irreconcilably conflict” in the failure-to-warn context if (i) a manufacturer fully informed the FDA of the justifications for a drug label warning required by state law, and (ii) the FDA nevertheless disapproved of the manufacturer’s proposed change to the drug’s label to include the warning. The decision may improve the uniformity of preemption law in this area, as judges will be bound by precedent and are more familiar than lay juries with construing agency determinations. As always, Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Supreme Court.  Please feel free to contact the following practice leaders: Appellate and Constitutional Law Practice Allyson N. Ho +1 214.698.3233 aho@gibsondunn.com Mark A. Perry +1 202.887.3667 mperry@gibsondunn.com Related Practice: Life Sciences; FDA and Health Care Tracey B. Davies +1 214.698.3335 tdavies@gibsondunn.com Ryan A. Murr +1 415.393.8373 rmurr@gibsondunn.com Marian J. Lee +1 202.887.3732 mjlee@gibsondunn.com Daniel J. Thomasch +1 212.351.3800 dthomasch@gibsondunn.com © 2019 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 7, 2019 |
2018 Year-End FDA and Health Care Compliance and Enforcement Update – Providers

Click for PDF Two years into the Trump Administration, the regulatory and enforcement landscape impacting health care providers continues to be extraordinarily dynamic and complex.  Recent policy statements and changes indicate that while the government’s health oversight enforcement efforts remain very robust in some areas, particularly in opioid-related cases, there may be a more tempered approach in other areas.  For example, consistent with prior pronouncements, the Trump Administration evidenced a further move away from health care regulation in December 2018 when it published a 119-page report suggesting, among other policy changes, an overall easing of state and federal health care laws in an effort to promote market efficiency.[1]  And, as we discuss further below, the Affordable Care Act continues to be challenged in the court system following legislative removal of the statute’s individual mandate and other developments. Through the end of 2018, the U.S. Department of Justice (“DOJ”) and U.S. Department of Health and Human Services (“HHS”) continued to achieve resolutions in a steady stream of investigations of health care providers, which featured substantial financial recoveries and negotiated corporate integrity agreements (“CIAs”)—albeit on a smaller scale than that seen during the Obama administration.  Moreover, the enforcement tone from the top appears to be shifting.  As Deputy Associate Attorney General Stephen Cox stated at the 2019 Advanced Forum on False Claims and Qui Tam Enforcement, the DOJ is committed to its role as “gatekeeper,” to prevent “non-meritorious” or “abusive” qui tam cases from going forward: Bad cases that result in bad case law inhibit our ability to enforce the False Claims Act in good and meritorious cases . . . . This is why we have instructed our lawyers to consider dismissing qui tam cases when they are not in our best interests.  This authority is an important tool to protect the integrity of the False Claims Act and the interests of the United States.[2] In his address, Deputy Associate Attorney General Cox discussed another recent DOJ reform signaling a shift away from certain affirmative enforcement actions: its ban on using guidance documents and other non-legally binding materials to create binding requirements.  He stated that “it is improper to try to use guidance to bind the public by imposing legal obligations beyond those already enshrined in existing statutes or properly promulgated regulatory provisions.  Put simply, agency guidance should educate, not regulate.”[3] In this year-end update, we begin with an overview of recent DOJ and HHS enforcement efforts affecting health care providers, including a review of notable case law developments in the False Claims Act (“FCA”) space, followed by a discussion of recent regulatory and case law developments in the Anti-Kickback Statute (“AKS”) and the Stark Law. As always, we are happy to discuss these developments with you.  A further collection of recent publications and presentations on these and other key issues is available here. I.    DOJ ENFORCEMENT ACTIVITY A.    False Claims Act Enforcement Activity The second half of 2018 continued the recent downward trend in the number of FCA health care provider settlements as compared to prior years.  In the 2018 calendar year, the DOJ announced a total of about 65 settlements involving providers, as compared to 87 resolutions and 106 resolutions in 2017 and 2016, respectively.  These 65 settlements amounted to approximately $985 million, which is below the $1.2 billion and $1.1 billion collected by the government from health care providers in FCA settlements in the prior two years.  As a typical FCA case can take two years or more to investigate before reaching resolution or an intervention decision by the government,  it is difficult to say whether the lower number of settlements in 2018 compared to prior years is due to a change in DOJ policies or priorities.  There is reason to anticipate, however, that providers may have success pushing back on aggressive FCA enforcement going forward, if the Brand Memo and related statements by the DOJ are any indication. Indeed, the DOJ continues to announce policy changes that, individually and in the aggregate, clearly suggest a more tempered affirmative civil enforcement approach.  In November, Deputy Attorney General Rod Rosenstein announced a revised DOJ policy regarding company cooperation and the identification of culpable individuals in corporate cases—a revision of 2015’s so-called “Yates memo” policies.[4]  Though the DOJ is still focused on prosecuting responsible individuals in corporate cases, the revisions suggest it will limit its scarce enforcement resources to pursuing key individuals, rather than every employee whose “routine activities . . . were part of an illegal scheme.”  Therefore, to qualify for maximum cooperation credit, companies are instructed to focus on providing information about every individual who had substantial culpable involvement in the relevant conduct, rather than seeking to identify every single individual who was even remotely involved in the alleged conduct.  Additionally, the revised policy restores discretion to DOJ attorneys to grant releases for individuals in corporate settlements where the DOJ is unlikely to pursue separate enforcement actions against those individuals. In light of these developments, it is interesting that the average recovery per settlement in 2018 ($15 million) nevertheless exceeded the averages in 2017 ($13 million) and 2016 ($9 million). The three largest recoveries from 2018 are on par with, or greater than, the top recoveries for FCA settlements of health care providers in recent years.  In fact, this year’s top three recoveries—$270 million,[5] $216 million,[6] and $84 million[7]—are significantly higher than those in 2017 ($155 million, $118 million, and $75 million), and are roughly in line with those from 2016 ($368 million, $145 million, and $125 million).  This may demonstrate that even if providers have been somewhat successful in pushing back against FCA actions, enforcement actions against providers remain a cornerstone of the DOJ’s FCA enforcement efforts. Number of FCA Settlements with Providers, by Provider Type FCA settlements announced in 2018 spanned a variety of legal theories and provider types, including hospitals (13 total), clinics and single providers (31 total), skilled nursing and rehabilitation services (5 total), ambulance services (4 total), pharmacies (3 total), and home health providers (2 total).  The “Other” medical services group (7 total) included providers such as an autism therapy services provider, intra-operative monitoring services, diagnostic laboratory testing, and wound care.  As in prior years, clinics and single providers comprised the bulk of settlements by count, but did not represent the most significant settlements by dollar amount.  Rather, as illustrated by the chart below, the sum from the 13 settlements with hospitals amounted to over $475 million (on average, $36 million per case), whereas the total from the 31 settlements with clinics and single providers amounted to only about $347 million (on average, $11 million per case). FCA Settlement Totals with Providers, by Provider Type In 2018, as in prior years, the most prevalent legal theory among health care provider settlements was that the provider had billed government health programs for items or services that were not medically necessary (19 claims).  This is illustrated in the below table. For many of these cases, medical necessity was the sole underlying theory of liability (13 cases), but in at least 6 cases, the DOJ presented alternative theories of liability, including claims the provider had submitted insufficient or falsified documentation.[8] Number of FCA Settlements with Providers, by Allegation Type Of note, claims alleging providers billed federal health programs for services that were not provided increased significantly from 2017.  By year-end 2018, there were at least 18 such claims, representing about 21% of the roughly 87 claims.[9]  In 2017, by contrast, only about 15 of the 110 claims (14%) alleged providers had billed for services not provided.[10]  In one case out of the District of South Carolina, the DOJ settled with an autism therapy services company for $8.8 million based on allegations the provider had billed federal and state government health programs for services that were not actually provided, or misrepresented the services actually provided.[11]  In addition, the DOJ settled with five Maryland medical practices and providers for services not provided, alleging that each of the providers billed for an additional test that was not actually performed.[12] In 2018, the DOJ also settled a number of claims based on the AKS (13 claims), upcoding (11 claims), unqualified personnel providing care (8 claims), physician self-referral (7 claims), claims of insufficient/falsified documentation (6 claims), and substandard care (2 claims).  Notably, three of the top five settlements from 2018 involved allegations of upcoding, and many cases with claims of upcoding included additional theories of liability.  For example, in one case out of the Central District of California, the DOJ settled with a national Medical Services Organization (“MSO”) for $270 million based on allegations that the MSO had engaged in a variety of practices, including disseminating improper medical coding guidance, that yielded artificially increased CMS reimbursements.[13]  The settlement also resolved whistleblower allegations that the provider had engaged in “one-way” chart reviews, in which the provider scoured its patients’ medical records to find additional diagnoses to enable managed care plans to obtain added revenue from the Medicare program, but ignored inaccurate diagnosis codes revealed by these reviews that, if deleted, would have decreased Medicare reimbursement or required the pans to repay money to Medicare.[14] The DOJ also continues to prioritize the investigation and settlement of AKS claims, with roughly 13 claims settled by the DOJ against health care providers this year.  Many of the cases involving AKS claims also allege claims of physician self-referral and/or improper billing.  For example, in August 2018, a regional hospital system based Detroit, Michigan, paid $84.5 million to resolve such allegations; this settlement is discussed further in Section III, below. B.    FCA-Related Case Law Developments 1.    Developments in Implied False Certification Theory Even as the number of appellate courts interpreting the Supreme Court’s 2016 decision in Universal Health Services, Inc. v. United States ex rel. Escobar[15] proliferate, lower courts continue to grapple with the standards for materiality and scienter under the implied false certification theory.  As we discussed in our 2018 Mid-Year Update, 2018 saw a growing circuit split regarding the extent to which the government’s continued payment to a defendant after gaining awareness of alleged non-compliance negates FCA materiality.  The First, Second, and Third Circuits have previously found that the government’s failure to take action against the defendant despite knowledge of the alleged regulatory violations was conclusive proof that those violations were not material to payment,[16] while the Ninth Circuit has found that continued payment does not render alleged violations immaterial as a matter of law.[17] In January 2018, the Middle District of Florida overturned a $350 million jury verdict on the grounds that the evidence did not support a finding of FCA materiality and scienter where the government continued making payments to the defendants despite being on notice of defendants’ alleged billing violations.[18]  In July 2018, the DOJ filed an amicus brief in support of the appeal pending before the Eleventh Circuit, arguing that the government’s failure to recoup payments or take enforcement actions after learning of a provider’s non-compliance does not bar recovery under the FCA, and that under Escobar, the court’s focus should be on what action the government might have taken if violations were known prior to payment being made.[19]  The DOJ argued that under Escobar, “the materiality inquiry is meant to shed light on the government’s decision-making at the time of the relevant transaction—not at some later date after the transaction is over.”[20] In January 2019, the Supreme Court denied the petition for certiorari in United States ex rel. Campie v. Gilead Sciences, Inc., leaving in place the Ninth Circuit’s holding in favor of relators with respect to materiality.[21]  The decision came after the DOJ filed an amicus brief recommending that the petition be denied and stating that the DOJ would move to dismiss the case if it was sent back to the district court in accordance with the Ninth Circuit’s ruling.[22]  Of note, the DOJ agreed with the Ninth Circuit’s ruling that Plaintiffs had sufficiently pleaded materiality under Escobar; however, it argued that the case would be a poor vehicle for considering the question presented, because it is unclear what the government knew and when.[23] A petition for certiorari seeking review of the Sixth Circuit’s decision reinstating a qui tam claim in Brookdale Senior Living Communities, Inc. v. U.S. ex rel. Prather is also pending before the Supreme Court.[24]  In Brookdale, the relator alleged that the Defendant had violated Medicare regulations by failing to obtain physician signatures on home health certifications as soon as possible after the physician established a plan of care and submitted those services for payment.[25]  The district court dismissed the case for failure to plead sufficiently the elements of materiality.[26]  On appeal, the Sixth Circuit reversed, holding that the relator’s failure to plead facts related to the government’s past payment practices did not affect the materiality analysis at the pleading stage.[27]     In its petition for certiorari, the Defendant argues that the materiality element requires the plaintiff to show that the government refused payment on the basis of similar violations in the past and that the scienter element requires the defendant to possess knowledge that the alleged violation was material to the government’s payment decision.[28]  We will continue to monitor these cases and report back in a future update. 2.    Developments in FCA Statute of Limitations Provisions In a seemingly technical aspect of FCA law that will nonetheless have a substantial impact on FCA litigation against providers, on November 16, the Supreme Court took up review of a circuit split regarding the proper application of the FCA’s statute-of-limitations tolling provision, 31 USC § 3731(b)(2), to relators in cases where the government has not intervened.  Section 3731(b) requires that an FCA case be filed either (1) six years after the date on which the violation is committed, or (2) three years after the date when facts material to the right of action are known or reasonably should have been known by the official of the United States charged with responsibility to act in the circumstances, but in no event more than 10 years after the date on which the violation is committed.[29]  The Court granted Gibson Dunn’s petition for cert to review the Eleventh Circuit’s decision in United States ex rel. Hunt v. Cochise Consultancy, Inc.,[30] which held (i) that the longer limitations period in section 3731(b)(2) was available to qui tam relators even if the government declined to intervene in the case, and (ii) that the three-year limitations period began when the government—not the relator—had actual or constructive knowledge of the fraud allegations.  Previously, the Third and Ninth Circuits had held that the section 3731(b)(2) limitations period is available to qui tam relators in the absence of government intervention, but it ran from the time of the relator’s knowledge in those circumstances.[31]  In contrast, the Fourth and Tenth Circuits had held that section 3731(b)(2) is available only if the government intervenes, not in a case a relator handles alone after declination.[32]  The Supreme Court’s ruling will hopefully resolve this three-way divide and provide clarity for future application of the FCA’s statute of limitations provisions, which in turn could have a material effect on the number of qui tam cases brought by relators. C.    Affordable Care Act Developments Nearly nine years after its passage, the Affordable Care Act continues to be tested in the court system.  In December 2018, a Texas federal judge struck down the entire Affordable Care Act, finding that the Affordable Care Act’s individual mandate provision will no longer be a valid exercise of congressional taxing power when the Tax Cuts and Jobs Act of 2017 eliminates the mandate’s tax penalty in 2019.[33]  U.S. District Judge Reed O’Connor held that the Supreme Court’s reasoning in National Federation of Independent Businesses v. Sebelius[34] “compels the conclusion that the Individual Mandate may no longer be upheld under the Tax Power. And because the Individual Mandate continues to mandate the purchase of health insurance, it remains unsustainable under the Interstate Commerce Clause.”[35]  Judge O’Connor held that the remaining provisions of the ACA are “inseverable” from the individual mandate and are therefore invalid.[36]  The underlying case was brought by a coalition of Republican attorneys general from twenty states.  Democrat attorneys general for sixteen states and the District of Columbia, who intervened as defendants in the Texas case, filed a notice of appeal to the Fifth Circuit.[37]  The Affordable Care Act remains in effect pending the appeals process.[38]  If both aspects of the ruling are upheld, the decision would have a wide-ranging impact on health care regulatory provisions far beyond the individual mandate and insurance exchanges, such as on the ACA’s provisions relating to drug approvals and prices, consumer protections, Medicare reimbursement, Anti-Kickback Statute amendments, and other critical regulatory and enforcement issues. In contrast, in September 2018, Maryland filed a complaint seeking a declaratory judgment that the Affordable Care Act is constitutional and enforceable.[39]  In its complaint, Maryland argued that the Affordable Care Act’s individual mandate will not become unconstitutional when its tax penalty disappears, such that no portion of the Affordable Care Act need be struck down.[40]  Just this month, the District of Maryland issued a memorandum opinion denying the request for declaratory judgment and dismissing the case without prejudice due to lack of standing.[41]  The Court found that Maryland had failed to show a “concrete and particularized injury” because its allegations did not demonstrate a real threat that the Trump administration would cease enforcement of the ACA; however, it explicitly invited Maryland to revive the suit if the injury alleged becomes more concrete.  We will watch these cases as they progress through the federal courts, and report on continuing developments in our 2019 mid-year update. D.    Opioid Crisis Enforcement Efforts The DOJ has continued its assault on the nation’s opioid crisis through, among other means, a broad-based use of criminal prosecutions and civil enforcement actions against a wide variety of targets in the distribution chain.  In August 2018, the DOJ issued the first-ever civil injunctions under the Controlled Substances Act against doctors who allegedly prescribed opioids illegally.[42]  The DOJ filed complaints against two Ohio doctors and obtained temporary restraining orders barring them from writing prescriptions after an investigation led to allegations that the doctors had recklessly and unnecessarily prescribed opioids and other drugs, providing them to patients upon request.[43]  Then-Attorney General Jeff Sessions described the announcement as a “warning to every trafficker, every crooked doctor or pharmacist, and every drug company.”[44] The DOJ also sent a warning message to foreign synthetic opioid manufacturers when it unsealed a 43-count indictment against leaders of a Chinese fentanyl trafficking organization.[45]  Two Chinese citizens were charged with operating a conspiracy to manufacture and ship deadly fentanyl analogues and 250 other drugs to at least 25 countries and 37 states.[46]  The indictment alleged that the organization was responsible for the fatal overdoses of two people in Akron, Ohio.[47] As we discussed in our 2018 Mid-Year Update, the DOJ previously launched Operation Synthetic Opioid Surge, or Operation S.O.S., to focus on prosecuting suppliers of synthetic opioids, rather than drug users.  In a September statement at Office of Justice Programs’ National Institute of Justice Opioid Research Summit, then-Attorney General Sessions applauded the success of Operation S.O.S.[48]  He credited the shift in focus from prosecuting users to suppliers with helping to reduce the amount of overdose deaths in Manatee County, Florida by half since last year.[49]  In an effort to replicate those results elsewhere, then-Attorney General Sessions announced that the DOJ sent ten prosecutors to help implement the “no amount too small” strategy in ten districts with exceptionally high rates of drug-related deaths.[50]  Sessions noted that this is in addition to the twelve prosecutors sent to drug “hot spot districts” and the more than 300 new prosecutors he dispatched around the country.[51] Most recently, in October 2018, the DOJ announced an award of almost $320 million to a variety of entities and programs, including drug courts, research efforts, and programs aimed helping impacted children and youth, in an effort to combat the opioid crisis in America.  The funds will be invested into all three parts of the Administration’s plan to end the opioid epidemic: prevention, treatment, and enforcement.[52]  The funding is further evidence of the DOJ’s ongoing commitment to leveraging its resources against opioid-related health care fraud and crimes.  We have no reason to expect this to change under the newly-confirmed Attorney General, William Barr. II.    HHS ENFORCEMENT ACTIVITY A.    HHS OIG Activity 1.    2018 Developments and Trends According to its Semiannual Report to Congress, HHS OIG will report approximately $3.43 billion in expected recoveries from its investigative and audit enforcement efforts in 2018.[53]  As we predicted in our 2018 Mid-Year Update, recoveries are slightly down from the agency’s $4.13 billion in 2017 recoveries and $5.66 billion in 2016 recoveries.[54]  Expected recoveries consist of audit receivables (representing amounts identified in HHS OIG audits that HHS officials have determined should not be charged to the government) and investigative receivables (consisting of expected criminal penalties, civil or administrative judgments, or settlements that have been ordered or agreed upon).[55]  HHS OIG’s drop in recoveries was partly driven by the decrease in investigative receivables from $4.13 billion in Fiscal Year 2017 to $2.91 billion in Fiscal Year 2018.[56] For Fiscal Year 2018, HHS OIG reported 764 open criminal actions and 813 open civil actions, including FCA suits, civil monetary penalty (“CMP”) settlements, and administrative recoveries, against individuals or entities.[57]  Both figures indicate a decrease on the criminal side as compared to Fiscal Year 2017, where HHS OIG reported 881 criminal actions and 826 civil actions.[58]  This reflects a drop of over 13% in the number of criminal actions, and, as noted in the 2018 Mid-Year Update, the slight decrease in the number of civil actions breaks a years-long steady rise in civil actions.   Additionally, this is the first time in recent years we have seen civil enforcement actions surpass criminal enforcement actions. 2.    Proposed and Final Rules Despite assertions by the current administration that agency rulemaking would be curtailed, throughout the last fiscal year, CMS and HHS OIG finalized multiple rules and proposed many more.[59] In August 2018, CMS finalized the inpatient and long-term care hospital prospective payment system (IPPS/LTCH PPS) rule, which contained new requirements mandating that hospitals publicize a list of their standard changes online in a machine-readable format by January 1, 2019.[60]  The rule also states that hospitals must update their list of prices at least annually.  CMS explained its reasoning for the new requirement as stemming from its “concern[] that challenges continue to exist for patients due to insufficient price transparency, including patients being surprised by out-of-network bills for physicians, such as anesthesiologists and radiologists, who provide services at in-network hospitals, and by facility fees and physician fees for emergency room visits.”[61] Additionally, in November 2018, CMS published its final rule updating the Physician Fee Schedule.  While this rulemaking is generally standard, notable in this year’s rule is that, starting in 2019, CMS will be reimbursing doctors for virtual check-ins, remote image evaluation, and other technology-enabled services that have begun to proliferate in recent years.[62] 3.    Notable Reports and Reviews In this year’s report on the Top Management and Performance Challenges, HHS OIG identified twelve key challenges it is currently facing in the enforcement space.[63]  The number one challenge, consistent with DOJ and other agency enforcement efforts, is preventing and treating opioid misuse.  HHS OIG noted that as an agency, it has “many opportunities” to address the issue and listed some of the ways in which it has addressed the challenge.[64]  For example, HHS OIG highlighted efforts by CMS to provide guidance in combating the opioid crisis by identifying substance use disorders covered by Medicaid, as well as the “more than 160 defendants [] charged with participating in Medicare and Medicaid fraud schemes related to opioids or treatment for opioid use disorders.”[65] Among its other top challenges, HHS OIG includes more general goals such as “ensuring program integrity,” “protecting the health and safety of vulnerable populations,” and “improving financial and administrative management and reducing improper payments.”[66] 4.    Significant HHS OIG Enforcement Activity a)    Exclusions HHS OIG is permitted in some cases and required in others to exclude entities and individuals from participation in federal health care programs,[67] a powerful tool and potential collateral consequence that looms over other civil and criminal enforcement proceedings.  After record-setting exclusion figures for 2014 and 2015, HHS OIG reported a decline in exclusions in 2016 and again in 2017.  In 2018, that trend continued, with 2,712 entities and individuals excluded this year, in comparison to 3,244 entities and individuals excluded in 2017.[68] These exclusions involve 59 entities – matching 2017’s total – with pharmacies accounting for 17 exclusions, up from 12 exclusions in 2017.[69]  While mental health facilities and home health agencies accounted for the next most frequent entity exclusions in 2017, these were not commonly excluded entities in 2018; after pharmacies, the next most commonly excluded entity was community mental health centers (12 exclusions) followed by clinics (4 exclusions). [70]  Among excluded individuals, 270 were identified as business owners or executives, down from last year’s high of 348 business owners or executives.[71]  This year, nearly half of all excluded individuals – 42% – were identified as nurse practitioners, nurses, or nurse’s aides working as non-business owner licensed health care service providers. b)    Civil Monetary Penalties In the 2018 calendar year, HHS OIG announced 135 civil monetary penalties (“CMPs”) resulting from settlement agreements and self-disclosures that recovered approximately $71.07 million.[72]  As we predicted in our 2018 Mid-Year Update, these recoveries represent a significant increase in comparison to last year’s recoveries of $36.5 million over 95 CMPs.[73]  In line with past years, false or fraudulent billing continues to be a leading reason for assessment of CMPs,  accounting for 58 CMPs (43% of the total number), and about $44.8 million, or 63%, of total recoveries assessed in 2018.  As in past years, HHS OIG also routinely pursued CMPs in which entities employed individuals that the entities allegedly knew or should have known were excluded from federal health care programs.  These cases account for 47 of the CMPs assessed this year, amounting to about $6.0 million in penalties.  Some of the largest penalties this year came from violations of AKS and Stark Law physician self-referral prohibitions.  The 17 penalties in AKS and Stark cases amounted to approximately $15.6 million together.  Penalties also were assessed for violations of the Emergency Medical Treatment and Labor Act (“EMTALA”) and other issues. The largest penalties in 2018, as in 2017 and 2016, have stemmed from self-disclosure cases.  HHS OIG’s self-disclosure protocol provides for reduced penalties as an incentive, so this may be an indication that these cases would have had even larger repayment amounts had they not been self-disclosed.  Each of the top ten largest penalties in 2018 resulted from self-disclosure to HHS OIG.  Most of the larger penalties came during the first half of the year and are summarized in our 2018 Mid-Year Update; the largest CMPs assessed during the second half of this year are summarized below:[74] On September 13, 2018, after self-disclosing conduct, a hospital in Manhattan, Kansas agreed to pay approximately $3.8 million to resolve allegations that it submitted claims to federal health care programs for medically unnecessary bronchoscopies that lacked medical documentation. After it self-disclosed conduct to HHS OIG, on October 23, 2018, a hospital in Columbus, Georgia agreed to pay approximately $3.3 million to resolve allegations that it had paid remuneration to a management company in the form of incentive payments for performance metrics that were not met and were not materially updated to incentivize performance.  HHS OIG further contended that the hospital paid remuneration to a cardiology practice in the form of a forgiven or uncollected debt owed as a result of the practice exceeding the tenant improvement allowances of their lease agreement. A general hospital in Raleigh, North Carolina agreed to pay approximately $2.3 million on September 24, 2018 after it disclosed that it leased an employed physician from a community hospital for the provision of cardiology services at the community hospital.  HHS OIG contended that during this time the community hospital paid the general hospital a fee for the lease of the physician, and the general hospital paid the physician salary and bonus payments for the cardiology services performed by the physician at the community hospital.  HHS OIG alleged that the general hospital offered and paid remuneration in the form of salary and bonus payments to the physician that were in excess of the community hospital’s lease fee to the general hospital and that should have been paid by the community hospital. c)    Corporate Integrity Agreements HHS OIG continues to employ CIAs as a mechanism to resolve enforcement actions and create assurances that the provider will comply with Medicare and Medicaid rules and regulations.  In Fiscal Year 2018, 31 CIAs took effect, a decline from last year’s 51 CIAs.[75]  CIAs are often linked with other enforcement penalties, particularly FCA and AKS settlements with the DOJ, because HHS OIG often agrees to waive its permissive exclusion authority—which can be triggered by FCA claims—in exchange for the defendant’s acceptance of prospective integrity obligations. In the largest health care FCA settlement of 2018, a wholesale pharmaceutical company paid $625 million to resolve allegations arising from its operation of a facility that improperly repackaged oncology-supportive injectable drugs into pre-filled syringes and improperly distributed those syringes to physicians treating cancer patients.[76]  This settlement surpasses last year’s largest payment of $465 million.[77]  The company had also agreed to pay $260 million in criminal fines and forfeiture for this conduct last year, bringing the total penalties it has paid to resolve liability to $885 million.[78]  As part of its settlement, the company entered into a five-year CIA.[79]  Though the company had already established a compliance program, the CIA requires the company to re-commit to and expand its compliance program.[80]  The CIA requires that the company put in place an incentive compensation restriction plan to fine senior management that have violated company policies and, notably, mandates extensive certification of compliance with Drug Enforcement Agency (“DEA”) requirements.[81]  According to the terms of the CIA, the Chief Compliance Officer must report directly to the audit committee of the board of directors.[82] In the latter half of 2018, multiple settlements with CIAs resolved allegations of kickbacks and improper physician relationships, continuing the recent strong focus on AKS and Stark Law enforcement.  For example, a Pennsylvania-based operator of long‑term care and rehabilitation hospitals across the country agreed to pay $13.2 million to resolve allegations that it used contracts with physicians to induce them to refer patients to its hospitals.[83]  The company also entered into a five-year CIA as part of the agreement, which requires, among other things, that the company appoint a Compliance Officer who “shall not be . . . subordinate to the General Counsel or Chief Financial Officer or have any responsibilities that involve acting in any capacity as legal counsel.”[84]  The company is also required to track all remuneration and document all fair market value determinations for arrangements that could potentially implicate AKS.[85]  Similarly, a Philadelphia-based group of vascular centers entered into a CIA and a minimum $3.8 million settlement to resolve allegations that it submitted false claims to Medicare for services that resulted from referrals that the group had induced through improper remuneration to physician investors and medical directors.[86]  The CIA requires the company to “engage in significant compliance efforts over the next five years, including a focus on [the company’s] arrangements with physicians and other health care providers for compliance with [AKS.]”[87] As described in the 2018 Mid-Year Update, a wider variety of entities are being subjected to CIAs.  In the second half of 2018, for example, CIAs were imposed upon multiple hospital systems.  In a matter that concluded in both a civil recovery and criminal plea, a former hospital chain paid over $216 million to resolve civil allegations that it billed government health care programs for more-costly inpatient services that should have been billed as observation or out-patient services, paid illegal remuneration to physicians in return for patient referrals to its hospitals, and inflated claims for emergency department facility fees.[88]  In addition to these civil recoveries, the hospital chain’s subsidiary pleaded guilty to one count of conspiracy to commit health care fraud arising from illegal conduct designed to aggressively increase admissions to the hospital and paid a $35 million monetary penalty.[89] B.    Significant CMS Activity 1.    Transparency and Data Accessibility CMS released an eighth update of the Market Saturation and Utilization Tool[90]—the second update of this data tool in 2018 after an update was released in April, as described in our 2018 Mid-Year Update.[91]  This tool provides interactive maps and related data sets showing provider services and utilization data for selected health services, and is one of many tools used by CMS to monitor and manage market saturation as a means to help prevent potential fraud, waste, and abuse.  The updated tool includes a quarterly update of the data regarding the twelve health services areas from the previous release, and also includes Cardiac Rehabilitation Programs and Psychotherapy data. 2.    Continued Implementation of Moratoria As explained in past updates, the Affordable Care Act authorizes CMS to impose moratoria on certain regions, preventing new provider enrollments in certain geographic areas deemed as “hot spots” for fraud.  The moratoria are imposed after consultation with the DOJ and HHS OIG and reviewed for continued necessity every six months.  The moratoria, which block any new provider enrollments for nonemergency ambulance services in New Jersey, Pennsylvania, and Texas, and for home health agencies in Florida, Texas, Illinois, and Michigan, were reviewed and extended again for a six month period on August 2, 2018.[92] C.    OCR and HIPAA Enforcement As cybersecurity and data privacy issues have increasingly appeared as headline news and become cutting edge areas of the law, so too has HHS increasingly focused on enforcement of patient information protections under the Health Information Portability and Accountability Act (“HIPAA”).   HHS’s Office of Civil Rights (“OCR”) reported that as of January 31, 2019, it had reviewed and resolved 194,951 HIPAA complaints since HIPAA privacy rules went into effect in April 2003.[93]  In 2018, OCR reported ten settlements or rulings amounting to approximately $25.7 million in fines for HIPAA violations.[94]  This year marks the highest total recoveries from HIPAA settlements and rulings, surpassing 2016’s $23.5 million then-record total. This year’s record HIPAA enforcement haul was driven in large part by the largest HIPAA settlement in history—a fine of $16 million paid by a national health insurance company after a series of cyberattacks led to the largest-ever health data breach and exposed the electronic protected health information of almost 79 million people.[95]  In addition, this year an Administrative Law Judge ruled that a comprehensive cancer center in Texas violated HIPAA and granted summary judgment to OCR on all issues, requiring the center to pay $4.3 million in penalties.[96] 1.    Developments in HIPAA Compliance Guidance Protection of patients’ confidential information, and electronically stored information in particular, continues to be a high priority for HHS enforcement, just as cybersecurity and data privacy issues explode in complexity and public attention.  As discussed in past updates, OCR continues to issue regular Cybersecurity Newsletters to provide guidance on the specific security measures providers can take to decrease exposure to various security threats and vulnerabilities that exist in the health care sector, and how to reduce breaches of electronic-protected health information (“ePHI”).  HHS has not said that following the measures outlined in these newsletters creates any kind of safe harbor; rather, the newsletters are designed to “assist” the regulated community to become more knowledgeable about risk areas.   Brief summaries of the newsletters that have been issued in the second half of this year are below; for those issued in the first half of the year, see the 2018 Mid-Year Update. The July newsletter discusses the importance of disposing of electronic devices in a secure manner, since improper disposal of these devices and media puts the information stored on these items, which may be ePHI, at risk of a potential breach.[97]  The newsletter reminds readers that HIPAA-covered entities and business associates are required to implement policies and procedures regarding the disposal and re-use of hardware and electronic media containing ePHI. The August 2018 newsletter reviews considerations for securing electronic media and devices in order to reduce the risk of loss and theft of these items containing ePHI.[98]  The importance of training, inventory, and records of movement is emphasized. The final Cybersecurity Newsletter of 2018, released in October, uses National Cybersecurity Awareness Month to review cybersecurity safeguards, including encryption, social engineering, audit logs, and secure configurations.[99] III.    ANTI-KICKBACK STATUTE DEVELOPMENTS As evidenced by the enforcement decisions summarized above, the AKS remains a primary theory for actions against health care providers, and case law developments in the second half of 2018 continue to impact the risk environment for providers.  At the same time, renewed attention has been paid to the ways in which the AKS prevents the adoption of a value-based care approach.  We discuss important AKS-related regulatory and case developments below. A.    AKS-Related Case Law Similar to the first half of 2018, the second half of 2018 was relatively quiet with respect to AKS case law.  However, there were a few cases of note, including additional guidance interpreting materiality under Escobar.  The AKS prohibits an individual from knowingly or willingly offering, soliciting or receiving  “remuneration” in exchange for referrals of health care items or services reimbursable by federal health care programs.[100]  Courts have interpreted the word “remuneration” broadly to include anything of value.  This trend of broad interpretation continued in State v. MedImmune, Inc.[101]  In that case, the District Court for the Southern District of New York held that the State of New York adequately pled that “the sharing of [personal health information] with specialty pharmacies could plausibly constitute ‘remuneration’ in violation of the federal anti-kickback statute.”[102]  The State had sued MedImmune under the New York False Claims Act based on purported AKS violations, alleging that MedImmune sales personnel would “curry favor” with hospital administrators in exchange for access to confidential personal health information, MedImmune allegedly would pass on to a specialized pharmacy to use in identifying prime candidates for MedImmune’s neonatal respiratory drug.[103]  The ruling joins the growing number of district courts taking a broad approach to the definition of “remuneration” under the AKS at the motion to dismiss stage. In Carrel v. AIDS Healthcare Foundation, Inc.,[104] the Eleventh Circuit held that a nonprofit health care organization can pay a bonus to its employees for referring patients to the organization without violating the AKS.  The relators claimed that the $100 bonuses that the AIDS Healthcare Foundation paid to its employees for patients who completed follow-up procedures at the Foundation constituted kickbacks.  Affirming a ruling by the Southern District of Florida, the court determined that the referral bonus fell within the AKS’s employee safe harbor provision, which protects from AKS enforcement payments from employers to employees in a bona fide employment relationship for items or services payable by federal health care programs.[105]  In its decision, the court noted that the Ryan White Act establishes the referral of patients as a “standalone compensable ‘service’” that is thus covered by the safe harbor’s exemption for payments to employees “in the provision of covered items or services.”[106]  Of note, the DOJ filed a statement of interest in support of the Foundation’s motion to dismiss, maintaining that the Foundation had correctly interpreted the law regarding the safe harbor.[107] In United States ex rel. Capshaw v. White,[108] the court denied the defendant’s motion to dismiss the government’s AKS and FCA claims on materiality grounds, holding that AKS violations are “inherently material” to government payment.[109]  At issue were allegations that the defendants, a physician and nurse who owned a small number of hospice companies, gave remuneration to a home health care company that was struggling financially in exchange for Medicare referrals.  The Northern District of Texas court in White found that the government sufficiently alleged that the defendants violated the AKS through these payments.[110]  In coming to its conclusion, the court cited several reasons.  First, AKS violations in general are not “insubstantial regulatory violation[s]” but rather are “serious, consequential felon[ies]” that carry the possibility of prison terms.[111]  Next, the court noted that the language of the AKS expressly provided that a claim that results from a violation of the AKS “constitutes a false or fraudulent claim.”[112] Third, AKS compliance is a condition of payment under Medicare Part D provider agreements (and under many state Medicaid provider applications).[113]  Based on this reasoning, the court rejected the defendants’ argument that AKS violations are similar to “garden-variety breaches of contract or regulatory violations.”[114]  The court concluded that the principles of materiality espoused in Escobar did not apply to the AKS.[115] B.    Regulatory Developments In August, HHS OIG issued a request for information (“RFI”) to identify ways in which it might modify or add new safe harbors to the AKS and exceptions to the beneficiary inducement provisions of the CMP statute in order to promote care coordination and value-based care initiatives.  The RFI, which is part of HHS OIG’s “Regulatory Sprint to Coordinated Care,” seeks input on regulations that “may act as barriers to coordinated care” or “value-based care.”[116] In its solicitation, HHS OIG identified several categories of particular interest and requested comments that address the following: alternative payment models, arrangements involving innovative technology, or other novel financial arrangements that the industry is interested in pursuing; incentives that industry is interested in providing to beneficiaries to promote care coordination and engagement, or proposals for reduction or elimination of beneficiary cost-sharing obligations; other topics, including current fraud and abuse waivers developed for testing models under the Center for Medicare and Medicaid Innovation, donations for cybersecurity-related items, the Accountable Care Organization Beneficiary Incentive Program, and telehealth technologies; and whether there should be alignment between Stark law exceptions and the AKS safe harbors. In the RFI, HHS OIG stated that it seeks to add new safe harbors in order to promote coordination of care and increase value-based care, while continuing to protect against fraud and abuse.[117]  The comment period closed on October 26, 2018; additional guidance has not been issued. C.    Notable HHS OIG Advisory Opinions During the second half of 2018, HHS OIG issued several AKS advisory opinions that provide useful guidance for health care providers. On July 18, HHS OIG evaluated a proposal by the offeror of Medicare Supplemental Health Insurance (“Medigap”) policies to enter into a preferred network arrangement with hospitals under which it would receive discounts on Medicare inpatient deductibles for its policyholders.[118]  The plan would then provide a credit of $100 to policyholders who used an in-network hospital for their inpatient stay.  HHS OIG determined that the arrangement neither met the requirements for protection under the safe harbor for waivers of beneficiary coinsurance and deductible amounts, nor the safe harbor for reduced premium amounts offered by health care plans.[119]  However, despite the lack of safe harbor protection, HHS OIG concluded that the proposal presented a low risk under the AKS, reasoning that the arrangement (i) would not impact per-service Medicare payments, (ii) was unlikely to prompt overutilization, (iii) would not unfairly affect competition among hospitals, (iv) was unlikely to impact clinical decision-making by providers, and (v) would operate transparently.[120]  On August 21 and October 29, HHS OIG approved two substantially similar arrangements involving Medigap policies under the same reasoning as set forth above.[121] On August 6, 2018, HHS OIG evaluated a proposal by a Group Purchasing Organization (“GPO”) to serve as the purchase agent for health care facilities that share a common parent organization with the GPO, referred to as “Affiliated Facilities.”[122]  The services the GPO provides for its current members extend beyond typical products and services to include negotiating discounts for IT platforms, emergency department staffing, physician recruitment, and telemedicine consults.[123]  Although HHS OIG concluded that the arrangement did not meet the GPO safe harbor, it concluded that the arrangement “would not materially increase the risk of fraud and abuse” under the AKS, reasoning that the majority of the GPO’s members would still be unrelated to the GPO and distinguishing the arrangement from suspect arrangements under which a wholly-owned subsidiary under a single corporate entity is essentially seeking referral fees.[124]  HHS OIG also noted that the larger volume might increase the GPO’s ability to obtain lower prices on goods and services.[125] In an advisory opinion issued on October 11, HHS OIG evaluated a health plan’s “proposal to pay providers and clinics to increase the amount of Early Periodic Screening, Diagnostic, and Treatment services” that they provide to Medicaid beneficiaries, finding that the proposed arrangement satisfied the safe harbor for eligible managed care organizations.[126]  In its opinion, HHS OIG explained that the safe harbor is satisfied because the plan is an eligible managed care organization, has an appropriate agreement to provide services, and the arrangement could help achieve the goal of increasing early diagnosis and treatment of health problems.[127] On November 13, HHS OIG found that a manufacturer’s proposal to provide free doses of its drug to hospitals to treat inpatients could constitute improper remuneration under the AKS.[128]  The company proposed to stock the drug at participating hospitals on a consignment basis, under which physicians seeking to prescribe the drug would submit a referral to the drug’s reimbursement hub and initiate therapy using the free vial.[129]  The reimbursement hub would provide additional free vials if needed for inpatient use and would provide the same for outpatients unable to secure insurance coverage for the drug.[130] Considering publicly available information outside of the materials submitted by the drug company, HHS OIG offered several reasons for its negative opinion.  HHS OIG’s reasons included: (i) the proposed arrangement “would relieve a hospital of a significant financial obligation that [it] otherwise would incur” in light of the “substantial price increases” for the drug in recent years; (ii) the savings to the hospital would not be passed on to the government, since the drug is not separately reimbursable in the inpatient setting; (iii) the proposal “could function as a seeding arrangement” because insurers, including federal health care programs, may end up paying for the drug when insured patients need to finish the treatment on an outpatient basis, and because providing the free drug to inpatients “facilitates [the] high price for the Drug’s other indications”; (iv) it “could result in steering or unfair competition” by encouraging hospitals to “influence prescribers to consider the Drug as a first option”; and (v) two of the barriers cited by the drug company (delayed access to the product and unwillingness to bear excess inventory risks) could be eliminated by stocking the drug on consignment basis without also providing the drug for free.  Significantly, HHS OIG also rejected the idea that the free vials would not be contingent on future purchases, explaining that patients would need to continue treatment with the drug as outpatients to avoid adverse medical consequences from halting the treatment they began for free on an inpatient basis.[131] IV.    STARK LAW DEVELOPMENTS The physician self-referral law, or Stark Law, imposes strict liability on any physician who makes referrals for certain health services to an entity with which the physician or his or her immediate family member has a “financial relationship,” or bills the government for any such referred services.  The Stark Law was enacted in an effort to “disconnect a physician’s health care decision making from his or her financial interests in other health care providers,” with the ultimate goal of ensuring that patients were presented with the best value and quality options.  In the time since the bill’s passage in 1989, industry stakeholders have realized that the Stark Law’s broad conception of a “financial relationship” and narrow, enumerated exceptions has the undesired effect of limiting innovative, high-value, cost-effective health care arrangements.  As discussed in our previous alerts, Stark Law reform is a common topic, and is receiving new attention under the Trump Administration.  CMS Administrator Seema Verma promised action on Stark Law reform and announced she hoped to issue proposed regulations loosening physician self-referral regulations by the end of 2018.  While proposed regulations are not yet available, regulatory and legislative developments indicate that reform may be on the horizon. A.    Regulatory and Legislative Updates As part of HHS’s “Regulatory Sprint” to improve coordinated care by identifying and eliminating regulatory obstacles, CMS published an RFI in June 2018 seeking “input from the public on how to address any undue regulatory impact and burden of the physical self-referral law.”[132]  To aid in assessment of existing obstacles, CMS invited broad comments on the Stark Law and its impacts and burdens, including feedback on the following: Existing or potential arrangements that involve designated health service (“DHS”) entities and referring physicians that participate in “alternative payment models or other novel financial arrangements,” regardless of whether such models and financial arrangements are sponsored by CMS; Exceptions to the Stark Law that would protect financial arrangements between DHS entities and referring physicians who participate in the same alternative payment model; Exceptions to the Stark Law that would protect financial arrangements that involve “integrating and coordinating care outside of an alternative payment model”; and Addressing the application of the Stark Law to financial arrangements among providers in “alternative payment models and other novel financial arrangements.”[133] Over the course of the two-month comment period, 375 responses poured in from industry stakeholders.[134]  CMS has not yet officially responded to the comments received, but a proposed regulation is anticipated sometime in 2019. On the legislative front, President Trump’s budget for Fiscal Year 2019 specifically included a legislative proposal to establish a new Stark Law exception for referral arrangements arising from an alternative payment model.[135] In December, the Administration published a report entitled “Reforming America’s Healthcare System Through Choice and Competition,” calling for a widespread loosening of federal and  state laws and regulations that impact the health care markets.  Among the solutions proposed in the report was a recommendation to repeal restrictions on the opening and expansion of physician-owned hospitals, restrictions that had been put in place under the Affordable Care Act.[136] B.    Notable Stark Law Enforcement The DOJ entered into two notable Stark Law settlements in the second half of 2018. In August, a Detroit-area hospital system agreed to pay $84.5 million to settle federal and state allegations that it offered financial incentives to physicians in return for patient referrals.[137]  As part of a CIA entered with HHS OIG, the hospital also agreed to a five-year independent outside review of its referral arrangements.  The case arose from four different cases brought in 2010 and 2011, which alleged that the hospital provided free or below-fair-market-value office space to a group of physicians, to induce referrals.[138] A health system serving patients in Illinois and parts of Wisconsin and Michigan agreed in December to pay $12 million to the United States and the State of Wisconsin to settle allegations that it violated the Stark Law by entering into unjustifiable compensation arrangements with two cardiologists.[139]  The DOJ alleged that the health system offered the physicians a compensation package above fair market value that accounted for anticipated future referrals from those physicians. V.    CONCLUSION We anticipate a variety of interesting and notable developments in 2019, as the DOJ and HHS continue to define their priorities and undertake enforcement actions.  We look forward to updating you on the latest in our 2019 Mid-Year Alert.  In the meantime, we welcome the opportunity to speak with you about these updates or any other related issues. [1] See U.S. Dep’t of the Treasury, Reforming America’s Healthcare System Through Choice and Competition (Dec. 2018), https://home.treasury.gov/system/files/136/Reforming_Americas_Healthcare_System_Through_Choice_and_Competition.pdf [hereinafter “Reforming Healthcare Report”]. [2] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Deputy Associate Attorney General Stephen Cox Delivers Remarks at the 2019 Advanced Forum on False Claims and Qui Tam Enforcement (Jan. 28, 2019), https://www.justice.gov/opa/speech/deputy-associate-attorney-general-stephen-cox-delivers-remarks-2019-advanced-forum-false. [3] Id. [4] See  Rod J. Rosenstein,  Deputy Att’y General, Remarks at the American Conference Institute’s 35th International Conference on the Foreign Corrupt Practices Act (Nov. 29, 2018), https://www.justice.gov/opa/speech/deputy-attorney-general-rod-j-rosenstein-delivers-remarks-american-conference-institute-0. [5] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Medicare Advantage Provider to Pay $270 Million to Settle False Claims Act Liabilities (Oct. 1, 2018), https://www.justice.gov/opa/pr/medicare-advantage-provider-pay-270-million-settle-false-claims-act-liabilities. [6] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Hospital Chain Will Pay Over $260 Million to Resolve False Billing and Kickback Allegations; One Subsidiary Agrees to Plead Guilty (Sept. 25, 2018), https://www.justice.gov/opa/pr/hospital-chain-will-pay-over-260-million-resolve-false-billing-and-kickback-allegations-one [hereinafter “HMA Settlement”] (the hospital chain also agreed to pay $216 as part of a related civil settlement). [7] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Detroit Area Hospital System to Pay $84.5 Million to Settle False Claims Act Allegations Arising From Improper Payments to Referring Physicians” (Aug. 2, 2018), https://www.justice.gov/opa/pr/detroit-area-hospital-system-pay-845-million-settle-false-claims-act-allegations-arising. [8] E.g., Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Banner Health Agrees to Pay Over $18 Million to Settle False Claims Act Allegations (Apr. 12, 2018), https://www.justice.gov/opa/pr/banner-health-agrees-pay-over-18-million-settle-false-claims-act-allegations; Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Signature HealthCARE to Pay More Than $30 Million to Resolve False Claims Act Allegations Related to Rehabilitation Therapy (June 8, 2018), https://www.justice.gov/opa/pr/signature-healthcare-pay-more-30-million-resolve-false-claims-act-allegations-related. [9] Note that the number of claims is greater than the number of cases because many cases involve more than one theory of liability. [10] The 2016 numbers (33 out of 146 claims, or 23%), are closer to those from this year. [11] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Early Autism Project, Inc., South Carolina’s Largest Provider of Behavioral Therapy for Children with Autism, Pays the United States $8.8 Million to Settle Allegations of Fraud (Aug. 2, 2018), https://www.justice.gov/usao-sc/pr/early-autism-project-inc-south-carolinas-largest-provider-behavioral-therapy-children. [12] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, United States Reaches Settlement With Maryland Healthcare Providers To Settle False Claims Allegations Relating To In Office Testing (Mar. 16, 2018), https://www.justice.gov/usao-md/pr/united-states-reaches-settlement-maryland-healthcare-providers-settle-false-claims-act. [13] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Medicare Advantage Provider to Pay $270 Million to Settle False Claims Act Liabilities (Oct. 1, 2018), https://www.justice.gov/opa/pr/medicare-advantage-provider-pay-270-million-settle-false-claims-act-liabilities. [14] Id. [15] 136 S. Ct. 1989 (2016). [16] See United States ex rel. Nargol v. DePuy Orthopaedics, Inc, 865 F.3d 29 (1st Cir. 2017); Coyne v. Amgen, Inc, No. 17-1522-cv, 2017 WL 6459267 (2nd Cir. Dec. 18, 2017); United States ex rel. Petratos v. Genentech Inc., 855 F.3d 481 (3d Cir. 2017). [17] See United States ex rel. Campie v. Gilead Sciences, Inc., 862 F.3d 890, 907 (9th Cir. 2017). [18] United States ex rel. Ruckh v. Salus Rehabilitation, LLC, 304 F. Supp. 3d 1258 (M.D. Fla. 2018). [19] See Brief for the United States of America as Amicus Curiae in Support of Appellant, Angela Ruckh v. Salus Rehabilitation, LLC, et al, No. 18-10500 (11th Cir. July 20, 2018). [20] See id. at 19. [21] See Pet. for a Writ of Cert., Gilead Sciences Inc. v. United States ex rel. Campie (filed Dec. 26, 2017). [22] See Brief for the United States of America as Amicus Curiae, Gilead Sciences Inc. v. United States ex rel. Campie, No. 17-936 (Nov. 30, 2018). [23] Id. [24] See Pet. for a Writ of Cert., Brookdale Senior Living Communities, Inc. v. U.S. ex rel. Prather (filed Dec. 26, 2017). [25] See United States ex rel. Prather v. Brookdale Senior Living Communities, Inc., 265 F. Supp. 3d 782, 787-90 (M.D. Tenn. 2017), rev’d and remanded sub nom. United States v. Brookdale Senior Living Communities, Inc., 892 F.3d 822 (6th Cir. 2018). [26] See Brookdale Senior Living, 265 F. Supp. 3d at  801. [27] See Brookdale Senior Living, 892 F.3d at 836. [28] See Pet. for a Writ of Cert., Brookdale Senior Living Communities, Inc. v. U.S. ex rel. Prather (filed Nov. 20, 2018). [29] 31 USC § 3731(b)(2). [30] 887 F.3d 1081 (11th Cir. 2018).  Gibson Dunn is handling this case. [31] See United States ex rel. Malloy v. Telephonics Corp., 68 F. App’x 270 (3d Cir. 2003); United States ex rel. Hyatt v. Northrop Corp., 91 F.3d 1211 (9th Cir. 1996). [32] See United States ex rel. Sanders v. N. Am. Bus Indus., Inc., 546 F.3d 288 (4th Cir. 2008); United States ex rel. Sikkenga v. Regence BlueCross BlueShield of Utah, 472 F.3d 702 (10th Cir. 2006). [33] See Order Granting Plaintiffs Partial Summary Judgment, Texas et al. v. United States of America et al, No. 4:18-cv-00167-O (N.D. Tex. Dec. 14, 2018). [34] 567 U.S. 519 (2012). [35] Id. at 2. [36] See id. at 55. [37] See Intervenor-Defendants’ Notice of Appeal, Texas et al. v. United States of America et al., No. 4:18-cv-00167-O (filed Jan. 3, 2019). [38] See Order Granting Stay and Partial Final Judgment, Texas et al. v. United States of America et al., No. 4:18-cv-00167-O (N.D. Tex. Dec. 30, 2018). [39] See Complaint, Maryland v. U.S. et al., No. 1:18-cv-02849 (D. Md. 2018). [40] Id. [41] See Memorandum Opinion, Maryland v. U.S. et al., No. 1:18-cv-02849 (D. Md. Feb. 1, 2018). [42] See Press Release, Office of Pub. Affairs, US Dep’t of Justice, Justice Department Takes First-of-its-Kind-Legal Action to Reduce Opioid Over-Prescription (Aug. 22, 2018), https://www.justice.gov/opa/pr/justice-department-takes-first-its-kind-legal-action-reduce-opioid-over-prescription. [43] Id. [44] Id. [45] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Two Chinese Nationals Charged with Operating Global Opioid and Drug Manufacturing Conspiracy Resulting in Deaths (Aug. 22, 2018), https://www.justice.gov/opa/pr/two-chinese-nationals-charged-operating-global-opioid-and-drug-manufacturing-conspiracy. [46] Id. [47] Id. [48] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Attorney General Sessions Delivers Remarks at the Office of Justice Programs’ National Institute of Justice Opioid Research Summit (Sept. 25, 2018), https://www.justice.gov/opa/speech/attorney-general-sessions-delivers-remarks-office-justice-programs-national-institute. [49] Id. [50] Id. [51] Id. [52] See Press Release, Office of Pub. Affairs, US Dep’t of Justice, Justice Department is Awarding Almost $320 Million to Combat Opioid Crisis (Oct. 1, 2018), https://www.justice.gov/opa/pr/justice-department-awarding-almost-320-million-combat-opioid-crisis. [53] See U.S. Dep’t of Health & Human Servs., Office of the Inspector Gen., Semiannual Report to Congress (Apr. 1 to Sept. 30, 2018), at 4, https://oig.hhs.gov/reports-and-publications/archives/semiannual/2018/2018-fall-sar.pdf [hereinafter 2018 SA Report]. [54] See U.S. Dep’t of Health & Human Servs., Office of the Inspector Gen., Semiannual Report to Congress (Apr. 1 to Sept. 30, 2017), at 4, https://oig.hhs.gov/reports-and-publications/archives/semiannual/2017/sar-fall-2017.pdf [hereinafter 2017 SA Report]; U.S. Dep’t of Health & Human Servs., Office of the Inspector Gen., Semiannual Report to Congress (Apr. 1 to Sept. 30, 2016), at iv, https://oig.hhs.gov/reports-and-publications/archives/semiannual/2016/sar-fall-2016.pdf [hereinafter 2016 SA Report]. [55] 2016 SA Report, supra n.54, at iv. [56] 2018 SA Report, supra n.53, at 4; 2017 SA Report, supra n.54, at 32; U.S. Dep’t of Health & Human Servs., Office of the Inspector Gen., Semiannual Report to Congress (Oct. 1 to Mar. 31, 2017), at ix, https://oig.hhs.gov/reports-and-publications/archives/semiannual/2017/sar-spring-2017.pdf [hereinafter 2017 Midyear SA Report]. Approximately $600,000 in audit receivables were reported in Fiscal Year 2017, compared with $521 million in Fiscal Year 2018. See 2017 SA Report, supra n.54, at 67; 2017 Midyear SA Report at 40; ; 2018 SA Report, supra n.53, at 4. [57] 2018 SA Report, supra n.53, at 4. [58] 2017 SA Report, supra n.54, at 4. [59] See Office of Information & Regulatory Affairs, Office of Management & Budget, Agency Rule List – Fall 2018,  https://www.reginfo.gov/public/do/eAgendaMain?operation=OPERATION_GET_AGENCY_RULE_LIST&currentPub=true&agencyCode=&showStage=active&agencyCd=0900 (last visited Jan. 5, 2019). [60] See Ctrs. for Medicare & Medicaid Servs., Fact Sheet: Fiscal Year (FY) 2019 Medicare Hospital Inpatient Prospective Payment System (IPPS) and Long-Term Acute Care Hospital (LTCH) Prospective Payment System Final Rule (CMS-1694-F) (Aug. 2, 2018), https://www.cms.gov/newsroom/fact-sheets/fiscal-year-fy-2019-medicare-hospital-inpatient-prospective-payment-system-ipps-and-long-term-acute-0. [61] Id. [62] See Ctrs. for Medicare & Medicaid Servs., Fact Sheet: Final Policy, Payment, and Quality Provisions Changes to the Medicare Physician Fee Schedule for Calendar Year 2019 (Nov. 1, 2018), https://www.cms.gov/newsroom/fact-sheets/final-policy-payment-and-quality-provisions-changes-medicare-physician-fee-schedule-calendar-year. [63] U.S. Dep’t of Health & Human Servs., Office of Inspector Gen., 2018 Top Management and Performance Challenges, available at https://oig.hhs.gov/reports-and-publications/top-challenges/2018/2018-tmc.pdf [hereinafter TMPC Report]. [64] Id. [65] Id. [66] Id. [67] 42 U.S.C. § 1320a-7a. [68] 2018 SA Report, supra n.53, at 4; 2017 SA Report, supra n.54, at 4. [69] U.S. Dep’t of Health & Human Servs., Office of the Inspector Gen., LEIE Downloadable Databases, http://oig.hhs.gov/exclusions/exclusions_list.asp (last visited Jan. 4, 2019). [70] Id. [71] Id. [72] Data gathered through HHS OIG press releases and publicly available information. See generally U.S. Dep’t of Health & Human Servs., Office of the Inspector Gen., Civil Monetary Penalties and Affirmative Exclusions, http://oig.hhs.gov/fraud/enforcement/cmp/index.asp (last visited Jan. 4, 2019) [hereinafter CMP Assessments]; U.S. Dep’t of Health & Human Servs., Office of the Inspector Gen., Provider Self-Disclosure Settlements, http://oig.hhs.gov/fraud/enforcement/cmp/psds.asp (last visited Jan. 4, 2019) [hereinafter Provider Self-Disclosure Settlements]. [73] See id. [74] Id. [75] See U.S. Dep’t of Health & Human Servs., Office of Inspector Gen., Corporate Integrity Agreement Documents, https://oig.hhs.gov/compliance/corporate-integrity-agreements/cia-documents.asp (last visited Jan. 6, 2019). [76] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, AmerisourceBergen Corp. To Pay $625 Million To Settle Civil Fraud Allegations Resulting From Its Repackaging And Sale Of Adulterated Drugs And Unapproved New Drugs, Double Billing And Providing Kickbacks (Oct. 1, 2018), https://www.justice.gov/usao-edny/pr/amerisourcebergen-corp-pay-625-million-settle-civil-fraud-allegations-resulting-its [hereinafter “ABC Settlement”]. [77] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Mylan Agrees to Pay $465 Million to Resolve False Claims Act Liability for Underpaying EpiPen Rebates (Aug. 17, 2017), https://www.justice.gov/opa/pr/mylan-agrees-pay-465-million-resolve-false-claims-act-liability-underpaying-epipen-rebates. [78] See ABC Settlement, supra n.76. [79] See AmerisourceBergen Corporation Corporate Integrity Agreement (Sept. 27, 2018), https://www.justice.gov/ usao-edny/press-release/file/1097511/download. [80] Id. [81] Id. [82] Id. [83] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Post Acute Medical Agrees to Pay More Than $13 Million to Settle Allegations of Kickbacks and Improper Physician Relationships (Aug. 15, 2018), https://www.justice.gov/opa/pr/post-acute-medical-agrees-pay-more-13-million-settle-allegations-kickbacks-and-improper. [84] Id. [85] Id. [86] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Vascular Access Centers to Pay at Least $3.825 Million to Resolve False Claims Act Allegations (Oct. 23, 2018), https://www.justice.gov/opa/pr/vascular-access-centers-pay-least-3825-million-resolve-false-claims-act-allegations. [87] Id. [88] See HMA Settlement, supra n.6. [89] Id. [90] Press Release, Ctrs. for Medicare & Medicaid Servs., Market Saturation and Utilization Data Tool (Oct. 29 2018), https://www.cms.gov/newsroom/fact-sheets/market-saturation-and-utilization-data-tool-4. [91] Press Release, Ctrs. for Medicare & Medicaid Servs., Market Saturation and Utilization Data Tool (April 13, 2018), https://www.cms.gov/newsroom/fact-sheets/market-saturation-and-utilization-data-tool. [92] 83 Fed. Reg. 37747 (Aug. 2, 2018), https://www.federalregister.gov/documents/2018/08/02/2018-16547/medicare-medicaid-and-childrens-health-insurance-programs-announcement-of-the-extension-of-temporary. [93] U.S. Dep’t of Health & Human Servs., Health Information Privacy, Enforcement Highlights (Jan. 31, 2019), https://www.hhs.gov/hipaa/for-professionals/compliance-enforcement/data/enforcement-highlights/index.html. [94] Data gathered through HHS press releases and other publicly available information. See generally U.S. Dep’t of Health & Human Servs., HIPAA News Releases & Bulletins, https://www.hhs.gov/hipaa/newsroom (last visited Jan. 7, 2019). [95] Id. [96] Id. [97] U.S. Dep’t of Health & Human Servs., Office of Civil Rights, Guidance on Disposing of Electronic Devices and Media (July 2018), https://www.hhs.gov/sites/default/files/cybersecurity-newsletter-july-2018-Disposal.pdf. [98] U.S. Dep’t of Health & Human Servs., Office of Civil Rights, Considerations for Securing Electronic Media and Devices (Aug. 2018), https://www.hhs.gov/sites/default/files/cybersecurity-newsletter-august-2018-device-and-media-controls.pdf. [99] U.S. Dep’t of Health & Human Servs., Office of Civil Rights, National Cybersecurity Awareness Month (Oct. 2018), https://www.hhs.gov/sites/default/files/cybersecurity-newsletter-october-2018-cybersecurity-month.pdf. [100] 42 U.S.C. § 1320a-7b(b). [101] 342 F. Supp. 3d 544, (S.D.N.Y Sept. 2018). [102] Id. at 553. [103] Id. at 549. [104] Carrel v. AIDS Healthcare Foundation, Inc., 898 F.3d 1267 (11th Cir. 2018). [105] Id. at 1272-75. [106] Id. at 1273. [107] Id. at 1271. [108] United States ex rel. Capshaw v. White, No. 3:12-CV-4457-N, 2018 WL 6068806 (N.D. Tex. Nov. 20, 2018). [109] Id. at *4 (internal quotation marks omitted). [110] Id. at *3. [111] Id. at *4 (internal citations and quotation marks omitted). [112] Id. (internal citations and quotation marks omitted). [113] Id. [114] Id. [115] Id. [116] Medicare and State Health Care Programs: Fraud and Abuse; Request for Information Regarding the Anti-Kickback Statute and Beneficiary Inducements CMP, 83 Fed. Reg. 43607 (Aug. 27, 2018), https://www.federalregister.gov/documents/2018/08/27/2018-18519/medicare-and-state-health-care-programs-fraud-and-abuse-request-for-information-regarding-the. [117] Id. at 43609-11. [118] U.S. Dep’t of Health & Human Servs., Office of Inspector Gen., OIG Advisory Op. 18-06 at 2-3 (July 18, 2018), https://oig.hhs.gov/fraud/docs/advisoryopinions/2018/AdvOpn18-06.pdf. [119] Id. at 5. [120] Id. at 5-6. [121]  See U.S. Dep’t of Health & Human Servs., Office of Inspector Gen., OIG Advisory Op. 18-09 (Aug, 21, 2018), https://oig.hhs.gov/fraud/docs/advisoryopinions/2018/AdvOpn18-09.pdf; U.S. Dep’t of Health & Human Servs., Office of Inspector Gen., OIG Advisory Op. 18-12  (Oct. 29, 2018), https://oig.hhs.gov/fraud/docs/advisoryopinions/2018/AdvOpn18-12.pdf. [122] U.S. Dep’t of Health & Human Servs., Office of Inspector Gen., OIG Advisory Op. 18-07 at 2-3 (Aug. 6, 2018), https://oig.hhs.gov/fraud/docs/advisoryopinions/2018/AdvOpn18-07.pdf. [123] Id. [124] Id. at 6-7. [125] Id. [126] U.S. Dep’t of Health & Human Servs., Office of Inspector Gen., OIG Advisory Op. 18-11 at 9 (Oct. 11, 2018), https://oig.hhs.gov/fraud/docs/advisoryopinions/2018/AdvOpn18-11.pdf. [127] Id. at 6-9. [128] U.S. Dep’t of Health and Human Servs., Office of Inspector Gen., OIG Advisory Op. 18-14, at 1-2 (Nov. 13, 2018), https://oig.hhs.gov/fraud/docs/advisoryopinions/2018/AdvOpn18-14.pdf. [129] Id. at 4. [130] Id. [131] Id. at 10-12. [132] U.S. Dep’t of Health & Human Servs., Ctrs. for Medicare & Medicaid Svcs., Medicare Program; Request for Information Regarding the Physician Self-Referral Law, 83 Fed. Reg. 29524, 29524 (June 25, 2018), https://www.govinfo.gov/content/pkg/FR-2018-06-25/pdf/2018-13529.pdf. [133] Id. at 29525-26 [134] Roxanna Guilford-Blake, Sprinting Toward Value: HHS & Congress May Be Ready to Reconsider the Stark Law, Cardiovascular Business (Nov. 18, 2018), https://www.cardiovascularbusiness.com/topics/healthcare-economics/sprinting-toward-value-hhs-congress-may-be-ready-reconsider-stark-law. [135] 83 Fed. Reg. at 29525. [136] See Reforming Healthcare Report, supra n.1, at 73-74. [137] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Detroit Area Hospital System to Pay $84.5 Million to Settle False Claims Act Allegations Arising from Improper Payments to Referring Physicians (Aug. 2, 2018), https://www.justice.gov/opa/pr/detroit-area-hospital-system-pay-845-million-settle-false-claims-act-allegations-arising. [138] Id. [139] Press Release, U.S. Atty’s Off., U.S. Dep’t of Justice, E.D. Wis., Aurora Health Care, Inc. Agrees to Pay $12 Million to Settle Allegations Under the False Claims Act and the Stark Law (Dec. 11, 2018), https://www.justice.gov/usao-edwi/pr/aurora-health-care-inc-agrees-pay-12-million-settle-allegations-under-false-claims-act. The following Gibson Dunn lawyers assisted in the preparation of this client update:  Stephen Payne, John Partridge, Jonathan Phillips, Julie Rapoport Schenker, Claudia Kraft, Maya Nuland, Stevie Pearl, Susanna Schuemann, Margo Uhrman, and Madelyn La France. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments.  Please contact the Gibson Dunn lawyer with whom you usually work or any of the following: Washington, D.C. Stephen C. Payne, Chair, FDA and Health Care Practice Group (+1 202-887-3693, spayne@gibsondunn.com) F. Joseph Warin (+1 202-887-3609, fwarin@gibsondunn.com) Marian J. Lee (+1 202-887-3732, mjlee@gibsondunn.com) Daniel P. Chung (+1 202-887-3729, dchung@gibsondunn.com) Jonathan M. Phillips (+1 202-887-3546, jphillips@gibsondunn.com) Los Angeles Debra Wong Yang (+1 213-229-7472, dwongyang@gibsondunn.com) San Francisco Charles J. Stevens (+1 415-393-8391, cstevens@gibsondunn.com) Winston Y. Chan (+1 415-393-8362, wchan@gibsondunn.com) New York Alexander H. Southwell (+1 212-351-3981, asouthwell@gibsondunn.com) Denver Robert C. Blume (+1 303-298-5758, rblume@gibsondunn.com) John D. W. Partridge (+1 303-298-5931, jpartridge@gibsondunn.com) © 2019 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, 2019 |
The Legalization of Hemp

Washington, D.C. partner Marian J. Lee is the author of “The Legalization of Hemp” [PDF] published in the February/March 2019 issue of the Food and Drug Law Institute’s Update magazine. This article is posted with the permission of the Food and Drug Law Institute.

