The federal government has weighed in on a whistleblower suit accusing Bayer Corp. of paying kickbacks to get doctors to use a surgery drug called Trasylol. The government says that the company can still be held liable under the False Claims Act (FCA) even though the government pays for the drugs as part of a “bundle” rather than individually.

In a statement of interest, the government urged a New Jersey federal court to reject Bayer’s argument that its violations of the Anti-Kickback Statute (AKS) are not material to the government because the alleged kickbacks would not affect the amount the U.S. paid for the drugs.

The government is only weighing in on this specific question of law. It is not taking a position on the merits of the suit. The government wrote:

Under the defendants’ theory, even if a pharmaceutical company gave a doctor an envelope stuffed with cash as a kickback to use a drug that is paid for through a bundled payment, the company could not be liable under the FCA due to the absence of materiality.

In the suit, Laurie Simpson, a former Bayer marketing employee, claimed the company misbranded Trasylol by promoting off-label uses of the drug, including use in valve replacement surgeries, surgeries involving pediatric patients, liver transplants and other medical scenarios. The surviving claims after a motion to dismiss was partially granted allege that Bayer’s conduct led to the submission of claims involving Trasylol uses that were not “reasonable and necessary” and therefore not covered under Medicare, according to court documents. The government contends:

When a company causes a hospital to misrepresent that claims complied with material requirements for payment relating to a drug, and the company acts knowingly within the meaning of the FCA, there is potential liability under the FCA, regardless of whether the government paid for the drug as an individual item or, as here, through a flat payment for a bundle of goods and services.

The bundle payment scheme exists to provide incentive for health providers to economize the costs of care by having the government pay flat payments based on the average cost for patients in similar circumstances. Citing the Supreme Court’s decision in Universal Health Services v. U.S. ex rel. Escobar, the government argued that under the FCA, questions of materiality are focused on whether knowledge of the false claims would influence the government’s decision to pay the flat rate, not on whether it would change the cost. The government wrote:

Compliance with the AKS and drug coverage rules are both material to such payment decisions. This is true regardless of the manner by which the government chooses to pay for goods and services, whether separately or through bundled payments.

The question of how much the government paid and whether Bayer’s conduct cost the government more money is one for determining damages, not materiality, the government wrote further.

The government contended further that, regardless of the pay scheme, a misrepresentation of compliance with the Anti-Kickback Statute makes the claims false, and a claim for reimbursement materially false. The government also urged the court to reject Bayer’s argument that allowing liability leads to “absurd” results because a Defendant could be held liable for any hospital claim for reimbursement that included any marginal noncompliance, saying that a bundled payment doesn’t create a material violation where none would otherwise exist.

Instead, the government contended, the only “absurd” result would come from adopting Bayer’s theory. The government said:

If accepted, the defendants’ argument would mean that the government could never recover when kickbacks or drug coverage violations occur in the context of inpatient hospital stays.

In addition, the government says the court should reject Bayer’s argument that the company is not liable because the claims for reimbursement did not name Trasylol, saying the drug is implied as part of the goods and services in the claim and is therefore considered to be included among the things a patient received in the hospital. The government said:

Because the claim covers everything, it does not need to specifically identify Trasylol in order for it to constitute a claim for Trasylol.

The government is represented by Assistant Attorney General Joseph H. Hunt and Craig Carpenito, Charles Graybow, Nicole Mastropieri, Michael D. Granston, Jamie A. Yavelberg and Sanjay Bhambhani of the U.S. attorney’s office. Simpson is represented by James E. Cecchi and Lindsey H. Taylor of Carella Byrne Cecchi Olstein Brody & Agnello PC and David A. Bocian, Terence Ziegler, Tyler S. Graden and Asher S. Alavi of Kessler Topaz Meltzer & Check LLP. The case is U.S. ex rel Laurie Simpson v. Bayer Corp et al., (case number 2:05-cv-03895) in the U.S. District Court for the District of New Jersey.

The Beasley Allen Whistleblower Litigation Team

It has become abundantly clear that whistleblowers are the key to exposing corporate wrongdoing and government fraud. A person who has first-hand knowledge of fraud or other wrongdoing may have a whistleblower case. Before you report suspected fraud or other wrongdoing – before you “blow the whistle” – it is important to make sure you have a valid claim and that you are prepared for what lies ahead. Beasley Allen has an experienced group of lawyers dedicated to handling whistleblower cases. The lawyers on our firm’s Whistleblower Litigation Team are Larry Golston, Lance Gould, and Paul Evans.

Jere L. Beasley, Beasley Allen Founder
Jere Beasley

Jere Beasley, the founding member of Beasley Allen Law Firm, has practiced law as an advocate for victims of wrongdoing since 1962. He was the lead Beasley Allen attorney in the record $11.9 billion award against ExxonMobil Corp. on behalf of the state of Alabama.

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