Private Insurance Qui Tam Laws Expand Kickback Liability and Available Remedies to Private Insurers

The federal False Claims Act (“FCA”) and parallel state statutes create a private right of action to qui tam whistleblowers to recover funds that have been defrauded from Government payers. In the healthcare context, these statutes empower individual citizens and private entities to bring suit on behalf of the Government to recover funds defrauded from Medicare, Medicaid, and other public health insurance payers. The Department of Justice and state Attorneys General have successfully leveraged FCA lawsuits brought by whistleblowers as a vehicle to return billions of dollars in defrauded health insurance proceeds to the Government and taxpayers. On December 3, 2015, the Department of Justice (“DOJ”) announced in a report (http://www.justice.gov/opa/pr/justice-department-recovers-over-35-billion-false-claims-act-cases-fiscal-year-2015) that, in 2015 alone, the United States had recovered $1.9 billion in damages in False Claims Act cases involving fraud on federal government health insurance programs.

California and Illinois have also passed legislation that allows whistleblowers to pursue actions to recover funds defrauded from private health insurers: the California Insurance Fraud Prevention Act (“CIFPA codified at Cal. Insur. Code § 1871 et seq. and Illinois Insurance Claims Fraud Prevention Act (“ICFPA”) codified at 740 ILCS 92/1 et seq. These statutes recognize that the same fraud schemes and bad actors that harm the public and give rise to FCA liability often defraud private insurance payers in similar ways. These statutes also acknowledge that private insurance fraud carries public costs, including higher premiums and reduced coverage for policyholders residing in the state. As explained in the text of the CIFPA in § 1871(h), “[h]ealth insurance fraud is a particular problem for health insurance policyholders. Although there are no precise figures, it is believed that fraudulent activities account for billions of dollars annually in added health care costs nationally. Health care fraud causes losses in premium dollars and increases health care costs unnecessarily.”

Significantly, CIFPA and ICFPA not only incentivize private citizens to bring suit but also enable private insurers themselves to act as whistleblowers on their own behalf and on behalf of the state to recover defrauded private insurance proceeds. Additionally, fraud claims brought under CIFPA and ICFPA offer private insurers some distinct advantages in comparison to more traditional consumer fraud, state insurance code, Racketeer Influenced and Corrupt Organizations Act (“RICO”), and common law remedies. Under both CIFPA and ICFPA, whistleblower awards may include a share of the state’s overall recovery generally in the range of 30 to 50%, treble damages, penalties of $5,000 to $10,000 per individual claim, reasonable attorneys’ fees and costs. In addition to these substantial awards, which are based upon losses sustained by all state private insurers, CIFPA and ICFPA also enable insurers to recover their own individual losses paid directly to the defendant and/or injunctive relief, as might otherwise have been available through more traditional remedies. Insurers may also benefit from the state’s intervention or other marshaling of resources in a case, thereby helping to avoid exorbitant litigation costs. For some smaller insurers such as self-insured Union Health and Welfare Funds, such litigation costs are sometimes prohibitive. Additionally, in contrast to outside litigation defense counsel, whistleblower attorneys are generally retained on a contingency basis, thereby obviating the need for the insurer to incur the traditional out-of-pocket risk of pursuing private litigation. Finally, the pursuit of whistleblower remedies creates opportunities for private insurers to collaborate and share information with government payers and law enforcement entities that are pursuing parallel False Claims Act cases and enforcement actions.

DOJ’s December 2015 announcement indicated that much of the Government’s $1.9 million in healthcare-related FCA recoveries in 2015 concerned defendants’ alleged “paying kickbacks to health care providers to induce the use of certain goods and services.” For example, in November 2015, the DOJ announced a $370 million FCA settlement against the drug manufacturer Novartis to settle claims that the company paid kickbacks to specialty pharmacies to induce them to recommend its drug products.

Notably, both the CIFPA and ICFPA are specifically designed in part to recoup losses alleged to have been caused by the payment of illegal kickbacks to induce private health insurance coverage. Moreover, a recent kickback settlement brought under CIFPA suggests that private insurer whistleblower suits can even prove more lucrative to states than parallel FCA suits arising from the same underlying conduct. In December 2015, the California Department of Insurance announced a $23.4 million settlement with the drug manufacturer Warner Chilcott to resolve claims that the company had unlawfully paid physicians kickbacks disguised as educational events to induce them to prescribe its drug products. While California recovered $11.8 million in that action, Warner Chilcott’s $125 million settlement with the United States and plaintiff states in the parallel False Claims Act case returned only $3.1 million in Medicaid funds to California.

