A Perfect Storm By Randall L. Christian, Jason H. Casell, and Francisco T. Rivas Qui Tam Actions in the

Type the phrase “qui tam” into By 1943, Congress had amended the on behalf of the . The whis- FCA, effectively gutting the role of whistle- tleblower, called a “relator,” shares in any your favorite search engine and blowers so that they could only sue under eventual recovery, which can range from the qui tam provisions if the government 15 to 30 percent. A relator’s total share is look at the list of results. You was otherwise unaware of the information determined by the government and divided underlying the action. The money that they among relators if more than one is involved will see pages and pages of could recover was also reduced to a max- in a case. imum of 25 percent if the government de- A relator’s attorney must write a com- plaintiffs’ law firms touting how they have clined to become involved in a case and 10 plaint that includes all of the relator’s successfully recovered millions of dollars percent if the government became involved. knowledge of the alleged and also on behalf of their clients. Between 1943 and 1986, individuals serves a written disclosure statement to But what exactly is a “qui tam” action, filed relatively few qui tam actions under the Department of Justice (DOJ) for the and why have these lawsuits risen so the FCA, and faced uphill relator with the DOJ listing known and sharply since the late 1980s? “Qui tam” battles maintaining the claims that they relevant facts. Sometimes whistleblowing derives from the Latin phrase “qui tam pro brought. But congressional interest in the can have a “race to the courthouse” ele- domino rege quam pro se ipso in hac parte FCA was renewed in the 1980s with the ment. The first to file a case sequitur,” which means “who as well for indictments of numerous, leading federal under the FCA preempts all others. This the king as for himself sues in this matter.” contractors. In 1986, to combat fraud com- rule is designed to encourage whistleblow- Qui tam actions date back to medieval mitted against the government, Congress ers promptly to report fraud. England, and most of the original 13 col- amended the FCA, specifically defining The action is filed under seal for 60 days onies enacted qui tam legislation. But it fraudulent intent and expanding liability while the DOJ investigates, and the DOJ was not until 1863, when Congress passed for submitting false claims resulting from may seek extensions for good cause, which the (FCA) at the urging ignorance or reckless disregard for the may last for years. During the sealed inves- of President Abraham Lincoln, that these truthfulness of the information in a claim. tigation period, the government’s attorneys actions became codified in modern Ameri- The current FCA, as amended by the and investigators meet with the relator and can law. The FCA came into being largely in Federal Enforcement Recovery Act of 2009 his or her attorney to review the case. response to fraudulent suppliers who sold (FERA), prohibits knowingly presenting Under the FCA, a relator cannot have the Union army faulty ammunition, rancid a false or fraudulent claim to the federal acquired his or her information from pub- food, and lame horses and mules. The 1863 government. This extends to those who lic sources unless the relator is an “original GOVERNMENTFCA ENFORCEMENT established AND CORPORATE civilCOMPLIANCE and criminal penal- “cause” the submission of a false claim, not source” of the information, defined under ties and included a qui tam provision per- just those who submit claims. “Knowingly” the FCA as someone who has direct and mitting a private party, or whistleblower, refers to actual knowledge, reckless disre- independent knowledge of the information to sue on behalf of the government and gard, or deliberate ignorance of the falsity and who has reported it to the government to recover 50 percent of the damages. A of the information. The amendment does before filing a case. This “public disclosure” “whistleblower” could file what became not require specific intent to defraud. Vio- bar helps to ensure that qui tam suits are known as “parasitic” claims because the lators face fines of $5,000 to $11,000 per not filed by people who have not contrib- law permitted him to file a civil suit after claim, plus treble damages. uted anything to uncovering the important learning that a grand jury had criminally The FCA qui tam provisions permit pri- elements of cases. indicted a war profiteer. vate parties, or whistleblowers, to file suit At the conclusion of the sealed investi- gation period, the DOJ must decide ■■ Randall L. Christian is a partner and Jason H. Casell is a senior counsel in the Austin, Texas, office of whether to intervene and prose- Bowman and Brooke LLP. Mr. Christian represents pharmaceutical companies in mass tort product lia- cute the case or decline to inter- bility litigation and recruits and develops expert witnesses testifying in national pharmaceutical product vene. If the government opts to join liability litigation. Mr. Casell represents phar- a case, the government and the rela- maceutical companies in litigation in state and tor’s attorney jointly conduct the federal court and has extensive experience in case, with the government acting as electronic discovery matters involving govern- the lead counsel. If the government ment agencies as well as mass tort litigation. decides not to intervene, the relator Francisco T. Rivas is vice president and chief may pursue the case individually. compliance officer of Spectranetics Corporation. The DOJ can later intervene upon a showing of good cause.

