Feldman Firm Obtains Sentence of Probation for Pharmacy Owner in Multi-Million Dollar Kickback Case Related to Dispensing “Footbath” Drugs

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Last week the Feldman Firm, along with esteemed local counsel, obtained a sentence of probation for the Firm’s client, the owner of a mail-in pharmacy in a federal Anti-kickback prosecution in the Eastern District of Missouri (St. Louis) involving more than Five Million dollars. The Department of Justice continues to vigorously investigate pharmacy and laboratory fraud, abuse, and kickbacks.

The pharmacy specialized in dispensing topical creams, oral medications, and antibiotic and antifungal drugs referred to as “foot bath” drugs. The topical creams and oral medications were intended to treat a variety of conditions such as dry skin, pain and muscle spasms. Those drugs included, among others, corticosteroids, lidocaine, topical NSAIDs, and dermacin prizopak (a local anesthetic). The “foot bath” drugs were designed to treat a variety of foot infections and foot pain and included oral antibiotic capsules, bottles of antibiotic solution, and tubes of antifungal cream. Patients were instructed to mix the capsules and the solution with warm water to soak their feet, then to apply the antifungal cream afterward. The foot bath drugs included but were not limited to Vancomycin capsules, Clindamycin 1 % solution, and Ketoconazole 2% cream.

After pharmacy benefit managers (PBM’s) initiated audits and the government executed a search warrant at the pharmacy seizing equipment, electronics, and records, a grand jury returned an indictment alleging a conspiracy to commit health care fraud, a kickback conspiracy, and the payment of kickbacks to marketers.

More specifically, with respect to the relationship between the marketers and the Firm’s client, the government alleged that the owner of the pharmacy paid kickbacks to marketers who referred patients to the pharmacy utilizing a variety of marketing tactics. Two of those methods are noteworthy. The first one involved telehealth consultations with physicians who would prescribe and order the drugs. Another involved a marketing strategy known as “doctor chase” which is not per se unlawful when a marketing organization faxes a prescription pad to the primary care physician of a patient with a note that the patient has requested the drug and, for that reason, seeks the doctors’ authorization to prescribe that drug for their patient. In this case, as in many others, the doctors signed those prescriptions authorizing the pharmacy to dispense those drugs for those patients.

Regardless of the tactics employed by those marketing organizations, the Firm’s client did not manage, supervise, or participate in those marketing campaigns. Nor was there evidence adduced at any proceeding that he knew about the particulars of any marketers’ “doctor chase” model or knew that certain telehealth relationships were potentially non-compliant.

And even though the government alleged health care fraud, the client entered a resolution which avoided both a fraud charge and a conspiracy charge. Instead, the client resolved the case by agreeing to a plea which was limited to substantive violations of the federal Anti-Kickback statute under Title 42 U.S.C. Section 1320a-7b. This is because the case rested on the payments to marketers and the structure of those payments. Ultimately, as seen in many kickback cases involving marketers, the structure of payments is what led to the client’s conviction.

At sentencing, the Firm emphasized some of the salient Section 3553(a) factors including the history and characteristics of the client, his standing in the local community, his acts of generosity and charity, and his devotion to his church, among others. The court then sentenced the client to probation.

The Firm has a substantial amount of experience representing pharmacies and pharmacists and representing sales and marketing professionals in investigations and prosecutions involving allegations of kickbacks. The federal Anti-Kickback statute is a complex statute with safe-harbors, exceptions, and varying case law depending on the geography of the alleged conduct. The Firm regularly litigates these issues, issues related to advice of counsel in kickback cases, and issues related to restitution in kickback cases.

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False Claims Act “Knowingly” Means What It Says

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Putting the Subjectivity Back in False Claims

The False Claims Act is a powerful tool used by the government and private citizens to ferret out and prosecute false claims. It is also an extraordinarily attractive device for whistleblowers who may claim they are the “original source” of information because it may lead to multi-million-dollar settlements and triple damages. The two major categories of false claims the government investigates are: (1) false claims in the healthcare space and (2) false claims in the government contractor space, especially defense contractors. Within that second category of false claims, the government, and its whistleblowers are targeting PPP fraud cases in various sectors.

Supreme Court Case- Returning to Subjectivity

Salivating whistleblowers aside, in a very recent False Claims Act Supreme Court Decision, the Supreme Court reversed a Seventh Circuit opinion that was favorable to the defense bar, but (and it’s a big “but”) the Supreme Court also made it very clear that the plain text of the Act and the word “knowingly” must be viewed through a subjective lens when district courts consider what amounts to false claims. It is not what an objective person should or would know, it is what the defendant subjectively understood or knew at the time of the supposed false claims to a government program. The reason that the government prevailed on appeal, (and why the government is now celebrating) is because the Seventh Circuit opinion turned traditional concepts of knowledge upside down when you consider false claims. And, as Justice Thomas reinforced:

What matters for an FCA case is whether the defendant knew the claim was false. Thus, if respondents correctly interpreted the relevant phrase and believed their claims were false, then they could have known their claims were false.

Simple. If you know what you are doing is wrong or understand (or have been told) that what you are doing is wrong then you cannot, in hindsight, try to then create an objectively reasonable interpretation of the defense after-the-fact. That makes no sense to me.

Greatest Hits from The Opinion

The opinion starts with a simple, straightforward concept:

The False Claims Act (FCA) imposes liability on anyone who “knowingly” submits a “false” claim to the Government. 31 U. S. C. §3729(a). In some cases, that rule is straightforward: If a law authorized payment of $100 for “each” medical test, and a doctor knows that he did five tests but submits a claim for ten, then he has knowingly submitted a false claim. But sometimes the rule is less clear. If a law authorized payment for only “customary” medical tests, some doctors might be confused when it came time for billing. And, while some doctors might honestly mistake what that term means, others might correctly understand whatever “customary” meant in this context—and submit claims that were inaccurate anyway.