February 12, 2019 |
2018 Year-End FDA and Health Care Compliance and Enforcement Update – Drugs and Devices

Click for PDF Last January, we observed that the new administration had yet to upend pre-existing enforcement and regulatory trends in the pharmaceutical and medical device industries.  But in the past 12 months several Trump administration priorities began to coalesce.  From initiatives to address the opioid epidemic, to efforts to police patient assistance programs, to attempts to depress pharmaceutical prices, 2018 saw significant governmental attention to drug and device companies. Not all of the administration’s attention is unwanted.  Notably, there have been a few signs of scaled-back executive enforcement and regulatory activity impacting drug and device companies.  For example, in December, the Department of Justice (“DOJ”) moved to dismiss nearly a dozen qui tam suits brought against pharmaceutical companies under the False Claims Act (“FCA”), carrying into action recent, well-publicized policy shifts at DOJ with regard to FCA actions.  In moving to dismiss those suits, DOJ observed that the relator’s theories threatened to “undermine common industry practices [that] the federal government has determined are . . . appropriate and beneficial to federal healthcare programs and their beneficiaries.”[1]  Meanwhile, the U.S. Food and Drug Administration (“FDA”) clearly has recalibrated its enforcement efforts with respect to promotional activities by drug and device companies.  While Congress failed to make any significant progress toward implementing long-promised legislation regarding off-label promotion, FDA finally issued two pertinent guidance documents on that issue in June. On the other hand, although financial recoveries from actions or investigations involving drug and device makers initiated by DOJ, the Department of Health and Human Services, Office of Inspector General (“HHS OIG”), and FDA started slowly in 2018, the latter half of the year saw several large settlements.  DOJ employed aggressive law enforcement tactics to combat opioid abuse, targeting a range of individuals and entities.  Notably, DOJ leveraged the FCA and the Anti-Kickback Statute to investigate and bring suits against opioid manufacturers and distributors.  Further, DOJ did not pull any punches with respect to drug companies’ patient assistance programs.  FDA enforcement actions relating to promotional activity remained relatively consistent with past years, focusing on only the most flagrant cases of deceptive advertising.  But FDA continued to crack down on issues related to current good manufacturing practices and focused, in particular, on concerns with quality and data integrity issues.  We anticipate that these 2018 priorities will continue to drive DOJ and FDA activity in 2019. In the new year, we anticipate that the new majority in the House of Representatives will amp up the pressure on pharmaceutical companies, in particular.  According to the House Committee on Oversight and Reform, the Committee already has “launched one of the most wide-ranging investigations in decades into the prescription drug industry’s pricing practices,” beginning with requests for detailed information and documents regarding pricing practices from 12 drug companies.[2]  But other regulatory tea leaves for 2019 are more difficult to read because of the government shutdown, which forced FDA to furlough approximately 40% of its employees at the time.  Although the agency publicly announced it would continue “vital activities . . . that are critical to ensuing public health and safety,” such as screening imported products, recalls, and pursuit of civil and criminal investigations where “public health is imminently at risk,” the shutdown halted FDA’s more routine enforcement actions and regulatory activity (e.g., issuing guidance documents) during that period.[3] We address each of these important enforcement and regulatory developments in the drug and device space below, beginning with an overview of recent government enforcement efforts and FCA jurisprudence, then moving to relevant regulatory guidance and activity regarding promotional activities, manufacturing practices, and the AKS, and concluding with notable developments on drug pricing and for device manufacturers. As always, we would welcome the opportunity to discuss the impact of these developments with you in more detail.  Additional presentations and publications on regulatory and enforcement issues impacting drug and device makers are available on our website, including industry-specific webcasts with more in-depth discussions of the FCA and practical guidance to help companies avoid or limit legal exposure. I.    DOJ ENFORCEMENT IN THE PHARMACEUTICAL AND MEDICAL DEVICE INDUSTRIES FCA resolutions delivered the bulk of financial recoveries against drug and device companies in 2018.  DOJ also brought several federal Food, Drug, and Cosmetic Act (“FDCA”) enforcement actions, but Foreign Corrupt Practices Act (“FCPA”) activity in the drug and device space remained relatively quiet this past year. As the new year progresses, we expect to see the continued impact of two memoranda on DOJ enforcement efforts issued last January by the then-Associate Attorney General, Rachel Brand, (the so-called “Brand Memo”) and the Director of DOJ’s Civil Division’s Fraud Section, Michael Granston (the “Granston Memo”).  As we detailed in our client alert, DOJ Policy Statements Signal Changes in False Claims Act Enforcement, the Brand Memo bars DOJ attorneys from using guidance documents to “create binding requirements that do not already exist by statute or regulation,” and from using DOJ’s “enforcement authority to effectively convert agency guidance documents into binding rules.”[4]  But the Brand Memo acknowledges that federal prosecutors may use such guidance as evidence of scienter (e.g., as proof that a defendant knew of obligations under the law).[5] Many agencies, including FDA (in the off-label and quality and manufacturing space) and HHS OIG (in the application of the AKS), routinely issue guidance documents interpreting relevant legislation and regulations.  DOJ historically relied on these guidance documents to bolster claims that the actions of a drug or device maker violated a particular statute or regulation and thus resulted in “false” claims under the FCA.  Under the Brand Memo, DOJ will have to identify other means to support its allegations, and this may well constrain enforcement activity. The Granston Memo directs government lawyers evaluating whether to decline to intervene in a qui tam FCA action to “consider whether the government’s interests are served” by dismissal of the underlying qui tam claims pursuant to 31 U.S.C. § 3730(c)(2)(A) based on seven enumerated factors.[6]  DOJ’s rollout of an updated United States Attorneys’ Manual—now entitled the Justice Manual—builds on that initiative.  Indeed, the Justice Manual appears to incorporate the Granston Memo’s rubric by encouraging government lawyers to evaluate a non-exhaustive list of factors (any one of which may support dismissal) when assessing whether to intervene.[7] Taken together, these policy statements indicate that DOJ intends to hew more closely to constitutionally defined bounds for the executive branch and to employ more judicious enforcement of the FCA—both welcome developments for drug and device manufacturers.  As detailed further below, DOJ sought to dismiss a dozen qui tam suits in this past year, thereby executing on the policies embodied by the Granston Memo and the revisions to the Justice Manual. One additional DOJ policy development merits attention.  In September 2015, then-Deputy Attorney General Sally Yates issued a memorandum (the so-called “Yates Memo”) stating that corporations must provide “all relevant facts” about individuals involved in misconduct.[8]  Unlike the Granston Memo, which has had a quick impact on multiple qui tam suits, the Yates Memo had a less evident impact on drug and device companies.  Nevertheless, the requirement that a company identify and provide evidence on all potentially culpable individuals struck many as a significant burden.  In a speech in November 2018, Deputy Attorney General Rod Rosenstein announced a fine-tuning of the Yates Memo’s requirements.  Under the new DOJ policy, companies seeking cooperation credit must only identify individuals who were “substantially involved in or responsible for the criminal conduct” under investigation in white-collar investigations.[9] A.    False Claims Act This year, DOJ recovered more than $1.1 billion from 19 FCA-related settlements with companies in the drug and device industries.  Although DOJ’s civil recoveries through the first half of 2018 were less than a quarter of what they were at the same time last year, two large-scale settlements with pharmaceutical companies in the second half of the year pushed the total recoveries from resolutions with drug and device manufacturers closer to last year’s total of approximately $1.4 billion. As illustrated below, DOJ settled 13 matters with device manufacturers (including two with AngioDynamics) and only six with pharmaceutical companies.  Despite this disparity, the vast majority of DOJ’s settlement recoveries, roughly 90%, resulted from the investigations involving pharmaceutical companies.  Recoveries in 2018 (like 2017) came almost exclusively from actions pursued under improper billing and AKS theories.[10] 1.    Settlements in FCA Matters Relating to Patient Assistance Programs The second largest settlement in 2018 resulted from a DOJ investigation into a pharmaceutical company’s financial ties to nonprofit patient assistance programs, which help needy patients access free or low-cost medications.  Further, over the past year, a second pharmaceutical company disclosed a resolution tied to a similar investigation, and two other companies disclosed resolutions in principle.  These resolutions follow United Therapeutics Corp.’s $210 million settlement in December 2017, discussed in our 2017 Year-End Update. As we reported last year, government scrutiny of patient assistance programs is a relatively recent development in the enforcement arena.  Companies have supported patient assistance programs directly and indirectly for years, and the government generally has approved of such arrangements.  For example, in a Special Advisory Bulletin in 2005, HHS OIG explained that certain cost-sharing assistance through “bona fide, independent charities unaffiliated with pharmaceutical manufacturers should not raise [AKS] concerns, even if the charities receive manufacturer contributions.”[11]  In recent years, however, HHS OIG has determined that aspects of patient assistance programs can be problematic and raise AKS concerns.[12]  Carrying on the trend we observed in our 2017 Year-End Update, several of the settlements announced this year began with investigations launched by the U.S. Attorney’s Office for the District of Massachusetts. In December, DOJ announced its most recent resolution in this arena, which happens to be the largest to date.  According to the government, Actelion Pharmaceuticals has agreed to pay $360 million to resolve claims that it used a charitable foundation to cover the copays of patients taking its pulmonary arterial hypertension drugs.[13]  The government claimed that Actelion obtained data from the foundation regarding the payments the foundation made on behalf of patients taking the drugs and used that data to contribute amounts sufficient to cover the copays of only those patients, thereby purportedly violating the AKS.[14]  The government further alleged that Actelion referred Medicare patients to the foundation rather than allowing them to participate in the company’s free drug program in order to generate revenue.[15] The first half of the year saw several other similar matters reach the resolution stage: In May, Pfizer, Inc. announced it had agreed to pay $23.85 million to resolve allegations that it violated the AKS by paying patients’ copay obligations with funds purportedly channeled through a foundation.[16]  According to the government, Pfizer donated money to the foundation for the purpose of covering copays for two of its drugs used to treat renal cell carcinoma, which could have been provided at no cost to patients who qualified for Pfizer’s existing free drug program.[17]  The government claimed that paying patients’ copay obligations constituted remuneration designed to induce patients to use Pfizer’s drugs.[18]  Further, according to the government, Pfizer worked with the foundation to create and finance a fund for patients suffering from the heart condition treated by its drug Tikosyn.[19]  Pfizer allegedly referred patients to the fund and timed the creation of the fund to coincide with Pfizer’s increase in the price of the drug.[20]  The government asserted that these actions allowed Pfizer to generate more revenue, while masking the effect of its price increases.[21]As part of the resolution, Pfizer entered into a five-year corporate integrity agreement (“CIA”) with HHS OIG, in which Pfizer agreed to ensure legally compliant interactions with third-party patient assistance programs.[22]  Intended to “promote[] independence” between the company and any such programs to which it donates, the agreement requires review by an independent organization, compliance-rated certifications, and the implementation of a risk assessment and mitigation process.[23] Also in May, Dublin-based Jazz Pharmaceuticals PLC announced in an SEC filing that it had agreed in principle to pay $57 million to resolve similar allegations.[24]  Neither Jazz nor the government has disclosed the government’s allegations in public sources, but the company’s SEC filings indicate that the allegations generally concern Jazz’s financial support of patient assistance nonprofits that help cover copays.[25]  The company had not finalized the settlement with DOJ at the time of its most recent quarterly filing.[26] In early June, Denmark-based H. Lundbeck A/S announced that its U.S. subsidiary, Lundbeck LLC, had reached an agreement in principle with DOJ to pay $52.6 million to resolve DOJ’s investigation into the company’s ties to patient assistance charities.[27]  Although the final terms of the agreement remain subject to negotiation and few details are publicly available,[28] Lundbeck previously disclosed that its subsidiary, Lundbeck NA Ltd., received a subpoena from the U.S. Attorney’s Office for the District of Massachusetts in 2016, relating to its “payments to charitable organizations providing financial assistance to patients taking Lundbeck products” and to sales and marketing practices.[29] These patient assistance investigations raise a host of legal and policy questions, ranging from the appropriate reach of the AKS to the impact on bona fide corporate charitable contributions to the First Amendment implications of the government’s theories.  In light of these key questions, it came as no surprise that a charity, Patient Services Inc., filed a First Amendment lawsuit in the U.S. District Court for the Eastern District of Virginia in January challenging the constitutionality of HHS OIG’s restrictions on the charity’s communications with donors.[30]  Despite the thorny legal and policy questions, it appears DOJ will continue pursuing claims tied to patient assistance programs. 2.    Settlements in AKS-Related FCA Matters In addition to its activity relating to patient assistance programs, DOJ reached a number of other notable AKS-related settlements in 2018. In August, Insys Therapeutics reached an agreement in principle with the government to pay at least $150 million, and potentially an additional $75 million depending on certain events, to resolve a DOJ investigation into claims that the drug maker paid kickbacks to doctors to induce them to prescribe Subsys, an opioid medication.[31]  According to the government’s complaint in intervention, Insys allegedly paid doctors sham speaker fees, hired doctors’ friends and relatives, and provided doctors with lavish meals and entertainment to encourage more Subsys prescriptions.[32]  The government further asserted that Insys caused federal health care programs to pay for uses of Subsys that are not covered by the programs; for example, the government contended that Insys encouraged doctors to prescribe Subsys even when it was not medically necessary and also misrepresented patients’ medical diagnoses to federal program sponsors.[33]  A number of former Insys employees and doctors previously pled guilty to criminal charges relating to alleged kickbacks for Subsys prescriptions,[34] and the company’s former Vice President of Sales pled guilty to one count of racketeering conspiracy in November 2018.[35]  The company’s former CEO also pled guilty to conspiracy and mail fraud charges in January 2019,[36] and the trial of several other former executives is currently underway. The government announced in October that Abbott Laboratories and AbbVie Inc. agreed to pay $25 million to settle claims that Abbott sales representatives provided doctors with gift baskets, gift cards, and other items in exchange for prescriptions of the drug TriCor.[37]  The settlement also resolved claims that Abbott marketed and promoted TriCor for unapproved uses, including treatment of diabetic patients and the reduction of cardiac health risks.[38] In December, the government announced that Covidien (which Medtronic acquired in 2015), agreed to pay $13 million to resolve claims under the FCA stemming from efforts to collect data regarding user experiences with its device.[39]  Additionally, Medtronic will pay another $20 million to resolve other DOJ claims “concerning various market-development and physician engagement activities” conducted by Covidien and ev3, which Covidien acquired in 2010.[40] In addition to the actions above, DOJ announced settlements of several other AKS-related cases with drug and device makers throughout the year: In March, Abiomed, Inc. agreed to a $3.1 million settlement to resolve claims that it paid for expensive meals to induce physicians to use the company’s line of heart pumps.[41]  The government claimed that Abiomed managers approved expenses for meals even though the cost-per-attendee far exceeded internal company expense guidelines, the company purportedly misrepresented the number of attendees and/or listed fictitious names to make costs appear lower, and attendees ordered alcohol in amounts inconsistent with legitimate scientific discussion.[42]  This resolution continues a line of matters in which DOJ has pointed to meal expenses that surpassed company limits as evidence of improper remuneration.[43] In May, the government intervened to take part in a $1.9 million settlement with medical equipment supplier Precision Medical Products, Inc. (“PMP”).[44]  Between January 2011 and 2017, PMP allegedly based its independent contractor sales representatives’ commissions on the amount of federal health program reimbursements they could obtain.[45]  (Notably, HHS OIG rejected expanding the bona fide employee safe harbor to this contract sales force.)  The complaint alleged that these acts were illegal kickbacks because they incentivized referrals of patients and patient orders to PMP that may be covered by government-funded programs.[46]  PMP also allegedly forged documents to obtain approvals and the related reimbursements for its durable medical equipment (“DME”) products in violation of federal program requirements,[47] including through techniques dubbed “magic time” (i.e., tracing a physician’s signature onto other documents) and “ninja drive” (i.e., using a presigned form).[48]  The complaint further asserts that PMP violated federal rules by waiving co-insurance payments and then billing the government.[49] In August, Trinity Medical Pharmacy and several of its principals agreed to pay more than $2.24 million to resolve allegations that it knowingly billed government programs for claims driven by kickbacks and omitted its COO’s previous felony conviction from its application to become a certified provider with Express Scripts, the pharmacy benefit manager for TRICARE and several other carriers.[50] Also in August, Florida-based provider of oxygen and respiratory therapy services Lincare paid $5.25 million to settle claims that it improperly waived or reduced co-insurance, co-payments, and deductibles for beneficiaries of a Medicare Advantage Plan and caused the submission of false claims for payments to Medicare.[51] In December, medical device company LivaNova USA agreed to pay $1.87 million to resolve allegations that it knowingly paid kickbacks in the form of speaking fees to Georgia physicians to induce them to refer its devices for treatment of refractory epilepsy.[52] 3.    Other Settlements in FCA Matters The remainder of the government’s settlement recoveries during 2018 came from alleged violations of government health program requirements or restrictions on off-label promotion. In October, the government announced the largest FCA enforcement settlement of the year, with AmerisourceBergen Corporation and four of its subsidiaries (“ABC”).[53]  ABC agreed to pay $625 million to resolve allegations that a facility it operated repackaged oncology-supportive drugs into pre-filled syringes and distributed those syringes to doctors to provide to cancer patients.[54]  The government alleged that ABC sought to profit from the operation by purchasing the syringes from manufacturers, pooling their contents, repackaging the drugs, and harvesting the overfill to create more doses than it originally purchased.[55]  The government further claimed that ABC was able to bill multiple health care providers for the same syringe and increase its market share by offering discounts.[56]  This settlement follows a 2017 settlement in which one of ABC’s subsidiaries pled guilty to illegally distributing misbranded drugs and agreed to pay $260 million to resolve criminal claims that it distributed the drugs from a facility that was not registered with FDA.[57] Although the ABC resolution dwarfs DOJ’s other settlements in this space, the past year saw multiple additional enforcement actions involving purported violations of federal program requirements and/or off-label promotion: In March, Alere Inc. and its subsidiary, Alere San Diego, agreed to pay $33.2 million to resolve allegations related to sales of purportedly unreliable diagnostic devices.[58]  According to the government, Alere received customer complaints that put it on notice that certain of its devices used to diagnose serious heart conditions potentially transmitted false positives and false negatives; nevertheless, the government alleged, the company did not take appropriate corrective actions until government inspections resulted in a nationwide recall.[59]  Of the settlement, more than $4.8 million will be returned to individual states.[60] In April, Allergan, Inc. settled claims involving allegations that the company sold purportedly defective weight loss devices, marketed the device for use in surgical procedures that were not described in the product’s approved labeling, and made inappropriate payment to physicians.[61]  Allergan agreed to pay $3.5 million in connection with the resolution, nearly $200,000 of which will be split among impacted states.[62] In July, medical device manufacturer AngioDynamics agreed to pay $11.5 million to resolve allegations that it marketed a product for unapproved uses and instructed health care providers to use incorrect billing codes to submit claims for those uses.[63]  It also agreed to pay an additional $1 million to settle claims that certain AngioDynamics employees represented to health care providers that federal health care programs would cover an unapproved use of a recalled and re-issued product previously used to treat perforator veins, thus causing false claims to be submitted to the programs.[64] In September, the government announced that now-defunct compounding pharmacy RS Compounding and its owner agreed to pay $1.2 million to resolve allegations that it charged federal health care programs a higher price for its drugs (in some cases, over 10,000 percent higher) than it charged the public.[65] In October, Cooley Medical Equipment agreed to pay more than $5.25 million to settle claims that it falsely stated that certain of its compounded medical creams used cream-based ingredients rather than bulk powder, to avoid prior authorization requirements for bulk powder ingredients or limited reimbursement from federal health care programs.[66]  Cooley self-disclosed the conduct and will be allowed to pay the settlement amount—which, according to the government, is 1.5 times the amount of monetary loss caused by the false claims—over a period of six years.[67]  Because the government typically insists on doubling purported damages in settlement discussions, it appears that the government underscored the loss calculation so as to encourage other entities to self-disclose and cooperate. B.    Developments in Enforcement Actions Against Opioid Manufacturers and Distributors As reported in our 2017 Mid-Year and Year-End updates, DOJ has made criminal and civil enforcement related to the opioid epidemic a top priority.  Reflecting on developments in 2018, it is clear that DOJ is following through on its commitment to target aggressively the opioid epidemic, and all signs indicate that these efforts are likely to persist for the foreseeable future. Numerous comments by DOJ officials suggest that DOJ is prepared to pursue litigation against manufacturers in conjunction with the Department’s efforts to stem the tide of opioid misuse, overdoses, and deaths.  On February 27, 2018, DOJ announced the creation of the Prescription Interdiction & Litigation (“PIL”) Task Force, which “will aggressively deploy and coordinate all available criminal and civil law enforcement tools” to curb the opioid epidemic, “with a particular focus on opioid manufacturers and distributors.”[68]  In remarks delivered the following day, Deputy Assistant Attorney General Stephen Cox specifically stated that DOJ would be using the FCA as a tool to address the opioid epidemic.[69]  Just last month, Deputy Assistant General James Burnham also commented that the FCA and FDCA “are squarely implicated” should a pharmaceutical company misrepresent opioid-related risks; he cited potential enforcement avenues against pharmaceutical companies, including actions under the Controlled Substances Act (“CSA”) for failure to report suspicious orders of controlled substances and misbranding-related actions under the FDCA for failure to communicate adequate risk information in accordance with FDA-required Risk Evaluation and Mitigation Strategies.[70] DOJ also announced a program this year to target suppliers and wholesale distribution networks responsible for distributing fentanyl and other synthetic opioids, which will focus on ten districts with high rates of deadly drug overdoses.[71]  In support of these enforcement efforts, DOJ is utilizing a new data analytics program focusing specifically on opioid-related health care fraud, which enables DOJ officials to pinpoint areas with high rates of prescription, dispensing, and overdoses.[72] In some cases, DOJ’s heated rhetoric has previewed hard-hitting acts.  In April, DOJ intervened in now-consolidated suits alleging AKS-related violations against Insys Therapeutics, Inc., the manufacturer of a sublingual fentanyl spray approved for the treatment of breakthrough pain in adult cancer patients already on opioid therapy.  In addition to the AKS-related claims noted above, the complaint alleged that the manufacturer encouraged off-label use of the product in situations where the use was “not medically reasonable and necessary” and misrepresented patient diagnoses to secure reimbursement for the company’s product.[73]  As discussed above, Insys Therapeutics reached an agreement in principle with the government to pay at least $150 million and potentially up to $225 million to resolve the claims.[74]  Several former Insys employees and doctors previously pled guilty to criminal charges relating to alleged kickbacks for Subsys prescriptions,[75] the company’s former Vice President of Sales pled guilty to one count of racketeering conspiracy in November 2018,[76] and the company’s former CEO recently pled guilty to conspiracy and mail fraud charges in January 2019.[77] Further underscoring the government’s ongoing scrutiny of the industry, other manufacturers also have disclosed that they are in receipt of subpoenas related to the manufacture, distribution, and marketing of opioids, including three manufacturers that received subpoenas from the U.S. Attorney’s Office for the Southern District of Florida related to generic opioid products.[78] In April, DOJ also filed a “friend of the court” motion in ongoing multidistrict litigation against opioid manufacturers and distributors to enable it to participate in settlement negotiations.[79]  Before filing its motion, DOJ announced that it would seek reimbursement from the defendants for the costs that the federal government has incurred as a result of the opioid epidemic, such as costs borne by federal health care programs and the expenses associated with law enforcement initiatives.[80]  And, in August, DOJ announced the unsealing of an indictment charging two Chinese citizens with operating a conspiracy through numerous companies (including companies within the United States) to manufacture and ship fentanyl analogues and other drugs illegally to the United States.[81] Of note, DOJ has taken steps to address the opioid epidemic from a regulatory perspective as well.  Observing that the United States is an outlier in the number of opioids prescribed each year, former Attorney General Jeff Sessions issued a memo directing the U.S. Drug Enforcement Administration (“DEA”) to evaluate whether to amend regulations addressing the aggregate production quota, which sets the quantity of opioids that manufacturers are permitted to produce each year.[82]  In response, the DEA issued a proposed rule that would limit opioid production in some instances and strengthen controls to prevent diversion of controlled substances.[83]  Later in the year, in an effort to “encourage vigilance on the part of opioid manufacturers,” DOJ and the DEA proposed an average ten percent reduction in 2019 manufacturing quotas for the six most frequently misused opioids.[84] On October 24, 2018, President Trump also signed into law The Substance Use – Disorder Prevention that Promotes Opioid Recovery and Treatment for Patients and Communities Act (the “SUPPORT for Patients and Communities Act”), which seeks to “reduc[e] access to the supply of opioids by expanding access to prevention, treatment, and recovery services.”[85]  Among other items, the bipartisan legislation bolsters requirements for CSA registrants to design and operate systems to identify suspicious orders and report those orders to the DEA,[86] requires drug manufacturers and distributors to review quarterly DEA reports showing the total number of registrants distributing controlled substances as well as the total quantity and type of opioids distributed to pharmacies and practitioners,[87] requires HHS to support state efforts to develop their own prescription drug monitoring programs, and allows FDA to recall a controlled substance if it determines there is a “reasonable probability” that the controlled substance “would cause serious adverse health consequences or death.”[88] C.    Notable Developments in FDCA Enforcement In 2018, DOJ obtained a number of injunctions against and resolutions with manufacturers and distributors to prevent the sale and distribution of allegedly unapproved, adulterated, and misbranded drugs or devices. In December, DOJ secured guilty pleas—and a significant fine—in an FDCA case alleging that Tokyo-based Olympus Medical Systems Corporation and a former senior executive distributed misbranded medical devices in interstate commerce.[89]  According to the government (and the plea documents), Olympus failed to file adverse event reports, known as Medical Device Reports (“MDRs”), with FDA in 2012 and 2013 after learning that certain patients using its duodenscopes contracted infections.[90]  Olympus allegedly also received an independent expert report in 2012 that identified the possibility of bacteria in the duodenscopes and recommended further investigation and updated cleaning instructions.[91]  Under the FDCA, devices with required but unfiled MDRs or supplemental MDRs are deemed misbranded.[92]  Pursuant to the plea deal, the U.S. District Court for the District of New Jersey fined Olympus $80 million and ordered $5 million in criminal forfeiture.  Olympus also agreed to implement a number of compliance measures, including the retention of an MDR expert who will review Olympus’s compliance with the FDCA’s MDR requirements, as well as periodic review by the company’s president and board of directors.[93]  The sentencing of the former executive is set for March 2019.[94] DOJ also pursued several drug and device makers for alleged promotion of unsupported therapeutic claims and other unapproved uses. In March, for example, DOJ announced that the U.S. District Court for the Middle District of Florida permanently enjoined a Florida company, MyNicNaxs LLC, and two associated individuals from selling sexual enhancement and weight loss products until the company institutes specific remedial measures and obtains written approval from FDA.[95]  According to the complaint, the products contained undisclosed ingredients, some of which have been shown to increase the risk of heart attacks and strokes.  Further, the government alleged that no scientific evidence supported the company’s claims that the products cured or prevented serious diseases.[96] The U.S. District Court for the District of New Jersey in August similarly enjoined two companies—S Hackett Marketing LLC d/b/a Just Enhance of Trenton, New Jersey and R Thomas Marketing LLC of Bronx, New York—and related individuals from selling unapproved sexual enhancement products that the government claimed contained an undisclosed ingredient and also lacked labels revealing potentially adverse consequences of using the products.[97] In July, three related Chicago companies, their owner, and their operations manager also agreed to settle claims that they were manufacturing, selling, and distributing adulterated and misbranded dietary supplements and unapproved drugs and to be bound by a consent decree of permanent injunction.[98]  The government’s complaint alleged that the companies’ claims that their products could help prevent or treat diseases such as Alzheimer’s, diabetes, HIV, and Parkinson’s were unsupported by credible scientific evidence, labels were deficient, and FDA inspections revealed failures to comply with current good manufacturing practice regulations, including failure to establish written sanitation procedures.[99] In early December, Minnesota-based medical device manufacturer ev3 Inc. agreed to plead guilty to a misdemeanor charge in connection with distribution of its liquid embolization device, Onyx.[100]  The government alleged that, although FDA approved Onyx only for use inside the brain, ev3 sales representatives encouraged surgeons to use Onyx for other, unapproved uses from 2005 to 2009.[101]  The government further claimed that ev3’s management designed sales quotas and bonuses that incentivized sales of Onyx for such uses.[102]  As part of the resolution, ev3 will pay a fine of $11.9 million, and it will forfeit $6 million.[103]  Medtronic, ev3’s current parent company, also has agreed to implement new compensation structures and conduct compliance monitoring relating to Onyx sales and marketing.[104]  As noted above, DOJ separately entered into a civil settlement with Covidien related to allegations brought under the FCA. DOJ also took action against several companies in connection with purported current good manufacturing practice (“cGMP”) violations: As described in more detail below, DOJ announced consent decrees permanently preventing distribution of adulterated drugs by two compounding pharmacies, Cantrell Drug Company and Delta Pharma, Inc., and related individuals.[105]  DOJ alleged that the drugs were adulterated because the companies failed to comply with cGMP requirements and because the drugs may have been contaminated as a result of insanitary conditions. In October, DOJ also announced consent decrees of permanent injunctions to prevent distribution of misbranded drugs against Keystone Laboratories, Inc. and its owner and operator.[106]  DOJ alleged that Keystone distributed hair and skin care products that failed to comply with FDA’s cGMPs due to potential bacterial contamination from insanitary conditions.[107]  The company cannot begin manufacturing again unless it complies with specific remedial measures, and the injunction provides for safeguards if the defendants work with third parties to manufacture their products.[108] D.    FCPA Investigations Although multiple DOJ and SEC investigations into the foreign sales practices of many drug and device companies remain ongoing, DOJ did not announce any FCPA settlements with drug and device companies in 2018.  This quiet may not last long: DOJ previously signaled that it plans to ramp up its FCPA enforcement in the health care space, as discussed in our 2017 Year-End Update.  In a speech delivered in 2017, Sandra Moser, then-Acting Chief of DOJ’s Fraud Section, announced that prosecutors from DOJ’s FCPA unit would begin “working hand in hand” with the Corporate Strike Force of DOJ’s Healthcare Fraud Unit to “investigate and prosecute matters relating to healthcare bribery schemes, both domestic and abroad.”[109] For its part, the SEC announced two FCPA settlements with drug and device companies in 2018. On September 4, a Paris-based pharmaceutical company agreed to pay more than $25 million in disgorgement, prejudgment interest, and penalties to resolve FCPA-related charges by the SEC regarding alleged corrupt payments to government procurement officials and health care providers in Kazakhstan and the Middle East.  The company also agreed as part of the resolution to self-report about anti-corruption compliance to the SEC for a two-year period.[110] On September 28, a Michigan-based medical device company settled FCPA-related charges by the SEC.  According to the SEC, the company violated the books and records and internal accounting controls provisions of the FCPA.  The company agreed to pay a $7.8 million penalty, and the settlement was the SEC’s second FCPA action against the company.  The company did not admit or deny the SEC’s charges, but consented to a cease-and-desist order and the penalty.[111] II.    FCA JURISPRUDENCE DEVELOPMENTS RELEVANT TO DRUG AND DEVICE COMPANIES A.    Developments in the Implied Certification Theory’s Materiality Requirement As detailed in our 2017 Mid-Year and Year-End False Claims Act Updates, the federal courts continue to grapple with the implications of the Supreme Court’s decision in Universal Health Servs., Inc. v. United States ex rel. Escobar (“Escobar”).  Under the theory of falsity addressed in Escobar, a company impliedly certifies compliance with all conditions of payment when it submits a claim to the government and, if that claim fails to disclose the violation of a material statutory, regulatory, or contractual requirement, the omission renders the claim false in violation of the FCA.  In Escobar, the Supreme Court held that the implied false certification theory can be a basis for FCA liability if two conditions are met: “[F]irst, the claim does not merely request payment, but also makes specific representations about the goods or services provided; and [S]econd, the defendant’s failure to disclose noncompliance with material statutory, regulatory, or contractual requirements makes those representations misleading half-truths.”[112] One area of focus in post-Escobar cases involving companies in the health care industry has been the question of what, if any, impact the government’s continued payment of claims should have on the materiality analysis. In June, for instance, the U.S. District Court for the Northern District of Illinois allowed an FCA claim by the government to proceed against Snap Diagnostics, the manufacturer of a home sleep apnea test.[113]  The government alleged that the company encouraged unnecessary tests to be billed to Medicare where only a single test was required.  According to the government, the company, in lobbying the government for Medicare coverage of its testing, advised that it was routine to conduct only one night of sleep apnea testing, and the company’s promotional materials stated that a diagnosis can almost always be made in a single night of testing.  But the company’s alleged procedure was to bill for multiple nights of testing only when the patient was Medicare-covered or self-pay, but not when the patient had private insurance.  Further, the government asserted that the decision was not based on a clinical determination of medical necessity.  Additionally, the government pointed to Medicare guidance stating that Medicare will cover a second or third night of sleep apnea testing only when it is medically necessary. Addressing materiality at the motion-to-dismiss stage, the court rejected the argument that the government’s routine payment of multiple claims served as evidence that the requirements were not material.  The court not only concluded that this argument was premature at the pleading phase, but also described this argument as a “logical falsity” that misstates the Supreme Court’s position in Escobar.[114]  Relying on the Seventh Circuit’s decision in United States v. Sanford-Brown, Ltd.,[115] the court ruled that the government met its burden in showing materiality.  Because Medicare guidance provided for reimbursement of a second or third night of sleep apnea testing only when medically necessary, the court found that the company’s submission of claims for subsequent nights of testing could constitute a misleading representation that those nights had been determined to be medically necessary and permitted the claim to go forward. In another matter implicating the materiality analysis post-Escobar, the Supreme Court recently denied certiorari in a case in which Gilead Sciences, Inc. sought review of a Ninth Circuit decision allowing a qui tam suit to continue past the motion to dismiss stage (United States ex rel. Campie v. Gilead Sciences, Inc.).[116]  The Ninth Circuit held that the relators adequately alleged that Gilead fraudulently obtained FDA approval for certain of its drugs by making purportedly false statements to FDA about the source of the drugs’ active ingredient and the ingredient’s compliance with FDA regulatory requirements.  Because Medicare and Medicaid reimbursement for drugs is contingent upon FDA approval, which Gilead allegedly obtained fraudulently, the Ninth Circuit concluded that Gilead’s submission of claims for payment for “FDA approved” drugs amounted to a material misrepresentation that could serve as a basis for liability under the FCA.  The Ninth Circuit rejected Gilead’s argument that, because FDA did not rescind approval of the drug after learning of the violations and the Centers for Medicare and Medicaid Services continued to pay for the drug, the violations were not material to the government’s payment decision.  Instead, the court reasoned that Gilead ultimately stopped using the active ingredient from the unapproved manufacturer, and “[o]nce the unapproved and contaminated drugs were no longer being used, the government’s decision to keep paying for compliant drugs does not have the same significance as if the government continued to pay despite continued noncompliance.”[117] Gilead’s petition for certiorari presented the question of whether the government’s decision to continue reimbursement after learning of alleged regulatory infractions should presumptively defeat a relator’s claim that the regulatory infractions were material to the government’s payment decision.[118]  Gilead maintained that the Ninth Circuit’s treatment of this issue clashes with the Supreme Court’s instruction in Escobar that “if the Government pays a particular claim in full despite its actual knowledge that certain requirements were violated, that is very strong evidence that those requirements are not material.”[119] As discussed in our prior updates, the Supreme Court invited the Solicitor General to present the government’s position on the case, thereby signaling interest in the impact of government acquiescence on efforts by the government or relators to establish materiality.  In response, the Solicitor General argued strongly that the Court should not grant certiorari and indicated that it would move to dismiss the case if it were sent back to the district court.[120]  Arguing that the case is “not in the public interest,” DOJ explained that its position was based on a “thorough investigation” of the merits of the case, as well as concerns about the “burdensome” discovery requests that the parties would direct at FDA if the case were to move forward.[121]  With the Supreme Court’s denial of certiorari, the case has returned to the district court in accordance with the Ninth Circuit’s previous decision, and DOJ has not yet moved to dismiss the case at the district court level. Whether or not DOJ’s seemingly abrupt move before the Supreme Court reveals any deeper concerns within DOJ around potentially adverse post-Escobar rulings, it is a marked example of DOJ’s purported commitment under the Justice Manual and Granston Memo to dismissing at least some of the unmeritorious cases brought forth by qui tam relators.  In the meantime, the question of government acquiescence in the context of materiality remains open for courts’ consideration. B.    Scienter under Escobar The Supreme Court in Escobar expressed confidence that robust enforcement of the FCA’s scienter and materiality elements would prevent a broad view of falsity from subsuming the purposes of the Act.  One (albeit unpublished) appellate decision this past year provides at least some support for this perspective. In United States ex rel. Streck v. Allergan, Inc., the Third Circuit held that an FCA relator fails to plead scienter where the defendant acted based on a reasonable, albeit incorrect, interpretation of relevant statutory and regulatory guidance.[122]  The relator in Streck based his FCA claims on allegations that the defendant pharmaceutical companies failed to account for “price-appreciation credits” in submitting Average Manufacturer Prices (“AMPs”) for certain drugs when calculating rebates owed by those companies to Medicaid under the Medicaid Drug Rebate Program.[123]  In assessing the relator’s claims, the court first considered “whether the relevant statute was ambiguous,” then evaluated “whether [the] defendant’s interpretation of that ambiguity was objectively reasonable,” and, finally, assessed “whether [the] defendant was ‘warned away’ from that interpretation by available administrative and judicial guidance.”[124]  The Third Circuit observed that the statutory definition of “price paid to the manufacturer” for AMP purposes was unclear because it did not specify whether it was the “initial” price (which would have excluded subsequent price-appreciation credits) or “cumulative” price (which would have included them).[125]  Even though the defendants’ interpretation that the statute and the associated guidance excluded price-appreciation credits may not have been “the best interpretation,” the Third Circuit nonetheless concluded that the interpretation was reasonable, that there was no guidance “warn[ing] away” from that interpretation, and that holding defendants liable for a “reasonable interpretation of an ambiguous statute was inconsistent with the reckless disregard [relator] was required to allege at this stage of the litigation.”[126] C.    Rule 9(b) Particularity Federal Rule of Civil Procedure 9(b) requires FCA plaintiffs to plead allegations of fraud with particularity.  In cases brought against companies, such as drug and device manufacturers, that do not typically submit claims to government payors directly, Rule 9(b) requires an FCA complaint to adequately plead facts establishing a link between the defendant’s challenged conduct and claims for reimbursement submitted by third-party physicians or pharmacies to the government.  As discussed in our 2017 Mid-Year and Year-End updates, courts have diverged over the question of what allegations suffice to survive a Rule 9(b) challenge on a motion to dismiss. In United States ex rel. Solis v. Millennium Pharmaceuticals, Inc., the Ninth Circuit added to the body of precedent holding that FCA claims that fail to allege particularized facts linking the alleged scheme to at least one specific claim submitted to the government cannot survive a Rule 9(b) motion to dismiss.[127]  The relator, a pharmaceutical sales representative, brought a qui tam FCA action against his former employer alleging, among other things, that the company paid kickbacks to physicians to prescribe the antibiotic drug Avelox.  The district court dismissed all of the relator’s claims, holding that they were foreclosed by the public disclosure bar. On appeal, the Ninth Circuit held that the district court had erred in holding that the public disclosure bar foreclosed the relator’s claim relating to Avelox because none of the public disclosures at issue mentioned this claim.  Noting that it could affirm on any ground supported by the record, the Ninth Circuit nevertheless affirmed the district court’s dismissal of this claim, holding that it failed to satisfy Rule 9(b) particularity requirements.  The relator’s “only particularized allegations” showed efforts by the defendant “to get Avelox placed ‘on formulary’ at two hospitals,” which “merely means the drug is available to be used or prescribed.”[128]  “Even assuming these efforts established a scheme to submit false claims,” the relator neither “identif[ied] a single claim submitted pursuant to the scheme” nor provided “reliable indicia supporting a strong inference that such claims were submitted.”[129]  Indeed, the Ninth Circuit noted that the relator did not even “allege that being ‘on formulary’ meant such claims would be submitted,” or that “being on formulary meant Avelox would be prescribed.”[130]  Because the complaint did not contain “other details linking the alleged scheme to any claim submitted to a federal healthcare program,” the relator failed to “plead[] with the particularity required by Rule 9(b).”[131] The Eleventh Circuit reached a similar conclusion in Carrel v. AIDS Healthcare Foundation, Inc.[132]  There, the relators alleged that the foundation violated the AKS and thus the FCA by paying bonuses to its employees for referring patients with HIV/AIDS to other services provided by the foundation and for which the foundation sought federal reimbursement.  In addition to rejecting the relators’ AKS theory (as described below), the Eleventh Circuit also rebuffed relators’ assertion that the district court erred in dismissing a host of relators’ claims for lack of particularity. Long-standing Eleventh Circuit requires relators to plead the “actual ‘submission of a [false] claim’” with some “indicia of reliability”; assertions that a “claims requesting illegal payment must have been submitted, were likely submitted[,] or should have been submitted” do not suffice.[133]  Applying that precedent in Carrel, the Eleventh Circuit observed that although relators “allege[d] a mosaic of circumstances that are perhaps consistent with their accusations that the Foundation made false claims . . . [they] fail[ed] to allege with particularity that these background factors ever converged and produced an actual false claim.”[134]  Notably, the court batted aside relators’ efforts to rely on “mathematical probability” and their insider knowledge of the foundation’s operations, explaining that relators’ “access to possibly relevant information” did not “translate[] to knowledge of actual tainted claims presented to the government.”[135] D.    Retaliation The FCA provides remedies to employees if they are “discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment because of lawful acts” conducted in furtherance of an FCA claim.[136] In DiFiore v. CSL Behring, LLC, the Third Circuit recently addressed the standard for showing causation in an FCA retaliation claim brought against a biopharmaceutical company.  The plaintiff appealed the district court’s jury instruction requiring the plaintiff to show “protected activity was the ‘but-for’ cause of an adverse action.”[137]  On appeal, the plaintiff argued that the FCA only requires proof that the protected activity was a “motivating factor” in the adverse action. In rejecting this argument and affirming the district court, the Third Circuit relied on the Supreme Court’s analysis in Gross v. FBL Financial Services, Inc.[138] and University of Texas Southwestern Medical Center v. Nassar,[139] both of which concerned the causation standard in the discrimination context.  The court observed that the statutory text “because of” was identical in the FCA to the language used in the Age Discrimination in Employment Act and Title VII’s anti-retaliation provision, and in those contexts the Supreme Court held that this language requires proof that the protected status or activity was the “but-for causation” for the employer’s adverse employment action.  The court contrasted this “because of” language with the text of the anti-retaliation regulation under the Family Medical Leave Act (“FMLA”), which required the protected activity to be a “negative factor” in an employment decision.  Because the FCA included the same “because of” language at issue in Gross and Nassar, rather than the “negative factor” language used in the FMLA regulation, the court held that the “but-for” standard adopted in Gross and Nassar governed its interpretation of causation under the FCA.[140] E.    Public Disclosure Bar As amended by the Affordable Care Act in 2010, the FCA’s public disclosure bar provides that a court “shall dismiss” an FCA action if “substantially the same allegations or transactions . . . were publicly disclosed” through listed sources, as long as the relator does not qualify as an “original source.”[141]  A relator is an “original source” when he or she either “prior to a public disclosure . . . voluntarily disclosed to the Government the information on which allegations or transactions in a claim are based,” or “has knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions.”[142]  Courts have adopted differing interpretations of this statutory language, including as to what standard to apply in determining whether information “materially adds” to publicly disclosed allegations. In United States ex rel. Forney v. Medtronic, Inc., the Third Circuit was called upon, in the context of a qui tam action, to determine whether Escobar’s interpretation of “materiality” as an element of a fraud claim should govern the analysis of whether information “materially adds” to the allegations for purposes of the public disclosure bar.[143]  In United States ex rel. Moore & Co., P.A. v. Majestic Blue Fisheries, LLC,[144] which preceded Escobar, the Third Circuit adopted a broad definition of materiality, holding that the relevant standard in this context is “whether the relator ‘contributes information—distinct from what was publicly disclosed—that adds in a significant way to the essential factual background: the who, what, when, where and how of the events at issue.’”[145]  By contrast, the First Circuit in United States ex rel. Winkelman v. CVS Caremark Corp.[146] applied the more “rigorous requirement” for materiality adopted in Escobar, which requires that, “for something to be material, it must be of such importance that it influences the decision maker.”[147] In Forney, the Third Circuit concluded that the Supreme Court’s interpretation of “materiality” as an element in a fraud claim in Escobar had “little bearing” on the concept of materiality in the entirely different context of the public disclosure bar.[148]  Thus, because Escobar did not compel a different interpretation of materiality in this context, the court concluded that it continued to be bound by the Third Circuit’s more lenient standard in Moore.[149]  Applying this standard, the court held that the relator qualified as an original source.  The relator’s documents included records documenting Medtronic representatives engaging in the challenged activity, including “the names” of individuals involved as well as the “places and times” of the activity.[150]  The court rejected the argument that this information was encompassed in the broader and more general allegations in prior public disclosures, holding that the information the relator provided was “detailed, specific, and helpful,” and thus “meaningfully add[ed] to the prior public disclosures.”[151] F.    First-to-File Bar The FCA’s first-to-file bar “prohibits a person from bringing a ‘related action’ when an FCA suit is pending.”[152]  Despite the deceptively simple language, circuits have begun to diverge on how to enforce the bar when the court has already dismissed the earlier, “pending” action. In United States ex rel. Wood v. Allergan, Inc.,[153] the Second Circuit joined the D.C. Circuit in holding that a relator may not proceed based on an amended complaint if the same relator’s original complaint otherwise would fail under the first-to-file bar.  Below, the district court held that, although at least one related complaint against Allergan already existed when the relator filed suit, amending his complaint after the court had dismissed the other, related complaint was sufficient to overcome the bar, because “there were no pending related actions when the complaint was amended.”[154]  Focusing on the plain language of the statute, which requires dismissal when a relator “brings” an action while a related action is pending, the Second Circuit disagreed with the district court’s analysis and held that the relator’s action “was incurably flawed from the moment he filed it.”[155]  The Second Circuit confirmed, however, that dismissal based on the first-to-file bar should be without prejudice,[156] and that “absent a statute of limitations issue, the relator will be able to re-file her action, without violating the first-to-file bar.”[157] In the opinion, the Second Circuit also weighed in on another developing circuit split regarding whether a complaint that falls short under Rule 9(b)’s particularity requirement can bar a later-filed complaint under the first-to-file rule.  Again agreeing with the D.C. Circuit, the Wood court found no basis to incorporate Rule 9(b)’s particularity requirement into the statute.[158]  That a subsequent complaint might be “more detailed” has no bearing on the application of the first-to-file bar under the Second Circuit’s interpretation, and the court thus found that the relator’s allegations were sufficiently related to those in the other, earlier complaint to trigger the bar, even if his allegations were “more detailed” than those previously asserted.[159] Should the circuit courts continue to diverge on these issues, the resulting split may present opportunities for the Supreme Court to grant certiorari and weigh in on the proper application of the bar.  The Court has demonstrated some willingness to address FCA-related issues in recent months when it granted certiorari in United States ex rel. Hunt v. Cochise Consultancy, Inc., 887 F.3d 1081, 1083 (11th Cir. 2018), to address questions regarding the FCA’s statute of limitations provision. III.    PROMOTIONAL ISSUES This past year saw relatively few developments in the regulation of drug and device promotional activity compared to prior years.  Most notably, FDA issued two guidance documents in June 2018 that signaled greater flexibility in FDA’s approach to promotional communications; the guidance greenlighted the transmission of certain information that is not included in FDA-required labels (so long as it is consistent with those labels), as well as economic information about drugs and devices.  In a statement about the guidance documents, FDA Commissioner Dr. Scott Gottlieb explained that the guidance is intended to help market participants develop contracts that better reflect the full value of products in the marketplace.[160] In the meantime, Congress failed to make significant progress toward implementing off-label promotion legislation, and the federal courts did not issue any notable opinions clarifying how drug manufacturers should convey promotional information about their products.  FDA enforcement activity increased only slightly relative to last year’s drop in enforcement. Considering the current administration’s deregulatory position, FDA is likely to continue its scaled back approach to off-label promotion.  If the past two years are any indicator, the agency will remain focused on the most flagrant cases of deceptive advertising or when there is a risk to public health, leaving manufacturers some leeway for more expansive promotional activity. A.    FDA Enforcement Activity – Drug Promotion In 2018, the Office of Prescription Drug Promotion (“OPDP”) issued only two Warning Letters and five Untitled Letters.[161]  While this number represents a small uptick from 2017, it still falls far short of the statistics from the years of more aggressive enforcement that preceded the First Amendment litigation.[162]  The downward trend may be an indicator that the current administration’s priorities lie elsewhere—at least for the foreseeable future. Of the seven letters, four involve the omission or minimization of risk information, two concern inaccurate information regarding an unapproved use or product, and one objects to false or misleading claims about efficacy.[163]  All of the approved products relate to products with boxed warnings.  The letters encompass a range of communications, including conference exhibitions, oral statements by a sales rep, print materials, websites and online vides, and social media. In a February 9, 2018 Untitled Letter to Collegium Pharmaceutical, Inc., OPDP asserted that the company’s exhibit booth at an annual pharmacist exhibition made false or misleading representations about an opioid pain reliever because the exhibit failed to communicate accurately the drug’s risks.[164]  The letter noted that the exhibit did not include any information regarding the drug’s limitations of use, namely that the drug should be used only as a last resort for treating pain because of its high addiction risks.[165]  The letter also emphasized that the omission was particularly concerning considering the severe impact of opioid addiction.[166]  Although the exhibit had included a side panel that conveyed some warning information, OPDP noted the small font and found this disclosure to be inadequate.[167] Similarly, in a June 19, 2018 Untitled Letter to Pfizer Inc., OPDP objected to a direct-to-consumer promotional video for failing to include any risk information regarding the product, a vaginal ring.[168]  OPDP also objected to the testimony of the video’s featured spokesperson, who stated that the drug had worked instantaneously and had not resulted in any side effects in her case.[169]  OPDP found that the spokesperson’s claims, even if accurate, misleadingly suggested that other patients would experience similar results.[170] In a June 28, 2018 Untitled Letter to Arog Pharmaceuticals, Inc., OPDP asserted that the company violated the FDCA by misbranding an investigational acute myeloid leukemia drug both on the company’s website and at its booth display at an annual hematology meeting.[171]  According to FDA, both promotions suggested that the drug was safe and effective, even though FDA had yet to approve the drug for commercial purposes.[172] In an August 16, 2018 Untitled Letter to ASCEND Therapeutics US, LLC, OPDP objected to a sell sheet that allegedly made false and misleading claims about the efficacy of ASCEND’s hormonal drug, EstroGel.[173]  The sell sheet asserted that EstroGel provides the lowest effective dose of estrogen for treatment of certain moderate to severe menopausal-related symptoms, yet OPDP concluded such claims were not supported by the literature cited because it did not rely on studies comparing the drug to other FDA-approved formulations of estrogen.[174] In an October 5, 2018 Warning Letter to MannKind Corporation, OPDP asserted that the company’s Facebook post describing its inhalation powder, Afrezza, as helping “your body work its best and protection from health complications” with “no drama” misleadingly suggested an absence of safety concerns, because it omitted information about potentially life-threatening risks.[175]  Although the post contained a small pop-up box with information about the risk of acute bronchospasm in patients with chronic lung disease, OPDP concluded that this did not mitigate the deficiencies of the post.[176] In an October 11, 2018 Untitled Letter to Eisai Inc., OPDP objected to oral statements that an Eisai sales representative made to health care professionals at a lunch presentation regarding its Fycompa drug for treatment of partial-onset seizures in epileptic patients 12 years and older.[177]  The sales representative purportedly mischaracterized the scope of the new indication for which the company sought FDA-approval in a pending new drug application for pediatric patients and minimized the serious boxed warning risks of behavioral side effects.[178] Finally, in an October 22, 2018 Warning Letter to Vanda Pharmaceuticals Inc., OPDP objected to Vanda’s webpage, which it claimed lacked appropriate risk information about its drugs.[179]  While the letter acknowledged that the webpage referred visitors to another site that provided the box warnings and safety information, OPDP concluded that this did not mitigate the complete omission of any risk information from the webpage itself.[180] B.    FDA Enforcement Activity – Device Promotion Enforcement relating to medical device promotion remained quiet as well, with only one Warning Letter to a medical device manufacturer.  In addition, CDRH issued seven “It Has Come to Our Attention” Letters, questioning whether marketing claims about certain 510(k)-cleared devices were covered by existing clearances and whether products were being promoted for medical device uses without a required premarket clearance or approval. RADLogics, Inc Warning Letter.[181]  In its Warning Letter to RADLogics, FDA asserted that the company’s marketing claims exceeded those supported by the 510(k) clearance for the company’s radiological image analysis software application.  Citing claims on the company’s website and YouTube video, FDA concluded that the device had been cleared for displaying radiological images for analysis by physicians, but the device was promoted as a “Virtual Resident” that could provide computer-assisted detection and marking of abnormalities in images. Letters Regarding Vaginal Treatments.  In addition, CDRH issued seven “It Has Come to Our Attention” Letters relating to the promotion of products for vaginal treatments in July, questioning whether marketing claims about the 510(k)-cleared devices were covered by existing clearances and whether products were being promoted for medical device uses without a required premarket clearance or approval.  Five of the letters related to laser, radiofrequency, and similar devices that had 510(k) clearances for general uses in dermatologic and surgical applications such as ablation of soft tissue.  For example, Cynosure,’s DEKA SmartXide2 Laser System had a 510(k) clearance for incision, excision, ablation, vaporization, and coagulation of body soft tissues in a variety of medical specialties, but FDA objected to the promotion of the device as a “clinically proven laser treatment for the painful symptoms of menopause, including intimacy.”  Similarly, FDA objected to  “vaginal health restoration” and similar claims for products marketed by Inmode MD Ltd. and Venus Concept, Ltd., noting that these products lacked any device premarket clearance or approval. In addition to these enforcement letters, in May 2018, FDA filed civil complaints in Florida and California alleging that two stem cell clinics were experimenting on patients with adulterated, misbranded, and unapproved drugs.[182]  The first complaint targeted U.S. Stem Cell Clinic LLC of Sunrise, Florida, U.S. Stem Cell, Inc., its Chief Scientific Officer, and its co-owner and Managing Officer.  The second was brought against California Stem Cell Treatment Center Inc., Cell Surgical Network Corporation of Rancho Mirage, and two doctors.  Despite arguments that FDA approval was not needed because patients receive treatment with their own cells, FDA sought to enjoin these clinics from marketing stem cell therapies that do not have FDA approval.  The complaints allege that defendants manufactured unapproved stromal vascular faction (“SVF”) products from patient adipose (fat) tissue.  U.S. Stem Cell, Inc. previously faced scrutiny from FDA in August 2017 after several patients reported vision loss after SVF treatments; in a statement, the agency said it was acting because the U.S. Stem Cell Clinic did not address violations outlined in a Warning Letter from August 2017.[183]  Finally, the complaints state that recent FDA inspections showed the clinics violated cGMP requirements, including some that could impact the sterility of their products.[184] Notably, therapies in this space have drawn attention from Commissioner Gottlieb, who has vowed that FDA will crack down on clinics marketing questionable or unsafe treatments.  That said, Commissioner Gottlieb also has pledged to ease the path to approval for researchers and companies marketing stem cell therapies and regenerative medicine where treatments are legitimate.[185] C.    FDA’s Promotional Guidance – Drugs & Devices In keeping with its promise to provide more direction regarding the off-label promotion of drugs and devices, FDA issued two useful guidance documents in June 2018.[186]  According to FDA Commissioner Gottlieb, the agency aims to spur a “shift toward innovative, value-based payment arrangements” for medical products.[187]  To that end, FDA promulgated guidance to provide clarity to drug manufacturers as they develop communications about their medical products, which in turn will ensure that patients, providers, and insurers have access to a wide range of data that they can harness to negotiate prices.[188] Communications with Payors.  In the first guidance document, FDA authorized companies to share certain information with payors about unapproved products and unapproved uses of approved drugs and devices.[189]  The guidance assured drug manufacturers that they will not be subject to FDA enforcement for promoting truthful and non-misleading information that is consistent with FDA-required labeling.[190]  According to the guidance, FDA will analyze three factors in determining whether promotional information is consistent with the labeling. First, FDA will evaluate whether communications about the product conflict with particular conditions of use in FDA-required labeling.[191] Second, FDA will assess whether the promotional information increases the product’s potential for harm to health, relative to the product’s FDA-required labeling information.[192] Finally, FDA will consider whether the product’s label enables patients to use the product safely and effectively under the conditions suggested in the product communications.[193] The guidance provides examples of the kinds of information that FDA would and would not consider consistent.[194]  For instance, communications providing context about adverse reactions associated with the product’s use would be consistent with FDA-required labeling.[195]  By contrast, information about a product’s use to treat a different disease than indicated in the label would not be consistent.[196]  The guidance further states that promotional representations must be “grounded in fact and science and presented with appropriate context.”[197] Despite these requirements, the guidance still relaxes restrictions on off-label promotion somewhat.  While insisting that promotional information have some supporting evidence, the guidance permits drug and device companies to utilize evidence that is insufficient to satisfy FDA approval standards.[198]  The guidance also does not explicitly bar inconsistent promotional communications but instead deems them outside the scope of the recommendations.[199]  This perhaps suggests that FDA may be marginally more lenient in its assessment of inconsistent promotional information. Communication of Health Care Economic Information.  FDA’s second guidance document also provides drug companies with significant leeway.[200]  The guidance concerns the sharing of Health Care Economic Information (“HCEI”) with insurance companies and other payors.[201]  HCEI is “any analysis . . . that identifies, measures, or describes the economic consequences . . . of the use of the drug.”[202]  In the guidance, FDA authorizes drug manufacturers to disseminate HCEI as long as the information relates to the disease being treated or to a condition in the patient population that the drug’s label indicates can be treated by the drug.[203] Like the first guidance document, the second explains that FDA will not object to certain communications of information about unapproved products and unapproved uses of approved products.[204]  FDA provides several examples, including the information about the anticipated timeline for possible FDA approval, product pricing information, and factual presentations of results from studies.[205]  In allowing these communications regarding off-label uses of a product, the guidance emphasizes that payors do not need protection in these exchanges because they are sophisticated audiences that can closely scrutinize a range of HCEI.[206] Draft Guidance on Presentation of Efficacy Data.  Citing research that suggests consumers have improved comprehension and recall of efficacy and risk information when it is presented quantitatively, FDA also issued draft guidance on the presentation of quantitative efficacy and information in direct-to-consumer promotional labeling and advertisements.[207]  FDA’s guidance provided recommendations in four categories: presenting probability information, formatting quantitative efficacy or risk information, using visual aids, and providing quantitative efficacy or risk information for treatment and control groups.[208] In the first category, FDA recommended expressing efficacy and risk probabilities in terms of absolute frequencies (such as 57 in 100 or 57%) versus relative frequencies (i.e. 33% reduction in risk) to improve consumer comprehension.[209]  As to the second, FDA recommended presenting information in consistent numerical formats and probabilities using whole numbers.[210]  Third, FDA endorsed the use of visual aids as a way to help consumers understand efficacy and risk probabilities, so long as they clearly explain the information displayed, are proportionate to the numbers that they are representing, and include representations of both numerators and denominators for numerical ratios.[211]  Finally, FDA recommended providing quantitative information for both treatment and control groups to improve consumer understanding of efficacy.[212] D.    Legislative Developments Pertaining to Promotional Issues There was little to report in the realm of legislative activity relating to drug and device promotional activity in 2018.  Federal legislation we have discussed previously in these pages, for example, remained stagnant.  The Pharmaceutical Information Exchange Act, which would effectively codify FDA guidance on HCEI by giving drug and device manufacturers greater freedom to share economic information regarding unapproved products, remains a draft bill stalled in the House Energy and Commerce Committee.[213]  After holding a consideration and mark-up session, the Subcommittee on Health forwarded the bill to the full House Energy and Commerce committee on January 17, 2018.  Since then, the bill has not advanced.[214]  Similarly, the draft bill of the Medical Product Communications Act of 2017, which would enable manufacturers to discuss certain off-label information with health care providers, remains in the House Energy and Commerce Subcommittee on Health.[215] E.    Litigation Relating to Promotional Issues In May 2018, the United States Supreme Court considered two recent FCA off-label promotion cases but ultimately denied certiorari.[216]  In 2017, the Fifth and Sixth Circuits had dismissed the cases, United States ex rel. King v. Solvay Pharmaceuticals, Inc. and United States ex rel. Ibanez v. Bristol-Myers Squibb Co., in part, in the former case, because the plaintiffs failed to demonstrate at the summary judgment stage that off-label promotion caused physicians and pharmacies to make false claim submissions to the government.[217]  With the Supreme Court refusing to hear either case, for the time being plaintiffs will continue to face challenges in pleading and proving causation in FCA off-label promotion cases. IV.    DEVELOPMENTS IN CGMP REGULATIONS, QUALITY SYSTEM REGULATIONS, AND OTHER MANUFACTURING ISSUES During 2018, we saw robust enforcement efforts relating to purported cGMP and Quality System regulation (“QSR”) violations.  In particular, FDA continues to crack down on manufacturing, quality, and data integrity issues and this year issued a number of notable Warning Letters.  These developments, as well as final guidance related to data integrity and compounding pharmacies, among other issues, are discussed below. A.    Notable cGMP Enforcement Activity In 2018, DOJ announced two notable consent decrees of permanent injunction entered by federal district courts against drug manufacturers to stop the distribution of unapproved, misbranded, and adulterated drugs.  This is consistent with DOJ’s publicized enforcement priorities.  Notably, in December, Deputy Assistant Attorney General James Burnham gave a speech where he explained that compounding pharmacies “are an increasing focus of enforcement efforts” and “a major enforcement priority” for DOJ and FDA, and highlighted the potential of enforcing cGMP violations as FCA cases.[218]  These comments highlight the importance of this recent guidance from FDA for compounding pharmacies. In April, the U.S. District Court for the Eastern District of Arkansas enjoined Cantrell Drug Company and its co-owner and CEO from distributing adulterated drugs.  According to the government’s complaint, the defendants’ drugs were prepared, packed, or held under insanitary conditions and may have been contaminated or rendered injurious to health.  By way of background, Cantrell initiated two voluntary recalls of its drug products in 2016 and 2017, both due to a lack of sterility assurance.  In addition, during a 2017 inspection, FDA observed that the pharmacy’s own documents memorialized that it had found several types of microorganisms in the air and on surfaces used for sterile processing.  The pharmacy then failed to conduct adequate investigations of this microbial contamination.  As part of the injunction, the defendants cannot resume manufacturing, processing, or distributing drugs until they submit a remedial plan to FDA providing an independent expert to conduct inspections and ensure the defendants’ compliance with current good manufacturing practice.  In reference to this ruling, FDA Commissioner Gottlieb said, “FDA is committed to taking action against compounders who do not comply” with federal requirements.[219] In June, the U.S. District Court for the Northern District of Mississippi entered an injunction against Delta Pharma, Inc., its President, and its Vice President and Pharmacist in Charge to enjoin further distribution of adulterated drugs.  The complaint alleged that during a 2017 inspection, FDA documented the defendants’ failure to establish and follow appropriate written procedures designed to prevent microbiological contamination of sterile drug products.  It also noted that the defendants failed to establish an adequate quality control unit with the responsibility to approve or reject all components and investigate any errors that may occur.  As part of the permanent injunction, the defendants cannot manufacture, hold, or distribute any drugs until they report to FDA the actions they have taken to correct all deviations from cGMPs.[220] B.    cGMP-Based Warning Letters FDA’s Office of Manufacturing Quality in the Center for Drug Evaluation and Research (“CDER”) issued 53 Warning Letters in 2018, just off the pace it set in 2017 with 61 Warning Letters.  As in 2016 and 2017, FDA continued to focus on issues identified during foreign inspections, sending Warning Letters to companies in China and India, as well as Australia, North and South Korea, and Taiwan.  Also consistent with FDA’s activity in 2017, CDER’s 2018 Warning Letters underscore a focus on data integrity (which was also the subject of guidance, discussed below).  Data integrity citations and recommendations for “Data Integrity Remediation” cropped up in more than a dozen of the Warning Letters issued by CDER in 2018.  CDER most often found these violations in manufacturing facilities in China and India.[221] We have summarized a few notable Warning Letters below: Alchymars ICM SM Private Limited.[222]  After a 2017 inspection of the company’s facility in India, FDA issued a February 2018 Warning Letter to Alchymars listing cGMP violations.  The alleged violations included data integrity deficiencies; for example, FDA investigators found that Alchymars’s analysts were falsifying laboratory data and neglecting to keep complete records of major equipment maintenance.  To address these issues, FDA recommended a comprehensive data integrity remediation.  In the Warning Letter, FDA also asserted that Alchymars failed to investigate quality-related complaints, maintain manufacturing buildings and facilities, and provide personnel with adequate clean washing and toilet facilities.  Notably, FDA pointed out that it had found similar violations at the company’s facility in 2015, which also resulted in a Warning Letter.  FDA admonished Alchymars that the “repeated deficiencies demonstrate that your facility’s oversight and control over the manufacture of drugs is inadequate” and called for a cGMP consultant, a comprehensive investigation into Alchymars’s inaccurate data records, and a current risk assessment. Lijiang Yinghua Biochemical and Pharmaceutical Co., Ltd.[223]  In April, a Chinese manufacturer received a Warning Letter that cited, among other things, the lack of controls in place to keep staff from altering or deleting electronic data.  FDA noted that lab equipment used to generate analytical data had a single username to which all users had access, making it impossible to trace individuals who may have created, modified, or deleted data.  FDA also cited the company for failure to maintain complete data from all lab tests, noting that, in response to an FDA request for electronic data, Lijiang answered it had been deleted by accident and was no longer available.  Finally, FDA cited the company for failure of its quality unit to wait until testing was complete before approving the release of an active pharmaceutical ingredient (“API”) batch and for failure to adequately investigate deviations, atypical events, complaints, and out-of-specification results.  To address these issues, FDA recommended a comprehensive data integrity remediation, including data inaccuracy investigation, a risk assessment, and management strategy.  It also noted that many of these violations were repeated after a 2015 FDA inspection and Warning Letter. Zhuhai United Laboratories Co., Ltd.[224]  In June 2018, FDA cited Zhuhai, a Chinese pharmaceutical company, for multiple violations including quality and data integrity deficiencies.  FDA cited Zhuhai’s failure to adequately investigate and document out-of-specification results and to ensure that critical deviations were resolved.  For example, in response to below-specification results, Zhuhai simply re-tested and resumed manufacturing after receiving passing results without identifying a laboratory error or otherwise investigating the root cause of the initial results.  Its policies stated that using an outlier test (a statistical analysis showing a significant difference between the original value and retest results) could waive the requirement for investigating the cause of atypical results.  FDA stated this policy did not comply with good manufacturing practice, as outlier tests may be used only for auxiliary, informational purposes.  In addition, FDA noted that Zhuhai did not expand the scope of its review to a larger data set after discovering these significant data lapses.  In addition to a data remediation plan, FDA recommended that the company hire a cGMP consultant to correct deviations. Boule Medical AB.[225]  In October 2018, FDA issued a Warning Letter to a Swedish-based medical device manufacturer of the “Medonic M-Series Hematology Analyzer.”  According to the letter, the company failed to meet requirements of the Quality System regulations, which govern quality and consistency in manufacturing of medical devices.  FDA cited the company for six separate violations, principally related to failures to maintain effective policies, procedures, and processes. StemGenex Biologic Laboratories, LLC.[226]  Also in October 2018, FDA issued a Warning Letter to StemGenex, a San Diego–based stem cell company, for a litany of alleged cGMP violations (as well as promotional issues).  Given that many of FDA’s cGMP actions originate overseas, the letter targeting a U.S.-based facility is comparatively rare, although FDA scrutiny of companies exploring stem cell technology is not uncommon in recent history.  FDA cited StemGenex for “unvalidated manufacturing processes, uncontrolled environment, lack of control of components used in production, [] and lack of sufficient and validated product testing.”  According to FDA, these shortcomings posed “a significant risk that [the company’s] product may be contaminated with microorganisms or have other serious product quality defects.” C.    Quality System Regulation FDA pursued QSR violations aggressively in 2018, including against foreign companies.  Of the 25 device-related Warning Letters, 19 were issued for QSR violations.  A few representative Warning Letters are summarized below: Dexcowin Co., Ltd.[227]  After a 2017 inspection of the company’s facility in South Korea, FDA issues a February 2018 Warning Letter to Dexcowin, a portable dental diagnostic X-ray device manufacturer, listing QSR violations.  The alleged violations included a failure to establish and maintain adequate procedures for implementing corrective and preventive action (“CAPA”), as required by 21 CFR 820.100(a), failure to maintain required data, and training procedure deficiencies.  FDA noted that “[g]iven the serious nature of the violations,” FDA was taking steps to refuse entry of these devices into the United States “until these violations are corrected.” US Vascular, LLC.[228]  In June, FDA issued a Warning Letter to the manufacturer of Class II devices used in vascular pathology for alleged QSR violations—including failure to establish required procedures for design control and change; receiving, reviewing, and evaluating complaints; CAPA; and document and product control.  FDA also alleged MDR violations in its Warning Letter  FDA admonished the company for its repeat violations, noting that 11 of 12 citations “were repeat citations from the April 2017 inspection,” and 8 citations “were also repeated from the March 2016 inspection.”  FDA informed the company that because it had “not provided any objective evidence of corrections to date,” the adequacy of the company’s response with respect to several of the violations could not be determined. Anigan, Inc.[229]  In a July Warning Letter to a manufacturer of reusable menstrual cups, FDA alleged several QSR violations, such as inadequate procedures for design control and validation, finished device acceptance, and quality audits.  FDA admonished the company for failing to conduct risk analysis for either model of the company’s menstrual cups.  FDA also alleged that management with executive responsibility at the company had “not reviewed the suitability and effectiveness of the quality system.”  FDA recommended that the company review the relevant regulatory requirements and promptly correct its violations. Becton Dickinson Medical Systems.[230]   In September, FDA issued a Warning Letter to a manufacturer of lock flush syringes for alleged QSR violations.  FDA cited the company for five separate violations, principally related to failures to maintain effective procedures and processes.  Among the issues, FDA alleged that the company failed to adequately establish procedures “to control environmental conditions” and “to prevent contamination of equipment or product.”  Although FDA determined that the company’s response “appear[ed] to be adequate,” a follow-up inspection would be required to assess the ongoing corrective actions.  D.    cGMP Rulemaking and Guidance Activity In 2018, FDA also issued several notable guidance documents related to cGMP issues, including the following: Repackaging Biologics.  In January, FDA issued final guidance related to cGMP compliance; the document is entitled Mixing, Diluting, or Repackaging Biological Products Outside the Scope of an Approved Biologics License Application.[231]  It replaces (and largely replicates) 2017 draft guidance of the same name.  The guidance document details the conditions under which state-licensed pharmacies, federal facilities, or outsourcing facilities can mix, dilute, and repackage biologics.  According to FDA, “diluting or mixing a biological product with other components, or repackaging a biological product by removing it from its approved container-closure system and transferring it to another container-closure system, is, in the absence of manufacturing controls, highly likely to affect the safety and/or effectiveness of the biological product.”[232]  FDA recognized, however, that in certain circumstances, it is appropriate to mix, dilute, or repackage a biological product to meet the needs of a specific patient (e.g., in the pediatric care context).[233]  Although any biological product that is mixed, diluted, or repackaged such that it falls outside the scope of an approved biologics license application is an “unlicensed biological product,” this guidance details the appropriate conditions under which these steps can be taken without risk of FDA action.  Notably, this document contains additional requirements for outsourcing facilities to pass certain tests and to notify customers of any failing results in order to avoid FDA action.[234] Compounding Pharmacies.  In December, FDA issued revised, draft guidance for compounding pharmacies:  Current Good Manufacturing Practice—Guidance for Human Drug Compounding Outsourcing Facilities Under Section 503B of the FD&C Act.[235]  The draft guidance, which revises 2014 guidance, is specific to outsourcing facilities and is intended to fill a gap until FDA “promulgate[s] more specific cGMP regulations for outsourcing facilities.”  In that context, the draft guidance focuses on cGMP requirements intended to ensure sterility of the drug manufacturing process, and safety issues that pose the “highest risk,” including ensuring the appropriate potency and labeling for compounded drugs.  The draft guidance makes specific recommendations for quality assurance, facility design, manufacturing controls, and other topics. Data Integrity.  FDA also issued final guidance related to Data Integrity and Compliance With Drug CGMP.[236]  The guidance emphasizes the importance of “reliable and accurate” data, but allows for “flexible and risk-based strategies to prevent and detect data integrity issues.”  Notably, the guidance suggests that “management with executive responsibility” must “create a quality culture where employees understand that data integrity is an organizational core value and employees are encouraged to identify and promptly report data integrity issues,” and warns that data integrity issues in manufacturing processes can lead to Warning Letters, import alerts, and consent decrees.  FDA Commissioner Gottlieb described the guidance as “one part of [FDA’s] multi-layered approach to ensuring the integrity of data,” which also includes the “pre-approval inspection process” and “thorough assessments of applications prior to approval and when companies submit information about changes to their manufacturing processes.”[237] V.    ANTI-KICKBACK STATUTE As outlined above in the summary of recent DOJ enforcement activity, DOJ routinely invokes the AKS in bringing FCA claims against health care companies and drug and device makers in particular.  Below, we outline several notable developments in AKS-related case law and guidance.  We also address a developing story regarding the administration’s interest in rolling back safe harbor protection for drug rebates, one prong of its “Blueprint” to decrease drug prices in the United States. A.    AKS-Related Case Law Although relatively quiet, 2018 delivered several notable cases involving pharmaceutical companies and medical device makers. Causation in AKS-Premised FCA Cases.  In January, the Third Circuit affirmed the grant of summary judgment in favor of a pharmaceutical company accused of FCA and AKS violations in connection with its charitable donations.[238]  In United States ex rel. Greenfield v. Medco Health Solutions, Inc., the relator alleged that a specialty pharmacy, Accredo Health Group, which delivered clotting medication to patients at home and provided nursing assistance for patients with hemophilia, made donations to two charities that then recommended the company to hemophilia patients.  The U.S. District Court for the District of New Jersey denied the relator’s motion for summary judgment and granted the company’s, finding that the relator was unable to show that the charities’ referral of several federally insured patients resulted from the pharmaceutical company’s charitable contributions. On appeal, the relator argued that the district court erred in requiring a direct link between the contributions and the referrals, and the government filed an amicus brief in support of neither party contending that the Court erred in requiring the relator to prove that patients chose the company because of the charities’ recommendations.  The government also asserted that, for purposes of establishing an FCA violation, the relator need only demonstrate that a claim that sought reimbursement for medical care was provided in violation of the AKS.  For its part, the specialty pharmacy maintained that the district court correctly framed the relator’s burden of establishing an FCA breach in requiring the relator to point to some evidence that the pharmacy received referrals for federally insured patients “because of” its allegedly improper donations. Applying the post-Patient Protection and Affordable Care Act (“PPACA”) version of the AKS, which provides that “a claim that includes items or services resulting from a violation of [the AKS] constitutes a false or fraudulent claim for purposes of [the FCA],”[239] the Third Circuit ultimately affirmed the district court’s grant of summary judgment in favor of the specialty pharmacy.  The Third Circuit held that a relator, at minimum, must show that at least one of the patients for whom the company submitted reimbursement claims was exposed to a referral from a charity that received a donation.  Of note, the Third Circuit disagreed with both parties as to the necessary standard, concluding that there must be “some connection between a kickback and a subsequent reimbursement claim.”  