HEALTHCARE FRAUD DEFENSE JOURNAL

Andrew S. Feldman and I obtained a rare Rule29 judgment of acquittal on the one major count at trial alleging that the client participated in a wire fraud conspiracy. The wire fraud conspiracy related entirely to the client’s supposed involvement in a fraudulent clinical trial for Asthma drugs sponsored by GlaxoSmith Kline. From 2014 until August of 2015, the client was a research coordinator for a company in Miami which performed clinical trials sponsored by multi-national companies. In 2017 – almost 5 years – before the jury was selected, GSK and the FDA’s Office of Criminal Investigation spearheaded an investigation into an alleged fraudulent clinical trial at the Miami research company. The investigation also focused intensely on the clinical investigator (a licensed physician) and her medical practice from which many of the study participants had originated.

During the investigation, the FDA unearthed irregularities with respect to that clinical trial. The FDA and DOJ were then able to approach and obtain cooperating witnesses, and, ultimately, filed charges against five defendants. The Department of Justice inked plea agreements with four co-defendants. The client was the lone defendant who exercised her Sixth Amendment right to a jury trial.

The jury trial lasted approximately two weeks and the government called 12 witnesses, including FDA agents and expert witnesses from around the United States. The government also called two cooperating defendants to testify against the client.

Andrew and I are extremely happy with the result.

I regularly represent clients in complex fraud trials including clinical trial fraud cases investigated by the Food Drug Administration (FDA). I look forward to representing new clients in FDA criminal cases or cases involving allegations of fraud related to the performance of a clinical trial.

In United States ex rel, Sheldon v. Allergan Sales, LLC, the relator claimed that defendant drug manufacturer had engaged in an allegedly fraudulent price reporting scheme under the Medicaid Drug Rebate Statute.  Under the Rebate statute, drug manufacturers seeking to have drugs covered by Medicaid must enter into rebate agreements by which they provide quarterly rebates to states on sales of Medicaid covered drugs.  The manufacturer reports the “Average Manufacturer Price” and the “Best Price” for covered drugs to CMS.  CMS calculates the rebate amount.  The relator alleged defendant failed to aggregate the discounts given to customers when reporting Best Price.

The Fourth Circuit found the scienter framework originally set forth by the Supreme Court with respect to the Fair Credit Reporting Act (FCRA) also applies to the FCA.  See 24 F. 4 340 (4th Cir. 2022) applying Safeco Insurance Co. of America v. Burr, 551 U.S. 47 (2007).  Under this standard, a defendant cannot be liable under the FCA if (1) its reading of applicable statutory or regulatory requirements was objectively reasonable and (2) no authoritative guidance warned it away from that interpretation.  This is the same decision that each circuit that has considered the applicability to Safeco standard to  the FCA has reached.  Id. at 348.

The Fourth Circuit further held that the drug manufacturer’s interpretation of the Rebate statute was objectively reasonable.  The Court also noted there was no authoritative guidance to warn defendant away from this interpretation.

Key takeaway: a putative relator cannot simply point to a vague or conflicting regulation to establish a FCA case.

Discovery violations and delays might result in the dismissal of a indictment involving a $500 million fraud.  This after the original indictment was dismissed without prejudice for similar issues.  United States v. Morgan, et al, 18-cr-108; 21-cr-00032 (W.D.N.Y.).

In early May 2018, agents executed wide sweeping search warrants on the offices of Bob Morgan.  Computers, phones, servers, hard drives, and so much more was seized.  Prior to the execution of the May 2018 search warrants, a search warrant was executed on the cellular phone of a girlfriend of one of Morgan’s associates, who was later indicted with Morgan.

Morgan and his associates were indicted in 2018.  The Indictment alleged that Morgan and his co-conspirators were involved in a $500 million mortgage fraud scheme.  The indictment was eventually dismissed without prejudice.  The Court held that prosecutors blew deadlines and mishandled discovery, which violated defendant’s speedy trial rights.  The government’s justification for blown deadlines was that it expected quick pleas and didn’t anticipate litigation.

The government indicted Morgan and others again in 2021.  The allegations in the Indictment were the same.  The discovery issues continued in the second indictment, which resulted in the court entering a strict scheduling order.  The government failed to comply with the scheduling order.  Worse, the government disclosed the existence of the phone seized February 2018 for the first time on March 2021.  Then, in August 2021, the government disclosed that instead of reviewing and producing all seized materials to comply with its Rule 16 obligations, the government made ad hoc decisions on what to produce by creating a subset of documents and running search terms on the subset.  Given these circumstances, the defendants filed a motion to reconsider its motion to dismiss the indictment.  The government opposed the request noting that while failures and mistakes were made, the mistakes did not warrant dismissal of the Indictment.