28 n In-House Defense Quarterly n Spring 2011 © 2011 DRI. All rights reserved. In pharmaceutical actions, most false represents the majority of these cases. For Zyprexa. Lilly’s settlement included a $515 claims involve off-­label promotion, kick- example, in 1987, only three of the 30 total million criminal fine, one of the largest backs, pricing allegations, and reimburse- new federal qui tam lawsuits, or 10 per- health-­fraud-­related fines ever imposed on ment abuses. This article focuses on false cent, of the cases involved allegations of a corporation. Sales representative Robert claims involving off-­label promotion. health-care fraud. In 2009, the total num- Rudolph and other relators shared a $78.8 ber of federal qui tam suits jumped to 433, million recovery. What Is Off-Label Promotion? and a whopping 280, or nearly 65 percent, Most recently, in October 2010, Novar- The Food, Drug, and Cosmetic Act (FDCA) of those alleged health-care fraud. Partly tis Pharmaceuticals agreed to pay $422.5 requires that all a product’s labeling be con- million to resolve criminal and civil lia- sistent with the product’s approved use or n bility stemming from the off-­label market- uses, as indicated by the Food and Drug ing of one of its drugs. The company agreed Administration (FDA). This requirement The combination of the to plead guilty to a misdemeanor and pay includes accompanying materials such as a $185 million combined criminal fine and visual aids, statements made by sales rep- huge amounts of money at forfeiture for the off-­label promotion of Tri- resentatives when marketing products to leptal in violation of the FDCA. The FDA physicians, and product claim ads, which stake for companies, large approved Trileptal as an anti-­epileptic for must exhibit “fair balance,” meaning that the treatment of partial seizures, but not for a drug’s advertising must present the risks recoveries for whistleblowers psychiatric, pain, or other uses. and benefits of that particular drug. Novartis also agreed to pay $237.5 mil- Promoting a product for an unapproved and their attorneys, and lion to resolve civil allegations under the use could violate one or more sections of FCA that the company unlawfully mar- the FDCA. Physicians are free to prescribe vast government resources keted Trileptal and five other drugs, and drugs for an off-­label use, but the FDCA thereby caused false claims to be submit- prohibits pharmaceutical companies from to prosecute these cases ted to government health-care programs. urging doctors to prescribe drugs for unap- Specifically, the civil settlement resolves proved uses. Section 502 requires that the constitute the elements allegations that Novartis illegally promoted labeling be accurate, and Section 505 gov- Trileptal for a variety of uses, including erns labeling and other communications of a perfect storm. psychiatric and pain uses, which were not that can establish a product’s new, intended medically accepted indications and, there- use. To determine whether a company has n fore, not covered by those programs. engaged in off-­label promotion, the govern- The civil settlement also resolves the qui ment examines, among other things, state- in response to this explosion of qui tam tam lawsuits filed. As part of the resolution, ments by sales representatives, incentives activity, the federal government autho- the whistleblowers, all former Novartis for off-­label uses, references to unapproved rized $165 million to permit the DOJ to employees, will receive payments totaling uses in the marketing of business plans, hire fraud and investigators more than $25 million from the federal and safety concerns with unapproved uses. for 2010 and 2011. The combination of the share of the civil recovery. Whether a drug is approved by the FDA huge amounts of money at stake for com- for a particular use will primarily deter- panies, large recoveries for whistleblowers Process: Off-Label Promotion mine whether a prescription for that drug and their attorneys, and vast government Qui Tam Actions Initiated by is reimbursable by government payors. In resources to prosecute these cases consti- Sales Representatives most cases, government reimbursement is tute the elements of a perfect storm. Before a company ever learns about a qui only available for covered outpatient drugs, tam suit, people engage in many activities which do not include drugs prescribed for Examples of Large Qui behind the scenes. First, a whistleblower, off-­label uses. A medically accepted indi- Tam