The opioid crisis has ravaged the United States for years, and law enforcement and regulators continue to seek ways to combat the misuse and overprescribing of these drugs. But private whistleblowers, with the assistance of the U.S. Department of Justice (“DOJ”), have the ability to curb some of the excesses of opioid manufacturers and distributors. Using the “implied false certification” theory of False Claims Act lawsuits, approved by the Supreme Court in 2016, the government and FCA relators may be able to establish legal liability for pharmaceutical companies that manufacture and market opioids. For example, in a recently unsealed complaint against Insys Therapeutics Inc., the DOJ joined with several whistleblowers to allege that Insys engaged in off-label marketing and paid kickbacks to induce physicians and nurse practitioners to prescribe Subsys, a highly addictive opioid painkiller, for their patients.
The federal False Claims Act, 31 U.S.C. § 3729 et seq. (“FCA”), extends liability to “any person who knowingly presents, or causes to be presented, a false or fraudulent claim for payment or approval.” 31 U.S.C. § 3729(a)(1)(A); see also 31 U.S.C. § 3729(b)(2) (defining “claim” as “any request or demand, whether under a contract or otherwise, for money or property … that is presented to an officer, employee, or agent of the United States”). One method for establishing liability under the FCA is the so-called “false certification” theory of FCA liability, which comes in two forms: express false certifications and implied false certifications. An express false certification occurs when a claimant falsely certifies to the government that it is in compliance with regulations that are requirements for payment. An implied false certification occurs when a claimant submits a request for payment without disclosing that the claimant is in violation of a regulation or requirement that affects its eligibility for payment.
Under the FCA, individuals, known as relators, may file civil suits, known as “qui tam” actions, against persons or entities that present false claims to the U.S. government, as set forth above. See 31 U.S.C. § 3730(b). If the action results in a successful verdict or settlement, the whistleblower or whistleblowers are entitled to between 15 and 30 percent of the proceeds of the action. 31 U.S.C. § 3730(d).
In 2016, the Supreme Court resolved a dispute among the circuit courts regarding the viability of implied false certification claims under the FCA. In Univ. Health Servs., Inc. v. U.S. ex rel. Escobar, 2016 BL 192168 (2016), the Court held that implied false certification claims are actionable under the FCA. 136 S. Ct. 1989 (2016). The Court explained that “[b]ecause common-law fraud has long encompassed certain misrepresentations by omission, ‘false or fraudulent claims’ include more than just claims containing express falsehoods … [M]isrepresentations by omission can give rise to liability.” Id. at 1999. Moreover, the Court noted that “half-truths—representations that state the truth only so far as it goes, while omitting critical qualifying information—can be actionable” under the FCA. Id. at 2000.
The Court thus held that “when a defendant submits [or causes to be submitted] a claim, it impliedly certifies compliance with all conditions of payment.” Id. at 1995. However, the Court cautioned that an alleged “misrepresentation about compliance with a statutory, regulatory, or contractual requirement must be material to the Government’s payment decision in order to be actionable” under the FCA. Id. at 2002. To demonstrate materiality, the plaintiff may present allegations from which the court may draw the reasonable inference that the misrepresentations caused the Government to make the reimbursement decision.
Pharmaceutical Company Obligations
Among the laws and regulations with which pharmaceutical manufacturers and distributors certify compliance when they submit a claim for payment to the government are those governing off-label marketing. The Federal Food Drug and Cosmetic Act, 21 U.S.C. § 301 et seq. (“FDCA”), made it a federal offense to traffic misbranded products. See 21 U.S.C. § 331(a). A drug is misbranded if its labeling is false or misleading, 21 U.S.C. § 352(a), or if its labeling does not bear “adequate directions for use.” 21 U.S.C. § 352(f)(l). The U.S. Food and Drug Administration (“FDA”), the primary federal agency charged with implementing the FDCA, has produced a lengthy set of regulations relating to labeling requirements. See 21 C.F.R. § 201.1 et seq. Among these regulations is a definition requiring that labels contain “adequate directions for use.” 21 C.F.R. § 201.5. The regulation provides, among other things, that the directions are inadequate if they are in some way deficient with respect to the “conditions, purposes, or uses for which such drug is intended,” or the quantities and frequency of the drug’s dosage. Id. The FDA and a pharmaceutical company engage in a collaborative process through which the FDA approves the various acceptable facets of a drug’s usage, which then form the basis for the drug’s adequate directions for use. See generally 21 C.F.R. § 314.1 et seq. Thus, when a drug is marketed “off-label”—i.e., for a use or at a dosage other than those approved by the FDA—it has violated the FDCA and the FDA’s implementing regulations.