Following review of the pleadings and a status hearing, the court scheduled an evidentiary hearing for the week of April 4, 2022 and ordered prosecutors involved in the discovery process to be present to give live testimony.  The court also ordered production of emails exchanged between the prosecution team.  In anticipation of the evidentiary hearing, the defense provided the court with a list of more than twenty four misrepresentations prosecutors made to the court.

Minutes before the hearing was scheduled to start, three of the four defendants announced that they had entered plea agreements and withdrew their motions.  The plea agreements were extremely lenient.  Each defendant agreed to plead guilty to one count of bank larceny with losses under $1000.  This is a far cry from the $500 million fraud alleged in the Indictment.

The evidentiary hearing as to the remaining defendant has been stayed pending a status conference.

It will be interesting to see whether the evidentiary hearing will go forward as to the last standing defendant.

One of the first Department of Justice criminal antitrust cases targeting agreements in the labor market started yesterday.  The Indictment charges that DaVita (a kidney dialysis center) engaged in three agreements with competitors that prevented solicitation of each other’s executives.  The agreements also contained a “tell your boss” provision, which prevented the participants in the agreement from discussing employment opportunities until employee informed current employer.

The government’s opening statement, as reported by Law360 HERE, accused DaVita’s CEO of “cheating” and becoming outraged when others wanted to recruit his talent.  The government further stated that leaving DaVita was a “risky career move”.

In response, DaVita’s attorney stated that its CEO didn’t like when his employees left because he spent a lot of time mentoring them.  DaVita’s attorney did not dispute that the competitors had come to an agreement regarding employee solicitation.  He referred to the agreement as “ground rules”.  He further stated that there is nothing illegal about the agreements because they had nothing to do with “allocating the market”.

Most interesting is that attorneys for the CEO, who is also charged, reserved their opening for the start of the defense case.  A great strategy when defenses are aligned because the defense will get a closing argument following the government’s case and before they start the defense.

I have often discussed the trial penalty here.  Individuals are too often punished for going to trial.  It appears that individuals in the Varsity Blues case have received a trial penalty for going to trial.  The topic was covered by Law360 HERE.

The Varsity Blues cases have been widely reported and involved wealthy parents paying to get children spots in ivy league or hard to get into schools.  To date, only 2 individuals charged chose trial.  The individuals were convicted.   In advance of sentencing, lawyers for the two argued that these defendants’ behavior was not as egregious as others that had pled.  The lawyers further argued that a penalty should not attach to exercising the right to trial.  The court was not convinced.  The individuals were sentenced to 15 months and 12 months behind bars.  The government had asked for 21 months.  These sentences are three times and in some cases four times what parents that have pled guilty received.

The justification from the government for the increased sentence after trial is always that those that have pled have “accepted responsibility.”  However, according to the sentencing guidelines, acceptance of responsibility only creates a 2 or 3 point swing.  It does not create sentences that double or triple.

The trial penalty chills constitutional rights.  Individuals are incentivized to pled guilty and not exercise their right to trial.  Sentences are not given according to culpability, but instead according to who gets the deal first.

Nancy Gertner, a former federal judge was quoted in the Law360 article stating:

“Oftentimes, the first person who pleads guilty gets the best deal, and it doesn’t matter whether the first person who pleads guilty is the least culpable,” Gertner said. “The guidelines and the system encourages a rush to the courthouse to fall on your sword.”

For sure, changes are needed in the system or we will all lose a fundamental right to challenge the government, who does not always get it right.

Over the summer, the Biden administration issued a sweeping executive order aimed at boosting competition across the U.S. economy, including encouraging the Department of Justice (“DOJ”) and the Federal Trade Commission (“FTC”) to strengthen the 2016 guidance related to “no-poach” and wage-fixing criminal prosecutions.  As early as October 2016, before the Biden administration, the DOJ warned that it was investigating wage-fixing and so called no-poach arrangements between competitors.

The first indictment came in December 2020 in the Eastern District of Texas – United States v. Neeraj Jindal and John Rodgers, Case No. 20-cr-00358.  The DOJ charged two Texas businessmen with participating in a price-fixing conspiracy aimed at lowering the rates paid for physical therapists and their assistants.  The defendants were also charged with obstructing an FTC proceeding stemming from statements made to regulators during the investigation stage.  The defendants filed a motion to dismiss arguing that there was no precedent for bringing criminal charges over a wage fixing agreement, which was denied at the end of November.  This case is set for trial in April 2022.

