False Claims Act 2023: What Every Health Care Entity Working with the Government Needs to Know

Health Highlights

In our July 18, 2023, webinar titled “False Claims Act 2023: What Every Health Care Entity Working with the Government Needs to Know,” Manatt posed the following hypothetical and asked three questions about it in our live poll. Below we share the poll results—and give our views on the hypothetical. Thanks once again to all who participated in the webinar and gave us thoughtful results in the poll. The free webinar is available on demand here, for those who missed the program or would like to view it again.

The Hypothetical

You are the general counsel of a pharmaceutical company.

The Company would like to enter into an agreement with a safety net hospital network which would provide that each time a Medicaid patient was prescribed one of the Company’s most expensive drugs while in the hospital, the Company would cover the co-pay for the drug after the patient is discharged.

In exchange, the hospital would provide significant anonymized medical information about each patient.

There are no alternative drugs to treat the condition, and the patient must continue the regimen at discharge.

You know that there is Office of the Inspector General (OIG) guidance that finds that covering a patient’s co-pay could be viewed as a violation of the kickback statute, but you believe that you have a good legal argument that because the drug has already been prescribed and there are no alternatives to this drug, the Pharmaceutical Company is not getting any new patients in exchange for the co-pay but, rather, data to be used to monitor the safety and efficacy of the drug.

The Analysis

Question 1: Would you greenlight the agreement?

Answer: Eighty-three percent of the webinar audience was appropriately cautious and said no. The risks to entering into this agreement would be that the Company could be viewed as providing an indirect benefit to the hospital via its patients in exchange for inducing the hospital to prescribe the drug, and the hospital in turn is providing a benefit to the Company in the form of anonymized patient data. The patient’s co-pay is being waived, inducing the patient to get the drug while having the health care benefit program shoulder the cost. The Company (as well as the hospital and even the patient) risks not only civil False Claims Act (FCA) liability here but also criminal prosecution for violation of the Anti-Kickback Statute (AKS) itself.

But look again. There are no alternative drugs available to treat the condition, the regimen must continue at discharge and the co-pay itself does not come into play until the patient is discharged.

In addition, there is always the option of repaying the “overpayment” within the first 30 days from the payment of the co-pay and cooperating. Consider, therefore, the following questions:

  • Is the “co-pay” remuneration to the patient? Under the plain meaning of the statutory language, it would be deemed “remuneration” under the AKS. In addition, it could be considered an indirect inducement to the hospital to prescribe the drug.
  • Is the requisite intent present? Although in the Pfizer case, the district court ruled that the element of intent for a similar arrangement was met, other cases that have interpreted the intent needed for a criminal statute alleging “inducement,” including the Supreme Court, have required a “corrupt” intent reflecting a real criminal intent to violate the law. See United States v. Hansen, No. 22-179 (June 23, 2023). But see Schutte, where the court rejected an interpretation based on a different statute than the one at issue. Arguably, there is no corrupt intent in our hypothetical and there is no quid pro quo given the fact that the patients were prescribed the drug long before the co-pay would be provided. The Company is not gaining a single patient as a result of the co-pay. Also, if this is a kickback, the patient is also violating the AKS—a criminal statute—but proving intent on the part of the patient would seem to be nearly impossible.
  • Under the proposed arrangement, is it likely that, regardless of whether the Company waives the co-pay or not, the patient will take the drug and submit the claim? In other words, would the patient not submit the claim but for the waiver of the co-pay? If the answer to the question is the claim will be submitted regardless of the co-pay—it will just be very costly to the patient—and if you are in the Sixth or Eighth Circuit, you may be in luck as they apply the “but for” test and that test is not met, lowering your risk of violating the AKS. If you are in the First Circuit, however, this fact may not save you. The remuneration may have a sufficient “causal connection” to conclude that the claim “resulted” from the remuneration, exposing you to AKS risk.

Question 2: Do you think there is a basis for a whistleblower to bring an FCA claim against the pharmaceutical company?

Answer: Seventy-seven percent of our webinar audience said yes to this question. However, given the current circuit split, FCA liability under this scenario depends on where the defendant is and where the conduct takes place. We are watching to see if the Supreme Court weighs in at some point to resolve the circuit split.

The First Circuit does not require a “but for” test where AKS violations are used as the basis for FCA liability—that is, the claim would not have been filed but for the remuneration provided. The Sixth and Eighth Circuits do require such a test. An argument could be made that in our hypothetical, the “but for” test cannot be met; the patients for which claims will be filed with Medicare and Medicaid were prescribed the drugs long before any co-pay was offered, and they must take the drugs after discharge. These facts establish that the claims will be filed regardless of whether the co-pay is offered. On the other hand, if the pharma company publicly advertises, or at least advises the hospital, that it will cover the co-pay in advance of the patient being treated in the hospital, that would strengthen the “but for” argument.

In its defense, the Company could point to certain OIG advisory opinions that allow remuneration under certain situations where, as is arguably the case here, the patient is the main beneficiary of the arrangement and there is no alternative treatment. In addition, the advisory opinions could support a legal argument on a motion to dismiss or for summary judgment that there can be no plausible inference that the Company knew the arrangement was unlawful. A relator might counter this argument by citing Schutte and pointing to numerous other advisory opinions regarding remuneration, arguing that intent under these circumstances is a question of fact.

Question 3: What if instead of waiving the co-pay, the agreement was simply that the hospital agreed to include information about the drug—including where the patient could get the drug at a discount—in the patient’s discharge package? Would that make a difference for an FCA claim?

Answer: Three-quarters of respondents said yes, it would make a difference for an FCA claim if the agreement was simply that the hospital agreed to include information about the drug. Under the Martin v. Hathaway analysis, there is no payment component—just information—and thus there is no “remuneration” being provided to the patients or the hospital. Indeed, labeling this as an AKS violation would seem to be precisely what the Martin court warned against. That said, the arrangement will probably result in patients getting discounted drugs, clearly “remuneration.” Is that a problem? First, with certain additional factors, these could be permissible discounts under the AKS drug discount safe harbors. Second, the same arguments that can be made to support the waiver apply here; there is no inducement since the drug was prescribed long before the discharge and the patient’s claim to his or her health care benefit program will likely be presented regardless of whether the patient will need to cover the co-pay—in other words, the “but for” test cannot be met. In short, an AKS violation would be harder to prove, and without one, the “particularity” needed to plead a sustainable FCA complaint would be equally difficult.



pursuant to New York DR 2-101(f)

© 2024 Manatt, Phelps & Phillips, LLP.

All rights reserved