A Primer for In-House Counsel on FCA Implications of the Opioid Epidemic

April 17, 2018Articles The Legal Intelligencer

The past year has seen a large up-tick in federal activity aimed at curbing the nation’s opioid crisis. Of particular note, on July 13, 2017, the Medicare Fraud Strike Force arrested 412 defendants in a nationwide health care fraud enforcement directive. Of these, 120 were charged for actions taken in relation to opioids.

Since then, Attorney General Jeffrey Sessions has created two agencies for the purpose of curbing the opioid epidemic. First, in August 2017, Sessions created the Opioid Fraud and Abuse Detection Unit (the detection unit), a Department of Justice (DOJ) pilot program that will employ data analytics to target physicians and pharmacies whose opioid prescription practices “far exceed their peers.”

Second, on Feb. 27, Attorney General Sessions announced the formation of the DOJ’s Prescription Interdiction & Litigation Task Force (PIL). The PIL will work in tandem with the detection unit to target every “link” in the opioid supply chain, from manufacturers and distributors to providers and professionals. To accomplish this task, the PIL will employ “all available criminal and civil law enforcement tools.” To that end, Deputy Assistant Attorney General Stephen Cox identified the False Claims Act (the FCA) as one tool that will be “increasingly” used “to address the opioid crisis.” Although the government has regularly utilized the FCA to fight health care fraud, it has never used it to simultaneously target a range of drugs. What’s more, recent and expected Supreme Court decisions continue to mold the contours of this evolving law. How the DOJ utilizes the FCA in the opioid arena, against a large class of different drugs, will provide in-house counsel within the health care industry and beyond with a unique opportunity to evaluate one of the government’s favorite civil enforcement weapons. Below, we provide a brief primer on the FCA and the considerations affecting its use going forward.

How Does the FCA Apply to the Health Care Industry?

FCA suits can be initiated by either the government or private citizens (i.e., whistleblowers). If private citizens initiate a suit, the government is provided an opportunity to intervene in a case. Whistleblowers often take the form of insiders and come with a trove of inside information.

The FCA applies to persons or entities that receive reimbursements through federal health care programs, such as Medicare, Medicaid and TRICARE. Reimbursements are received by submitting reimbursement forms and supporting documentation to the appropriate government agency. If these submissions result from “material” fraud, then the violator is subject to $10,957 to $21,916 in penalties for each claim submitted (for claims post-Nov. 2, 2015). These damages are then trebled. The sheer volume of reimbursement requests for opioid prescriptions introduces a damages calculus that far exceeds what could be sought under compensatory damage models.

FCA plaintiffs often take the position that if fraud is committed in the chain of actions preceding a prescription, then the FCA can apply. The depth of the supply chain preceding a prescription involves a number of entities and practices. Fraud can arise in the marketing and distribution of pharmaceuticals, the horizontal and vertical relationships among those in the supply chain, the distribution of opioids, considerations in a treatment decision, the classification of a disorder or illness and in the writing of the prescription itself (to name a few). The ability of the FCA to reach essentially the entire supply chain makes it particularly useful in the fight against health care fraud.

In the opioid context, the FCA has historically tracked traditional approaches to recover reimbursements resulting from, inter alia, kickbacks and unnecessary treatments. As to manufacturers and distributors, the conduct that is currently being seized upon is the marketing of opioids. Under the FCA, marketing-based claims generally stem from “off-label” marketing. As discussed further below, these types of claims usually arise where a drug is marketed for a use that was not approved by the FDA. However, in late February 2018, Deputy Assistant Attorney General Ethan Davis emphasized that the DOJ intends to utilize traditional off-label prosecution to target a potentially broader subset of marketing practices.The success of the government in utilizing the FCA in this manner could have ramifications far beyond the health care field.

What Is Off-Label Marketing?

Before a prescription drug can be sold, it must first be approved by the FCA for safety and efficacy. Efficacy means the “intended use” of the drug; that is, what the drug is meant to treat. The “use” of a drug is multi-faceted and is often limited by age group, dosage and method of administration. Once approved for sale, a drug must contain a label with its “intended use.”