The second indictment came in January 2021 in the Northern District of Texas – United States v. Surgical Care Affiliates, LLC, et al, Case No. 21-cr-00011.  The Indictment accuses Surgical Care, a unit of United Health Group, of devising separate agreements with two health care companies not to solicit each other’s senior level employees.  The Surgical Care case is the first publicly filed criminal case regarding so-called “no poach” agreements.  Surgical Care has been aggressively litigating the case.  It filed a motion to dismiss, which remains undecided.  Surgical Care also recently filed motions seeking Brady information, a bill of particulars, and requesting a James hearing.  Surgical Care sought, among other items, a list of “targeted” employees, a definition of “senior level employees”, and a list of unindicted co-conspirators.  Surgical Care wanted a James hearing on the admissibility of co-conspirator statements.  The government opposed the request arguing that Surgical Care is simply seeking an early preview of the government’s case and that it has already produced a great deal of documents to Surgical Care with a detailed index.

In Las Vegas, Nevada, on March 30, 2021, a grand jury returned a one count indictment charging VDA OC, LLC and a former manager, Ryan Hee, for conspiring with an unnamed competitor company to allocate employee nurses and to fix those nurses’ wages, in violation of the Sherman Act.  The case is United States v. Hee, Case No. 21-cr-00098.  The Indictment alleges that agreements were entered into for the provision of healthcare staffing services that allocated nurses and fixed the wages of those nurses. According to the indictment, the co-conspirators agreed not to hire each other’s nurses through conversations and other communications. The conversations included agreements to refuse further wage increases and agreements not to recruit or hire co-conspirator’s nurses.  VDA OC, LLC and Hee have filed motions to dismiss the Indictment arguing that the conduct charged was not illegal and that if it was they did not have notice of same.  The motion is pending.

Finally, in July 2021, the DOJ indicted DaVita, an operator of kidney dialysis centers, and its former CEO of colluding with competitors on agreements not to recruit one another’s senior level employees.  One competitor was Surgical Care.  The case against DaVita was filed in the District Court of Colorado and has received a great deal of attention.  Like Surgical Care and VDA OC, LLC, DaVita filed a motion to dismiss arguing that the conduct charged was not illegal.

In responding to the motions to dismiss filed, the DOJ generally argues that no-poach deals should be considered one of the three types of conduct courts have identified as per se antitrust violations: price fixing, market allocution, and bid-rigging.  The DOJ further argues that agreements to divide up the workforce should be no different from divvying up a market.

The U.S. Chamber of Commerce is supportive of Surgical Care and DaVita going as far as filing an amicus brief in both cases blasting the DOJ stating that classifying these no-poaching agreements as per se illegal violates the separation of powers and cannot provide the fair notice required by due process.  The Chamber also argued defendants lacked fair notice required to know that conduct was illegal because no court had declared non-solicitation agreements to be per se illegal.

All four cases are gearing up for trial, which is a clear indication that legal counsel for the individuals and entities have analyzed the evidence and law and believe acquittals are more than a mere possibility.

Regardless, the DOJ has dedicated a great deal of resources to this area of enforcement, so all those operating in the health care industry and other industries should tread carefully in reaching any agreements with competitors that may implicate the DOJ’s initiatives to eradicate out no-poach agreements and wage-fixing.

Happy New Year! I am back after taking a break to recuperate from a 9-week health care fraud trial in the Southern District of Florida.

Some news and notes to start 2022:

1. Following the COVID-19 Omicron variant surge over the holidays, Big Law is postponing the return to office indefinitely. Quinn Emanuel and Mintz Levin are just two of many firms delaying their return to office plans.  Many speculate that the continued delays will result in a permanent hybrid (office and home based) workplace.
2. Trial of Elizabeth Holmes ends in conviction. Holmes is accused of defrauding investors and patients with false claims that she had blood testing machines that could conduct a full range of tests with only a few drops of blood.  Following 14 weeks of testimony, the jury deliberated for 7 days.  The jury convicted Holmes of 3 counts of wire fraud and 1 conspiracy count.  The jury found Holmes not guilty on 3 fraud counts and 1 conspiracy count related to defrauding patients.  The jury was deadlocked on 3 wire fraud counts.  The verdict suggest the jurors split the baby, which often happens after long trials.  Now, the real question is whether Holmes will cooperate with the government in order to mitigate her sentence.  Holmes’ co-defendant, Sunny Balwani, was charged in the same Indictment as Holmes.  Balwani sought and was granted a severance from Holmes because Holmes was expected to (and did) accuse Balwani of mental and emotional abuse during her trial.  The severance might work against Balwani and favor the government.
3. Trial of Ghislaine Maxwell ends in conviction. Jury convicted Ghislaine Maxwell of federal sex trafficking for helping Jeffrey Epstein recruit and sexually assault teen girls.  Maxwell was convicted of 5 out of 6 charges.  Because the federal government is investigating others connected to Epstein, Maxwell, like Holmes, has the opportunity to mitigate a long prison sentence by cooperating.  However, a deal will require Maxwell to admit guilt.  Maxwell’s family has already made clear to various media outlets that Maxwell will maintain her innocence and will not cut a deal.  See Maxwell Will Not Reveal Names.