Why False Claims Matter

Andrew SparksAssistant United States Attorney

Eastern District of Kentucky

• Any views expressed herein are those of the speaker, and are not to be deemed official positions of the Department of Justice.

The False Claims Act31 U.S.C. § 3729-33

• The False Claims Act is the primary civil weapon for combating fraud against the United States

• The Act is intended to reach all fraudulent attempts to cause the federal Government to pay money

• The Act allows the Government to recover the loss of the fraud and impose monetary penalties

History of the FCA

• Enacted in 1863 as a result of fraud during the Civil War

• Originally known as “Lincoln’s Law” or the “Informer’s Act”

• Adopted following a series of Congressional Hearings into fraud at the War Department

The Union Defrauded

• “For sugar it [the government] often got sand; for coffee, rye; for leather, something no better than brown paper; for sound horses and mules, spavined beasts and dying donkeys; and for serviceable muskets and pistols, the experimental failures of sanguine inventors, or the refuse of shops and foreign armories.”– 29 Harper’s Monthly Magazine 228 (1864)

Amendments

• The Act was amended in– 1943– 1986– 2009

The 2009 amendments expand the scope of the False Claims Act and make it easier to pursue cases

False Claims ActKey Features

- Redresses fraud involving federally funded programs

- Allows for treble damages- Additional penalties for each false claim or

statement- Joint and several liability for defendants

False Claim Act Recoveries

• Between the 1986 and 2009 over $23 billion recovered– Over $16 billion in HHS cases– $3.9 billion in DOD cases– $3 billion in other cases

What is a false claim?

• A claim is any request or demand for money that is

– Presented to an officer, employee, or agent of the United States, or

– is made to a contractor, grantee, or other recipient, if the money is spent on the Government’s behalf or advances a Government program or interest if:

• The Government provides any of the funding or• The Government reimburses the recipient of the claim

The Presentation Requirement

• The new amendment imposes liability on any person who “knowingly presents or causes to be presented a false claim for payment” to– An officer, employee, or agent of the United

States – A recipient of federal funds, if the requested funds

were to be used on the Government’s behalf or to advance a Government program

“Knowingly”

“Knowingly”

The terms "knowing" and "knowingly"--(A) means that a person, with respect to information--

(i) has actual knowledge of the information;(ii) acts in deliberate, ignorance of the truth or falsity of the information; or

(iii) acts in reckless disregard of the truth or falsity of the information; and

(B) require no proof of specific intent to defraud

Factors Relevant to “Knowledge”

Is the standard clear?The defendant’s own wordsThe defendant’s conductHas there been previous education by

government?Has the defendant been warned by

knowledgeable people (such as staff)Has the defendant attended training sessions?

Other Factors Relevant to “Knowledge”

Comparison to PeersMagnitude of alleged fraud“Compliance” Plans

Claim

• Grant documents• Loan applications• Direct request for payment– Invoices– Progress payments– Health care claims

Some Examples of Claims• A doctor bills Medicare for medical services not

rendered• A doctor bills Medicaid for medical services not

rendered• A defense contractor provides substandard weapons

to the military• A defense contractor provides substandard weapons

to the national guard if federal dollars were used• A road contractor defrauds the government on a

federal highway project• A road contractor defrauds the government on a state

highway project that receives federal funds

Additional False Claims

• Shortchanging the US on the amount of money or property to be delivered to the government

• Knowingly buying property from an officer of the Government who cannot legally sell the property

• Knowingly concealing or avoiding an obligation to pay the Government– “Reverse False Claim”

Reverse False Claims

• Reverse False Claim examples:– A doctor is paid twice for the same service. When

she realizes the Government’s error, she decides to keep the money.

– A contractor mistakenly bills the Government for a more expensive product than was delivered. Upon discovery, the contractor keeps the overpayment.

Who is the “Government”?

• Federal agencies• Entities dealing with federal money– Claims made to government contractors– Includes subcontractors– Government insured loans

What are Government claims?

• Claims made to states or grantees receiving federal money– DOT funding to states– Medicaid– Stimulus money– Grants to local governments– Amtrak

Who is subject to suit?

• Individuals• Corporations• Municipal corporations• Not the Federal Government• Not state entities

Scienter

• The FCA does not require proof of any specific intent to defraud.