In addition to the practical advantages to insurers and state plaintiffs, CIFPA and ICFPA offer some doctrinal advantages as well. For instance, in State ex rel. Wilson v. Superior Court, 227 Cal. App. 4th 579 (2d App. Dist. 2014), a California state appellate court endorsed the whistleblower plaintiff’s legal theory that CIFPA does not require a plaintiff to prove that the prescriptions in question would not have been written but for the alleged kickbacks. In other words, the law did not require proof that the “prescriptions . . . would not have been written and claims . . . would not have been presented in the absence” of the kickbacks. Instead, the court found that the plaintiff only needed to show that the kickbacks are a “substantial factor” in the writing of prescriptions. A federal court interpreting the statute has drawn the same conclusion. United States ex rel. Brown v. Celgene Corp., 2014 U.S. Dist. LEXIS 99815 (C.D. Cal. 2014).

By contrast, a federal district court in New Jersey dismissed similar claims brought by a class of private health insurance payers who had alleged the drug manufacturer Merck violated the RICO statute by improperly influencing patients into purchasing its products through co-pay waiver kickbacks. See Plumbers & Pipefitters Local 572 Health & Welfare Fund v. Merck & Co., No. 12- 379, 2013 U.S. Dist. LEXIS 61051 (D.N.J. Apr. 29, 2013). The court, in that case, found that the plaintiff and the class could not even get out of the gate, as they lacked standing to bring the suit as an aggrieved party. The court found that the plaintiff had failed to show that it suffered any harm, because: “1) any patient insisted on receiving a prescription for a Drug covered by the Program that his doctor would not have otherwise prescribed, 2) that Drug was prescribed, and 3) Plaintiffs were compelled to pay for that prescription in lieu of a cheaper alternative medication.” In In re Schering-Plough Corp. Intron/Temodar Consumer Class Action, 678 F.3d 235, 48 (3rd Cir.), the Third Circuit Court of Appeals similarly found that kickback allegations brought against the drug manufacturer Schering-Plough by a private insurer plaintiff class under RICO “failed to show the requisite causal relationship between the alleged misconduct and its alleged injury.” 245-48. Plainly, these results are far inferior to a private insurer than a result under CIFPA or ICFPA that enables the insurer to recover not only its own losses individually, but also to recover a share of funds defrauded from other insurers on behalf of an independent state entity.

As the public grows more aware of CIFPA and ICFPA, the number of whistleblower suits alleging that manufacturers and other healthcare industry stakeholders engaged in illegal kickback schemes to defraud private health insurers will certainly increase. Undoubtedly, in light of their advantages over traditional claims, these suits will include actions brought not only by citizens but by private insurers of varying size on behalf of themselves and the state as well. Further, in order to maximize recoveries, private insurers can be expected to pursue traditional consumer fraud, RICO and/or state insurance code remedies simultaneously alongside their whistleblower claims. In February 2015, for example, a diverse group of more than a dozen private insurers brought suit against several Nevada providers that had allegedly paid illegal kickbacks to surgeons to induce them to submit false health care claims to private insurers. Represented collectively by plaintiffs’ counsel, the insurers brought claims under both CIFPA and the state consumer fraud statute, the California Business and Professions Code 17200 et seq.

********

Ross Brooks is a Partner in the New York office of Sanford Heisler Kimpel, LLP, a national law firm with offices in Washington, DC, New York and California. Mr. Brooks is Co-Chair of Sanford Heisler Kimpel, LLP’s whistleblower practice. He has been counseled in whistleblower matters that have returned over one billion in taxpayer dollars to the Government. Mr. Brooks represents whistleblowers in actions brought under the False Claims Act, The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), the IRS Whistleblower Law, and other whistleblower statutes, including actions alleging violations of the Foreign Corrupt Practices Act (FCPA). He has represented whistleblowers in False Claims Act (Qui Tam) matters to recover funds defrauded from the Medicare and Medicaid programs, the Department of Veterans Affairs (VA), the Department of Defense (DoD), the Title IV Student Loan Program, the Department of Housing and Urban Development (HUD) and other government payors. Brooks was counsel to the whistleblowers in two of the largest False Claims Act settlements ever achieved after the Government declined to intervene.

Inayat Ali Hemani is an Associate at the New York office of Sanford Heisler Kimpel, LLP, a national law firm with offices in Washington, DC, New York, and California. He received his bachelor’s degree from The George Washington University in 2008 and his law degree from New York University School of Law in 2012. Mr. Hemani works on sealed and unsealed qui tam/whistleblower cases involving fraud against the federal and state governments. He has worked on several successful qui tam cases alleging violations of the Anti-Kickback Statute and the Trade Agreements Act. In addition to qui tam cases, Mr. Hemani has worked on submissions to the SEC and IRS under their whistleblower programs.