Defending Qui Tam and Fraud Claims: Current Strategies and Developments

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1 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.

2 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

3 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. 3

4 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 4

5 Qui Tams and False Claims Current Strategies 5

6 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 6

7 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 / biotech/medical device companies All incentivize company employees to become whistleblowers and seek qui tam relator counsel, possibly by passing company s compliance program 7

8 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. 8

9 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. 9

10 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 : DOJ prosecuted approx. 50 individuals 10

11 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,

12 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,

13 The Government and Relators Bar Perspective Like the old McDonald s Slogan: Billions of [fines] Served. 13

14 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 14

15 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 15

16 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 16

17 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 17

18 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 18

19 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 19

20 Taking Proactive Steps Now A. Enhance Compliance Program B. Ongoing Risk Assessments C. Internal Messaging 20

21 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 21

22 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 22

23 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 23

24 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 noncompliant 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 24

25 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 25

26 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 26

27 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 27

28 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 28

29 Some Potentially Good News U.S. v. Caronia The Lauren Stevens case Government may be on the Defensive!! 29

30 Thank you! 30