Recoveries generally a present or past employee of a cation is one approved under the FDCA In the largest health-fraud settlement in targeted company, approaches an attor- or included in certain drug compendia, history, paid $2.3 billion in Septem- ney with information about the company’s such as the American Hospital Formulary ber 2009, including $1.3 billion in criminal alleged wrongdoing. As mentioned, the Service Drug Information and American fines, for off-­label marketing of the pain- law requires the relator to be an original Medical Association Drug Evaluations. killer Bextra and several other drugs. Six source, a concept clarified by the Supreme The financial incentives created by the whistleblowers shared a payment totaling Court in Rockwell International v. United FCA have led to an explosion of whistle- more than $102 million from the federal States ex rel. Stone, 549 U.S. 457 (2007). blower lawsuits and federal investigations. share of the civil recovery. In this case, the Court held that in an FCA As of September 2009, the DOJ was actively Eli Lilly paid $1.4 billion in January 2009 qui tam action based on publicly disclosed investigating 996 whistleblower cases, up to settle investigations into allegations of allegations, the requirement that a relator from 875 cases in 2008. Health-care fraud illegal marketing of its antipsychotic drug must be the original source of the informa-

In-House Defense Quarterly n Spring 2011 n 29 tion is jurisdictional and may be raised at copy documents from a company. It is very litigation frequently will ensue as a result any time, a meritorious relator must have important during this stage that in-house of the probable decline in market cap of a “direct and independent knowledge of the counsel and outside counsel prevail upon company once an investigation becomes information on which the allegations are senior company management the impor- public. based,” as required by 31 U.S.C. §3730(e) tance of conducting an internal investiga- When a case is unsealed, the next cru- (4)(B), and the government’s intervention tion. This is the best way to educate counsel cial step is to attack the pleading. Federal in the case does not provide an indepen- of the existence and extent of potential lia- Rule of Civil Procedure 9(b) applies in FCA dent basis of jurisdiction that bootstraps a bility and is critical to mounting a suc- cases. Fed. R. Civ. P. 9(b) requires that in relator into becoming an original source. “alleging fraud or mistake, a party must A relator must have knowledge as an n state with particularity the circumstances original source of off-­label marketing tac- constituting fraud or mistake.” Courts have tics such as Attorneys representing a rejected relators’ arguments that Fed. R. • Creating financial incentives for physi- Civ. P. 9(b) does not apply to FCA cases. See, cians to write prescriptions for the off-­ company never want to know e.g., United States ex rel. Karvelas v. Melrose label use of FDA; Wakefield Hosp., 360 F.3d 220, 228 (1st Cir. • Targeting high prescribers and key opin- less than the government. 2004), cert. denied, 543 U.S. 820 (2004). ion leaders; The Fed. R. Civ. P. 9(b) standard requires • Paying kickbacks to physicians for off-­ n that a relator must “set forth the ‘who, label “research”; what, when, where, and how’ of the alleged • Paying kickbacks tied to sales represen- cessful defense. Attorneys representing a fraud.” United States ex rel. Thompson v. tative incentive compensation payments; company never want to know less than the Columbia/HCA Healthcare Corp., 125 F.3d • Paying “unrestricted educational government. At a minimum, an investiga- 899, 903 (5th Cir. 1997). In complex health- grants” for off-­label promotion; and tion should involve interviewing company care cases, a relator may allege “schemes” • Paid travel, expensive dinners, or lavish employees and interviewing the whistle- but must have “some examples of actual gifts. blower, without running afoul of FCA anti-­ false claims.” United States ex rel. Clau- After a relator and his or her attorney retaliation provisions, addressed later in sen v. Lab. Corp. of Am., Inc., 290 F.3d determine if a case is feasible, the attorney this article. All aspects of communication 1301, 1314 n.25 (11th Cir. 2002). A plain- will write a legal complaint incorporating during the investigation should be kept tiff must show that the defendant made a the relator’s knowledge of alleged fraud confidential in an effort to preserve the false