Rather, bases liability on acting “knowingly”:- has actual knowledge of the information- acts in deliberate ignorance of the truth or falsity of the information; or- acts in reckless disregard of the truth or falsity of the information

Falsity

• Express• By omission• Implicit– Regarding the quality of goods provided– Regarding the process used to produce them– Regarding the contract formation– Regarding compliance with laws and regulations

Damages

• No actual damages required – can seek only penalties

• Treble damages• Penalties– $5,000 - $10,000 per false claim– Increased to $5,500-$11,000

Calculation of Damages

• Many different ways to calculate• Can range from difference between what the

Government paid and what the product or service was actually worth

• Could be a complete return of the payment

Statute of Limitations

• Six years from the date of payment of the claims, or

• Three years from the date of discovery by an official with authority to take action

• But never more than 10 years after the submission of the claim

Do I have a false claim?

• Key: look for federal money. If there is fraud and federal money is involved, directly or indirectly, you likely have a false claim.

Who do I tell?

• Your local US Attorney’s office• Ask for the Affirmative Civil Enforcement

attorney

Whistleblower Provisions (“Qui tam”)

• “A person may bring a civil action for a violation of section 3729 for the person and for the United States Government.”

• Procedure: File complaint under seal; disclose all material evidence to government; government investigates, decides whether to intervene

• Relator’s Share (15-25% if government intervenes; 25-30% if government does not)

Whistleblower Provisions

• Limitations on Who Can Be a “Relator” -- “original source”

• PPACA– Modifies definition of “original source”– Eliminates “based upon”– Removes jurisdictional bar

United States of America, ex rel. Robert A. Liter vs. Pfizer,

Inc.

Eastern District of Kentucky

Last month, Pfizer Inc. and its subsidiary Pharmacia & Upjohn Company Inc. agreed to pay $2.3 billion to resolve criminal and civil liability arising from the illegal promotion of certain pharmaceutical products. This is the largest health care fraud settlement in the history of the Department of Justice, the largest criminal fine of any kind imposed in the U.S., and the largest ever civil fraud settlement against a pharmaceutical company.

Tony WestAssistant Attorney General

Off-Label Marketing

Under the provisions of the Food, Drug and Cosmetic Act, a company must specify the intended uses of a product in its new drug

application to the FDA. Once approved, the drug may not be marketed or promoted for any use not specified in the application and

approved by the FDA.

National Case

• 10 Relators• 3 Districts• 7 Cases in the District of Massachussetts• 1 Case in the Eastern District of Pennsylvania• 1 Case in the Eastern District of Kentucky

Drugs Involved in the Scheme

Bextra Geodon Zyvox Lyrica

Breakdown of Civil Settlement

$502,524,316 for Bextra $301,462,065 for Geoden $97,945,019 for Zyvox $48,223,886 for Lyrica $49,844,714 for Kickbacks

$1 Billion Collectively to Medicaid Participating States

Criminal Penalties$1.3 Billion

$1.195 Billion Criminal Fine $105 Million Forfeited

Lyrica (Pregablin) Approved To Treat

Pain from damaged nerves that happens with diabetes

Pain from damaged nerves that follows healing of shingles

Partial seizures, when taken with other medications to treat seizures

Fibromyalgia

Among other uses, sales staff were instructed to promote Lyrica to

treat the following:

Bipolar Disorder Anxiety Disorder Multiple Sclerosis Migraine Headache

Statements Made by Sales Reps

Best medication for pain and inflamation Best option for neuropathic pain patients Less costly and more effective than

Gabapentin Twice the efficacy with safety and tolerability

than Neurontin Better than any agent for diabetic and post

therpetic neuralgia

Calculating the Damages

Two types of damages:1. Off-label promotion2. Switching prescriptions to Lyrica

The Cost of Doing Business?

Pfizer – 2004 – Neurontin

Payment: $430 million$190 million civil$240 million criminal

Pfizer (Pharmacia & Upjohn)– 2007 – gentropinPayment: $19.68 million

Pfizer – 2002– LiquitorPayment: $49 million

Bristol-Meyers Squib – 2007– AbilfyPayment: $515 million

Purdue-Pharma – 2007– OxycontinPayment: $634 million

Schering-Plough – 2006–Temodar and Intron APayment: $435 million

Cephalon – 2008– Actiq, Gibitril, and Provigil• Payment: $425 million

Why False Claims Matter

Andrew SparksAssistant United States Attorney

Eastern District of Kentucky