The Third Circuit explained further that “[i]t is not enough . . . to show temporal proximity between [the company’s] alleged kickback plot and the submission of claims for reimbursement[,]” but it also is “too exacting to . . . require[] a relator to prove that federal beneficiaries would not have used the relevant services absent the alleged kickback scheme.”[240] Escobar and AKS-Based FCA Cases.  In United States ex rel. Medrano et al. v. Diabetic Care RX, LLC, a magistrate judge for the U.S. District Court for the Southern District of Florida recommended dismissal of the government’s FCA claims against compounding pharmacy, Diabetic Care RX d/b/a Patient Care America (“PCA”), and its private equity fund owner, Riordan, Lewis & Haden, Inc., for alleged AKS violations.[241]  After intervening in the case, the government alleged that PCA paid kickbacks to marketers through profit-sharing arrangements in exchange for prescription referrals, and that the marketers covered patients’ copayments to induce those patients to accept the defendant’s compounded medications.[242]  The government also alleged that PCA hid its contribution to some of the prescription copayments through a “sham charitable organization.”[243] The magistrate judge held that the argument that PCA’s reimbursement claims were “tainted” by the alleged kickbacks failed to state a valid FCA claim under either the express or implied certification theory.  In so holding, the magistrate judge explained that the representative claims cited in the complaint failed to identify any “specific representations” made to Tricare when submitting those claims,[244] and that the complaint only cited certifications related to a provider agreement between PCA and the Tricare pharmacy benefits manager that pre-dated submission of the allegedly false claims.[245]  The district court has yet to weigh in on the magistrate judge’s recommendations. The AKS’s Exemption for Payments to Employees.  In deciding Carrel v. AIDS Healthcare Foundation, Inc. this past August, the Eleventh Circuit examined the AKS provision exempting payments to employees from the statute’s reach.[246]  As noted above, the relators claimed that the foundation improperly paid bonuses to its employees for referring patients with HIV/AIDS to other services provided by the foundation.  But the Eleventh Circuit concluded that the AKS employee exemption provision—which immunizes payments from employers to their employees “for employment in the provision of covered items or services”[247]—applied to the referral payments.[248]  The court reasoned that the plain language of the Ryan White Act, 42 U.S.C. § 300ff-51(e)(2), classifies the referral of patients with HIV/AIDS to entities funded under the Act as “a standalone compensable ‘service,’” and thus the payments were tied to employment in the provision of a covered service.[249]  Emphasizing that the “relevant statutes say nothing to forbid payment on a per-capita basis or to require nondiscriminatory referrals to any available healthcare provider,”[250] the court found that the referrals to the foundation thus qualified as a “covered . . . service[]” under the statutory exemption, and that the foundation’s payments to its own employees for those referrals did not violate the AKS.[251] The One Purpose Test.  In United States ex rel. Derrick v. Roche Diagnostics Corp., the U.S. District Court for the Northern District of Illinois allowed a relator’s AKS-based FCA claims to move forward after deciding that the complaint sufficiently alleged that the payment claims were “tainted” by underlying AKS violations.[252]  According to the complaint, Roche contracted with the insurance company, Humana, to list its glucose monitoring products on Humana’s Medicare formularies but later discovered that it had overpaid certain rebates to Humana.[253]  The relator alleged that, after Humana notified Roche that it would be removing Roche’s products from the formularies, Roche forgave the majority of that debt in exchange for remaining on Humana’s formularies and excluding competing brand products from those formularies.[254]  In denying the defendants’ motions to dismiss, the district court explained that the relator need not identify a specific claim for payment that “included items or services resulting from an AKS violation,” as Humana’s Medicare contracts required monthly payment claims covering the products at issue, and the allegations “necessarily le[d] to the conclusion that Humana presented claims to CMS that were tainted by the alleged fraud.”[255]  The court further explained that, even if the debt forgiveness arrangement “had a legitimate business purpose,” it could constitute “illegal remuneration for AKS purposes if one reason for it was to compensate[] past or induce[] future referrals.”[256] Addressing the Remuneration Element.  In State v. MedImmune, Inc.,[257] the U.S. District Court for the Southern District of New York held that the State of New York adequately pled that “the sharing of [personal health information (“PHI”)] with specialty pharmacies could plausibly constitute ‘remuneration’ in violation of the federal anti-kickback statute” so as to support the State’s claim that MedImmune caused a specialty pharmacy to submit false billing certifications in violation of the New York State False Claims Act.[258]  Although the State alleged that MedImmune sales personnel would “curry favor” with hospital administrators in exchange for access to confidential PHI, the crux of the State’s claims centered on whether MedImmune violated the AKS by passing that PHI on to the specialty pharmacy as “leads” to use in pursuing prime candidates for MedImmune’s neonatal respiratory drug.[259]  The ruling joins the growing number of district courts taking a broad approach to the definition of “remuneration” under the AKS at the motion-to-dismiss stage. B.    Legal Challenges to AKS-Based Theories In December, DOJ moved to dismiss 11 qui tam FCA actions brought by Health Choice Group, LLC against multiple pharmaceutical companies.[260]  Rejecting allegations that the defendants violated the AKS by providing prior authorization assistance and arranging for nurses to educate patients on proper administration of newly prescribed medicines, the government argued that the relators’ allegations “lack[ed] sufficient factual and legal support” and would be contrary to previous guidance issued by HHS OIG on the provision of patient educational materials and informational programs.[261] The government emphasized that the right for a qui tam plaintiff to proceed in the absence of government intervention “is not absolute,” and it moved for dismissal given the need to “preserv[e] scarce government resources and protect[] important policy prerogatives of the federal government’s healthcare programs.”[262]  Specifically, the government maintained that the “relators should not be permitted to indiscriminately advance claims on behalf of the government against an entire industry that would undermine common industry practices the federal government has determined are . . . appropriate and beneficial to federal healthcare programs and their beneficiaries,” including the “provision of educational information and instruction to patients” once a physician “has appropriately prescribed a medication.”[263]  Although the fact that the relator was an entity created to bring FCA qui tam suits may have impacted DOJ’s approach to these cases, the government’s effort to dismiss these actions—like the Campie case discussed above—may signal a potential shift in enforcement policy under the parameters outlined in the updated Justice Manual and Granston Memo. Whereas DOJ opted to challenge Health Choice Group’s AKS theories, both DOJ and HHS OIG have challenged patient assistance programs under kickback-based theories over the past few years.  Indeed, in our 2017 Year-End Update, we discussed HHS OIG’s increased scrutiny of patient assistance programs, including the unprecedented rescission of guidance previously issued to an industry-funded charity that operated a patient assistance program due to alleged breaches of two commitments related to donor independence.[264]  We also discussed the $210 million settlement in December with another patient assistance charity for similar violations.[265] In response to this enforcement and regulatory environment, a patient assistance charity filed a lawsuit in January challenging HHS OIG advisory opinions regarding interactions with pharmaceutical industry donors on First Amendment grounds.[266]  The charity’s complaint alleges that recent revisions to an advisory opinion infringe on the charity’s freedom of speech.  According to the charity, it had relied on the advisory opinion since 2002, and the revisions came after a three-year negotiation period with HHS OIG following its release of a special bulletin in 2014 that warned about the risk of fraud and abuse at patient assistance charities.  Among the revisions are required commitments not to solicit donor suggestions as to the selection of which diseases to address through funding decisions, not to let donors influence the distribution of funding, and not to fund disease therapies at the request of donors that sell treatments for those diseases.  At its core, the complaint alleges that these required commitments amount to “new and oppressive restrictions that cripple [the charity’s] ability to carry out its charitable efforts.”[267] The court recently granted the government’s motion for limited discovery into whether the charity waived its First Amendment rights by agreeing to the advisory opinion’s terms and “whether the interests promoted by enforcement of the speech-related provisions of OIG’s advisory opinion outweigh any public policy harms that would result from enforcement.”[268]  As the lawsuit progresses, it could develop into a case with serious implications for the government’s ability to control truthful speech regarding federally reimbursable drugs. C.    Rulemaking HHS made headlines in 2018 with a proposed rule that would roll back a significant AKS safe harbor.  In mid-July, HHS submitted a proposed rule for review and clearance to the Office of Management and Budget (“OMB”) titled “Removal Of Safe Harbor Protection for Rebates to Plans or PBMs Involving Prescription Pharmaceuticals and Creation of New Safe Harbor Protection.”[269]  Although the substance of the rule was not publicly available, the title made clear that HHS was considering potentially allowing AKS enforcement actions against either drug manufacturers, Pharmacy Benefit Managers (“PBMs”), or both, when manufacturers pay PBMs rebates for services such as exclusively covering a manufacturer’s products or favoring such products through a prescription benefit plan.  On January 31, 2019, HHS ultimately issued a proposed rule that would amend the definition of “discount” to eliminate the safe harbor covering rebates paid to Part D insurers, Medicaid managed care organizations, and PBMs.[270]  The rule change would not impact discounts to distributors, providers, and pharmacies.  With a proposed effective date of January 1, 2020, the rule also would add two new safe harbors protecting discounts provided directly to patients “at the point of sale,” if those discounts meet certain criteria, as well as “low risk” fixed fee arrangements for services provided by PBMs to manufacturers, if pursuant to written agreements that reflect fair market value and are not tied to the volume or value of generated business. Such a shift in safe harbor policy would be consistent with the administration’s “American Patients First: The Trump Administration Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs” initiative discussed below.  HHS Secretary Alex Azar also has hailed the proposal as having “the potential to be the most significant change in how Americans’ drugs are priced at the pharmacy counter, ever,” and has praised its potential impact on transparency in the drug markets.[271] In August, HHS also sought comments on the proposal to expand certain safe harbors and exceptions to the Civil Monetary Penalty’s (“CMP”) definition of “remuneration” in an effort to “foster arrangements that would promote care coordination and advance the delivery of value-based care.”[272]  Recognizing the “broad reach of the [AKS] and beneficiary inducements CMP as a potential impediment to beneficial arrangements that would advance coordinated care,”[273] HHS solicited feedback on potential “care coordination,” “value-based arrangements,” “alternative payment models,” “innovative technology” arrangements, and “other novel financial arrangements,” as well as “the types of incentives providers, suppliers, and others are interested in providing to beneficiaries” to improve quality of care, care coordination, and patient engagement.[274]  HHS also sought input on the benefits and risks of “relieving or eliminating beneficiary cost-sharing obligations,” proposals for donated or subsidized “cybersecurity-related items and services” for providers, and implementation of other recently passed legislation.[275]  HHS received over 350 comments before the end of the comment period in October.  The AKS consistently has faced industry critique that its provisions are outdated and unable to keep pace with innovative technologies and shifting reimbursement trends that have moved from fee-for-service systems to more outcome- and value-based models.  The allowance for new value-based pricing, collaboration, and risk-sharing arrangements may provide opportunities to align incentives among providers and market participants, as well as opportunities to leverage the specialized knowledge and experience of drug and device manufacturers to identify potential avenues for coordinating and optimizing care in a more cost-effective and patient-friendly manner. Whether HHS incorporates the industry’s feedback remains to be seen, but we will keep you apprised of any developments related to these proposed policy changes in future updates. D.    Legislative Developments Under the Physician Payments Sunshine Act provisions of the PPACA, drug and device manufacturers must report annually payments made to physicians and teaching hospitals.[276]  To increase transparency and accountability, the “Open Payments” database catalogues information about those payments in a searchable online repository available to the public.  One legislative development in 2018 will impact such future reporting requirements. The SUPPORT for Patients and Communities Act noted above expanded these reporting requirements for pharmaceutical and medical device manufacturers.  As of January 1, 2022, manufacturers also must report through the Open Payments system any transfer of value to physician assistants, nurse practitioners, clinical nurse specialists, certified registered nurse anesthetists, and certified nurse midwives.[277] E.    HHS OIG Guidance HHS OIG issued a number of advisory opinions discussing the AKS in 2018, although only three pertained to drug and device manufacturers. In May, HHS OIG endorsed an arrangement under which a company that manufactures and distributes medical devices and pharmaceutical products provides free samples of ostomy products to patients and then contracts with a third party to conduct customer satisfaction surveys regarding the sample products.[278]  HHS OIG gave significant weight to the fact that the company informs patients that they are not permitted to bill third-party payors for sample products, meaning federal health care programs should not incur any costs associated with the arrangement.[279]  Further, HHS OIG noted that the contractor conducting the surveys does not sell the medical device company’s products and is not compensated in connection with future sales of such products.[280] On September 10, HHS OIG evaluated a surgical device and wound care product manufacturer’s proposed warranty program for a suite of three products used in joint replacements.[281]  Under the program, the manufacturer would refund hospitals for the aggregate purchase price of the product suite without regard to insurance status or payor if (1) an inpatient received all three products within the “suite,” (2) the patient was readmitted to the same hospital as an inpatient within 90 days due to a surgical site infection or for a revision to the implanted system, and (3) each of the manufacturer’s products was used in accordance with its instructions for use and other labeling, and the hospital certifies that the readmission was due to a failure of the product “to perform as expected.”[282]  Although HHS OIG concluded that the safe harbor for warranties, 42 C.F.R. § 1001.952(g), does not apply to bundled items, it concluded that the proposed arrangement “pose[d] a sufficiently low risk of fraud and abuse under the [AKS].”[283] Specifically, because none of the products in the suite is separately reimbursable, HHS OIG found that the risk of “overutilization,” “inappropriate” product use, and increased Medicare costs was low given the incentive for hospitals to choose the best product.[284]  HHS OIG also emphasized the increased transparency and oversight stemming from required cost reporting and the manufacturer’s commitment to meet all seller obligations under the warranties safe harbor, which would “put hospitals on notice of their obligation to appropriately report any refund they obtained.”[285]  Beyond recognizing the “innovative and potentially beneficial” qualities of the warranty program in reducing readmission through encouraged use of the product suite, HHS OIG also cited proposed hospital certifications certifying that physicians would remain responsible for medical decisions, as well as the lack of exclusivity requirements or other quotas, minimums, and volume- or referral-based eligibility criteria.[286] On November 13, HHS OIG concluded that a drug company’s proposal to provide free doses of its drug to hospitals to treat inpatients with a particular condition could constitute improper remuneration under the AKS.[287]  The company proposed to stock the drug at participating hospitals on a consignment basis, under which physicians seeking to prescribe the drug would submit a referral to the drug’s reimbursement hub and initiate therapy using the free vial.[288]  The reimbursement hub would provide additional free vials if needed for inpatient use and would provide the same for outpatients unable to secure insurance coverage for the drug.[289] Considering publicly available information outside of the materials submitted by the drug company, HHS OIG provided several reasons for its decision, including that: the proposed arrangement “would relieve a hospital of a significant financial obligation that [it] otherwise would incur” in light of the “substantial price increases” for the drug in recent years; “no portion of the significant savings [to the hospital] . . . would be passed on to the Federal health care programs” since the drug is not separately reimbursable in the inpatient setting; the proposal “could function as a seeding arrangement,” because insurers (including federal health care programs) may end up paying for the drug when insured patients need to finish the treatment on an outpatient basis, and because providing the free drug to inpatients “facilitates [the] high price for the [d]rug’s other indications”; it “could result in steering or unfair competition” by “influenc[ing] prescribers to consider the [d]rug as a first option”; providing the drug on the proposed consignment basis actually would eliminate two of the barriers cited by the drug company (i.e., immediate access and unwillingness to bear excess inventory risks); and certifications that the free vials would not be contingent on future purchases “ring[] hollow,” as “receipt of the free vial would be contingent on future purchases of the [d]rug” for any outpatients who have insurance coverage and must purchase the drug to avoid potential adverse medical consequences from halting the treatment they began for free on an inpatient basis.[290] VI.    DRUG PRICING Signaling a reinvigorated focus on drug pricing, the Trump Administration announced the “American Patients First: The Trump Administration Blueprint to Lower Drug Prices and Reduce Out-of-Pocket Costs” initiative (the “Blueprint”) in May 2018, which aims to lower prices for consumers through a combination of increasing competition among drug manufacturers, strengthening Medicare’s negotiating power, and lowering Medicare and Medicaid list prices.[291] The announcement of the Blueprint spurred several related HHS and FDA initiatives throughout 2018, and the administration’s focus on drug pricing shows no signs of abating as we transition into 2019.  Further, the House Committee on Oversight and Reform already has “launched one of the most wide-ranging investigations in decades into the prescription drug industry’s pricing practices” with the goal of “determin[ing] why drug companies are increasing prices so dramatically, how drug companies are using the proceeds, and what steps can be taken to reduce prescription drug prices.”[292]  The investigation will begin with requests for detailed information and documents regarding pricing practices from 12 drug companies, and the Committee has pledged to “hold its first of several hearings in the coming weeks.”[293] Below, we address several other notable moves by HHS and FDA on the drug pricing front. A.    Rulemaking In support of the Blueprint’s efforts to increase pricing competition and negotiations and lower list prices, CMS proposed several rules in the latter half of the year that could impact drug pricing in the future. In October, CMS proposed a rule that would require direct-to-consumer (“DTC”) television ads for certain Medicare- and Medicaid-reimbursable prescription drugs and biological products to display the list price of the drug or product.[294]  Although CMS touted the ability of consumers to “price shop” based on the pricing information that would be included in the ads,[295] it is unclear how the market would react to such pricing information, as most customers do not pay list prices for prescription drugs or biological products.  The proposed rule also clarifies that the Secretary of HHS would maintain an annual “public list” of all drugs and biological products that it identifies as “in violation of th[e] rule” but indicates that the “primary enforcement mechanism” would be “the threat of private actions” under the Lanham Act’s prohibitions on false or misleading advertising.[296]  The comment period ended on December 17, 2018.  If the proposed rule moves forward, it may trigger challenges to CMS’s rulemaking authority and First Amendment objections. Also in October, CMS issued an advanced notice of proposed rulemaking to solicit public comments on a new “International Pricing Index” payment model, which aims to “phas[e] down” the prices that Medicare Part B pays for “selected” physician-administered drugs to align more closely with international prices in “economically-similar countries.”[297]  The notice highlights several shortcomings with the current system, including the use of a six percent add-on payment keyed to the price of the drug rather than a “set payment reflecting the service being performed,” as well as the financial risk placed on providers under the traditional “buy-and-bill system.”[298]  In addition to phasing down the Medicare payment amount for selected Part B drugs, the proposed model would “[a]llow [approved] private-sector vendors to negotiate prices for drugs, take title to drugs, and compete for physician and hospital business” and would “[p]ay physicians and hospitals [outpatient departments] the add-on based on a set payment amount structure.”[299]  The comments period for the proposed rule closed on December 31, 2018. In November, CMS also proposed a rule that would introduce changes to Medicare Part D and Medicare Advantage drug plans in an effort to support drug price negotiations and reduce out-of-pocket costs.[300]  The rule proposes to revise certain protections that currently require Medicare Part D plans to cover every FDA-approved drug in six specially designated therapy classes.  The new rule would create certain exceptions to the protected class policy, under which Part D sponsors could use prior authorization and step therapy for protected class drugs, exclude any protected class drugs that are updated formulations of existing protected drugs (even if the old formulation is no longer available), and exclude a protected class drug from its formulary when the price for that drug rises faster than inflation over a designated period.[301]  Consistent with FDA guidance described below on non-protected class drugs, the proposed rule also would allow Part D sponsors to introduce “indication-based formulary design and utilization management” for protected class drugs, allowing them to create drug formularies based on self-chosen disease indications.[302]  Under the proposal, Part D sponsors also must implement a Real-Time Benefit Tool by January 1, 2020, alerting prescribers to lower-cost therapy alternatives under the patient’s plan benefits,[303] and the plans’ Explanation of Benefits must include information about negotiated price changes and lower-cost therapeutic alternatives for beneficiaries.[304] B.    Related Guidance In August, CMS issued two guidance documents with potential implications for drug pricing.  Rescinding previous guidance, CMS issued a memorandum on August 7, 2018, permitting Medicare Advantage (“MA”) plans to use step therapy for Part B drugs as of January 1, 2019, “as part of a patient-centered care coordination program.”[305]  Step therapy is a form of prior authorization that begins patients on medication “with the most preferred drug therapy” for a particular medical condition and “progresses to other therapies only if necessary,” allowing some patients to begin treatment with a more cost-effective medication before moving to more expensive options if the first proves ineffective.[306]  In issuing the guidance, CMS emphasized that allowing step therapy for Part B drugs “will help achieve the goal of lower drug prices while maintaining access to covered services and drugs for beneficiaries,”[307] and it clarified that an MA plan opting for step therapy Part B drugs must “offer beneficiaries an opportunity to participate in drug management care coordination activities”[308] and should pass on savings and encourage enrollees to participate in such programs by “offering rewards in exchange for enrollee participation” in accordance with applicable laws.[309]  MA plans that choose to offer Part B step therapy programs also must adhere to certain disclosure and reporting obligations outlined in the guidance. In another reversal, CMS issued a memorandum on August 29, 2018, allowing Medicare Part D plans to tailor on-formulary coverage by drug indication.[310]  Such “indication-based formulary design” is allowed in the private sector, but Part D plans currently must cover every FDA-approved indication for drugs included on their formularies, which can limit their ability to negotiate discounts.[311]  CMS hopes that the flexibility of including different drugs for different indications will “provide additional negotiating leverage” on drug prices and lead to greater diversity of drug choices and coverage plans.[312]  The memorandum also clarifies that Part D sponsors must include a “therapeutically similar drug on formulary” for any indications for which it plans to limit coverage of a particular drug.[313]  In addition, Part D plan sponsors must update beneficiary materials to communicate any indication limitations.[314] FDA also took action aimed at increasing the availability of nonprescription drugs and lowering drug prices, including through issuing draft guidance that outlines potential approaches to consider when demonstrating safety and effectiveness for nonprescription drug products,[315] issuing 63 product-specific guidances to promote generic drug access and drug price competition,[316] establishing a working group to examine the possibility of “import[ing] prescription drugs from other countries in the event of a dramatic price increase” for drugs with only one manufacturer and without patents or exclusivities,[317] and releasing a Biosimilar Action Plan to improve the development and approval process and “encourag[e] innovation and competition among biologics and the development of biosimilars.”[318] VII.    MEDICAL DEVICES In 2018, FDA published multiple guidance documents and rulemakings aimed at making device clearance approval processes more efficient, fostering innovation, and promoting cybersecurity and device safety.  In this section, we provide an overview of CDRH’s strategic priorities, the significant reforms of the device premarket review programs, the Medical Device Safety Action Plan, other guidance developments, and device-related enforcement activity. A.    CDRH Strategic Priorities for 2018 to 2020 CDRH’s strategic priorities for 2018 to 2020 aim to ensure that patients in the United States are the first in the world to have access to cutting-edge, safe, and effective devices.[319]  CDRH’s ultimate goal is for more than 50% of manufacturers of novel technologies to “intend to bring their devices to the U.S. first or in parallel with other major markets by December 31, 2020.”[320]  In order to achieve this broad goal, CDRH will focus on three strategic priorities, namely (1) improving employee engagement, (2) increasing simplicity, and (3) building collaborative communities.[321]  The report suggests FDA’s awareness that the regulatory process must be made less burdensome in order to ensure that the United States remains a country that fosters innovation. Finding that “[its] issues are often complex,” and “[its] solutions and processes do not necessarily have to be,”[322] CDRH is making it a priority to promote simplicity by streamlining its policies, processes, and programs to more quickly and efficiently achieve CDRH’s goal and vision.  As stated in the report, this may involve “removing unnecessary burdens [CDRH] impose[s] on [itself], such as through cumbersome processes, vague policies, and out of date information technology systems.”[323] With respect to collaborative communities, CDRH states that the American public is best served when stakeholders, including CDRH, work together to proactively solve problems.  To that end, CDRH aims to establish at least ten new Collaborative Communities by December 31, 2020, which will allow consumers to take a more active role in “the advancement of smart regulation.”[324]  One example proposed by CDRH included collaborative forums for next generation sequencing tests, in which clinicians, test developers, patients, and other professionals would work together to assess the evolving science and recommend when there is adequate evidence supporting the association between particular genetic variants and specific diseases or conditions.[325] B.    Reforms of FDA’s Premarket Review Program In 2018, FDA focused on reinvigorating and streamlining the premarket review of medical devices, particularly the 510(k) program, which remains the most common premarket pathway for devices.  Eighty-two percent of the devices cleared or approved in 2017 were through a 510(k).  These activities followed FDA Commissioner Gottlieb’s ongoing goals to modernize 510(k) review, permitting increased flexibility and facilitating a streamlined process that could potentially accelerate the rate at which new innovations are brought to market.[326] Older Predicate Devices.  On November 26, 2018, FDA announced that it would seek to reduce the reliance on older predicate devices (e.g., predicates that are less than ten years old) and “to drive innovators toward reliance on more modern predicate devices or objective performance criteria.”[327]  FDA also is considering making public those 510(k)-cleared devices that demonstrated substantial equivalence to older predicates.  While emphasizing that the agency did not believe that devices that rely on older predicates are unsafe, FDA’s view is “that encouraging product developers to use more modern predicates would give patients and their doctors a choice among older and newer versions of a type of device, promote greater competition to adopt modern features that improve safety and performance, and help make sure that newer devices reflect more modern technology and standards that can improve patient care and outcomes.”[328] New Safety and Performance Based Pathway.  Last month, FDA finalized guidance on the new “Safety and Performance Based Pathway,” which expands on the concepts underlying the Abbreviated 510(k) pathway. The new pathway relies on modern performance-based criteria and current technological principles to demonstrate substantial equivalence, replacing the direct, head-to-head comparisons to older predicates that have been a feature of traditional 510(k)s.[329]  Devices eligible for this pathway must satisfy all of the following factors:  they have indications for use and technological characteristics that do not raise different questions of safety and effectiveness than the identified predicate, and the predicate is within the scope of the list of eligible device types; the performance criteria align with the performance of one or more legally marketed devices of the same type as the new device; and the new device meets all the FDA-identified performance criteria.  All performance criteria will be published in FDA guidance, and FDA intends to publish guidance on the performance criteria for each device type and recommended testing methods. Expanded Special 510(k) Program.  FDA has initiated a pilot program to expand the scope of the Special 510(k) Program, as described in draft guidance issued on September 28, 2018.[330]  The Special 510(k) Program is a streamlined review process for minor, well-defined changes made to already cleared devices.  Originally, the program did not include changes affecting a device’s intended use or fundamental scientific technology, but the draft guidance makes these changes potentially eligible for this faster review. Improvements for the De Novo Classification Process.  FDA anticipates that the reforms to the 510(k) pathway may result in an uptick in De Novo classifications.  In December 2018, FDA proposed a new rule establishing detailed procedures and criteria for the De Novo classification process to expand the use of the De Novo pathway by providing structure and clarity to applicants seeking this classification for novel, low to moderate risk devices under the FDCA, 21 U.S.C. 360c(f)(2).[331]  If finalized, the rule would become part of the Medical Device Classification Procedures under 21 C.F.R. Part 860.[332] The proposed rule defines the term “De Novo request” and includes guidance on requirements related to the format and content of De Novo requests, as well as procedures for review and criteria for accepting, granting, declining, and withdrawing them.  It reiterates that an applicant may submit a De Novo request after submitting a 510(k) and receiving a not substantially equivalent (“NSE”) determination, or before submitting the 510(k) if the applicant “determines that there is no legally marketed device upon which to base a determination of substantial equivalence.”[333]  The proposed rule specifies that requests must include “administrative information, regulatory history, device description, classification summary information, benefits and risks of device use, and performance data to demonstrate reasonable assurance of safety and effectiveness.”[334]  FDA may refuse to accept or decline a De Novo request if the request is incomplete or the device is ineligible for such a classification.[335] Other Notable Guidance Relating to Device Premarket Review. The Q-Submission Program – draft guidance.  The Q-Submission Program includes pre-submission interactions between developers and FDA as well as additional early opportunities to engage with the agency.[336]  The draft guidance provides an overview of all available mechanisms through which an applicant can request feedback or a meeting with FDA regarding potential or planned device applications.[337] Refuse to Accept Policy for 510(k)s.  The guidance document updates the procedures and criteria FDA intends to use in assessing whether a 510(k) submission meets a minimum threshold of acceptability and therefore should be accepted for substantive review to account for combination drug/device products.[338] Acceptance of Clinical Data to Support Medical Device Applications and Submissions.  The guidance helps manufacturers understand requirements for data submitted from clinical investigations conducted outside the United States, which must be from investigations conducted in accordance with good clinical practice, including review and approval by an independent ethics committee (IEC) and informed consent from subjects.[339] Determination of Substantial Equivalence for 510(k)s.  This guidance helps 510(k) submitters demonstrate substantial equivalence and is aimed at improving the predictability, consistency, and transparency of the 510(k) premarket review process, and serves as an aid for evaluating the benefit-risk profile of a new device in comparison to the predicate device.[340] 510(k) Third-Party Review Program – draft guidance.  This draft guidance describes the factors FDA will use in determining which types of devices are eligible for third-party review, outlines the process for the recognition and suspension of third-party review organizations, and aims to ensure consistent quality of work among approved third-party review organizations.[341] Multiple Function Device Products – draft guidance.  The draft guidance explains FDA’s proposed regulatory approach and policy for all multiple function device products and clarifies when and how FDA intends to assess the impact of other functions not subject to premarket review.[342]   Acceptance and Filing Reviews for Premarket Approval Applications.  This guidance updates prior PMA filing guidance to clarify requirements for combination drug/device products.[343] C.    Medical Device Safety Action Plan In April, FDA released the Medical Device Safety Action Plan, outlining its vision for how FDA will encourage innovation that spurs the development of safer devices, promotes earlier detection of risks, and facilitates communication of risk information to physicians and patients.[344]  To realize this objective, the plan sets out five areas of focus: Establish a robust medical device patient safety net in the United States; Explore regulatory options to streamline and modernize timely implementation of post-market mitigations; Spur innovation towards safer medical devices; Advance medical device cybersecurity; and Integrate the CDRH premarket and post-market offices and activities to advance the use of a Total Product Life Cycle (“TPLC”) approach to device safety.[345] Of particular interest is FDA’s proposal to address the threat of security breaches or other cybersecurity vulnerabilities that could harm patients who are using devices with advanced interconnected technologies, such as implantable cardiac pacemakers.  FDA’s plan will consider new requirements for developers, including built-in update mechanisms in medical devices and the development of a “Software Bill of Materials,” which would be used by health care providers and consumers to determine how the device functions, what software is required, and the technology upon which the device relies.[346]  FDA also is exploring the creation of a public-private partnership called the CyberMed Safety (Expert) Analysis Board, the primary role of which would be to assess vulnerability, evaluate risks, and investigate suspected or confirmed device compromises at the request of FDA or manufacturers.[347] The plan emphasizes continuing FDA’s work to establish the National Evaluation System for Health Technology (“NEST”), an active surveillance and evaluation system, developed via a public-private partnership, which would complement existing device vulnerability coordination and response mechanisms.[348]  NEST’s capabilities will “help improve the quality of real-world evidence that FDA can use to detect emerging safety signals quickly and take appropriate actions.”[349]  FDA also intends to consider whether it has the authority to impose special controls to address new or increased risks of devices, more quickly than through rulemaking.[350] D.    FDA Guidance on Devices with Cybersecurity Risk In October 2018, FDA published draft guidance containing recommendations to help ensure that device manufacturers are adequately addressing evolving cybersecurity threats.  This draft guidance builds on the premarket cybersecurity guidance FDA issued in 2014, and is aimed to ensure that marketed medical devices are sufficiently resilient to evolving cybersecurity threats.[351]  The draft guidance provides recommendations regarding device design, labeling, and the documentation that should be included in premarket submissions for devices with cybersecurity risk.[352] The guidance aims to assist manufacturers to: (1) “employ a risk-based approach to the design and development of medical devices with appropriate cybersecurity protections”; (2) “take a holistic approach to device cybersecurity by assessing risks and mitigations throughout the product’s lifecycle”; (3) “ensure maintenance and continuity of critical device safety and essential performance”; and (4) “promote the development of trustworthy devices to help ensure the continued safety and effectiveness of the devices.”[353] Also in October 2018, FDA became party to a multi-agency agreement that includes the Department of Homeland Security (“DHS”) implementing a framework for greater coordination and information-sharing about medical device cybersecurity vulnerabilities and threats.[354]  FDA also supported the development of a Medical Device Cybersecurity Regional Incident Preparedness and Response Playbook.[355]  The playbook provides tools and resources to enable health care delivery organizations to prepare for and respond to medical device cybersecurity incidents, including a standardized approach to response efforts.[356] E.    Drug-Use-Related Software On November 20, FDA began soliciting public comment on its proposed framework for regulating prescription-drug-use-related software “disseminated by or on behalf of a sponsor that accompanies one or more of the sponsor’s prescription drugs or biologics,” intended to provide clarity to stakeholders and promote innovation.[357]  Under this framework, FDA anticipated that in most instances, the prescription-drug-use-related software would not require FDA review before being disseminated.  FDA would regulate the output of the software (such as screen displays or audio messages) as promotional drug labeling subject to post-marketing requirements.  Prior FDA approval would be required in certain circumstances, such as “when a sponsor seeks to demonstrate that software has an effect on a clinically meaningful outcome and seeks to include information about the software in the FDA-required drug labeling.”[358]  The framework would not apply to software independently developed by a third party for use with prescription drugs, unless the drug sponsor licenses the software and disseminates it for use with its drug.[359] F.    Delayed Enforcement Requirements FDA has issued two guidance documents delaying implementation deadlines, thus giving manufacturers additional time to comply with the requirements at certain UDI and postmarket safety reporting requirements. On November 5, 2018, FDA informed device manufacturers that it was pushing back enforcement of unique device identification (“UDI”) compliance deadlines for at least two years for some Class I and unclassified medical devices, as well as certain other non-sterile devices requiring direct marking.[360]  For Class I and certain unclassified medical devices manufactured and labeled on or after September 24, 2018, UDI labeling, standard date format, and Global Unique Device Identification Database data submission requirements will not be enforced until Sept. 24, 2020.  FDA also is delaying the direct mark requirement for these devices, which requires devices to bear a UDI on the device itself if the device is reusable and must be reprocessed between uses, by two years until September 24, 2022.  Further, FDA will not enforce UDI direct mark requirements for Class III, life-supporting or life-sustaining, and Class II non-sterile devices that were manufactured and labeled prior to their UDI direct mark compliance deadline and remain in inventory, if the UDI “can be derived from other information directly marked on the device.” The enforcement delays came as a response to FDA’s experience thus far implementing UDI requirements for Class II, Class III, and implantable, life-supporting, or life-sustaining devices.[361]  Because FDA expects a similarly high volume of issues and questions from labelers of Class I and unclassified devices, FDA opted to focus on “addressing existing implementation challenges and optimizing the quality and utility of UDI data for higher-risk devices before focusing on UDI implementation issues for lower-risk devices.”[362] FDA also chose to delay reporting requirements for Combination Product Applicants, subject to the Combination Product Post-marketing Safety Reporting (“PMSR”) Final Rule.[363]  The decision to delay enforcement was intended to ensure that applicants have sufficient time to: (1) update reporting and recordkeeping systems and procedures, including information technology systems; (2) comply with the requirements; and (3) consider the recommendations and technical specifications that FDA intends to provide through guidance to support compliance.  In addition to the final guidance delaying the PMSR requirements, FDA also issued draft guidance that provides additional details on PMSR compliance.[364] G.    Device-Related Enforcement Letters In addition to the enforcement letters related to promotional issues and QSR/cGMP issues noted above, FDA also issued several Warning Letters for other device-related violations, such as violations of submissions, reporting, and postmarket surveillance requirements.[365] Becton Dickinson & Company.[366]  In January, the manufacturer of blood collection tubes was admonished for numerous alleged violations, including failure to file a 510(k) following significant changes to its products and failure to submit medical device reports to FDA. Fujifilm, Olympus Medical Systems Corp., Hoya Corp.[367]  In March, FDA issued Warning Letters to the three duodenoscope manufacturers in the United States for failure to comply with requested post-market surveillance studies to assess contamination risk. SynCardia Systems LLC.[368]  In early April, FDA criticized the manufacturer of a temporary artificial heart system for allegedly violating Medical Device Reporting requirements after failing to report information about a death possibly associated with use of the device. VIII.    CONCLUSION With drug pricing, patient assistance, and the opioid epidemic in the news frequently, we anticipate that 2019 will see some noteworthy developments for drug and device companies.  We will track those events and report back in our next alert.  In the meantime, if you have questions regarding the matters addressed above, we would welcome the opportunity to speak with you. [1] United States’ Mot. to Dismiss Relator’s Second Am. Compl., United States ex rel. Health Choice Grp., LLC v. Bayer Corp., Onyx Pharm., Inc., Amerisourcebergen Corp., & Lash Grp., No. 5:17-CV-126-RWS-CMC (E.D. Tex. Dec. 17, 2018). [2] Press Release, House Comm. on Oversight & Reform, Oversight Committee Launches Sweeping Drug Price Investigation (Jan. 14, 2019), https://oversight.house.gov/news/press-releases/oversight-committee-launches-sweeping-drug-price-investigation. [3] U.S. Food & Drug Admin., FDA 2019 Lapse in Funding Information, https://www.fda.gov/AboutFDA/WorkingatFDA/ucm629100.htm (last updated Jan. 18, 2019). (archived here) [4] See U.S. Dep’t of Justice, Associate Attorney General Rachel Brand, Limiting Use of Agency Guidance Documents In Affirmative Civil Enforcement Cases (Jan. 25, 2018), https://www.justice.gov/file/1028756/download. [5] See id. [6] See Memorandum, U.S. Dep’t of Justice, Factors for Evaluating Dismissal Pursuant to 31 U.S.C. 3730(c)(2)(A) (Jan. 10, 2018), https://assets.documentcloud.org/documents/4358602/Memo-for-Evaluating-Dismissal-Pursuant-to-31-U-S.pdf. [7] U.S. Dep’t of Justice, Justice Manual, Section 4-4.111, U.S. Dep’t of Justice, https://www.justice.gov/jm/jm-4-4000-commercial-litigation#4-4.111. [8] See Memorandum, U.S. Dep’t of Justice, Individual Accountability for Corporate Wrongdoing (Sept. 9, 2015), https://www.justice.gov/archives/dag/file/769036/download. [9] Rod J. Rosenstein, U.S. Deputy Attorney General, Remarks at the American Conference Institute’s 35th International Conference on the Foreign Corrupt Practices Act (Nov. 29, 2018), https://www.justice.gov/opa/speech/deputy-attorney-general-rod-j-rosenstein-delivers-remarks-american-conference-institute-0 (emphasis added). [10] Certain settlements involving multiple FCA-related theories may appear twice in case totals and recovery amounts. [11] Publication of OIG Special Advisory Bulletin on Patient Assistance Programs for Medicare Part D Enrollees, 70 Fed. Reg. 70623, 70624 (Nov. 22, 2005), https://oig.hhs.gov/fraud/docs/alertsandbulletins/2005/2005papspecialadvisorybulletin.pdf. [12] See, e.g., U.S. Dep’t of Health and Human Servs., Office of Inspector Gen., Notice of Modification of OIG Advisory Opinion No. 02-01 at 1 (Mar. 3, 2017), https://oig.hhs.gov/fraud/docs/advisoryopinions/2017/AdvOpn02-1-mod.pdf. [13] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Drug Maker Actelion Agrees to Pay $360 Million to Resolve False Claims Act Liability for Paying Kickbacks (Dec. 6, 2018), https://www.justice.gov/opa/pr/drug-maker-actelion-agrees-pay-360-million-resolve-false-claims-act-liability-paying. [14] Id. [15] Id. [16] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Drug Maker Pfizer Agrees to Pay $23.85 Million to Resolve False Claims Act Liability for Paying Kickbacks (May 24, 2018), https://www.justice.gov/opa/pr/drug-maker-pfizer-agrees-pay-2385-million-resolve-false-claims-act-liability-paying-kickbacks. [17] Id. [18] Id. [19] Id. [20] Id. [21] Id. [22] Id. [23] Id. [24] See Jazz Pharmaceuticals Public Limited Company, Form 10-Q, at 70 (filed May 8, 2018), http://services.corporate-ir.net/SEC.Enhanced/SecCapsule.aspx?c=210227&fid=15625057. [25] See id. [26] See Jazz Pharmaceuticals Public Limited Company, Form 10-Q, at 21 (filed Nov. 6, 2018), http://services.corporate-ir.net/SEC.Enhanced/SecCapsule.aspx?c=210227&fid=15903029. [27] Press Release, Lundbeck, Lundbeck reaches voluntary agreement in principle with U.S. Department of Justice (June 6, 2018), https://investor.lundbeck.com/news-releases/news-release-details/lundbeck-reaches-voluntary-agreement-principle-us-department. [28] Id. [29] Corp. Governance, Lundbeck, http://www.lundbeck.com/global/about-us/corporate-governance/risk-management (last modified Feb. 7, 2018). [30] Press Release, Patient Services Inc., PSI Files Lawsuit Against U.S. Department of Health and Human Services (Jan. 9, 2018), https://www.patientservicesinc.org/news/psi-files-lawsuit-against-u-s-department-of-health-and-human-services-for-violating-its-free-speech-rights. [31] See Insys Therapeutics, Inc., Form 10-Q, at 17–18 (filed Nov. 9, 2018), https://insysrx.gcs-web.com/static-files/9a1a1a6e-3e61-4ab0-9826-f238f3a0d930; United States’ Compl. in Intervention at 4–5, U.S. ex rel. Maria Guzman v. Insys Therapeutic, Inc., No. 2:13-CV-05861-JLS-AJW (C.D. Cal. Apr. 13, 2018). [32] United States’ Compl. in Intervention at 4–5, U.S. ex rel. Maria Guzman v. Insys Therapeutic, Inc., No. 2:13-CV-05861-JLS-AJW (C.D. Cal. Apr. 13, 2018). [33] Id. at 5. [34] Id. at 13–33. [35] Press Release, U.S. Dep’t of Justice, U.S. Attorney’s Office, D. of Mass., Former Vice President of Insys Pharmaceuticals Pleads Guilty to Racketeering Scheme (Nov. 28, 2018), https://www.justice.gov/usao-ma/pr/former-vice-president-insys-pharmaceuticals-pleads-guilty-racketeering-scheme. [36] See Information, United States v. Babich, No. 1:16-cr-10343-ADB, No. 652 (D. Mass. Jan. 3, 2019); Parties’ Agreed Statement of Facts, United States v. Babich, No. 1:16-cr-10343-ADB, ECF No. 668 (D. Mass. Jan. 10, 2019). [37] Press Release, U.S. Dep’t of Justice, U.S. Attorney’s Office, E. Dist. of Pa., Abbott Laboratories and AbbVie Inc. to Pay $25 Million to Resolve False Claims Act Allegations of Kickbacks and Off-Label Marketing of the Drug TriCor® (Oct. 26, 2018), https://www.justice.gov/usao-edpa/pr/abbott-laboratories-and-abbvie-inc-pay-25-million-resolve-false-claims-act-allegations. [38] Id. [39] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Medical Device Maker ev3 to Plead Guilty and Pay $17.9 Million for Distributing Adulterated Device; Covidien Paid $13 Million to Resolve Civil Liability for Second Device (Dec. 4, 2018), https://www.justice.gov/opa/pr/medical-device-maker-ev3-plead-guilty-and-pay-179-million-distributing-adulterated-device. [40] Press Release, Medtronic, Medtronic Statement Regarding Recent DOJ Announcement (Dec. 4, 2018), https://www.medtronic.com/us-en/about/news/media-resources/medtronic-statement-regarding-doj.html. [41] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Abiomed, Inc. Agrees to Pay $3.1 Million to Resolve Kickback Allegations (Mar. 8, 2018), https://www.justice.gov/usao-ma/pr/abiomed-inc-agrees-pay-31-million-resolve-kickback-allegations. [42] Id. [43] For example, in 2015 Daiichi Sankyo Inc. paid $39 million to resolve allegations that it made improper payments to physicians for “speaking” on duplicative topics at Daiichi-paid dinners and for lavish dinners that exceeded the company’s own internal cost limitations.  See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Daiichi Sankyo Inc. Agrees to Pay $39 Million to Settle Kickback Allegations Under the False Claims Act (Jan. 9, 2015), https://www.justice.gov/opa/pr/daiichi-sankyo-inc-agrees-pay-39-million-settle-kickback-allegations-under-false-claims-act.  Forest Laboratories LLC and its subsidiary likewise paid $38 million in December 2016 to resolve allegations of improper kickbacks, including allegations that meals with physicians surpassed company cost limitations.  See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Forest Laboratories and Forest Pharmaceuticals to Pay $38 million to Resolve Kickback Allegations Under the False Claims Act (Dec. 15, 2016), https://www.justice.gov/opa/pr/forest-laboratories-and-forest-pharmaceuticals-pay-38-million-resolve-kickback-allegations. [44] See Notice of Intervention for Settlement at 1, U.S. ex rel. Gant Van Der Boom v. Precision Medical Products, Inc., No. 2:15-CV-0428 MCE KJN (E.D. Cal. May 18, 2018). [45] See Second Amended Complaint at 13–18, Precision Medical Products, No. 2:15-CV-0428 MCE KJN (E.D. Cal. Apr. 7, 2017). [46] Id. at 17–18. [47] Id. at 21–24. [48] Id. at 21–23. [49] Id. at 25–30. [50] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, United States Settles False Claims Act Allegations Against Trinity Medical Pharmacy And Principals For More Than $2.2 Million (Aug. 10, 2018), https://www.justice.gov/usao-mdfl/pr/united-states-settles-false-claims-act-allegations-against-trinity-medical-pharmacy-and. [51] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Durable Medical Equipment Provider Lincare Pays $5.25 Million to Resolve False Claims Act Allegations (Aug. 16, 2018), https://www.justice.gov/usao-sdil/pr/durable-medical-equipment-provider-lincare-pays-525-million-resolve-false-claims-act. [52] Press Release, U.S. Dep’t of Justice, U.S. Attorney’s Office, N. Dist. of Ga., LivaNova agrees to pay $1.87 Million to resolve False Claims Act allegations arising from improper kickback payments (Dec. 4, 2018), https://www.justice.gov/usao-ndga/pr/livanova-agrees-pay-187-million-resolve-false-claims-act-allegations-arising-improper. [53] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, AmerisourceBergen Corporation Agrees to Pay $625 Million to Resolve Allegations That it Illegally Repackaged Cancer–Supportive Injectable Drugs to Profit From Overfill (Oct. 1, 2018), https://www.justice.gov/opa/pr/amerisourcebergen-corporation-agrees-pay-625-million-resolve-allegations-it-illegally. [54] Id. [55] Id. [56] Id. [57] Id. [58] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Alere to Pay U.S. $33.2 Million to Settle False Claims Act Allegations Relating to Unreliable Diagnostic Testing Devices (Mar. 23, 2018), https://www.justice.gov/opa/pr/alere-pay-us-332-million-settle-false-claims-act-allegations-relating-unreliable-diagnostic. [59] Id. [60] Id. [61] Press Release, U.S. Dep’t of Justice, U.S. Attorney’s Office, Dist. of Md., Allergan to Pay $3.5 Million to Settle False Claims Act Allegations Relating to LAP-BAND Bariatric Medical Device (Apr. 16, 2018), https://www.justice.gov/usao-md/pr/allergan-pay-35-million-settle-false-claims-act-allegations-relating-lap-band-bariatric. [62] Id. [63] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Medical Device Maker AngioDynamics Agrees to Pay $12.5 Million to Resolve False Claims Act Allegations (July 18, 2018), https://www.justice.gov/opa/pr/medical-device-maker-angiodynamics-agrees-pay-125-million-resolve-false-claims-act. [64] Id. [65] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Government Settles $1.2 Million Lawsuit Against Florida Compounding Pharmacy And Its Owner For Excessive Charges To TRICARE (Sept. 28, 2018), https://www.justice.gov/usao-mdfl/pr/government-settles-12-million-lawsuit-against-florida-compounding-pharmacy-and-its. [66] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Medical Equipment Company Agrees to Pay $5.25 Million to Resolve Allegations of Fraudulent Claims for Compounded Medical Creams (Oct. 22, 2018), https://www.justice.gov/usao-edky/pr/medical-equipment-company-agrees-pay-525-million-resolve-allegations-fraudulent-claims. [67] Id. [68] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Attorney General Sessions Announces New Prescription Interdiction & Litigation Task Force (Feb. 27, 2018), https://www.justice.gov/opa/pr/attorney-general-sessions-announces-new-prescription-interdiction-litigation-task-force. [69] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Deputy Associate Attorney General Stephen Cox Delivers Remarks at the Federal Bar Association Qui Tam Conference (Feb. 28, 2018), https://www.justice.gov/opa/speech/deputy-associate-attorney-general-stephen-cox-delivers-remarks-federal-bar-association. [70] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Deputy Assistant Attorney General James M. Burnham Delivers Remarks to the 2018 Food and Drug Law Institute Conference (Dec. 13, 2018), https://www.justice.gov/opa/speech/deputy-assistant-attorney-general-james-m-burnham-delivers-remarks-2018-food-and-drug-law. [71] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Attorney General Jeff Sessions Announces the Formation of Operation Synthetic Opioid Surge (S.O.S.) (July 12, 2018), https://www.justice.gov/opa/pr/attorney-general-jeff-sessions-announces-formation-operation-synthetic-opioid-surge-sos. [72] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Attorney General Sessions Announces Opioid Fraud and Abuse Detection Unit (Aug. 2, 2017), https://www.justice.gov/opa/pr/attorney-general-sessions-announces-opioid-fraud-and-abuse-detection-unit. [73] Compl. in Intervention ¶ 4, United States v. Insys Therapeutics, Inc., No. CV 13-5861 JLS (AJWx) (C.D. Cal. Apr. 13, 2018). [74] See Insys Therapeutics, Inc., Quarterly Report (Form 10-Q), at 17–18 (Nov. 9, 2018); Third Amended Complaint at 7, U.S. ex rel. Maria Guzman v. Insys Therapeutic, Inc., No. 2:13-CV-05861-JLS-AJW (C.D. Cal., Aug. 13, 2018). [75] Id. at 13–33. [76] Press Release, U.S. Dep’t of Justice, Former Vice President of Insys Pharmaceuticals Pleads Guilty to Racketeering Scheme (Nov. 28, 2018), https://www.justice.gov/usao-ma/pr/former-vice-president-insys-pharmaceuticals-pleads-guilty-racketeering-scheme. [77] See Information, United States v. Babich, No. 1:16-cr-10343-ADB (D. Mass, Jan. 3, 2019); Parties’ Agreed Statement of Facts, Babich, No. 1:16-cr-10343-ADB (D. Mass, Jan. 10, 2019). [78] Mallinckrodt PLC, Annual Report (Form 10-K), at 125 (Feb. 27, 2018); Endo International PLC, Current Report (Form 8-K), at 8.01 (Jan. 11, 2018); Allergan plc, Annual Report (Form 10-K), at F-107 (Feb. 16, 2018). [79] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Department of Justice Files Motion in Multi-District Opioid Case (Apr. 2, 2018), https://www.justice.gov/opa/pr/department-justice-files-motion-multi-district-opioid-case. [80] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Justice Department to File Statement of Interest in Opioid Case (Feb. 27, 2018), https://www.justice.gov/opa/pr/justice-department-file-statement-interest-opioid-case. [81] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Two Chinese Nationals Charged with Operating Global Opioid and Drug Manufacturing Conspiracy Resulting in Deaths (Aug. 22, 2018), https://www.justice.gov/opa/pr/two-chinese-nationals-charged-operating-global-opioid-and-drug-manufacturing-conspiracy. [82] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Attorney General Sessions Takes Further Action to Combat Opioid Crisis – Directs the DEA to Evaluate Aggregate Production Quotas (Mar. 1, 2018), https://www.justice.gov/opa/pr/attorney-general-sessions-takes-further-action-combat-opioid-crisis-directs-dea-evaluate. [83] Controlled Substances Quotas, 83 Fed. Reg. 17329 (proposed Apr. 19, 2018) (to be codified at 21 C.F.R. pt. 1303). [84] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Justice Department, DEA Propose Significant Opioid Manufacturing Reduction in 2019 (Aug. 16, 2018), https://www.justice.gov/usao-edtn/pr/justice-department-dea-propose-significant-opioid-manufacturing-reduction-2019. [85] Press Release, The White House, President Donald J. Trump Signed H.R. 6 into Law (Oct. 24, 2018), https://www.whitehouse.gov/briefings-statements/president-donald-j-trump-signed-h-r-6-law/. [86] SUPPORT for Patients and Communities Act, Public Law No: 115-271, H.R. 6, 115th Cong., § 3292 (2017-2018). [87] Id. § 3273. [88] Id. § 3012. [89] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Olympus Medical Systems Corporation, Former Senior Executive Admit Distributing Endoscopes after Failing to File FDA-Required Adverse Event Reports of Serious Infections (Dec. 10, 2018), https://www.justice.gov/usao-nj/pr/olympus-medical-systems-corporation-former-senior-executive-admit-distributing-endoscopes. [90] Id. [91] Id. [92] Id. [93] Id. [94] Id. [95] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, District Court Orders Florida Company to Stop Distributing Adulterated and Misbranded Drugs (Mar. 28, 2018), https://www.justice.gov/opa/pr/district-court-orders-florida-company-stop-distributing-adulterated-and-misbranded-drugs. [96] Id. [97] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, District Court Enters Permanent Injunction to Stop New Jersey and New York Companies and Executives From Distributing Unapproved and Misbranded Drugs (Aug. 31, 2018), https://www.justice.gov/opa/pr/district-court-enters-permanent-injunction-stop-new-jersey-and-new-york-companies-and. [98] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, District Court Enters Permanent Injunction Against Chicago Companies to Stop Distribution of Adulterated and Misbranded Dietary Supplements and Unapproved and Misbranded Drugs (July 27, 2018), https://www.justice.gov/opa/pr/district-court-enters-permanent-injunction-against-chicago-companies-stop-distribution. [99] Id. [100] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Medical Device Maker ev3 to Plead Guilty and Pay $17.9 Million for Distributing Adulterated Device; Covidien Paid $13 Million to Resolve Civil Liability for Second Device (Dec. 4, 2018), https://www.justice.gov/opa/pr/medical-device-maker-ev3-plead-guilty-and-pay-179-million-distributing-adulterated-device. [101] Id. [102] Id. [103] Id. [104] Id. [105] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, District Court Enters Permanent Injunction Against Arkansas Compounding Pharmacy and its CEO to Prevent Distribution of Adulterated Drugs (Apr. 19, 2018), https://www.justice.gov/opa/pr/district-court-enters-permanent-injunction-against-arkansas-compounding-pharmacy-and-its-ceo; Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, District Court Enters Permanent Injunction Against Mississippi Compounding Pharmacy and Two of its Officers to Prevent Distribution of Adulterated Drugs (June 11, 2018), https://www.justice.gov/opa/pr/district-court-enters-permanent-injunction-against-mississippi-compounding-pharmacy-and-two. [106] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, District Court Orders Tennessee Personal Care Products Manufacturer to Comply With Drug Safety Requirements (Oct. 23, 2018), https://www.justice.gov/opa/pr/district-court-orders-tennessee-personal-care-products-manufacturer-comply-drug-safety. [107] Id. [108] Id. [109] Sandra Moser, Remarks at the American Conference Institute’s 8th Global Forum on Anti-Corruption in High Risk Markets (July 25, 2017). [110] Press Release, U.S. Sec. and Exch. Comm’n, Sanofi Charged With FCPA Violations (Sept. 4, 2018),  https://www.sec.gov/news/press-release/2018-174. [111] Press Release, U.S. Sec. and Exch. Comm’n, SEC Charges Stryker A Second Time for FCPA Violations (Sept. 28, 2018), https://www.sec.gov/news/press-release/2018-222. [112] 136 S. Ct. 1989, 2001 (2016) (emphasis added). [113] United States v. Snap Diagnostics, LLC, No. 1:14-CV-3988, 2018 WL 2689270 (N.D. Ill. June 5, 2018). [114] Id. at *4. [115] 840 F.3d 445 (7th Cir. 2016). [116] 862 F.3d 890 (9th Cir. 2017). [117] Id. at 906. [118] Petition for Writ of Certiorari, Gilead, 862 F.3d 890 (No. 17-936). [119] Id. at *i (No. 17-936) (quoting Escobar, 136 S. Ct. at 2003). [120] Brief for the United States as Amicus Curiae, Gilead, 862 F.3d 890 (No. 17-936). [121] Id. at *15. [122] No. 17-1014, 2018 WL 3949031 (3d Cir. 2018) (unpublished). [123] Id. at *1. [124] Id. at *3. [125] Id. at *4–5. [126] Id. at *6. [127] United States ex rel. Solis v. Millennium Pharm., Inc., 885 F.3d 623 (9th Cir. 2018). [128] Id. at 629. [129] Id. [130] Id. [131] Id. [132] 898 F.3d 1267, 1273–75 (11th Cir. 2018). [133] Id. at 1275 (quoting United States ex rel. Clausen v. Lab. Corp. of Am., 290 F.3d 1301, 1311 (11th Cir. 2002)). [134] Id. at 1277. [135] Id. at 1277–78. [136] 31 U.S.C. § 3730(h)(1). [137] 879 F.3d 71, 73 (3d Cir. 2018). [138] 129 S. Ct. 2343 (2009). [139] 133 S. Ct. 2517 (2013). [140] DiFiore, 879 F.3d at 78. [141] 31 U.S.C. § 3730(e)(4) (2010). [142] Id. § 3730(e)(4)(B). [143] United States ex rel. Forney v. Medtronic, Inc., No. CV 15-6264, 2018 WL 2688424 (E.D. Pa. June 4, 2018). [144] U.S. ex rel. Moore & Co., P.A. v. Majestic Blue Fisheries, LLC, 812 F.3d 294 (3d Cir. 2016). [145] Forney, 2018 WL 2688424, at *15 (quoting Moore, 812 F.3d at 306). [146] United States ex rel. Winkelman v. CVS Caremark Corp., 827 F.3d 201 (1st Cir. 2016). [147] Forney, 2018 WL 2688424, at *14. [148] Id. at *15. [149] Id. [150] Id. at *16. [151] Id. [152] United States ex rel. Wood v. Allergan, Inc., 899 F.3d 163, 165 (2d Cir. 2018) (citing 31 U.S.C. §3730(b)(5)). [153] Id. [154] Id. at 167–68. [155] Id. at 171 (internal citation and quotation marks omitted). [156] Id. at 175. [157] Id. at 174. [158] Id. at 169–70. [159] Id. at 169. [160] Scott Gottlieb, U.S. Food & Drug Admin., Statement from FDA Commissioner Scott Gottlieb, M.D., on new efforts to advance medical product communications to support drug competition and value-based health care (June 12, 2018), https://www.fda.gov/newsevents/newsroom/pressannouncements/ucm610415.htm. [161] Warning Letters 2018: Office of Prescription Drug Promotion, U.S. Food & Drug Admin., https://www.fda.gov/Drugs/GuidanceComplianceRegulatoryInformation/EnforcementActivitiesbyFDA/WarningLettersandNoticeofViolationLetterstoPharmaceuticalCompanies/ucm594437.htm#OPDP (last viewed Jan. 23, 2019). [162] See Warning Letters 2017: Office of Prescription Drug Promotion, U.S. Food & Drug Admin., https://www.fda.gov/Drugs/GuidanceComplianceRegulatoryInformation/EnforcementActivitiesbyFDA/WarningLettersandNoticeofViolationLetterstoPharmaceuticalCompanies/ucm538552.htm#OPDP (last viewed Jan. 23, 2019); see also United States v. Caronia, 703 F.3d 149 (2d Cir. 2012); Amarin Pharma, Inc. v. U.S. Food & Drug Admin., 119 F. Supp. 3d 196 (S.D.N.Y. 2015). [163] Warning Letters 2018: Office of Prescription Drug Promotion, U.S. Food & Drug Admin., https://www.fda.gov/Drugs/GuidanceComplianceRegulatoryInformation/EnforcementActivitiesbyFDA/WarningLettersandNoticeofViolationLetterstoPharmaceuticalCompanies/ucm594437.htm#OPDP (last viewed Jan. 23, 2019). [164] Warning Letter from Koung Lee, RPh, MSHS, Office of Prescription Drug Promotion, U.S. Food & Drug Admin., to Dr. John F. Weet, PhD, Vice President, Collegium Pharmaceutical, Inc. (Feb. 9, 2018), https://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/EnforcementActivitiesbyFDA/WarningLettersandNoticeofViolationLetterstoPharmaceuticalCompanies/UCM597584.pdf. [165] Id. at 3. [166] Id. at 1. [167] Id. at 3. [168] Warning Letter from Lynn Panholzer, PharmD, Office of Prescription Drug Promotion, U.S. Food & Drug Admin., to Dr. Peter Honig, MD, MPH, Senior Vice President, Pfizer Inc. (June 19, 2018), https://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/EnforcementActivitiesbyFDA/WarningLettersandNoticeofViolationLetterstoPharmaceuticalCompanies/UCM612143.pdf. [169] Id. at 2, 3. [170] Id. at 3. [171] Warning Letter from Rachael Conklin, MS, RN, Office of Prescription Drug Promotion, U.S. Food & Drug Admin., to Dr. Mamta Puri-Lechner, PhD, Associate Director, Arog Pharmaceuticals, Inc. (June 28, 2018), https://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/EnforcementActivitiesbyFDA/WarningLettersandNoticeofViolationLetterstoPharmaceuticalCompanies/UCM612977.pdf. [172] Id. at 1, 2. [173] Warning Letter from Lynn Panholzer, PharmD, Office of Prescription Drug Promotion, U.S. Food & Drug Admin., to Dr. Suzanne Strang, PhD, Executive Director, ASCEND Pharmaceuticals US, LLC (Aug. 16, 2018), https://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/EnforcementActivitiesbyFDA/WarningLettersandNoticeofViolationLetterstoPharmaceuticalCompanies/UCM618659.pdf. [174] Id. at 3. [175] Letter from Robert Dean, Office of Prescription Drug Promotion, U.S. Food & Drug Admin., to Dr. Michael Castagna, PharmD, Chief Executive Officer, MannKind Corporation (Oct. 5, 2018), https://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/EnforcementActivitiesbyFDA/WarningLettersandNoticeofViolationLetterstoPharmaceuticalCompanies/UCM623557.pdf. [176] Id. at 3. [177] Letter from Dhara Shah, PharmD, Office of Prescription Drug Promotion, U.S. Food & Drug Admin., to Nada Glavan, Senior Director, Eisai Inc. (Oct. 11, 2018), https://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/EnforcementActivitiesbyFDA/WarningLettersandNoticeofViolationLetterstoPharmaceuticalCompanies/UCM623636.pdf. [178] Id. at 2, 3. [179] Letter from Andrew S.T. Haffer, Pharm.D., Office of Prescription Drug Promotion, U.S. Food & Drug Admin., to Dr. Polymeropolous, President and Chief Executive Officer, Vanda Pharmaceuticals Inc. (Oct. 22, 2018), https://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/EnforcementActivitiesbyFDA/WarningLettersandNoticeofViolationLetterstoPharmaceuticalCompanies/UCM624666.pdf. [180] Id. at 2, 3. [181] Warning Letter from Donald J. St. Pierre, Acting Dir., Office of In Vitro Diagnostics & Radiological Health, Ctr. for Devices & Radiological Health, U.S. Food & Drug Admin. to Moshe Becker, Executive Chairman, RADlogics, Inc. (Apr. 5, 2018), https://www.fda.gov/ICECI/EnforcementActions/WarningLetters/ucm606208.htm. [182] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Department of Justice Files Complaints Against Florida and California Companies to Stop Use of Experimental Stem Cell Drugs on Patients (May 9, 2018), https://www.justice.gov/opa/pr/department-justice-files-complaints-against-florida-and-california-companies-stop-use. [183] U.S. Food & Drug Admin., FDA Seeks Permanent Injunctions Against Two Stem Cell Clinics (May 9, 2018), https://www.fda.gov/newsevents/newsroom/pressannouncements/ucm607257.htm. [184] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Department of Justice Files Complaints Against Florida and California Companies to Stop Use of Experimental Stem Cell Drugs on Patients (May 9, 2018), https://www.justice.gov/opa/pr/department-justice-files-complaints-against-florida-and-california-companies-stop-use. [185] U.S. Food & Drug Admin., Statement from FDA Commissioner Scott Gottlieb, M.D. on the FDA’s New Policy Steps and Enforcement Efforts to Ensure Proper Oversight of Stem Cell Therapies and Regenerative Medicine (Aug. 28, 2017), https://www.fda.gov/NewsEvents/Newsroom/PressAnnouncements/ucm573443.htm. [186] Warning Letters 2018: Office of Prescription Drug Promotion, U.S. Food & Drug Admin, https://www.fda.gov/Drugs/GuidanceComplianceRegulatoryInformation/EnforcementActivitiesbyFDA/WarningLettersandNoticeofViolationLetterstoPharmaceuticalCompanies/ucm594437.htm#OPDP (last viewed July 20, 2018). [187] U.S. Food & Drug Admin., Statement from FDA Commissioner Scott Gottlieb, M.D., on New Efforts to Advance Medical Product Communications to Support Drug Competition and Value-Based Health Care (June 12, 2018), https://www.fda.gov/newsevents/newsroom/pressannouncements/ucm610415.htm. [188] Id. [189]  U.S. Food & Drug Admin., Guidance for Industry: Medical Product Communications That Are Consistent With the FDA-Required Labeling – Questions and Answers. (June 2018), https://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/Guidances/UCM537130.pdf. [190] Id. at 3. [191] Id. at 4. [192] Id. at 5. [193] Id. at 5, 6. [194] Id. at 5. [195] Id. at 8. [196] Id. at 10. [197] Id. at 11. [198] Id. at 12. [199] Id. at 3. [200] U.S. Food & Drug Admin., Guidance for Industry: Drug and Device Manufacturer Communications With Payors, Formulary Committees, and Similar Entities – Questions and Answers (June 2018), https://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/Guidances/UCM537347.pdf. [201] Id. at 1. [202] Id. at 4. [203] Id. at 7. [204] Id. at 18. [205] Id. at 18, 19. [206] Id. at 22. [207] U.S. Food & Drug Admin., Guidance for Industry: Presenting Quantitative Efficacy and Risk Information in Direct-to-Consumer Promotional Labeling and Advertisements (Oct. 2018), https://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/Guidances/UCM623515.pdf. [208] Id. at 2. [209] Id. at 4. [210] Id. at 5. [211] Id. at 6, 7. [212] Id. at 7, 8. [213] Pharmaceutical Information Exchange Act, H.R. 2026, 115th Cong. (2017), https://www.congress.gov/bill/115th-congress/house-bill/2026. [214] Id. [215] Medical Product Communications Act of 2017, H.R. 1703, 115th Cong. (2017), https://www.congress.gov/bill/115th-congress/house-bill/1703/text. [216] United States ex rel. Ibanez v. Bristol-Myers Squibb Co., 138 S. Ct. 2582 (Mem) (2018); United States ex rel. King v. Solvay Pharm., Inc., 138 S. Ct. 2030 (Mem) (2018). [217] United States ex rel. Ibanez, 874 F.3d 905, 915 (6th Cir. 2017); United States ex rel King v. Solvay Pharm., Inc., 871 F.3d 318, 329 (5th Cir. 2017) (per curiam). [218] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Deputy Assistant Attorney General James M. Burnham Delivers Remarks to the 2018 Food and Drug Law Institute Conference (Dec. 13, 2018), https://www.justice.gov/opa/speech/deputy-assistant-attorney-general-james-m-burnham-delivers-remarks-2018-food-and-drug-law. [219] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, District Court Enters Permanent Injunction Against Arkansas Compounding Pharmacy and its CEO to Prevent Distribution of Adulterated Drugs (Apr. 19, 2018), https://www.justice.gov/opa/pr/district-court-enters-permanent-injunction-against-arkansas-compounding-pharmacy-and-its-ceo; see also Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, United States Files Civil Enforcement Action to Stop Arkansas Compounding Pharmacy and CEO from Manufacturing and Distributing Adulterated Drugs (Mar. 1, 2018), https://www.justice.gov/opa/pr/united-states-files-civil-enforcement-action-stop-arkansas-compounding-pharmacy-and-ceo. [220] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, District Court Enters Permanent Injunction Against Mississippi Compounding Pharmacy and Two of its Officers to Prevent Distribution of Adulterated Drugs (June 11, 2018), https://www.justice.gov/opa/pr/district-court-enters-permanent-injunction-against-mississippi-compounding-pharmacy-and-two. [221] See U.S. Food & Drug Admin., Warning Letters 2017 (Mar. 14, 2018), https://www.fda.gov/Drugs/GuidanceComplianceRegulatoryInformation/EnforcementActivitiesbyFDA/WarningLettersandNoticeofViolationLetterstoPharmaceuticalCompanies/ucm538552.htm; see also U.S. Food & Drug Admin., Warning Letters 2018 (Dec. 18, 2018), https://www.fda.gov/Drugs/GuidanceComplianceRegulatoryInformation/EnforcementActivitiesbyFDA/WarningLettersandNoticeofViolationLetterstoPharmaceuticalCompanies/ucm594437.htm. [222] Warning Letter from Francis Godwin, Acting Dir., Office of Mfg. Quality, U.S. Food & Drug Admin. to Mr. T.G. Velumani, Chief Executive Officer, Alchymars ICM SM Private Limited (Feb. 16, 2018).   [223] Warning Letter from Francis Godwin, Acting Dir., Office of Mfg. Quality, U.S. Food & Drug Admin. to Mr. Yinghua Liu, President, Lijian Yinghua Biochemical and Pharmaceutical Co., Ltd. (Apr. 19, 2018). [224] Warning Letter from Francis Godwin, Acting Dir., Office of Mfg. Quality, U.S. Food & Drug Admin. to Ms. Shirley Cai, Chief Executive Officer, Zhuhai United Laboratories Co., Ltd. (June 27, 2018).   [225] Warning Letter from Timothy Stenzel, Dir. Office of In Vitro Diagnostics & Radiological Health, U.S. Food & Drug Admin. to Fredrik O. Dalborg, CEO and Group President, Boule Medical AB (Oct. 2, 2018). [226] Warning Letter from Karlton T. Watson, Program Division Dir., Office of Biological Prods. Ops. – Div. 2, U.S. Food & Drug Admin. to Rita F. Alexander, Owner/Manager and Jenny R. Galloway, Laboratory & Medical Director, StemGenex Biologic Laboratories, LLC (Oct. 31, 2018). [227] Warning Letter from Donald St. Pierre, Acting Dir., Office of In Vitro Diagnostics & Radiological Health, Ctr. for Devices & Radiological Health, U.S. Food & Drug Admin. to Raymond Ryu, CEO, Dexcowin Co., Ltd. (Feb. 20, 2018), https://www.fda.gov/ICECI/EnforcementActions/WarningLetters/ucm599697.htm. [228] Warning Letter from Shari J. Shambaugh, Program Div. Dir., Div. 3/West, Office of Med. Device & Radiological Health Operations, U.S. Food & Drug Admin. to Galen T. Spooner, Owner, US Vascular, LLC (June 7, 2018), https://www.fda.gov/ICECI/EnforcementActions/WarningLetters/ucm625034.htm. [229] Warning Letter from Shari J. Shambaugh, Program Div. Dir., Div. 3/West, Office of Med. Device a& Radiological Health Operations, U.S. Food & Drug Admin. to Ai Chen Teo, President & Gen. Manager, Anigan, Inc. (July 25, 2018), https://www.fda.gov/ICECI/EnforcementActions/WarningLetters/ucm615066.htm. [230] Warning Letter from Blake Bevill, Program Div. Dir., Div. 2-Central, Office of Med. Device & Radiological Health Operations, U.S. Food & Drug Admin. to Vincent Forlenza, Chairman & CEO, Becton, Dickinson & Co. (Sept. 14, 2018), https://www.fda.gov/ICECI/EnforcementActions/WarningLetters/ucm622651.htm. [231] U.S. Food & Drug Admin., Guidance for Industry: Mixing, Diluting, or Repackaging Biological Products Outside the Scope of an Approved Biologics License Application (Jan. 18, 2018), https://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/Guidances/UCM434176.pdf.   [232] Id. at 4. [233] Id. [234] Id. at 19–22. [235] U.S. Food & Drug Admin., Draft Guidance for Industry: Current Good Manufacturing Practice—Guidance for Human Drug Compounding Outsourcing Facilities Under Section 503B of the FD&C Act (Dec. 2018), https://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/Guidances/UCM403496.pdf. [236] U.S. Good & Drug Admin., Questions and Answers and Guidance for Industry: Data Integrity and Compliance with Drug CGMP (Dec. 2018), https://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/Guidances/UCM495891.pdf. [237] Press Release, U.S. Food & Drug Admin, Statement from FDA Commissioner Scott Gottlieb, M.D., on the agency’s efforts to improve drug quality through vigilant oversight of data integrity and good manufacturing practice (Dec. 12, 2018), https://www.fda.gov/NewsEvents/Newsroom/PressAnnouncements/ucm628244.htm. [238] United States ex rel. Greenfield v. Medco Health Sols., Inc., 880 F.3d 89 (3d Cir. 2018). [239] 42 U.S.C. § 1320a-7b(b)(g). [240] Greenfield, 880 F.3d at 100. [241] Report and Recommendation to District Judge, United States ex rel. Medrano et al. v. Diabetic Care RX, LLC, et al., No. 15-cv-62617, ECF No. 100 (S.D. Fla. Nov. 30, 2018). [242] Id. at 6–7. [243] Id. at 8–9. [244] Id. at 20–21. [245] Id. at 17–18. [246] 898 F.3d 1267, 1273–75 (11th Cir. 2018). [247] 42 U.S.C. §1320a-7b(b)(3)(B). [248] Carrel, 898 F.3d at 1273. [249] Id. at 1273. [250] Id. at 1274. [251] Id. [252] 318 F. Supp. 3d 1106 (N.D. Ill. 2018). [253] Id. at 1110. [254] Id. at 1110–11. [255] Id. at 1112–13 (emphasis added). [256] Id. at 1114 (internal quotation and citation marks omitted). [257] 342 F. Supp. 3d 544, 2018 WL 6567648 (S.D.N.Y Sept. 28, 2018). [258] Id. at *5. [259] Id. at *2. [260] See United States’ Mot. to Dismiss Relator’s Second Am. Compl., United States ex rel. Health Choice Grp., LLC v. Bayer Corp., Onyx Pharm., Inc., Amerisourcebergen Corp., & Lash Grp., No. 5:17-CV-126-RWS-CMC (E.D. Tex. Dec. 17, 2018). [261] Id. at 3, 14. [262] Id. at 8, 14. [263] Id. at 16. [264] U.S. Dep’t of Health and Human Servs., Office of Inspector Gen., Redacted Final Notice of Rescission 06-04 at 1 (Nov. 28, 2017), https://oig.hhs.gov/fraud/docs/advisoryopinions/2017/AdvOpnRescission06-04.pdf. [265] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Drug Maker United Therapeutics Agrees to Pay $210 Million to Resolve False Claims Act Liability for Paying Kickbacks (Dec. 20, 2017), https://www.justice.gov/opa/pr/drug-maker-united-therapeutics-agrees-pay-210-million-resolve-false-claims-act-liability. [266] Complaint, Patient Servs., Inc. v. United States, No. 3:18-cv-00016 (E. D. Va., Jan. 8, 2018). [267] Id. at 4. [268] Memorandum In Support Of Defendants’ Mot. For Leave To Take Discovery, Patient Servs., Inc. v. United States, No. 3:18-cv-00016, ECF No. 36 (E.D. Va., July 18, 2018); Order, Patient Servs., Inc. v. United States, No. 3:18-cv-00016, ECF No. 40 (E.D. Va., Jan. 18, 2019). [269] U.S. Office of Mgmt. & Budget, Exec. Office of the President, RIN No. 0936-AA08, Removal of Safe Harbor Protection for Rebates to Plans or PBMs involving Prescription Pharmaceuticals and Creation of New Safe Harbor Protection (July 18, 2018), https://www.reginfo.gov/public/do/eoDetails?rrid=128288. [270] Fraud and Abuse; Removal of Safe Harbor Protection for Rebates Involving Prescription Pharmaceuticals and Creation of New Safe Harbor Protection for Certain Point-of-Sale Reductions in Price on Prescription Pharmaceuticals and Certain Pharmacy Benefit Manager Service Fees, 84 Fed. Reg. 2340 (Feb. 6, 2019). [271] U.S. Dep’t of Health and Human Servs., Trump Administration Proposes to Lower Drug Costs by Targeting Backdoor Rebates and Encouraging Direct Discounts to Patients (Jan. 31, 2019), https://www.hhs.gov/about/news/2019/01/31/trump-administration-proposes-to-lower-drug-costs-by-targeting-backdoor-rebates-and-encouraging-direct-discounts-to-patients.html. [272] Medicare and State Health Care Programs: Fraud and Abuse; Request for Information Regarding the Anti-Kickback Statute and Beneficiary Inducements CMP, 83 Fed. Reg. 43607 (Aug. 27, 2018). [273] Id. [274] Id. at 43609. [275] Id. at 43609–10. [276] See 42 C.F.R. § 403.900 et seq. [277] H.R. 6, 115th Cong., § 6111 (2017-2018). [278] U.S. Dep’t of Health and Human Servs., Office of Inspector Gen., OIG Advisory Op. 18-02 at 2 (Apr. 30, 2018), https://oig.hhs.gov/fraud/docs/advisoryopinions/2018/AdvOpn18-02.pdf. [279] Id. at 7. [280] Id. at 8. [281] U.S. Dep’t of Health and Human Servs., Office of Inspector Gen., OIG Advisory Op. 18-10 (Sept. 10, 2018), https://oig.hhs.gov/fraud/docs/advisoryopinions/2018/AdvOpn18-10.pdf. [282] Id. at 2–3. [283] Id. at 8. [284] Id. at 8–9. [285] Id. at 9. [286] Id. at 9–10. 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[318] U.S. Food & Drug Admin., Biosimilars Action Plan: Balancing Innovation and Competition (July 2018), https://www.fda.gov/downloads/Drugs/DevelopmentApprovalProcess/HowDrugsareDevelopedandApproved/ApprovalApplications/TherapeuticBiologicApplications/Biosimilars/UCM613761.pdf. [319] U.S. Food & Drug Admin., Ctr. for Device & Radiological Health, 2018-2020 Strategic Priorities (Jan. 2018), https://www.fda.gov/downloads/AboutFDA/CentersOffices/OfficeofMedicalProductsandTobacco/CDRH/CDRHVisionandMission/UCM592693.pdf. [320] Jeff Shuren, Charting Our Course for 2018-2020, FDA Voice (Jan. 17, 2018) https://blogs.fda.gov/fdavoice/index.php/2018/01/charting-our-course-for-2018-2020/. [321] U.S. Food & Drug Admin., Ctr. for Device & Radiological Health, 2018-2020 Strategic Priorities 7 (Jan. 2018), https://www.fda.gov/downloads/AboutFDA/CentersOffices/OfficeofMedicalProductsandTobacco/CDRH/CDRHVisionandMission/UCM592693.pdf. [322] Id. [323] Id. at 12. [324] Id. at 17. [325] Id. at 18. [326] U.S. Food & Drug Admin. Commissioner Scott Gottlieb, Advancing Policies to Promote Safe, Effective MedTech Innovation, FDA Voice (Dec. 11, 2017), https://blogs.fda.gov/fdavoice/index.php/2017/12/advancing-policies-to-promote-safe-effective-medtech-innovation/. [327] Statement from FDA Commissioner Scott Gottlieb, M.D. and Jeff Shuren, M.D., Director of the Center for Devices and Radiological Health, on transformative new steps to modernize FDA’s 510(k) program to advance the review of the safety and effectiveness of medical devices (Nov. 26, 2018), https://www.fda.gov/NewsEvents/Newsroom/PressAnnouncements/ucm626572.htm. [328] Statement from FDA Commissioner Scott Gottlieb, M.D. and Jeff Shuren, M.D., Director of the Center for Devices and Radiological Health, on transformative new steps to modernize FDA’s 510(k) program to advance the review of the safety and effectiveness of medical devices (Nov. 26, 2018), https://www.fda.gov/NewsEvents/Newsroom/PressAnnouncements/ucm626572.htm. [329] Safety and Performance Based Pathway; Guidance for Industry and Food and Drug Administration (Feb. 1, 2019). [330] U.S. Food & Drug Admin., Draft Guidance for Industry and Food and Drug Administration Staff: The Special 510(k) Program (Sept. 28, 2018), https://www.fda.gov/ucm/groups/fdagov-public/@fdagov-meddev-gen/documents/document/ucm621682.pdf. [331] U.S. Food & Drug Admin., FDA In Brief: FDA proposes improvements to the De Novo pathway for novel medical devices to advance safe, effective, and innovative treatments for patients (Dec. 4, 2018), https://www.fda.gov/NewsEvents/Newsroom/FDAInBrief/ucm627522.htm; U.S. Food & Drug Admin., Medical Device De Novo Classification Process, 83 Fed. Reg. 63127 (Dec. 7, 2018). [332] Id. [333] 83 Fed. Reg. 63127, 63128. [334] Id. [335] Id. [336] U.S. Food & Drug Admin., Draft Guidance for Industry and Food and Drug Administration Staff: Requests for Feedback and Meetings for Medical Device Submissions: The Q-Submission Program (June 7, 2018), https://www.fda.gov/ucm/groups/fdagov-public/@fdagov-meddev-gen/documents/document/ucm609753.pdf. [337] Id. at 1. [338] U.S. Food & Drug Admin., Guidance for Industry and Food and Drug Administration Staff: Refuse to Accept Policy for 510(k)s (Jan. 30, 2018), https://www.fda.gov/ucm/groups/fdagov-public/@fdagov-meddev-gen/documents/document/ucm315014.pdf. [339] U.S. Food & Drug Admin., Guidance for Industry and Food and Drug Administration Staff: Acceptance of Clinical Data to Support Medical Device Applications and Submissions (Feb. 21, 2018), https://www.fda.gov/ucm/groups/fdagov-public/@fdagov-meddev-gen/documents/document/ucm597273.pdf. [340] U.S. Food & Drug Admin., Draft Guidance for Industry and Food and Drug Administration Staff: Benefit -Risk Factors to Consider When Determining Substantial Equivalence in Premarket Notifications (510(k)) With Different Technological Characteristics (Sept. 25, 2018), https://www.fda.gov/ucm/groups/fdagov-public/@fdagov-meddev-gen/documents/document/ucm404773.pdf. [341] U.S. Food & Drug Admin., Draft Guidance for Industry and Food and Drug Administration Staff, and Third Party Review Organizations: 510(k) Third Party Review Program (Sept. 14, 2018), https://www.fda.gov/ucm/groups/fdagov-public/@fdagov-meddev-gen/documents/document/ucm339697.pdf. [342] U.S. Food & Drug Admin., Draft Guidance for Industry and Food and Drug Administration Staff: Multiple Function Device Products: Policy and Considerations (Apr. 27, 2018), https://www.fda.gov/ucm/groups/fdagov-public/@fdagov-meddev-gen/documents/document/ucm605683.pdf. [343] U.S. Food & Drug Admin., Guidance for Industry and Food and Drug Administration Staff: Acceptance and Filing Reviews for Premarket Approval Applications (PMAs) (Jan. 30, 2018), https://www.fda.gov/ucm/groups/fdagov-public/@fdagov-meddev-gen/documents/document/ucm313368.pdf. [344] U.S. Food & Drug Admin., Medical Device Safety Action Plan: Protecting Patients, Promoting Public Health (Apr. 17, 2018), https://www.fda.gov/downloads/AboutFDA/CentersOffices/OfficeofMedicalProductsandTobacco/CDRH/CDRHReports/UCM604690.pdf. [345] Id.at 2. [346] Id. at 13. [347] Id. [348] Id. at 6. [349] Id. at 10. [350] Id. at 11. [351] U.S. Food & Drug Admin., FDA In Brief: FDA proposes updated cybersecurity recommendations to help ensure device manufacturers are adequately addressing evolving cybersecurity threats (Oct. 17, 2018), https://www.fda.gov/NewsEvents/Newsroom/FDAInBrief/ucm623624.htm [352] U.S. Food & Drug Admin., Draft Guidance for Industry and Food & Drug Administration Staff: Content of Premarket Submissions for Management of Cybersecurity in Medical Devices (Oct. 18, 2018), https://www.fda.gov/downloads/MedicalDevices/DeviceRegulationandGuidance/GuidanceDocuments/UCM623529.pdf. [353] Id. at 9. [354] U.S. Food & Drug Admin., DHS-FDA Medical Device Cybersecurity Collaboration: Memorandum of Agreement between the Department of Homeland Security, National Protection and Programs Directorate and the Department of Health and Human Services, Food and Drug Administration, Relating to Medical Device Cybersecurity Collaboration (last updated Oct. 17, 2018), https://www.fda.gov/AboutFDA/PartnershipsCollaborations/MemorandaofUnderstandingMOUs/DomesticMOUs/ucm623568.htm. [355] The MITRE Corp., Medical Device Cybersecurity: Regional Incident Preparedness and Response Playbook (Oct. 2018), https://www.mitre.org/sites/default/files/publications/pr-18-1550-Medical-Device-Cybersecurity-Playbook.pdf. [356] Id. [357] U.S. Food & Drug Admin., FDA In Brief: FDA takes steps to advance a new framework to promote development of digital tools that can inform the safe and effective use of prescription drugs (Nov. 19, 2018), https://www.fda.gov/NewsEvents/Newsroom/FDAInBrief/ucm626166.htm?utm_campaign=Federal+Register+Notice+on+Prescription+Drug+Use&utm_medium=email&utm_source=Eloqua. [358] Id. [359] U.S. Food & Drug Admin., Prescription Drug-Use-Related Software; Establishment of a Public Docket; Request for Comments, 83 Fed. Reg. 58574 (Nov. 20, 2018), https://www.federalregister.gov/documents/2018/11/20/2018-25206/prescription-drug-use-related-software-establishment-of-a-public-docket-request-for-comments. [360] U.S. Food & Drug Admin., Immediately in Effect Guidance for Industry and FDA Staff: Unique Device Identification: Policy Regarding Compliance Dates for Class I and Unclassified Devices and Certain Devices Requiring Direct Marking (Nov. 5, 2018), https://www.fda.gov/ucm/groups/fdagov-public/@fdagov-meddev-gen/documents/document/ucm592340.pdf [361] Id. at 4. [362] Id. [363] U.S. Food & Drug Admin., Immediately in Effect Guidance for Industry and Food and Drug Administration Staff: Compliance Policy for Combination Product Postmarketing Safety Reporting (Mar. 21, 2018), https://www.fda.gov/downloads/RegulatoryInformation/Guidances/UCM601461.pdf. [364] U.S. Food & Drug Admin., Draft Guidance for Industry and Food and Drug Administration Staff: Postmarketing Safety Reporting for Combination Products (Mar. 2018), https://www.fda.gov/downloads/RegulatoryInformation/Guidances/UCM601454.pdf. [365] FDA issued 25 device-related Warning Letters, nine of which were written by CDRH.  This marks a decrease in activity compared to 2017, when nearly the same number of Warning Letters were issued to device manufacturers in just the second half of the year.  Unlike in prior periods, foreign manufacturers marketing their products in the United States were not a common focus; only five such entities received a Warning Letter. [366] Warning Letter from Joseph Matrisciano, Jr., District Dir., Div. 1/East, N.E. District, Office of Med. Device & Radiological Health Operations, U.S. Food & Drug Admin. to Elizabeth Gaipa, VP Quality Management, Becton Dickinson & Co. (Jan. 11, 2018), https://www.fda.gov/ICECI/EnforcementActions/WarningLetters/ucm592062.htm. [367] Warning Letter from William H. Maisel, Acting Dir., Office of Compliance, Ctr. for Devices & Radiological Health, U.S. Food & Drug Admin. to Takaaki Ueda, President & CEO, Fujifilm Med. Systems U.S.A., Inc. (Mar. 9, 2018), https://www.fda.gov/ICECI/EnforcementActions/WarningLetters/ucm600340.htm; Warning Letter from William H. Maisel, Acting Dir., Office of Compliance, Ctr. for Devices & Radiological Health, U.S. Food & Drug Admin. to Nacho Abia, President & CEO, Olympus Corp. of the Americas (Mar. 9, 2018), https://www.fda.gov/ICECI/EnforcementActions/WarningLetters/ucm600330.htm; Warning Letter from William H. Maisel, Acting Dir., Office of Compliance, Ctr. for Devices & Radiological Health, U.S. Food & Drug Admin. to David G. Woods, President & CEO, Pentax of America, Inc. (Mar. 9, 2018), https://www.fda.gov/ICECI/EnforcementActions/WarningLetters/ucm600342.htm. [368] Warning Letter from Shari J. Shambaugh, Program Div. Dir., Div. 3/West, Office of Med. Device & Radiological Health Operations, U.S. Food & Drug Admin. to Michael P. Garippa, President & CEO, SynCardia Systems, LLC (Apr. 3, 2018), https://www.fda.gov/ICECI/EnforcementActions/WarningLetters/ucm604278.htm. The following Gibson Dunn lawyers assisted in the preparation of this client update:  Stephen Payne, Marian Lee, John Partridge, Jonathan Phillips, Sean Twomey, Reid Rector, Sarah Erickson-Muschko, Allison Chapin, Yamini Grema, Claudia Kraft, Eva Michaels, Stevie Pearl, Julie Hamilton, Jacob Rierson, Emily Riff, Peter Baumann, and Craig Streit. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments.  Please contact the Gibson Dunn lawyer with whom you usually work or any of the following: Washington, D.C. Stephen C. Payne, Chair, FDA and Health Care Practice Group (+1 202-887-3693, spayne@gibsondunn.com) F. Joseph Warin (+1 202-887-3609, fwarin@gibsondunn.com) Marian J. Lee (+1 202-887-3732, mjlee@gibsondunn.com) Daniel P. Chung (+1 202-887-3729, dchung@gibsondunn.com) Jonathan M. Phillips (+1 202-887-3546, jphillips@gibsondunn.com) Los Angeles Debra Wong Yang (+1 213-229-7472, dwongyang@gibsondunn.com) San Francisco Charles J. Stevens (+1 415-393-8391, cstevens@gibsondunn.com) Winston Y. Chan (+1 415-393-8362, wchan@gibsondunn.com) New York Alexander H. Southwell (+1 212-351-3981, asouthwell@gibsondunn.com) Denver Robert C. Blume (+1 303-298-5758, rblume@gibsondunn.com) John D. W. Partridge (+1 303-298-5931, jpartridge@gibsondunn.com) © 2019 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

