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Defending Qui Tam and Fraud Claims:Current Strategies and Developments
Juanita Brooks, PrincipalRoger Denning, PrincipalJose P. Sierra, PrincipalFish & Richardson P.C.
Life Sciences Intellectual Property Summit 2011
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Juanita Brooks Principal, Fish & Richardson P.C. Currently assisting with:
– United States ex rel. Williams v. Renal Care Group, Inc., – United States ex rel. Gonzalez v. Fresenius Medical Care
Holdings, Inc. et al.– United States ex rel. Doe v. Fresenius Medical Care
Holdings, Inc. et al. Previously assisted with:
– United States ex rel. National Health Labs– United States ex rel. Dr. Jeffrey Rutgard– United States ex rel. Lucas Aerospace– United States ex rel. Cubic Corporation
The Panel
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Roger Denning Principal, Fish & Richardson P.C. Currently assisting with:
– United States ex rel. Williams v. Renal Care Group, Inc., – United States ex rel. Gonzalez v. Fresenius Medical Care
Holdings, Inc. et al.– United States ex rel. Doe v. Fresenius Medical Care
Holdings, Inc. et al.
The Panel
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Jose Sierra Principal, Fish & Richardson P.C. Litigation and Risk Management, focusing on pharmaceutical and medical device compliance, corporate governance internal investigations, and qui tam defense
Previously, Chief Compliance Officer for SepracorInc. and Kos Pharmaceuticals Inc.; former Assistant U.S. Attorney, District of New Jersey
The Panel
Current Strategies
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Qui Tams and False Claims
The New Legal Landscape Fraud Enforcement and Recovery Act of 2009 (“FERA”) Patent Protection and Affordable Care Act of 2010 (“ACA”)
Wall Street Reform and Consumer Protection Act of 2010 (“Dodd‐Frank”)
FCPA and UK Bribery Act Park Doctrine
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The New Legal Landscape FERA and ACA amended the False Claims Act (“FCA”), the principal statute used in Qui Tam suits and Government investigations
Dodd‐Frank, FCPA, Park Doctrine – all part of Government toolbox to pursue pharma / bio‐tech/medical device companies
All incentivize company employees to become whistleblowers and seek qui tam relator counsel, possibly by‐passing company’s compliance program
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The Government’s Perspective March 4, 2010 – FDA correspondence with Senator Grassley:– Committee recommendations included: “increase the appropriate use of misdemeanor prosecutions, a valuable enforcement tool, to hold responsible corporate officials accountable.”
September 21, 2010 – Ann Ravel, Deputy Assistant Attorney General, who oversees DOJ’s OCL, stated at an FDLI conference: – “The Department is intent on identifying and, where appropriate, prosecuting the individuals who are responsible for illegal off‐label marketing.”
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“[O]ur focus and resolve in the FCPA will not abate and we will be intensely focused on rooting out foreign bribery in your (the pharmaceutical) industry.”*
Assistant Attorney General Lanny Breuer, November 12, 2009
*Followed by FCPA “(sweep) letters of inquiry” directed at pharmaceutical companies.
The Government’s Perspective
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“Let me be clear, prosecuting individuals is a cornerstone of our enforcement strategy because, as long as it (bribery) remains a tactic, paying large monetary penalties cannot be viewed by the business community as merely “the cost of doing business” The risk of heading to prison for bribery is real from the boardroom to the warehouse.”*
U.S. Attorney General Eric Holder
* 2004: DOJ prosecuted 2 individuals
2009‐10: DOJ prosecuted approx. 50 individuals
The Government’s Perspective
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The Relator’s Bar Perspective
“We are expanding very much due to Dodd‐Frank because the incentives are strong for people who have information about fraud to come forward.” David Kovel, Kirby McInerney, LLP,*
*Dodd‐Frank Spawns Cottage Industry, reported in Market Watch, December 7, 2010.
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The Relators’ Bar Perspective
“Clearly there is already developing a plaintiff’s bar of attorneys that will be trolling for business because of the windfall that can go to the whistleblower and their counsel.” George Terwilliger, White & Case LLP,*
*Dodd‐Frank Spawns Cottage Industry, reported in Market Watch, December 7, 2010.
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The Government and Relators’ Bar Perspective
Like the old McDonald’s Slogan: “Billions of [fines] Served.”
