Defending Qui Tam and Fraud Claims: Current Strategies and Developments - Fish & Richardson P.C.

Life Sciences Intellectual Property Summit 2011

  Defending Qui Tam and Fraud Claims:
  Current Strategies and Developments

      Juanita Brooks, Principal
      Roger Denning, Principal
      Jose P. Sierra, Principal
      Fish & Richardson P.C.

The Panel
Juanita Brooks
 Principal, Fish & Richardson P.C.
 Currently assisting with:
  – United States ex rel. Williams v. Renal Care Group, Inc.,
  – United States ex rel. Gonzalez v. Fresenius Medical Care
    Holdings, Inc. et al.
  – United States ex rel. Doe v. Fresenius Medical Care
    Holdings, Inc. et al.
 Previously assisted with:
  –   United States ex rel. National Health Labs
  –   United States ex rel. Dr. Jeffrey Rutgard
  –   United States ex rel. Lucas Aerospace
  –   United States ex rel. Cubic Corporation                   2

The Panel
Roger Denning
 Principal, Fish & Richardson P.C.
 Currently assisting with:
  – United States ex rel. Williams v. Renal Care Group, Inc.,
  – United States ex rel. Gonzalez v. Fresenius Medical Care
    Holdings, Inc. et al.
  – United States ex rel. Doe v. Fresenius Medical Care
    Holdings, Inc. et al.

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The Panel
Jose Sierra
 Principal, Fish & Richardson P.C.
 Litigation and Risk Management, focusing on
  pharmaceutical and medical device compliance,
  corporate governance internal investigations, and
  qui tam defense
 Previously, Chief Compliance Officer for Sepracor
  Inc. and Kos Pharmaceuticals Inc.; former Assistant
  U.S. Attorney, District of New Jersey

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Qui Tams and False Claims

  Current Strategies

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The New Legal Landscape
 Fraud Enforcement and Recovery Act of 2009 (“FERA”)
 Patent Protection and Affordable Care Act of 2010
  (“ACA”)
 Wall Street Reform and Consumer Protection Act of
  2010 (“Dodd‐Frank”)
 FCPA and UK Bribery Act
 Park Doctrine

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The New Legal Landscape
 FERA and ACA amended the False Claims Act (“FCA”),
  the principal statute used in Qui Tam suits and
  Government investigations
 Dodd‐Frank, FCPA, Park Doctrine – all part of
  Government toolbox to pursue pharma / bio‐
  tech/medical device companies
 All incentivize company employees to become
  whistleblowers and seek qui tam relator counsel,
  possibly by‐passing company’s compliance program

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The Government’s Perspective
 March 4, 2010 – FDA correspondence with
  Senator Grassley:
  – Committee recommendations included: “increase the
    appropriate use of misdemeanor prosecutions, a valuable
    enforcement tool, to hold responsible corporate officials
    accountable.”
 September 21, 2010 – Ann Ravel, Deputy Assistant
  Attorney General, who oversees DOJ’s OCL,
  stated at an FDLI conference:
  – “The Department is intent on identifying and, where
    appropriate, prosecuting the individuals who are responsible
    for illegal off‐label marketing.”

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The Government’s Perspective
“[O]ur focus and resolve in the FCPA will not
abate and we will be intensely focused on
rooting out foreign bribery in your (the
pharmaceutical) industry.”*
Assistant Attorney General Lanny Breuer,
November 12, 2009
*Followed by FCPA “(sweep) letters of inquiry” directed at
pharmaceutical companies.

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The Government’s Perspective
“Let me be clear, prosecuting individuals is a
cornerstone of our enforcement strategy because, as
long as it (bribery) remains a tactic, paying large
monetary penalties cannot be viewed by the business
community as merely “the cost of doing business” The
risk of heading to prison for bribery is real from the
boardroom to the warehouse.”*
U.S. Attorney General Eric Holder
* 2004:     DOJ prosecuted 2 individuals
 2009‐10: DOJ prosecuted approx. 50 individuals

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The Relator’s Bar Perspective
“We are expanding very much due to Dodd‐Frank
because the incentives are strong for people who
have information about fraud to come forward.”
David Kovel, Kirby McInerney, LLP,*

*Dodd‐Frank Spawns Cottage Industry, reported in
Market Watch, December 7, 2010.

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The Relators’ Bar Perspective
“Clearly there is already developing a plaintiff’s
bar of attorneys that will be trolling for business
because of the windfall that can go to the
whistleblower and their counsel.” George
Terwilliger, White & Case LLP,*

*Dodd‐Frank Spawns Cottage Industry, reported in
Market Watch, December 7, 2010.

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The Government and Relators’ Bar Perspective

  Like the old McDonald’s Slogan:
     “Billions of [fines] Served.”