January 14, 2019 |
U.S. Department of Health and Human Services Issues New Guidance on Voluntary Cybersecurity Practices for Health Care Industry

Click for PDF On December 28, 2018, a Task Group that includes U.S. Department of Health and Human Services (“HHS”) personnel and private-sector health care industry leaders published new guidance for health care organizations on cybersecurity best practices.[1]  The guidance—Health Industry Cybersecurity Practices: Managing Threats and Protecting Patients—is voluntary and creates no legal obligations.  It is targeted to health care providers, payors, pharmaceutical companies, and medical device manufacturers. This publication is among the most comprehensive and detailed guidance now available to the health care industry on cybersecurity.  While voluntary, the prescriptive advice and scalable tools in the new guidance may be a valuable resource for legal, compliance, IT, and information security professionals at health care organizations.  Organizations that follow this guidance may decrease the likelihood that they will suffer a costly data breach, and in the event of a breach may be able to point to compliance with the guidance to show that they have implemented reasonable cybersecurity practices, thereby helping to defend against private lawsuits or government enforcement actions. This alert briefly describes the background and key takeaways from the guidance.  Gibson Dunn is available to answer any questions you may have about how this guidance applies to your organization, as well as any other topics related to cybersecurity or privacy in the health care industry. Background The health care industry is a primary target for attacks by cyber-criminals.  The threat is especially critical because by at least one measure the average cost of a data breach in the health sector is $408 per record, almost double that of the next highest industry.[2]  In recent years, moreover, HHS’s Office for Civil Rights (“OCR”)—the office charged with enforcing the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”)—has demonstrated an increasing willingness to bring enforcement actions against even reputable and respected organizations that have suffered a data breach.[3] The new guidance comes against this backdrop and as the result of the Cybersecurity Act of 2015, which required HHS to issue guidance through a “trusted platform and tighter partnership between the United States government and the private sector.”[4]  Under Section 405(d) of the Act, industry and government leaders formed a Task Group in May 2017 to create a set of “voluntary, consensus-based principles and practices to ensure cybersecurity in the Health Care and Public Health (HPH) sector.”[5]  This guidance is the result of 18 months of work by the Task Group. The Guidance Recognizing that it would be impossible to address every cybersecurity challenge in a single publication, the Task Group focused on five prevalent cybersecurity threats: 1) e-mail phishing attacks, 2) ransomware attacks, 3) loss or theft of equipment or data, 4) insider, accidental or intentional data loss, and 5) attacks against connected medical devices that may affect patient safety.[6]  For each of the five high risk cybersecurity threats, the guidance describes the risk, lists specific vulnerabilities and the potential effects of these vulnerabilities, and offers a list of “practices to consider” to help minimize the threat. The Task Group then identified a set of voluntary best practices and organized them into ten categories: E-mail Protection Systems Endpoint Protection Systems Access Management Data Protection and Loss Prevention Asset Management Network Management Vulnerability Management Incident Response Medical Device Security Cybersecurity Policies Information regarding each of these practice categories is detailed in two supplementary technical volumes—one addressing the needs of small organizations and the other addressing the requirements of medium and large organizations—as well as a supplemental volume of additional resources and templates.  The guidance also provides a toolkit for determining and prioritizing the cybersecurity practices that would be most effective, which can be used to assist organizations in conducting a cybersecurity risk assessment.[7] The specific practices identified in the guidance are not intended to replace existing regulatory requirements or frameworks (such as the HIPAA Security Rule or the NIST Cybersecurity Framework).  Instead, they are intended to be a supplemental resource for health care organizations, with the goal of “rais[ing] the cybersecurity floor across the health care industry.”[8]  Specific application and resource allocation will be up to each organization, and the guidance recognizes that each organization will need to tailor cybersecurity practices to its specific size, complexity, and type.  The guidance provides a chart to assist in determining these categorizations.[9]  Importantly, the guidance does not authorize any causes of action or grounds for regulatory enforcement. Conclusion Because of the long shadow of HIPAA, the health care industry has long been among the most heavily-regulated industries when it comes to cybersecurity practices.  This new guidance offers an additional tool that health care organizations can use to gauge the adequacy of their systems and their preparedness for a cyber attack.  Given that HHS OCR is simultaneously seeking comments on how it might update HIPAA’s requirements,[10] and the explosion of enforcement activity and lawsuits related to cybersecurity and privacy more generally, health care organizations would be well-served to evaluate this guidance and refine or enhance their plans to address cybersecurity issues that regulators and plaintiffs are likely to examine increasingly in the years to come.    [1]   Healthcare & Public Health Sector Coordinating Councils, Health Industry Cybersecurity Practices: Managing Threats and Protecting Patients (Dec. 28, 2018), https://www.phe.gov/Preparedness/planning/405d/Documents/HICP-Main-508.pdf.    [2]   Id. at 9.    [3]   See, e.g., Press Release, Department of Health and Human Services, Anthem Pays OCR $16 Million in Record HIPAA Settlement Following Largest U.S. Health Data Breach in History (Oct. 15, 2018), https://www.hhs.gov/about/news/2018/10/15/anthem-pays-ocr-16-million-record-hipaa-settlement-following-largest-health-data-breach-history.html, Press Release, Department of Health and Human Services, Five breaches add up to millions in settlement costs for entity that failed to heed HIPAA’s risk analysis and risk management rules (Feb. 1, 2018), available at https://www.hhs.gov/about/news/2018/02/01/five-breaches-add-millions-settlement-costs-entity-failed-heed-hipaa-s-risk-analysis-and-risk.html.    [4]   Health Industry Cybersecurity Practices: Managing Threats and Protecting Patients, at 4.    [5]   Id.    [6]   Id. at 6.    [7]   Id. at 26.    [8]   Id.    [9]   Id. at 11.    [10]   See Request for Information on Modifying HIPAA Rules to Improve Coordinate Care, 83 Fed. Reg. 64,302 (Dec. 14, 2018). Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding the above developments.  Please contact the Gibson Dunn lawyer with whom you usually work, or the following authors: Ryan T. Bergsieker – Denver (+1 303-298-5774, rbergsieker@gibsondunn.com) Reid Rector – Denver (+1 303-298-5923, rrector@gibsondunn.com) Josiah J. Clarke – Denver (+1 303-298-5708, jclarke@gibsondunn.com) Please also feel free to contact the following practice group leaders: Alexander H. Southwell – Chair, Privacy, Cybersecurity and Consumer Protection Practice, New York (+1 212-351-3981, asouthwell@gibsondunn.com) Daniel J. Thomasch – Co-Chair, Life Sciences Practice, New York (+1 212-351-3800, dthomasch@gibsondunn.com) Tracey B. Davies – Co-Chair, Life Sciences Practice, Dallas (+1 214-698-3335, tdavies@gibsondunn.com) Ryan A. Murr – Co-Chair, Life Sciences Practice, San Francisco (+1 415-393-8373, rmurr@gibsondunn.com) Stephen C. Payne – Chair, FDA and Health Care Practice, Washington, D.C. (+1 202-887-3693, spayne@gibsondunn.com) © 2019 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 29, 2018 |
Webcast: The False Claims Act – 2018 Mid-Year Update: Three Industry-Specific Programs

The False Claims Act (FCA) is well-known as one of the most powerful tools in the government’s arsenal to combat fraud, waste and abuse anywhere government funds are implicated. While the U.S. Department of Justice has recently issued statements indicating some new thinking about FCA enforcement, newly filed cases remain at historical peak levels and the DOJ has enjoyed seven straight years of more than $3 billion in annual FCA recoveries. As much as ever, any company that deals in government funds—especially in the health care and life sciences, government contracting and financial services sectors—needs to stay abreast of how the government and private whistleblowers alike are wielding this tool, and how they can prepare and defend themselves. Please join Gibson Dunn for a 90-minute discussion of the latest developments in FCA, including: The latest trends in FCA enforcement actions and associated litigation involving your industry sector; Updates on the Trump Administration’s approach to FCA enforcement; Notable legislative and administrative developments affecting the FCA’s statutory framework and application; and The latest developments in FCA case law, including the continued evolution of how lower courts are interpreting the Supreme Court’s Escobar decision. View Slides [PDF] PANELISTS: Joseph Warin is a partner in the Washington, D.C. office, chair of the office’s Litigation Department, and co-chair of the firm’s White Collar Defense and Investigations practice group. His practice focuses on complex civil litigation, white collar crime, and regulatory and securities enforcement – including Foreign Corrupt Practices Act investigations, False Claims Act cases, special committee representations, compliance counseling and class action civil litigation. Stuart Delery is a partner in the Washington, D.C. office. He represents corporations and individuals in high-stakes litigation and investigations that involve the federal government across the spectrum of regulatory litigation and enforcement. Previously, as the Acting Associate Attorney General of the United States (the third-ranking position at the Department of Justice) and as Assistant Attorney General for the Civil Division, he supervised the DOJ’s enforcement efforts under the FCA, FIRREA and the Food, Drug and Cosmetic Act. Jim Zelenay is a partner in the Los Angeles office where he practices in the firm’s Litigation Department. He is experienced in defending clients involved in white collar investigations, assisting clients in responding to government subpoenas, and in government civil fraud litigation. He also has substantial experience with the federal and state False Claims Acts and whistleblower litigation, in which he has represented a breadth of industries and clients, and has written extensively on the False Claims Act. MCLE CREDIT INFORMATION: This program has been approved for credit in accordance with the requirements of the New York State Continuing Legal Education Board for a maximum of 1.50 credit hours, of which 1.50 credit hours may be applied toward the areas of professional practice requirement. This course is approved for transitional/non-transitional credit. Attorneys seeking New York credit must obtain an Affirmation Form prior to watching the archived version of this webcast. Please contact Jeanine McKeown (National Training Administrator), at 213-229-7140 or jmckeown@gibsondunn.com to request the MCLE form. This program has been approved for credit in accordance with the requirements of the Texas State Bar for a maximum of 1.50 credit hours, of which 1.50 credit hour may be applied toward the area of accredited general requirement. Attorneys seeking Texas credit must obtain an Affirmation Form prior to watching the archived version of this webcast. Please contact Jeanine McKeown (National Training Administrator), at 213-229-7140 or jmckeown@gibsondunn.com to request the MCLE form. Gibson, Dunn & Crutcher LLP certifies that this activity has been approved for MCLE credit by the State Bar of California in the amount of 1.50 hours. California attorneys may claim “self-study” credit for viewing the archived version of this webcast. No certificate of attendance is required for California “self-study” credit.

August 22, 2018 |
Webcast: The False Claims Act – 2018 Mid-Year Update: Drug and Device Industries

The False Claims Act (FCA) is well-known as one of the most powerful tools in the government’s arsenal to combat fraud, waste and abuse anywhere government funds are implicated. While the U.S. Department of Justice has recently issued statements indicating some new thinking about FCA enforcement, newly filed cases remain at historical peak levels and the DOJ has enjoyed seven straight years of more than $3 billion in annual FCA recoveries. As much as ever, any company that deals in government funds—especially in the health care and life sciences, government contracting and financial services sectors—needs to stay abreast of how the government and private whistleblowers alike are wielding this tool, and how they can prepare and defend themselves. Please join us for a 90-minute discussion of the latest developments in FCA, including: The latest trends in FCA enforcement actions and associated litigation involving your industry sector; Updates on the Trump Administration’s approach to FCA enforcement; Notable legislative and administrative developments affecting the FCA’s statutory framework and application; and The latest developments in FCA case law, including the continued evolution of how lower courts are interpreting the Supreme Court’s Escobar decision. View Slides [PDF] PANELISTS: Stuart Delery is a partner in the Washington, D.C. office. He represents corporations and individuals in high-stakes litigation and investigations that involve the federal government across the spectrum of regulatory litigation and enforcement. Previously, as the Acting Associate Attorney General of the United States (the third-ranking position at the Department of Justice) and as Assistant Attorney General for the Civil Division, he supervised the DOJ’s enforcement efforts under the FCA, FIRREA and the Food, Drug and Cosmetic Act. Marian J. Lee is a partner in the Washington, D.C. office where she provides FDA regulatory and compliance counseling to life science and health care companies. Ms. Lee has significant experience advising clients on FDA regulatory strategy, risk management, and enforcement actions. John Partridge is a partner in the Denver office where he focuses on white collar defense, internal investigations, regulatory inquiries, corporate compliance programs, and complex commercial litigation. He has particular experience with the False Claims Act and the Foreign Corrupt Practices Act (“FCPA”), including advising major corporations regarding their compliance programs. Jonathan Phillips is a partner in the Washington, D.C. office where he focuses on compliance, enforcement, and litigation in the health care and government contracting fields, as well as other white collar enforcement matters and related litigation. A former Trial Attorney in DOJ’s Civil Fraud section, he has particular experience representing clients in enforcement actions by the DOJ, Department of Health and Human Services, and Department of Defense brought under the False Claims Act and related statutes.   MCLE CREDIT INFORMATION: This program has been approved for credit in accordance with the requirements of the New York State Continuing Legal Education Board for a maximum of 1.50 credit hours, of which 1.50 credit hours may be applied toward the areas of professional practice requirement. This course is approved for transitional/non-transitional credit. Attorneys seeking New York credit must obtain an Affirmation Form prior to watching the archived version of this webcast. Please contact Jeanine McKeown (National Training Administrator), at 213-229-7140 or jmckeown@gibsondunn.com to request the MCLE form. This program has been approved for credit in accordance with the requirements of the Texas State Bar for a maximum of 1.50 credit hours, of which 1.50 credit hour may be applied toward the area of accredited general requirement. Attorneys seeking Texas credit must obtain an Affirmation Form prior to watching the archived version of this webcast. Please contact Jeanine McKeown (National Training Administrator), at 213-229-7140 or jmckeown@gibsondunn.com to request the MCLE form. Gibson, Dunn & Crutcher LLP certifies that this activity has been approved for MCLE credit by the State Bar of California in the amount of 1.50 hours. California attorneys may claim “self-study” credit for viewing the archived version of this webcast. No certificate of attendance is required for California “self-study” credit.

July 31, 2018 |
Federal Circuit Update (July 2018)

Click for PDF This July 2018 edition of Gibson Dunn’s Federal Circuit Update discusses the recent Federal Circuit Bar Association Bench and Bar Conference, provides a summary of the pending Helsinn Healthcare case before the Supreme Court regarding the on-sale bar, and briefly summarizes the joint appendix procedure at the Federal Circuit.  This Update also provides a summary of the recent en banc case involving attorneys’ fees for litigation involving the PTO.  Also included are summaries of recent decisions regarding means-plus-function terms, the entire market value rule, the interplay between software patents and section 101, and tribal sovereign immunity before the Patent Trial & Appeal Board. Federal Circuit News The annual Federal Circuit Bench and Bar Conference was held this year in Coronado, CA, from June 20 to June 23, 2018.  Nicole Saharsky, co-chair of Gibson Dunn’s Appellate and Constitutional Law practice, presented on the Supreme Court Term in Review panel, and Kate Dominguez, a partner in the firm’s New York office, participated in the conference’s first-ever moot oral argument. Supreme Court.  The Supreme Court decided three cases from the Federal Circuit in the recently concluded OT2017 Term (Oil States v. Greene’s Energy; SAS v. Iancu; WesternGeco v. ION Geophysical).  The Court also granted certiorari recently in a new case to be heard next Term: Case Status Issue Helsinn Healthcare S.A. v. Teva Pharm. USA Inc., No. 17-1229 Petition granted on June 25, 2018 Whether the sale of a patented invention by the inventor to a third party that is obligated to keep the invention confidential constitutes prior art for determining patentability Recent En Banc Federal Circuit Cases NantKwest, Inc. v. Matal, No. 16-1794 (Fed. Cir.) (July 27, 2018) (en banc):  The PTO cannot recover attorneys’ fees in litigation pursuant to 35 U.S.C. § 145. After the PTAB affirmed the rejection of NantKwest’s patent application, NantKwest appealed to the district court under Section 145.  The PTO prevailed and moved to recover both its attorneys’ fees and expert fees pursuant to section 145, which states that “[a]ll the expenses of the proceedings shall be paid by the applicant.”  Applying this statutory provision, the district court granted the expert fees, but rejected the request for attorneys’ fees.  On appeal, a Federal Circuit panel (Prost, CJ) reversed the award of attorneys’ fees, holding that the “[a]ll expenses” provision of section 145 authorizes attorneys’ fees.  Judge Stoll dissented.  The Federal Circuit sua sponte ordered that the panel decision be vacated and that the case be reheard en banc. The en banc majority (Stoll, J.) noted that the American Rule—where each litigant pays its own attorneys’ fees—is a “bedrock principle” of U.S. jurisprudence and prohibits courts from shifting attorneys’ fees from one party to the other absent a “specific and explicit directive from Congress.”  The en banc majority held that the phrase “all the expenses of the proceedings” falls short of this “stringent standard,” and thus affirmed the district court’s denial of the request for attorneys’ fees.  Chief Judge Prost dissented, joined by Judges Dyk, Reyna, and Hughes. Federal Circuit Practice Update This month, we are highlighting the difference between the Federal Rules of Appellate Procedure and the Federal Circuit Rules of Practice as relating to the content of the appendix to the briefs.  As the Federal Circuit explains in its practice notes, an appendix prepared without careful attention to Federal Circuit Rule 30 may be rejected and could result in dismissal. Contents:  In addition to the documents required by FRAP 30(a)(1)(A)-(C), Federal Circuit Rule 30(a)(2) requires that each appendix include: (1) the entire docket sheet from the proceedings below; (2) the judge’s charge to the jury, the jury’s verdict, and the jury’s responses to questions; (3) the patent-in-suit in its entirety; and (4) any nonprecedential opinion or order cited in the briefs.  Rule 30(a)(2) further explains that parties should not include other parts of the record unless they are “actually referenced in the briefs,” and the briefs should not contain “indiscriminate referencing” to blocks of pages.  To the extent the parties wish to include briefs and memoranda from the trial court in the appendix, the parties must obtain leave of the court to file the briefs or memoranda in their entirety; otherwise, the parties should include only excerpts of the documents cited in the briefs. Determination of Contents:  The Federal Circuit Rules do not follow FRAP 30(b)’s instructions for determining the contents of the appendix, but the Rules lay out a similar process.  In the absence of an agreement on the contents of the appendix, the appellant must serve on the appellee a designation of materials for the appendix within 14 days after docketing of the appeal from a court or the service of the certified list or index in an appeal from an agency.  The appellee then has 14 days to provide the appellant with a counter-designation that identifies additional parts to include.  The appellant then has 14 days to serve on all parties a table that designates the page numbers for the appendix.  The parties can agree to an extension of these time limits without leave of the court as long as it does not require an extension of the time required for filing the appellant’s brief. Format of the Appendix:  FRAP 30(d) governs the arrangement of the appendix except that the appellant must place the judgment or order from which it appeals, plus any opinion, memorandum, or findings and conclusions supporting it, as the first documents. Timing:  The Federal Circuit Rules disregard many of the FRAP 30(c) provisions relating to deferred appendices.  The Rules explain that the appellant must serve and file an appendix within seven days of the filing of the last reply brief.  If the appellant does not file a reply brief, the appellant must file the appendix within the time period for filing the reply brief. Key Case Summaries (June – July 2018) ZeroClick, LLC v. Apple Inc., No. 17-1267 (Fed. Cir. June 1, 2018):  Claim limitations without the word “means” require intrinsic or extrinsic evidence to support a finding that they are governed by § 112, ¶ 6. ZeroClick asserted patent infringement claims for patents related to modifications to a graphical user interface that allow the interface to be controlled using a pre-defined pointer or touch movements instead of a mouse.  The district court found that two claim limitations recite means-plus-function limitations:  (1) “program that can operate the movement of the pointer” and (2) “user interface code being configured to detect one or more locations touched by a movement of the user’s finger on the screen without requiring the exertion of pressure and determine therefrom a selected operation.”  After determining that these limitations were subject to § 112, ¶ 6, the district court found that the claims were invalid because the specifications do not disclose sufficient structure. The Federal Circuit (Hughes, J.) vacated the district court’s findings, explaining that, because the two limitations did not include the word “means,” the presumption is that § 112, ¶ 6 does not apply and the presumption had not been rebutted.  The court explained that the determination as to whether § 112, ¶ 6 applies must be made under the traditional claim construction principles, on an element-by-element basis, and in light of the intrinsic and extrinsic evidence.  The Federal Circuit reasoned that the district court improperly treated “program” and “user interface code” as nonce words that could substitute for “means” and presumptively bring the limitations within the ambit of § 112, ¶ 6.  The court therefore vacated the court’s invalidity finding and remanded for further proceedings. Power Integrations, Inc. v. Fairchild Semiconductor Int’l, Inc., Nos. 2016-2691, -1875 (Fed. Cir. July 3, 2018):  The entire market value rule for damages calculations is a narrow exception that a patentee can invoke only if it shows that the patented feature alone motivated consumers to buy the accused products. Power Integrations sued Fairchild for infringement of two patents.  In two separate trials, the first jury found that Fairchild infringed various claims of the asserted patents, and a second jury awarded damages of $140 million based on expert testimony from Power Integrations that relied solely on applying the entire market value rule.  The district court denied Fairchild’s post-trial motions, and Fairchild appealed. The Federal Circuit (Dyk, J.) affirmed the jury’s infringement finding but vacated and remanded the damages award.  The court reiterated that a patentee damages calculations must include apportionment so that royalties cover only the value that the infringing features contribute to the value of the accused product.  The court explained that the entire market value rule is “a demanding alternative to our general rule of apportionment,” and that it is appropriate “only when the patented feature is the sole driver of customer demand or substantially creates the value of the component parts.”  When the accused product “contains multiple valuable features, it is not enough to merely show that the patented feature is viewed as essential, that a product would not be commercially viable without the patented feature, or that consumers would not purchase the product without the patented feature.”  Instead, “the patentee must prove that those other features did not influence purchasing decisions.”  Because the patentee had failed to meet its burden showing that the patented feature “alone motivated consumers to buy the accused products,” the patentee could not invoke the entire market value rule.  The court accordingly vacated the damages award and remanded for a new damages trial. Interval Licensing LLC v. AOL, Inc., Nos. 2016-2502, -2505, -2506, -2507 (Fed. Cir. July 20, 2018):  Application of section 101 to software patents. After remand from an initial appeal to the Federal Circuit addressing claim construction issues, defendants moved for judgment on the pleadings, arguing that the claims were ineligible under 35 U.S.C. § 101.  The district court concluded that the claims were directed to the abstract idea and contained no inventive concept because the elements of the claims were “purely conventional” and did nothing more than apply the abstract idea in the environment of networked computers without any explanation as to how the claim elements solved technical issues. The Federal Circuit (Chen, J.) affirmed.  The majority explained that computer software inventions, due to their “intangible nature,” “can be particularly difficult to assess under the abstract idea exception.”  Although the court has found some software-based claims eligible for patentability, other claims “failed to pass section 101 muster” because they did not recite any “inventive technology for improving computers as tools” or “because the elements of the asserted invention were so result-based that they amounted to patenting the patent-ineligible concept itself.”  The majority concluded that the claims in this case were abstract because they were directed to “broad, result-oriented” terms that simply demanded “the production of a desired result” without “a solution for producing that result”; i.e., the claims never addressed how to reach the claimed result. Judge Plager concurred with the court’s opinion based on the “current state of the law” but wrote separately to “highlight the number of unsettled matters as well as the fundamental problems that inhere in this formulation of ‘abstract ideas.'”  In addressing the “almost universal criticism” of the application of “abstract idea” jurisprudence, he joined with Judge Lourie’s concurrence from Berkheimer v. HP Inc. in encouraging Congress to clarify § 101 law, and he also encouraged district courts to consider withholding judgment on § 101 motions until after addressing §§ 102, 103, and 112 defenses. Saint Regis Mohawk Tribe v. Mylan Pharm. Inc., Nos. 2018-1638, -1639, -1640, -1641, -1642, -1643 (Fed. Cir. July 20, 2018):  Tribal immunity does not apply in IPR proceedings. Mylan petitioned the Board to institute IPR proceedings on various patents owned by Allergan, Inc.  While the IPR was pending, Allergan transferred title of the patents to Saint Regis Mohawk Tribe, which in turn asserted sovereign immunity.  The Board denied the Tribe’s motion to terminate on the basis of sovereign immunity and Allergan’s related motion to withdraw from the proceedings.  The Tribe and Allergan appealed. The Federal Circuit (Moore, J.) held that tribal immunity does not apply in IPR proceedings.  The court explained that Indian tribes possess “inherent sovereign immunity” but that this immunity does not extend to actions brought by the federal government, including where the federal government, acting through an agency, engaged in an investigative action or pursued adjudicatory agency action.  The court concluded that IPR proceedings are hybrid proceedings, with elements of both judicial proceedings and specialized agency proceedings, but that they are more akin to specialized agency proceedings because the Director has full discretion whether to institute review of a petition, the Board can choose to continue review even if the petitioner chooses not to participate, and PTO procedures do not mirror the Federal Rules of Civil Procedure.  Because the court concluded that IPR proceedings are more akin to specialized agency proceedings, tribal sovereign immunity does not apply. Upcoming Oral Argument Calendar For a list of upcoming arguments at the Federal Circuit, please click here. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Federal Circuit.  Please contact the Gibson Dunn lawyer with whom you usually work or the authors of this alert: Blaine H. Evanson – Orange County (+1 949-451-3805, bevanson@gibsondunn.com) Blair A. Silver – Washington, D.C. (+1 202-955-8690, bsilver@gibsondunn.com) Please also feel free to contact any of the following practice group co-chairs or any member of the firm’s Appellate and Constitutional Law or Intellectual Property practice groups: Appellate and Constitutional Law Group: Mark A. Perry – Washington, D.C. (+1 202-887-3667, mperry@gibsondunn.com) Caitlin J. Halligan – New York (+1 212-351-4000, challigan@gibsondunn.com) Nicole A. Saharsky – Washington, D.C. (+1 202-887-3669, nsaharsky@gibsondunn.com) Intellectual Property Group: Josh Krevitt – New York (+1 212-351-4000, jkrevitt@gibsondunn.com) Wayne Barsky – Los Angeles (+1 310-552-8500, wbarsky@gibsondunn.com) Mark Reiter – Dallas (+1 214-698-3100, mreiter@gibsondunn.com) © 2018 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 30, 2018 |
2018 Mid-Year Government Contracts Litigation Update

Click for PDF In this mid-year analysis of government contracts litigation, Gibson Dunn examines trends and summarizes key decisions of interest to government contractors from the first half of 2018.  This publication covers the waterfront of the opinions most important to this audience issued by the U.S. Court of Appeals for the Federal Circuit, U.S. Court of Federal Claims, Armed Services Board of Contract Appeals (“ASBCA”), and Civilian Board of Contract Appeals (“CBCA”). The first six months of 2018 yielded 4 government contracts-related opinions of note from the Federal Circuit, excluding decisions related to bid protests.  From January 1 through July 30, 2018, the U.S. Court of Federal Claims issued 7 notable non-bid protest government contracts-related decisions (and one bid-protest decision with wider-reaching implications we address here), and the ASBCA and CBCA published 54 and 64 substantive government contracts decisions, respectively.  As discussed herein, these cases address a wide range of issues with which government contractors should be familiar, including matters of cost allowability, jurisdictional requirements, terminations, contract interpretation, remedies, and the various topics of federal common law that have developed in the government contracts arena.  For background on the tribunals that adjudicate government contracts disputes, please see our 2017 Year-End Update. Of 1,502 cases pending before the Federal Circuit as of June 30, 2018, 12 were appeals from the boards of contract appeals and 132 were appeals from the Court of Federal Claims (“COFC”)—cumulatively comprising just under 10% of the appellate court’s docket. Only 4% of the appeals filed at the Federal Circuit in FY 2017 were governments contracts cases, which is consistent with previous years. On May 13, 2018, Judge Lis B. Young was appointed to the ASBCA after over 25 years of public service with the Federal Government, holding various positions with the former General Services Board of Contract Appeals and  the Department of the Navy, including most recently as Associate Counsel, Navy Acquisition Integrity Office, where she worked on suspension and debarment actions. On March 28, 2018, the CBCA proposed to amend its rules of procedure for cases arising under the CDA. The Board’s current rules were issued in 2008, and were last amended in 2011. The proposed revisions establish a preference for electronic filing, are designed to “increase[e] conformity” between the Board’s rules and the Federal Rules of Civil Procedure by cross-referencing and incorporating the FRCP standards, and streamlines and clarifies the Board’s current rules and practices. Notably, a proposed change to CBCA Rule 6, which governs pleadings, would require the opposing party’s consent to amend a pleading once without permission of the Board. Comments on the Proposed Rule were due on May 29, 2018. I.    COST ALLOWABILITY & COST ACCOUNTING STANDARDS The Court of Federal Claims issued one decision during the first half of 2018 addressing the merits of cost allowability issues under the Federal Acquisition Regulation (“FAR”).  Pursuant to FAR 31.201-2, a cost is allowable only if it (1) is reasonable; (2) is allocable; (3) complies with any applicable Cost Accounting Standards, or otherwise with generally accepted accounting principles appropriate in the circumstances; (4) complies with the terms of the contract; and (5) complies with any limitations in FAR subpart 31.2. Bechtel Nat’l, Inc. v. United States, No. 17-757C (Fed. Cl. Apr. 3, 2018) In Bechtel, the Court of Federal Claims considered whether the Department of Energy’s disallowance of litigation costs breached Bechtel’s contract. Two former employees of Bechtel sued Bechtel for sexual and racial harassment and discrimination. Bechtel ultimately settled both suits and sought reimbursement of litigation costs from the government for each suit, which the contracting officer denied in a final decision. In disallowing the costs, the contracting officer relied in part on the Federal Circuit’s decision in Geren v. Tecom, Inc., 566 F.3d 1037 (Fed. Cir. 2009), which held that costs incurred in the defense of an employment discrimination suit settled before trial are unallowable unless the contracting officer determines that the plaintiff had “very little likelihood of success on the merits.” Bechtel argued that Tecom had no bearing on the allowability of its litigation costs because, unlike in Tecom, the contract here included a Department of Energy Acquisition Regulation (“DEAR”) clause that “explicitly allocat[ed] the risk of third party claims to the Government.” The Court (Kaplan, J.) rejected this argument, finding that an exception in the DEAR clause prohibiting reimbursement of liabilities “otherwise unallowable by law or the visions of this contract” applied. Employing the principles in Tecom, the COFC found the “provisions of the contract,” including the contract’s anti-discrimination provision, rendered Bechtel’s costs of defending against and settling the discrimination complaints unallowable. However, the COFC stated that the holding in Tecom “was a limited one” that did not necessarily extend to breaches of contractual obligations other than anti-discrimination provisions. Bechtel’s appeal to the Federal Circuit is pending. ___________________ The COFC also considered two questions relating to the allocation of pension assets and liabilities for the purpose of a segment closing under Cost Accounting Standard (“CAS”) 413. United States Enrichment Corp. v. United States, No. 15-68C (Fed. Cl. Jan. 16, 2018) United States Enrichment Corporation (“USEC”) became a private entity in 1998 pursuant to the 1996 USEC Privatization Act.  Post-privatization, USEC continued to operate uranium enrichment facilities for the government at Portsmouth, Ohio and Paducah, Kentucky.  In 2010, DOE wound down all enrichment work at USEC’s Portsmouth facility, and on January 1, 2011, USEC divided what had been a single cost accounting segment for Paducah and Portsmouth into two separate segments. USEC announced it would close the Portsmouth segment on September 30, 2011, which triggered its obligation to perform a segment closing adjustment under CAS 413-50(c)(12). First, rejecting USEC’s argument that CAS 413-50(c)(5) requires the use of historical “data of the segment,” the COFC (Firestone, J.) determined that USEC had applied CAS 413 incorrectly when it failed to use data from the earliest date that USEC had data for employees associated with Portsmouth to allocate pension assets and liabilities to the new segment.   Instead, the Court agreed with the Government’s argument that the allocation must be based on historic data for the workers employed at the closed segment from the earliest period when that data is available and readily determinable – including the period before USEC became a private enterprise. Second, the COFC considered whether USEC could recover any deficit for under-funded post-retirement benefit obligations (“PRB”) from the Government in the CAS 413 segment closing adjustment, or whether the PRB obligations at issue should be excluded from the closing adjustment. Applying the holding from Raytheon Co. v. United States, 92 Fed. Cl. 549 (2012), the COFC found that while some of the PRBs at issue were not vested or integral because USEC’s Plan provided that USEC could terminate or modify its obligation to pay PRBs, others were protected by the Privatization Act such that they should be factored into the segment closing adjustment, and granted-in-part and denied-in-part both parties’ cross motions for summary judgment on the issue. II.  JURISDICTIONAL ISSUES As is frequently the case, jurisdictional issues dominated the landscape of key government contracts decisions during the first half of 2018. A.  Requirement for a Valid Contract In order for there to be Contract Disputes Act jurisdiction over a claim, there must be a contract from which that claim arises.  See FAR 33.201 (defining a “claim” as “a written demand or written assertion by one of the contracting parties seeking . . . relief arising under or relating to this contract“).  The CDA applies to contracts made by an executive agency for: (1) the procurement of property, other than real property in being; (2) the procurement of services; (3) the procurement of construction, alteration, repair, or maintenance of real property; and (4) the disposal of personal property.  41 U.S.C. § 7102(a)(1)-(4). Additionally, claims under the Contract Disputes Act must be brought by a contractor in privity of contract with the government. The Federal Circuit and the ASBCA addressed these issues in the first half of 2018. Agility Logistics Servs. Co. KSC v. Mattis, No. 2015-1555 (Fed. Cir. Apr. 16, 2018) In Agility, the Federal Circuit affirmed the Armed Services Board of Contract Appeals’ dismissal for lack of jurisdiction of Agility’s claim arising from a contract originally awarded by the Coalition Provisional Authority (“CPA”) in Iraq. The COFC (Prost, C.J.) found that the CPA did not constitute an “executive agency” so as to invoke jurisdiction under the Contracts Disputes Act. The court relied primarily on the plain language of the agreement, which made clear that the CPA, which was not an executive agency, awarded the contract.  The COFC also rejected Agility’s argument that the government became the contracting party after the CPA dissolved because the Iraqi Interim Government’s Minister of Finance had properly taken responsibility for the contract after the dissolution of the CPA.  The COFC also rejected Agility’s argument that each individual task order issued was a discrete contract, finding that “even if an executive agency issued the Task Orders, it did so as a contract administrator and not as a contracting party.”  The COFC additionally found that it had no jurisdiction to review the Board’s decision regarding jurisdiction under the Board’s charter. Cooper/Ports America, LLC, ASBCA No. 61461 (May 2, 2018) After Cooper/Ports America LLC (“CPA”) entered into a novation agreement with the government and the original contractor, Shippers, CPA filed a claim for unilateral mistake based, in part, on the fact that Shippers’ bid was 63% below that of the next lowest bidder and contained mistakes that should have been apparent to the government. The government moved to dismiss, claiming that CPA lacked the required privity of contract to qualify as a “contractor” with standing to pursue a claim that accrued when it was not a party to the contract (i.e., pre-novation). More specifically, the government asserted that there must have been an express assignment of that claim to which the government consented in order for the Board to find a valid government waiver of the statutory prohibition against assignment of claims. The ASBCA (O’Sullivan, A.J.) denied the government’s motion to dismiss because the government expressly recognized CPA as the “contractor” in the novation agreement. Moreover, the novation agreement recognized CPA as “entitled to all rights, titles and interests of the Transferor in and to the contracts as if the Transferee were the original party to the contracts,” and the Board found that a narrow interpretation of the novation would fly in the face of the plain language of the agreement. B.  Adequacy of the Claim Another common issue arising before the tribunals that hear government contracts disputes is whether the contractor appealed a valid CDA claim.  FAR 33.201 defines a “claim” as “a written demand or written assertion by one of the contracting parties seeking, as a matter of right, the payment of money in a sum certain, the adjustment or interpretation of contract terms, or other relief arising under or relating to this contract.”  Under the CDA, a claim for more than $100,000 must be certified.  In the first half of 2018, the boards considered the elements of an adequate claim under the CDA. Meridian Eng’g Co. v. United States, 2017-1584 (Fed. Cir. Mar. 20, 2018) Meridian Engineering Company appealed the Court of Federal Claims’ dismissal of its claims arising from its 2007 contract to build flood control structures.  Meridian’s initial suit in the COFC alleged breach of contract, breach of the duty of good faith and fair dealing, and violation of the CDA as an independent claim. Meridian argued that the COFC erred when it “reasoned that only Meridian’s breach of contract and breach of good faith and fair dealing claims presented a viable cause of action” because its claims should have been “analyzed under the framework contemplated by the CDA, and not under the rubric of a ‘breach’ claim.” The Federal Circuit (Wallach, J.) affirmed the dismissal, finding that Meridian had not submitted a valid claim because the CDA did not itself provide a cause of action. Rather, “it is the claim asserted pursuant to the CDA that is the source of potential damages and review by the trier of fact.”  The court concluded that the COFC had not erred in finding jurisdiction under the CDA to evaluate the breach of contract claims, but found that the COFC had erred with respect to the substantive merits of certain claims. 1.  Claim Accrual Under the CDA, a claim must be submitted within six years after the claim accrues. FAR 33.201 defines accrual of a claim as the date when all events that fix alleged liability and permit assertion of the claim are known or should be known. Green Valley Co., ASBCA No. 61275 (Feb. 13, 2018) Green Valley held a blanket purchase agreement to supply life support services to the Army.  In 2006, Green Valley began invoicing the government for services it performed under the BPA, but it did not submit a certified claim for those unpaid invoices until 2017.  The contracting officer denied the claim, and Green Valley appealed.  The government sought to dismiss the claim because it had not been submitted within six years of accrual of the claim, as required by the CDA’s statute of limitations. The ASBCA (Melnick, A.J.) found that Green Valley’s claim accrued in 2006 after it submitted its invoices for payment, and that the ten-year delay in submitting the claim rendered it time-barred.  The Board explained that while an invoice is not necessarily a claim, it can be converted into one within a reasonable time if it is not acted upon or paid.  The Board considered Green Valley’s argument that the statute of limitations should be equitably tolled, noting that tolling might be appropriate if a litigant has been pursuing its rights diligently, and some extraordinary circumstance stood in its way and prevented the timely filing of the claim.  However, the Board found that Green Valley had not proven such circumstances, and dismissed the appeal as untimely. 2.  Sum Certain Fluor Fed. Sols., LLC, ASBCA No. 61353 (May 30, 2018) Fluor submitted a certified claim to the Navy for the estimated additional cost of performing work  under a unilateral modification to the contract.  The Navy argued that the claim was complex and, thus, refused to issue a final decision until it received an audit report from the Defense Contract Audit Agency (“DCAA”).  Fluor notified the Navy that it would treat the claim as a deemed denial and subsequently appealed to the ASBCA on this basis.  The Board asked the parties to respond whether the claimed amount qualified as a sum certain since it was based on estimated costs. Both parties agreed that Fluor’s claim satisfied the sum certain requirement.  The Navy argued, however, that the claim was complex and required a DCAA audit before the CO could issue a final decision. Without a final decision, the Navy argued, the claim was premature and the Board lacked jurisdiction. The Board (Clarke, A.J.) denied the Navy’s motion to dismiss for lack of jurisdiction, holding that the desired DCAA audit does not change the status of a contractor’s claim because it is not needed to assess entitlement, only quantum. The Board affirmed previous decisions that the use of estimated or approximate costs in determining the value of a claim is permissible so long as the total overall demand is for a sum certain. 3.  Claim Certification Horton Constr. Co., Inc., ASBCA No. 61085 (Feb. 14, 2018) Horton requested an equitable adjustment to its contract for the crushing of a concrete stockpile because the amount of concrete stockpile was smaller than originally anticipated. When Horton appealed from the contracting officer’s denial of its equitable adjustment claim, the government moved to dismiss for lack of jurisdiction, claiming Horton had not shown that it possessed the legal capacity to initiate or continue the appeal because the company’s status had been administratively terminated by the state of Louisiana, and that any attempt to ratify the appeal was too late. The ASBCA (Osterhout, A.J.) rejected the government’s first argument that Horton did not have the capacity to continue the appeal because Louisiana had subsequently reinstated the company.  The Board also rejected the government’s argument that the signatory to the claim was not authorized to certify the claim.  The CDA requires that a certified claim be executed by an individual authorized to bind the contractor with respect to the claim.  The test is one of authorization, and the signatory here was appointed as executrix to the estate of Mr. Horton Sr., who owned the company, and thus had power to bind the company. Moreover, the Board held, even if the executrix had not been authorized to bind the company, a defective certification under the CDA may be corrected prior to the entry of final judgment by the Board.  Accordingly, because the appeal was timely filed and the claim was properly certified and prosecuted, the Board denied the government’s motion to dismiss. Mayberry Enters., LLC v. Department of Energy, CBCA No. 5961 (Mar. 13, 2018) The Western Area Power Administration (“WAPA”), acting through the Department of Energy, filed a motion to dismiss Mayberry’s appeal from a contracting officer’s decision denying its monetary claims because Mayberry’s claim letter was uncertified. Under the CDA, while a defective certification can be corrected, a complete failure to certify may not and the Board must dismiss for lack of jurisdiction. In light of the Federal Circuit’s caution that tribunals should be wary of automatically applying claim certification to a single claim letter containing multiple claims that do not arise out of the same operative facts, Placeway Construction v. United States, 920 F.2d 903 (Fed. Cir. 1990), the CBCA reviewed the letter to determine whether the “claims” should be interpreted as a single claim or multiple claims. Because the Board (Lester, A.J.)found that each claim arose from different and unrelated problems during contract performance, each claim was analyzed for certification independently. The Board dismissed one of the three claims for lack of jurisdiction because it was in excess of $100,000 and had not been certified. Areyana Grp. of Constr. Co., ASBCA No. 60648 (May 11, 2018) Areyana Group of Construction Co. (“AGCC”) timely appealed a CO’s final decision denying a request for a time extension and the return of liquidated damages withheld by the government. The government filed a motion to dismiss, contending that AGCC failed to certify its request and that, accordingly, the ASBCA lacked jurisdiction to review its allegations. The Board (Paul, A.J.) agreed with the government and dismissed the AGCC’s claim, affirming prior holdings that absence of a certification bars the Board’s exercise of jurisdiction and is not considered a “defect.” Additionally, the Board noted that the CO’s purported issuance of a final decision does not remedy this problem. C.  Requirement for a Contracting Officer’s Final Decision A number of decisions from the tribunals that hear government contracts disputes dealt with the CDA’s requirement that a claim have been “the subject of a contracting officer’s final decision.” Hejran Hejrat Co., ASBCA No. 61234 (Apr. 23, 2018) After HHL’s contract was suspended pending a bid protest, HHL informed the contracting officer that it incurred additional costs due to the time necessary for the government’s corrective action and delay in the issuance of the notice to proceed. There was no evidence that the government considered HHL’s concerns regarding additional costs. Instead, the government issued a unilateral modification that lifted the prior award suspension; decreased the contract price; revised the performance work statement to reflect delays in government furnished equipment; and declared that an equitable adjustment due to the suspension was not required and the government was absolved of any claims due to that suspension. The ASBCA (Kinner, A.J.) dismissed HHL’s appeal for lack of jurisdiction because HHL’s purported claim was not certified and failed to request a final decision from the contracting officer.  The Board noted that the CO’s statements promising to send a final decision and, in fact, sending a document labeled final decision did not cure HHL’s failure to request a final decision.  The Board stated: “There can be no contracting officer’s final decision on a claim if the contractor has not requested that decision from the contracting officer.” H2Ll-CSC, JV, ASBCA No. 61404 (June 14, 2018) H2Ll-CSC, JV (“HCJ”) appealed a CO’s decision denying HCJ’s claim arising from an indefinite-delivery, indefinite-quantity type contract with firm-fixed-price task orders for design/build construction, and incidental service projects. The ASBCA sua sponte directed the parties to brief the issue of the Board’s jurisdiction. Specifically, the Board noted that HCJ had requested telephonically, but not in writing, that its request for an equitable adjustment be treated as a claim under the CDA. The Board (Paul, A.J.) dismissed the appeal for lack of jurisdiction, holding that a request for a final decision, like the totality of a claim submission, must be in writing and the CO cannot waive this requirement by issuing a final decision. OCCI, Inc., ASBCA No. 61279 (May 29, 2018) OCCI sought remission of liquidated damages that the government claimed for late completion of contract work, arguing that it was entitled to time extensions for government-caused and/or concurrent delay and that its failure to timely complete work under the contract was excusable. The ASBCA (Shackleford, A.J.) dismissed the appeal, holding that OCCI was precluded from raising the issue that its delay was excusable and that it was entitled to time extensions because OCCI never filed a proper CDA claim asserting entitlement to the time extensions as required by M. Maropakis Carpentry, Inc. v. United States, 609 F.3d 1323 (Fed. Cir. 2010), which held that “a contractor seeking an adjustment of contract terms [such as an extension of time] must meet the jurisdictional requirements and procedural prerequisites of the CDA, whether asserting the claim against the government as an affirmative claim or as a defense to a government action” (emphasis added). Walker Dev. & Trading Grp., Inc., CBCA No. 5907 (June 6, 2018) The Department of Veterans Affairs (“VA”) moved to strike certain counts of Walker Development & Trading Group Inc.’s complaint, asserting that the CBCA lacks jurisdiction to decide those portions of the complaint because they were not included in its claims submitted to the contracting officer. The Board (Beardsley, A.J.) observed that, while it may not consider new claims that a contractor failed to present to the contracting officer, a claim before the Board is not required to rigidly adhere to the exact language or structure of the original administrative CDA claim presented to the contracting officer.  The Board denied the motion to dismiss, finding that “the allegations in the complaint arise from the same operative facts and are not materially different.” D.  Filing Deadlines The boards of contract appeals heard cases concerning two different types of timing deadlines – the CDA’s six-year statute of limitations, and the requirement that a claim for equitable adjustment be filed before final payment is made on the contract. Khenj Logistics Grp., ASBCA No. 61178 (Feb. 15, 2018) In 2009, the government awarded KLG a contract to construct a facility in Afghanistan.  After commencing work on the contract, the government issued a stop-work order.  Shortly thereafter, the parties executed a bilateral contract modification which terminated the contract for convenience, and the government agreed to reimburse KLG for the cost of maintaining insurance, while KLG in turn released further claims against the government.  KLG finally submitted a termination claim in 2017. After KLG appealed, the government filed a motion for summary judgment based on KLG’s release and on the basis that KLG’s claim was untimely.  The ASBCA (Kinner, A.J.) held that KLG’s claim was time-barred due to the six-year CDA statute of limitations, concluding that KLG should have known that the government’s payment would not be forthcoming when the government failed to make a last payment in accordance with promises made by the contracting officer.  The Board also found there was no basis for equitable tolling because KLG had not diligently pursued its rights and there were no extraordinary circumstances that would have prevented the timely filing of the claim. Merrick Constr., LLC, ASBCA No. 60906 (Mar. 22, 2018) Merrick appealed a contracting officer’s decision denying its claim for rental costs on a bypass pumping system installed pursuant to a government change order.  The government moved for summary judgment, arguing that Merrick’s claim was precluded by the general release, and that there was an accord and satisfaction based upon a modification to the contract. The ASBCA (D’Alessandris, A.J.) explained that a release is a type of contract that grants the release of any claim or right that could be asserted against the other.  After interpreting the plain language of the release, the Board found that as a rule, a general release which is not qualified on its face bars any claims based upon events occurring before the execution of the release, and thus the government had met its burden of establishing that the general release applied.  The Board went on to note that there can be exceptions to a release, such as fraud, mutual mistake, economic duress, or consideration of a claim after release.  In this instance, the Board found that there was no mistake because Merrick’s argument was entirely speculative and no evidence was presented that would have shown that there was mistake.  The Board also held that Merrick’s claim was barred because it was submitted after final payment.  Pursuant to the Changes clause, FAR 52.243-4(f), no proposal by a contractor for an equitable adjustment can be allowed if asserted after final payment under the contract.  Because Merrick could not establish that the contracting officer knew or should have known of Merrick’s claim prior to the final payment, the Board held that Merrick’s claim was barred by final payment.  Accordingly, the Board granted the government summary judgment. Michaelson, Connor & Boul, CBCA 6021 (May 29, 2018) In February 2010, HUD awarded MCB a contract to serve as HUD’s mortgagee compliance manager to ensure lender compliance with the property conveyance requirements of HUD’s real-estate portfolio.  After the contract ended, MCB submitted a claim to the contracting officer requesting payment in the amount of $661,312.81, which MCB stated was incurred “in connection to” “extra-contractual work” allegedly requested by HUD.  The contracting officer denied MCB’s claim and MCB timely appealed to the CBCA.  HUD challenged the Board’s jurisdiction over the claim, alleging that because MCB’s claim arose after the contract ended, it did not arise out of the same operating facts as the contract and thus precluded the Board’s jurisdiction over the matter. The Board (Russell, A.J.) raised concerns about whether the claim presented to the contracting officer is the same claim that MCB presented on appeal, and ordered MCB to clarify whether it was seeking relief (1) under the contract identified in the notice of appeal, (2) under no contract, or (3) under a different contract. The Board held that it did have jurisdiction to hear MCB’s appeal because MCB’s appeal filings were “fundamentally the same” as those asserted in its claim to the contracting officer. Judge Chadwick dissented, noting that while the case presented the “closest ‘same claim/new claim’ issue” he had come across, the controlling question is whether MCB intends to litigate the operative facts of its certified claim, which according to Judge Chadwick MCB had abandoned because while the appeal sounded in contract, the certified claim was not based on any “provision, clause, or even a single word of the written contract.” E.  Amending the Complaint John C. Grimberg Co., Inc., ASBCA No. 60371 (Feb. 15, 2018) Grimberg held a contract to construct an advanced analytical chemistry wing for work with toxic agents.  After a dispute arose regarding contract terms, Grimberg filed a claim and an appeal of the contracting officer’s deemed denial when a year passed without a final decision on the claim.  Three weeks prior to the scheduled hearing date, Grimberg filed an amended complaint adding a new count based on the government’s failure to disclose superior knowledge of contract requirements.  The hearing was subsequently rescheduled by the Board to a date several months after the original hearing date.  Grimberg filed a motion for reconsideration after the Board rejected the amended complaint due to the absence of a motion for leave to amend. The ASBCA (Woodrow, A.J.) held that it had jurisdiction to hear the new count in the amended complaint because a new legal theory of recovery asserted in an amended complaint does not constitute a new claim if based upon the same operative facts as the original claim, and the new count would require review of the same evidence as the original counts.  Therefore, the Board concluded that it possessed jurisdiction to hear the new count.  The Board then determined that the proposed amendment to the complaint would be fair to both parties, as required by Board Rule 6, because the rescheduling of the hearing allowed the government additional time to address concerns raised by the new count.  Thus, the Board granted Grimberg leave to file its amended complaint. F.  Availability of Declaratory Relief The Federal Circuit and boards of contract appeals considered the availability of declaratory relief in an action brought pursuit to the CDA. Securiforce Int’l Am., LLC v. United States, Nos. 2016-2589, 2016-2633 (Fed. Cir. Jan. 17, 2018) Securiforce International America, LLC (“Securiforce”) supplied fuel to eight locations in Iraq under a contract with the Defense Logistics Agency (“DLA”). DLA partially terminated the contract for convenience with respect to two of the sites, but subsequently placed oral orders for small deliveries to those sites.  When Securiforce’s deliveries to the remaining sites were late, the government sent a show cause notice, in response to which Securiforce claimed the delays were due in part to the allegedly improper termination for convenience. The government terminated the remainder of the contract for default.  In 2012, Securiforce filed a complaint in the COFC claiming that the termination for default was improper, and then requested a final decision from the contracting officer (“CO”) that the termination for convenience had been improper. After the CO denied the request for final decision, Securiforce amended its COFC complaint to include a request for declaratory judgment that the government’s termination for convenience had been improper.  The COFC found jurisdiction over both claims and held that the partial termination for convenience of the contract had been an abuse of discretion and thus a breach of the contract, but found the termination for default proper and rejected Securiforce’s claim that its nonperformance was excused by the improper termination for convenience. On appeal, the Federal Circuit (Dyk, J.) found that the COFC lacked jurisdiction to adjudicate the declaratory relief claim regarding the validity of the government’s termination for convenience.  While contractors may seek declaratory relief in some cases, the Federal Circuit stated they may not “circumvent the general rule requiring a sum certain by reframing monetary claims as nonmonetary.”  The Federal Circuit characterized Securiforce’s declaratory relief claim as a claim for monetary relief because the default remedy for a breach of contract would be damages, and that Securiforce had failed to state a sum certain as required by the CDA.  The court further held that there would have been no jurisdictional impediment to Securiforce invoking the improper termination for convenience as an affirmative defense for its default without presenting the defense to the CO because Securiforce was neither seeking the payment of money nor attempting to change the terms of the contract.  However, under the facts at hand, the Federal Circuit concluded that the termination for convenience did not, in fact, amount to an abuse of discretion or breach of the contract.  Duke University, CBCA No. 5992 (Apr. 6, 2018) Duke University appealed a contracting officer’s final decision on what Duke referred to as a “non-monetary claim” that it had submitted to the National Institute of Allergy and Infectious Diseases (“NIAID”).  Duke did not specify a sum of monetary payment in its claim, instead seeking a declaratory judgment regarding the parties’ rights and obligations under the contract.  Applying the Federal Circuit’s recent decision in Securiforce, and upon a joint motion by the parties to dismiss the appeal without prejudice, the CBCA (Lester, A.J.) dismissed the appeal for lack of jurisdiction on the ground that Duke’s claim was one contemplated by Securiforce, requiring Duke to state a sum certain. Mare Solutions, Inc., CBCA Nos. 5540, 5541, 6037 (May 16, 2018) Mare Solutions, Inc. (“Mare”) was awarded a contract from the Department of Veterans Affairs (“VA”) for the construction of a two-story parking garage at the VA Medical Center in Erie, Pennsylvania.  When the project was nearly complete, two disputes arose – one involving bucked metal conduit on the first floor ceiling of the garage and the other regarding which party was responsible for purchasing “head-end” equipment for the video surveillance system.  Mare appealed the contracting officer’s final decisions and sought declaratory relief absolving it of liability for the buckled conduit and for the purchase of head-end equipment. At the time the appeals were filed, the ASBCA found its jurisdiction was proper because both appeals involved live performance disputes that could be resolved by declaration of the Board. At the hearing, however, the Board learned that, in addition to seeking declaratory relief, Mare had procured and installed the head-end equipment and was seeking reimbursement for those costs. Accordingly, Mare submitted a related monetary claim to the CO, which was also denied and which Mare appealed.  While there were no jurisdictional issues with the first appeal for declaratory relief relating to the metal conduit, the ASBCA (O’Rourke, A.J.) found that it no longer had jurisdiction over the head-end equipment claim for declaratory relief because the issues had been subsumed within the monetary claim.  Thus, the Board’s jurisdiction to issue declaratory relief can be obviated by the filing of a related monetary claim. Based on its interpretation of the contract, the Board ruled that Mare was not liable for the buckled conduit, but denied Mare’s monetary claim. G.  Election Doctrine A decision from the COFC highlights the issues that can arise from bringing proceedings before more than one tribunal that hear government contracts disputes. ACI-SCC JV et al v. United States, No. 17-1749C (Fed. Cl. Mar. 12, 2018) In what it described as a “conundrum of a case,” the COFC dismissed a suit against the Army Corps of Engineers brought by Plaintiff Arwand Road and Construction Company (“Arwand”), acting as Trustee for Plaintiff-Intervenors ACI-SCC JV, ACI-SCC JV LLC (together, “the JV”), and Plaintiff Advance Constructors International LLC (“ACI”). Arwand was a subcontractor to the JV, which held a number of construction contracts in Afghanistan. However, the JV did not pay Arwand on time for its work, claiming it had not yet been paid by the government. The contracting officer terminated the government’s contracts with the JV, and the JV and ACI appealed the terminations separately to the ASBCA. Both parties settled their claims and the ASBCA dismissed their appeals with prejudice. Arwand sued both the JV and ACI in the United States District Court for the District of Delaware for damages due under its subcontract with the JV, and the court awarded judgment in Arwand’s favor later that year. Arwand then filed a “petition” before the ASBCA asserting breach of contract claims against the government, which Arwand later voluntarily dismissed without prejudice. After the Delaware Court of Chancery appointed Arwand as trustee for the JV and ACI, Arwand filed suit against the Corps before the COFC in its capacity as trustee to recover unpaid fees on the JV’s contracts. The JV intervened and filed a motion to dismiss. The COFC (Wheeler, J.) dismissed the case as moot as a result of the settled ASBCA cases that had been dismissed with prejudice, at which time Arwand was merely a subcontractor with no rights, privity, or standing to sue the Government over the prime contract. Second, the COFC also held that by first filing suit at the ASBCA, Arwand lost its right to file in the COFC because courts have interpreted the CDA to impose an “either-or choice” of forum, meaning that a contractor is barred from filing in one forum if it chooses to file in the other forum first. Even though Arwand may not have had standing to file a “petition” before the ASBCA and  voluntarily dismissed the suit, he was precluded from litigating the same claim in the COFC under the CDA. III.  TERMINATIONS In two noteworthy decisions during the first half of 2018 arising from contract terminations, the ASBCA strictly construed the one-year time limit to submit a termination settlement proposal in accordance with the FAR’s termination for convenience clause. Am. Boys Constr. Co., ASBCA No. 61163 (Jan. 9, 2018) In 2013, the government awarded a contract for the construction of a prime power overhead cover to American Boys Construction Company (“American Boys”).  More than three and a half years after receiving notice of the government’s termination of the contract for convenience, American Boys submitted a termination settlement agreement proposal as a certified claim to the contracting officer.  The contracting officer denied the claim because American Boys did not file a settlement proposal within one year of the termination.  American Boys timely appealed the CO’s final decision and the government filed a motion for summary judgment requesting that the Board deny the appeal. The Board (Osterhout, A.J.) granted the government’s motion and denied the appeal because American Boys did not file its termination settlement claim until 2017 – nearly four years after the contract termination – in violation of FAR 52.249-2. Abdul Khabir Constr. Co., ASBCA No. 61155 (Apr. 6, 2018) Abdul Khabir Construction Co. appealed a contracting officer’s denial of a claim seeking settlement costs resulting from the government’s termination for convenience of its construction contract.  The government filed a motion for summary judgment, arguing that Abdul failed to submit its termination settlement proposal within a year of the effective date of termination, and did not submit its certified claim until more than seven years after termination. Abdul countered that the government never asked for a settlement proposal, and never told it where to file a claim. The Board (Osterhout, A.J.) found no evidence that the contracting officer extended the FAR’s one-year time period to file a termination claim.  Because no extension was granted and the parties did not dispute that Abdul Khabir did not submit a proposal or contact the government until over 18 months after the due date, the Board found the claim untimely and denied the appeal. IV.  CONTRACT INTERPRETATION A number of noteworthy decisions from the first half of 2018 articulate broadly applicable contract interpretation principles that should be considered by government contractors. CB&I AREVA MOX Servs., LLC v. United States, No. 16-950C, 17-2017C, 18-80C, 18-522C, 18-677C, 18-691C, 18-701C (Fed. Cl. June 11, 2018) In 1999, the Department of Energy awarded a cost reimbursement contract to the predecessor in interest of CB&I AREVA MOX Services, LLC (“MOX Services”) to construct a Mixed Oxide Fuel Fabrication Facility (“MFFF”) at a site in South Carolina. The original target completion date was in 2016, but was extended until 2029 and the estimated cost more than doubled. Under the contract, MOX Services was eligible to receive quarterly incentive fees pursuant to a vesting schedule for making progress towards completion of the construction of the MFFF beginning in 2008. Although the entire fee was provisional for at least the first year after it was invoiced, the incentive fee became 50% vested if MOX Services’ performance remained within the schedule and cost parameters for the subsequent four quarters. The government paid MOX incentive fees, of which a portion was provisional. The government suspended further incentive fee payments in 2011 when it determined that MOX Services was no longer performing within the applicable cost and schedule parameters. In 2016, MOX Services submitted a certified claim to the government for the suspended incentive fees that the company did not receive from 2011 through 2015. In response, the contracting officer not only denied the certified claim suspended payments, but also demanded that MOX Services refund the provisional incentive fee payments already made. The government argued that MOX Services has no hope of meeting the project’s parameters on cost and schedule and thus will not be entitled to retain any incentive fees at project completion. The Court of Federal Claims (Wheeler, J.) rejected this position, noting that “the contract provisions taken together unambiguously provide that the incentive fee [paid] to MOX Services is to remain in the custody of MOX Services until the MFFF construction is completed.” The court also criticized the CO’s demand for a refund of $21.6 million “as a way to gain leverage over MOX Services through baseless retaliation.” The court granted plaintiff’s partial motion for summary judgment, effectively requiring the government to return the provisional incentive fees to MOX Services until the project is completed. ABB Enter. Software, Inc., f/k/a/ Ventyx, ASBCA No. 60314 (Jan. 9, 2018) Tech-Assist, the corporate predecessor to ABB Enterprise Software, Inc., provided software and licenses to support naval maintenance requirements.  Pursuant to a master license agreement, the Navy was only allowed to install one copy of ABB’s software on ships and Navy bases, but ABB alleged that the Navy breached its licensing agreement by allowing two copies of the software to be installed on certain aircraft carriers.  After the Board granted the Navy’s motion to amend its answer to include an affirmative defense for equitable estoppel, ABB moved for summary judgment on its claim for entitlement based on its contention that the licensing agreement’s plain language only allowed for one copy of the software to be installed. The ASBCA (Kinner, A.J.) determined that the plain language of the licensing agreement controlled, and was explicitly clear that only one installation of software for each location would be allowed.  The Board also found that the Navy had not shouldered its burden to establish equitable estoppel by demonstrating that (1) the party to be stopped knew the facts; (2) the government intended that the conduct alleged to have induced continued performance will be acted on, or the contract must have a right to believe the conduct in question was intended to induce continued performance; (3) the contract must not be aware of the true facts; and (4) the contractor must rely on the government’s conduct to its detriment.  Thus, the Board granted ABB’s motion for summary judgment. Name Redacted, ASBCA No. 60783 (Feb. 8, 2018) In 2016, the government awarded a firm-fixed-price contract to Appellant for enhanced force protection and facility upgrades in Afghanistan.  The contract provided for a certain exchange rate between Afghani currency and U.S. dollars.  Following the contract’s termination for default, the contractor submitted a certified claim for additional costs, which the CO denied and the contractor appealed. In a subsequent modification converting the termination to one for convenience, the government agreed to pay over $93,000 to settle the pending appeal at the agreed upon exchange rate.  After some delay, the government paid Appellant, but Appellant countered that due to the delay there had been a change in the exchange rate, and that it was entitled to an additional $4,300.  The government moved to dismiss on the ground that the claim had been settled and Appellant had agreed to its dismissal. The Board (Melnick, A.J.) found that Appellant was not entitled to any additional costs because nothing in the modification allowed for additional compensation if the exchange rate fluctuated, and Appellant had released its claim when it agreed to the modification. Accordingly, the Board dismissed the appeal. UNIT Co., ASBCA No. 60581 (Feb. 12, 2018) The government awarded a contract for the construction of a battle command training center to UNIT.  During the course of the contract, UNIT subcontracted with other companies to perform certain mechanical work.  Due to various interpretations of design requirements, one of the subcontractors, Klebs Mechanical (“Klebs”) submitted “request for information” (“RFI”) forms to UNIT to pose questions to the government.  After some disagreement, UNIT submitted a claim for damages and costs for defective specifications, which the contracting officer denied.  The CO found that UNIT did not provide contractually required notice of the defective specifications and that its recovery was therefore barred. UNIT appealed the CO’s final decision and the government moved for summary judgment. The ASBCA (Newsom, A.J.) relied on FAR 52.236-21(a), Specifications and Drawings for Construction (Feb 1997) to find that UNIT had provided sufficient notice to the government in its RFI forms, or at the very least, that UNIT had created a disputed issue of material fact on whether or not sufficient notice was provided, and the Board accordingly denied summary judgment. MW Builders, Inc. v. United States, No. 13-1023C (Fed. Cl. Mar. 5, 2018) In our 2017 Year-End Update, we covered the Court of Federal Claims’ grant of partial judgment in favor of MW Builders, Inc. (“MW Builders”) on its claims that the Army Corps of Engineers breached its contract for electrical utility services and violated the duty of good faith and fair dealing. In a portion of the decision not covered in our Year-End Update, the COFC (Braden, C.J.) also determined that the claims of MW Builders’ subcontractor, Bergelectric, were waived as the result of a lien waiver in its subcontract providing that Bergelectric waived “any other claim whatsoever in connection with this Contract…” MW Builders moved for reconsideration of Bergelectric’s pass-through claims, arguing  that the precedent relied upon in the initial decision was inapplicable because that case was about a settlement dispute, whereas Bergelectric and MW agree that the contract does not evidence their intent. In the alternative, MW Builders claimed that the court should reform the release language. The court rejected both arguments. First, it held that the terms of the contractual release were unambiguous and that the court was therefore precluded from considering the extrinsic evidence regarding the parties’ intent even though the scope of the release included in the contract was unintentionally broad. Second, the COFC held that it does not have jurisdiction to reform an agreement between a contractor and its subcontractor, citing the Severin doctrine. Accordingly, the court denied the motion for reconsideration. V.  DAMAGES John Shaw LLC d/b/a/ Shaw Bldg. Maint., ASBCA No. 61379 (Mar. 8, 2018) In 2010, John Shaw LLC was awarded a contract to provide janitorial services at an Air Force base.  After the contract expired, Shaw presented a claim for “punitive damages” to the contracting officer, which was denied. Shaw appealed, and requested punitive damages and “missed opportunities” damages stemming from contracts allegedly not obtained due to the government’s handling of its contract.  The government moved to dismiss the claims for punitive and “missed opportunities” damages. The ASBCA (McIlmail, A.J.) dismissed Shaw’s damages claims, finding the connection between the government’s administration of the contract and the allegedly lost contracts with third parties was a claim for consequential damages, which were too remote and speculative to be recovered.  The Board further noted that it has no authority to award punitive damages, and dismissed both claims. Green Bay Logistic Servs. Co.,  ASBCA No. 61063 (Apr. 12, 2018) Green Bay appealed the Defense Contract Management Agency (“DCMA”)’s termination for convenience of its lease of two stakebed or flatbed trucks. Green Bay argued that it was owed twice the value of the contract because it attempted to deliver the vehicles twice. The ASBCA (Osterhout, A.J.) denied Green Bay’s appeal, finding that Green Bay failed to prove that it was entitled to any amount it presented to the government in its termination settlement proposal. Upon a termination for convenience of a commercial item contract, FAR 52.212-4(1) directs the government to pay the contractor: (1) a percentage of the contract price reflecting the percentage of the work performed prior to the notice of termination; and (2) reasonable charges the contractor can demonstrate to the satisfaction of the government using its standard record keeping system, have resulted from the termination. The Board concluded that because Green Bay delivered non-compliant vehicles, it did not complete any percentage of the contract, and that Green Bay did not present any reasonable charges that imposed upon the government a requirement to pay. Entergy Nuclear Generation Co. v. United States, No. 14-1248C (Fed. Cl. June 19, 2018) Entergy Nuclear Generation Company (“Entergy”) operates a nuclear power station. In 1983, Entergy’s predecessor, Boston Edison Company entered into a contract authorized by the Nuclear Waste Policy Act of 1982 for the disposal of spent nuclear fuel generated at the station to begin by January 31, 1998, but the Department of Energy (“DOE”) breached the contract and did not dispose of the spent fuel. In 2012, Entergy was awarded damages for the additional costs incurred in operating the plant due to the breach through December 31, 2008. In this second lawsuit, Entergy sought to recover damages allegedly incurred between December 31, 2008 and June 30, 2015 because Entergy could not recover future damages in the first suit. Because the government did not contest two-thirds of the damages sought by Entergy, Entergy sought partial summary judgment on liability and entry of partial final judgment on the uncontested amount. The court granted Entergy’s motion for partial summary judgment on liability for the uncontested amount, but found that the entry of partial final judgment as to the uncontested amount was improper under COFC Rule 54(b), which allows the court to direct final judgment “as to one or more, but fewer than all, claims” in an action. Here, where the COFC determined that Entergy is only alleging one “claim”—partial breach of contract—granting partial final judgment on some but not all of the harms arising out of a single claim “would be to enter judgment on less than one claim, violating Rule 54(b).” The government cross-moved for summary judgment as to Entergy’s claim for storage fees paid to the Nuclear Regulatory Commission (“NRC”). The court rejected the government’s argument that Entergy was foreclosed from proving causation between the breach and the increased fees because it had already presented such evidence, and the government’s argument had been rejected in a prior Federal Circuit case. The COFC denied the Government’s motion, finding that Entergy’s intent to present substantially different evidence from that considered in the prior Federal Circuit case created genuine dispute as to causation. Although not briefed by the parties, the court also found that because the COFC determined in a prior suit for damages brought by the Boston Edison Company that DOE’s breach was a but-for cause of the NRC fee change at the Pilgrim Nuclear Power Station, and the causation issue was not raised on appeal, issue preclusion may have provided an alternate basis to deny the Government’s motion. But the COFC had an opportunity to prohibit re-litigation of this same issue based on collateral estoppel in another case, discussed infra in Section VI(C). VI.  COMMON LAW PRINCIPLES The boards of contract appeals and COFC addressed a number of issues during the first half of 2018 arising out of the body of federal common law that has developed in the context of government contracts. A.  Application of Common Law in Government Contracts Cases Assessment and Training Solutions Consulting Corp., ASBCA No. 61047 (Mar. 6, 2018) ATSCC sought reconsideration of the ASBCA’s earlier decision sustaining ATSCC’s appeal, arguing that the Board erroneously applied a common law of bailment presumption of negligence and that the written contract should be enforced over the common law.  The Board (Clarke, A.J.) explained that the common law of bailment imposes upon the bailee the duty to protect property by exercising ordinary care and to return said property in substantially the same condition.  Thus, when the government receives property in good condition and returns it in damaged condition, there is a presumption that the cause of the damage was due to the government’s failure to exercise ordinary care.  The government argued that the presumption did not apply, and that where there was a written bailment contract, the contract should apply, not common law.  However, the Board noted that this was only true if the written contract and the common law differed.  Because the written contract and common law were the same in this instance, the Board concluded that the common law bailment presumption would apply.  Accordingly, the Board held, the prior decision’s reliance on the common law presumption was not legal error. B.  Fraud We have been following in our recent publications developments in the law of whether and to what extent the boards of contract appeals may exercise jurisdiction over claims and defenses sounding in fraud when the alleged fraud affects the administration of government contracts.  For example, in our 2016 Year-End Government Contracts Litigation Update, we covered the Federal Circuit’s decision in Laguna Construction Company, Inc. v. Carter, 828 F.3d 1364 (Fed. Cir. 2016), which held that as long as the ASBCA can rely upon prior factual determinations from other tribunals (such as through a guilty plea), the Board has jurisdiction to adjudicate legal defenses based upon those prior determinations of fraud.  In the first half of 2018, the ASBCA considered one case addressing the impact of Laguna on its jurisdiction, and another that evaluated the validity of a contracting officer’s final decision based partially on a decision of fraud. Int’l Oil Trading Co., ASBCA Nos. 57491, 57492, 57493 (Jan. 12, 2018) IOTC sought partial judgment on the pleadings or, alternatively, renewed its motion to strike the Government’s affirmative defense that IOTC obtained its contracts for fuel delivery to the government in Iraq through fraud or bribery, claiming that the Federal Circuit’s decision in Laguna abrogated the Board’s previous ruling denying IOTC’s initial motion to strike by preventing the Board from hearing the fraud-based affirmative defense. Citing ABS Development Corp., which we discussed in our 2017 Year-End Government Contracts Litigation Update, the ASBCA (Melnick, A.J.) held that Laguna did not impact its prior ruling that it was not precluded from considering fraud related claims based because the CDA’s statutory bar did not apply to an affirmative defense that a contract is void under the common law for fraud or bribery in its formation. The Board noted that the Federal Circuit’s decision did not restrict the Board’s power to determine the validity of a contract when the government has lodged an affirmative defense that the contract is void  ab initio due to fraud or bribery, as opposed to when the government is asserting a fraud claim (such as a claim under the False Claims Act) that the Board does not have jurisdiction to entertain. Accordingly, the Board denied IOTC’s motion. PROTEC GmbH, ASBCA Nos. 61161, 61162, 61185 (Mar. 20, 2018) The government moved to dismiss for lack of jurisdiction PROTEC’s appeals from the Army’s denials of its claims for unpaid invoices, arguing that the contracting officers’ final decisions were invalid because denials were based on  suspicion of fraud. None of the final decisions mentioned any suspicion of fraud; however, the U.S. Army Criminal Investigation Command was conducting an investigation into allegations of fraud at the time the final decisions were issued and at the time of the appeal. Under the FAR, a contracting officer’s authority to decide or resolve claims does not extend to settlement, compromise, payment, or adjustment of any claim involving fraud.  The COFC and CBCA have held that a final decision is therefore invalid if it is based upon a suspicion of fraud.  However, the Federal Circuit has clarified that a final decision is invalid only if the decision rests solely upon a suspicion of fraud.  Because the decisions issued to PROTEC were not based upon a suspicion of fraud and the decisions also relied upon other rationales,  it did not matter for jurisdictional purposes  that there was an ongoing criminal investigation into fraud allegations.  The Board (Sweet, A.J.) therefore denied the motion to dismiss. C.  Good Faith & Fair Dealing Ala. Power Co. v. United States, No. 17-1480, Ga. Power Co. v. United States, Nos.  17-1492C, 17-1481C (Fed. Cl. Mar. 26, 2018) In a pair of cases arising from ongoing litigation regarding the government’s failure to collect spent nuclear fuel (“SNF”) from the plaintiffs’ facilities pursuant to its contracts, the Government  sought to dismiss two claims—the first relating to the recovery of certain fees levied by the Nuclear Regulatory Commission (“NRC”), and the second to plaintiffs’ claim for breach of the covenant of good faith and fair dealing. In 2004, the COFC granted summary judgment in plaintiffs’ favor on their initial breach of contract suit. The plaintiffs sued again in 2010 to recover the damages accrued from the government’s continued breach by failing to remove the material between 2005 and 2010, including fees collected by the NRC. During that second phase of litigation, the COFC held that although the plaintiffs were entitled to recovery, they could not recover the additional NRC fees because they did not sufficiently prove the breach of contract caused the increase in the fees. The plaintiffs sued a third time to recover all costs incurred after 2011, at which point the COFC granted partial summary judgment for the government on the issue of the NRC fees as barred by the doctrine of collateral estoppel. This fourth case, based upon nearly identical facts, is framed as both a breach of contract claim and a breach of the implied covenant of good faith and fair dealing. The Government moved dismiss the breach claims related to the recovery of the NRC fees based on collateral estoppel and to dismiss the good faith and fair dealing claim as duplicative of the breach of contract claim for which liability had been established in the 1998 case. The COFC (Campbell-Smith, J.) granted the motion to dismiss the NRC fees because the allegations in the complaint were virtually identical to those in the previous complaint and there had been no change in the law between the two suits. The COFC also found that the good faith and fair dealing claim was duplicative of the breach of contract claim. To state a separate claim for breach of the implied covenant of good faith and fair dealing,  a plaintiff must allege some kind of subterfuge—evasion that goes against the spirit of the bargain, lack of diligence, willful rendering of imperfect performance, abuse of power, or interference with performance—founded upon different allegations than the breach of contract claim. The COFC found no alleged facts that even arguably support plaintiff’s conclusion that defendant was attempting to avoid its obligations, and therefore granted the motion to dismiss. Raytheon Co., ASBCA Nos. 60448, 60785 (Apr. 9, 2018) Raytheon appealed from the CO’s denial of two claims relating to additional services rendered under its “Lot 27” contract with the Air Force. About two months before the hearing, the government moved to amend its answer to add an additional “unclean hands” affirmative defense based on the latest round of government depositions of Raytheon personnel, which the government claimed revealed that Raytheon had an undisclosed pre-award plan to complete the Lot 27 contract work with future appropriated funds siphoned away from future missile production contracts that Raytheon hoped to obtain on an annual basis. Raytheon moved to dismiss the additional defense, arguing the ASBCA did not have jurisdiction to entertain the defense because it had not been submitted as  claim to the CO, and that the government did not justify the defense or the delay in raising it. The ASBCA (Scott, A.J.) granted the government’s motion to amend its answer. Although the Board recognized that the government’s amendment was filed only shortly before the hearing, there was insufficient information for the Board to conclude that the government delayed unduly in raising the defense. The Board also concluded that there was insufficient evidence to establish bad faith on the part of the government or for the Board to decide the futility of the amendment. The ASBCA did, however, allow Raytheon additional discovery and/or submissions both before and after the scheduled hearing. VII.  CASES TO WATCH While the Government Contracts Litigation Update does not typically analyze bid protest cases from the GAO or the Court of Federal Claims, two recent cases—a decision from the Court of Federal Claims, and a case still pending before the Federal Circuit— have wide-reaching implications of which government contractors should be aware. A.  Trade Agreements Act Acetris Health, LLC v. United States, No. 18-433C (Fed. Cl. May 8, 2018) The Court of Federal Claims considered Acetris Health, LLC’s challenge to the Department of Veterans Affairs’ reliance on a determination by Customs and Border Patrol that the pharmaceuticals Acetris provided under contract to the VA and the Department of Defense were considered a product of India because the active ingredient in the drug was not “substantially transformed” in the United States. The VA determined that Acetris was required to supply “only U.S.-made or designated country end products” under the contract because it was subject to the Trade Agreements Act of 1979 (“TAA”). Acetris claimed that the pharmaceuticals it provide were TAA compliant because the foreign ingredients were processed into the final product in the U.S. Acetris challenged CBP’s country of origin determination at the Court of International Trade (“CIT”) in March 2018. Before the COFC, Acetris lodged a pre-award bid protest challenge to the VA’s reliance on CBP’s determination in interpreting its solicitation. After receiving the CBP determination, the VA notified Acetris that it could no longer fulfill the relevant contract using the existing pharmaceutical supply, and solicited new proposals to supply a TAA-compliant version of the product. Acetris submitted a proposal that was rejected by the VA. The VA expressed its intention to “rely entirely” on the findings of CBP for the purpose of country of origin determinations for TAA compliance. Acetris challenged both the VA’s substantive interpretation of the TAA and its reliance on CBP to make the country of origin determination. The COFC (Sweeney, J.) denied the government’s motion to dismiss, finding that  “all of plaintiff’s claims are aimed at the actions (or inaction) of the VA” and thus are “properly the subject of a preaward bid protest.” The COFC also determined that 28 U.S.C. §1500 does not divest the COFC of jurisdiction because the court determined that the challenge to CBP’s country-of-origin determination pending before the CIT was not based on substantially the same operative facts, and that Acetris’ claims were ripe for review and stated claims upon which relief could be granted. After oral argument earlier this month, the COFC granted declaratory judgment in favor of Acetris. The COFC found that the VA misconstrued the Trade Agreements clause included in the solicitation as preventing the purchase of products that qualify as domestic end products under relevant FAR provisions. The COFC also held that the VA’s reliance on CBP’s country of origin determination, rather than independently assessing TAA compliance, was arbitrary and capricious. B.  Commercial Item Contracting Palantir USG Inc. v. United States, No. 17-1465 (Fed. Cir. Feb. 8, 2018) In February, Gibson Dunn argued before the Federal Circuit on behalf of its client Palantir Technologies to uphold a 2016 Court of Federal Claims ruling (Horn, J.) that the Army violated the Federal Acquisition Streamlining Act (“FASA”) when it decided to develop a new data-management platform from scratch without undertaking market research to determine whether its needs could be met by a commercially available product. The COFC found that Palantir was wrongly excluded from a $206 million intelligence software procurement when the Army refused to consider procuring its platform on a firm fixed price, commercial item basis, and instead issued a solicitation calling for developmental solutions on a cost-plus basis. On appeal, the Government argued that the COFC erroneously added a requirement to FASA that government market research must “fully investigate” whether commercial items could meet all or part of the agency’s requirements, and that the COFC wrongly substituted its judgment in determining that the Army’s market research was inadequate. Palantir argued that reversal of the COFC decision would “flout” the FASA procedures requiring that agencies acquire commercial items “to the maximum extent possible,” which were designed to prevent federal agencies from “wasting taxpayer funds by developing products that are already available in the commercial marketplace.” The Federal Circuit’s impending decision in this case will have wide reaching impacts on the procurement community and the deference afforded the Government’s market research in developing its solicitation requirements. VIII.  CONCLUSION We will continue to keep you informed on these and other related issues as they develop. The following Gibson Dunn lawyers assisted in preparing this client update: Karen L. Manos, Lindsay M. Paulin, Melinda Biancuzzo, Jessica Altman, Sydney Sherman, and Casper J. Yen. Gibson Dunn lawyers are available to assist in addressing any questions you may have regarding the issues discussed above.  Please contact the Gibson Dunn lawyer with whom you usually work, or any of the following: Washington, D.C. Karen L. Manos (+1 202-955-8536, kmanos@gibsondunn.com) Joseph D. West (+1 202-955-8658, jwest@gibsondunn.com) John W.F. Chesley (+1 202-887-3788, jchesley@gibsondunn.com) David P. Burns (+1 202-887-3786, dburns@gibsondunn.com) Michael Diamant (+1 202-887-3604, mdiamant@gibsondunn.com) Michael K. Murphy(+1 202-995-8238, mmurphy@gibsondunn.com) Jonathan M. Phillips (+1 202-887-3546, jphillips@gibsondunn.com) Melinda R. Biancuzzo (+1 202-887-3724, mbiancuzzo@gibsondunn.com) Ella Alves Capone (+1 202-887-3511, ecapone@gibsondunn.com) Michael R. Dziuban (+1 202-887-8252, mdziuban@gibsondunn.com) Melissa L. Farrar (+1 202-887-3579, mfarrar@gibsondunn.com) Lindsay M. Paulin (+1 202-887-3701, lpaulin@gibsondunn.com) Laura J. Plack (+1 202-887-3678, lplack@gibsondunn.com) Erin N. Rankin (+1 202-955-8246, erankin@gibsondunn.com) Jeffrey S. Rosenberg (+1 202-955-8297, jrosenberg@gibsondunn.com) Denver Robert C. Blume (+1 303-298-5758, rblume@gibsondunn.com) Jeremy S. Ochsenbein (+1 303-298-5773, jochsenbein@gibsondunn.com) Los Angeles Marcellus McRae (+1 213-229-7675, mmcrae@gibsondunn.com) Maurice M. Suh (+1 213-229-7260, msuh@gibsondunn.com) James L. Zelenay, Jr. (+1 213-229-7449, jzelenay@gibsondunn.com) Dhananjay S. Manthripragada (+1 213-229-7366, dmanthripragada@gibsondunn.com) Sean S. Twomey (+1 213-229-7284, stwomey@gibsondunn.com) © 2018 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 26, 2018 |
2018 Mid-Year FDA and Health Care Compliance and Enforcement Update – Providers