A second set of regulations with which opioid manufacturers must certify compliance relates to the development of a Risk Evaluation and Mitigation Strategy (“REMS”). The Food and Drug Administration Amendments Act, Pub. L. No. 110–85, 121 Stat. 823 (Sept. 27, 2007) (“FDAAA”), amended the FDCA to give the FDA the authority to require a REMS in instances where the agency determines that additional safety measures are needed beyond the professional labeling to ensure that a drug’s benefits outweigh its risks. REMS include medication guides, communication plans, and a list of recommendations and goals to assure the safe use of the drug. See 21 U.S.C. § 355-1(e). REMS must also include a timetable for assessing the effectiveness of their safety measures, including a summary of adverse events associated with the drug. Risk Evaluation and Mitigation Strategies (REMS), Food & Drug Admin. (June 15, 2017).
DOJ and HHS Initiatives
Qui tam lawsuits alleging that drug manufacturers failed to adhere to FDA requirements relating to off-label marketing and REMS led to two substantial settlements in 2017. See Celgene Agrees to Pay $280 Million to Resolve Fraud Allegations Related to Promotion of Cancer Drugs For Uses Not Approved by FDA, Dep’t of Justice (July 24, 2017); Drug Maker Aegerion Agrees to Plead Guilty; Will Pay More Than $35 Million to Resolve Criminal Charges and Civil False Claims Allegations, Dep’t of Justice (Sept. 22, 2017).
These lawsuits make clear that compliance with these FDA requirements is still a priority for the Justice Department. Earlier this year, the DOJ also demonstrated its specific intention to use the tools at its disposal to combat the opioid crisis. In February 2018, the Justice Department announced that it was creating a Prescription Interdiction & Litigation (PIL) Task Force to fight the prescription opioid crisis. Attorney General Sessions Announces New Prescription Interdiction & Litigation Task Force, Dep’t of Justice (Feb. 27, 2018). The PIL Task Force is an effort to ensure that DOJ’s resources are being deployed effectively to combat the opioid crisis, including coordinating and assisting with state and local lawsuits against opioid manufacturers. The most relevant takeaway for qui tam relators is that the creation of the PIL Task Force signifies that the Justice Department is actively looking for opportunities to hold opioid manufacturers accountable for unlawful activity, including violations of the FCA.
The Department of Health and Human Services (“HHS”) also has announced a series of initiatives to combat the opioid crisis, including some led by HHS’s Centers for Medicare & Medicaid Services (“CMS”), which is responsible for reimbursing the costs of the many drugs prescribed to Medicare and Medicaid beneficiaries. In April 2017, HHS announced a five-point strategy to combat the opioid crisis:
- Improving access to treatment and recovery services;
- Promoting use of overdose-reversing drugs;
- Strengthening our understanding of the epidemic through better public health surveillance;
- Providing support for cutting edge research on pain and addiction; and
- Advancing better practices for pain management.
See 5-Point Strategy to Combat the Opioid Crisis, Dep’t of Health & Human Servs. (last visited July 19, 2018). While the details of HHS’s strategy are important, the significance for purposes of FCA liability is that HHS has prioritized these issues. This point is critical in light of one of the primary holdings in Escobar—that false certification claims are only actionable where the certification at issue is material to the government’s decision to remit payment. Evidence reflecting the considerable efforts HHS is expending to combat the opioid crisis will help whistleblowers demonstrate that their claims of opioid manufacturers failing to adhere to FDA regulations are material to CMS’s reimbursement decisions.
Recent Court Activity
A recently unsealed qui tam action against an opioid manufacturer exemplifies these regulations and priorities. In May 2018, the Department of Justice announced that it had joined and unsealed its complaint in five consolidated qui tam cases against Insys Therapeutics Inc. See U.S. Intervenes in ‘Whistleblower’ Lawsuits Alleging Insys Therapeutics Paid Illegal Kickbacks to Promote Subsys, Dep’t of Justice (May 15, 2018). The complaint accuses Insys of violating the FCA and the Anti-Kickback Statute in its marketing of Subsys, an addictive opioid painkiller. The suit alleges that Insys gave kickbacks to doctors to prescribe Subsys and encouraged them to prescribe it for conditions beyond those for which the drug had FDA approval. See United States Complaint in Intervention, U.S. ex. rel. Guzman v. Insys Therapeutics, Inc. (C.D. Cal., No. 2:13-cv-5861, filed 4/13/18).
The government’s complaint was based on underlying actions filed by former and current Insys employees and, in one case, by employees of a pharmacy benefits manager that processed Medicare claims. Id. at 7–8. These qui tam cases were filed between 2013 and 2016 in a number of jurisdictions, but all were transferred to the U.S. District Court for the Central District of California and consolidated. Id.
Maria Guzman filed the first of the consolidated qui tam actions in 2013. See Complaint, U.S. ex. rel. Guzman v. Insys Therapeutics, Inc. (Aug. 12, 2013) (“Original Complaint”). She alleged that the Company used illegal sales and marketing practices to pressure doctors to prescribe Subsys, an addictive and dangerous synthetic opioid. Id. at 3–4. Guzman also added a retaliation claim to her complaint, alleging that after she tried for months to stop the illegal practices, Insys fired her. See Second Amended Complaint, U.S. ex. rel. Guzman v. Insys Therapeutics, Inc., at 128–30 (June 13, 2016).
