Why Health Care Providers Rarely Go to Trial in False Claims Act Cases: The Recent Trial of Penelow v. Janssen Products
The June 13 jury verdict in United States ex re Penelow et al. v. Janssen Products, LP, a False Claims Act (FCA) case tried in New Jersey federal court, shows once again why defendants in health care FCA cases rarely go to trial. The reason: the potential for thermonuclear damage awards. The Penelow jury awarded the whistleblowers (a/k/a Relators) and the federal government $150,005,920 in single damages. When adjusted by the Court for FCA treble damages and per claim penalties, the anticipated FCA judgement against Janssen will be over $1 billion.
Penelow checked all the boxes — save one — for enormous FCA damage exposure. First, the Relators who brought the case alleged that Janssen engaged in a multiyear nationwide scheme against Medicare and other state health care programs. Second, the alleged scheme involved the widespread use of allegedly deceptive marketing materials to promote the sale of two well-known drugs used to treat HIV: Prezista and Intelence. Third, Relators alleged that Janssen’s top-down, extensive and coordinated “off label” promotion of these two drugs was a “substantial factor” in causing physicians to prescribe these two drugs.
As with other FCA health care cases, the Relators successfully claimed that the off-label marketing practices tainted every prescription and reimbursement for thousands of sales. In fact, the Court did not require Relators to prove that each of the individual physicians who prescribed the two medications for their HIV patients actually relied on or were affected by the disputed marketing materials.
Federal Government Stays Out
The one box that was not checked? The federal government did not intervene. In the past, enormous FCA settlements and verdicts were most often associated with the federal government intervening and taking over the civil prosecution of a qui tam matter. Penelow is an example of a more recent trend where a Relator’s counsel bring their qui tam cases to trial after the federal government declines. In this 12-year-long case, the Relators were represented by reputable and apparently well-funded law firms.
Why Health Care Providers Avoid Trial
FCA cases brought against health care providers have two main vulnerabilities that makes defendants averse to going to trial. First, as in every FCA case, health care providers have exposure to the FCA’s ruinous damages and penalties. Treble damages are mandatory. The FCA also imposes mandatory per claim penalties. Prior to 2015, FCA penalties were between $5,500 and $11,000, but they have been escalating with inflation. The U.S. Department of Justice (DOJ) recently authorized FCA penalties ranging from a per claim minimum of $13,946 to a maximum of $27,894 per claim.
The second vulnerability for health care providers comes from the nature of health care itself: thousands of claims arise from providing the same or similar services to hundreds or thousands of patients who are insured by federal health care providers. Each service performed or item sold to a patient and reimbursed by a federal health care provider such as Medicare or Medicaid can generate a separate distinct false claim if that service or item was sold or provided as part of an unlawful practice such as a kickback to a prescribing physician, a provider’s false certification of their compliance with applicable regulations, or as in the case of Penelow, the allegedly deceptive marketing of HIV drugs.
Penalties Add Up
Penelow illustrates the issues with penalties. The Penelow Relators challenged a systematic practice – the defendant’s marketing of two drugs – over a multiyear period pursuant to an alleged unlawful marketing plan that it claimed was a “substantial factor” in physicians throughout the United States prescribing thousands of drugs to HIV patients that were reimbursed by a federal health care provider. Asked to find the number of claims for these two drugs that violated the FCA, the jury found 159,574 claims. The Court will multiple that number of claims times the applicable – likely, minimum – penalty to add an additional penalty. Assuming that the Court imposes a $5,500 per claim penalty since the conduct at issue occurred years ago, Janssen faces $877 million in penalties together with $450 million in treble damages.
Penelow illustrates the risks from trying an FCA health care case. Together with other FCA healthcare cases that have gone to trial such as Ruckh, Tuomey, and Fasenmaie, such broad exposure from the FCA and huge verdicts frequently compel all but the strongest of FCA cases to settle.
Please contact A. Brian Albritton, Raquel Ramirez Jefferson or any member of the Phelps Health Care or White Collar Defense and Investigations teams if you have questions or need advice or guidance.