Click for PDF A year and a half into the new Administration, we are seeing new and shifting enforcement and regulatory trends in the health care provider space. While the staying power of these trends remains uncertain, it is increasingly clear that the Administration is implementing changes—including potentially significant ones—at each of the principal health care enforcement agencies. The first half of 2018 also saw notable case law developments on some of the most hot-button issues facing health care providers, helping to round out an eventful six months across the health care compliance and enforcement landscape. We cover all of these trends and developments in greater depth below. First, while the U.S. Department of Justice (“DOJ”) and U.S. Department of Health and Human Services (“HHS”) stepped up their opioid-related enforcement efforts, other areas of enforcement saw less aggressive pursuit over the past six months compared to the first half of 2017. Notably, DOJ gave several indications of letting up on affirmative enforcement actions, including with the release of then-Associate Attorney General Rachel Brand’s memorandum (the “Brand Memo”), which prohibits DOJ from using guidance documents and sub-regulatory actions to “create binding requirements that do not already exist by statute or regulation.” The Brand Memo and other recent DOJ pronouncements are particularly salient for health care providers, for whom enforcement actions can often be grounded in agency and contractor guidance. That said, if the degree of ongoing criminal and civil enforcement efforts related to opioids is any indication, we anticipate a very busy second half of 2018 for both DOJ and the HHS Office of Inspector General (“HHS OIG”), and the Administration may be poised for a net increase in resolution numbers in the second half of the year and into 2019, notwithstanding the let-up in other areas. Second, the first six months of 2018 also saw several notable case law developments that could have a lasting impact on health care providers. We report below on courts’ ongoing efforts to make sense of the implied certification basis for False Claims Act (“FCA”) liability recognized by the Supreme Court in Universal Health Services, Inc. v. United States ex rel. Escobar. We also survey key developments regarding FCA liability in cases where a difference of medical opinion underlies providers’ alleged liability, as well as courts’ recent approaches toward statistical sampling to prove liability and damages in FCA cases. Finally, we discuss recent regulatory and case law developments salient to two of the most important and prevalent issues for health care providers—the Anti-Kickback Statute (“AKS”) and the Stark Law. As always, a collection of Gibson Dunn’s recent publications and presentations on health care issues impacting providers may be found on our website. And, of course, we would be happy to discuss these developments—and their implications for your business—with you. I. DOJ Enforcement Activity A. False Claims Act Enforcement Activity Between January 1 and June 30, 2018, DOJ announced approximately $201 million in FCA recoveries through settlements with health care providers, significantly below the $817 million figure recovered by DOJ through settlements as of June 30, 2017.[1] This is likely due to the fact that in the first half of 2017, DOJ settled eight cases for more than $30 million (the approximate amount of the single highest settlement in the first half of 2018) including one for $155 million.[2] The total of forty health care provider settlements announced by DOJ during the first half of 2018 is also considerably lower than the fifty-four health care provider settlements announced during the first half of 2017, the forty-nine settlements announced during the first half of 2016, and the fifty-seven settlements announced during the first half of 2015. Given the long road most FCA matters take to resolution—the average FCA case can take two years or more to investigate before the government decides whether to pursue it—it is hard to tell if the lower number of settlements in the first half of 2018 compared to last year is a result of a change in DOJ policies or priorities. But there is reason to think providers may have success pushing back on aggressive FCA enforcement going forward, if the Brand Memo and related statements by DOJ are any indication. The January 25, 2018 Brand Memo cabined the ability of prosecutors to use non-compliance with agency guidance as the basis of an FCA claim.[3] Specifically, the Brand Memo prohibits (1) using non-compliance with other agencies’ “guidance documents as a basis for proving violations of applicable law” in affirmative civil enforcement cases, and (2) using an agency’s “enforcement authority to effectively convert agency guidance documents into binding rules.” The Brand Memo applies to administrative guidance issued by DOJ or any other executive agency. The Brand Memo may have particular relevance to providers in medical necessity cases, which frequently involve non-binding guidance and recommendations, such as where the government’s or relator’s theories are grounded in provisions of the Medical Benefit Policy Manual and/or contractors’ local coverage determinations (NCDs and LCDs). Although the memo’s author, Rachel Brand, has left DOJ, in a June speech, Acting Associate Attorney General Jesse Panuccio reiterated the Brand Memo’s importance to DOJ in its reform of FCA enforcement. As we described in more detail in our June 2018 Client Alert, he also highlighted other measures DOJ is undertaking, including formalizing cooperation credit processes, in an effort to improve FCA enforcement. We will continue to monitor these developments and settlement numbers and will report further in our 2018 Year-End Update. Notwithstanding the lower overall number of settlements, the FCA settlements announced so far this year have rested on the same mélange of legal theories as past years and have involved a number of different types of providers, including hospitals, clinics and single providers, skilled nursing and rehabilitation services, home health care services, and pharmacies. As indicated in the chart above, for the first half of 2018, the vast majority of FCA health care provider settlements have involved clinics and single providers; however, these settlements made up a disproportionately small amount of the financial recoveries—averaging roughly $2.3 million per case. Within this category, the majority of settlements have resolved actions primarily predicated on legal theories of services not provided (eleven cases), while smaller numbers of settlements included additional theories of medically unnecessary or unreasonable services (five cases), unqualified personnel providing care (four cases), upcoding (three cases), AKS claims (two cases), physician self-referral claims (one case), and the provision of sub-standard care (one case).[4] The second highest number of settlements were with “other” medical services, as depicted in the chart. These services included ambulance services, diagnostic laboratory testing, radiation services, ophthalmology services, intra-operative monitoring services, health management/mental health services, and wound care services. Consistent with the recent past, the most prevalent legal theory among health care provider settlements was that the provider had billed government health programs for items or services that were not medically necessary. In many of those cases, medical necessity was the sole underlying theory of liability, reflecting DOJ’s continued focus on issues of medical necessity. DOJ also commonly includes medical necessity allegations in broader and more complex allegations of misconduct. For example, an Arizona-headquartered health care organization, that owns and operates twenty-eight acute-care hospitals in multiple states, agreed to pay over $18 million to settle allegations that twelve of its hospitals in Arizona and Colorado had “knowingly submitted false claims to Medicare by admitting patients who could have been treated on a less costly outpatient basis.”[5] According to the press release, these twelve hospitals had knowingly overcharged Medicare patients for short-stay inpatient procedures that should have been billed on an outpatient basis. In addition to these medically unnecessary inpatient admissions, the hospitals allegedly provided falsified documentation in their reports to Medicare by artificially inflating the number of outpatient observation hours received by patients. In addition to the monetary settlement, the health care organization entered into a corporate integrity agreement with HHS OIG, requiring the company to engage in “significant compliance efforts” over the next five years, including retaining an independent review organization to review the accuracy of the company’s claims for services furnished to Medicaid and Medicare beneficiaries. Lack of medical necessity also served as the underlying legal theory in a settlement with a provider of opioids and other prescription pain killers, as part of the recent focus on cracking down on the nation’s opioid epidemic. In that case, a Tennessee chiropractor and his pain management company agreed to pay $1.45 million, and a pain clinic nurse practitioner agreed to pay $32,000 and surrender her DEA registration, to resolve claims that from 2011 through 2014, the chiropractor and his company “caused pharmacies to submit requests for Medicare and TennCare payments for pain killers, including opioids . . . which had no legitimate medical purpose.”[6] With respect to this settlement, Attorney General Jeff Sessions noted, “[i]f we’re going to end this unprecedented [opioid] drug crisis, which is claiming the lives of 64,000 Americans each year, doctors must stop overprescribing opioids and law enforcement must aggressively pursue those medical professionals who act in their own financial interests, at the expense of their patients’ best interests.”[7] We address the ongoing opioid enforcement efforts further below. In addition to the settlement involving the Arizona-based health care organization, the first half of 2018 saw a number of other settlements involving multiple-facility providers nationwide, many under more than one theory of liability. For example, in one case involving a Louisville, Kentucky-based company that owns and operates about 115 skilled nursing facilities, DOJ alleged that the company had “knowingly submitted false claims to Medicare for rehabilitation therapy services that were not reasonable, necessary and skilled.”[8] The settlement, which was initiated by two individuals under the qui tam provisions of the FCA, required the company to pay more than $30 million and also resolved allegations that the company had submitted forged pre-admission certifications of patient need for skilled nursing to the State of Tennessee’s Medicaid program. In another case, DOJ settled with a dental provider for $23.9 million following allegations that the company had, throughout clinics in seventeen states, submitted false claims for medically unnecessary dental procedures and for procedures not actually provided.[9] DOJ’s case was initiated by five lawsuits filed under the qui tam provision of the FCA. DOJ likewise settled for $22.51 million with a company that manages nearly 700 hospital-based wound care centers nationwide to resolve allegations that the company had knowingly caused wound care centers to bill Medicare for medically unnecessary and unreasonable procedures.[10] That case arose from two separate lawsuits filed by former employees of the company under the qui tam provision of the FCA. The first half of 2018 also saw a relatively high number of resolutions resting on theories of services not provided, including nine settlements based on allegations that services billed for were not provided at all. In one settlement, which involved the coordinated effort of the Alaska Medicaid Fraud Control Unit, HHS OIG, and the Alaska Medicaid Program, an Anchorage-based provider of services to individuals with intellectual and developmental disabilities agreed to pay nearly $2.3 million to resolve allegations it had billed for services not provided and for overlapping services with the same provider.[11] The settlement also required the health care provider to enter into a five-year corporate integrity agreement with HHS OIG. Finally, in one of the largest civil resolutions of the first half of 2018,[12] a judge found a Houston-area laboratory liable for nearly $30.6 million for overbilling Medicare for services (transportation miles) that the company’s lab technicians had never actually traveled.[13] B. FCA-Related Case Law Developments 1. Developments in Implied False Certification Theory Our previous updates discussed in detail the unanimous 2016 Supreme Court decision in Universal Health Services, Inc. v. United States ex rel. Escobar,[14] affirming the validity of an “implied certification” theory for FCA liability following a “rigorous” and “demanding” analysis of whether the alleged fraud was “material” to the government’s decision to pay the claim at issue. Courts have continued to interpret Escobar and unpack the meaning of “materiality” in this context. In January 2018, the Middle District of Florida overturned a $350 million jury verdict on the grounds that the evidence did not support a finding of FCA materiality and scienter where the government continued making payments to the defendants despite being on notice of defendants’ alleged misconduct.[15] Plaintiffs alleged that the defendants, operators of a chain of skilled nursing facilities and a management services organization, misrepresented the conditions of and treatments provided to patients in its facilities. In support of these allegations, plaintiffs presented a variety of paperwork containing defects such as missing dates or signatures. The judge noted that while the defective paperwork was demonstrably non-compliant with contractual requirements for comprehensive care plans, the government nonetheless made payments and took no steps to enforce compliance. With these facts in mind, the judge concluded there was no reason to believe the deviations from the terms of the comprehensive care plans were material to payment, and that overturning the jury verdict was consistent with Escobar which “rejects a system of government traps, zaps, and zingers that permits the government to retain the benefit of a substantially conforming good or service but to recover the price entirely—multiplied by three—because of some immaterial contractual or regulatory non-compliance.”[16] An appeal of this ruling was filed in early July and is pending in the Eleventh Circuit. Courts nationwide continue to disagree about the extent to which government payment after awareness of non-compliance defeats the materiality standard. We will continue to watch as the Supreme Court considers whether to hear at least one cert petition seeking clarification of that precise issue, in United States ex rel. Campie v. Gilead Sciences, Inc., during the 2018 term.[17] 2. Developments in “Objective Falsity” Jurisprudence As we have discussed in prior updates, courts continue to consider the animating logic of the March 2016 AseraCare case, in which the District Court for the Northern District of Alabama, after the government prevailed in the first phase of a bifurcated trial, granted summary judgment sua sponte for the hospice provider on the grounds that the government failed to show evidence of an objective falsehood. In support of its allegation that the defendant hospice provider submitted false claims for services where the patient did not qualify for hospice care, the government had proffered a trial expert’s review of patient medical records. The district court found that a “contradiction based on clinical judgment or opinion alone [i.e. between the government’s expert and another expert or the treating physician] cannot constitute falsity under the FCA as a matter of law.”[18] Other courts have similarly declined to find objective falsity in cases where the challenged care and services were the product of providers’ clinical judgment. For example, in a December 2017 decision, the Central District of California reached a similar conclusion in United States ex rel. Winter v. Gardens Regional Hospital and Medical Center, finding no basis for liability in pleadings premised on questions of medical judgment regarding the appropriateness of hospital admissions.[19] In a similar vein, in June 2017, the district court in United States ex rel. Dooley v. Metic Transplantation Lab held that defendants could only be found to have submitted objectively false claims if they, in their medical opinion, knew that they were selecting medically unnecessary tests.[20] Two recent circuit court decisions, however, held that medical judgments can be challenged as false or fraudulent for purposes of the FCA, at least in certain circumstances. First, in United States v. Paulus, the Sixth Circuit rejected a district court’s decision to overturn the conviction of a medical doctor for allegedly fraudulently ordering an unusually high number of angiograms, and then finding high levels of stenosis based on erroneous and exaggerated readings of those angiograms.[21] The district judge found that the medical interpretation of the amount of stenosis shown on angiograms was “incapable of confirmation or contradiction” and not an “objectively verifiable fact,”[22] but the Sixth Circuit strongly disagreed, stating “[w]e believe we were clear then, but we make it explicit now: The degree of stenosis is a fact capable of proof or disproof.”[23] The Department of Justice lauded the Paulus decision, filing a letter with the Eleventh Circuit stating that Paulus “squarely rejected” the reasoning of AseraCare. In a responsive filing, AseraCare argued that the cases are distinguishable due to the factual nature of the determinations being made—while Paulus involved a factual determination about the measurable degree of blockage in arteries, the judgments in AseraCare centered on life expectancy, which AseraCare describes as a judgment that “necessarily and by law involves a subjective opinion.” The Eleventh Circuit heard oral arguments in AseraCare in March 2017, and a decision is forthcoming. Second, in United States ex rel. Polukoff v. St. Mark’s Hospital,[24] a Tenth Circuit panel held that certifications of “reasonable and necessary” care can be deemed false for purposes of FCA liability if procedures are found to be “not reasonable and necessary under the government’s definition of the phrase.”[25] This decision overturned a District of Utah opinion declaring that a doctor’s opinion regarding the potential uses for patent formen ovale (“PFO”) closures could not be objectively false since the doctor exercised his professional medical judgment in reaching this conclusion.[26] Although PFO closures are typically conducted only on patients who have previously endured a stroke, the provider-defendant believed they had the potential to serve as a “preventative measure” for patients with an “elevated risk of stroke.”[27] As a result of his view that PFO closures had broader potential usage, the doctor performed PFO closures far more often than normal in the industry: in a time period where the Cleveland Clinic performed 37 PFO closures, the defendant performed 861.[28] The Tenth Circuit unanimously rejected the district court’s decision that the doctor’s view of the wider usefulness of PFO closures was sufficient to defeat a finding of falsity, emphasizing that providers cannot use professional judgment as a shield against liability for unnecessary procedures. Rather, for purposes of determining whether a claim is reimbursable, the Tenth Circuit found that government guidance such as the Medicare Program Integrity Manual provides a reliable rulebook for what constitutes “reasonable and necessary” under the FCA.[29] The case will now return to the district court for reconsideration. The extent to which a disagreement in professional opinion can be construed as an indicator of falsity is not fully settled. Following recent cases, it is clear that prosecutors must provide evidence of falsity beyond mere disagreement of another health professional. Nonetheless, the Paulus and Polukoff decisions suggest that providers’ medical judgment may not be protected when other factors suggest that they veer significantly from the mainstream. The Tenth Circuit’s statements about using government manuals to define “reasonable and necessary” for FCA purposes may prompt particular controversy because as other courts have recognized, these manuals lack the force of law, and in any event, they, too, have vague standards that are susceptible to multiple interpretations. In that regard, key questions remain about the parameters of defining falsity in medical necessity determinations; we will continue to monitor pending litigation in this area and will report on further judicial developments. 3. Developments Regarding the Use of Statistical Sampling As noted in prior updates, dating back to our 2014 Year-End Update, we continue to track developments in the use of statistical evidence and sampling to support wide-scale FCA allegations, especially against multi-site providers. Two courts recently rejected plaintiffs’ attempts to use statistical data to establish fraud under the FCA. In United States ex rel. Wollman v. The General Hospital Corporation, the District of Massachusetts granted defendants’ motion to dismiss on the grounds that relator’s allegations based on statistical data fell short of pleading specific details regarding the actual submission of claims.[30] Although the First Circuit generally has relaxed pleading standards and allows the use of statistical evidence to strengthen an inference of fraud, the Wollman court found that relators’ use of statistical data fell short of creating any inference that surgeons committed fraud by billing Medicare and Medicaid for “overlapping” surgeries.[31] Similarly, in April 2018, in United States ex rel. Conroy v. Select Medical Corporation, a magistrate judge in the Southern District of Indiana rejected a relator’s attempt to use statistical sampling to determine “the number of fraudulent Medicare claims and the damages flowing from them.”[32] The court held that the plaintiffs failed to provide any evidence in support of the proposition that showing “a particular Medicare reimbursement claim was fraudulent based on a theory of lack of medical necessity can be done by a random-sampling method.” Instead, the court found that a case-by-case analysis would be necessary to “evaluate whether each particular claim for which the plaintiffs seek relief was actually knowingly false within the meaning of the FCA.”[33] DOJ, despite initially declining to intervene in the case, filed a letter of interest challenging the magistrate judge’s discovery order as “contrary to long-established precedent recognizing statistical sampling as admissible and valid method of proof” in contexts applicable to the FCA.[34] The court has not yet addressed DOJ’s letter. As the government and FCA relators continue to attempt to support region-wide or nationwide cases against multi-facility providers using statistical sampling evidence, these issues are sure to have an important presence in the FCA case law, and we will continue to monitor and report on them. C. Opioid Crisis Enforcement Efforts The government continues to aggressively target the opioid crisis in its criminal, as well as civil, enforcement efforts, with the initial focus on opioid manufacturers widening to include prescribers, and even pharmacy dispensers, of opioids. On June 6, the CEO of a health care company and four physicians were charged in a superseding indictment as part of an investigation into an alleged $200 million health care fraud scheme involving the distribution of medically unnecessary controlled substances and injections that resulted in patient harm.[35] The indictment alleges that the physicians prescribed over 4.2 million dosage units of medically unnecessary controlled substances to Medicare beneficiaries, including some who were addicted to narcotics. Further, the physicians allegedly required the Medicare beneficiaries to consent to medically unnecessary injections, which were billed to Medicare in order to increase revenue for all defendants. Trial in the Eastern District of Michigan is scheduled to begin at the end of July. In our 2017 Mid-Year Update, we highlighted DOJ’s announcement of what was then the largest-ever health care fraud enforcement action, involving charges against more than 400 defendants for more than $1.3 billion in fraud. The enforcement action focused heavily on the prescription and distribution of medically unnecessary prescription drugs, including opioids and other narcotics. On June 28, DOJ announced a new record for the largest health care fraud enforcement action in history.[36] This enforcement action involved charges against 601 individuals across 58 federal districts, allegedly responsible for over $2 billion in fraud losses. Of the individuals charged, 162 defendants (including seventy-six doctors) were charged for playing a role in prescribing and distributing opioids and other narcotics. In the press release, Attorney General Jeff Sessions described the underlying conduct as “despicable crimes” that led DOJ to take “historic new steps to go after fraudsters, including hiring more prosecutors and leveraging the power of data analytics.”[37] Attorney General Sessions emphasized that “[t]his is the most fraud, the most defendants, and the most doctors ever charged in a single operation—and we have evidence that our ongoing work has stopped or prevented billions of dollars’ worth of fraud.”[38] The enforcement action involved coordinated efforts by DOJ’s Criminal Division and Health Care Fraud Unit, HHS OIG, the Drug Enforcement Administration, the Centers for Medicare and Medicaid Services, IRS Criminal Investigations, the Department of Labor, State Medicaid Fraud Control Units, and others. HHS Secretary Alex Azar lauded the “Takedown Day” as “a significant accomplishment for the American people,” stating that every dollar recovered in the operation is “a dollar that can go toward providing healthcare for Americans in need[.]”[39] In the middle of July, DOJ announced Operation Synthetic Opioid Surge, or Operation S.O.S., in an effort to target distribution of synthetic opioids in the districts with the highest rates of overdose deaths.[40] U.S. Attorney’s Offices in key districts will identify a county in which it will prosecute “every readily provable case involving . . . synthetic opioids, regardless of drug quantity.” The goal of the intensive effort, which will be coordinated with the DEA Special Operations Division, is to use these smaller prosecutions to identify larger distribution networks for synthetic opioids and ultimately reduce overdose deaths. The recent takedown and Operation S.O.S. initiative are further evidence of DOJ’s continued prioritization of the opioid crisis by criminally targeting fraudulent distribution of prescription medications; however, DOJ continues to target these issues through civil remedies as well. On February 27, 2018, DOJ announced the formation of a Prescription Interdiction and Litigation Task Force designed to enforce compliance with federal regulations created to prevent improper prescribing of medications. In his speech announcing the Task Force formation, Attorney General Sessions noted that the Task Force would coordinate with various agencies and employ a wide range of enforcement tools—including the FCA—to crack down on illegal prescriptions. II. HHS Enforcement Activity A. HHS OIG Activity 1. 2017 and 2018 Developments and Trends In the period between October 1, 2017, and March 31, 2018, HHS OIG reported 424 criminal actions, a decrease of approximately 9% from the 468 criminal actions reported in the first half of FY 2017.[41] HHS OIG experienced a larger drop—nearly 25%—in the number of civil actions, reporting 349 in the first half of FY 2018, compared to 461 in the first half of FY 2017.[42] While the yearly number of criminal actions has fluctuated over the past several years (see the chart below), the yearly number of civil actions has been steadily rising—a streak which may break in 2018 based on first-half numbers. In the first half of FY 2018, HHS OIG also reported expected investigative recoveries of $1.46 billion.[43] In the first half of FY 2017, by contrast, this figure was approximately $2.04 billion.[44] These recovery figures suggest that FY 2018 may continue the general downward shift in HHS OIG’s yearly expected recoveries over the last several years, as depicted in the chart below. This downward trend may be due in part to decreases in the frequency and magnitude of large settlements with pharmaceutical companies. In FY 2012 and FY 2013, for example, HHS OIG’s year‑end reports highlighted a total of approximately $4.35 billion in settlements with pharmaceutical companies, whereas HHS OIG’s year‑end reports for FY 2014 through FY 2017 highlighted a total of only about $1.32 billion in settlements with pharmaceutical companies.[45] 2. Significant HHS OIG Enforcement Activity a) Exclusions HHS is required to exclude from participation in the federal health care programs any individual or entity that is (1) convicted of a crime related to Medicare, (2) convicted of a crime related to patient abuse or neglect, (3) convicted of felony health care fraud, or (4) convicted of a felony related to the manufacturing, distribution, prescription, or dispensing of a controlled substance.[46] HHS also has permissive authority to exclude individuals and entities falling into sixteen other categories, including those convicted of fraudulent conduct related to health care, those excluded or suspended from a state health care program, and those HHS determines have paid kickbacks as defined by the Anti‑Kickback Statute.[47] In the first half of calendar year 2018, HHS OIG reported 1,525 exclusions from the federal health care programs.[48] Of that number, thirty exclusions were of entities, a 9% drop compared to the same period in calendar year 2017 and a 3% drop compared to the same period in calendar year 2016.[49] Notably, this number is an increase as compared to calendar years 2015 and 2014. The entity exclusions included thirteen pharmacies and four entities identified as either community mental health centers or psychology practices.[50] The remaining 1,495 exclusions reported in the Exclusions Database for the first half of FY 2018 were of individuals, 158 of whom were classified as business owners or executives, and 104 of whom were classified as physicians.[51] Among business owners or executives, approximately 25% were affiliated with home health agencies, approximately 7% with pharmacies, and approximately 12% with clinics.[52] Of the excluded physicians, approximately 66% were family practitioners, general practitioners, internists, or psychiatrists.[53] Consistent with HHS OIG’s focus on pharmacies and on combating the illegal provision of opioids, HHS OIG’s semiannual report to Congress covering the first half of FY 2018 highlighted an exclusion case involving a pharmacy owner in Kentucky who was convicted of illegally dispensing oxycodone, hydrocodone, and pseudoephedrine and was sentenced to thirty years in prison. The pharmacy owner’s exclusion from the federal health care programs will last at least fifty years.[54] b) Civil Monetary Penalties Compared to the same period in calendar year 2017, the first half of calendar year 2018 witnessed an uptick in civil monetary penalties (“CMPs”) as a result of settlement agreements and voluntary self‑disclosures. HHS OIG announced 61 CMPs totaling approximately $46 million,[55] marking an increase of nearly 30% in the number of cases, and a 100% increase in total recovery amount, compared to the first half of calendar year 2017.[56] CMPs resulting from self‑disclosures represented approximately 86% of the CMPs, in terms of dollar value, in the first half of the 2018 calendar year, with the largest self‑disclosure settlement representing approximately six times the amount of the largest settlement not involving self‑disclosure. Self‑disclosure cases also accounted for eight of the top ten settlements by dollar amount. Consistent with the trend in the first half of last year, cases involving allegedly false claims or improper billing practices accounted for the lion’s share—thirty-one cases totaling nearly $35 million— of CMPs imposed by HHS OIG. Employment of individuals who had been excluded from the federal health care programs was the second most common basis for CMPs, accounting for fourteen cases totaling nearly $1.9 million. However, these cases were overshadowed in terms of dollar amount by the eight CMPs involving alleged AKS or Stark Law violations and amounting to nearly $8.9 million in penalties and settlements. The three largest CMPs assessed against providers in the first half of 2018 are summarized below: Northwell Health Inc. (Northwell): On February 13, 2018, after self-disclosing conduct, Northwell agreed to pay approximately $12.7 million to resolve allegations from HHS OIG that Northwell submitted Medicare claims that lacked sufficient documentation for a certain Medicare Local Coverage Determination, “Vertebroplasty and Vertebral Augmentation – Percutaneous, L26439.”[57] Shands Jacksonville Medical Center, Inc. (Shands) and University of Florida Jacksonville Physicians, Inc. (UF JPI): Shands and UF JPI made a self‑disclosure to HHS OIG, and on January 30, 2018, reached a settlement of approximately $4.5 million to resolve allegations that Shands and UF JPI submitted Medicare and Medicaid claims for ophthalmology surgical procedures that were not medically necessary.[58] Nazareth Hall (Nazareth): Following a self‑disclosure, on February 23, 2018, Nazareth reached a settlement of approximately $4 million to resolve HHS OIG allegations that Nazareth submitted Change of Therapy forms for rehabilitative therapy services without following Medicare requirements.[59] c) Corporate Integrity Agreements Although we frequently make observations regarding the types of integrity agreements entered into by HHS OIG, the Government Accountability Office (“GAO”) issued a report earlier this year that provides a comprehensive survey of these agreements from the period spanning from July 2005 through July 2017.[60] The report found that, during this period, HHS OIG entered into 652 agreements[61] with thirty types of entities, but that individual or small group practices, hospitals, and skilled nursing facilities together accounted for over half of all agreements.[62] Cases that ended with integrity agreements most often started with allegations that the relevant entity or individual billed for medically unnecessary services or for services not provided.[63] Significantly, the report also noted that DOJ settlements accompanied 619 of the 652 integrity agreements reached in the period reviewed.[64] Overall, however, the total number of integrity agreements in effect decreased by 44% from 2006 to 2016,[65] as a result of HHS OIG’s self‑described efforts to prioritize entities that pose the most significant fraud risks.[66] In the first half of calendar year 2018, HHS OIG entered into thirteen corporate integrity agreements (“CIAs”), down from twenty-four in the same period in 2017.[67] In one particularly notable example, an Anchorage, Alaska, non‑profit organization that provides services to individuals with developmental disabilities entered into a five‑year CIA with HHS OIG. Under the agreement, the organization was required to implement significant compliance enhancements, including the appointment of a compliance officer and the establishment of a compliance committee, as well as the implementation of specific compliance controls and review procedures at the board of directors level.[68] HHS OIG has signaled that it views these sorts of requirements as a floor, not a ceiling, for providers’ compliance programs. For example, in a case involving a non‑profit hospital operator accused of violating the FCA by seeking Medicare reimbursement for inpatient services that could have been provided on a less costly outpatient basis,[69] HHS OIG imposed a five‑year CIA that specified similar board- and management-level compliance enhancements, despite the fact that the entity had “voluntarily established a Compliance Program” before the CIA was executed.[70] The agreement specified that the procedures it imposed on the hospital operator were to be treated as minimum requirements for its compliance program.[71] In other instances, HHS OIG has used CIAs to require significant compliance undertakings more closely tailored to the alleged conduct at issue. For example, in a CIA that involved a parallel settlement with DOJ, a radiation therapy provider that allegedly violated the AKS was required to implement an oversight program to ensure that certain contractual arrangements were “supported by and consistent with fair market valuation reports conducted by independent, objective, and qualified individuals or entities with fair market valuation expertise[.]”[72] Fair market valuations help provide shelter from liability under AKS and the Stark Law for certain contractual arrangements, such as employment compensation arrangements, as they support the relevant arrangement as an arm’s-length transaction that does not account for the value or volume of referrals. Notably, several of the CIAs entered into so far this year involved individuals in addition to entities. For example, in February, HHS OIG reached a three‑year CIA with a North Carolina eye-care provider and its physician-owner that requires, among other provisions: enhanced training and education, the retention of an independent review organization (“IRO”), and enhanced screening processes for employees and third-party service providers. The physician-owner is required to submit certifications of the practice’s compliance in conjunction with the IRO’s review and reporting activities.[73] In another case, the individual owner of a hospice provider was made a party to a CIA with the provider itself, which imposes a five‑year term and the implementation of a detailed set of management‑level compliance enhancements and controls.[74] And, in at least one case, HHS OIG put in place a CIA that imposes obligations on an individual only, without placing parallel obligations on any entity affiliated with the individual.[75] The agreement requires the individual to do the following, among other things: undergo training on billing, coding, and record documentation, and ensure that the individual’s employees and contractors received such training; engage an IRO to audit the individual’s claims submitted to Medicare and Medicaid; screen the individual’s employees and contractors to ensure their eligibility to participate in the federal health care programs, and remove any individuals who have been excluded from participation; and track and communicate certain “reportable events” to HHS OIG.[76] Under the agreement, breach of any of these obligations would trigger a daily stipulated penalty of $1,000 or $1,500, depending on the obligation breached—as well as the possibility of exclusion from the federal health care programs in the event of certain material breaches.[77] B. CMS Activity 1. Transparency and Data Accessibility Over the past few years, CMS has prioritized improving access to data related to the use of Medicare and Medicaid services. On April 13, 2018, CMS released the seventh update of the Market Saturation and Utilization Tool.[78] This tool provides interactive maps and related data sets showing provider services and utilization data for selected health services, and is one of many tools used by CMS to monitor and manage market saturation as a means to help prevent potential fraud, waste, and abuse. The seventh update includes a trend analysis graphing tool that shows the percentage change and trend over time across the available metrics and health service areas. CMS explained that in addition to serving as a monitoring tool to prevent potential fraud and abuse, “[t]he data can also be used to reveal the degree to which use of a service is related to the number of providers servicing a geographic region.”[79] CMS noted that one of the secondary objectives of making the data public is to “assist health care providers in making informed decisions about their service locations and the beneficiary population they serve.”[80] 2. Continued Implementation of Moratoria As we’ve described in past updates, the Patient Protection and Affordable Care Act authorizes CMS to impose moratoria on certain regions to prevent new provider enrollments in certain geographic areas identified as fraud “hot spots.” The moratoria are imposed after consultation with DOJ and HHS OIG and reviewed for continued necessity every six months. The moratoria, which block any new provider enrollments for Medicare Part B non-emergency ground ambulance providers and Medicare home health agencies in Florida, Illinois, Michigan, Texas, Pennsylvania, and New Jersey, were reviewed and extended again for a six-month period on January 29, 2018.[81] C. OCR and HIPAA Enforcement 1. HIPAA Enforcement Actions HHS’s Office of Civil Rights (“OCR”) reported that as of June 30, 2018, it had reviewed and resolved over 184,614 Health Information Portability and Accountability Act (“HIPAA”) complaints since HIPAA privacy rules went into effect in April 2003.[82] OCR has resolved 96% of these cases (177,194).[83] Since January, OCR has reported only two settlements and one decision from an HHS Administrative Law Judge (“ALJ”), amounting to approximately $7.9 million in fines.[84] If OCR’s enforcement continues at this pace, 2018 will see a dramatic decline in HIPAA enforcement actions. In the 2017 calendar year, OCR announced ten settlements amounting to approximately $19.4 million in fines, and in 2016, OCR reported thirteen settlements totaling approximately $23.5 million.[85] It remains to be seen whether the downtick in enforcement during the first half of 2018 signals a change in priorities, or whether we will see an acceleration of HIPAA settlements in the second half of the year. On February 1, 2018, OCR announced the first HIPAA settlement of the year, with Fresenius Medical Care North America (“FMCNA”), a nationwide dialysis provider that also runs labs, urgent care centers, and post-acute practices. FMCNA agreed to pay $3.5 million and adopt a comprehensive corrective action plan in order to settle potential HIPAA violations in connection with five data breaches that occurred at separate FMCNA-owned entities over a five-month period in 2012, which impacted 521 individuals.[86] Following an investigation, OCR found that FMCNA “failed to conduct an accurate and thorough risk analysis of potential risks and vulnerabilities to the confidentiality, integrity, and availability of all its [electronic protected health information (PHI)].”[87] OCR Director Roger Severino commented, “[t]he number of breaches, involving a variety of locations and vulnerabilities, highlights why there is no substitute for an enterprise-wide risk analysis for a covered entity.”[88] A corrective action plan requires the company to complete a risk analysis and risk management plan, revise policies and procedures, develop an encryption report, and provide employee education on policies and procedures.[89] Less than two weeks later, OCR announced a $100,000 settlement with Filefax, Inc. (“Filefax”), a company that stored and delivered medical records. The case came to the attention of the authorities in February 2015 when OCR received an anonymous complaint alleging that an individual took paper files out of an unlocked dumpster outside of a Filefax office in Illinois and brought it to a nearby paper shredding shop, hoping to receive payment for providing recyclable material. The complaint led to an OCR investigation. Filefax dissolved during the course of the investigation, which ultimately concluded that “Filefax impermissibly disclosed the PHI of 2,150 individuals by leaving the PHI in an unlocked truck in the Filefax parking lot, or by granting permission to an unauthorized person to remove the PHI from Filefax, and leaving the PHI unsecured outside the Filefax facility.”[90] This settlement cautions against the careless handling of PHI and demonstrates that companies cannot escape obligations under the law for HIPAA violations even after closing for business. The receiver appointed to liquidate the assets of Filefax, has agreed to pay the $100,000 and properly store and dispose the remaining medical records in a HIPAA-compliant manner.[91] On June 18, 2018, an HHS ALJ granted summary judgment against the University of Texas MD Anderson Cancer Center (“MD Anderson”), requiring the provider to pay $4.3 million in civil monetary penalties for HIPAA violations.[92] This is the fourth largest amount awarded to OCR by an ALJ or secured in a settlement for HIPAA violations; it is also the second summary judgment victory in OCR’s history of HIPAA enforcement.[93] The litigation arose out of three data breaches from 2012 and 2013 involving the theft of an unencrypted laptop from an MD Anderson employee and the loss of two unencrypted USB thumb drives containing the information of 33,500 individuals. MD Anderson “failed to adopt an effective mechanism” to protect patient data.[94] The ALJ rejected the argument that stolen information is only disclosed when it is viewed by a third party, holding, “The plain language of the regulation doesn’t suggest that. Moreover, to interpret the regulation so narrowly as Respondent suggests would render its prohibitions against unauthorized disclosure to be meaningless.”[95] In a statement regarding the decision, Director Severino underscored that “OCR is serious about protecting health information privacy and will pursue litigation, if necessary, to hold entities responsible for HIPAA violations.”[96] 2. Cybersecurity Protection of patients’ confidential information, and electronically stored information in particular, continues to be a high priority for HHS enforcement, just as cybersecurity and data privacy issues explode in complexity and public attention. As discussed in past updates,[97] OCR continues to issue monthly “Cybersecurity Newsletters” in order to provide guidance on what specific security measures providers can take to decrease exposure to various security threats and vulnerabilities that exist in the health care sector, and how to reduce breaches of electronic-protected health information (“ePHI”).[98] HHS has not said that following the measures outlined in these newsletters creates any kind of safe harbor; rather, the newsletters are designed to “assist” the regulated community to become more knowledgeable about risk areas. Providers would do well to adhere to this guidance to avoid being caught in the crosshairs of OCR.[99] Brief summaries of the newsletters that have been issued so far this year are below. The January newsletter discusses the issue of cyber extortion, which may include stealing sensitive data such as ePHI, and explains what organizations can do to prevent falling victim to attackers, including implementing an organization-wide risk analysis and risk management program, training employees, patching systems, and encrypting sensitive data. Organizations are encouraged to remain vigilant for new and emerging cyber threats.[100] OCR’s February newsletter warns against the dangers of “phishing,” a type of cyberattack used to trick individuals to disclose sensitive information electronically by impersonating a trustworthy source, and provides tips on avoiding phishing attacks.[101] The purpose of the April newsletter is to provide a concise explanation of the differences between a “risk analysis” required by the HIPAA Security Rule’s regulatory requirement and a “gap analysis.” In short, a risk analysis is a comprehensive, enterprise-wide evaluation to identify the ePHI and the risks and vulnerabilities to the ePHI; the results of a risk analysis may be used to make enterprise-wide modifications to ePHI systems. By contrast, a gap analysis is a narrower examination of an enterprise to assess whether certain controls or safeguards required by the Security Rule have been implemented and to spot “gaps.”[102] The May newsletter reminds organizations about the importance of the physical security of workstations to safeguard access to ePHI, which OCR notes is often overlooked. OCR warns that “[f]ailure to take reasonable steps regarding physical security may have serious consequences,” citing investigations that have resulted in hefty fines for violations of HIPAA’s Security Rule.[103] Finally, the June newsletter provides guidance on software vulnerabilities and the necessity of patching software bugs to close security vulnerabilities and prevent hackers from gaining unauthorized access to a user’s computer or an organization’s network. OCR sets forth the responsibilities of HIPAA-covered entities and business associates to conduct a risk analysis of the potential vulnerabilities to the confidentiality of the ePHI they hold; this includes identifying and mitigating risks and vulnerabilities that unpatched software poses to an organization’s ePHI.[104] III. Anti-Kickback Statute During the first six months of 2018, the AKS has remained one of the most prominent theories of liability in health care enforcement actions. That is perhaps unsurprising, since the government typically takes the position that the damages resulting from AKS liability are the full amount of the claims supposedly “tainted” by the alleged kickbacks. But given the interplay between the AKS and the FCA, the numerous resulting elements of proof for an AKS case, and the complexities of the AKS’s many safe harbors, AKS theories also continue to be actively debated in the health law field and in the courts. Below, we summarize the guidance and case law developments that explore the scope of that potential liability. A. Notable HHS OIG Advisory Opinions HHS OIG issued a number of advisory opinions discussing the AKS in the first half of 2018. Notably, the Office gave its imprimatur to each arrangement on which companies requested its input, from sharing savings generated from cost-reduction measures with health care providers to providing support resources to caregivers of patients with chronic conditions. On January 5, HHS OIG considered an arrangement under which neurosurgeons implementing cost-reduction measures with respect to spinal fusion surgeries split the savings from these measures with the medical center in which they operate.[105] These cost-reduction measures included a shift to using certain products only on an as-needed basis and standardizing the selection of certain devices and supplies based on price.[106] In concluding that this arrangement presented a low risk of AKS violations, HHS OIG noted approvingly safeguards designed to reduce neurosurgeons’ incentive to increase referrals to the medical center. These safeguards included distributing the incentive payments on a per-surgeon, rather than per-patient, basis; reviewing patient data to confirm a historically consistent selection of patients; reserving a portion of the savings for administrative expenses that would otherwise be distributed to the neurosurgeons; and tying incentive payments to verifiable cost savings attributable to each recommendation implemented in a procedure.[107] On May 31, HHS OIG opined that an arrangement under which a not-for-profit health center would use state Department of Health grant funds to give a county clinic a computer, videoconferencing software, and other telemedicine items to enable the county clinic to provide health care consultation services remotely would present a low risk of AKS violations.[108] The agency noted that this donation of equipment could conceivably induce the county clinic to refer patients to the health center, but found that the risk of such referrals was low given the clinic would not recommend the health center, or any other specific health care provider, to patients, and that the health center was located 80 miles from the county clinic.[109] On June 14, HHS OIG analyzed the use of a preferred hospital network as part of Medicare Supplemental Health Insurance (“Medigap”) policies, whereby insurance companies would contract with hospitals for discounts on Medicare inpatient deductibles for their policyholders and then provide a $100 credit to policyholders who utilized an in-network hospital for their inpatient stay.[110] HHS OIG first concluded that the arrangement did not meet the requirements for protection under either the safe harbor for waivers of beneficiary coinsurance and deductible amounts or the safe harbor for reduced premium amounts offered by health care plans.[111] The safe harbor for coinsurance and deductible waivers specifically excludes such waivers when they are part of an agreement with insurers, and the safe harbor for reduced premium amounts requires that all enrollees be offered the same cost‑sharing or reduced premium amounts.[112] HHS OIG then concluded that, notwithstanding the absence of safe harbor protection, the arrangement presented a low risk of AKS violations because neither the discounts nor the premium credits would increase per-service Medicare payments, the arrangement would have little impact on patient utilization, and physicians would receive no remuneration as a result of the arrangement.[113] On June 18, HHS OIG issued an opinion regarding whether a non-profit medical center may provide support resources and services to family members and other caregivers who care for patients with chronic conditions.[114] The provider proposed to give those caregivers, among other things, educational sessions, support groups, rental iPods, and low-fee stress reduction workshops.[115] HHS OIG noted that certain services the provider made available to the caregivers alleviated the caregivers’ financial burdens in providing care and could influence the caregivers to refer patients to the provider, and HHS OIG determined that no exception to the Beneficiary Inducements CMP or AKS applied.[116] However, HHS OIG determined that it would not impose sanctions on the provider, because (1) the services mostly benefitted caregivers, and posed a low risk of influencing them to select the provider for any particular federally reimbursable services; (2) all caregivers could access the services; (3) the provider did not “actively market” the services; and (4) the provider’s practices posed little risk of increasing costs incurred by the federal health care programs. For these reasons, HHS OIG concluded that the provider’s conduct would not subject it to sanctions under the AKS.[117] B. Notable Case Law Involving the AKS While the first half of 2018 was relatively quiet with respect to AKS case law, there were a couple of notable opinions. In particular, the Third Circuit rejected a “but for” causation standard for establishing FCA liability predicated on alleged AKS violations, while an Illinois district court rejected an AKS theory as too speculative. We discuss both below. In January, the Third Circuit affirmed a U.S. District Court for the District of New Jersey ruling granting summary judgment to a pharmaceutical company accused of FCA and AKS violations in United States ex rel. Greenfield v. Medco Health Solutions, Inc.[118] The relator alleged that a pharmacy (Accredo Health Group), which provided home care for patients with hemophilia, violated the AKS, and in turn the FCA, when it made donations to two charities that then recommended the company to hemophilia patients.[119] The District Court denied the relator’s motion for summary judgment and granted the company’s, on the ground that the relator was unable to show that the charities’ referral of several federally insured patients resulted from the pharmacy’s charitable contributions.[120] On appeal, the relator argued that the District Court erred in requiring a “direct link” between the contributions and the referrals.[121] The government filed an amicus brief contending that the Court erred “to the extent that it required relator to prove a causal connection between the kickbacks and the claims.”[122] In other words, “the district court incorrectly appeared to believe it was necessary for relator to show that the kickbacks in fact corrupted the charities’ decision to refer patients to” the pharmacy, and that “those referrals and recommendations in fact corrupted the patients’ decisions to use” the company’s services.[123] Instead, the government urged the Court to hold that “relator is not required to prove that the kickbacks caused the charities to make the referrals and recommendations or that the referrals and recommendations caused the patients to use” the pharmacy’s services.[124] The Third Circuit affirmed the District Court’s grant of summary judgment in favor of the company, holding that a relator must, at minimum, show that at least one of the patients for whom the company provided services and submitted reimbursement claims was “exposed to” a referral from one of the charities to which the company donated.[125] Addressing the parties’ respective arguments about what suffices as FCA proof in the AKS context, the Third Circuit explained that “[i]t is not enough . . . to show temporal proximity between [the company’s] alleged kickback plot and the submission of claims for reimbursement. Likewise, it is too exacting to follow [the company’s] approach, which requires a relator to prove that federal beneficiaries would not have used the relevant services absent the alleged kickback scheme.”[126] The Third Circuit therefore largely adopted the government’s view that a “but for” causation standard would be unworkable in this context, holding instead that relators must present “some record evidence that shows a link between the alleged kickbacks and the medical care received by at least one of” the company’s federally insured patients.[127] In United States v. United Healthcare Ins. Co., the U.S. District Court for the Northern District of Illinois granted a health care insurer’s motion to dismiss a relator’s complaint alleging FCA violations predicated on alleged AKS violations.[128] The defendant was a Medicare Advantage plan that offered, among other services, in-home physical examinations to its patients and $25 Walmart gift cards to patients who accepted offers to join the in-home program.[129] The relator, a patient of the company who participated in the in-home program, alleged that the program violated the FCA because the in-home visits were not medically necessary and led to the procurement of risk adjustment data that could lead to a patient receiving a higher risk designation by CMS, thereby increasing the per-month payment the company would receive from the government for that patient.[130] The Court rejected the relator’s theory as too speculative. The Court noted that the company “ha[d] neither received a kickback for its remunerations nor has Medicare been injured through increased reimbursements.”[131] Rather, the company “paid for the in-home examinations itself, and then provided services to its plan participants free of charge. This does not violate the purpose of the Anti-Kickback Statute—’to prevent kickbacks from influencing the provision of services that are charged to Medicare.'”[132] IV. Stark Law The federal physician self-referral law, commonly known as the Stark Law, provides for strict liability for any physician who refers to an entity with which it has a “financial relationship,” which is broadly defined, and even more broadly interpreted by DOJ and HHS OIG. The Stark Law has been a frequent target of proposed reforms for many years (as discussed in our previous alerts ), reflecting industry and regulator recognition that the Stark Law sometimes creates unintentional and unnecessary restrictions on innovative and efficient health care arrangements. But in the main, those reform efforts have stalled and died before offering meaningful relief. During the first half of 2018, however, there were several notable developments relating to the Stark Law that may finally result in actual reform. A. Regulatory and Legislative Updates In January 2018, CMS Administrator Seema Verma announced that CMS, DOJ, and HHS OIG would undertake an inter-agency review of the Stark Law.[133] The review was spurred by feedback from providers as part of CMS’s “Patients Over Paperwork” Initiative,[134] which sought industry feedback about how to reduce burdensome regulations. According to Administrator Verma, the Stark Law was one of the most commonly identified of the “burdensome regulations and burdensome issues.”[135] Administrator Verma noted that the Stark Law was “developed a long time ago” and that there is a “need to bring along some of those regulations” to account for modern developments in payment models and health delivery systems.[136] Although Administrator Verma acknowledged that the solution may require “Congressional intervention,” she confirmed that CMS is committed to “working through it.”[137] In June, CMS requested feedback on possible regulatory changes to the Stark Law, suggesting a willingness to act, separate from any Congressional action.[138] The agency stated that lowering Stark Law hurdles would support coordinated care.[139] Eric Hargan, Deputy Secretary at HHS, further stated that “[r]emoving unnecessary government obstacles to care coordination is a key priority for this Administration.”[140] CMS explained that it is interested in addressing “real or perceived” obstacles to coordinated care that are caused by the Stark Law.[141] Beyond simply clarifying or simplifying the current law, the agency asked commenters whether the existing exceptions to the Stark law are useful and whether the agency should create new exceptions.[142] It also requested that commenters share ideas for defining important concepts such as “commercial reasonableness” and “fair market value” within exceptions to the Stark Law.[143] CMS also asked whether increased transparency could address problems, suggesting that transparency measures could include disclosures about pricing or a physician’s financial relationships. Among other related items, CMS is seeking suggestions regarding: Existing or potential arrangements that involve designated health service (“DHS”) entities and referring physicians that participate in “alternative payment models or other novel financial arrangements,” regardless of whether such models and financial arrangements are sponsored by CMS; Exceptions to the Stark Law that would protect financial arrangements between DHS entities and referring physicians who participate in the same alternative payment model; Exceptions to the Stark Law that would protect financial arrangements that involve “integrating and coordinating care outside of an alternative payment model”; and Addressing the application of the Stark Law to financial arrangements among providers in “alternative payment models and other novel financial arrangements.”[144] B. Notable Stark Law Enforcement There were also two notable Stark Law enforcement actions in the first half of 2018. In January, two California urologists agreed to pay more than $1 million to settle allegations that they had violated the Stark Law and the AKS.[145] The doctors, who own and operate both a urology practice and a radiation oncology center, allegedly submitted and caused the submission of false claims to Medicare for image-guided radiation therapy by billing for their own image-guided radiation therapy referrals to their oncology center. The two practices were separate entities, even though both owned by the urologists, and the financial arrangements did not comply with any exceptions to the Stark Law.[146] This case is a warning for providers who own businesses that provide complementary services. In March, University of Pittsburgh Medical Center Hamot (“Hamot”), a Pennsylvania hospital, and Medicor Associates Inc. (“Medicor”), a cardiology group, agreed to pay $20.75 million to settle allegations that they violated a number of statutes, including the AKS and the Stark Law.[147] DOJ alleged that they orchestrated a kickback scheme for patient referrals when Hamot paid Medicor up to $2 million per year under twelve physician and administrative services arrangements that had been created to secure patient referrals from the cardiology group. Hamot allegedly had no legitimate need for the contracted services, and in some instances the services were duplicative or not performed at all.[148] Notably, the claims were brought by a whistleblower, and the federal government initially declined to intervene. The whistleblower proceeded on his own and won summary judgment on his claims that some of the arrangements violated the Stark Law, which in turn caused false claims to be knowingly submitted to federal health programs in violation of the FCA.[149] The whistleblower received over $6 million as part of the settlement.[150] The whistleblower’s post-declination success may encourage other whistleblowers to proceed on their own, even in complicated Stark Law cases such as this one. V. CONCLUSION As these issues and others important to the health care provider community continue to develop, we will track them and report back in our 2018 Year-End Update.   [1] See Gibson Dunn 2017 Mid-Year FDA and Health Care Compliance and Enforcement Update – Providers (Sept. 4, 2017) [hereinafter “Gibson Dunn 2017 Mid‑Year Update”]. [2] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Electronic Health Records Vendor to Pay $155 Million to Settle False Claims Act Allegations (May 31, 2017), https://www.justice.gov/opa/pr/electronic-health-records-vendor-pay-155-million-settle-false-claims-act-allegations. [3] U.S. Dep’t of Justice, Associate Attorney General Rachel Brand, Limiting Use of Agency Guidance Documents In Affirmative Civil Enforcement Cases (Jan. 25, 2018), https://www.justice.gov/file/1028756/download. [4] The total is greater than twenty-one because some cases had multiple claims. [5] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Banner Health Agrees to Pay Over $18 Million to Settle False Claims Act Allegations (Apr. 12, 2018), https://www.justice.gov/opa/pr/banner-health-agrees-pay-over-18-million-settle-false-claims-act-allegations. [6] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Tennessee Chiropractor Pays More Than $1.45 Million to Resolve False Claims Act Allegations (Jan. 24, 2018), https://www.justice.gov/opa/pr/tennessee-chiropractor-pays-more-145-million-resolve-false-claims-act-allegations. [7] About a month later, at the end of February, Attorney General Sessions announced that there would be a new, special task force devoted to targeting opioid drug manufacturers and distributors who were fueling the opioid epidemic. Dan Mangan, Attorney General Jeff Sessions Announces New Opioid Task Force to Target Drug Manufacturers, Distributors Who Fuel Prescription Painkiller Epidemic, CNBC (Feb. 27, 2018), https://www.cnbc.com/2018/02/27/attorney-general-jeff-sessions-announces-new-opiod-task-force.html. [8] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Signature HealthCARE to Pay More Than $30 Million to Resolve False Claims Act Allegations Related to Rehabilitation Therapy (June 8, 2018), https://www.justice.gov/opa/pr/signature-healthcare-pay-more-30-million-resolve-false-claims-act-allegations-related. [9] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Dental Management Company Benevis and Its Affiliated Kool Smiles Dental Clinics to Pay $23.9 Million to Settle False Claims Act Allegations Relating to Medically Unnecessary Pediatric Dental Services (Jan. 10, 2018), https://www.justice.gov/opa/pr/dental-management-company-benevis-and-its-affiliated-kool-smiles-dental-clinics-pay-239. [10] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Healogics Agrees to Pay Up to $22.51 Million to Settle False Claims Act Liability for Improper Billing of Hyperbaric Oxygen Therapy (June 20, 2018), https://www.justice.gov/opa/pr/healogics-agrees-pay-2251-million-settle-false-claims-act-liability-improper-billing. [11] Press Release, Alaska Dep’t of Law, The ARC of Anchorage to Pay Nearly $2.3 Million Dollars to Settle Medicaid False Claims Act Allegations (Apr. 24, 2018), http://www.law.state.ak.us/press/releases/2018/042418-MFCU.html. [12]Amount not reflected in the data above because the case went to trial. [13]United States ex rel. Drummond v. BestCare Laboratory Services, LLC., No. CV H-08-2441, 2018 WL 1609578, at *3 (S.D. Tex. Apr. 3, 2018). [14] 136 S. Ct. 1989 (2016). [15] United States ex rel. Ruckh v. Salus Rehabilitation, LLC, 304 F. Supp. 3d 1258 (M.D. Fla. 2018). [16] Id. at 1263. [17] In our 2017 Year-End Update, we discussed Gilead Sciences’ petition for certiorari to the Supreme Court, asking for review of the Ninth Circuit’s decision in United States ex rel. Campie v. Gilead Sciences, Inc. The Court has yet to issue a decision on whether they will grant the petition. See Pet. for a Writ of Cert., Gilead Sciences Inc. v. United States ex rel. Campie (filed Dec. 26, 2017). [18] United States ex rel. Paradies v. AseraCare, Inc., 176 F. Supp. 3d 1282 (N.D. Ala. 2016). [19] United States ex rel. Winter v. Gardens Regional Hospital and Medical Center, No. 14-CV-08850, 2017 WL 8793222 (C.D. Cal. Dec. 29, 2017). [20] United States ex rel. Dooley v. Metic Transplantation Lab, No. 13-CV-07039, 2017 WL 4323142 (C.D. Cal. June 27, 2017). [21] United States v. Paulus, 894 F.3d 267 (6th Cir. 2018). [22] United States v. Paulus, 2017 WL 908409 (E.D. Ky. Mar. 7, 2017), rev’d in part, vacated in part, 894 F.3d 267 (6th Cir. 2018). [23] Paulus, 894 F.3d, at 275. [24] United States ex rel. Polukoff v. St. Mark’s Hospital, No. 17-cv-4014, 2018 WL 3340513 (10th Cir. July 9, 2018). [25] Id. [26] United States ex rel. Polukoff v. St. Mark’s Hospital, No. 2:16-cv-00304, 2017 WL 237615 (D. Utah Jan. 19, 2017), rev’d and remanded sub nom. United States ex rel. Polukoff v. St. Mark’s Hospital, No. 17-cv-4014, 2018 WL 3340513 (10th Cir. July 9, 2018). [27] Id. [28] Polukoff, No. 17-cv-4014, 2018 WL 3340513, at *4. [29] Id. at *8. [30] United States ex rel. Wollman v. The General Hospital Corporation, No. 1:15-cv-11890, 2018 WL 1586027 (D. Mass. Mar. 30, 2018). [31] Id. [32] United States ex rel. Conroy v. Select Med. Corp., 307 F. Supp. 3d 896, 905 (S.D. Ind. 2018). [33] Id. [34] The United States’ Statement of Interest in Support of Relators’ Objection to Magistrate Judge’s April 2, 2018 Order Concerning the Use of Statistical Sampling, 307 F. Supp. 3d 896, (S.D. Ind. 2018). [35] See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Health Care CEO and Four Physicians Charged in Superseding Indictment in Connection with $200 Million Health Care Fraud Scheme Involving Unnecessary Prescription of Controlled Substances and Harmful Injections (June 6, 2018), https://www.justice.gov/opa/pr/health-care-ceo-and-four-physicians-charged-superseding-indictment-connection-200-million. [36] See Press Release, Office of Pub. Affairs, US Dep’t of Justice, National Health Care Fraud Takedown Results in Charges Against 601 Individuals Responsible for Over $2 Billion in Fraud Losses (June 28, 2018), https://www.justice.gov/opa/pr/national-health-care-fraud-takedown-results-charges-against-601-individuals-responsible-over. [37] Id. [38] Id. [39] Id. [40] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Attorney General Jeff Sessions Announces the Formation of Operation Synthetic Opioid Surge (S.O.S.) (July 12, 2018), https://www.justice.gov/opa/pr/attorney-general-jeff-sessions-announces-formation-operation-synthetic-opioid-surge-sos. [41] See U.S. Dep’t of Health & Human Servs., Office of the Inspector Gen., Semiannual Report to Congress, at 4 (Oct. 1, 2017 – Mar. 31, 2018), https://oig.hhs.gov/reports-and-publications/archives/semiannual/2018/sar-spring-2018.pdf [hereinafter “2018 SA Report”]; U.S. Dep’t of Health & Human Servs., Office of the Inspector Gen., Semiannual Report to Congress, at ix (Oct. 1, 2016 – Mar. 31, 2017), https://oig.hhs.gov/reports-and-publications/archives/semiannual/2017/sar-spring-2017.pdf [hereinafter “2017 SA Report”]. [42] See 2018 SA Report at 4; 2017 SA Report at ix. [43] See 2018 SA Report at 4. [44] See 2017 SA Report at ix. [45] See U.S. Dep’t of Health & Human Servs., Office of the Inspector Gen., Semiannual Report to Congress (Apr. 1, 2012 – Sept. 30, 2012), https://oig.hhs.gov/reports-and-publications/archives/semiannual/2012/fall/sar-f12-fulltext.pdf ; U.S. Dep’t of Health & Human Servs., Office of the Inspector Gen., Semiannual Report to Congress (Apr. 1, 2013 – Sept. 30, 2013), https://oig.hhs.gov/reports-and-publications/archives/semiannual/2013/SAR-F13-OS.pdf ; U.S. Dep’t of Health & Human Servs., Office of the Inspector Gen., Semiannual Report to Congress (Apr. 1, 2014 – Sept. 30, 2014), https://oig.hhs.gov/reports-and-publications/archives/semiannual/2014/sar-fall2014.pdf ; U.S. Dep’t of Health & Human Servs., Office of the Inspector Gen., Semiannual Report to Congress (Apr. 1, 2015 – Sept. 30, 2015), https://oig.hhs.gov/reports-and-publications/archives/semiannual/2015/sar-fall15.pdf ; U.S. Dep’t of Health & Human Servs., Office of the Inspector Gen., Semiannual Report to Congress (Apr. 1, 2016 – Sept. 30, 2016), https://oig.hhs.gov/reports-and-publications/archives/semiannual/2016/sar-fall-2016.pdf ; U.S. Dep’t of Health & Human Servs., Office of the Inspector Gen., Semiannual Report to Congress (Apr. 1, 2017 – Sept. 30, 2017), https://oig.hhs.gov/reports-and-publications/archives/semiannual/2017/sar-fall-2017.pdf. [46] 42 U.S.C. § 1320a‑7(a). [47] 42 U.S.C. § 1320a‑7(b). [48] See U.S. Dep’t of Health & Human Servs., Office of the Inspector Gen., LEIE Downloadable Databases, https://oig.hhs.gov/exclusions/exclusions_list.asp (last visited June 28, 2018) [hereinafter “Exclusions Database”]. [49] See Gibson Dunn 2017 Mid‑Year Update. [50] See Exclusions Database. [51] See id. [52] See id. [53] See id. [54] See 2018 SA Report at 6, 36. [55] Data gathered through HHS OIG press releases and publicly available information. See generally U.S. Dep’t of Health & Human Servs., Office of the Inspector Gen., Civil Monetary Penalties and Affirmative Exclusions, http://oig.hhs.gov/fraud/enforcement/cmp/index.asp (last visited July 24, 2018) [hereinafter “CMP Assessments”]; U.S. Dep’t of Health & Human Servs., Office of the Inspector Gen., Provider Self-Disclosure Settlements, http://oig.hhs.gov/fraud/enforcement/cmp/psds.asp (last visited July 24, 2018) [hereinafter “Provider Self-Disclosure Settlements”]. [56] See Gibson Dunn 2017 Mid‑Year Update at II.A.3.b (stating that “[i]n the first half of the 2017 calendar year, HHS OIG announced 47 CMPs as a result of settlement agreements and self-disclosures and recovered nearly $23 million”). [57] Provider Self‑Disclosure Settlements, supra note 55. [58] Id. [59] Id. [60] See U.S. Gov’t Accountability Office, GAO-18-322, Dep’t of Health & Human Servs.: Office of Inspector General’s Use of Agreements to Protect the Integrity of Federal Health Care Programs (Apr. 2018), https://www.gao.gov/assets/700/691349.pdf. [61] Id. at 8. [62] Id. at 11-12. [63] See id. at 16-17. [64] Id. at 10. [65] Id. (GAO used partial-year data for 2005 and 2017, so compared the full-year data from 2006 through 2016.) [66] Id. [67] See U.S. Dep’t of Health & Human Servs., Office of Inspector Gen., Corporate Integrity Agreement Documents, https://oig.hhs.gov/compliance/corporate-integrity-agreements/cia-documents.asp#cia_list (last visited July 3, 2018) [hereinafter “CIA Documents”]. [68] See Corporate Integrity Agreement Between the Office of Inspector Gen. of the Dep’t of Health & Human Servs. & Arc of Anchorage 1-16 (Apr. 23, 2018), https://oig.hhs.gov/fraud/cia/agreements/Arc_of_Anchorage_04232018.pdf. [69] See Press Release, U.S. Dep’t of Justice, Banner Health Agrees to Pay Over $18 Million to Settle False Claims Act Allegations (Apr. 12, 2018), https://www.justice.gov/opa/pr/banner-health-agrees-pay-over-18-million-settle-false-claims-act-allegations. [70] Corporate Integrity Agreement Between the Office. of Inspector Gen. of the Dep’t of Health & Human Servs. & Banner Health 1 (Apr. 9, 2018), https://oig.hhs.gov/fraud/cia/agreements/Banner_Health_04092018.pdf. [71] Id. [72] Corporate Integrity Agreement between the Office of Inspector Gen. of the Dep’t of Health & Human Servs. & Integrated Oncology Network Holdings, LLC, et al. 22 (Mar. 19, 2018). See also Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Radiation Therapy Company Agrees to Pay up to $11.5 Million to Settle Allegations of False Claims and Kickbacks (Mar. 29, 2018), https://www.justice.gov/opa/pr/radiation-therapy-company-agrees-pay-115-million-settle-allegations-false-claims-and. [73] See Integrity Agreement Between the Office of Inspector Gen. of the Dep’t of Health & Human Servs., Albemarle Eye Center, PLLC, & Jitendra Swarup, M.D. 1-5, 11-13 (Feb. 5, 2018). [74] See Corporate Integrity Agreement Between the Office of Inspector Gen. of the Dep’t of Health & Human Servs. and 365 Hospice, LLC and John C. Rezk 1-15 (Feb. 8, 2018). [75] See generally Integrity Agreement Between the Office of Inspector Gen. of the Dep’t of Health & Human Servs. & Sureshkumar Muttath, M.D. (May 11, 2018), https://oig.hhs.gov/fraud/cia/agreements/Sureshkumar_Muttath_MD_05112018.pdf. [76] Id. at 2-9. [77] See id. at 15-16. [78] Ctrs. for Medicare & Medicaid Servs., Market Saturation and Utilization Dataset 2018-04-13 (Apr. 13, 2018), https://data.cms.gov/Special-Programs-Initiatives-Program-Integrity/Market-Saturation-And-Utilization-Dataset-2018-04-/x3vv-caiy. [79] Ctrs. for Medicare & Medicaid Servs., Market Saturation and Utilization Data Tool (Apr. 13, 2018), https://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-sheets/2018-Fact-sheets-items/2018-04-13.html. [80] Id. [81] Medicare, Medicaid, and Children’s Health Insurance Programs: Announcement of the Extension of Temporary Moratoria, 83 Fed. Reg. 4147 (Jan. 29, 2018), https://www.federalregister.gov/documents/2018/01/30/2018-01783/medicare-medicaid-and-childrens-health-insurance-programs-announcement-of-the-extension-of-temporary ; see also The Patient Protection and Affordable Care Act of 2010, Pub. L. No. 111-148, § 6401(a) (Mar. 23, 2010). [82] U.S. Dep’t of Health & Human Servs., Health Information Privacy, Enforcement Highlights as of May 31, 2018 (last updated June 13, 2018), https://www.hhs.gov/hipaa/for-professionals/compliance-enforcement/data/enforcement-highlights/index.html. [83] Id. [84] Data gathered through HHS press releases and other publicly available information. See generally U.S. Dep’t of Health & Human Servs., HIPAA News Releases & Bulletins, https://www.hhs.gov/hipaa/newsroom (last visited July 25, 2018). [85] Id.; see also 2016 Year-End Health Care Compliance and Enforcement Update – Providers. [86] Press Release, U.S. Dep’t of Health & Human Servs., Five breaches add up to millions in settlement costs for entity that failed to heed HIPAA’s risk analysis and risk management rules (Feb. 1, 2018), https://www.hhs.gov/about/news/2018/02/01/five-breaches-add-millions-settlement-costs-entity-failed-heed-hipaa-s-risk-analysis-and-risk.html. [87] Id. [88] Id. [89] Id. [90] Press Release, U.S. Dep’t of Health & Human Servs., Consequences for HIPAA violations don’t stop when a business closes (Feb. 13, 2018), https://www.hhs.gov/about/news/2018/02/13/consequences-hipaa-violations-dont-stop-when-business-closes.html. [91] Id. [92] Press Release, U.S. Dep’t of Health & Human Servs., Judge rules in favor of OCR and requires a Texas cancer center to pay $4.3 million in penalties for HIPAA violations (June 18, 2018), https://www.hhs.gov/about/news/2018/06/18/judge-rules-in-favor-of-ocr-and-requires-texas-cancer-center-to-pay-4.3-million-in-penalties-for-hipaa-violations.html. [93] Id. [94] Director of the Office for Civil Rights v. The University of Texas MD Anderson Cancer Center, No. C-17-854 at 9 (June 1, 2018), https://www.hhs.gov/sites/default/files/alj-cr5111.pdf. [95] Id. at 10. [96] Press Release, supra note 92. [97] See 2017 Mid-Year FDA and Health Care Compliance and Enforcement Update – Providers. [98] U.S. Dep’t of Health & Human Servs., Security Rule Guidance Material, https://www.hhs.gov/hipaa/for-professionals/security/guidance/index.html (last visited July 25, 2018). [99] Id. [100] U.S. Dep’t of Health & Human Servs., Office of Civil Rights, Cyber Extortion (Jan. 2018), https://www.hhs.gov/sites/default/files/cybersecurity-newsletter-january-2018.pdf. [101] U.S. Dep’t of Health & Human Servs., Office of Civil Rights, Phishing (Feb. 2018), https://www.hhs.gov/sites/default/files/cybersecurity-newsletter-february-2018.pdf. [102] U.S. Dep’t of Health & Human Servs., Office of Civil Rights, Risk Analyses vs. Gap Analyses – What is the difference? (Apr. 2018), https://www.hhs.gov/sites/default/files/cybersecurity-newsletter-april-2018.pdf. [103] U.S. Dep’t of Health & Human Servs., Office of Civil Rights, Workstation Security: Don’t Forget About Physical Security (May 2018), https://www.hhs.gov/sites/default/files/cybersecurity-newsletter-may-2018-workstation-security.pdf. [104] U.S. Dep’t of Health & Human Servs., Guidance on Software Vulnerabilities and Patching (June 2018), https://www.hhs.gov/sites/default/files/cybersecurity-newsletter-june-2018-software-patches.pdf. [105] U.S. Dep’t of Health & Human Servs., Office of Inspector Gen., OIG Advisory Op. 17-09 at 1 (Dec. 29, 2017), https://oig.hhs.gov/fraud/docs/advisoryopinions/2017/AdvOpn17-09.pdf. [106] Id. at 4‑5. [107] Id. at 11. [108] U.S. Dep’t of Health & Human Servs., Office of Inspector Gen., OIG Advisory Op. 18-03 at 2, 7 (May 24, 2018), https://oig.hhs.gov/fraud/docs/advisoryopinions/2018/AdvOpn18-03.pdf. [109] Id. at 6. [110] U.S. Dep’t of Health & Human Servs., Office of Inspector Gen., OIG Advisory Op. 18-04 at 1 (June 7, 2018), https://oig.hhs.gov/fraud/docs/advisoryopinions/2018/AdvOpn18-04.pdf. [111] Id. at 5. [112] Id. [113] Id. at 5-6. [114] Office of Inspector Gen., Dep’t of Health & Human Servs., Advisory Op. No. 18‑05 at 2 (June 18, 2018), https://oig.hhs.gov/fraud/docs/advisoryopinions/2018/AdvOpn18-05.pdf. [115] Id. at 2-3. [116] Id. at 6-7. [117] Id. at 7-9. [118] United States ex rel. Greenfield v. Medco Health Sols., Inc., 880 F.3d 89 (3d Cir. 2018). [119] Id. at 91. [120] See id. at 93. [121] Id. at 93. [122] Id.; see also Brief for the United States of America as Amicus Curiae in Support of Neither Party 9, United States ex rel. Greenfield v. Medco Health Sols., Inc., No. 17-1152 (3d Cir. Apr. 17, 2017), ECF No. 003112595460. [123] Id. at 15. [124] Id. at 23. [125] 880 F.3d at 100. [126] Id. [127] Id. [128] United States v. United Healthcare Ins. Co., No. 15-CV-7137, 2018 WL 2933674, at *11 (N.D. Ill. June 12, 2018). [129] Id. at *3. [130] See id. at 3. [131] Id. at *10. [132] Id. (quoting United States v. Patel, 778 F.3d 607, 616-17 (7th Cir. 2015)). [133] Remarks of Seema Verma, Administrator, CMS, American Hospital Association: Regulatory Relief Town Hall Webcast (Jan. 18, 2018), available at https://youtu.be/vrtey7QPAYg. [134] Ctrs. For Medicare & Medicaid Servs., Patients Over Paperwork, https://www.cms.gov/Outreach-and-Education/Outreach/Partnerships/PatientsOverPaperwork.html (last accessed July 24, 2018, 11:39 a.m.). [135] Remarks of Seema Verma, supra note 133. [136] Id. [137] Id. [138] See Ctrs. For Medicare & Medicaid Servs., Medicare Program; Request for Information Regarding the Physician Self-Referral Law, 83 Fed. Reg. 29524 (June 25, 2018), https://www.federalregister.gov/documents/2018/06/25/2018-13529/medicare-program-request-for-information-regarding-the-physician-self-referral-law. [139] Id. at 29524. [140] Press Release, Ctrs. For Medicare & Medicaid Servs., CMS seeks public input on reducing the regulatory burdens of the Stark Law (June 20, 2018), https://www.cms.gov/Newsroom/MediaReleaseDatabase/Press-releases/2018-Press-releases-items/2018-06-20-2.html. [141] 83 Fed. Reg. at 29524. [142] Id. at 29525–26. [143] Id. at 29526. [144] Id. at 29525–26. [145] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Two California Urologists Agree to Pay More than $1 Million to Settle False Claim Act Allegations Related to Radiation Therapy Referrals (Jan. 23, 2018), https://www.justice.gov/opa/pr/two-california-urologists-agree-pay-more-1-million-settle-false-claims-act-allegations. [146] Id. [147] Press Release, Office of Pub Affairs, U.S. Dep’t of Justice, Pennsylvania Hospital and Cardiology Group Agree to Pay $20.75 Million to Settle Allegations of Kickbacks and Improper Financial Relationships (Mar. 7, 2018), https://www.justice.gov/opa/pr/pennsylvania-hospital-and-cardiology-group-agree-pay-2075-million-settle-allegations. [148] Id. [149] Id. [150] Id. The following Gibson Dunn lawyers assisted in the preparation of this client update:  Steve Payne, Jonathan Phillips, John Partridge, Julie Schenker, Reid Rector, Stevie Pearl, Susanna Schuemann, Naomi Takagi, Michael Dziuban, Jacob Rierson, and Emily Riff. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments.  Please contact the Gibson Dunn lawyer with whom you usually work or any of the following members of the firm’s FDA and Health Care practice group: Washington, D.C. Stephen C. Payne, Chair, FDA and Health Care Practice Group (+1 202-887-3693, spayne@gibsondunn.com) F. Joseph Warin (+1 202-887-3609, fwarin@gibsondunn.com) Marian J. Lee (+1 202-887-3732, mjlee@gibsondunn.com) Daniel P. Chung (+1 202-887-3729, dchung@gibsondunn.com) Jonathan M. Phillips (+1 202-887-3546, jphillips@gibsondunn.com) Los Angeles Debra Wong Yang (+1 213-229-7472, dwongyang@gibsondunn.com) San Francisco Charles J. Stevens (+1 415-393-8391, cstevens@gibsondunn.com) Winston Y. Chan (+1 415-393-8362, wchan@gibsondunn.com) New York Alexander H. Southwell (+1 212-351-3981, asouthwell@gibsondunn.com) Denver Robert C. Blume (+1 303-298-5758, rblume@gibsondunn.com) John D. W. Partridge (+1 303-298-5931, jpartridge@gibsondunn.com) Ryan T. Bergsieker (+1 303-298-5774, rbergsieker@gibsondunn.com) © 2018 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 11, 2018 |
2018 Mid-Year False Claims Act Update