record or statement for the purpose and files it in federal district court, which attorney-­client privilege. of getting a false claim paid or approved by places it under seal. The relator will also When the DOJ and a U.S. attorney’s the government, and the defendant’s false sign a written disclosure statement listing office become involved in a case, it usu- record or statement caused the government all known relevant facts that the attorney ally generates media attention. A com- to actually pay a false claim, either to the GOVERNMENTwill ENFORCEMENTfile withAND CORPORATE the COMPLIANCEDOJ. Following the filing pany should prepare for this by appointing defendant itself or to a third party. Hopper of the complaint in federal district court, a single media liaison to handle all media v. Solvay Pharmaceuticals, 588 F.3d 1318, the court seals the complaint, and it is not matters related to the qui tam action. Do 1327 (11th Cir. 2009). served to the defendant. Rather, the gov- not let your company be caught off guard. On May 20, 2009, FERA amended 31 ernment then has 60 days to investigate Whether a company uses its internal pub- U.S.C. §3729(a)(2). This section of the FCA and determine whether to intervene. The lic affairs department or hires an outside previously imposed liability on anyone who government will often ask for a time exten- public relations firm will probably depend “knowingly makes, uses or causes to be sion to investigate, and a case may remain on the case issues and potential exposure a made or used, a false record or statement under seal for a year or longer. case creates for the company. The greater to get a false or fraudulent claim paid or a company’s potential exposure, the more approved by the Government.” The provi- What to Do When You Learn of a it makes sense for the company to hire sion now imposes liability on anyone who Possible Action Against Your Company an outside public relations firm that spe- “knowingly makes, uses or caused to be If the government chooses to pursue a case cializes in crisis management. Whether a made or used, a false record or statement and unseals it, a company should take company employee or a specialist retained material to a false or fraudulent claim.” numerous steps. First, a company should specifically for the situation, the media liai- This change took effect retroactively as if retain outside counsel. In conjunction with son should draft press releases and handle enacted on June 7, 2008, and it applies to outside counsel, a company should pre- media inquiries as needed in consulta- all claims under the FCA that were pend- serve all relevant documents and begin tion with in-house and outside counsel. ing on or after that date. the process of gathering them. Some infor- Consider having outside counsel retain a Some examples of specific evidence that mation may not be available to a company public relations firm as this may provide a relator could use to establish off-­label to prepare its defense, and in some situa- additional protection of attorney-­client marketing include: tions the government will collect all hard privilege. Keep in mind that shareholder Qui Tam in Pharmaceuticals  page 48

30 n In-House Defense Quarterly n Spring 2011 Qui Tam in Pharmaceuticals  page 30 the same seniority status that employee, to believe were taken in contemplation of a • r Monthly o annual prescription tracking contractor,r o agent would have had but qui tam action against the employer.” McK- reports on targeted physicians; for the discrimination, 2 times the amount enzie v. Bellsouth Telecommunications, Inc., • Invitations to physicians to dinners or of back pay, interest on the back pay, and 219 F.3d 508, 518 (6th Cir. 2000). resort weekends; compensation for any special damages Amending the FCA through FERA in • Sales training PowerPoint slides or sales sustaineds a a result of the discrimination, 2009 broadened the anti-­retaliation pro- training manuals; including litigation costs and reasonable visionsf o the FCA to protect not only • f Copies o sales-­coaching sheets used to attorneys’ fees.” 31 U.S.C. §3730(h)(2). employees, but also contractors and agents coach sales representatives and medical Courts have ruled that to establish a vio- of federal contractors. Representative How- liaisonsn o language to use when pro- lation,n a employee must satisfy three ele- ard Berman (D-Calif.), the House spon- moting drugs to physicians; ments: (1) the employee must have been sorf CA o the F amendment explained that • Advisory boards that are either too engagedn i conduct protected by the FCA; “this amendment will ensure that Section large, too frequent, or used more for (2) the employer must have known that the 3730(h) protects physicians from discrimi- promotion rather than to elicit informa- employee was engaged in such conduct; nationy b health care providers that employ tion from health-care providers; and (3) the employer must have discrimi- thems a independent contractors, and gov- • “Homemade” promotional pieces; nated against the employee because of his ernment subcontractors from discrimina- • “Ride-along reports,” which are reports or her protected conduct. See Mendiondo tion and other retaliation by government madeo t district managers or regional v. Centinela Hosp. Med. Ctr., 521 F.3d 1097, prime contractors.” managers when riding along on vis- 1103 (9th Cir. 2008); Karvelas, t 360 F.3d a Congressman Berman further explained itso t doctors. Many companies have 235; Schuhardt v. Washington Univ., 390 that the purpose of this amendment was to switchedo t reports with drop-down F.3d 563, 566 (8th Cir. 2004). make clear that the FCA covers the follow- menuso t avoid free-­texting from sales Toe b engaged in activity protected ing types of retaliation: representatives; under the FCA, a person must be “acting • Retaliation against not only those who • Bonus payout reports; in furtherance of efforts to stop” a viola- actually file a qui tam action, but also • Business plans such as tactical plans, tionf CA. o the F To further an action, a per- against those who plan to file a qui tam strategic plans, brand plans, and plans son e “must b investigating matters which action but that never is filed, who blow of action that include health-care pro- are calculated, or reasonably could lead to the whistle internally or externally with- viders who would not normally pre- a CA viable F action.” United States ex. rel. out filing a qui tam action, or who refuse scribe a product if marketed on-label Hopper v. Anton,1 9 F.3d 1261, 1269 (9th to participate in the wrongdoing; (e.g., FCPs for oncology products); and Cir. 1996). • Retaliation against the family members • f Copies o correspondence or e-mails With respect to employer knowledge, and colleagues of whistleblowers; and with physicians regarding contracts for ifn a employee never used terms such as • Retaliation against contractors and research. “‘illegal,’ ‘unlawful,’ or ‘qui tam action’ in agentsf o the discriminating party who characterizing his [or her] concerns,” then have been denied relief because they are Anti-Retaliation Provisions the employee would not have protection not technically employees. TheCAt1 F a 3 U.S.C. §3730(h)(1) provides under the FCA, nor would merely raising Its i extremely important that a com- that any “employee, contractor, or agent concern over compliance with a regulation pany facing a potential qui tam action shalle b entitled to all relief necessary to sufficiently inform the employer that the maintain focus on responding to the action make that employee, contractor, or agent employee was engaged in qui tam efforts, or underlying issues and not run afoul of whole,f i that employee, contractor, or and the employer would not have the requi- the anti-­retaliation provisions of the FCA agents i discharged, demoted, suspended, site knowledge to form “retaliatory intent.” protecting potential whistleblowers. threatened, harassed, or in any other man- Robertson v. Bell Helicopter Textron, Inc.,2 3 ner discriminated against in the terms and F.3d 948, 951–52 (5th Cir. 1994). Conclusion conditionsf o employment because of law- If a relator cannot demonstrate repri- Becoming the subject of a qui tam action is ful acts done by the employee, contractor, sal, e then h or she cannot establish a vio- obviously a serious and unsettling matter or n agent o behalf of the employee, con- lationf o the provision. Specifically, an for any pharmaceutical company. However, tractor,r o agent or associated others in employee must supply sufficient facts from if a company acts proactively once a case is furtherance of other efforts to stop 1 or which a reasonable jury could conclude unsealed and vigorously defends itself, the more violations of this subchapter.” Relief that the employee was discharged “because companys ha a good chance of avoiding be- is s defined a including “reinstatement with of activities which the employer had reason coming swept away in a perfect storm.

48 n In-House Defense Quarterly n Spring 2011