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Drug Companies Use Of Cappers to Sell Prescription Drugs Can Go Beyond Tradition To Mobilize The California Insurance Fraud Prevention Act (IFPA)
By Barry Zalma, CFE, Esq. - July 17, 2014

Successful writs of mandate are as rare as snow fall in the Sahara. When they are granted a serious error of law is found necessary to be cured. The California Court of Appeal bucked tradition and granted a writ of mandate to compel trial on damages available against those who use cappers and runners.
 
A petition for a writ of mandate arose out of a qui tam action against Bristol–Myers Squibb Co. (BMS) to impose civil penalties for violation of the California Insurance Fraud Prevention Act (IFPA), Insurance Code section 1871 et seq. The relators alleged that Bristol–Myers employed runners and cappers to induce physicians to prescribe its drugs to their patients. The trial court concluded that proof of liability under Insurance Code section 1871.7, a part of the IFPA, requires: (1) that a claim for payment be presented to an insurer; (2) that the claim must itself be fraudulent, containing express misstatements of fact; and (3) that the claim would not have been presented but for Bristol–Myers' unlawful conduct. Petitioners contend that the order unduly limits the application of section 1871.7
 
In State ex rel. Wilson v. Superior Court, — Cal.Rptr.3d —-, 2014 WL 2918872 (Cal.App. 2 Dist.) Michael Wilson, a former Bristol–Meyers Squibb Co. sales representative, on behalf of the People of the State of California, filed the underlying qui tam action against BMS. Qui tam is short for the Latin phrase qui tam pro domino rege quam pro se ipso in hac parte sequitur, which means he "who pursues this action on our Lord the King's behalf as well as his own."
 
The lawsuit alleges, in a factually detailed pleading, that in marketing its drugs, BMS engaged in a course of illegal and fraudulent conduct aimed at doctors, health care providers, pharmacists, and insurance companies. The suit alleges BMS specifically targeted these benefits to physicians who had large numbers of patients enrolled in private health insurance plans, and instructed its sales representatives to hold the targeted physicians responsible for increased prescriptions—expressly characterizing this as "shaking the doctors down."
 
 
The IFPA
 
This petition concerns the proof required to establish a violation of subdivision (a) of Insurance Code section 1871.7, a portion of the IFPA that relates to health insurance and workers' compensation insurance fraud.  Subdivision (a) makes it unlawful to knowingly employ runners or cappers to procure clients or patients to obtain insurance benefits.  Subdivision (b) prescribes civil penalties and other remedies for violation of either subdivision (a) or Penal Code sections 549, 550, or 551, which target insurance and workers' compensation fraud.
 
The Summary Adjudication Ruling
 
The trial court looked to subdivision (b)'s final sentence, which states that "[t]he penalty prescribed in [subdivision (b)] shall be assessed for each fraudulent claim presented to an insurance company … and not for each violation." (Italics added.) The court held that under that language it is not enough to prove that the unlawful conduct was a substantial factor resulting in the prescription. The court held this language permits the assessment of penalties only if the prescription would not have been written but for the unlawful conduct; that the prescriptions must be shown on a prescription-by-prescription and claim-by-claim basis to have been a quid pro quo for value provided by BMS; and that the resulting claim must be independently fraudulent and not merely unlawful, containing on its face an express misstatement of fact.
 
DISCUSSION
 
For the assessment of civil penalties subdivision (b) requires proof of claims that are in some manner deceitful.
 
The final sentence of subdivision (b) limits the assessment of its penalties to something less than "every person" who is guilty of the unlawful conduct. Under it, the "penalty prescribed in this paragraph" may be assessed only "for each fraudulent claim presented to an insurance company," and not for each act that violates subdivision (a) or the incorporated penal provisions. The "penalty prescribed in this paragraph" is the "civil penalty of not less than five thousand dollars ($5,000) nor more than ten thousand dollars ($10,000)," and the "assessment of not more than three times the amount of each claim for compensation…." But it does not encompass the "other equitable relief" that is authorized by subdivision (b), including injunction, disgorgement, costs, and attorneys fees, nor the "other penalties that may be prescribed by law." In adding the final sentence to subdivision (b), the Legislature could (and presumably did) conclude that the employment of runners and cappers that does not result in claims, or that results only in non-fraudulent claims, may appropriately be remedied by equitable devices, but that when the result is the presentation of fraudulent claims, the additional consequence of subdivision (b)'s monetary penalties is justified.
 