However, FDA-approved drugs often have a number of other uses beyond those set forth on the label. In fact, in certain fields (i.e., oncology) off-label uses are vital to effective treatment. Consequently, physicians are permitted to prescribe drugs for off-label uses. Manufacturers, however, are generally prohibited from marketing drugs for off-label purposes. Such off-label marketing often violates the “misbranding” or “new drug” provisions of the Federal Food, Drug and Cosmetic Act and can result in criminal charges. Furthermore, because Medicare and Medicaid generally prohibit federal reimbursement for off-label uses—with some exceptions—a prescription that was induced by off-label marketing arguably constitutes a false “claim” within the meaning of the FCA.

The prototypical example of “off-label” marketing occurs when a drug’s label indicates an approved use for a certain disease (i.e., cancer) and it is marketed for an entirely different purpose (i.e., the flu). The issue is often not nearly as clear, and there have been numerous FCA suits attacking marketing practices that arguably promote “on-label” uses.

In the opioid context, there have been a small number of settlements for off-label marketing. Most of these deal with marketing a given opioid for a type of pain that is not approved by the label (i.e., cancer v. noncancer-related pain) or for misrepresenting the addictive properties of a given opioid. For example, the opioid Actiq was approved for treating cancer patients. The manufacturer allegedly marketed the drug for migraines and general injuries. In another case, the manufacturer of OxyContin marketed the drug as less-addictive than other opioids, which was not supported by the label. The OxyContin case was settled years ago, but a wave of private lawsuits brought by state and local governments have recently sprung up concerning a much broader type of marketing practice: unbranded marketing.

How Might the FCA Be Used Going Forward?

Unlike traditional “off-label” marketing—which focuses on a single drug1the primary thrust of the state and local government cases against opioid manufacturers concerns “unbranded marketing” that is untethered to a particular drug. The theory is that opioid manufacturers allegedly engaged in a broad scheme to change the medical perception of opioids and their addictive properties. For example, manufacturers allegedly funded third-parties to generate educational materials supporting long-term opioid use. The FDA does not regulate unbranded marketing, and it is not particularly clear whether the FCA could reach this practice.

Indeed, there are a number of issues with applying the FCA in this context. For starters, the government must establish that a claim “resulted from” the fraudulent conduct. It will be difficult to establish that a reimbursement for a particular drug resulted from educational materials relating to opioids as a whole. In a similar vein, how does an FCA plaintiff prove which claims were fraudulent and not the result of independent medical judgment or some other legal consideration? While some FCA plaintiffs have resorted to statistical evidence, courts have reached varied results over whether, and when, statistical proof will suffice.

In addition, the government must establish “materiality,” meaning that the concealed fraud was material to the government’s decision to pay. While the materiality standard was recently addressed by the Supreme Court in Universal Health Services v. United States Escobar, it remains a nebulous standard. Establishing the materiality of unbranded marketing will be difficult. The government has been aware of unbranded marketing for quite some time but has continued to reimburse prescription opioid claims. With a few exceptions, numerous circuit courts have ruled in favor of FCA defendants when confronted with evidence of government “acquiescence.”

Faced with these issues, state law and possibly FTC claims for deceptive marketing might be better suited for the task. However, these laws also face a number of legal roadblocks and do not allow for the extraordinary damages and corresponding leverage of the FCA.

The more likely scenario will see FCA claims brought in conjunction with other causes of action when the requisite factual basis is present. Indeed, the DOJ recently declined to bring substantive claims in the Ohio MDL consisting of numerous state and local government lawsuits targeting, inter alia, unbranded marketing practices. Instead, the government opted to intervene as a “friend of the court” to assist in an industry-wide solution.


The PIL and task force’s signaled intention to bring FCA suits against a range of similar drugs provides a canvass for further developments in the law. The success, or lack thereof, in applying the FCA in this manner will likely set a precedent for future government actions. In-house counsel would be wise to pay attention to the actions and theories being advanced by the PIL and the task force going forward.

Reprinted with permission from the April 17 issue of The Legal Intelligencer.(c) 2018 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.