Click for PDF Six months ago, we remarked in these pages on the largely unchanged and unrelenting pace of False Claims Act (“FCA”) enforcement under the Trump Administration.  Now, with another half-year behind us, the Administration has started to put its stamp on FCA enforcement and to signal openness to less draconian FCA enforcement, at least on the margins.  In a series of internal guidance memoranda and public speeches, high-ranking Department of Justice (“DOJ”) officials have indicated their recognition of the very real costs of overly aggressive and unchecked FCA enforcement by qui tam whistle-blowers and DOJ itself, and laid out some steps they plan to take.  It is still too early to tell what effect, if any, these announcements will have in practice.  But the next six months and beyond are likely to provide telling indications of whether DOJ matches its shift in tone with a real shift in tactics. For now, however, broader FCA trends appear unaffected by these recent developments.  DOJ announced a typically robust, albeit slightly reduced, set of eight- and nine-figure settlements and judgments, including at least two that topped $100 million apiece, over the course of the last six months.  Meanwhile the courts continued to explore the important intricacies and nuances of FCA jurisprudence, with nearly a dozen notable circuit court cases released in just the last half-year.  The Supreme Court also indicated that it might engage again with the FCA by inviting the views of the Solicitor General on important issues arising from the Court’s last seminal decision in Universal Health Services v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016).  And there were also a handful of regulatory and state-law changes that could affect the scope of FCA enforcement going forward. We address all of these and other developments in greater depth below.  We discuss enforcement activity at the federal and state levels first, turn to activity on the legislative front, and then conclude with an analysis of significant court decisions from the past six months.  As always, Gibson Dunn’s recent publications on the FCA may be found on our website, including in-depth discussions of the FCA’s framework and operation, industry-specific presentations, and practical guidance to help companies avoid or limit liability under the FCA.  And, of course, we would be happy to discuss these developments—and their implications for your business—with you. I.    NOTEWORTHY DOJ ENFORCEMENT ACTIVITY DURING THE FIRST HALF OF 2018 The first half of 2018 saw several notable developments in DOJ enforcement activities, including both positive and not-so-positive developments for companies facing FCA exposure.  On the one hand, several internal DOJ guidance documents suggested that the current leadership at DOJ is considering a less aggressive approach to FCA enforcement than we have seen develop increasingly over the last 10 years.  But on the other hand, DOJ also continued to announce significant settlements and stringent enforcement programs, aimed at a wide variety of industries, under a wide variety of theories.  We explore these developments below. A.    DOJ Releases Important Guidance on FCA Enforcement and Signals More Changes to Come Though many have advocated for FCA reform as the number of qui tam cases and enforcement efforts have exploded in recent years, those efforts have not proven too fruitful.  But the new Administration may be a more receptive audience, as recent guidance from DOJ signals the first significant policy changes in recent memory that recognize the burden of FCA exposure.  As we reported in our client alerts on these topics (available here and here), there were three major announcements during the last six months that introduced current, and forthcoming, changes from DOJ. First, on January 10, 2018, Michael Granston, the Director of the Fraud Section of DOJ’s Civil Division, issued a memorandum (the “Granston Memo”) directing government lawyers evaluating a recommendation to decline intervention in a qui tam FCA action to “consider whether the government’s interests are served . . . by [also] seeking dismissal [of the underlying qui tam] pursuant to 31 U.S.C. § 3730(c)(2)(A).”[1]  The memorandum notes that DOJ “has seen record increases in qui tam actions” filed under the FCA, and while the “number of filings has increased substantially over time,” DOJ’s “rate of intervention has remained relatively static.”  Emphasizing that DOJ “plays an important gatekeeper role in protecting the False Claims Act,” the memorandum identifies dismissal of non-intervened cases as “an important tool to advance the government’s interests, preserve limited resources, and avoid adverse precedent.”  The memo then sets forth seven factors that prosecutors should consider when evaluating whether seeking dismissal of a declined qui tam action is appropriate.  Although those factors all stem from existing precedent in cases where DOJ has previously moved for dismissal, the fact that DOJ issued the Granston Memo indicates that DOJ may be more willing to go beyond merely declining unmeritorious cases.  By taking additional steps to dismiss such cases, DOJ may mitigate the extreme burden caused by unbridled qui tam plaintiffs.. Second, on January 25, 2018, then-Associate Attorney General Rachel Brand, the Department’s third-ranking official, issued a memorandum (the “Brand Memo”) that prohibits DOJ from using noncompliance with other agencies’ “guidance documents as a basis for proving violations of applicable law in” affirmative civil enforcement cases and from using “its enforcement authority to effectively convert agency guidance documents into binding rules.”[2]  Agencies commonly issue guidance documents interpreting legislation and regulations, and the government has sometimes employed evidence that a defendant violated such guidance to prove a violation of the underlying statute or regulation—which, in turn, may support a showing that a defendant’s claims or statements were “false” under the FCA.  The memorandum explicitly prohibits DOJ attorneys from engaging in this practice, although it is careful to note that prosecutors can continue to use such guidance as evidence that a defendant knew of its obligations under the law.  The Brand Memo builds on an earlier memo from Attorney General Jeff Sessions, from November 2017, that prohibited DOJ from issuing “guidance documents that purport to create rights or obligations binding on persons or entities outside the Executive Branch” without adhering to rulemaking processes as required by the Administrative Procedure Act (the “Sessions Memo”).[3]  Together, the Brand Memo and Sessions Memo reflect the Administration’s efforts to reign in administrative and regulatory requirements, with the Brand Memo signaling the Administration’s determination to extend that broader policy agenda in the FCA space. Third, DOJ has continued to reinforce its interest in taking measures to promote a more fair and consistent application of the FCA.  In a June 14 speech, Acting Associate Attorney General Jesse Panuccio described five policy initiatives being undertaken by DOJ to reform FCA enforcement, including the Brand and Granston memos highlighted above, as well as three additional areas: (i) cooperation credit; (ii) compliance program credit; and (iii) preventing “piling on.”  As to the latter three, Panuccio noted that DOJ is working on formalizing its practices with regard to cooperation credit and suggested that formal cooperation credit might be expanded to cover situations outside of those in which the defendant makes a self-disclosure.  Cooperation credits in FCA cases have traditionally been less well spelled-out than in some other contexts (e.g., under the Foreign Corrupt Practices Act), and Panuccio’s speech is a step towards formalizing those processes.  He also explained that DOJ will “reward companies that invest in strong compliance measures,” and that to prevent piling on, DOJ attorneys will promote coordination within the agency and with other regulatory bodies to ensure that defendants are subject to fair punishment and receive the benefit of finality that should accompany a settlement. DOJ’s continued focus on these efforts, led by officials at the highest levels within DOJ, suggests that FCA enforcement reform is a priority for the Department. B.    Opioid Enforcement Efforts Continue In our 2017 Year-End FDA and Health Care Compliance and Enforcement Update – Drugs and Devices, we noted the surge in enforcement activities surrounding the opioid epidemic.  From public pronouncements to criminal indictments, the current Administration has demonstrated widespread commitment to enforcement efforts around opioid issues.  The focus is unlikely to let up soon. For the time being, many of the enforcement efforts with regard to opioids have been on the criminal side and not directly related to the FCA.  But given DOJ’s close coordination between its criminal and civil divisions, widespread criminal enforcement efforts against an industry are often correlated with current, or imminent, FCA enforcement. The intense focus on the criminal side can hardly be overstated.  In June, the chief executive officer of a health care company and four physicians were charged in a superseding indictment with numerous crimes, including conspiracy to commit wire fraud and money laundering, as part of an ongoing investigation into the defendants’ alleged $200 million fraudulent health care scheme involving Michigan- and Ohio-based pain clinics, laboratories, and other providers.[4]  This was followed later in June by a DOJ announcement regarding the “National Health Care Fraud and Opioid Takedown.”[5]  Attorney General Sessions announced that DOJ was “charging 601 people, including 76 doctors, 23 pharmacists, 19 nurses, and other medical personnel with more than $2 billion in medical fraud.”[6]  DOJ also announced it has a “new data analytics program that focuses specifically on opioid-related health care fraud.”[7]  DOJ has also made forays into civil litigation by filing a statement of interest in a high-stakes multi-district action against opioid manufacturers and distributors that is premised on allegedly false, deceptive, or unfair marketing practices for prescription opioid drugs.[8] FCA enforcement is not far behind.  On May 15, 2018, for example, an unsealed complaint revealed that the United States had intervened in five lawsuits accusing an Arizona-based opioid manufacturer of paying kickbacks to induce physicians and nurses to prescribe the company’s opioid painkiller for their patients.  The lawsuits allege that these kickbacks took the form of payments for sham speaking engagements, jobs for the prescribers’ friends and relatives, and extravagant meals and other entertainment.  The lawsuits likewise allege that the manufacturer improperly encouraged physicians to prescribe its opioids to patients who did not have cancer—the approved use of the drug—and that company employees also lied to insurers in order to obtain reimbursement under Medicare and TRICARE.[9] C.    Notable Settlements All told, DOJ has announced more than approximately $600 million in settlements this year.  This amount represents a decrease from previous years at the same point, largely because there have been comparatively fewer blockbuster settlements during the last six months.  Still, the cadence of enforcement activity has continued to be steady. 1.    Health Care and Life Sciences Industries On January 10, a dental management company and more than 130 of its affiliated dental clinics agreed to pay $23.9 million, plus interest, to settle allegations that the companies knowingly submitted false claims to state Medicaid programs for unnecessary services on Medicaid-insured youth.  DOJ alleged that the companies incentivized and disciplined dentists to meet goals on procedures performed, ignoring when dentists complained about overutilization.  DOJ alleged that the companies submitted false Medicaid claims in 17 states, and also submitted false claims to an additional program, the Texas Medicaid Program for First Dental Home.  The federal government will receive approximately $14.2 million, plus interest, and states will receive approximately $9.7 million, plus interest.  This investigation was initiated by five whistle-blower lawsuits.  Three of the whistle-blowers, former employees of the dental clinics, will receive a total of more than $2.4 million from the federal portion of the settlement.[10] On March 7, a Pennsylvania hospital and cardiology group agreed to pay approximately $20.8 million combined to resolve claims that the two engaged in improper financial relationships to secure physician referrals.  Specifically, the government alleged that the hospital paid the cardiology group up to $2 million per year under physician and administrative service arrangements for services that were duplicative, not performed, or not needed.  The whistle-blower, a doctor in the cardiology group, received approximately $6 million of the recovered amount.[11] On March 23, a medical device manufacturer and its domestic subsidiary agreed to pay approximately $33.2 million to resolve claims that the subsidiary caused hospitals to submit false claims to government health care programs by knowingly selling materially unreliable point-of-care diagnostic testing devices.  The government claimed that the subsidiary received customer complaints that put it on notice that devices it sold produced erroneous results and failed to take corrective action until FDA inspections prompted a nationwide product recall.  The whistle-blower, a former senior quality control analyst at the subsidiary, will receive approximately $5.6 million of the recovered amount.[12] On March 28, a Virginia ambulance services provider agreed to pay $9 million to settle allegations that it submitted false or fraudulent claims to Medicare, Medicaid, and TRICARE for ambulance transports that were not medically necessary, that did not qualify as Specialty Care Transports, and that should have been billed to other payers.  As part of the settlement, the company entered into a five-year corporate integrity agreement with HHS OIG.[13] On March 29, a Texas company operating radiation therapy centers nationwide, along with its acquirer, agreed to pay up to $11.5 million to settle allegations that the Texas company paid kickbacks to physicians for referring patients to its cancer treatment centers.  The companies also agreed to enter into a five-year corporate integrity agreement with HHS OIG, which includes internal and external monitoring of relationships between the companies and referring physicians.  The Texas company allegedly distributed a share of the profits through a series of leasing companies in which referring physicians were permitted to invest.  The whistle-blower will receive up to $1.7 million as part of the settlement.[14] On April 12, a Florida respiratory equipment supplier agreed to pay approximately $9.7 million to settle allegations that it knowingly submitted false claims for portable oxygen contents to Medicare between January 2009 and March 2012.  Specifically, the government alleged that the company billed Medicare without verifying that beneficiaries used or needed the oxygen, and without obtaining the requisite proof of delivery.  The whistle-blower will receive approximately $1.6 million as part of the settlement.[15] On April 12, an Arizona company that owns acute-care hospitals agreed to pay over $18 million to resolve allegations that 12 of its hospitals knowingly overcharged Medicare patients for short-stay, inpatient procedures that should have been billed on a less costly outpatient basis.  The settlement also resolved claims that the company inflated the number of hours for which patients received outpatient observation in its reports to Medicare.  As part of the settlement, the company entered into a five-year corporate integrity agreement with HHS OIG, which includes the requirement to retain an independent review organization to review the accuracy of claims submitted to federal health care programs.  The whistle-blower, a former employee of the company, will receive approximately $3.3 million of the recovered amount.[16] On April 19, a California diagnostics laboratory agreed to pay $2 million to settle claims that it submitted and caused the submission of false claims to Medicare for Breast Cancer Index tests that were not reasonable and necessary.  The government alleged the company promoted and performed the tests for patients who had not been in remission for five years and who had not been taking tamoxifen.  The government claimed performing tests under such circumstances is medically unnecessary based on published clinical trial data and clinical practice guidelines.[17] On May 10, a Cincinnati-based nonprofit company operating several health care facilities in Ohio and Kentucky agreed to pay $14.25 million to settle allegations that the company provided compensation to six referring physicians in excess of the fair market value for the physicians’ services.  Per the government’s announcement, these issues were self-reported by the nonprofit hospital system.[18] On May 24, a large pharmaceutical company agreed to pay $23.85 million to resolve claims that the company illegally paid the co-pays of Medicare patients taking three of the company’s drugs.  The alleged scheme involved the use of a foundation as a conduit for the remuneration.[19] On May 31, two owners of a Philadelphia pharmacy agreed to pay $3.2 million to resolve claims that over the course of roughly seven years the pair fraudulently billed Medicare for prescription medications that their pharmacy did not actually dispense to its patients.[20] On June 8, a Kentucky-based health care company that owns and operates roughly 115 skilled nursing facilities in several states agreed to pay more than $30 million to resolve allegations that it knowingly submitted false claims to Medicare for medically unreasonable or unnecessary rehabilitation therapy services.  As part of the agreement, the State of Tennessee will receive a portion of the final settlement.  The two relators who initially brought the suit will also receive a yet undetermined portion of the eventual settlement.[21] On June 20, a national wound-care provider agreed to pay $22.5 million to settle allegations that it billed the government for unnecessary and unreasonable hyperbaric oxygen therapy, which is a therapy indicated for certain chronic wounds.  According to the government, the company billed for these unnecessary treatments for five years, between 2010 and 2015.  In addition to the monetary settlement, the company entered into a five-year corporate integrity agreement that subjects the company to independent reviews.[22] On June 25, a hospice chain agreed to pay $8.5 million to resolve allegations that it improperly billed the federal government for hospice services.  The government alleged that the company provided hospice care to patients who were not terminally ill (and therefore ineligible for the services), despite repeated warnings that ineligible patients were being admitted.[23] 2.    Government Contracting and Defense/Procurement On March 15, a Japanese fiber manufacturer and its American subsidiary agreed to pay approximately $66 million to resolve claims that they sold defective Zylon fiber used in bulletproof vests, which the United States purchased for law enforcement agencies.  The government alleged that between 2001 and 2005, the companies knew that Zylon degraded quickly in normal heat and humidity, rendering it unfit for use in bulletproof vests.  Yet, according to the government, the companies published misleading degradation data that understated the defect and engaged in a marketing campaign that advocated for the continued sale of Zylon-containing vests after a body armor manufacturer recalled such vests.  The whistle-blower will receive over $5.7 million as part of the settlement.[24]  The settlement resolves part of a long-running series of FCA cases related to allegedly defective bulletproof vests that goes back several decades and involved several companies.[25] On April 19, a former professional cyclist agreed to pay $5 million to resolve allegations that he submitted millions of dollars in false claims for sponsorship payments to the U.S. Postal Service (“USPS”), which sponsored his cycling team.  The government claimed that the cyclist violated the terms of his team’s USPS sponsorship by using performance enhancing drugs (“PEDs”), as well as making numerous false statements—including statements under oath—denying his PED use to induce the USPS to renew and increase its sponsorship.  The whistle-blower, a former teammate, will receive $1.1 million as part of the settlement.[26] On May 29, a foreign-based federal contractor and several of its subsidiaries agreed to pay $20 million to resolve allegations that the companies knowingly overbilled the United States Navy under contracts to provide ship husbanding services in numerous ports around the world.  As part of the resolution, the whistle-blowers in the case, three former employees of the contractor, will receive approximately $4.4 million.[27] 3.    Financial Services On February 28, an audit firm agreed to pay $149.5 million to resolve potential FCA claims related to the firm’s role as the independent outside auditor for a now-defunct originator of mortgage loans that were insured by the Federal Housing Administration (“FHA”) under the Department of Housing and Urban Development (“HUD”).  As part of a HUD program, the mortgage company was considered to be a Direct Endorsement Lender, and could submit claims to the United States to recover any losses that occurred as a result of a default on a loan insured by the FHA that the company had underwritten and endorsed.  To maintain Direct Endorsement Lender status, the mortgage company was required to submit annual audited financial statements in compliance with HUD requirements.  The audit firm issued audit reports on the mortgage company’s annual financial statements for fiscal years 2002 through 2008.  The United States alleged that the mortgage company was engaged in a fraudulent scheme involving the alleged sale of “fictitious or double-pledged” loans, leading to financial statements that failed to accurately reflect that the company was in financial distress.  The United States also alleged that the audit firm did not identify the mortgage company’s fraudulent conduct and alleged that by continuing to issue audit reports notwithstanding the mortgage company’s misconduct, the company was able to continue originating the insured loans until the mortgage company declared bankruptcy in 2009.  A number of officials from the mortgage company were criminally convicted in connection with the conduct at issue as well. [28] 4.    Other On January 16, a home furnishings company agreed to pay $10.5 million to settle claims that it knowingly made false statements on customs declarations forms to avoid paying antidumping duties on imported bedroom furniture from China.  The company classified the furniture as non-bedroom furniture, which was not subject to the antidumping duties. In connection with the FCA settlement, a whistle-blower will receive approximately $1.9 million.[29] D.    Notable Verdicts and Judgments In addition to the settlements noted above, there were several notable verdicts and judgments in FCA cases during the last six months. On January 11, a federal district court in Florida reversed a $350 million FCA jury verdict.  The jury reached a verdict that a nursing home operator had submitted false claims by allegedly failing to maintain a comprehensive care plan that was “ostensibly required by Medicaid regulation,” alongside other relatively minor infractions.  United States v. Salus Rehab., LLC, 304 F. Supp. 3d 1258, 1260 (M.D. Fla. 2018).  The court overturned the verdict, holding that “[t]he record fatally wants for evidence of materiality and scienter.”  In so holding, the court took umbrage that “relator won judgments for almost $350 million based” only on the theory that “a handful of paperwork defects” and “failure to maintain care plans made” defendants’ claims to Medicare and Medicaid false or fraudulent.  Id.  The court explained that “the relator offered no meaningful and competent proof that the federal or the state government, if either or both had known of the disputed practices (assuming that either or both did not know), would have regarded the disputed practices as material to each government’s decision to pay the defendants and, consequently, that each government would have refused to pay the defendants.”  Id.  It also disagreed that there was any evidence the defendants acted knowingly.  Id.  In so holding, the court affirmed the importance of the Supreme Court’s Escobar decision and its role in enforcing the FCA’s materiality standard. On May 29, the United States District Court in the District of South Carolina entered a judgment totaling approximately $114 million against three individuals found liable under the FCA of paying kickbacks to physicians in exchange for patient referrals.  The underlying claims were initially brought as part of three lawsuits filed by four whistle-blowers, alleging that the kickback scheme caused two blood testing laboratories in Virginia and California to bill federal health care programs for medically unnecessary tests.  The whistle-blowers’ share of the judgment has not yet been determined.[30] II.    LEGISLATIVE ACTIVITY A.    Federal Legislation As with the latter half of 2017, the first half of 2018 has seen little to no federal legislative activity affecting the FCA.  While President Trump’s plan to repeal and replace the Affordable Care Act (“ACA”) could have affected the ACA’s amendments to the FCA—as discussed in our 2017 Mid-Year False Claims Act Update[31]—Congress has not shown any signs that it will pass such a bill in the near future, though some commentators have speculated that Senate Republicans may attempt such a feat in an effort to rally the base for the 2018 elections.[32]  Senator Lindsey Graham (R-S.C.) announced in May that he is working on a new repeal-and-replace bill, but no new bills have been introduced in Congress and Senator Graham’s “effort appears to have little, if any, chance of passing this year.”[33] In a February speech on the Senate floor, Senator Chuck Grassley laid out his views about problems arising from the Supreme Court’s 2016 Escobar decision that are “getting some defendants, and judges, tied in knots.”[34]  In particular, Senator Grassley criticized courts for applying the Supreme Court’s instruction regarding so-called “government knowledge”—that continued government payment, in the face of government knowledge of non-compliance with regulatory or contractual requirements, may be strong evidence that the violation is not material.  According to Grassley, the Court “did not say that in every case, if the government pays a claim despite the fact that someone, somewhere in the bowels of the bureaucracy might have heard about allegations that the contractor may have done something wrong, the contractor is automatically off the hook.”[35]  And he set forth his views of how courts should apply Escobar without “piling on bogus restrictions that are just not in the law.”[36]  Notably, the issue of the interplay between government knowledge and materiality is back before the Supreme Court on a petition for certiorari in United States ex rel. Campie v. Gilead Sciences. Inc., 862 F.3d 890 (9th Cir. 2017), as discussed below.  If the Court takes that case, and rules in a way that bolsters its Escobar decision instead of the viewpoint espoused by Senator Grassley, we will be watching closely to see if the Court’s interpretation prompts a Congressional response. Consistent with the Trump administration’s agenda, Federal regulatory activity implicating the FCA has also remained stagnant.  As noted in our 2017 Year-End False Claims Act Update,[37] the FDA proposed a regulation in January 2017 that would amend and expand the agency’s definition of “intended use” for drugs and devices codified in 21 C.F.R. § 201.128 and 21 C.F.R. § 801.4, but that rule’s effective date was delayed until March 19, 2018 after opposition from industry.[38]  On March 16, the FDA delayed indefinitely the effective date of the portions of the rule relating to intended use “to allow further consideration of the substantive issues raised in the comments received regarding the amendments.”[39] On March 23, 2018, President Trump signed an omnibus appropriations bill authorizing $1.3 trillion in spending, $654.6 billion of which was designated for the Department of Defense—a $60 billion increase from 2017 defense spending.[40]  The bill also includes a $21.2 billion appropriation for infrastructure spending.  This law does not amend the FCA or substantively alter enforcement, but the increase in spending may invite greater FCA enforcement scrutiny or relator actions for the defense and construction contractors who work with the federal government. B.    State Legislation In 2005, Congress created financial incentives for states to enact their own False Claims Acts and make them as effective as the federal FCA in facilitating qui tam lawsuits.  If a state meets this standard, it may be eligible to “receive a 10-percentage-point increase in [its] share of any amounts recovered under such laws.”[41]  The Department of Health and Human Services Office of Inspector General (“HHS OIG”) is tasked with assessing whether a state’s law qualifies.  As reported in our last Mid-Year update,[42] HHS OIG notified 15 states at the end of 2016 that their laws required amendment to meet the federal standard, and it set a “grace period” through the end of 2018 to bring state law into compliance or risk losing the 10% financial incentive.[43]  Since our Year-End update: A Michigan bill that would amend the civil penalties in the Michigan Medicaid False Claims Act to mirror penalties allowed under the federal FCA has not progressed beyond its November 28, 2017 referral to the Senate Judiciary Committee.[44] A similar New York bill died in the Senate and was returned to the Assembly on January 3, 2018.[45] A similar North Carolina bill has not progressed since it was re-referred to the Committee on Rules and Operations of the Senate in April 2017.[46] Other notable state legislative developments include: A Florida bill to exempt information from disclosure under the state’s public records law that is related to an “investigation of violation of Florida False Claims Act” was approved by the governor on March 21, 2018.[47]  As noted in our 2017 Year-End Update, this bill exempts the Florida FCA’s under seal requirements from review and potential repeal under the Sunset Review Act.[48] There has been no action on a Michigan bill that would create a general Michigan False Claims Act since it was referred to the state’s Senate Committee on the Judiciary in January 2017.[49]  The bill would expand Michigan’s current Medicaid False Claims Act beyond the Medicaid context. No action has been taken on a Pennsylvania bill that would create a state False Claims Act; the bill has been in the House Judiciary Committee since March 2017.[50] We expect to see additional state legislative activity in the second half of 2018, as the HHS OIG “grace period” draws to an end.  To date, HHS OIG has informed 12 states that their laws meet the federal standard (Colorado, Connecticut, Illinois, Indiana, Iowa, Massachusetts, Montana, Nevada, Oklahoma, Tennessee, Texas, and Vermont) and has informed 14 states that their laws do not meet the federal standard (California, Delaware, Florida, Georgia, Hawaii, Michigan, Minnesota, New Hampshire, New York, North Carolina, Rhode Island, Virginia, Washington, and Wisconsin).[51]  Three other states were informed prior to recent federal amendments that their state laws did not meet the old federal standard (Louisiana, New Jersey, and New Mexico).[52] III.    NOTABLE CASE LAW DEVELOPMENTS Thus far in 2018, courts have continued to advance the body of FCA case law.  The appellate courts have issued nearly a dozen notable cases in the first part of the year, including decisions that explored the meaning of the Supreme Court’s decision in Universal Health Services, v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016), the FCA’s statute of limitations, and the public disclosure bar.  These decisions clarified some areas of the law, yet deepened splits in others.  As always, we have closely monitored these developments and summarize the most notable decisions below. A.    Post-Escobar Developments Now two years since it was decided, courts continue to grapple with the Supreme Court’s landmark decision in Escobar.  As we have previously discussed in depth (including here), in Escobar, the Supreme Court held that an implied false certification theory of liability under the FCA is actionable when: (1) a claim “does not merely request payment, but also makes specific representations about the goods or services provided” and (2) the defendant’s failure to disclose noncompliance with some “material statutory, regulatory, or contractual requirement[] makes those representations misleading half-truths.”  Id. at 2001.  The Escobar Court further instructed courts to apply a “rigorous” and “demanding” materiality standard, necessitating the plaintiff show something akin to that the government actually refused payment, or would have refused payment had it known of the alleged misrepresentations regarding compliance.  Id. at 2002–03. Since Escobar, lower courts have worked to determine the precise requirements for establishing materiality at the pleading stage.  The fact-intensive analysis involved with materiality has produced some useful guidance for FCA defendants.  For example, conclusory statements by a plaintiff that the government would not have paid had it known of the alleged false statement are insufficient to survive a pleadings challenge, United States ex rel. Mateski v. Raytheon Co., No. 2:06-cv-03614, 2017 WL 3326452, at *7 (C.D. Cal. Aug. 3, 2017), yet, pleading that the government has previously terminated eligibility for similar falsities may be sufficient, depending upon the other allegations asserted, see United States ex rel. Lacey v. Visiting Nurse Serv. of N.Y., No. 14-cv-5739, 2017 WL 5515860, at *10 (S.D.N.Y. Sept. 26, 2017). As in prior years, the appellate courts continued to grapple with the application of Escobar’s “rigorous” and “demanding” materiality requirement in the first half of 2018. 1.    The Sixth Circuit Considers Government Payment Practices In Escobar, the Supreme Court explained that “proof of materiality can include, but is not necessarily limited to, evidence that the defendant knows that the Government consistently refuses to pay claims in the mine run of cases based on noncompliance with the particular statutory, regulatory, or contractual requirement.”  Escobar, 136 S. Ct. at 2003.  The Sixth Circuit recently weighed in on the question of what is required to adequately allege materiality at the pleading stage in such cases. United States ex rel. Prather v. Brookdale Senior Living Communities, Inc., 892 F.3d 822 (6th Cir. 2018) involved alleged false claims for home health services.  Specifically, the relator alleged that the defendant home health provider failed to timely obtain provider physician certifications in violation of a regulation requiring such certifications to “be obtained at the time the plan of care is established or as soon thereafter as possible.”  Id. at 825.  Despite concluding that compliance with the timing regulation was an express condition of payment, the district court had dismissed the claim for failure to adequately allege materiality under the standards articulated in Escobar.  Id. at 826, 832.  The district court reasoned that the complaint failed to identify any instance in which the government denied reimbursement for a similar violation in the entire 50-plus year history of the regulation, which suggested the government did not view violations of the certification regulation as material.  Id. at 834.  In addition, the relator cited materials suggesting the government’s concern focused on ensuring the services were medically necessary, not that the certification was made at a particular time.  Id. 847–48 (J. McKeague, dissenting). By a 2 to 1 vote, the Sixth Circuit reversed.  Id. at 825.  The court faulted the lower court for drawing “a negative inference from the absence of any allegations about past government action.”  Id. at 834.  The majority explained that a relator is “not required to make allegations regarding past government action,” and so absent the government’s actual knowledge of the alleged fraud being pled, its past payment practices were irrelevant to whether an FCA plaintiff has adequately pled materiality in their complaint.  Id.  The court went on to find that the relator adequately alleged materiality, including based on the fact that the timing requirement was an express condition of payment.  Id. at 836.  The majority also concluded that the relator had adequately alleged scienter.  Id. at 838. In contrast, a vigorous dissent took the majority to task for failing to faithfully apply Escobar and for not requiring materiality to be alleged with particularity under Federal Rule of Civil Procedure 9(b) despite the fact that “every [other] Circuit to address this question agrees that Rule 9(b) governs materiality allegations.”  Id. at 845.  As the dissent pointed out, the relator failed to allege that the government routinely refuses to pay claims based on the alleged violations, or that it would have refused to pay particular claims under the circumstances, which ran afoul of Escobar’s guidance that “[t]he government’s payment habits are, by far, the best evidence of materiality.”  Id.  Moreover, the dissent faulted the court for “equating negligence with fraud”; as the dissent pointed out, the complaint alleged facts that were, at best, “only consistent with recklessness” and therefore did not adequately allege scienter.  Id. at 852–53. 2.    The Eleventh Circuit Revives an Implied False Certification Claim  The Eleventh Circuit similarly revived an FCA claim predicated on an implied false certification theory in Marsteller ex rel. United States v. Tilton, 880 F.3d 1302 (11th Cir. 2018).  Marsteller involved allegations that a defense contractor had certified compliance with code of business ethics and conduct requirements applicable to government contractors, but that the company did not comply with those requirements because it failed to disclose evidence of purportedly unethical acts of bribery, and that it provided the government with incomplete pricing data in violation of the Truth in Negotiations Act, 10 U.S.C. § 2306a.  Id.  In a pre-Escobar decision, the district court had dismissed the complaint, after declining the government’s suggestion in a statement of interest “to limit the restrictive reading of the implied certification theory found in” prior precedent, and instead ruling that the theory only encompassed claims for payment made “despite a knowing failure to comply” with an express condition of payment.  Id. at 1309–10. On appeal, the Eleventh Circuit held that the line of cases relied upon by the district court was no longer good law in light of Escobar and remanded the case for the lower court to consider whether “in fairness to the relators, they should have an opportunity to replead their allegations in light of the Supreme Court’s guidance” in Escobar.  Id. at 1312–14.  As the court emphasized, Escobar directs the materiality inquiry towards “whether [the] Government would have attached importance to the violation in determining whether to pay the claim” at issue.  Id. at 1313. In both Marsteller and Prather, the government filed a statement of interest regarding the district court’s materiality analysis, despite having declined to intervene.  In Marsteller, although the Government took no position on the viability of the complaint itself, it nevertheless “respectfully urge[d]” the district court “not to adopt the atextual position that implied certification False Claims Act liability for non-compliance with a contract provision (including regulatory or statutory provisions incorporated therein) necessarily hinges on the presence of an express statement within that provision that payment is conditioned on its compliance.”  880 F.3d at 1309 n.15.  Likewise in Prather, although the government took no position on the complaint at issue in the case, it argued that an express condition of payment is not required under Escobar, and further argued that Escobar does not require an FCA plaintiff to plead prior government denials of payments for similar violations.  United States’ Statement of Interest Regarding Defendants’ Motion To Dismiss Third Amended Complaint at 2–3, 6, Prather, 892 F.3d 822 (No. 17-5826).  If these cases are any indication, FCA defendants can expect to face the government’s opposition in future cases that turn on allegations of materiality. 3.    The Supreme Court Invites the Government’s Views on Gilead In our 2017 Mid-Year False Claims Act Update, we addressed the Ninth Circuit’s materiality analysis in United States ex rel. Campie v. Gilead Sciences. Inc., 862 F.3d 890 (9th Cir. 2017).  As a reminder, in Gilead, the Ninth Circuit reversed dismissal of an implied certification claim.  Id. at 895.  In doing so, the court rejected the argument that the alleged violation was immaterial because the FDA was aware of the falsity and yet did not withdraw product approval.  Id. at 906.  This decision was appealed and the petition for certiorari is currently pending.  See Petition for Writ of Certiorari, Gilead, 862 F.3d 890 (No. 17-936). In April, the Supreme Court invited the U.S. Solicitor General to file a brief expressing the government’s views on the case.  This may signal the Court’s interest in reviewing the matter to provide more guidance on the impact of government acquiescence.  Clarification here would be welcomed, as we have previously noted that a circuit split is developing in this area.  However, in recent years the Supreme Court has asked for the Solicitor General’s views on key FCA issues only to go on to deny certiorari anyway.  See, e.g., United States ex rel. Nathan v. Takeda Pharm., 707 F.3d 451 (4th Cir. 2013), cert. denied 81 U.S.L.W. 3650 (U.S. Mar. 31, 2014) (No. 12-1349). B.    The Eleventh Circuit Deepens a Circuit Split Regarding When the FCA’s Extended Statute of Limitations Applies For most FCA relators, the statute of limitations requires a suit be brought within six years of the underlying alleged violation.  31 U.S.C. § 3731(b)(1).  However, an extended limitations period of up to ten years applies in select cases.  31 U.S.C. § 3731(b)(2) (permitting actions for “3 years after the date when facts material to the right of action are known or reasonably should have been known by the official of the United States charged with responsibility to act in the circumstances, but in no event more than 10 years after the date on which the violation is committed”).  Circuits are split in determining whether this greater, up to ten-year period is only available when the government files or intervenes in the FCA suit, as opposed to being pursued only by the relator after the government declines intervention.  Currently, most courts only apply the extended statute of limitations to suits brought by the government itself, as well as qui tam actions in which the government chooses to intervene.  See United States ex rel. Sanders v. North American Bus Indus. Inc., 546 F.3d 288, 295 (4th Cir. 2008) (holding that “only a subset of civil actions may benefit from the extended limitations period in Section 3731(b)(2)—those in which the government is a party”); United States ex rel. Sikkenga v. Regence Bluecross Blueshield of Utah, 472 F.3d 702, 725–26 (10th Cir. 2006) (“[W]e hold that § 3731(b)(2) was not intended to apply to private qui tam relators at all.”); but see United States ex rel. Hyatt v. Northrop Corp., 91 F.3d 1211, 1214 (9th Cir. 1996) (“[T]here is nothing in the entire statute of limitations subsection which differentiates between private and government plaintiffs at all.”). The Eleventh Circuit recently went the other way, however, in an opinion holding that relators can utilize the extended statute of limitations period even in qui tam cases where the government has declined to intervene.  In United States ex rel. Hunt v. Cochise Consultancy Inc., 887 F.3d 1081 (11th Cir. 2018), the court considered this issue as a matter of first impression in the circuit.  Id. at 1083.  First, the court emphasized that “nothing in § 3731(b)(2) says that its limitations period is unavailable to relators when the government declines to intervene.”  Id. at 1089.  The court also found that “the legislative history provides no convincing support for [the defendant’s] position” that the greater limitations period is only available where the government files suit or intervenes.  Id. at 1097.  The court recognized its decision “is at odds with the published decisions of two other circuits,” but found those opinions unpersuasive because those cases “reflexively applied the general rule that a limitations period is triggered by the knowledge of a party” while failing to consider “the unique role that the United States plays even in a non-intervened qui tam case.”  Id. at 1092. In reaching this decision, the Eleventh Circuit departs from the Fourth and Tenth circuits but largely aligns with the Ninth Circuit.  See Hyatt, 91 F.3d at 1214.  However, on the question of the knowledge required to trigger the limitations period, the Eleventh Circuit concluded, contrary to the Ninth Circuit, that “it is the knowledge of a government official, not the relator, that triggers the limitations period,” further complicating the circuit split.  Hunt, 887 F.3d at 1096. C.    The Third Circuit Examines the Public Disclosure Bar The FCA’s public disclosure bar instructs courts to dismiss a relator’s FCA action if “substantially the same allegations or transactions” were previously publicly disclosed in certain enumerated sources.  31 U.S.C. § 3730(e)(4).  The “original source” exception to this rule, which allows relators to proceed on publicly disclosed allegations if they have “knowledge that is independent of and materially adds to the publicly disclosed allegations or transactions,” 31 U.S.C. § 3730(e)(4)(B), was the subject of a recent Third Circuit decision. In United States ex rel. Freedom Unlimited, Inc. v. City of Pittsburgh, No. 17-1987, 2018 WL 1517159 (3d Cir. Mar. 28, 2018), the district court had dismissed the case at the pleading stage under the public disclosure bar, concluding that the relator “filed a qui tam suit based on information that the city revealed” publicly.  Id. at *3.  The Third Circuit reversed, and in doing so, emphasized the sometimes factual nature of whether there “has been a public disclosure within the meaning of the FCA and whether a relator qualifies as an original source.”  Id. (internal quotations omitted).  In particular, the court noted that the relator claimed to have “directly observed” the defendant’s alleged conduct and had “independent knowledge” of the falsity.  Id.  While taking care to avoid suggesting that dismissal would never be appropriate at the pleading stage, the Third Circuit concluded the lower court “should have given the parties an opportunity to develop the facts in discovery inasmuch as appellants claim that they did not rely on public disclosures.”  Id.  Additionally, because the district court’s opinion pre-dated Escobar, the Third Circuit directed the district court to “rely on the factors set forth in Escobar in making a materiality decision,” to the extent the complaint survived the public disclosure bar.  Id. at *4. D.    Updates to the Causation Standard in Retaliation Claims The FCA’s anti-retaliation provision provides remedies to employees if “discharged, demoted, suspended, threatened, harassed, or in any other manner discriminated against in the terms and conditions of employment because of lawful acts” conducted in furtherance of an FCA claim.  31 U.S.C. § 3730(h)(1).  In a series of recent decisions, several courts have addressed the question of what an employee must show to demonstrate that an adverse action was “because of” the employee’s activity protected under the FCA. In DiFiore v. CSL Behring, LLC, 879 F.3d 71 (3d Cir. 2018), the Third Circuit provided guidance on the causation standard.  There, the district court had required the plaintiff to show “protected activity was the ‘but-for’ cause of an adverse action.”  Id. at 76.  On appeal, the plaintiff argued that the FCA only requires proof that “protected activity was a ‘motivating factor’ in the adverse action[].”  Id.  Rejecting this argument, the Third Circuit affirmed, relying on the Supreme Court’s analysis in a pair of decisions regarding the causation standard in age discrimination and Title VII claims respectively.  Id. (citing Gross v. FBL Financial Services, Inc., 129 S.Ct 2343 (2009) and University of Texas Southwestern Medical Center v. Nassar, 133 S.Ct 2517 (2013)).  As the court noted, the FCA used the “same ‘because of’ language” found in both the Age Discrimination in Employment Act and Title VII that had “compelled the Supreme Court to require ‘but-for’ causation.” Id. at 78.  As a result, in the Third Circuit, a plaintiff must show that he would not have faced the relevant adverse employment action “but for” his alleged protected activity. The Sixth and Seventh Circuits similarly recently indicated a willingness to adopt a “but-for” causation standard in FCA retaliation claims.  In Heath v. Indianapolis Fire Dept., 889 F.3d 872 (7th Cir. 2018), the Seventh Circuit affirmed the district court’s grant of summary judgment for the defendant.  Id. at 874.  The opinion was more notable, however, because—even though the Seventh Circuit had previously adopted a “motivating factor” standard—the Heath court nevertheless raised the question of whether that is the proper standard.  Id.  The court discussed the Supreme Court’s opinion in Nassar and hinted that the similarity between the statutory language in Title VII and the FCA compels the conclusion that a plaintiff must show the adverse employment action was the “but for” result of activity protected under the FCA.  Id. Meanwhile, in Smith v. LHC Group Inc., No. 17-5850, 2018 WL 1136072 (6th Cir. Mar. 2, 2018), the Sixth Circuit reversed dismissal of an FCA retaliation claim and concluded an employer’s subjective intent need not be established to prevail on a theory of constructive discharge.  Id. at *2.  Although the panel’s majority did not address causation, a concurring opinion expressed the view that causation requires a showing of “but-for” causation under Supreme Court’s Nassar and Gross decisions.  Id. at *9 (citing DiFiore). E.    The Third Circuit Explores the Link Between the FCA and the Anti-Kickback Statute The AKS prohibits companies and individuals from offering, paying, soliciting, or receiving “remuneration” to induce or reward referrals of business that will be paid for by Medicare, Medicaid, or other federal health care programs.  42 U.S.C. § 1320a-7b(b).  By submitting a claim resulting from a violation of the AKS, an entity or individual also violates the FCA.  See 42 U.S.C. § 1320a-7b(g) (“[A] claim that includes items or services resulting from a violation of [the AKS] constitutes a false or fraudulent claim for purposes of [the FCA].”) The Third Circuit recently addressed the evidentiary requirement to link FCA claims with violations of the Anti-Kickback Statute.  United States ex rel. Greenfield v. Medco Health Sol’s, Inc., 880 F.3d 89 (3d Cir. 2018).  In Greenfield, a relator claimed a pharmacy (Accredo Health Group) illegally donated to specific charities in order to exclusively receive patient referrals in return.  Id. at 91.  The pharmacy then allegedly violated the FCA by falsely certifying that it complied with the Anti-Kickback statute when seeking reimbursement for the care provided to referred patients.  Id. at 92. The district court entered summary judgment for the defendant-pharmacy, finding the relator “failed to provide evidence of even a single federal claim for reimbursement . . . that was linked to the alleged kickback scheme.”  Id. at 91.  In reaching its conclusion, the district court assumed that even if there was an Anti-Kickback Statute violation, there was an insufficient link to establish an FCA violation.  Id. at 93  Specifically, the district court stated the relator needed to establish a causal link between the pharmacy’s donations and a patient’s subsequent decision to patron the pharmacy.  Id. at 95. On appeal, the Third Circuit affirmed.  The panel first rejected the District Court’s reasoning and concluded that a relator need not provide “proof that the underlying medical care would not have been provided but for a kickback.”  Id. at 100.  Reviewing the legislative history of the FCA and Anti-Kickback Statute, the court concluded that “Congress intended both statutes to reach a broad swath of ‘fraud and abuse’ in the federal healthcare system” and “neither requires a plaintiff to show that a kickback directly influenced a patient’s decision to use a particular medical provider.”  Id. at 96–97. However, the court also rejected the notion that “the taint” of the alleged kickbacks automatically “renders every reimbursement claim false” and concluded that to prevail on summary judgment, it is not enough for a relator to show merely that the defendant “submitted federal claims while allegedly paying kickbacks.”  Id. at 99–100.  In the court’s view, “[a] kickback does not morph into a false claim unless a particular patient is exposed to an illegal recommendation or referral and a provider submits a claim for reimbursement pertaining to that patient.”  Id. at 100.  Instead, the court held, a relator must therefore demonstrate at least one false claim, i.e., “at least one claim that covered a patient who was recommended or referred” in violation of the Anti-Kickback Statute.  Id.  Absent “evidence . . . link[ing the] alleged kickback scheme to any particular claim” in this manner, an FCA defendant is entitled to summary judgment.  Id. IV.    CONCLUSION The first half of 2018 saw developments that could portend important changes on the horizon.  We will monitor these developments, along with other FCA legislative activity, settlements, and jurisprudence throughout the year.  You can look forward to a comprehensive summary in our 2018 False Claims Act Year-End Update, which we will publish in January 2018. [1]      See Memo, U.S. Dep’t of Justice, Factors for Evaluating Dismissal Pursuant to 31 U.S.C. 3730(c)(2)(A) (Jan. 10, 2018), https://assets.documentcloud.org/documents/4358602/Memo-for-Evaluating-Dismissal-Pursuant-to-31-U-S.pdf (emphasis added). [2]      See Memo, U.S. Dep’t of Justice, Limiting Use of Agency Guidance Documents In Affirmative Civil Enforcement Cases (Jan. 25, 2018), https://www.justice.gov/file/1028756/download. [3]      See Memo, U.S. Dep’t of Justice, Prohibition on Improper Guidance Documents (Nov. 16, 2017), https://www.justice.gov/opa/press-release/file/1012271/download. [4]      See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Health Care CEO and Four Physicians Charged in Superseding Indictment in Connection with $200 Million Health Care Fraud Scheme Involving Unnecessary Prescription of Controlled Substances and Harmful Injections (June 6, 2018), https://www.justice.gov/opa/pr/health-care-ceo-and-four-physicians-charged-superseding-indictment-connection-200-million. [5]      See Speech, U.S. Dep’t of Justice, Attorney General Sessions Delivers Remarks Announcing National Health Care Fraud and Opioid Takedown (June 28, 2018), https://www.justice.gov/opa/speech/attorney-general-sessions-delivers-remarks-announcing-national-health-care-fraud-and. [6]      Id. [7]      Id. [8]      See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Justice Department to File Statement of Interest in Opioid Case (Feb. 27, 2018), https://www.justice.gov/opa/pr/justice-department-file-statement-interest-opioid-case. [9]      See Press Release, Office of Pub. Affairs, United States Intervenes in False Claims Act Lawsuits Accusing Insys Therapeutics of Paying Kickbacks and Engaging in Other Unlawful Practices to Promote Subsys, A Powerful Opioid Painkiller (May 15, 2018), https://www.justice.gov/opa/pr/united-states-intervenes-false-claims-act-lawsuits-accusing-insys-therapeutics-paying. [10]     See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Dental Management Company Benevis and Its Affiliated Kool Smiles Dental Clinics to Pay $23.9 Million to Settle False Claims Act Allegations Relating to Medically Unnecessary Pediatric Dental Services (Jan. 10, 2018), https://www.justice.gov/opa/pr/dental-management-company-benevis-and-its-affiliated-kool-smiles-dental-clinics-pay-239. [11]   See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Pennsylvania Hospital and Cardiology Group Agree to Pay $20.75 Million to Settle Allegations of Kickbacks and Improper Financial Relationships (Mar. 7, 2018), https://www.justice.gov/opa/pr/pennsylvania-hospital-and-cardiology-group-agree-pay-2075-million-settle-allegations. [12]   See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Alere to Pay U.S. $33.2 Million to Settle False Claims Act Allegations Relating to Unreliable Diagnostic Testing Devices (Mar. 23, 2018), https://www.justice.gov/opa/pr/alere-pay-us-332-million-settle-false-claims-act-allegations-relating-unreliable-diagnostic. [13]   See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Ambulance Company to Pay $9 Million to Settle False Claims Act Allegations (Mar. 28, 2018), https://www.justice.gov/opa/pr/ambulance-company-pay-9-million-settle-false-claims-act-allegations. [14]   See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Radiation Therapy Company Agrees to Pay Up to $11.5 Million to Settle Allegations of False Claims and Kickbacks (Mar. 29, 2018), https://www.justice.gov/opa/pr/radiation-therapy-company-agrees-pay-115-million-settle-allegations-false-claims-and. [15]   See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Rotech Agrees to Pay $9.68 Million to Settle False Claims Act Liability Related to Improper Billing for Portable Oxygen (Apr. 12, 2018), https://www.justice.gov/opa/pr/rotech-agrees-pay-968-million-settle-false-claims-act-liability-related-improper-billing. [16]   See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Banner Health Agrees to Pay Over $18 Million to Settle False Claims Act Allegations (Apr. 12, 2018), https://www.justice.gov/opa/pr/banner-health-agrees-pay-over-18-million-settle-false-claims-act-allegations. [17]   See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, San Diego Laboratory Agrees to Pay $2 Million to Settle False Claims Act Allegations Related to Unnecessary Breast Cancer Testing (Apr. 19, 2018), https://www.justice.gov/opa/pr/san-diego-laboratory-agrees-pay-2-million-settle-false-claims-act-allegations-related. [18]     See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Ohio Hospital Operator Agrees to Pay United States $14.25 Million to Settle Alleged False Claims Act Violations Arising From Improper Payments to Physicians (May 10, 2018), https://www.justice.gov/opa/pr/ohio-hospital-operator-agrees-pay-united-states-1425-million-settle-alleged-false-claims-act. [19]     See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Drug Maker Pfizer Agrees to Pay $23.85 Million to Resolve False Claims Act Liability for Paying Kickbacks (May 24, 2018), https://www.justice.gov/opa/pr/drug-maker-pfizer-agrees-pay-2385-million-resolve-false-claims-act-liability-paying-kickbacks. [20]     See Press Release, U.S. Atty’s Office for the Eastern Dist. of Pa., U.S. Dep’t of Justice, Pharmacy owners agree to pay $3.2 million to resolve False Claims case (May 31, 2018), https://www.justice.gov/usao-edpa/pr/pharmacy-owners-agree-pay-32-million-resolve-false-claims-case. [21]     See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Signature HealthCARE to Pay More Than $30 Million to Resolve False Claims Act Allegations Related to Rehabilitation Therapy (June 8, 2018), https://www.justice.gov/opa/pr/signature-healthcare-pay-more-30-million-resolve-false-claims-act-allegations-related. [22]     See Press Release, U.S. Atty’s Office for the Middle Dist. Of Fla., U.S. Dep’t of Justice, Healogics Agrees To Pay Up To $22.51 Million To Settle False Claims Act Liability For Improper Billing Of Hyperbaric Oxygen Therapy (June 20, 2018), https://www.justice.gov/usao-mdfl/pr/healogics-agrees-pay-2251-million-settle-false-claims-act-liability-improper-billing. [23]     See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Caris Agrees to Pay $8.5 Million to Settle False Claims Act Lawsuit Alleging That it Billed for Ineligible Hospice Patients (June 25, 2018), https://www.justice.gov/opa/pr/caris-agrees-pay-85-million-settle-false-claims-act-lawsuit-alleging-it-billed-ineligible. [24]   See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Japanese Fiber Manufacturer to Pay $66 Million for Alleged False Claims Related to Defective Bullet Proof Vests (Mar. 15, 2018), https://www.justice.gov/opa/pr/japanese-fiber-manufacturer-pay-66-million-alleged-false-claims-related-defective-bullet. [25]     See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Point Blank Pays U.S. $1 Million for the Sale of Defective Zylon Bulletproof Vests (Nov. 7, 2011), https://www.justice.gov/opa/pr/point-blank-pays-us-1-million-sale-defective-zylon-bulletproof-vests; Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, U.S. Sues First Choice Armor & Equipment for Providing Defective Bullet-Proof Vests to Law Enforcement Agencies (Aug. 3, 2009), https://www.justice.gov/opa/pr/us-sues-first-choice-armor-equipment-providing-defective-bullet-proof-vests-law-enforcement. [26]   See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Lance Armstrong Agrees to Pay $5 Million to Settle False Claims Allegations Arising From Violation of Anti-Doping Provisions of U.S. Postal Service Sponsorship Agreement (Apr. 19, 2018), https://www.justice.gov/opa/pr/lance-armstrong-agrees-pay-5-million-settle-false-claims-allegations-arising-violation-anti. [27]     See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, United States Settles Lawsuit Alleging That Contractor Falsely Overcharged the U.S. Navy for Ship Husbanding Services (May 29, 2018), https://www.justice.gov/opa/pr/united-states-settles-lawsuit-alleging-contractor-falsely-overcharged-us-navy-ship-husbanding. [28]     See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Deloitte & Touche Agrees to Pay $149.5 Million to Settle Claims Arising From Its Audits of Failed Mortgage Lender Taylor, Bean & Whitaker (Feb. 28, 2018), https://www.justice.gov/opa/pr/deloitte-touche-agrees-pay-1495-million-settle-claims-arising-its-audits-failed-mortgage. [29]     See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Bassett Mirror Company Agrees to Pay $10.5 Million to Settle False Claims Act Allegations Relating to Evaded Customs Duties (Jan. 16, 2018), https://www.justice.gov/opa/pr/bassett-mirror-company-agrees-pay-105-million-settle-false-claims-act-allegations-relating. [30]     See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, United States Obtains $114 Million Judgment Against Three Individuals for Paying Kickbacks for Laboratory Referrals and Causing Claims for Medically Unnecessary Tests (May 29, 2018), https://www.justice.gov/opa/pr/united-states-obtains-114-million-judgment-against-three-individuals-paying-kickbacks. [31]   2017 Mid-Year False Claims Act Update, Gibson Dunn (July 12, 2017), https://www.gibsondunn.com/2017-mid-year-false-claims-act-update/. [32]   See, e.g., Quin Hillyer, Obamacare Repeal May Be Closer Than You Think, Wash. Examiner (Apr. 26, 2018), https://www.washingtonexaminer.com/opinion/obamacare-repeal-may-be-closer-than-you-think. [33]   Peter Sullivan, Graham Working on New ObamaCare Repeal Bill, The Hill (May 16, 2018), http://thehill.com/policy/healthcare/388000-graham-working-on-new-obamacare-repeal-bill. [34]     Prepared Senate Floor Statement by Senator Chuck Grassley of Iowa, Interpreting the False Claims Act; S. Comm. on the Judiciary (Feb. 13, 2018), https://www.grassley.senate.gov/news/news-releases/interpreting-false-claims-act. [35]     Id. [36]     Id. [37]   2017 Year-End False Claims Act Update, Gibson Dunn (Jan. 5, 2018), https://www.gibsondunn.com/2017-year-end-false-claims-act-update/. [38]   Industry opponents worried that expanding the definition of “intended use” could “spawn[] a flurry of unwarranted FCA lawsuits.”  Id. [39]   See Clarification of When Products Made or Derived From Tobacco Are Regulated as Drugs, Devices, or Combination Products; Amendments to Regulations Regarding “Intended Uses”; Partial Delay of Effective Date, U.S. Dep’t of Health & Human Servs.—Food and Drug Admin. (Mar. 16, 2018), https://s3.amazonaws.com/public-inspection.federalregister.gov/2018-05347.pdf.  The portions of the rule relating to the regulation of tobacco products went into effect on March 19, 2018. [40]   Mark A. Rush, David I. Kelch & Isaac T. Smith, The False Claims Act in 2017: The Year in Review and What to Watch in 2018, BNA (Apr. 25, 2018), https://www.bna.com/false-claims-act-n57982091498/; see also Pub. L. No. 115-141 (2018) (final law). [41]   State False Claims Act Reviews, Dep’t of Health & Human Servs.—Office of Inspector Gen., https://oig.hhs.gov/fraud/state-false-claims-act-reviews/index.asp. [42]   See supra note 37. [43]   See supra note 41 (collecting letters to states). [44]   S.B. 0669, 2017 Reg. Sess. (Mich. 2017), http://www.legislature.mi.gov/(S(y01pr1bmjos4hv4bgw5wcuid))/mileg.aspx?page=getobject&objectname=2017-SB-0669&query=on. [45]   A.B. A07989, 2017-2018 Leg. Sess. (N.Y. 2017), http://nyassembly.gov/leg/?default_fld=&leg_video=&bn=A07989&term=2017&Summary=Y&Actions=Y. [46]   S.B. 378, 2017-2018 Reg. Sess. (N.C. 2017), https://www2.ncleg.net/BillLookup/2017/s378. [47]   H.B. 7013, 2017 Reg. Sess. (Fla. 2017), https://www.flsenate.gov/Session/Bill/2018/7013. [48]   See supra note 37. [49]   S.B. 0065, 2017 Reg. Sess. (Mich. 2017), http://www.legislature.mi.gov/(S(2eethmzh3ynmq4revoals1xd))/mileg.aspx?page=GetObject&objectname=2017-SB-0065. [50]   H.B. 1027, 2017-2018 Reg. Sess. (Penn. 2017), http://www.legis.state.pa.us/cfdocs/billInfo/billInfo.cfm?sYear=2017&sInd=0&body=H&type=B&bn=1027. [51]     See supra note 41. [52]     See id. The following Gibson Dunn lawyers assisted in preparing this client update: F. Joseph Warin, Stephen Payne, Robert Blume, Timothy Hatch, Alexander Southwell, Charles Stevens, Joseph West, Benjamin Wagner, Stuart Delery, Winston Chan, Andrew Tulumello, Karen Manos, Monica Loseman, Robert Walters, Reed Brodsky, John Partridge, James Zelenay, Jonathan Phillips, Ryan Bergsieker, Jeremy Ochsenbein, Sean Twomey, Reid Rector, Allison Chapin, Eva Michaels, Joshua Rosario, Jasper Hicks, and Trenton Van Oss. Gibson Dunn’s lawyers have handled hundreds of FCA investigations and have a long track record of litigation success.  Among other significant victories, Gibson Dunn successfully argued the landmark Allison Engine case in the Supreme Court, a unanimous decision that prompted Congressional action.  See Allison Engine Co. v. United States ex rel. Sanders, 128 S. Ct. 2123 (2008).  Our win rate and immersion in FCA issues gives us the ability to frame strategies to quickly dispose of FCA cases.  The firm has more than 30 attorneys with substantive FCA expertise and more than 30 former Assistant U.S. Attorneys and DOJ attorneys.  For more information, please feel free to contact the Gibson Dunn attorney with whom you work or the following attorneys. Washington, D.C. F. Joseph Warin (+1 202-887-3609, fwarin@gibsondunn.com) Stuart F. Delery (+1 202-887-3650, sdelery@gibsondunn.com) Joseph D. West (+1 202-955-8658, jwest@gibsondunn.com) Andrew S. Tulumello (+1 202-955-8657, atulumello@gibsondunn.com) Karen L. Manos (+1 202-955-8536, kmanos@gibsondunn.com) Stephen C. Payne (+1 202-887-3693, spayne@gibsondunn.com) Jonathan M. Phillips (+1 202-887-3546, jphillips@gibsondunn.com) New York Reed Brodsky (+1 212-351-5334, rbrodsky@gibsondunn.com) Alexander H. Southwell (+1 212-351-3981, asouthwell@gibsondunn.com) Denver Robert C. Blume (+1 303-298-5758, rblume@gibsondunn.com) Monica K. Loseman (+1 303-298-5784, mloseman@gibsondunn.com) John D.W. Partridge (+1 303-298-5931, jpartridge@gibsondunn.com) Ryan T. Bergsieker (+1 303-298-5774, rbergsieker@gibsondunn.com) Dallas Robert C. Walters (+1 214-698-3114, rwalters@gibsondunn.com) Los Angeles Timothy J. Hatch (+1 213-229-7368, thatch@gibsondunn.com) James L. Zelenay Jr. (+1 213-229-7449, jzelenay@gibsondunn.com) Palo Alto Benjamin Wagner (+1 650-849-5395, bwagner@gibsondunn.com) San Francisco Charles J. Stevens (+1 415-393-8391, cstevens@gibsondunn.com)Winston Y. Chan (+1 415-393-8362, wchan@gibsondunn.com) © 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

June 27, 2018 |
Webcast: Defending Medical Necessity Enforcement Actions

Gibson Dunn and BDO provides an overview of significant trends and key issues in government enforcement actions and litigation involving allegations that services or items billed to government health programs were not medically necessary. Topics Discussed: Enforcement trends and updates, including: False Claims Act case law update, including the latest in the AseraCare line of cases Application of DOJ’s Brand Memo to medical necessity theories Expansion of medical necessity theories to actions involving pharmaceutical and medical device manufacturers An expert’s perspective: Practical lessons from expert chart reviews in medical necessity cases The role and evolution of payor reimbursement policies View Slides [PDF] PANELISTS: Dr. Karen Meador is Managing Director and Senior Physician Executive of BDO. She is a board-certified pediatrician with 25 years of healthcare experience, and has served in numerous clinical and administrative leadership roles within healthcare systems and primary care organizations. Karen has extensive experience in leading collaborative multidisciplinary teams in creating and expanding innovative high-quality programs and services that transform and integrate clinical care, research and education and that engage physicians and patients in hospital and community settings. Sam Nazzaro is Global Forensics Managing Director of BDO. As top-level compliance counsel, former federal prosecutor and forensic advisor, Sam has more than 20 years of experience in regulatory and legal compliance, domestic and international advocacy, complex forensic investigations, and litigation. He assists global companies, healthcare providers and others in investigating fraud and corruption and managing/mitigating risk. He has successfully investigated, managed and led healthcare fraud/false claims matters, complex AML investigations and sensitive high-profile international governance projects. Stephen Payne is a partner in the Washington, D.C. office of Gibson Dunn. He is Chair of the firm’s FDA and Health Care practice group, and is a member of the Life Sciences practice group. His practice focuses on FDA and health care compliance, enforcement, and False Claims Act litigation for pharmaceutical and medical device clients. He has significant experience in the areas of fraud and abuse, product diversion and counterfeiting, good manufacturing practice regulations, product recalls and product promotion. Jonathan Phillips is a partner in the Washington, D.C. office of Gibson Dunn, and is a member of the firm’s Litigation Department. His practice focuses on FDA and health care compliance, enforcement, and litigation, as well as other white collar enforcement matters and related litigation. He has substantial experience representing pharmaceutical, medical device, and health care provider clients in investigations by the DOJ, FDA, and Department of Health and Human Services Office of Inspector General. MCLE CREDIT INFORMATION: This program has been approved for credit in accordance with the requirements of the New York State Continuing Legal Education Board for a maximum of 1.50 credit hours, of which 1.50 credit hours may be applied toward the areas of professional practice requirement. This course is approved for transitional/non-transitional credit. Attorneys seeking New York credit must obtain an Affirmation Form prior to watching the archived version of this webcast. Please contact Jeanine McKeown (National Training Administrator), at 213-229-7140 or jmckeown@gibsondunn.com to request the MCLE form. Gibson, Dunn & Crutcher LLP certifies that this activity has been approved for MCLE credit by the State Bar of California in the amount of 1.50 hours. California attorneys may claim “self-study” credit for viewing the archived version of this webcast. No certificate of attendance is required for California “self-study” credit.