Guzman began working for Insys in January 2012 as a Specialty Sales Professional with territory around West Palm Beach, Florida. Original Complaint at 8. The complaint alleged Insys regularly hired female sales representatives without pharmaceutical backgrounds to form relationships with doctors—including sexual relationships—to induce them to prescribe Subsys. Id. at 8–9. Subsys “is a fentanyl product, in the opioid agonist family with such other drugs as morphine, oxycodone, and heroin.” Id. at 3. The FDA approved use of Subsys for breakthrough pain in cancer patients who are already tolerant to around-the-clock opioid therapy. Id. at 25. If prescribed for those who are not on a chronic regimen of opioids, Subsys could cause death. Id. Due to the serious risk associated with the drug, it was subject to the FDA’s REMS requirements. Id. at 26. Through the use of off-label marketing and substantial financial kickbacks, Insys representatives convinced physicians to prescribe the drug for many types of pain and conditions other than those for which the FDA had approved it, the complaint alleged. Id. at 29. Insys allegedly marketed the drug primarily to doctors who were not cancer specialists. Id. at 33.
Guzman’s complaint identifies a number of allegedly unlawful activities, including using speaker programs to provide kickbacks to physicians who prescribed Subsys, and providing doctors who prescribed the drug with substantial compensation, including trips to strip clubs and shooting ranges, stock options, and other benefits such as hiring their significant others, and providing them with expensive meals, all in violation of federal anti-kickback laws. Id. at 4.
“Kickbacks” like those described above, in which pharmaceutical companies offer financial incentives to physicians to prescribe drugs, violate the Anti-Kickback Statute, 42 U.C.S. § 1320(a)-7b(b)(l)(A) (“AKS”). In 2010, the Patient Protection and Affordable Care Act amended the AKS to state that “a claim that includes items or services resulting from a violation of [the Anti-Kickback Statute] constitutes a false or fraudulent claim for purposes of [the False Claims Act].” 42 U.S.C. § 1320a-7b(g). Thus, pharmaceutical companies that seek repayment from the government based on sales they derived through AKS violations have violated the FCA. Moreover, pharmaceutical companies that violate REMS requirements and engage in off-label marketing are also submitting false claims to the government in violation of the FCA.
The case against Insys appears to be very strong. Four doctors have been sentenced to prison for accepting kickbacks from Insys relating to prescribing its opioid products. See Ivy League Doctor Gets 4 Years in Prison for Insys Opioid Kickbacks, Bloomberg (Mar. 9, 2018). Since the lawsuit was unsealed, another Insys sales representative pleaded guilty to a second degree charge of conspiracy to commit commercial bribery. See Former Sales Representative for Insys Pleads Guilty in Scheme to Bribe Doctors to Prescribe the Super-Potent Fentanyl Spray Subsys, N.Y. Office of Att’y Gen. (May 30, 2018). Moreover, the fact that the Justice Department has intervened in the consolidated qui tam actions is very good news for all the relators. Ninety percent of cases in which the government intervened have generated recovery, while cases in which the government declined to intervene only generated recoveries roughly ten percent of the time. See David Freeman Engstrom, Public Regulation of Private Enforcement: Empirical Analysis of DOJ Oversight of Qui Tam Litigation Under the False Claims Act, 107 Nw. U. L. Rev. 1689, 1720 (2013).
Lawsuits like these demonstrate the powerful role that FCA whistleblowers can play in the government’s efforts to combat the opioid crisis. In this case, given the apparent strength of the claims against Insys, the relators may enjoy a large reward for coming forward with key information. These incentives are critical in light of the personal and professional risks individuals assume by choosing to become a whistleblower. Five years have passed since Insys terminated Guzman in 2013 for her opposition to Insys’s practices of pressuring doctors to prescribe and overprescribe opioids to patients. The Insys lawsuit serves as a crucial example of how those on the inside can help protect the public from abusive opioid marketing practices, and how the FCA can be used to hold companies and prescribers accountable when their conduct contributes to the epidemic.
Michael Filoromo is a partner at Katz, Marshall & Banks, and a co-founder of the firm’s Philadelphia office. He regularly represents whistleblowers in a variety of capacities, including in qui tam lawsuits, whistleblower submissions to the SEC and CFTC, and whistleblower retaliation claims under the False Claims Act, the Sarbanes-Oxley and Dodd-Frank Acts, and other statutes protecting workers in the pharmaceutical, aviation, nuclear, railroad, and healthcare industries. He can be reached at firstname.lastname@example.org.
Matthew LaGarde is an associate in the firm’s Philadelphia office who also practices in these areas. He can be reached at email@example.com.
Mr. Filoromo and Mr. LaGarde serve on the board of the Eastern Pennsylvania chapter of the National Employment Lawyers Association.
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