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Areas of Greatest Concern for Our Clients

 A. Retention of “Overpayments” more than
    60 days (FERA and ACA)
 B. More Whistleblowers!
 C. Greater Coordination between the
    Government and Whistleblowers
 D. De Facto Strict Liability for Management
 E. Financial Incentives to Forego Hotline

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Areas of Greatest Concern for Our Clients
  Retention of Overpayments
    — 60 day rule created to allow for normal
      reconciliation of Medicare, Medicaid, Contract
      payments
    — Companies must report overpayments and
      explain reasons for any overpayments
    — However, inflated interim payment(s) may trigger
      the “obligation” to repay within 60 days, not
      following reconciliation
    — Purpose of the rule is to ensure that companies
      are not rewarded for failing to have internal
      controls and compliance program to detect fraud

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Areas of Greatest Concern for Our Clients

  More Whistleblowers!
    —Contractors or Agents of Company now qualify
     under FERA and ACA
    —“Public Disclosure” bar weakened under ACA
      • Even WikiLeaks could provide source material for
        whistleblowers!
    — Anybody can be a whistleblower under Dodd‐
     Frank

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Areas of Greatest Concern for Our Clients

  Greater Coordination between the Government
   and Whistleblowers
   – Delegation of CID authority to USAO offices makes it
     easier to conduct parallel criminal / civil investigations
   – AUSA can share information from CID with Relator;
     unclear what limits individual AUSA may require, if any
   – Even if Government doesn’t intervene, Relator has the
     benefit of CID information
   – ACA requires greater coordination between states; HHS
     must establish data collection program

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Areas of Greatest Concern for Our Clients

  De Facto Strict Liability for Management
   – Liability increased, even in the absence of “intent”
     or “knowledge” by senior management
       Materiality instead of “intent to defraud” under
        FERA
       Park Doctrine strict liability
   – Liability for third‐party conduct
       Liability not limited to employees, but expands to
        include contractors and agents, particularly in FCPA
        context

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Areas of Greatest Concern for Our Clients

  Financial Incentives to Forego Hotline
   – Whistleblowers incentivized to forego internal
     reporting through the hotline and to retain a qui
     tam lawyer, especially under Dodd‐Frank
   – SEC regulations won’t be published until later this
     year

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Taking Proactive Steps — Now
A. Enhance Compliance Program
B. Ongoing Risk Assessments
C. Internal Messaging

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Taking Proactive Steps — Now
 Enhance Compliance Program
  – Fortify Code of Conduct and Policies by requiring
    “affirmative obligation” to report suspected
    misconduct
      Must emphasize that failure to “speak up” is a
       violation, particularly for managers
      Put standard “speak up,” non‐retaliation and
       whistleblowing clauses across all policies

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Taking Proactive Steps — Now
 Enhance Compliance Program
  – Training must incorporate:
      Affirmative obligation to “speak up” and non‐retaliation
       duties
      Live, scenario‐based training
      Online training to document employee attendance and
       competence
  – Note: Building the “counter‐narrative” starts with
    training

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Taking Proactive Steps — Now
 Enhance Compliance Program
   – Field‐based Monitoring / Auditing – Now
     Critical
      C.I.A.s and government pronouncements make
       clear that real‐time monitoring is necessary
      Outsource field monitoring if necessary
      Conduct random and targeted audits

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Taking Proactive Steps — Now
 Enhance Compliance Program
   – Don’t Forget to follow the money!
   – Modify Incentive Compensation Plans (ICPs)
     for sales reps to dis‐incentivize non‐
     compliant behavior
      Segregate by specialty, if possible
      If not possible, develop algorithm or formula for
       excluding HCPs with problematic prescribing patterns
      Incorporate financial penalties for non‐compliance
       whenever possible

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Taking Proactive Steps — Now
 Enhance Compliance Program
  – Foreign activities (e.g., clinical trials, supply
    chain, etc.) require strong due diligence program
    for third party vendors, especially for FCPA
    purposes
  – Examples of third‐party intermediaries
      Consultants, Agents, Representatives, Distributors,
       Resellers, Introducer/Finder, Joint‐Venture Partners
  – Due Diligence requires meaningfully investigating
    foreign agents and partners
  – Document, document, document
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Taking Proactive Steps — Now
 Ongoing Risk Assessments and Improvements
  to Internal Controls
  – Look at problems identified through audits and
    internal investigations
      Build into next risk assessment
  – Test internal controls. Test, test, test again
  – Consider testing controls for “Leaks”

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Taking Proactive Steps — Now
 Internal Messaging – Broadcast, broadcast,
  broadcast
  – Employees need to hear about compliance efforts
    on a regular basis
      Employees who believe Company is compliant
       and is listening to them will be less likely to
       become whistleblowers

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After the Suit or Subpoena has Arrived

 Developing the "Counter-Narrative"
   – Effective Internal Investigation
           Working with in‐house counsel and compliance
           Finding all material facts  good and bad
           Developing Company story that is accurate, truthful and
            a positive alternative to the other "Narrative“
           Almost all Health Care Companies have a Positive Story
            to Tell!
   –   Cooperation and Voluntary Disclosure
           NPA's, DPA's, CIA's

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Some Potentially Good News
 U.S. v. Caronia
 The Lauren Stevens case
Government may be on the Defensive!!

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Thank you!

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