June 20, 2018 |
Acting Associate AG Panuccio Highlights DOJ’s False Claims Act Enforcement Reform Efforts

Click for PDF On June 14, 2018, Acting Associate Attorney General Jesse Panuccio gave remarks highlighting recent enforcement activity and policy initiatives by the Department of Justice (“DOJ”).  The remarks, delivered at the American Bar Association’s 12th National Institute on the Civil False Claims Act and Qui Tam Enforcement, included extensive commentary about DOJ’s ongoing efforts to introduce reforms to promote a more fair and consistent application of the False Claims Act (“FCA”).  While the impact of these policy initiatives remains to be seen, DOJ’s continued focus on these efforts, led by officials at the highest levels within DOJ, suggests that FCA enforcement reform is a priority for the Department. After giving an overview of several FCA settlements from the last eighteen months—apparently designed to demonstrate that this DOJ recognizes the importance of the FCA in a breadth of traditional enforcement areas—Mr. Panuccio discussed two particular priorities: the opioid epidemic and the nation’s elderly population.  He emphasized that DOJ would “actively employ” the FCA against any entity in the opioid distribution chain that engages in fraudulent conduct.  He then highlighted the crucial role of the FCA in protecting the nation’s elderly from fraud and abuse, citing examples of enforcement against a nursing home management company, hospices, and skilled rehabilitation facilities. The majority of Mr. Panuccio’s remarks focused, however, on policy initiatives DOJ is undertaking to ensure that enforcement “is fair and consistent with the rule of law.”  Mr. Panuccio alluded to general reform initiatives by the department, such as the ban on certain third-party payments in settlement agreements, before expanding on reforms specific to the FCA.  Mr. Panuccio highlighted that the recent FCA reform efforts have been spearheaded by Deputy Associate Attorney General Stephen Cox; Mr. Cox had delivered remarks at the Federal Bar Association Qui Tam Conference in February of this year that had provided insight into the positions articulated in the Brand and Granston memoranda.  In his speech, Mr. Panuccio described five policy initiatives being undertaken by DOJ to reform FCA enforcement: (i) qui tam dismissal criteria; (ii) the use of guidance in FCA cases; (iii) cooperation credit; (iv) compliance program credit; and (v) preventing “piling on.” Qui tam dismissals Mr. Panuccio acknowledged the tremendous increase in the number qui tam cases that are filed each year, which includes cases that are not in the public interest.  Recognizing that DOJ expends significant resources to monitor cases even when it declines to intervene, Mr. Panuccio noted that DOJ attorneys have been instructed to consider whether moving to dismiss the action would be an appropriate use of prosecutorial discretion under the FCA.  While DOJ previously exercised this authority only rarely, consistent with the Granston memo, Mr. Panuccio suggested that, going forward, DOJ may use that authority more frequently in order to free up DOJ’s resources for matters in the public interest. Although defendants generally may not yet be experiencing significant differences regarding the possibility of dismissal at the DOJ line level, the continued public discussion of the potential use of DOJ’s dismissal authority by high-level officials suggests that DOJ appreciates the problems caused by frivolous qui tams and may ultimately be more receptive to dismissal of actions lacking merit. Guidance As stated in the Brand Memorandum, DOJ will no longer use noncompliance with agency guidance that expands upon statutory or regulatory requirements as the basis for an FCA violation.  Mr. Panuccio explained that, in an FCA case, evidence that a party received a guidance document would be relevant in proving that the party had knowledge of the law explained in that guidance.  However, DOJ attorneys have been instructed “not to use [DOJ’s] enforcement authority to convert sub-regulatory guidance into rules that have the force or effect of law.” Cooperation With respect to cooperation credit, Mr. Panuccio indicated that DOJ is working on formalizing its practices and that modifications to prior practices should be expected.  That notwithstanding, Mr. Panuccio provided assurances that DOJ will continue to “expect and recognize genuine cooperation” in both civil and criminal matters.  He also noted that the extent of the discount provided when negotiating a settlement would depend on the nature of the cooperation, how helpful it was, and whether it helped identify individual wrongdoers. Though DOJ’s new policies on cooperation credit are still forthcoming, Mr. Panuccio’s remarks suggest that formal cooperation credit might be expanded to cover situations outside of those in which the defendant makes a self-disclosure. Compliance In recognition of the challenges of running large organizations, DOJ will “reward companies that invest in strong compliance measures.”  How this may differ, if at all, from current ad hoc considerations remains to be seen. Piling On Mr. Panuccio acknowledged that, when multiple regulatory bodies pursue a defendant for the same or substantially the same conduct, “unwarranted and disproportionate penalties” can result. In order to avoid this “piling on,” DOJ attorneys will promote coordination within the agency and other regulatory bodies to ensure that defendants are subject to fair punishment and receive the benefit of finality that should accompany a settlement.  Moreover, Mr. Panuccio remarked that DOJ attorneys should not “invoke the threat of criminal prosecution solely to persuade a company to pay a larger settlement in a civil case,” which really is simply a restatement of every attorney’s existing ethical duty.  Whether DOJ leadership’s interest here will result in significant practical developments is uncertain.  Such developments, though perhaps unlikely, could include eliminating the cross-designation of Assistant U.S. Attorneys as both Civil and Criminal; limiting the ability of Civil Division attorneys to invite Criminal Division lawyers to participate in meetings without the request or consent of defendants; or perhaps even somehow inhibiting the Civil Division from using the FCA, with its mandatory treble damages and per-claim penalties, following criminal fines and restitution. We will continue to monitor and report on these important developments. The following Gibson Dunn lawyers assisted in preparing this client update: Stephen Payne, Jonathan Phillips and Claudia Kraft. Gibson Dunn’s lawyers have handled hundreds of FCA investigations and have a long track record of litigation success.  Among other significant victories, Gibson Dunn successfully argued the landmark Allison Engine case in the Supreme Court, a unanimous decision that prompted Congressional action.  See Allison Engine Co. v. United States ex rel. Sanders, 128 S. Ct. 2123 (2008).  Our win rate and immersion in FCA issues gives us the ability to frame strategies to quickly dispose of FCA cases.  The firm has more than 30 attorneys with substantive FCA expertise and more than 30 former Assistant U.S. Attorneys and DOJ attorneys.  For more information, please feel free to contact the Gibson Dunn attorney with whom you work or the following attorneys. Washington, D.C. F. Joseph Warin (+1 202-887-3609, fwarin@gibsondunn.com) Stuart F. Delery (+1 202-887-3650, sdelery@gibsondunn.com) Joseph D. West (+1 202-955-8658, jwest@gibsondunn.com) Andrew S. Tulumello (+1 202-955-8657, atulumello@gibsondunn.com) Karen L. Manos (+1 202-955-8536, kmanos@gibsondunn.com) Stephen C. Payne (+1 202-887-3693, spayne@gibsondunn.com) Jonathan M. Phillips (+1 202-887-3546, jphillips@gibsondunn.com) New York Reed Brodsky (+1 212-351-5334, rbrodsky@gibsondunn.com) Alexander H. Southwell (+1 212-351-3981, asouthwell@gibsondunn.com) Denver Robert C. Blume (+1 303-298-5758, rblume@gibsondunn.com) Monica K. Loseman (+1 303-298-5784, mloseman@gibsondunn.com) John D.W. Partridge (+1 303-298-5931, jpartridge@gibsondunn.com) Ryan T. Bergsieker (+1 303-298-5774, rbergsieker@gibsondunn.com) Dallas Robert C. Walters (+1 214-698-3114, rwalters@gibsondunn.com) Los Angeles Timothy J. Hatch (+1 213-229-7368, thatch@gibsondunn.com) James L. Zelenay Jr. (+1 213-229-7449, jzelenay@gibsondunn.com) Palo Alto Benjamin Wagner (+1 650-849-5395, bwagner@gibsondunn.com) San Francisco Charles J. Stevens (+1 415-393-8391, cstevens@gibsondunn.com)Winston Y. Chan (+1 415-393-8362, wchan@gibsondunn.com) © 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

May 30, 2018 |
Federal Circuit Update (May 2018)

Click for PDF This May 2018 edition of Gibson Dunn’s Federal Circuit Update discusses the proposed elimination of the broadest reasonable interpretation standard during post-issuance proceedings before the PTAB, provides a summary of the pending WesternGeco case before the Supreme Court regarding extraterritorial damages, and briefly summarizes the differences between precedential and non-precedential opinions. This Update also provides a summary of the pending en banc case involving the PTO’s ability to recover attorneys’ fees.  Also included are summaries of recent decisions regarding the burden in venue disputes, the pleading standard for patent infringement following the abrogation of Form 18, and whether equitable estoppel applies after substantial claim amendments. Federal Circuit News On May 8, 2018, the PTO announced proposed rulemaking that would change its prior policy of using the broadest reasonable interpretation (BRI) standard for construing unexpired and proposed amended patent claims in post-issuance proceedings before the PTAB.  Instead, the PTAB would use the Phillips standard applied in district courts and ITC proceedings.  The Notice of Proposed Rulemaking states:  “The Office’s goal is to implement a fair and balanced approach, providing greater predictability and certainty in the patent system.” Judges Prost, Moore, O’Malley and Reyna, who dissented from the denial of the petition for rehearing en banc in In re Cuozzo Speed Technologies, and Judge Newman, who dissented in the panel opinion and from the denial of the petition for rehearing en banc, have historically supported the use of the Phillips standard in post-issuance proceedings.  The notice of proposed rulemaking is available here. On April 26, 2018, the PTO also released guidance on the impact of SAS Institute Inc. v. Iancu, where the Supreme Court mandated that “the Board [] address every claim the petition has challenged.  138 S. Ct. 1348, 1354, 1358 (2018).  In light of this decision, the PTO announced that the Board will now “institute as to all claims or none” and, in addition, if the Board institutes, it “will institute on all challenges raised in the petition.”  Furthermore, “[t]he final written decision will address, to the extent claims are still pending at the time of decision, all patent claims challenged by the petitioner and all new claims added through the amendment process.”  For pending trials that had only been partially instituted, the panels may “issue an order supplementing the institution decision to institute on all challenges raised in the petition” and “may take further action to manage the trial proceeding, including, for example, permitting additional time, briefing, discovery, and/or oral argument, depending on various circumstances and the stage of the proceeding” and even, in some cases, extend the statutory 12-month deadline.  The PTO’s guidance is available here. Supreme Court.  The Supreme Court has decided two cases from the Federal Circuit this Term (Oil States v. Greene’s Energy and SAS v. Iancu); we are awaiting the Court’s decision on a third case: Case Status Issue WesternGeco LLC (Schlumberger) v. ION Geophysical Corp., No. 16-1011 Argued on Apr. 16, 2018 Recoverability of lost profits for foreign use in cases where patent infringement is proven under 35 U.S.C. § 271(f) Upcoming En Banc Federal Circuit Cases NantKwest, Inc. v. Matal, No. 16-1794 (Fed. Cir.):  Whether the PTO can recover attorneys’ fees in litigation under 35 U.S.C. § 145. After the PTAB affirmed the examiner’s rejection of NantKwest’s patent application, NantKwest appealed to the district court.  The PTO prevailed on the merits of the appeal and moved to recover both attorneys’ fees and expert fees.  Section 145 provides that “[a]ll the expenses of the proceedings shall be paid by the applicant.”  Applying this provision, the district court granted the PTO’s request for expert fees, but rejected the PTO’s request for attorneys’ fees.  A panel of the Federal Circuit reversed the district court’s holding as to attorneys’ fees, holding that the “[a]ll expenses of the proceedings” provision under § 145 authorizes an award of attorneys’ fees.  (Decision available here.) The Federal Circuit sua sponte ordered that the panel decision be vacated and that the case be reheard en banc.  Seven amicus briefs were filed, five in support of NantKwest (the International Trademark Association, the Intellectual Property Owners Association, the Intellectual Property Law Association of Chicago, the Association of Amicus Counsel, and the American Bar Association) and two in support of neither party (Federal Circuit Bar Association and American Intellectual Property Law Association).  Oral argument was held on March 8, 2018.  (Audio recording is available here.) Question presented: Did the panel in NantKwest, Inc. v. Matal, 860 F.3d 1352 (Fed. Cir. 2017) correctly determine that 35 U.S.C. § 145’s “[a]ll the expenses of the proceedings” provision authorizes an award of the United States Patent and Trademark Office’s attorneys’ fees? Federal Circuit Practice Update Precedential vs. Non-Precedential Opinions. Internal Operating Procedure (“IOP”) No. 10 governs the use of precedential opinions vs. non-precedential opinions and Rule 36 affirmances.  IOP No. 10 provides that “the purpose of a precedential disposition is to inform the bar and interested persons other than the parties.”  IOP No. 10 at ¶ 2.  Precedential opinions should not be used merely to explain the reasons for the disposition to the parties; that can be conveyed through the use of a non-precedential opinion.  Id. The IOP identifies fourteen situations in which a precedential opinion is appropriate.  See id. at ¶ 4.  Reasons include:  resolution of an issue of first impression; the criticism, clarification, alteration, or modification of an existing rule of law; an actual or apparent conflict in or with past holdings of the court or other courts that is created, resolved or continued; the correction of procedural errors; or the case has been returned by the Supreme Court for disposition, requiring more than mere ministerial obedience to directions of the Supreme Court.  Id. The decision to make an opinion non-precedential is generally governed by a majority vote of the panel.  But, if the decision includes a dissenting opinion, the judge authoring the dissenting opinion may elect to have the entire opinion issue as precedential, regardless of the preferences of the majority judges.  Id. at ¶ 6.  All three judges must agree to use a Rule 36 judgment in order to do so.  Id. Key Case Summaries (April – May 2018) In re ZTE (USA) Inc., No. 18-113 (Fed. Cir. May 14, 2018) (Motion Panel Order):  Burden of persuasion for venue for foreign defendants. American GNC filed a complaint against ZTE in the Eastern District of Texas, and ZTE moved to dismiss for improper venue under 28 U.S.C. § 1406.  While that motion was pending, ZTE moved to transfer to the Northern District of Texas or the Northern District of California under 28 U.S.C. § 1404(a).  The first magistrate judge denied ZTE’s motion to transfer.  A second magistrate judge denied ZTE’s motion to dismiss for improper venue after finding that ZTE failed to show it did not have a regular and established place of business in the Eastern District of Texas.  The magistrate judge noted the lack of uniformity among courts in who bears the burden of proof with respect to venue but determined that, under Fifth Circuit law, the burden lies with the objecting defendant.  Over ZTE’s objections regarding the burden of proof, the district court denied ZTE’s motion to dismiss. ZTE petitioned for a writ of mandamus, which the Federal Circuit granted.  The Court first determined that Federal Circuit—not regional circuit—law governs the placement of the burden of persuasion on the propriety of venue under § 1400(b).  It then held as a matter of Federal Circuit law that, upon motion by the Defendant challenging venue in a patent case, the Plaintiff bears the burden of establishing proper venue and that this holding  “best aligns with the weight of historical authority among the circuits and best furthers public policy.”  The Court remanded to the district court to consider whether venue was proper in light of its holding that the plaintiff, American GNC, bears the burden. Disc Disease Solutions Inc. v. VGH Solutions, Inc., No. 2017-1483 (Fed. Cir. May 1, 2018):  Pleading standard for patent infringement following the abrogation of Form 18. In December 2015, certain amendments to the Federal Rules of Civil Procedure took effect.  Among them was the abrogation of Rule 84 (stating that the “Forms in the Appendix suffice under these rules”) and Form 18 (a form adequate to plead a direct patent infringement claim).  Absent Form 18, complaints now must meet the Iqbal/Twombly standard for pleading to survive a 12(b)(6) motion. Disc Disease filed its complaint the day before the 2015 amendments became effective.  The district court determined that Iqbal/Twombly—not Form 18—applied to Disc Disease’s complaint and dismissed the complaint for failure to state a claim.  The district court later denied reconsideration because it did not view the 2015 amendments to be an intervening change in the law. The Federal Circuit reversed.  The Federal Circuit did not address whether Form 18 or Iqbal/Twombly governed because, it held, the district court erred in dismissing Disc Disease’s complaint even under Iqbal/Twombly‘s pleading standard.  The Court noted that the case “involves simple technology” with only four independent claims in the asserted patents.  Disc Disease’s complaint “specifically identified the three accused products—by name and by attaching photos of the product packaging as exhibits—and alleged that the accused products meet each and every element of at least one claim” of the asserted patents.  This was sufficient to state a claim for patent infringement in these circumstances. John Bean Technologies Corp. v. Morris & Associates, Inc., No. 17-1502 (Fed. Cir. Apr. 19, 2018):  Equitable estoppel when claims are substantively amended or added following ex parte reexamination. John Bean (and its predecessor) and Morris are competitors in the poultry chiller market.  After the patent-in-suit issued to John Bean, Morris sent John Bean’s counsel a demand letter on June 27, 2002, informing him that John Bean had been contacting Morris’s customers and asserting that Morris’s equipment infringes the recently issued patent.  The letter demanded that John Bean stop telling Morris’s customers that Morris’s products infringe John Bean’s patent and advised John Bean that the patent was invalid over a specific prior art reference.  John Bean did not respond, and Morris continued to develop and sell its product. Eleven years later, on December 18, 2013, John Bean filed a request for ex parte reexamination of the patent-in-suit.  During reexamination, John Bean amended the two original claims and added six additional claims in response to a rejection by the PTO.  Shortly after the reexamination certificate issued, John Bean filed a complaint in the U.S. District Court for the Eastern District of Arkansas against Morris for patent infringement.  The district court granted summary judgment in favor of Morris that John Bean’s infringement action was barred by equitable estoppel given John Bean’s silence after the demand letter. The Federal Circuit (Reyna, J.) reversed, holding that the district court abused its discretion in applying equitable estoppel to bar John Bean’s infringement action without considering how the ex parte reexamination affected the patent claims.  The Court explained that the amendments made during reexamination in this case were both substantial and substantive, including by adding new limitations.  As a result, the asserted claims did not exist at the time of Morris’s demand letter.  But the Court recognized that there may be other cases where the asserted claims may be considered identical for the purposes of infringement and also for applying equitable estoppel.  The Court also acknowledged that Morris may have recourse under the affirmative defenses of absolute and intervening rights. Upcoming Oral Argument Calendar For a list of upcoming arguments at the Federal Circuit, please click here. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Federal Circuit.  Please contact the Gibson Dunn lawyer with whom you usually work or the authors of this alert: Blaine H. Evanson – Orange County (+1 949-451-3805, bevanson@gibsondunn.com) Blair A. Silver – Washington, D.C. (+1 202-955-8690, bsilver@gibsondunn.com) Please also feel free to contact any of the following practice group co-chairs or any member of the firm’s Appellate and Constitutional Law or Intellectual Property practice groups: Appellate and Constitutional Law Group: Mark A. Perry – Washington, D.C. (+1 202-887-3667, mperry@gibsondunn.com) Caitlin J. Halligan – New York (+1 212-351-4000, challigan@gibsondunn.com) Nicole A. Saharsky – Washington, D.C. (+1 202-887-3669, nsaharsky@gibsondunn.com) Intellectual Property Group: Josh Krevitt – New York (+1 212-351-4000, jkrevitt@gibsondunn.com) Wayne Barsky – Los Angeles (+1 310-552-8500, wbarsky@gibsondunn.com) Mark Reiter – Dallas (+1 214-698-3100, mreiter@gibsondunn.com) © 2018 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 17, 2018 |
FDA Releases Draft Guidance Proposing a Significant Expansion of the Abbreviated 510(k) Pathway for Medical Devices

Click for PDF On April 12th, 2018, the Food and Drug Administration (“FDA”) released draft guidance proposing a significant expansion of the abbreviated 510(k) pathway for medical devices that would allow applicants to rely on performance characteristics rather than direct comparisons to predicate devices (“Draft Guidance”).[1]  FDA plans to maintain a list of device types appropriate for the Expanded Abbreviated 510(k) program on the FDA website and to issue additional guidance on specific performance criteria.[2]  Prior comments by FDA Commissioner Scott Gottlieb suggest that the new program could focus on device types with older predicate devices where direct testing has become challenging, and on “well-understood technologies like ultrasound imaging machines, common in vitro diagnostic devices, and blood pressure monitors.”[3] A 510(k) is a premarket submission to demonstrate that a proposed device for marketing is at least as safe and effective, that is, “substantially equivalent,” to a “predicate device,” which is a legally marketed device that is not subject to FDA’s premarket approval (“PMA”) requirements.[4]  Under the Abbreviated 510(k) clearance pathway, applicants could use conformity to FDA-recognized consensus standards or FDA guidance to demonstrate some of the performance characteristics necessary to support a finding of substantial equivalence to a predicate device.[5] The new Expanded Abbreviated 510(k) program would allow a submitter to use FDA guidance, FDA-recognized consensus standards, special controls, and other information to demonstrate all of the performance characteristics necessary to show substantial equivalence.  FDA reasons that “[i]f a legally marketed device performs at certain levels relevant to its safety and effectiveness, and a new device meets or exceeds those levels of performance for the same characteristics, FDA could find that the new device is as safe and effective as the legally marketed device.”[6]  In other words, direct head-to-head comparisons, including testing, against predicate devices would not be required to demonstrate substantial equivalence under the Expanded Abbreviated 510(k) program.[7]  An applicant would be required to submit a declaration of conformity, a summary of the data, and/or the underlying data, depending on the performance criteria specified for the device at issue. The Draft Guidance was foreshadowed by comments from Commissioner Gottlieb in an FDA Voice blog post in December 2017.  In that post, Commissioner Gottlieb explained that, as a result of significant advances in technology, device manufacturers were increasingly encountering challenges when they tested new devices against older predicate devices, many of which had been marketed for decades.  In light of this, the Commissioner announced that FDA would undertake steps to modernize 510(k) review, permitting increased flexibility and facilitating a streamlined process that could potentially accelerate the rate at which new innovations are brought to market.  In addition, the Commissioner noted that FDA’s new guidance would be consistent with requirements under the 21st Century Cures Act to use the “least burdensome” means available to demonstrate substantial equivalence.[8] FDA is accepting comments on the Draft Guidance until July 11, 2018.    [1]   FDA, Draft Guidance for Industry and FDA Staff: Expansion of the Abbreviated 510(k) Program: Demonstrating Substantial Equivalent Through Performance Criteria (Apr. 12, 2018).    [2]   FDA, Draft Guidance for Industry at 7.    [3]   Commissioner Scott Gottlieb, Advancing Policies to Promote Safe, Effective MedTech Innovation (FDA Voice Blog, Dec. 11, 2017), https://blogs.fda.gov/fdavoice/index.php/2017/12/advancing-policies-to-promote-safe-effective-medtech-innovation/.    [4]   21 U.S.C. § 360c(i).    [5]   FDA, Final Guidance: The New 510(k) Paradigm: Alternate Approaches to Demonstrating Substantial Equivalence in Premarket Notifications (Mar. 20, 1998).    [6]   FDA, Draft Guidance for Industry at 6.    [7]   Id. at 7.    [8]   Gottlieb, Advancing Policies to Promote Safe, Effective MedTech Innovation. The following Gibson Dunn lawyers assisted in the preparation of this client update:  Marian Lee, Stephen Payne and Claudia Kraft. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments.  Please contact the Gibson Dunn lawyer with whom you usually work or any of the following members of the FDA and Health Care practice group: Washington, D.C. Stephen C. Payne, Chair, FDA and Health Care Practice (+1 202-887-3693, spayne@gibsondunn.com) Marian J. Lee (+1 202-887-3732, mjlee@gibsondunn.com) F. Joseph Warin (+1 202-887-3609, fwarin@gibsondunn.com) Daniel P. Chung (+1 202-887-3729, dchung@gibsondunn.com) Jonathan M. Phillips (+1 202-887-3546, jphillips@gibsondunn.com) Claudia D. Kraft (+1 202-887-3794, ckraft@gibsondunn.com) Los Angeles Debra Wong Yang (+1 213-229-7472, dwongyang@gibsondunn.com) San Francisco Charles J. Stevens (+1 415-393-8391, cstevens@gibsondunn.com) Winston Y. Chan (+1 415-393-8362, wchan@gibsondunn.com) New York Alexander H. Southwell (+1 212-351-3981, asouthwell@gibsondunn.com) Denver Robert C. Blume (+1 303-298-5758, rblume@gibsondunn.com) John D. W. Partridge (+1 303-298-5931, jpartridge@gibsondunn.com) © 2018 Gibson, Dunn & Crutcher LLP, 333 South Grand Avenue, Los Angeles, CA 90071 Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

March 29, 2018 |
Federal Circuit Update (March 2018)

Click for PDF This March 2018 edition of Gibson Dunn’s Federal Circuit Update discusses the three pending Federal Circuit cases before the Supreme Court that consider issues regarding inter partes review proceedings and extraterritorial damages, and a brief summary of the process for seeking an interlocutory appeal.  This Update also provides a summary of the pending en banc case involving attorneys’ fees for litigation involving the PTO.  Also included are summaries of recent decisions regarding the fair use defense to copyright infringement, factual issues underlying patent eligibility under 35 U.S.C. § 101, and the jurisdiction of the Federal Circuit over Walker Process antitrust claims. Federal Circuit News On Friday, March 16, 2018, the Judicial Conference of the U.S. Court of Appeals for the Federal Circuit was held in Washington, D.C.  At the Conference, Judge Pauline Newman was recognized with the 2018 American Inns of Court Professionalism Award.  Judge Newman has served on the Federal Circuit in active status for the past 34 years. Supreme Court.  The Supreme Court has heard oral argument on two cases from the Federal Circuit this term, and recently granted certiorari on a third case: Case Status Issue WesternGeco LLC (Schlumberger) v. ION Geophysical Corp., No. 16-1011 Certiorari granted Jan. 12, 2018; Argument Apr. 16, 2018 Recoverability of lost profits for foreign use in cases where patent infringement is proven under 35 U.S.C. § 271(f) Oil States Energy Services, LLC v. Greene’s Energy Group, LLC, No. 16-712 Argued on Nov. 27, 2017 Constitutionality of inter partes review under Article III and the Seventh Amendment SAS Institute Inc. v. Matal, No. 16-969 Argued on Nov. 27, 2017 The number of claims that must be addressed by the Patent Trial and Appeal Board in a final written decision during inter partes review Upcoming En Banc Federal Circuit Cases NantKwest, Inc. v. Matal, No. 16-1794 (Fed. Cir.):  Whether the PTO can recover attorneys’ fees in litigation under 35 U.S.C. § 145. After the PTAB affirmed the examiner’s rejection of NantKwest’s patent application, NantKwest appealed to the United States District Court for the Eastern District of Virginia under 35 U.S.C. § 145.  The PTO prevailed on the merits of the appeal and moved to recover both attorneys’ fees and expert fees.  Section 145 provides that “[a]ll the expenses of the proceedings shall be paid by the applicant.”  Applying this provision, the district court granted the PTO’s request for expert fees, but rejected the PTO’s request for attorneys’ fees.  A panel of the Federal Circuit reversed the district court’s holding as to attorneys’ fees, holding that the “[a]ll expenses of the proceedings” provision under § 145 authorizes an award of attorneys’ fees.  (Decision available here.) The Federal Circuit sua sponte ordered that the panel decision be vacated and that the case be reheard en banc.  Seven amicus briefs were filed, five in support of NantKwest (the International Trademark Association, the Intellectual Property Owners Association, the Intellectual Property Law Association of Chicago, the Association of Amicus Counsel, and the American Bar Association) and two in support of neither party (Federal Circuit Bar Association and American Intellectual Property Law Association).  Oral argument was held on March 8, 2018.  (Audio recording is available here.) Question presented: Did the panel in NantKwest, Inc. v. Matal, 860 F.3d 1352 (Fed. Cir. 2017) correctly determine that 35 U.S.C. § 145’s “[a]ll the expenses of the proceedings” provision authorizes an award of the United States Patent and Trademark Office’s attorneys’ fees? Federal Circuit Practice Update How to Appeal from an Interlocutory Decision.  The Federal Circuit has exclusive jurisdiction over interlocutory orders in patent law cases.  See 28 U.S.C. § 1292(c)(1).  Interlocutory orders are appealable as of right if they relate to an injunction, receivers, or certain admiralty cases.  See § 1292(a)(1)–(3).  All other interlocutory appeals are discretionary and require that both the district court and the appeals court agree to hear the issue on appeal. The district court judge must first certify that the issue “involves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of the litigation.”  28 U.S.C. § 1292(b).  There is no deadline after the substantive order to move for certification under section 1292(b), but the prospective appellant should move promptly.  If the district court declines to issue such a certification order, that is the end of the road (absent mandamus or other extraordinary relief). If the district court certifies an issue for interlocutory appeal, the appeals court has discretion to permit the appeal.  See § 1292(b); see also Regents of U. of Cal. v. Dako N. Am., Inc., 477 F.3d 1335, 1336 (Fed. Cir. 2007) (“Ultimately, this court must exercise its own discretion in deciding whether it will grant permission to appeal an interlocutory order certified by a trial court.”).  A party has ten days after the district court’s certification order to petition the court of appeals.  See § 1292(b); see also Fed. R. App. P. 5(a)(3).  The petition must contain a summary of relevant facts, the question presented, the relief sought, a statement of the reasons why the appeal should be allowed, and copies of the relevant district court orders.  Fed. R. App. P. 5(b)(1)(A)–(E).  A party then has ten days to file an answer in opposition to the petition.  Fed. R. App. P. 5(b)(2).  The petition is decided without the benefit of oral argument, unless the court of appeals orders otherwise.  Fed. R. App. P. 5(b)(3). Key Case Summaries (February – March 2018) Oracle Am., Inc. v. Google LLC, Nos. 17-1118, 17-1202 (Fed. Cir. Mar. 27, 2018):  Direct copying of a copyrighted work for use in a competing platform using the material for the same purpose and function did not, on the facts of the case, amount to fair use. After a jury had determined that Google’s use of Oracle’s copyright in Java API packages was a fair use, the district court denied Oracle’s post-trial motions for judgment as a matter of law and for a new trial.  Applying the four factors for fair use from 17 U.S.C. § 107, the district court held that a reasonable jury could have concluded that the use was fair because:  (1) the purpose and character of Google’s use was transformational; (2) the nature of the copyrighted work was not “highly creative”; (3) the amount and substantiality of the portion used was only as much of the work as was necessary for its transformative use; and (4) Google’s use of the code did not cause harm to the potential market for the copyrighted work. The Federal Circuit (O’Malley, J.) reversed.  At the outset, the Federal Circuit discussed the standard of review and found that fair use is “primarily a legal exercise” and thus, under the Supreme Court’s recent decision in U.S. Bank Nat’l Ass’n ex rel. CWCapital Asset Mgmt. LLC, No. 15-1509 (U.S. Mar. 5, 2018), the inferences to be drawn from the fair use factors are legal in nature and subject to de novo review. In analyzing the first factor, the court found that Google’s use of the Java APIs to create its Android platform was commercial under Ninth Circuit law even though Google gave a free open source license to Android because direct economic benefit is not required, and Google profited indirectly from the platform.  The court also found that Google’s use was not transformative because Google (1) used the API packages for the same purpose as they were used in the Java platform, (2) made no alterations to the expressive content of the copyrighted material, and (3) did not adapt the material for a “new context” when it provided Android for smartphones.  As to the second factor, the court found that the evidence presented at trial would allow reasonable jurors to conclude that functional considerations were substantial and important.  Addressing the third factor, the court noted that Google directly copied 37 API packages and 11,500 lines of code, even though only 170 lines of code were necessary to write in the Java language.  Although the amount of code was a small percentage of the roughly 2.86 million lines of code in Java libraries, the court found the copying qualitatively substantial because it copied 37 APIs in their entirety—even though Google admitted they could have written their own APIs—in order to make the Android platform familiar and attractive to Java programmers.  Turning to the fourth factor, the court noted that Android competed directly with Oracle’s Java platform and that the free nature of Android caused significant market harm to Oracle’s efforts to license Java. Based on those findings, the court noted that the second factor favored a finding of fair use, whereas the first and fourth factors weighed “heavily against” a finding of fair use.  The court considered the third factor to be neutral “at best.”  In balancing these factors, the court concluded that the factors weighed against a finding of fair use, and the court explained that “[t]here is nothing fair about taking a copyrighted work verbatim and using it for the same purpose and function as the original in a competing platform.”  The court added the caveat that it was “not conclud[ing] that a fair use defense could never be sustained in an action involving the copying of computer code.” Berkheimer v. HP Inc., No. 2017-1437 (Fed Cir. Feb. 8, 2018):  Patent eligibility under section 101 presents issues of fact and, under the facts of that case, summary judgment was not appropriate. The Federal Circuit held that the second prong of the Alice ineligibility inquiry under 35 U.S.C. § 101—whether the claim elements “transform the nature of the claim” into patent-eligible subject matter if they “involve more than performance of well-understood, routine, [and] conventional activities previously known to the industry”—is “a factual determination” that may not be suitable for summary judgment if facts are disputed. The district court ruled on summary judgment that eight claims from U.S. Patent No. 7,447,713 were directed to abstract ideas and thus ineligible for patenting under section 101.  The ‘713 Patent describes a means of digitally processing and archiving files by “parsing” the files into multiple parts, comparing those parts, and eliminating redundant material to allegedly improve storage efficiency and reduce storage costs. The Federal Circuit (Moore, J.) reversed.  Berkheimer alleged that the claims at issue covered linking data so as to facilitate “one-to-many” editing (i.e., allowing a single edit to populate to multiple points that use the same data).  The patentee asserted that this “inventive feature” operated in an “unconventional manner” versus mere “copy-and-paste” functionality in the prior art.  Although the panel agreed that all the challenged claims were directed to the abstract ideas of parsing and comparing data—the first prong of the Supreme Court’s Alice test—the panel reversed the district court’s ruling on the second Alice prong for four claims on the basis that the second prong “is a question of fact.”  Specifically, the Federal Circuit panel held that whether the “one-to-many” editing feature was “well-understood, routine, and conventional” was a disputed factual question that could not be decided on summary judgment.  In light of this, the Federal Circuit panel held that whether this added feature was “well-understood, routine, and conventional” was a disputed factual question that could not be decided on summary judgment. On March 12, HP petitioned for rehearing en banc, supported by several amici curiae.  On March 15, the Federal Circuit invited a response to HP’s petition. Aatrix Software, Inc. v. Green Shades Software, Inc., No. 2017-1452 (Fed. Cir. Feb. 14, 2018):  Patent eligibility presents issues of fact not amenable to a Rule 12 motion to dismiss. Following Berkheimer, the Federal Circuit (Moore, J.) issued a parallel ruling concerning the appropriateness of deciding patent eligibility at the Rule 12 stage.  Judge Reyna wrote separately in partial dissent. Aatrix Software asserted two patents directed to systems and methods for importing data onto a computer to allow that data to be processed and viewed.  The district court granted defendant’s motion to dismiss, holding that the claims were not directed to patentable subject matter. On appeal, the Federal Circuit reversed, holding that the complaint set forth a question of fact as to patentability because the complaint alleged that “the claimed software uses less memory, and results in faster processing speed” and thus is patent eligible because “the claimed invention is directed to an improvement in the computer technology itself.” Judge Reyna dissented, challenging the practical implications of the ruling and arguing that Federal Circuit precedent “is clear that the § 101 inquiry is a legal question” and a question “that can be appropriately decided on a motion to dismiss.” Xitronix Corp. v. KLA-Tencor Corp., No. 2016-2746 (Fed. Cir. Feb. 9, 2018):  Jurisdiction over Walker Process-antitrust claims is in the regional circuits, not the Federal Circuit. Under 28 U.S.C. § 1295(a)(1), the Federal Circuit has appellate jurisdiction over actions arising under “any Act of Congress relating to patents.”  Walker Process claims involve allegations that enforcing a patent procured by fraud on the PTO constitutes an antitrust violation under the Sherman Act.  The Federal Circuit has historically treated such claims as presenting “a substantial question of patent law” and thus accepted jurisdiction over them. In Gunn v. Minton, the Supreme Court held that a state law claim alleging legal malpractice in handling a patent case—which likewise implicates U.S. Patent law—did not itself “arise under” or depend on a question of patent law sufficient to convey jurisdiction to federal courts.  568 U.S. 251, 258 (2013). In Xitronix, both sides asserted that the Federal Circuit had appellate jurisdiction over the Walker Process claim under appeal in that case.  No other patent-related claim was asserted on which to base Federal Circuit jurisdiction.  The Federal Circuit, however, raised the question of jurisdiction sua sponte, ruling that, given the Supreme Court’s analogous view in Gunn, jurisdiction for Walker Process claims rested with the regional circuits.  Accordingly, the Federal Circuit overruled its prior contrary precedent and transferred the appeal to the Fifth Circuit. Upcoming Oral Argument Calendar For a list of upcoming arguments at the Federal Circuit, please click here. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding developments at the Federal Circuit.  Please contact the Gibson Dunn lawyer with whom you usually work or the authors of this alert: Blaine H. Evanson – Orange County (+1 949-451-3805, bevanson@gibsondunn.com) Blair A. Silver – Washington, D.C. (+1 202-955-8690, bsilver@gibsondunn.com) Please also feel free to contact any of the following practice group co-chairs or any member of the firm’s Appellate and Constitutional Law or Intellectual Property practice groups: Appellate and Constitutional Law Group: Mark A. Perry – Washington, D.C. (+1 202-887-3667, mperry@gibsondunn.com) Caitlin J. Halligan – New York (+1 212-351-4000, challigan@gibsondunn.com) Nicole A. Saharsky – Washington, D.C. (+1 202-887-3669, nsaharsky@gibsondunn.com) Intellectual Property Group: Josh Krevitt – New York (+1 212-351-4000, jkrevitt@gibsondunn.com) Wayne Barsky – Los Angeles (+1 310-552-8500, wbarsky@gibsondunn.com) Mark Reiter – Dallas (+1 214-698-3100, mreiter@gibsondunn.com) © 2018 Gibson, Dunn & Crutcher LLP Attorney Advertising:  The enclosed materials have been prepared for general informational purposes only and are not intended as legal advice.

January 23, 2018 |
2017 Year-End FDA and Health Care Compliance and Enforcement Update – Drugs and Devices

