The government’s most drastic power is its ability to dismiss the case entirely.
Recently, a three-judge panel of the U.S. Court of Appeals for the Fifth Circuit sided with the government in its bid to dismiss a whistleblower case brought by a limited liability company against pharmaceutical giants Eli Lilly and Bayer.
The case offers another example of the government flexing its dismissal power in the wake of the Granston Memo, a 2018 Department of Justice directive to winnow False Claims Act cases that don’t align with government priorities. It also reflects the government’s skepticism of certain “professional” whistleblowers, offering guidance for the would-be corporate whistleblower.
The Government’s Dismissal Power Under the False Claims Act
The False Claims Act’s qui tam provision allows private parties, known as relators, to sue on behalf of the United States when the government has been defrauded. Although the point of the statute is to empower citizens to assist the government’s fraud-fighting efforts, the government maintains significant control over the scope of that assistance. For example, if the government opts to join a relator’s lawsuit, the government assumes the “primary responsibility” for prosecuting the case, can seek to limit the relator’s participation in it, and can even settle the case over the relator’s objections. Even when the government doesn’t join the lawsuit and the relator goes it alone, the government nonetheless can seek to stay the case and overrule any dismissal sought by the relator, among other interventions.
But the government’s most drastic power is its ability to dismiss the case entirely. The circuit courts are split on what the government must show to dismiss a case. The D.C. Circuit says the government has “unfettered discretion” to dismiss cases, while the Ninth and Tenth circuits have required the government to at least offer a valid government purpose served by the dismissal. The Seventh Circuit recently weighed in with a standard approximating unfettered discretion. Regardless of the test used, the outcome is generally the same: if the government wants the case thrown out, a court will agree to toss it.
The government’s dismissal power received renewed attention when the Granston Memo was issued setting forth guidelines for when the government should move to nix a relator’s case. It specifically called out cases that lack merit or otherwise interfere with federal policies. In the three years following the memo’s issuance, federal courts granted 25 government motions to dismiss – up from six motions in the two years preceding the memo.
The Fifth Circuit’s Decision and The “Professional” Relator
A decent portion of those recently dismissed cases were brought by “shell companies” established by National Health Care Analysis Group (NHCA), which is itself a partnership comprised of several limited liability companies set up by investors. The Fifth Circuit’s recent decision addressed two of those lawsuits brought by relator Health Choice Group, LLC, an NHCA shell company, against Eli Lilly and Bayer. In each case, Health Choice alleged that the pharmaceutical companies violated the Anti-Kickback Statute by offering perks to providers for prescribing their drugs. According to Health Choice, the perks included assistance with insurance billing and free nurse visits for patients to teach them how to use defendants’ drugs.
Nearly a year after declining to intervene in the lawsuits, the government successfully moved to dismiss them. The Fifth Circuit affirmed on appeal, declining to actually adopt a standard for government dismissals, but nonetheless concluding that the dismissals served legitimate governmental purposes. Specifically, the court explained that the government had properly concluded that the costs of continued litigation outweighed any potential benefit from the lawsuits. Perhaps more notably, the court also approved of the government’s determination that the allegedly unlawful practices were “not only beneficial, but also lawful.” Federal healthcare programs, the government argued, were served, not harmed, when pharmaceutical companies provided patients “with greater access to product education and support.”
While not emphasized by the Fifth Circuit, the government made plain that it had limited patience for NHCA, an entity it deemed a “professional relator” that had filed 11 qui tam actions in courts across the country, levying nearly identical allegations against various pharmaceutical companies. The government specifically disapproved of NHCA’s investigatory methods. To develop their allegations, NHCA interviewed current and former employees of the defendants under the auspices of conducting an unbiased “research study” – not developing allegations for qui tam lawsuits. The government openly disapproved of the “false pretenses” used by NHCA to gather the lawsuits’ foundational information.
What This Means for Corporate Whistleblowers
But the government’s decision to nix the NHCA cases and the deference given to that choice by the Fifth Circuit shouldn’t be a death knell for the corporate whistleblower. In an historic first, just last month the Justice Department intervened in a lawsuit brought by the data analysis firm Integra Med Analytics.
Integra Med filed a qui tam complaint against a group of nursing homes in New York, alleging improper inflation of Resource Utilization Groups, or RUGs, the system nursing homes use to measure the complexity of care required by a patient (and that Medicare, in turn, uses to reimburse nursing homes for that care). Integra Med undertook a sophisticated analysis of Medicare claims data to determine that certain nursing homes had abnormally high levels of the most severe (and most expensive) RUG scores. It then used statistical modelling to rule out innocent explanations for these anomalies. The government spent several years investigating Integra’s data-driven complaint and filed a complaint-in-intervention laying out complementary allegations of the defendant nursing homes’ knowledge of the RUG fraud.
In contrast to the Integra Med complaint, which is a tour-de-force of statistical analysis, NHCA’s complaints lead with the fruits of the information gathered form witness interviews conducted under “false pretenses,” and are followed by a relatively simple analysis of claims data showing that providers did, in fact, prescribe defendants’ drugs. NHCA also took a blunderbuss approach, targeting a panoply of pharmaceutical industry actors engaged in similar marketing practices.
The bottom line is that while NHCA’s business model is to ferret out fraud through data analysis, its cases against Bayer, Eli Lily, and other big pharma companies simply were not data-driven. Corporate whistleblowers – perhaps even NHCA – can expect to have greater success with the government when their allegations are driven by precise data analyses aimed at specific bad actors.