  • Page 8: “The FCA’s scienter element refers to respondents’ knowledge and subjective beliefs—not to what an objectively reasonable person may have known or believed.”
  • Page 10: “On their face and at common law, the FCA’s standards focus primarily on what respondents thought and believed. First, the term “actual knowledge” refers to whether a person is “aware of” information. Second, the term “deliberate ignorance” encompasses defendants who are aware of a substantial risk that their statements are false, but intentionally avoid taking steps to confirm the statement’s truth or falsity. And, third, the term “reckless disregard” similarly captures defendants who are conscious of a substantial and unjustifiable risk that their claims are false, but submit the claims anyway. Again, that tracks traditional common-law fraud, which ordinarily “depends on a subjective test” and the defendant’s “culpable state of mind.” What typically matters at common law is whether the defendant made the false statement “without belief in its truth or recklessly, careless of whether it is true or false.” (all citations omitted/cleaned up)
  • Pages 11-12: We assume (as the District Court ruled in SuperValu’s case) that respondents’ “usual and customary” prices were their discounted ones; if so, it might have been a forgivable mistake if respondents had honestly read the phrase as referring to retail prices, not discounted prices. But the Seventh Circuit did not hold that respondents made an honest mistake; it held that, because other people might make an honest mistake, defendants’ subjective beliefs became irrelevant to their scienter.”
  • Pages 12-13: To illustrate why consider a hypothetical driver who sees a road sign that says “Drive Only Reasonable Speeds.” That driver, without any more information, might have no way of knowing what speeds are reasonable and what speeds are too fast. But then assume that the same driver was informed earlier in the day by a police officer that speeds over 50 mph are unreasonable and then noticed that all the other cars around him are going only 48 mph. In that case, the driver might know that “Reasonable Speeds” are anything under 50 mph; or, at the least, he might be aware of an unjustifiably high risk that anything over 50 mph is unreasonable. Indeed, if the same police officer later pulled the driver over, we imagine that he would be hard pressed to argue that some other person might have understood the sign to allow driving at 80 mph.

Final Takeaways

Each of these significant passages from the opinion more than amply demonstrate that proving scienter under the False Claims Act is not automatic. The opinion may not have any practical impact on motions to dismiss and the application of the stringent 9(b) pleading standard, but it should make a difference at the summary judgment phase. And, it should make an even bigger difference during a trial. Defense lawyers would be well-advised to incorporate the critical portions of the opinion into jury instructions and even theory of the defense jury instructions and then use those same instructions in closing arguments to convey their message to the jury.

Mr. Feldman and the Firm defend health care providers and organizations and government contractors against false claims allegations in False Claims Act investigations and civil investigations.

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Article Published by Health Care Fraud defense attorney Andrew Feldman

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Health Care Fraud defense attorney, Andrew S. Feldman, published an article in the ABA Health Law’s monthly E-Source publication, A Cardiologist’s Recent Acquittal Should Send a Message With Respect to Future Medical Necessity Prosecutions. A link to the article is included here.

 

As reinforced throughout the article, the Government prosecuted a cardiologist for health care fraud related to a cardiologist’s decision to place heart stents in particular patients suffering from coronary heart disease. In such cases, a vigorous Health Care Fraud defense is critical. Indeed, the Government, in general, has increased the quantity and scope of medical necessity prosecutions. Simply put, a medical necessity prosecution is, simply put, a prosecution based on the theory that the service provided by the individual health care provider or physician (e.g. cardiologist, dermatologist, urologist, dentist, or spinal surgeon) was medically unnecessary. Whether or not a service or good is reasonable and necessary dictates whether the Government or a commercial payor will pay the physician’s tab. What the Government is saying is that you submitted your bill but we do not think we should pay because you are asking us to pay for services you say you performed but which we claim are unnecessary.

 

This is nothing new. What is new are prosecutions like the prosecution against Dr. Richard Paulus. A prosecution that, candidly, should have been declined at the investigative phase but instead prosecutors doubled down with a False Claims Act prosecution without a whistleblower on the exact same facts. The centerpiece of the Paulus indictment was that Dr. Paulus had performed cardiac stent procedures which were unnecessary to justify billing for these expensive cardiac procedures. In civil and criminal health care fraud land though, there must be a lie. What was the lie? According to the Government, it was the amount of blockage – the degree to which a heart valve is blocked and cannot circulate blood to the rest of the body – recorded by Dr. Paulus after his interpretation of patient angiograms.  One problem (and there were a few) with that theory in Paulus’ case was that “expert” opinions on the degree and percentage of that blockage were all over the map – 20%, 40%, 70%, 80%. The Government experts also disagreed with one another on this critical issue.  There was no clear financial motive, there was no evidence of destroying or concealing evidence, there was no evidence that Dr. Paulus recorded or directed others to record false patient symptoms to justify any of the cardiac stents. As the district court underscored in the Order entering a judgment of acquittal following trial – the health care fraud statute is “not intended to penalize a person who exercises a health care treatment choice or makes a medical or health care judgment in good faith simply because there is a difference of opinion regarding the form of diagnosis or treatment.” 

 

Hiring a Health Care Fraud defense attorney is an important decision. The Feldman Firm would welcome the opportunity to assist you if you are under investigation for or if you have been accused of a health care fraud offense. 

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