 
The Court of Appeal concluded that the words "fraudulent claim" in subdivision (b) do not justify the trial court's narrow interpretation, which limits actionable claims to those that contain express misstatements of fact. Where words of common usage have more than one meaning, the one which will best attain the purposes of the statute should be adopted.
 
Subdivision (a) identifies certain running and capping activities as unlawful without regard to whether the resulting services are competently rendered. Running and capping activities are disfavored and unlawful not just because they may often result in services that are excessive or unnecessary, but also because their purpose is to obtain the benefits that otherwise might have gone to others who did not use the prohibited methods.
Upon proof of a cause of action for deceit, the plaintiffs would be entitled to the damages resulting from the defendant's wrongful conduct. Subdivision (b) is not a substitute for a civil tort action for deceit. It provides civil penalties for conduct that is made unlawful by other provisions of law.
 
The plaintiffs in an action for its penalties are not direct victims. They did not rely on any misstatements or nondisclosures. They suffered no resulting harm—apart from that suffered by insurance policyholders and society as a whole.
 
California law recognizes many circumstances in which the proof required to show fraud requires far less than would be required to establish a civil cause of action for fraud. The "fraudulent claim" requirement does not limit the availability of the equitable and other remedies available under subdivision (b); but it does limit the imposition of subdivision (b)'s civil penalties to proof of claims that have a causal relationship to the unlawful conduct, and that are in some manner deceitful.
 
While the plaintiffs are required to show a causal relationship between the unlawful conduct and the resulting claims, at this stage of the case—before the defendants have filed an answer, before discovery, and before the identification of the evidence—it would be premature to conclude that proof of causation necessarily requires proof that the prescriptions would not have been written in the absence of the unlawful conduct. Causation may in many instances be inferred from evidence that does not itself constitute direct evidence of reliance on an individual basis.
 
The court of appeal concluded, therefore, that the trial court erred by concluding:
 
  1. that in no case can conduct be actionable under subdivision (b) without proof that a prescription was written and a fraudulent claim presented to an insurer as a result of the unlawful conduct;
  2. that in order to justify assessment of monetary penalties under subdivision (b) the proof must necessarily establish that the prescription for which payment is claimed would not have been written and the claim for payment would not have been presented but for BMS's unlawful conduct; and
  3. that in order to justify assessment of monetary penalties under subdivision (b) the proof must necessarily establish that the claim contains on its face an affirmative misstatement of fact.
 
The Court of Appeal granted the petition for writ of mandate and instructed the trial court to set aside its ruling on the motion for summary adjudication and to enter a modified ruling that comports with this opinion.
 
ZALMA OPINION
 
The IFPA was enacted because the state of California recognized how seriously insurance fraud acted to cause damage to the people of the state. In this case it is alleged that a major drug company was involved in a scheme to defraud insurers by bribing or otherwise compensating doctors to prescribe BMS drugs to multiple patients who did not require treatment with the drugs. If proved, when the case finally goes to trial, BMS will be subject to hundreds of fines between $5,000 and $10,000 for each fraudulently prescribed drug.
 
The trial court attempted to make it more difficult to proceed against the drug company and the Court of Appeal, therefore, found it necessary to issue a rare writ of mandate, to compel the trial court to allow the parties to present the appropriate evidence and determine the appropriate fines for such wrongful conduct.
 
=====

 
Barry Zalma is an attorney, a CFE (Certified Fraud Examiner), and an expert witness for myriad types of insurance fraud. His website is at www.zalma.com.   To read his blog, go to www.zalma.com/blog
 
copyright © Barry Zalma; published with permission by adjustercom
 
 

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