District Court Rules that Broad Measure of Damages Applies in False Claims Act Case, Greatly Increasing Defendants’ Exposure

Several aspects of the federal False Claims Act incentivize the government and relators to bring fraud claims to recover damages to the government.  In addition to awarding relators typically between 15% and 30% of the proceeds of the action or settlement; awarding reasonable attorneys’ fees, expenses, and costs; and applying statutory penalties for each false claim submitted; the act also provides for treble (three times) damages.  A recent decision from the District of Massachusetts illustrates just how fast a defendant’s exposure can add up in a False Claims Act case.

In United States v. Teva Pharmaceuticals USA, Inc., No. 1:20-cv-11548 (D. Mass.), the government brought a False Claims Act case against Teva for alleged violations of the Anti-Kickback Statute (“AKS”).  The government claims that Teva violated the law by causing the submission of false claims to Medicare due to kickbacks from paying co-pays of Medicare patients obtaining Copaxone, a drug for multiple sclerosis.  According to the government, over roughly a decade, Teva “donated over $350 million” to two foundations to cover Medicare co-pays, and “raised the . . . price paid by wholesalers such as pharmacies to the manufacturer, from about $17,000 per year to over $85,000 per year . . . .”  This, the government claims, “yielded Teva enormous revenue from Medicare’s Copaxone reimbursements.”  One of the government’s experts identified “345,970 matched Medicare claims for Copaxone, with a total paid amount of $1.49 billion” for patients at issue.

In granting the government’s motion for partial summary judgment (and denying Teva’s summary judgment motion), the court addressed the proper measure of the government’s actual damages to be trebled (tripled) under the law.

The government argued that the correct measure of actual damages was “the entirety of the government’s expenditures for claims resulting from the illegal kickbacks,” in other words, the full amount the government paid for the tainted claims.  According to Teva’s brief, the government claims that using that measure of damages, trebled, including penalties, could result in a “devastating verdict ranging between approximately $7.5 billion and $11.8 billion.”

In its opposition brief, Teva argued for a much narrower measure of damages: the “net economic loss” or “benefit-of-the-bargain” approach, where the measure of damages is the difference between what the government bargained for and what it actually received.  In this framework, Teva argued that the “prescribed medication was a medically necessary and efficacious treatment.”

The court sided with the government, persuaded by the rationale that “the government simply would not have paid those Medicare claims had it known they were submitted in violation of certain Medicare requirements such as the AKS or the Stark Law.”

A defendant’s exposure in a False Claims Act suit can be massive.  This is particularly so where the measure of damages equals the full amount the government paid for the false claims, trebled, plus statutory penalties for each false claim, plus attorneys’ fees, expenses, and costs.  Congress sent a clear message incentivizing the government and relators to bring False Claims Act cases to recover damages to the government.  That same message serves as a warning for would-be defendants.  And this case serves as a reminder of just how large defendants’ potential exposure can be under the False Claims Act.

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