Click for PDF As 2016 came to a close, pharmaceutical and medical device companies waited expectantly and wondered aloud about what 2017 and the arrival of the Trump Administration would bring.  With 2017 behind us, we now have initial indications—and some answers—about what the arrival of this new Administration means for drug and device companies. On the enforcement front, the Department of Justice (“DOJ”), the Department of Health and Human Services, Office of Inspector General (“HHS OIG”), and the Food and Drug Administration (“FDA”) showed no signs of scaling back their efforts.  Instead, 2017 marked yet another year of massive recoveries from drug and device companies to settle the standard mélange of allegations under the False Claims Act (“FCA”), Anti-Kickback Statute (“AKS”), Federal Food, Drug, and Cosmetic Act (“FDCA”), Foreign Corrupt Practices Act (“FCPA”), and other enforcement statutes.  Although some of these settlements were leftovers from the Obama Administration, we have seen no evidence that the enforcement agencies are pulling punches under President Trump. On the regulatory front, meanwhile, the picture is more complicated.  On the one hand, pharmaceutical and medical device companies have yet to see the type of regulatory roll-back that the Trump Administration has promised—and started to deliver—in certain other industries.  On the other hand, there have been nascent efforts by the new Administration to reign in burdensome regulations.  For example, the Administration has undertaken efforts to streamline review processes for medical devices.  As the new Administration hits its stride, and (perhaps) leaves the oxygen-consuming debate over repeal of the Affordable Care Act in the past, it remains to be seen just how much regulatory relief pharmaceutical and medical device companies can expect. Below, we cover the most important regulatory and enforcement developments affecting drug and device manufacturers.  As in past updates, we begin with an overview of government enforcement efforts against drug and device companies under the FCA, the FDCA, and other laws.  We then address evolving regulatory guidance and action on topics of note to drug and device companies: promotional activities, manufacturing practices, and the AKS.  And we conclude with a discussion of developments of particular note to device manufacturers. As always, we would be happy to discuss these developments—and their implications for your business—with you. I.     DOJ ENFORCEMENT IN THE PHARMACEUTICAL AND MEDICAL DEVICE INDUSTRIES Despite a new Administration, DOJ remains committed to enforcing the FCA and other statutes against entities in the health care industry, and in the drugs and devices sectors in particular.  In sum, DOJ obtained more than $3.7 billion in civil settlements and judgments under the FCA during the 2017 fiscal year.[1]  With nearly 800 new FCA cases filed in 2017 and roughly $1.5 billion in federal recoveries alone from drug and device companies,[2] DOJ (and qui tam relators) have shown no sign of turning their attention elsewhere. FCA resolutions continue to drive the government’s recoveries from drug and device companies.  In 2017, those resolutions included Shire Pharmaceuticals LLC’s settlement for more than $200 million in January and Mylan Inc.’s $465 million settlement in August. Although recent federal FDCA and FCPA enforcement activity against drug and device companies has been relatively quiet, several of DOJ’s FCA resolutions involved FDCA-related allegations, and several high-profile FCPA investigations continue apace.  We address these and other notable developments in the enforcement arena, including the Trump Administration’s efforts to address the opioid crisis, in more detail below.      A.     False Claims Act Surpassing last year’s recoveries of $1.4 billion, approximately $1.5 billion of the FCA recoveries in 2017 stemmed from resolutions with drug and device manufacturers.  The total number of FCA cases settled by DOJ with these manufacturers (16) nearly matched that from last year (15), but the proportion of device-to-pharmaceutical settlements flipped.  In comparison with last year, in which DOJ settled twice as many cases against device manufacturers as against pharmaceutical manufacturers, DOJ settled 9 cases with pharmaceutical companies and only 6 cases with device manufacturers in 2017.  In addition, the vast majority of DOJ’s settlement recoveries this year—over 95%—resulted from cases against pharmaceutical companies.[3] As illustrated below,[4] DOJ continues to pursue FCA actions under multiple theories, including improper billing resulting from alleged violations of various federal health care program rules, illegal kickbacks under the AKS, and, to a much lesser extent, off-label promotion.  Of note, there were no off-label promotion recoveries this year against device manufacturers.     1.     Settlements in FCA Matters Relating to Federal Health Program Rules The largest recovery of the past six months came from DOJ’s settlement in August with Mylan Inc. and Mylan Specialty L.P. (collectively “Mylan”).[5]  Mylan, which markets numerous drugs and devices including EpiPen, agreed to pay $465 million to resolve allegations that it knowingly misclassified EpiPen as a generic drug to avoid paying rebates under the Medicaid Drug Rebate Program (and also secured large increases in the price of the drug on the private market).[6]  As part of the settlement, Mylan agreed to enter into a five-year corporate integrity agreement requiring independent annual review of its Medicaid drug rebate program practices.[7]  The case originated with a complaint by another pharmaceutical manufacturer, Sanofi-Aventis US LLC, which will receive approximately $38.7 million from the federal recovery.[8] In September, drug maker Aegerion also agreed to pay more than $35 million to settle allegations that it violated the FCA, FDCA, and the Health Insurance Portability and Accountability Act (“HIPAA”) through activities associated with its drug, Juxtapid.[9]  As described in further detail below, the government alleged that the drug was misbranded due to the company’s failure to comply with a Risk Evaluation and Mitigation Strategy (“REMS”).  According to the government, the company caused the submission of false claims through its alleged promotion of the drug for patients for whom the drug was not indicated, purportedly false and misleading statements to doctors regarding the appropriateness of using the drug for certain patients, and alleged falsification of medical necessity statements and prior authorizations submitted to federal health care programs.[10]  The settlement also resolved allegations that the company paid patients’ copay obligations with funds channeled through a purported non-profit patient assistance organization.  Of the total settlement, $28.8 million will go toward the resolution of federal and state FCA charges.  Further, Aegerion entered into a separate deferred prosecution agreement to resolve criminal allegations that it conspired to obtain patient health information for commercial gain without patient authorization in violation of HIPAA.[11] 2.     Settlements in AKS-Related FCA Matters As reported in our Mid-Year Update, 2017 began with the largest-ever FCA recovery in a kickback case involving a medical device.  Significant AKS-related enforcement actions in the latter half of 2017 included United Therapeutics’ $210 million settlement.  From 2010 to 2014, a tax-exempt non-profit foundation purportedly used donations made by the Maryland-based pharmaceutical company to pay Medicare patient copays for the company’s pulmonary arterial hypertension drugs; according to the government, this amounted to inducing patients to purchase the company’s drugs.[12]  The government claimed that, when deciding on donations, United Therapeutics obtained data from the foundation detailing the amounts spent by the foundation on patients who were using each of the company’s drugs.  The settlement is just one of a number of recent developments reflecting increased scrutiny of patient assistance programs by DOJ and HHS OIG, discussed further in Section V below. In addition to the settlement with Aegerion discussed above, DOJ reached two other notable AKS-related settlements with pharmaceutical and medical device companies in the last six months of 2017: In August, the government agreed to a $12 million settlement with Sightpath Medical, Inc., TLC Vision Corporation, and their former CEO, James Tiffany.[13]  According to the complaint, Sightpath and Cameron-Ehlen Group (the subject of an underlying lawsuit that the government likewise joined) allegedly provided kickbacks to ophthalmologists in the form of luxury ski vacations and other high-end fishing, golfing, and hunting trips to persuade the physicians to use the companies’ intraocular lenses and ophthalmic surgical equipment.[14] In September, Galena Biopharma agreed to pay more than $7.55 million to resolve allegations that it induced doctors to prescribe its fentanyl-based drug Abstral through free meals, speaker fees, and an advisory board planned and attended by Galena’s sales team, as well as through payments to a physician-owned pharmacy under a performance-based rebate agreement.[15]  The government also contended that Galena compensated doctors for referring patients to Galena’s RELIEF patient registry study—purportedly a sham program designed to obtain data on patients’ experiences with the company’s drug.[16]  Two of the doctors who allegedly received the kickbacks have been tried and convicted in the Southern District of Alabama for offenses related to their subsequent prescribing of the drug.[17] 3.     Resolution of Off-Label Promotion Investigations As reported in last year’s Year-End Update, developing case law has imposed potentially significant First Amendment obstacles to the enforcement of off-label promotion claims under the FCA.  In spite of this trend, however, DOJ has continued to recover settlements based on off-label theories. In July, for example, New Jersey-based pharmaceutical manufacturer Celgene Corp. agreed to a $280 million settlement to resolve allegations that the company promoted two of its cancer drugs for uses that were not approved by FDA or covered by federal and state health care programs.[18]  The settlement also resolved allegations that Celgene paid kickbacks to physicians and made false and misleading statements about the drugs. The government also reached a settlement with pharmaceutical manufacturer Novo Nordisk, Inc. in early September.  In addition to alleged FDCA violations discussed in further detail below, the settlement resolved allegations that the company promoted its Type II diabetes drug Victoza for use by adult patients who do not suffer from Type II diabetes—a use that FDA had not approved as safe and effective.[19]  Roughly $47 million of the $58 million total settlement will go towards resolving FCA allegations under theories of off-label promotion and other purported conduct.[20] 4.     Developments in the Implied Certification Theory’s Materiality Requirement Our 2016 Year-End and 2017 Mid-Year Updates discussed at length recent efforts to interpret the materiality requirement set forth by the Supreme Court in Universal Health Services, Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989 (2016).  In particular, courts have continued to grapple with what, if any, impact continued government payments may have on the materiality analysis.  As recent case law developments have shown, how lower courts interpret Escobar will have particular relevance to drug and device companies, who are subject to a wide range of regulatory requirements that are steps removed from government payment but potentially could be subject to FCA actions under an implied certification theory. In September, the Fifth Circuit issued a per curiam opinion in United States ex rel. King v. Solvay Pharmaceuticals, Inc. hinting at potential new materiality obstacles that courts might erect in the way of the government or relators attempting to prove materiality in off-label cases under the FCA.  Among other purported violations, the relator in King alleged that the defendant caused false claims to be submitted under the FCA by promoting three of its drugs for off-label uses.[21]  Despite supposed evidence that the company discussed off-label drug uses with physicians and sponsored off-label use studies, the court found there was insufficient evidence to show that the company’s actions caused any false claims.[22] Affirming the district court’s grant of summary judgment as to the off-label claims on those grounds, the court went further, suggesting that it harbored doubts that mere allegations of off-label promotions would satisfy Escobar‘s materiality standard.[23]  Because “Medicaid pays for claims without asking whether the drugs were prescribed for off-label uses or asking for what purpose the drugs were prescribed[,]” and “given that it is not uncommon for physicians to make off-label prescriptions,” the Fifth Circuit reasoned that “it is unlikely that prescribing off-label is material to Medicaid’s payment decisions under the FCA.”[24]  Although dicta, those comments build upon the Supreme Court’s holding in Escobar that certain federal health care program requirements are not material where the government pays the claims despite knowing of violations of these requirements.[25]  Further, the Fifth Circuit’s observation may suggest it is receptive to arguments that failure of the government to take affirmative steps in assessing reimbursement requirements could undermine its materiality arguments.  In any event, King may prove a strong foothold for drug and device makers battling FCA claims predicated upon alleged off-label promotion in Medicaid and similar cases. The Supreme Court soon may have occasion to elaborate on the materiality requirements outlined in Escobar and on the implications of government action—or inaction—in particular.  In a recent petition for certiorari, Gilead Sciences asked the Supreme Court to review the Ninth Circuit’s decision in United States ex rel. Campie v. Gilead Sciences, Inc. As discussed in our 2017 Mid-Year Update, the relators in that case alleged that Gilead fraudulently obtained approval for certain of its drugs by making false statements to FDA about the manufacturing source of the drugs’ active ingredient and purported later contamination by that supplier.[26]  After finding that the defendant’s proprietary drug names could constitute actionable “specific representations,” and after concluding that fraud on one agency constitutes fraud on a separate agency as long as the two are “overseen” by the same cabinet secretary,[27] the court concluded that the relators adequately pled materiality.  Reasoning that “FDA approval is ‘the sine qua non‘ of federal funding here” and noting that the company had stopped using the manufacturing site in question, the Ninth Circuit rejected Gilead’s arguments focusing on the government’s continued drug reimbursements even after relators brought suit.  The Ninth Circuit also determined it was premature to decide whether the government paid despite knowing of the defendant’s noncompliance.[28]  Gilead’s petition for certiorari focuses narrowly on whether the government’s decision to continue reimbursement even “after learning of alleged regulatory infractions” would suffice to undermine the relators’ materiality arguments.[29]  Gilead takes issue with the potential impact on defendants’ ability to dismiss a complaint on materiality grounds at the motion to dismiss stage, as contemplated by Escobar.[30]  Given the brewing disagreement among federal circuit and district courts as to how to apply Escobar‘s materiality standard, the Supreme Court may well seize this opportunity to provide clarity on the subject of materiality and government knowledge. 5.     Rule 9(b) Particularity As detailed in our 2017 Mid-Year Update, federal circuit and district courts also have continued to take differing approaches as to how Federal Rule of Civil Procedure 9(b)’s heightened pleading requirements should be applied to FCA claims at the motion to dismiss stage.  Rule 9(b) requires FCA plaintiffs to plead allegations with particularity.  But questions about the extent of detail required to meet this standard have remained open to debate, especially in cases against drug and device manufacturers where there are allegations about the manufacturers’ conduct but scant details about the claims submitted by third-party physicians or pharmacies. The Sixth Circuit recently addressed this issue in United States ex rel. Ibanez v. Bristol-Myers Squibb Co., in affirming the lower court’s dismissal and denying leave to amend where relators failed to plead a specific, representative false claim submitted to the government for payment.[31]  Brought by former employees, the case involved allegations that Bristol-Myers Squibb and Otsuka America Pharmaceuticals Inc. engaged in an illegal nationwide scheme to promote the antipsychotic drug Abilify for off-label uses.[32]  Although the relators alleged some details regarding the purported promotional scheme, the lower court nonetheless dismissed the relators’ suit after finding that they failed to allege at least one representative claim submitted to the government that stemmed directly from the defendants’ allegedly illegal practices.[33] The Sixth Circuit agreed with the district court and refused to apply the “personal knowledge” exception to the Circuit’s otherwise strict application of Rule 9(b)’s particularity requirements.  Because the relators’ allegations only involved personal knowledge of an allegedly fraudulent scheme rather than of the defendant’s billing practices, the Sixth Circuit refused to allow the complaint to proceed based solely on other “reliable indicia” that claims actually were submitted.[34]  In so holding, the Sixth Circuit explained that the complaint must “adequately allege the entire chain—from start to finish—to fairly show defendants cause[d] false claims to be filed,” including any “specific intervening conduct” along the chain.[35]  For example, the complaint must allege that a physician targeted by the allegedly improper promotion “prescribed the medication for an off-label use or because of an improper inducement,” a patient filled the prescription, and the filling pharmacy submitted a claim “for reimbursement on the prescription.”[36]  The court also held that the relator’s proposed third amended complaint similarly failed to provide sufficient allegations to meet either the relaxed or strict particularity requirements.[37] Another FCA case from the First Circuit charted a different course in evaluating Rule 9(b)’s particularity standard.  In United States ex rel. Nargol v. DePuy Orthopaedics, Inc., the relators alleged that Depuy Orthapaedics, Inc., and related entities caused third parties to submit fraudulent claims after purportedly distributing implants with latent defects.[38]  Although the First Circuit typically has applied a “strict” Rule 9(b) pleading standard, the court accepted that a complaint can meet Rule 9(b) requirements where it “essentially alleges facts showing that it is statistically certain that [the defendant] cause[d] third parties to submit many false claims to the government.”[39]  Although the complaint did not allege specific information regarding submitted claims, the court reasoned that the doctors would not have been on notice not to subsequently bill federal health care programs since there was no reason to believe that anyone other than the defendants knew of the purported defects or that they could have been readily discovered during surgery.[40]  According to the First Circuit, because doctors presumably sought reimbursement for the defective devices, every sale of the devices likely “was accompanied by an express or plainly implicit representation” that the product was FDA-approved and not a “materially deviant version,” and because it was “highly likely” that uninsured patients did not bear the expense in most cases, it was “virtually certain that the insurance provider in many cases was Medicare, Medicaid, or another government program.”[41]  As such, the court distinguished the alleged scheme from other off-label promotion allegations and agreed that a different, “more flexible” Rule 9(b) standard of particularity was appropriate.[42]  Because the complaint alleged “the details of the scheme with reliable indicia that le[]d to a strong inference that claims were actually submitted,” the court overturned the district court’s dismissal of the relators’ claim.[43]             B.     Developments in Enforcement Actions Against Opioid Manufacturers and Distributors The nation’s opioid crisis and promises by the Trump Administration to take a more aggressive approach triggered a new DOJ initiative in 2017.  Attorney General Jeff Sessions announced the formation of the Opioid Fraud and Abuse Detection Unit—a DOJ pilot program aimed at “ulitiz[ing] data to help combat the devastating opioid crisis that is ravaging families and communities across America.”[44]  To aid this mission, DOJ announced that it has selected twelve districts across the country to participate in the program and has assigned a dozen prosecutors to focus entirely on investigating and prosecuting opioid-related health care fraud cases.[45]  Attorney General Sessions also announced increased funding for state and local law enforcement agencies,[46] as well as plans to designate “opioid coordinators” in each U.S. Attorney’s Office to advance DOJ’s “anti-opioid mission[.]”[47] The widespread DOJ scrutiny of opioid manufacturers and distributors already has led to several public enforcement actions.  In October, DOJ announced its first ever indictments against Chinese manufacturers of Fentanyl and other opioid substances.[48]  The indictments charge two Chinese nationals and their North American-based distributor counterparts with conspiracies to distribute large quantities of Fentanyl, Fentanyl analogues, and other opiate substances throughout the United States.[49]  Both Chinese nationals face potentially significant jail time and millions of dollars in fines.[50] Soon after, DOJ announced the arrest of John N. Kapoor—the founder and majority owner of Insys Therapeutics—for allegedly heading a nationwide conspiracy to illegally distribute a Fentanyl spray originally intended for cancer patients.[51]  The charges against Mr. Kapoor include conspiracy under the Racketeer Influenced and Corrupt Organizations Act (“RICO”), as well as conspiracy to violate the AKS and to defraud health insurance providers who initially were hesitant about approving the spray for non-cancer patients.[52]  Superseding indictments also leveled charges against numerous other executives of the company, which itself faced DOJ enforcement actions for allegedly deceptive marketing practices earlier this year.[53]  Although the final details of the company’s earlier settlement are not yet available, Insys has announced that it expects to face a nearly $150 million liability and pay out any settlement over the course of five years.[54]             C.     Notable Developments in FDCA Enforcement Several resolutions discussed above also involved FDCA-focused theories.  Novo Nordisk, for example, resolved alleged FDCA violations from 2010 to 2012 regarding its purported failure to comply with its required REMS.[55]  Specifically, the government alleged that the company obscured the REMS-required message about a risk of taking Novo Nordisk’s Type II diabetes drug Victoza for patients with a rare form of cancer known as Medullary Thyroid Carcinoma, thus rendering the drug “misbranded” under the FDCA.[56]  According to the complaint, Novo Nordisk instructed its sales force to provide statements to doctors that downplayed the potential risk rather than increasing awareness about it.  As part of the agreement, Novo Nordisk agreed to disgorge roughly $12.2 million for the alleged FDCA violations.[57] DOJ likewise resolved several misbranding allegations against Aegerion Pharmaceuticals Inc.[58]  Roughly one-fifth of the company’s overall $35 million settlement stemmed from allegations that Aegerion failed to provide complete and accurate information to health care providers regarding how Juxtapid—a drug approved to treat patients with a rare cholesterol-related condition—also may cause liver toxicity.[59]  The complaint further alleged that Aegerion violated the FDCA by distributing Juxtapid as a treatment for high cholesterol generally without providing adequate instructions for such use.[60] Apart from the FDCA settlements discussed above, DOJ also obtained several injunctions in the last six months against pharmaceutical manufacturers and distributors to prevent the distribution of allegedly unapproved and misbranded drugs.  In September, for example, DOJ announced that the U.S. District Court for the District of New Jersey entered a consent decree and permanent injunction against Flawless Beauty LLC, RDG Imports LLC, and two related individuals.[61]  DOJ alleged that the products distributed by the defendants were misbranded because they had been marketed with false and misleading claims, including that the products “contribute to good liver function” and “clinically treat degenerative brain and liver diseases[.]”[62] DOJ also secured permanent injunctions in October against Philips North America LLC and two executives of the company preventing Philips from distributing certain of its external defibrillators until the company takes remedial steps to comply with deficiencies discovered by FDA inspectors at one of its facilities in 2015, including the company’s purported failure to establish procedures for implementing corrective and preventive actions following customer complaints.[63]            D.     FCPA Investigations As we discussed in our 2016 Year-End Update, last year ended with the largest-ever FCPA payment by a pharmaceutical company (specifically, the U.S. government’s $519 million resolution with Teva Pharmaceuticals Industries Ltd.).  By comparison, the last six months of FCPA enforcement have not seen any resolutions involving drug and device makers.  Although DOJ and SEC investigations into the foreign sales practices of many drug and device companies (e.g., Alexion Pharmaceuticals Inc.) remain ongoing,[64] DOJ and SEC did not announce any major FCPA settlements with pharmaceutical and medical device manufacturers in the latter half of the year. Despite the recent dearth of settlements in this space, companies would do well to remain cautious.  As suggested in a July 25, 2017 speech by Sandra Moser, Principal Deputy Chief of DOJ’s Fraud Section, DOJ plans to ramp up its enforcement of the FCPA in the health care arena,[65] and FCPA prosecutors will partner with prosecutors from the Healthcare Fraud Unit’s Corporate Strike Force to scrutinize health care company practices abroad.[66] II.     PROMOTIONAL ISSUES Continuing the trend noted in our Mid-Year Update, 2017 was relatively quiet regarding the regulation of promotion of drugs and devices as compared to prior years.  And, once again, the year came and went with minimal progress in FDA’s long-awaited overhaul of its regulatory policies regarding truthful and non-misleading promotional speech.  Indeed, in January 2018, FDA announced yet again that it is delaying its controversial proposed rule that would allow the agency to consider the “totality of the evidence” when evaluating intended use under the FDCA.  But a number of other regulatory and enforcement developments in the latter half of 2017 show that promotional issues continue to receive a lot of government attention, even if they may not be as top-of-mind as they were in earlier years.  Below, we discuss the regulatory enforcement and guidance, jurisprudence, and legislative action concerning promotion of drugs and devices during the last six months of 2017. As discussed below, FDA’s enforcement and regulatory activity over the past six months focused largely on addressing misleading or deceptive advertisements, which FDA Commissioner Scott Gottlieb identified as a priority for the agency in remarks in December in connection with the issuance of the promotional guidance discussed below.  Commissioner Gottlieb’s remarks recognized that “[p]romotional material that drug makers share with patients and providers can be a helpful tool for encouraging patients to seek medical care and raising awareness about new and different treatment options.”[67]  At the same time, he cautioned that a key aspect of FDA’s oversight lies in combatting “claims in prescription drug promotion that have the potential to deceive or mislead consumers and healthcare professionals.”  Calling FDA’s efforts “part of an ongoing policymaking process aimed at making sure our practices protect consumers[,]” Commissioner Gottlieb recognized the need for “clear rules for how sponsors can present certain information, even elements as straightforward as the product name, and do so without introducing features that could mislead patients.”[68]  How the agency sharpens its focus on misleading or deceptive promotional practices, particularly against the backdrop of the new Administration’s general deregulatory posture, surely will be a key issue to watch in 2018.            A.     FDA Enforcement Activity—Advertising and Promotion The latter half of the year saw a slight uptick in FDA’s enforcement activity in this area, with the Office of Prescription Drug Promotion (“OPDP”) issuing three Warning Letters, up from the one letter issued during the first half of the year.[69]  The year’s grand total of just four letters represents a notable decrease in enforcement activity as compared to the eleven letters issued in 2016 and the nine letters issued in 2015.  As FDA’s agenda and priorities under the new Administration continue to take shape into 2018, they will continue to shed light on whether this decline in enforcement activity is a temporary artifact of the agency’s leadership transition, or represents the new normal. Each of the three Warning Letters issued during the past six months concerned the misleading omission of risk information in a drug’s promotional materials, which has been the focus of a majority of letters issued by OPDP in the past few years, as well as failure to include information concerning limitations on use contained in the FDA-approved indication for the product.  In contrast to OPDP’s prior focus on electronic advertising, the letters issued in the past six months pertained largely to product information contained in print materials directed at medical professionals, such as professional detail aids and exhibits at annual medical conferences. In an August 24, 2017 Warning Letter to Cipher Pharmaceuticals Inc., OPDP asserted that the company’s professional detail aid for a prescription opioid medication made false or misleading representations because it advertised the drug’s efficacy for pain relief without referencing any of the risks associated with the product, including the heightened risk of addiction, abuse, and misuse.[70]  OPDP further contended that the detail aid omitted material facts by failing to include the portion of the FDA-approved indication limiting the drug’s intended use solely to instances where alternative treatment options are inadequate.[71] In a November 14, 2017 Warning Letter addressed to both Amherst Pharmaceuticals, LLC and Magna Pharmaceuticals, Inc., OPDP raised similar objections with respect to the presentation of a prescription sleep aid on Amherst’s company website and on Magna’s exhibit panels at an annual conference on sleep medicine.[72]  According to OPDP, the materials contained false or misleading representations because they made claims about the drug’s efficacy while omitting any risk information.[73]  Additionally, OPDP concluded that the materials were false or misleading because they failed to cite references or data to support claims of efficacy and omitted material information regarding the FDA-approved indication for use.[74] Finally, in a December 19, 2017 Warning Letter to Avanthi, Inc., OPDP asserted that the company presented false or misleading information in an exhibit for a weight loss medication displayed at two annual medical conferences.[75]  As with the two letters issued earlier in the year, OPDP asserted that the promotional materials were misleading by making claims about the benefits of the product without communicating any information about the drug’s risks and omitting the limitations on use in the FDA-approved product indication.[76]            B.     FDA’s Promotional Guidance FDA did not deliver in 2017 on its promise to provide new promotional guidance for the industry regarding off-label promotion of drugs and devices, which FDA first pledged to issue more than three years ago as part of a comprehensive review of its policies in the face of rising First Amendment concerns.  Apart from the January 2017 memorandum in which FDA identified and rejected 12 alternative approaches to off-label promotion under the First Amendment, and the related commentary period discussed in our Mid-Year Update, the year saw no further public progress towards FDA’s announced goal.  We will continue to monitor FDA’s progress in the upcoming year. As 2017 came to a close, FDA issued one final guidance document on promotional issues—part of what Commissioner Gottlieb described at the time as FDA’s “ongoing” efforts to protect consumers against deceptive or misleading prescription drug advertising claims by setting “clear rules for how sponsors can present” such information in a non-misleading manner, as noted above.[77] Issued on December 11, 2017, FDA’s guidance clarifies the requirements for product name placement, size, prominence, and frequency in promotional labeling and advertising for prescription drugs, including biological drug products.[78]  The new guidance focuses specifically on the juxtaposition of the proprietary and established names of a drug and the frequency with which to use the established name on promotional materials.  The guidance applies to promotional labeling and advertisements across a range of media, including print, audiovisual, broadcasting, and electronic and computer-based materials.[79] With respect to drugs containing one active ingredient, the guidance provides specific recommendations for complying with the various requirements set forth in regulations 21 C.F.R. §§ 201.10(g)(1) and (2), and 202.1(b)(1) and (2), concerning the appropriate juxtaposition of proprietary and established names, the size of proprietary and established names on labeling and advertisements, the prominence of the established name in relation to the proprietary name, and frequency of disclosure of the proprietary and established names using various media.  With respect the last category, the guidance identifies examples in which FDA “does not intend to object” to fewer references to the established name, so long as certain criteria are met.[80] With respect to drugs containing two or more active ingredients, the guidance provides recommendations of how to appropriately reference proprietary and established names as set forth in regulations 21 C.F.R. §§ 201.10(h)(1) and 202.1(c) and (d)(1), in situations where a product “might not have a single established name corresponding to the proprietary name” or in which “a proprietary name might refer to a combination of active ingredients present in more than one preparation (e.g., individual preparations differing from each other as to quantities of active ingredients and/or the form of the finished preparation), and there might not be an established name corresponding to the proprietary name.”[81] As we noted in our 2017 Mid-Year Update, in January 2017, as part of the Obama Administration’s last-minute efforts to shape FDA promotional policies, FDA issued two draft guidance documents relating to promotional practices, the first being a “Questions and Answers” guidance entitled “Medical Product Communications That Are Consistent with the FDA-Required Labeling,”[82] and the second draft guidance document addressing communication of health care economic information to payors about both approved and investigational drugs and devices.[83]  As of the end of 2017, FDA has not taken further action with respect to these guidance documents, both of which remain in draft form. Finally, on January 12, 2018, FDA announced that it was yet again delaying—this time, “until further notice”—the effective date of a controversial final rule that would amend the agency’s definition of “intended use” for drugs and devices to allow the agency “additional time” for further consideration of the rule.[84]  The final rule, issued in January 2017, shortly prior to the change of administration, would adopt a “totality of the evidence” standard for assessing how a manufacturer intended for its product to be used by doctors and patients, carrying significant implications for drug and device manufacturers regarding promotional activities and related enforcement of the FDCA and its implementing regulations.  The proposed rule has been met with heavy criticism from the industry, including that it imposes an unworkably vague standard—a concern Commissioner Gottlieb expressly recognized in a statement issued in connection with the delay, in which he conceded that the regulation “wasn’t clear” and pledged that the agency would “ensure the clarity of our rules on the subject.”[85]  In the meantime, he noted, FDA was “reverting to the agency’s existing and longstanding regulations and interpretations on determining intended use for medical products.”[86]  FDA has opened a comment period through February 5, 2018, to solicit input on the decision to indefinitely delay the rule.[87] We will report on further developments in the coming year in regards to whether FDA modifies the final rule or permanently abandons its efforts to redefine the intended use standard.             C.     Notable Litigation Pertaining to Promotional Issues Although 2017 saw little in the way of jurisprudence concerning the intersection of promotional issues and the First Amendment, it produced several other notable cases. Opinions dismissing FCA actions predicated on off-label promotion from the Fifth Circuit in United States ex rel King v. Solvay Pharm., Inc.,[88] and Sixth Circuit in United States ex rel. Ibanez v. Bristol-Myers Squibb Co.,[89] discussed in detail above, underscored the importance of and difficultly involved in pleading and proving the causal chain in such cases.  The complex series of events involved create significant hurdles to pleading and proving that it was the defendant’s alleged off-label promotion that actually caused the submission of any false claims—i.e., that a physician to whom a product was allegedly improperly promoted prescribed the medication to a patient for an off-label use because of that promotion, resulting in the patient filling the prescription at a pharmacy, and the filling pharmacy then submitting a claim to the government for reimbursement.  Although these judicial opinions do not entirely foreclose any theory of FCA liability predicated on off-label promotion, they provide a useful tool for drug and device manufacturer defendants to assert lack of causation arguments. Based on similar causation principles, the Seventh Circuit held, in Sidney Hillman Health Ctr. of Rochester v. Abbott Labs., that as a matter of law third-party payors may not recover treble damages under RICO’s civil liability provision based on a manufacturer’s allegedly unlawful off-label representations made to physicians.[90]  There, two welfare benefit plans that paid for some off-label drug uses brought a suit seeking civil RICO recovery against the manufacturer following its 2012 guilty plea and payments to settle a criminal investigation and qui tam actions.  Joining the majority of circuit courts to have addressed the issue, the Seventh Circuit held that the causal chain involved in such a claim was “too long” and too rife with “independent decisions” to pass muster under Supreme Court precedent,[91] because it would require showing that physicians who received the off-label communications changed the medication they would have otherwise prescribed to certain patients as a result of the communications, that some of those patients were worse off as opposed to better, that payors bore some of the cost, and that those payors were made worse off to the extent the drug at issue was more expensive than the alternative drug.[92]            D.     Legislative Developments On the whole, 2017 saw relatively little legislative activity relating to off-label promotion at the state or federal levels. For its part, Congress took no further action on two draft bills on which we reported in our 2017 Mid-Year Update: (1) the Pharmaceutical Information Exchange Act, which would give drug and device manufacturers’ greater freedom to share economic information about expected cost-effectiveness with insurers prior to FDA approval of a product;[93] and (2) the Medical Product Communications Act of 2017, which would enable manufacturers to proactively discuss certain off-label information with health care provider, so long as the information is supported by competent and reliable scientific evidence and accompanied by various disclaimers.[94] The House Energy & Commerce Committee held hearings on both bills in July, at which time some lawmakers and industry groups expressed support for the proposed clarification concerning off-label communications and for providing for more information to payers and health-care decision makers aimed at improving patient access to new treatments.[95]  Other lawmakers and industry groups, however, expressed concern that the bills, and the Medical Product Communications Act in particular, would undermine efforts to prevent marketing of unsafe or ineffective medical products and could ultimately put patient health and safety at risk.[96]  To date, neither bill has advanced out of committee. At the state level, as we reported in our Mid-Year Update, Arizona became the first state to allow drug and device manufacturers to communicate directly with physicians and insurers about off-label uses of FDA-approved prescription drugs.  Although Arizona remains alone for the time being, that may change in the coming year as industry advocates continue to pursue the introduction of similar measures in other state legislatures.[97]            E.     Settlements One notable recent settlement this year also demonstrated the states’ interest and capacity for enforcement actions targeting off-label promotion as misleading or deceptive advertising under state law.  On December 20, 2017, Boehringer Ingelheim Pharmaceuticals, Inc. agreed to pay $13.5 million to all 50 states and the District of Columbia to resolve claims asserted under various state consumer protection laws predicated on its alleged off-label marketing and certain allegedly misleading representations it made in promoting the drugs at issue.[98]  Several years earlier BIPI resolved claims under the federal FCA based on the same alleged off-label marketing and alleged misrepresentations in a $93 million settlement with the federal government.[99] III.     DEVELOPMENTS IN CGMP REGULATIONS AND OTHER MANUFACTURING ISSUES In 2017, FDA continued the robust scrutiny of drug companies’ current good manufacturing practice (“cGMP”) compliance that we have come to expect in recent years.  These developments, which include relevant enforcement actions and new draft guidance, are discussed below.         A.     Notable cGMP Compliance and Enforcement Activity 1.     Executive of Pharmaceutical Company Pleads Guilty In June 2017, the owner/president, Paul Elmer, and compliance director, Caprice Bearden, of Indiana pharmacy Pharmakon Pharmaceuticals, Inc., were indicted for allegedly introducing adulterated drugs into interstate commerce by manufacturing and selling drugs whose potency differed than what was reflected on the label.[100]  According to DOJ, the officers’ actions resulted in several infants being given morphine sulfate that was nearly 25 times more potent than indicated, leading to severe health problems for at least one of the infants.  Although both initially pled not guilty, in November 2017, Bearden pled guilty to introducing adulterated drugs into interstate commerce and conspiracy to defraud the United States by obstructing FDA’s lawful functions.[101]  Commissioner Gottlieb called the case “an egregious example of how harmful conduct can result in risk to patients” and added that FDA “will not tolerate substandard practices, like failing to meet federal manufacturing standards like those found at Pharmakon” relating to out-of-specification drug potency test results, “that put patients at risk and will aggressively pursue individuals that put profit ahead of patient safety.”[102] 2.     Consent Decrees Involving Two Drug Manufacturers, One Device Manufacturer During the last six months, DOJ announced three notable consent decrees of permanent injunction entered by federal district courts against manufacturers to stop the distribution of unapproved, misbranded, and adulterated drugs and devices.  On July 5, 2017, the U.S. District Court for the Southern District of Alabama enjoined Medistat RX LLC, its owners, production manager, and quality manager from manufacturing, holding or distributing drugs until they comply with the FDCA and its regulations.[103]  The government alleged that the defendants failed to comply with cGMP because, after identifying a microbial contamination, they failed to adequately investigate or take sufficient corrective action, resulting in the contamination of certain sterile areas within the facility. On August 3, the U.S. District Court for the District of Utah entered a consent decree including a permanent injunction against Isomeric Pharmacy Solutions, LLC and three affiliated individuals, including the Chief Operating Officer.[104]  FDA accused the defendants of distributing drugs that had visible “black particles” in them, despite passing visual inspections conducted by the defendants’ employees.  The complaint alleged that the defendants’ manufacturing methods did not conform to cGMP because they failed to verify the drug products’ safety, identity, strength, and quality and purity characteristics, as required by the FDCA.  FDA also alleged that the company had a history of manufacturing drug products under suboptimal conditions and demonstrated an unwillingness or inability to take corrective actions to ensure the sterility of its products.  Consequently, the consent decree prohibits Isomeric from distributing drug products until they hire a consultant who makes a determination that the company is in compliance with cGMP requirements. Lastly, on October 31, the U.S. District Court for the District of Massachusetts enjoined Philips North America LLC and two of its executives from distributing certain medical devices until remedial steps are taken to bring the company in compliance with cGMP.[105]  FDA alleged that the company failed to establish and maintain adequate procedures for implementing corrective and preventative action in response to complaints about the performance of a certain defibrillator and cardiopulmonary resuscitation device.  The consent decree requires Philips to institute a number of remedial measures, including hiring an expert consultant to inspect its units and ensure that the devices are complying with cGMP regulations. 3.     cGMP-Based Warning Letters FDA’s Office of Manufacturing Quality in the Center for Drug Evaluation and Research (“CDER”) issued 22 warning letters in the second half of 2017 for a total of 48 letters for the year, exceeding the 44 letters it issued in 2016.[106]  In the latter half of this year, FDA focused primarily on companies’ failure to maintain adequate quality control units, incomplete testing procedures, subpar sterilization and sanitation techniques, and inadequate testing procedures. Consistent with prior years, FDA has continued its foreign-inspection activity, issuing warning letters to companies in Korea, Canada, China, India, Philippines, and Italy.  Notably, only one of the letters FDA issued in 2017 was to a U.S.-based company.[107]  Several of the more notable warning letters from the second half of the year are summarized below. One of the more common complaints by FDA in the latter half of this year was companies’ failure to maintain adequate quality control units: In October, Chinese drugmaker Guangdong Zhanjiang Jimin Pharmaceutical Co., Ltd., received a warning letter stating that it had failed to establish an adequate quality control unit and consequently used the wrong active pharmaceutical ingredient (API) in one of its products.[108]  Although the company recalled all of the product distributed in the U.S., it failed to document its investigation into the mistake or a plan to prevent its recurrence, nor did it have a program in place to monitor process controls.  As such, FDA strongly recommended that the company engage a consultant to assist with cGMP requirements. In December, FDA issued a warning letter to South Korean drug-maker Seindni Co. Ltd. for failing to establish a quality control unit that could oversee packaging, labeling, and other elements of drug production.[109]  Notably, FDA stressed the particular importance of such a unit in light of the company’s use of contract manufacturers to manufacture its over-the-counter (OTC) drug products.  FDA ordered Seindni to provide written procedures establishing an adequate quality control unit with the authority to carry out various responsibilities, including batch review and release processes and supplier and contractor qualification, selection, and oversight. Many of FDA’s warning letters this year focused on companies’ failure to adequately test and verify the identity of each component of their drug products. In August, FDA issued a warning letter to Canadian homeopathic manufacturer Homeolab USA Inc. in connection with toddler teething tablets that contained belladonna, a toxic substance also known as deadly nightshade.[110]  The letter alleged numerous cGMP violations, including the company’s failure to perform adequate testing for the purity, strength, and quality of components used in its manufacturing process.  It also stated that, during FDA’s inspection of the company’s facilities, a Homeolab employee “impeded the inspection by preventing [the] investigator from photographing” a piece of equipment.  FDA recommended that Homeolab hire a cGMP consultant to assist the company in meeting cGMP regulations. South Korean drug-maker Dasan E&T Co. Ltd. received a warning letter in September for failing to analyze glycerin raw material from a supplier prior to approving the material for use in its drug products.[111]  Specifically, it alleged that Dasan failed to screen for the presence of diethylene glycol (DEG), a chemical found in antifreeze that “has resulted in various lethal poisoning incidents in humans worldwide.”  FDA directed Dasan to develop a detailed risk assessment regarding glycerin-containing products. More recently, in November, Dae Young Foods Company, a Korean manufacturer of homeopathic smoking cessation gum and lozenges, received a warning letter alleging that the company failed to test drug components for identity, purity, strength, and quality.[112]  It also alleged that the suppliers Dae Young used were not properly vetted.  FDA ordered the company to provide a scientific justification for how it will ensure that all of its components will meet appropriate specifications before use in manufacturing, as well as a risk assessment for any drug product batches that were not already adequately tested. FDA also issued numerous letters identifying issues relating to the sanitization and/or sterilization of equipment and utensils involved in the manufacturing of drug products: In July 2017, FDA asserted that India-based Vista Pharmaceuticals violated cGMP by, among other things, failing to maintain several pieces of manufacturing equipment, which were observed to have “holes and corrosion.”[113]  The letter noted that FDA had received a claim that metal was found in one of its isoxsuprine hydrochloride tablets and, during a subsequent inspection, FDA was told that the company’s employee who investigated the claim “failed to consider whether the poor condition of [the] equipment may have contributed to the problem.”  Consequently, FDA directed the company to submit an evaluation of all production equipment to ensure that it is in appropriate condition for manufacturing. Similarly, on December 18, FDA sent a warning letter to Deserving Health International, a Canadian homeopathic drug manufacturer, stating that the company failed to implement an appropriate manufacturing process that could ensure the sterility of its Symbio Muc Eye Drops 5X, an ophthalmic product.[114]  Specifically, the letter claimed that the method used “to attempt sterilization” was not suitable for its intended use, and that the product was manufactured using “unsuitable water.”  The letter noted that FDA placed Deserving Health International on Import Alert on November 2 of this year and recommended that the company employ a cGMP consultant to assist in undertaking a “comprehensive assessment” of the company’s manufacturing operations to ensure compliance with cGMP regulations.              B.     cGMP Rulemaking and Guidance Activity 1.     FDA Draft Guidance While FDA has continued to be quite active in enforcement of manufacturing standards, since June, it has issued just one final guidance document pertaining to manufacturing and quality issues. Expiration Dating.  On August 8, 2017, FDA issued revised draft guidance addressing the repackaging of prescription and OTC solid oral dosage form drugs into individual unit-dose containers by commercial pharmaceutical repackaging firms.[115]  Under current FDA cGMP regulations, each drug product must have an expiration date determined by appropriate stability testing relating to storage conditions on the label, as determined by stability studies.  As the guidance observes, the increase in unit-dose repackaging over the last few decades has raised questions about the stability and expiration dates for such repackaged products.  Consequently, the latest draft guidance amends an earlier draft guidance published in 2005 to accomplish a number of objectives:  “shorten[ing] the expiration date to be used under certain conditions for solid oral dosage forms repackaged in unit-dose containers”; “provid[ing] an expiration date exceeding 6 months if supportive data from appropriate studies are available and other conditions are met”; “exclud[ing] from the scope of the guidance products repackaged by State-licensed pharmacies, Federal facilities, and outsourcing facilities”; “exclud[ing] from the scope of the guidance all dosage forms other than solid oral dosage forms”; and “provid[ing] for the use of containers meeting USP [] Class B standards if certain conditions are met.”[116] IV.     ANTI-KICKBACK STATUTE As the enforcement statistics discussed above make clear, compliance with the AKS remains one of the highest risk areas for pharmaceutical and medical device companies, with notable large settlements in AKS being announced virtually every year, including in 2017.  There were several notable developments in AKS enforcement during the second-half of 2017—from the courts and regulatory agencies—that affect and define the stakes.         A.     AKS-Related Case Law First, federal courts issued several noteworthy decisions interpreting the AKS during the second half of 2017 on the topics of causation and scienter. In September, the Fifth Circuit affirmed summary judgment for Solvay Pharmaceuticals, dismissing allegations that the company violated the FCA through off-label marketing efforts (as discussed above) and kickbacks to physicians.[117]  In addition to the Fifth Circuit’s rulings regarding off-label promotion theories, the Fifth Circuit also summarily dismissed the relator’s AKS allegations after finding no credible evidence on summary judgment that payments to physician-consultants caused those physicians to write prescriptions that were reimbursed by Medicaid.[118]  Evidence submitted to the court showed that physicians participated in Solvay speaker programs in which they were compensated for consultations or presentations.[119]  The court explained that “[t]here was nothing illegal about paying physicians for their participation in these types of [marketing] programs and there is no evidence that participation was conditioned upon prescribing Solvay’s drugs to Medicaid patients.”[120]  Although the court acknowledged that Solvay likely “intended these programs to boost prescriptions”―as is true with most marketing practices, of course―the court nonetheless held that “it would be speculation to infer that compensation for professional services legally rendered actually caused the physicians to prescribe Solvay’s drugs to Medicaid patients.”[121]  This is clearly at odds with DOJ’s persistent position that the payment of a kickback “taints” physician decision-making and that allegations of improper payments do not need to show that prescriptions or referrals were “caused” by the kickback.  For example, in 2015, DOJ reached a settlement with Novartis based on allegations that the company made payments to influence specialty pharmacies to provide patients one-sided advice about their product, without disclosing potentially serious side effects.  Then U.S. Attorney for Manhattan stated that that the AKS “was enacted to ensure that the medical treatment and advice patients receive, and federal programs pay for, are free from the taint of corporate kickbacks.”[122]  We will continue monitoring this development to see if courts continue to require a showing of cause, not mere “taint,” and DOJ’s response. In United States v. Nerey, meanwhile, the Eleventh Circuit reached a less favorable conclusion for the defendant in an alleged kickback scheme, holding that the government had sufficiently proved willful conduct in connection with a federal health care program because of the defendant’s attempts to hide illegal kickbacks.[123]  In so holding, the court reaffirmed that proving “willful conduct” under the AKS requires strong evidence of scienter, requiring that the act was “committed voluntarily and purposely, with the specific intent to do something the law forbids, that is with a bad purpose, either to disobey or disregard the law.”[124]  But the court had no problem finding willful conduct in light of the “overwhelming” evidence that the defendant explicitly sought cash payments to avoid a paper trail, attempted to funnel kickbacks by masking them as therapy services, referred to kickbacks by code names because of their illegal nature, pre-arranged a fallback story in the event of a Medicare audit, and was caught saying that it would be nice to “break [a suspected confidential informant’s] head.”[125]            B.     Guidance and Regulations 1.     HHS OIG Increases Scrutiny of Patient Assistance Programs For years, pharmaceutical and device manufacturers have supported, directly and indirectly, various patient assistance programs that help needy patients access their products.  And for years, OIG has approved of these arrangements, subject to certain recommended contours, through formal and informal guidance reflecting that these programs meet important access-to-care goals. Recently, however, OIG has issued updated guidance to refine its views on patient assistance programs and strongly suggest that it is taking a closer look at how these programs are organized and operated.  While the OIG formerly viewed these programs as important safety nets for patients who face chronic illnesses and high drug costs, newer guidance suggests that OIG is concerned that patient assistance programs that are limited to specific diseases or products—often with the support of pharmaceutical and medical device companies—pose a high risk of abuse.  That trend continued in 2017 amidst a broader landscape of DOJ enforcement actions, as discussed in Section I above. First, in March, HHS OIG revised previous guidance to address aspects of patient assistance programs that it has newly determined are “problematic.”[126]  Specifically, HHS OIG modified a prior advisory opinion to require that a non-profit operator of patient assistance programs make three new certifications to remain in compliance with the AKS:  (1) that the charity “will not define its disease funds by reference to specific symptoms, severity of symptoms, method of administration of drugs, stages of a particular disease, type of drug treatment, or any other way of narrowing the definition of widely recognized disease states”; (2) that the charity will “not maintain any disease fund that provides copayment assistance for only one drug or therapeutic device, or only the drugs or therapeutic devices made or marketed by one manufacturer or its affiliates”; and (3) that the charity will not limit its assistance to high-cost or specialty drugs.[127] Next, in November, HHS OIG took the unprecedented step of rescinding guidance it had previously issued related to a patient assistance program operated by the industry-funded charity Caring Voice Coalition (CVC).[128]  HHS OIG explained that the charity had allegedly breached two commitments related to independence from donors, which opened the door to steering Medicare beneficiaries toward specific prescription drugs.[129]  In one alleged breach, the charity gave patient-specific data to one or more donors, enabling them to “correlate the amount and frequency of their donations with the number of subsidized prescriptions or orders for their products.”[130]  In a second alleged breach, the charity “allowed donors to directly or indirectly influence the identification or delineation of [r]equestor’s disease categories.”[131]  According to HHS OIG, these violations “materially increased the risk that [r]equestor served as a conduit for financial assistance from a pharmaceutical manufacturer donor to a patient, and thus increased the risk that the patients who sought assistance from [r]equestor would be steered to federally reimbursable drugs that the manufacturer donor sold.”[132]  HHS OIG expressed concern that this steering can provide manufacturers with a greater ability to raise the prices of their drugs while protecting patients from the effects of the price increases, leaving federal programs and taxpayers to bear the cost.[133] HHS OIG and DOJ are clearly taking a hard look at these types of issues industry-wide, and the results of this scrutiny are beginning to show in more than just HHS OIG advisory opinions.  For example, as noted above, United Therapeutics Corp. paid $210 million to resolve allegations that it used a nonprofit organization as a conduit to give improper benefits to thousands of patients who used its medications from 2010 to 2014.[134]  Specifically, the government alleged that United Therapeutics donated money to CVC, which in turn paid the copay obligations of thousands of Medicare patients taking drugs manufactured by the company.[135]  Several other companies have reported being subject to similar probes in the past year, all launched by the U.S. Attorney’s Office for the District of Massachusetts.[136] Yet, even as DOJ and HHS OIG seek to reign in alleged abuses in patient assistance programs, HHS OIG, at least, has nevertheless continued to encourage manufacturers to provide access to free drugs for needy patients.  After its unprecedented action against CVC, which led CVC to announce it would not offer any financial assistance in 2018, HHS OIG wrote immediately to Pharmaceutical Research and Manufacturers of America (“PhRMA”) to urge pharmaceutical companies to offer free drugs to former CVC beneficiaries.[137]  To incentivize companies to participate in this stop-gap measure, HHS OIG promised that it “will not pursue administrative sanctions against any Drug Company for providing free drugs during 2018 to federal health care program beneficiaries who were receiving cost sharing support for those drugs from CVC as of November 28, 2017,” provided certain conditions are met, including that: (1) the “drugs are provided in a uniform and consistent manner to Federal health program beneficiaries” who were receiving drugs from CVC at the time of CVC’s decision; (2) “[t]he free drugs are awarded without regard to the beneficiary’s choice of provider, practitioner, supplier or health plan[;]” (3) “[t]he free drugs are not billed to any Federal health care program” or a third party payor; (4) “[t]he provision of free drugs is not contingent on future purchases” of drugs; and (5) the Drug Company maintains complete and accurate records of the free drugs provided to Federal health care program beneficiaries.[138]  Even with this significant policy statement early in the year, there may well be additional fallout for manufacturers’ charitable programs in 2018, given the government’s clear enforcement focus on this area. 2.     HHS OIG clarifies scope of warranty safe harbor The AKS makes it a criminal offense to knowingly and willfully exchange anything of value in an effort to induce the referral of services which are payable by a federal program, but the statute and its implementing regulations also create certain safe-harbors against liability.[139]  For example, the “warranty safe harbor” shields from penalty certain written warranties offered by drug and device companies, including (1) a written affirmation that relates to the nature of the material or workmanship of a product and that affirms or promises that the material or workmanship is defect-free or will meet a specified level of performance over a specified period of time; or (2) any undertaking in writing by a supplier to take remedial action if a product fails to meet the promises set forth by the supplier of a consumer product.[140]  Previous HHS OIG guidance had limited the scope of the warranty safe harbor to product failure.[141] In a new advisory opinion issued in August, however, HHS OIG seemingly expanded the scope of the warranty safe harbor.  Specifically, HHS OIG considered a “pharmaceutical manufacturer’s proposal to replace products that require specialized handling that could not be administered to patients for certain reasons, at no additional charge to the purchaser[.]”[142]  According to the opinion, the requestor sells a variety of products, some of which “are sensitive to temperature changes, direct sunlight, or movement[.]”[143]  Under the arrangement, the pharmaceutical manufacturer would replace products that had spoiled or otherwise become unusable after purchase so long as the customer had not administered the product or billed for it.[144] HHS OIG analyzed the proposal under the safe harbor for warranties, which it explained “protects remedial actions by suppliers to address products that fail to meet bargained-for requirements.”[145]  Although HHS OIG concluded that the proposal did not fall squarely within either of the safe harbor’s definitions, it nonetheless concluded that the proposed arrangement posed a “low risk of fraud and abuse under the [AKS].”[146]  HHS OIG reached this conclusion for a number of reasons.  First, the replacement would be restricted to unintentional circumstances.  Second, there was low risk that this arrangement would lead to increased cost or overutilization because, if the customer administered the product or billed for the product, then a replacement product would not be available.  Third, even though the proposed arrangement could affect competition, there was an acceptably low risk that a customer would choose products based on this arrangement.  Last, the proposed arrangement bears some similarity to an insurance policy and the cost of this can be built into the cost of the product.[147]  HHS OIG also noted that the proposal could increase patient safety and care.[148] This guidance expands the number of warranty types for which the OIG has recognized the availability of the warranty safe harbor, thereby affording manufacturers greater flexibility to tie product pricing to performance, further incentivizing providers to deal with product sellers and manufacturers who are willing to stand behind the performance of their products by sharing the risk on outcomes. 3.     HHS OIG permits pilot program to provide Medicare Advantage pharmacists with real-time access to patient discharge information In December, HHS OIG approved a proposal to allow a vendor to develop and make available an interface that would allow pharmacists to view relevant clinical data in real-time during discharge for Medicare Advantage plan beneficiaries who were admitted with one of five eligible diagnoses.[149]  The pilot program aims to “gain insight into the degree to which technology that provides . . . pharmacists with real-time access to discharge information can help improve transitions of care and decrease re-hospitalizations.”[150] HHS expressed concern that the interface would have an independent value, and therefore be an improper remuneration, because it would remove an administrative burden and that pharmacists would be in a position to influence which medications a patient is prescribed.[151]  Ultimately, HHS OIG concluded that it would not impose sanctions under the AKS.  Importantly, the manufacturer protected against the risk that the pharmacist would recommend the manufacturer’s product by including language in the agreements and operative documents that the collaboration would have no bearing on formulary recommendations or referrals of business, and ensuring that nothing in the interface would guide the pharmacist to choose one product over another.[152]  HHS OIG also focused on patient care and patient outcomes.  OIG concluded that the proposed arrangement would be unlikely to lead to increased costs or overutilization of federally reimbursable services because the Medicare Advantage plan, “as the payor, has a strong incentive for its members to receive the most appropriate and cost-effective treatment to promote their recovery and good health.”[153]  Further, the proposal would be unlikely to have a negative outcome on patient quality of care.[154]  And lastly, HHS OIG concluded that the small scale of the program—limited to approximately 200 patients and five diagnoses—reduces the risk that the remuneration involved would influence referrals to or recommendations for the manufacturer’s products.[155] V.     MEDICAL DEVICES After a relatively quiet start to the year, the second half of 2017 brought a number of guidance documents and enforcement actions concerning medical device manufacturers.  We begin this section with an overview of notable guidance issued by FDA before walking through recent device-related enforcement activity.            A.     FDA Guidance In the past six months, FDA issued guidance on several noteworthy subjects, including digital health, pre-market approval standards, and expedited approval processes.  As continued technological advances continue to pave the way for new clinical opportunities, FDA has emphasized its focus on streamlining the review process and providing access to newly vetted medical devices. In addition to the topics discussed in detail below, President Trump in August 2017 signed into law the FDA Reauthorization Act (“FDARA”), which, among other things, reauthorizes the Medical Device User Fee Amendments through fiscal year 2022.[156]  With the return of the Affordable Care Act’s medical device tax on the horizon in 2018, a new user fee will be assessed under FDARA for de novo classification requests, and user fees will be adjusted annually for inflation.[157]  FDARA also sets forth a risk-based inspection schedule for establishments engaged in the manufacture, propagation, compounding, or processing of devices and requires FDA to establish uniform inspection processes and standards.[158]  Be on the lookout in the coming year for possible inspection-related draft guidance.[159] 1.     Digital Health On July 27, 2017, FDA took a step into a new digital-health era with the announcement of its Digital Health Innovation Action Plan and the launch of its “Pre-Cert for Software Pilot Program.”[160]  Framed as FDA’s response to the “revolution in health care,” driven by technology such as mobile medical apps, fitness trackers, and decision-supporting software, the Action Plan outlines the Center for Devices and Radiological Health’s (“CDRH”) “vision for fostering digital health innovation while continuing to protect and promote the public health.”[161]  The plan contemplates providing guidance on the 21st Century Cures legislation’s medical software provisions, as well as launching a pilot pre-certification program that focuses on the developer instead of the product in the hopes of “replac[ing] the need for a premarket submission for certain products,” decreasing the required submission content, and speeding up the review of marketing submissions.[162]  FDA plans to share updates about the program at a public workshop in January 2018.[163] As anticipated by the Action Plan, on December 7, 2017, FDA announced three draft and final guidance documents that further clarify its approach to digital devices: Clinical and Patient Decision Support Software.  The revised definition of “medical device” in the 21st Century Cures Act excluded certain types of software intended to provide clinical decision support.  The first draft guidance describes FDA’s interpretation of this revised definition and generally extends this interpretation to patient decision support software.[164]  The guidance states that FDA will continue to regulate clinical decision support (“CDS”) software “intended to acquire, process, or analyze a medical image, a signal from an in vitro diagnostic device, or a pattern or signal from a signal acquisition system,” but it will not regulate software that provides health care professionals with recommendations or treatment decisions that are consistent with the FDA-required labeling or clinical guidelines and that the professionals could have made independently.[165]  The critical factor, in FDA’s interpretation, is that the user should be able to reach independently the clinical recommendation provided by the software.  Furthermore, the sources for the software recommendation should be publicly available, such as in the published scientific literature.  Likewise, with respect to software intended to support patient decision-making, FDA does not intend to focus its regulatory oversight on “low-risk” software that offers patients recommendations they could have reached independently without the software.[166] Changes to Medical Software Policies After the Cures Act.  In this draft guidance, FDA addressed the software functions that were excluded from the definition of “medical device” by the 21st Century Cures Act:  hospital administrative functions, software intended for maintaining or encouraging a healthy lifestyle, electronic health records, and software for transferring, storing, or displaying data [167]  As a result of the statutory amendments, certain types of software that were previously under FDA enforcement discretion are no longer classified as “medical devices” under the Federal Food, Drug, and Cosmetic Act.  The guidance clarifies that Laboratory Information Management Systems are not devices and reiterates that FDA does not intend to examine or regulate “low-risk general wellness products,” such as a mobile application that plays music to relieve stress.[168]  In describing its approach to such products, FDA references the General Wellness Guidance detailed in our 2016 Year-End Update[169] and offers examples illustrating when electronic patient record software and Medical Device Data Systems do not qualify as devices.[170]  FDA is updating the prior software-specific guidances to reflect the 21st Century Cures Act. Clinical Evaluation of Software as a Medical Device (SaMD).  On December 8, 2017, FDA issued final guidance on its approach to Software as a Medical Device (“SaMD”), which is software intended to be used for one or more medical purposes that perform these purposes without being part of a hardware medical device.[171]  This guidance adopts the principles set forth by the International Medical Device Regulators Forum (“IMDRF”), a group of international medical device regulators focused on harmonization of device regulation.  These principles address risk-based analysis and assessments of SaMD and considerations to use in evaluating the safety and effectiveness of SaMD.[172]  The guidance discusses the assessment of: (1) the clinical association between the SaMD and the targeted clinical condition; (2) the SaMD’s ability to correctly process data to provide accurate, reliable, and precise output data; and (3) the use of the output data to achieve the intended purpose in clinical care.  The guidance explains when independent review of a clinical evaluation of a SaMD may be necessary, offers considerations for continuous learning throughout a SaMD’s lifecycle, and provides a comparison of the SaMD clinical evaluation process to the process for generating clinical evidence for in vitro diagnostic medical devices.[173] 2.      “Least Burdensome Approach” Guidance In keeping with its focus on streamlined review processes, FDA issued new draft guidance on December 15, 2017, detailing updates to the “least burdensome approach” used during premarket review of devices.[174]  Commissioner Gottlieb and CDRH Director Dr. Jeffrey Shuren have touted the benefits of the program, emphasizing the ability to devote resources to the “issues of highest public health concern” and to approve greater numbers of medical devices.[175] The draft guidance defines “least burdensome” to be “the minimum amount of information necessary to adequately address a regulatory question or issue through the most efficient manner at the right time,”[176] and it encourages application of the “least burdensome” principle “widely . . . to all activities in the premarket and postmarket settings” in order to minimize “unnecessary burdens so that patients can have earlier and continued access to high quality, safe, and effective devices.”[177]  The guidance applies to all devices[178] and provides a number of examples and suggestions for the industry, such as using peer-reviewed literature in lieu of or to supplement other data, using real-world evidence or non-clinical data, and accepting alternative approaches to regulatory issues.[179]  In familiar fashion, FDA also emphasizes the use of benefit-risk assessments in regulatory decision-making,[180] and the guidance references a number of tools and practices to reduce administrative burden, including Medical Device Development Tools (i.e., qualified methods to assess the effectiveness of a device), on which FDA also finalized guidance in August.[181] 3.     Program to Expedite the Approval of “Breakthrough” Medical Devices On October 25, 2017, FDA also issued draft guidance on a voluntary “Breakthrough Devices Program,” which provides priority review to designated submissions for devices subject to premarket approval, 501(k) clearance, and de novo classification processes.[182]  Continuing with the emphasis on access to care, the guidance is aimed at expediting patient access to “breakthrough” medical devices that provide for “more effective treatment” or diagnosis of life-threatening or irreversibly debilitating conditions.[183] To be designated as “breakthrough” under the Program, a device must (1) “provide for more effective treatment or diagnosis of life-threatening or irreversibly debilitating human disease or conditions”; and (2) represent breakthrough technologies that offer significant advantages over existing alternatives, for which no approved or cleared alternatives exist, or that are in the best interest of patients.[184]  For sponsors of such devices, FDA details options including “sprint” discussions, coordination to reach early agreement on a Data Development Plan, a mechanism for obtaining written agreement for clinical protocols, and regular status updates.[185] 4.     Additional Guidance In addition to the above categories, FDA announced several other draft and final guidance documents on various topics throughout the latter half of the year. On September 6, 2017, FDA announced a final guidance on the importance of “interoperability,” or the ability of electronic medical devices to safely and effectively interact with each other and exchange and use information.[186]  The guidance directs medical device manufacturers to focus on interoperability when designing systems, and it recommends that premarket submissions include, among other elements, discussions of a device’s externally-facing electronic interfaces, what type of information a device will exchange and how, potential risks, and interface testing results.[187] Later on October 25, 2017, FDA finalized two draft guidance documents regarding when manufacturers should submit a 510(k) for changes made to existing devices or software.[188]  Declining to implement a significant policy shift on 501(k) submissions, FDA clarified that changes significantly affecting the safety or effectiveness of a device—whether intended or not—will require a new 510(k), as will complex changes to software infrastructure and changes to hard device control mechanisms, operating principles, or energy types.[189] Rounding out the year in December 2017, FDA finalized guidance on technical considerations specific to 3-dimensional printing devices, or “additive manufacturing (AM)” devices.[190]  To respond efficiently to frequently asked questions, FDA also issued a final guidance on what it generally considers in determining whether to classify a product as a drug or device,[191] as well as a final guidance on how it intends to approach the regulation of device “accessories” going forward.[192]  The latter guidance clarifies that accessories with a “lower risk profile” than their parent devices may be regulated in a lower class, and it explains pathways for classifying or reclassifying accessories.[193]              B.     Enforcement Letters In a busy second half of the year, FDA issued 23 device-related warning letters, with CDRH issuing 9 of those.[194]  Overall, enforcement activity in the second half of 2017 suggests that FDA will continue to actively enforce regulations governing manufacturing practices, Quality System Regulation issues, and submissions requirements.  The issued letters also indicate that FDA will continue to exercise broad jurisdiction over foreign companies that market products in the United States, a trend we noted in our 2016 Year-End Update and one that FDA shows no signs of ending in the new year. In July, CDRH issued a warning to a manufacturer in Netherlands alleging that the firm did not have an approved application for premarket approval (“PMA”) in effect, or an approved application for an investigational device exemption (“IDE”).[195]  FDA also chastised the manufacturer for allegedly failing to submit a premarket notification before introducing the product into interstate commerce and requested that the manufacturer cease distribution of the unapproved device, noting that FDA already took steps to refuse entry of the devices into the United States.[196] In September, FDA took issue with a manufacturer of an attention task performance recorder for not only allegedly failing to have an approved application for PMA or IDE, but also for promoting the device for uses not cleared under its initial 510(k)—specifically, for promoting therapeutic or rehabilitation effects when the device allegedly was cleared for use as a “measurement of reaction time.”[197]  In addition, CDRH followed up with three foreign companies regarding inadequate responses to alleged Quality System Regulation issues previously discovered at foreign manufacturing facilities located in Germany, Sweden, and France.[198] October brought several additional letters relating to manufacturing and Quality System Regulation issues and warnings regarding alleged failures to have approved applications for PMAs or IDEs,[199] and CDRH issued a lengthy warning letter to Telemed regarding manufacturing practices at a facility in Lithuania.[200]  Also in November, FDA rebuked a California-based manufacturer for its alleged failure to report to FDA that its bone fixation fashioner device may have caused or contributed to a death or serious injury.[201]  The activity slowed in December, with only one warning issuing regarding an alleged lack of an approved PMA.[202] VI.     CONCLUSION We expect the year ahead to provide more answers about what the Trump Administration will mean, long term, for the pharmaceutical and medical device industries.  We will continue to monitor the developments discussed above, and others, and report on them in our 2018 Mid-Year Update. [1] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Justice Department Recovers Over $3.7 Billion From False Claims Act Cases in Fiscal Uear 2017 (Dec. 21, 2017), https://www.justice.gov/opa/pr/justice-department-recovers-over-37-billion-false-claims-act-cases-fiscal-year-2017; see also U.S. Dep’t of Justice, Civil Div., Fraud Statistics – Overview (Dec. 19, 2017), https://www.justice.gov/opa/press-release/file/1020126/download. [2] Id. [3] In 2017, two cases involved both AKS and improper billing claims.  In such cases in which multiple theories are alleged, the case (and the settlement amount) are counted in the totals for each theory.  See Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Oxygen Equipment Provider Pays $11.4 Million to resolve False Claims Act Allegations (April 25, 2017), https://www.justice.gov/opa/pr/oxygen-equipment-provider-pays-114-million-resolve-false-claims-act-allegations; Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Drug Maker Aegerion Agrees to Plead Guilty; Will Pay More than $35 million to Resolve Criminal Charges and Civil false Claims Allegations (Sept. 22, 2017), https://www.justice.gov/opa/pr/drug-maker-aegerion-agrees-plead-guilty-will-pay-more-35-million-resolve-criminal-charges-and. [4] The number of cases indicated by this table—18—is two more than the total number of cases for the reasons explained supra note 3. [5] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Mylan Agrees to Pay $465 Million to Resolve False Claims Act Liability for Underpaying EpiPen Rebates (Aug. 17, 2017), https://www.justice.gov/opa/pr/mylan-agrees-pay-465-million-resolve-false-claims-act-liability-underpaying-epipen-rebates. [6] Id. [7] Id. [8] Id. [9] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Drug Maker Aegerion Agrees to Plead Guilty; Will Pay More Than $35 Million to Resolve Criminal Charges and Civil False Claims Allegations (Sept. 22, 2017), https://www.justice.gov/opa/pr/drug-maker-aegerion-agrees-plead-guilty-will-pay-more-35-million-resolve-criminal-charges-and. [10] Id. [11] Id. [12] Press Release, U.S. Dep’t of Justice, Drug Maker United Therapeutics Agrees to Pay $210 Million to Resolve False Claims Act Liability for Paying Kickbacks (Dec. 20, 2017), https://www.justice.gov/opa/pr/drug-maker-united-therapeutics-agrees-pay-210-million-resolve-false-claims-act-liability. [13] Press Release, U.S. Dep’t of Justice, U.S. Attorney’s Office, D. of Minn., United States Recovers More Than $12 Million In False Claims Act Settlements For Alleged Kickback Scheme (Aug. 21, 2017), https://www.justice.gov/usao-mn/pr/united-states-recovers-more-12-million-false-claims-act-settlements-alleged-kickback. [14] Id. [15] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Galena Biopharma Inc. to Pay More Than $7.55 Million to Resolve Alleged False Claims Related to Opioid Drug (Sept. 8, 2017), https://www.justice.gov/opa/pr/galena-biopharma-inc-pay-more-755-million-resolve-alleged-false-claims-related-opioid-drug. [16] Id. [17] Id. [18] Press Release, U.S. Dep’t of Justice, U.S. Attorney’s Office, C.D. of Cal., Celgene Agrees to Pay $280 Million to Resolve Fraud Allegations Related to Promotion of Cancer Drugs For Uses Not Approved by FDA (July 24, 2017), https://www.justice.gov/usao-cdca/pr/celgene-agrees-pay-280-million-resolve-fraud-allegations-related-promotion-cancer-drugs. [19] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Novo Nordisk Agrees to Pay $58 Million for Failure to Comply with FDA-Mandated Risk Program (Sept. 5, 2017), https://www.justice.gov/opa/pr/novo-nordisk-agrees-pay-58-million-failure-comply-fda-mandated-risk-program. [20] Id. [21] United States ex rel King v. Solvay Pharm., Inc., 871 F.3d 318, 323 (5th Cir. 2017). [22] Id. at 330–31. [23] Id. at 329 n.9. [24] Id. [25] Universal Health Servs., Inc. v. United States ex rel. Escobar, 136 S. Ct. 1989, 2003–04 (2016). [26] 862 F.3d 890, 895–96 (9th Cir. 2017). [27] Id. at 902–03. [28] Id. at 905–06 (citation omitted). [29] Pet. for a Writ of Cert., Gilead Sciences, Inc. v. United States ex rel. Campie, at i (filed Dec. 26, 2017). [30] Id. at 19, 22. [31] United States ex rel. Ibanez v. Bristol-Myers Squibb Co., 874 F.3d 905, 917, 921 (6th Cir. 2017). [32] Id. at 912. [33] Id. at 915. [34] Id. at 915–16 (citation omitted).   [35] Id. at 914–15. [36] Id. at 915. [37] Id. at 920–21. [38] United States ex rel. Nargol v. DePuy Orthopaedics, Inc., 865 F.3d 29, 31–32 (1st Cir. 2017). [39] Id. (discussing the standard from United States ex rel. Duxbury v. Ortho Biotech Prods., L.P., 579 F.3d 13 (1st Cir. 2009)). [40] Id. at 40–41. [41] Id. [42] Id. at 41. [43] Id. at 39, 42. [44] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Attorney General Sessions Announces Opioid Fraud and Abuse Detection Unit, https://www.justice.gov/opa/pr/attorney-general-sessions-announces-opioid-fraud-and-abuse-detection-unit. [45] Id. [46] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Attorney General Jeff Sessions Delivers Remarks Announcing New Tools to Combat the Opioid Crisis, https://www.justice.gov/opa/speech/attorney-general-jeff-sessions-delivers-remarks-announcing-new-tools-combat-opioid-crisis. [47] Id. [48] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Justice Department Announces First Ever Indictments Against Designated Chinese Manufacturers of Deadly Fentanyl and Other Opiate Substances, https://www.justice.gov/opa/pr/justice-department-announces-first-ever-indictments-against-designated-chinese-manufacturers. [49] Id. [50] Id. [51] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Founder and Owner of Pharmaceutical Company Insys Arrested and Charged with Racketeering (Oct. 26, 2017), https://www.justice.gov/opa/pr/founder-and-owner-pharmaceutical-company-insys-arrested-and-charged-racketeering. [52] Id. [53] Id. [54] Insys Therapeutics, Inc., Quarterly Report (10-Q), at 14 (Nov. 3, 2017). [55] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Novo Nordisk Agrees to Pay $58 Million for Failure to Comply with FDA-Mandated Risk Program (Sept. 5, 2017), https://www.justice.gov/opa/pr/novo-nordisk-agrees-pay-58-million-failure-comply-fda-mandated-risk-program. [56] Id. [57] Id. [58] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Drug Maker Aegerion Agrees to Plead Guilty; Will Pay More Than $35 Million to Resolve Criminal Charges and Civil False Claims Allegations (Sept. 22, 2017), https://www.justice.gov/opa/pr/drug-maker-aegerion-agrees-plead-guilty-will-pay-more-35-million-resolve-criminal-charges-and. [59] Id. [60] Id. [61] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, District Court Enters Permanent Injunction Against Two New Jersey Companies and Two Individuals to Stop Distribution of Unapproved and Misbranded Drugs (Sept. 26, 2017), https://www.justice.gov/opa/pr/district-court-enters-permanent-injunction-against-two-new-jersey-companies-and-two. [62] Id. [63] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, District Court Enters Permanent Injunction Against Philips North America and Two Executives to Limit Distribution of Adulterated External Defibrillators (Oct. 31, 2017), https://www.justice.gov/opa/pr/district-court-enters-permanent-injunction-against-philips-north-america-and-two-executives. [64] Alexion Pharmaceuticals, Inc., Quarterly Report (Form 10-Q), at 19 (Oct. 26, 2017). [65] Sandra Moser, Remarks at the America Conference Institute’s 8th Global Forum on Anti-Corruption in High Risk Markets (July 25, 2017). [66] Id. [67] U.S. Food & Drug Admin., FDA In Brief: FDA takes new steps to help ensure clear presentation of health information in prescription drug promotion (Dec. 11, 2017), https://www.fda.gov/NewsEvents/Newsroom/FDAInBrief/ucm588419.htm. [68] Id. [69] Warning Letters 2017: Office of Prescription Drug Promotion, U.S. Food & Drug Admin (last updated Dec. 14, 2017). [70] Warning Letter from Andrew Haffer, Dir., Div. of Advert. & Promotion Review, Office of Prescription Drug Promotion, U.S. Food & Drug Admin. to Robert D. Tessarolo, President and Chief Exec. Officer, Cipher Pharmaceuticals Inc. (Aug. 24, 2017). [71] Id. at 3. [72] Warning Letter from Andrew Haffer, Dir., Div. of Advert. & Promotion Review, Office of Prescription Drug Promotion, U.S. Food & Drug Admin. to Ira Weisberg, President and CEO, Amherst Pharmaceuticals, Inc. and Dr. Warren P. Lesser, President and CEO, Magna Pharmaceuticals, Inc. (Nov. 14, 2017). [73] Id. at 2. [74] Id. at 3–4. [75] Warning Letter from Robert Dean, Dir., Div. of Advert. & Promotion Review, Office of Prescription Drug Promotion, U.S. Food & Drug Admin. to Vidya Vepuri, Dir., AVANTHI, INC. (Dec. 19, 2017). [76] Id. at 2. [77] U.S. Food & Drug Admin., FDA In Brief: FDA takes new steps to help ensure clear presentation of health information in prescription drug promotion (Dec. 11, 2017), https://www.fda.gov/NewsEvents/Newsroom/FDAInBrief/ucm588419.htm. [78] U.S. Food & Drug Admin., Guidance for Industry: Product Name, Placement, Size, and Prominence in Promotional Labeling and Advertisements (Dec. 2017),  https://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/Guidances/UCM375784.pdf. [79] Id. at 2. [80] Id. at 5–6. [81] Id. at 6. [82] U.S. Food & Drug Admin., Draft Guidance for Industry: Medical Product Communications That Are Consistent With the FDA-Required Labeling—Questions and Answers (Jan. 2017), https://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/Guidances/UCM537130.pdf. [83] U.S. Food & Drug Admin., Draft Guidance for Industry and Review Staff:  Drug and Device Manufacturer Communications With Payors, Formulary Committees, and Similar Entities—Questions and Answers (Jan. 2017), https://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/Guidances/UCM537347.pdf. [84] U.S. Food & Drug Admin., Statement from FDA Commissioner Scott Gottlieb, M.D., on FDA decision to seek additional time to reassess rule that would have changed longstanding practices for how the agency determined the ?intended use’ of medical products (Jan. 12, 2018), https://www.fda.gov/NewsEvents/Newsroom/PressAnnouncements/ucm592358.htm. [85] Id. [86] Id. [87] U.S. Food & Drug Admin., Clarification of When Products Made or Derived From Tobacco Are Regulated as Drugs, Devices, or Combination Products; Amendments to Regulations Regarding “Intended Uses”; Proposed Partial Delay of Effective Date (Jan. 16, 2018), https://www.federalregister.gov/documents/2018/01/16/2018-00555/clarification-of-when-products-made-or-derived-from-tobacco-are-regulated-as-drugs-devices-or (83 Fed. Reg. 2092). [88] United States ex rel King v. Solvay Pharm., Inc., 871 F.3d 318, 329 (5th Cir. 2017) (per curiam). [89] United States ex rel. Ibanez, 874 F.3d at 915. [90] Sidney Hillman Health Ctr. of Rochester v. Abbott Labs., 873 F.3d 574, 578 (7th Cir. 2017). [91] Hemi Grp v. City of New York, 559 U.S. 1 (2010). [92] Sidney Hillman Health Ctr. of Rochester, 873 F.3d at 578 (7th Cir. 2017) (citing Sergeants Benevolent Ass’n Health and Welfare Fund v. Sanofi-Aventis U.S. LLP, 806 F.3d 71 (2d Cir. 2015), and UFCW Local 1776 v. Eli Lilly & Co., 620 F.3d 121 (2d Cir. 2010)). [93] Pharmaceutical Information Exchange Act, H.R. 2026, 115th Cong. (2017),  https://www.congress.gov/bill/115th-congress/house-bill/2026. [94] Medical Product Communications Act of 2017, H.R. 1703, 115th Cong. (2017),  https://www.congress.gov/bill/115th-congress/house-bill/1703/text. [95] Press Release, #SubHealth Reviews Legislation Addressing Medical Product Manufacturer Communications, H. Subcomm. on Health of the H. Comm. on Energy & Commerce (Jul. 12, 2017), https://energycommerce.house.gov/news/press-release/subhealth-reviews-legislation-addressing-medical-product-manufacturer-communications/. [96] Jeff Overley, Off-Label Drug Bills Get Little Traction On Capitol Hill, Law360, (Jul. 12, 2017), https://www.law360.com/health/articles/943303/off-label-drug-bills-get-little-traction-on-capitol-hill. [97] Michael Ollove, Pressure mounts to lift FDA restrictions on off-label drugs, Washington Post, (Oct. 8, 2017), https://www.washingtonpost.com/national/health-science/pressure-mounts-to-lift-fda-restrictions-on-off-label-drugs/2017/10/06/568204a0-a2f6-11e7-8cfe-d5b912fabc99_story.html?. [98] News Release, New Jersey Dept. of Justice, New Hampshire Joins $13.5 Million Consumer Settlement with Boehringer Ingelheim Pharmaceuticals, Inc. Concerning Its Off-Label Promotion of Four Prescription Drugs (Dec. 20, 2017), https://www.doj.nh.gov/media-center/press-releases/2017/20171220-boehringer-ingelheim-pharmaceuticals.htm [99] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Boehringer Ingelheim to Pay $95 Million to Resolve False Claims Act Allegations, (Oct. 25, 2012) https://www.justice.gov/opa/pr/boehringer-ingelheim-pay-95-million-resolve-false-claims-act-allegations. [100] United States v.Paul J. Elmer and Caprice R. Bearden, No. 1:17-cr-0113 (S.D. Ind. Jun. 20, 2017). [101] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Former Pharmacy Compliance Director Pleads Guilty to Introducing Adulterated Drugs into Interstate Commerce and Conspiracy to Defraud the United States (Nov. 22, 2017), https://www.justice.gov/opa/pr/former-pharmacy-compliance-director-pleads-guilty-introducing-adulterated-drugs-interstate. [102] Id. [103] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, District Court Enters Permanent Injunction Against Alabama Pharmacy and Individuals to Prevent Distribution of Adulterated and Misbranded Drugs and Unapproved New Drugs (Jul. 5, 2017), https://www.justice.gov/opa/pr/district-court-enters-permanent-injunction-against-alabama-pharmacy-and-individuals-prevent. [104] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, District Court Enters Permanent Injunction Against Utah Pharmacy and its Executives to Prevent Distribution of Adulterated, Misbranded and Unapproved New Drugs (Aug. 7, 2017), https://www.justice.gov/opa/pr/district-court-enters-permanent-injunction-against-utah-pharmacy-and-its-executives-prevent. [105] Press Release, District Court Enters Permanent Injunction Against Philips North America and Two Executives to Limit Distribution of Adulterated External Defibrillators (Oct. 31, 2017), https://www.justice.gov/opa/pr/district-court-enters-permanent-injunction-against-philips-north-america-and-two-executives. [106] See U.S. Food & Drug Admin., Warning Letters 2017 (Dec. 21, 2017), https://www.fda.gov/Drugs/GuidanceComplianceRegulatoryInformation/default.htm (follow “Enforcement Activities by FDA” hyperlink; then follow “Warning Letters and Notice of Violation Letters to Pharmaceutical Companies” hyperlink; then follow “Warning Letters 2017” hyperlink). [107] See Warning Letter from Thomas J. Cosgrove, Dir., Office of Mfg. Quality, U.S. Food & Drug Admin. to Mr. Rajiv Malik, President, Mylan Pharmaceuticals, Inc. (Apr. 3, 2017), https://www.fda.gov/ICECI/EnforcementActions/WarningLetters/2017/ucm550326.htm. [108] Warning Letter from Francis Godwin, Acting Dir., Office of Mfg. Quality, U.S. Food & Drug Admin. to Mr. Guangjian Feng, Manager of Marketing, Guangdong Zhanjiang Jimin Pharmaceutical Co., Ltd. (Oct. 30, 2017), https://www.fda.gov/ICECI/EnforcementActions/WarningLetters/2017/ucm583939.htm. [109] Warning Letter from Francis Godwin, Acting Dir., Office of Mfg. Quality, U.S. Food & Drug Admin. to Mr. Il Chong Chung, President and Owner, Seindni Co., Ltd. (Dec. 5, 2017), https://www.fda.gov/ICECI/EnforcementActions/WarningLetters/2017/ucm588215.htm. [110] Warning Letter from Thomas J. Cosgrove, Dir., Office of Mfg. Quality, U.S. Food & Drug Admin. to Ms. Michele Boisvert, CEO, Homeolab USA Inc. (Aug. 2, 2017), https://www.fda.gov/ICECI/EnforcementActions/WarningLetters/2017/ucm570461.htm. [111] Warning Letter from Thomas J. Cosgrove, Dir., Office of Mfg. Quality, U.S. Food & Drug Admin. to Ms. Jeong Soo Ahn, CEO, Dasan E&T Co., Ltd. (Sept. 22, 2017), https://www.fda.gov/ICECI/EnforcementActions/WarningLetters/2017/ucm577650.htm. [112] Warning Letter from Francis Godwin, Acting Dir., Office of Mfg. Quality, U.S. Food & Drug Admin. to Mr. JongWoo Kim, CEO, Dae Young Foods Company, Ltd. (Nov. 20, 2017), https://www.fda.gov/ICECI/EnforcementActions/WarningLetters/2017/ucm586501.htm. [113] Warning Letter from Thomas J. Cosgrove, Dir., Office of Mfg. Quality, U.S. Food & Drug Admin. to Dr. Dhananjaya Alli, Managing Director, Vista Pharmaceuticals Limited (July 5, 2017), https://www.fda.gov/ICECI/EnforcementActions/WarningLetters/2017/ucm565861.htm. [114] Warning Letter from Thomas J. Cosgrove, Dir., Office of Mfg. Quality, U.S. Food & Drug Admin. to Mr. Bernard Armani, President, Deserving Health International Corp. (Dec. 18, 2017), https://www.fda.gov/ICECI/EnforcementActions/WarningLetters/2017/ucm589455.htm. [115] U.S. Food & Drug Admin., Draft Guidance for Industry: Expiration Dating of Unit-Dose Repackaged Solid Oral Dosage Form Drug Products (Aug. 8, 2017), https://www.fda.gov/downloads/Drugs/GuidanceComplianceRegulatoryInformation/Guidances/UCM070278.pdf. [116] U.S. Food & Drug Admin., Expiration Dating of Unit-Dose Repackaged Solid Oral Dosage Form Drug Products; Revised Draft Guidance for Industry; Availability, 82 Fed. Reg. 37229 (Aug. 9, 2017). [117] U.S. ex rel. King v. Solvay Pharmaceuticals, Inc., 871 F.3d 318, 323 (5th Cir. 2017) (per curiam); 31 U.S.C. § 3729(a)(1)(A)–(B). [118] Id. at 331–32. [119] Id. at 331. [120] Id. at 332. [121] Id. (emphasis added). [122] Press Release, U.S. Dep’t of Justice, U.S. Atty’s Office, S.D.N.Y., Manhattan U.S. Attorney Announces $370 Million Civil Fraud Settlement Against Novartis Pharmaceuticals for Kickback Scheme Involving High-Priced Prescription Drugs, Along With $20 Million Forfeiture of Proceeds From The Scheme (Nov.r 20, 2015), https://www.justice.gov/usao-sdny/pr/manhattan-us-attorney-announces-370-million-civil-fraud-settlement-against-novartis. [123] United States v. Nerey, 877 F.3d 956, 969 (11th Cir. 2017). [124] Id. (quoting United States v. Vernon, 723 F.3d 1234, 1256 (11th Cir. 2013)). [125] Id. [126] U.S. Dep’t of Health and Human Servs., Office of Inspector Gen., Notice of Modification of OIG Advisory Opinion No. 02-01 at 1 (Mar. 3, 2017), https://oig.hhs.gov/fraud/docs/advisoryopinions/2017/AdvOpn02-1-mod.pdf. [127] Id. at 2–3. [128] U.S. Dep’t of Health and Human Servs., Office of Inspector Gen., Redacted Final Notice of Rescission 06-04 at 1 (Nov. 28, 2017), https://oig.hhs.gov/fraud/docs/advisoryopinions/2017/AdvOpnRescission06-04.pdf. [129] Id. [130] Id. [131] Id. [132] Id. at 2. [133] Id. [134] Press Release, Office of Pub. Affairs, U.S. Dep’t of Justice, Drug Maker United Therapeutics Agrees to Pay $210 Million to Resolve False Claims Act Liability for Paying Kickbacks (Dec. 20, 2017), https://www.justice.gov/opa/pr/drug-maker-united-therapeutics-agrees-pay-210-million-resolve-false-claims-act-liability. [135] See id. [136] Allison Noon, United Therapeutics Settles Charity-Kickback Claim for $210 Million, Law360 (Dec. 20, 2017), https://www.law360.com/articles/996916/united-therapeutics-settles-charity-kickback-claim-for-210m; see, e.g., Regeneron Pharmaceuticals, Inc., Form 10-K, at 58 (filed Feb. 9, 2017), http://investor.regeneron.com/secfiling.cfm?filingid=1532176-17-8&cik. [137] Letter from Gregory Demske, Chief Counsel to the Inspector General, U.S. Dep’t of Health and Human Servs., Office of Inspector Gen., to James Stansel, Executive Vice President and General Counsel, Pharmaceutical Research and Manufacturers of America (Jan. 04, 2018), https://dlbjbjzgnk95t.cloudfront.net/0999000/999154/stansel-letter.pdf. [138] Id. [139] 42 U.S.C. § 1320a-7b(b)(2)(A). [140] 15 U.S.C. § 2301(6) (defining written warranty); 42 C.F.R. § 1001.952(g) (setting out the safe harbor for warranties). [141] U.S. Dep’t of Health and Human Servs., Office of Inspector Gen., OIG Advisory Op. 02-06 at 5 (May 14, 2002), https://oig.hhs.gov/fraud/docs/advisoryopinions/2002/ao0206.pdf. [142] U.S. Dep’t of Health and Human Servs., Office of Inspector Gen., OIG Advisory Op. 17-03 at 1 (Aug.18, 2017), https://oig.hhs.gov/fraud/docs/advisoryopinions/2017/AdvOpn17-03.pdf. [143] Id. at 2. [144] Id. at 2–3. [145] Id. at 5. [146] Id. at 5. [147] See id. at 5–6. [148] See id. [149] U.S. Dep’t of Health and Human Servs., Office of Inspector Gen., OIG Advisory Op. 17-07 at 1–2 (Dec. 4, 2017) https://oig.hhs.gov/fraud/docs/advisoryopinions/2017/AdvOpn17-07.pdf.  The five diagnoses that would be eligible under the Hospital Readmission Reduction Program are pneumonia, congestive heart failure, acute myocardial infarction, chronic obstructive pulmonary disease, and elective total hip or knee arthoplasty.  Id. at 2. [150] Id. [151] Id. at 7–8. [152] Id. at 8­9.  Also important to HHS OIG’s determination is that the manufacturer does not make many products that apply to the specific diseases at issue. [153] Id. at 8. [154] Id. at 9. [155] Id. [156] See FDA Reauthorization Act of 2017, Pub. L. No. 115–52, § 203, 131 Stat. 1005, 1013–14 (2017). [157] See id. §§ 201–03, 131 Stat. at 1013–15. [158] See id. §§ 701–02, 131 Stat. at 1054–56. [159] See id. § 702(b), 131 Stat. at 1055–56. [160] See Scott Gottlieb, FDA Announces New Steps to Empower Consumers and Advance Digital Healthcare, FDA Voice (July 27, 2017), https://blogs.fda.gov/fdavoice/index.php/2017/07/fda-announces-new-steps-to-empower-consumers-and-advance-digital-healthcare/. [161] U.S. Food & Drug Admin., Digital Health Innovation Action Plan, at 1 (2017), https://www.fda.gov/downloads/MedicalDevices/DigitalHealth/UCM568735.pdf. [162] Id. at 1, 5. [163] Id. at 7. [164] U.S. Food & Drug Admin., Draft Guidance for Industry and Food and Drug Administration Staff: Clinical and Patient Decision Support Software (Dec. 8, 2017), https://www.fda.gov/downloads/MedicalDevices/DeviceRegulationandGuidance/GuidanceDocuments/UCM587819.pdf. [165] Id. at 5–9. [166] Id. at 11–13. [167] See U.S. Food & Drug Admin., Draft Guidance for Industry and Food and Drug Administration Staff: Changes to Existing Medical Software Policies Resulting from Section 3060 of the 21st Century Cures Act (Dec. 8, 2017), https://www.fda.gov/downloads/MedicalDevices/DeviceRegulationandGuidance/GuidanceDocuments/UCM587820.pdf. [168] See id. at 7–9. [169] See id. at 4, 7–9. [170] See id. at 9–14. [171] U.S. Food & Drug Admin., Guidance for Industry and Food and Drug Administration Staff: Software as a Medical Device (SAMD): Clinical Evaluation (Dec. 8, 2017), https://www.fda.gov/ucm/groups/fdagov-public/@fdagov-meddev-gen/documents/document/ucm524904.pdf. [172] See id. at FDA Preface, 4–5. [173] Id. at 16–21. [174] U.S. Food & Drug Admin., Draft Guidance for Industry and Food and Drug Administration Staff: The Least Burdensome Provisions: Concept and Principles (Dec. 15, 2017), https://www.fda.gov/downloads/MedicalDevices/DeviceRegulationandGuidance/GuidanceDocuments/UCM588914.pdf. [175] Scott Gottlieb and Jeffrey Shuren, New Steps to Facilitate Beneficial Medical Device Innovation, FDA Voice (Dec. 14, 2017), https://blogs.fda.gov/fdavoice/index.php/2017/12/new-steps-to-facilitate-beneficial-medical-device-innovation/. [176] U.S. Food & Drug Admin., Draft Guidance for Industry and Food and Drug Administration Staff: The Least Burdensome Provisions: Concept and Principles, at 4–5 (Dec. 15, 2017), https://www.fda.gov/downloads/MedicalDevices/DeviceRegulationandGuidance/GuidanceDocuments/UCM588914.pdf. [177] Id. at 7. [178] Id. [179] Id. at 9–14. [180] Id. at 16. [181] Id. at 16–17; see also U.S. Food & Drug Admin., Guidance for Industry, Tool Developers, and Food and Drug Administration Staff: Qualification of Medical Device Development Tools (Aug. 10, 2017), https://www.fda.gov/downloads/medicaldevices/deviceregulationandguidance/guidancedocuments/ucm374432.pdf. [182] U.S. Food & Drug Admin., Draft Guidance for Industry and Food and Drug Administration Staff: Breakthrough Devices Program (Oct. 25, 2017), https://www.fda.gov/ucm/groups/fdagov-public/@fdagov-meddev-gen/documents/document/ucm581664.pdf. [183] Id. at 1. [184] Id. at 11–12; see also id. at 12–17. [185] Id. at 7–11. [186] U.S. Food & Drug Admin., Guidance for Industry and Food and Drug Administration Staff: Design Considerations and Pre-market Submission Recommendations for Interoperable Medical Devices (Sept. 6, 2017), https://www.fda.gov/ucm/groups/fdagov-public/@fdagov-meddev-gen/documents/document/ucm482649.pdf. [187] See id. at 3, 13–16. [188] U.S. Food & Drug Admin., Guidance for Industry and Food and Drug Administration Staff: Deciding When to Submit a 510(k) for a Change to an Existing Device (Oct. 25, 2017), https://www.fda.gov/downloads/medicaldevices/deviceregulationandguidance/guidancedocuments/ucm514771.pdf; U.S. Food & Drug Admin., Guidance for Industry and Food and Drug Administration Staff: Deciding When to Submit a 510(k) for a Software Change to an Existing Device (Oct. 25, 2017), https://www.fda.gov/ucm/groups/fdagov-public/@fdagov-meddev-gen/documents/document/ucm514737.pdf. [189] See Change to an Existing Device, supra note 32, at 8–9, 25–31; Software Change to an Existing Device, supra note 32, at 5–6, 15. [190] U.S. Food & Drug Admin., Guidance for Industry and Food and Drug Administration Staff: Technical Considerations for Additive Manufactured Medical Devices (Dec. 5, 2017), https://www.fda.gov/ucm/groups/fdagov-public/@fdagov-meddev-gen/documents/document/ucm499809.pdf. [191] See U.S. Food & Drug Admin., Guidance for Industry and Food and Drug Administration Staff: Classification of Products as Drugs and Devices and Additional Product Classification Issues (Sept. 25, 2017), https://www.fda.gov/downloads/RegulatoryInformation/Guidances/UCM258957.pdf. [192] U.S. Food & Drug Admin., Guidance for Industry and Food and Drug Administration Staff: Medical Device Accessories – Describing Accessories and Classification Pathways (Dec. 20, 2017), https://www.fda.gov/ucm/groups/fdagov-public/@fdagov-meddev-gen/documents/document/ucm429672.pdf. [193] See id. at 3, 8–12. [194] See U.S. Food & Drug Admin., 2017 Warning Letters: Inspections, Compliance, Enforcement, and Criminal Investigations, https://www.fda.gov/ICECI/EnforcementActions/WarningLetters/2017/default.htm?Page=1. [195] Warning Letter from Alberto Gutierrez, Office Dir., Office of In Vitro Diagnostics and Radiological Health, Ctr. for Devices & Radiological Health, U.S. Food & Drug Admin. to Arjen Winkel, President and CEO, QLRAD Netherlands (July 20, 2017), https://www.fda.gov/ICECI/EnforcementActions/WarningLetters/2017/ucm574153.htm. [196] Id. [197] Warning Letter from Joseph Matrisciano, Jr., District Dir., Division 1/East, N.E. District, Office of Medical Device and Radiological Health Operations, U.S. Food & Drug Admin. to Mr. James Phillip Jones, Chief Executive Officer, Dynavision International, LLC (Sept. 5, 2017), https://www.fda.gov/ICECI/EnforcementActions/WarningLetters/2017/ucm574774.htm. [198] Warning Letter from Alberto Gutierrez, Office Dir., Office of In Vitro Diagnostics and Radiological Health, Ctr. for Devices & Radiological Health, U.S. Food & Drug Admin. to Wilhelm Sänger, General Manager, DRG Instruments GmbH (Sept. 19, 2017), https://www.fda.gov/ICECI/EnforcementActions/WarningLetters/2017/ucm580968.htm; Warning Letter from Alberto Gutierrez, Office Dir., Office of In Vitro Diagnostics and Radiological Health, Ctr. for Devices & Radiological Health, U.S. Food & Drug Admin. to Else Beth Trautner, Chief Executive Officer, Euro Diagnostica AB (Sept. 20, 2017), https://www.fda.gov/ICECI/EnforcementActions/WarningLetters/2017/ucm578374.htm; Warning Letter from Alberto Gutierrez, Office Dir., Office of In Vitro Diagnostics and Radiological Health, Ctr. for Devices & Radiological Health, U.S. Food & Drug Admin. to Christoph Gauer, CEO, ELITech Group SAS (Sept. 20, 2017), https://www.fda.gov/ICECI/EnforcementActions/WarningLetters/2017/ucm581033.htm. [199] See U.S. Food & Drug Admin., 2017 Warning Letters: Inspections, Compliance, Enforcement, and Criminal Investigations, https://www.fda.gov/ICECI/EnforcementActions/WarningLetters/2017/default.htm?Page=1. [200] Warning Letter from Donald J. St. Pierre, Acting Dir., Office of In Vitro Diagnostics and Radiological Health, Ctr. for Devices & Radiological Health, U.S. Food & Drug Admin. to Dmitry Novikov, TELEMED (Nov. 14, 2017), https://www.fda.gov/ICECI/EnforcementActions/WarningLetters/2017/ucm589996.htm. [201] Warning Letter from Kelly Sheppard, Acting Program Div. Dir., Division 3 West, L.A. District, Office of Medical Device and Radiological Health Operations, U.S. Food & Drug Admin. to Dr. John M. Agee, President and Owner, Hand Biomechanics Lab, Inc. (Nov. 16, 2017), https://www.fda.gov/ICECI/EnforcementActions/WarningLetters/2017/ucm587328.htm. [202] See U.S. Food & Drug Admin., 2017 Warning Letters: Inspections, Compliance, Enforcement, and Criminal Investigations, https://www.fda.gov/ICECI/EnforcementActions/WarningLetters/2017/default.htm?Page=1. The following Gibson Dunn lawyers assisted in the preparation of this client update:  Stephen Payne, Marian Lee, John Partridge, Jonathan Phillips, Sean Twomey, Reid Rector, Allison Chapin, Sarah Erickson-Muschko, Emily Riff, Jasper Hicks, Julie Hamilton, Lucie Duvall, and Stevie Pearl. Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding these developments.  Please contact the Gibson Dunn lawyer with whom you usually work or any of the following: Washington, D.C. Stephen C. Payne, Chair, FDA and Health Care Practice Group (+1 202-887-3693, spayne@gibsondunn.com) F. Joseph Warin (+1 202-887-3609, fwarin@gibsondunn.com) Marian J. Lee (+1 202-887-3732, mjlee@gibsondunn.com) Daniel P. 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