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Areas of Greatest Concern for Our Clients
A. Retention of “Overpayments” more than 60 days (FERA and ACA)
B. More Whistleblowers!C. Greater Coordination between the
Government and WhistleblowersD. De Facto Strict Liability for ManagementE. Financial Incentives to Forego Hotline
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Retention of Overpayments— 60 day rule created to allow for normal
reconciliation of Medicare, Medicaid, Contract payments
— Companies must report overpayments and explain reasons for any overpayments
— However, inflated interim payment(s) may trigger the “obligation” to repay within 60 days, not following reconciliation
— Purpose of the rule is to ensure that companies are not rewarded for failing to have internal controls and compliance program to detect fraud
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Areas of Greatest Concern for Our Clients
More Whistleblowers!—Contractors or Agents of Company now qualify under FERA and ACA
—“Public Disclosure” bar weakened under ACA• Even WikiLeaks could provide source material for whistleblowers!
— Anybody can be a whistleblower under Dodd‐Frank
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Areas of Greatest Concern for Our Clients
Greater Coordination between the Government and Whistleblowers– Delegation of CID authority to USAO offices makes it easier to conduct parallel criminal / civil investigations
– AUSA can share information from CID with Relator; unclear what limits individual AUSA may require, if any
– Even if Government doesn’t intervene, Relator has the benefit of CID information
– ACA requires greater coordination between states; HHS must establish data collection program
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Areas of Greatest Concern for Our Clients
De Facto Strict Liability for Management– Liability increased, even in the absence of “intent” or “knowledge” by senior management Materiality instead of “intent to defraud” under
FERA Park Doctrine strict liability
– Liability for third‐party conduct Liability not limited to employees, but expands to
include contractors and agents, particularly in FCPA context
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Areas of Greatest Concern for Our Clients
Financial Incentives to Forego Hotline– Whistleblowers incentivized to forego internal reporting through the hotline and to retain a qui tam lawyer, especially under Dodd‐Frank
– SEC regulations won’t be published until later this year
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Areas of Greatest Concern for Our Clients
Taking Proactive Steps —Now
A. Enhance Compliance ProgramB. Ongoing Risk AssessmentsC. Internal Messaging
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Taking Proactive Steps —Now
Enhance Compliance Program – Fortify Code of Conduct and Policies by requiring “affirmative obligation” to report suspected misconduct Must emphasize that failure to “speak up” is a violation, particularly for managers Put standard “speak up,” non‐retaliation and whistleblowing clauses across all policies
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Enhance Compliance Program – Training must incorporate: Affirmative obligation to “speak up” and non‐retaliation duties Live, scenario‐based training Online training to document employee attendance and competence
– Note: Building the “counter‐narrative” starts with training
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Taking Proactive Steps —Now
Enhance Compliance Program – Field‐based Monitoring / Auditing – Now Critical C.I.A.s and government pronouncements make clear that real‐time monitoring is necessaryOutsource field monitoring if necessary Conduct random and targeted audits
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Taking Proactive Steps —Now
Enhance Compliance Program –Don’t Forget to follow the money!–Modify Incentive Compensation Plans (ICPs) for sales reps to dis‐incentivize non‐compliant behavior Segregate by specialty, if possible If not possible, develop algorithm or formula for excluding HCPs with problematic prescribing patterns Incorporate financial penalties for non‐compliance whenever possible
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Taking Proactive Steps —Now
Enhance Compliance Program – Foreign activities (e.g., clinical trials, supply chain, etc.) require strong due diligence program for third party vendors, especially for FCPA purposes
– Examples of third‐party intermediaries Consultants, Agents, Representatives, Distributors, Resellers, Introducer/Finder, Joint‐Venture Partners
– Due Diligence requires meaningfully investigating foreign agents and partners
– Document, document, document25
Taking Proactive Steps —Now
Ongoing Risk Assessments and Improvements to Internal Controls– Look at problems identified through audits and internal investigations Build into next risk assessment
– Test internal controls. Test, test, test again– Consider testing controls for “Leaks”
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Taking Proactive Steps —Now
Internal Messaging – Broadcast, broadcast, broadcast– Employees need to hear about compliance efforts on a regular basis Employees who believe Company is compliant and is listening to them will be less likely to become whistleblowers
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Taking Proactive Steps —Now
Developing the "Counter-Narrative"– Effective Internal Investigation
Working with in‐house counsel and compliance Finding all material facts good and bad Developing Company story that is accurate, truthful anda positive alternative to the other "Narrative“
Almost all Health Care Companies have a Positive Story to Tell!
– Cooperation and Voluntary Disclosure NPA's, DPA's, CIA's
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After the Suit or Subpoena has Arrived
Some Potentially Good News
U.S. v. Caronia The Lauren Stevens case
Government may be on the Defensive!!
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Thank you!