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Neither Fish Nor Fowl


This might explain it.
This might explain it.

The platypus, it is said, looks “like God made it from spare parts”: duck bill, beaver tail, webbed feet, and poisonous spurs. When lawsuits try to mix kickback allegations with fraud claims, they often prove just as odd and unwieldy. And sometimes the judicial decisions they inspire do as well.  

  

The First Circuit’s recent decision in Humana v. Biogen, Case No. 24-1012 (Jan. 17, 2025), is just such a chimera. A health insurer sued a drug maker under RICO, claiming that the drug maker paid kickbacks to get patients to buys its drugs, then passed the costs onto the insurer without disclosing the kickbacks, and that this amounted to federal mail and wire fraud. The court rejected that theory, finding that the insurer had not described a false representation for purposes of the fraud statutes.


But while the court may well have reached the right conclusion, it took a strange route to get there, applying False Claims Act analysis and precedent to the mail and wire fraud statutes. It's almost as awkward as a mammal that lays eggs.

 

The Humana decision

 

Humana is a health insurer, Biogen a pharma company that makes multiple sclerosis drugs. Biogen sells its drugs to wholesalers, who sell them to pharmacies, who sell them to patients. Under Medicare Part D, patients pay a copay or deductible, and an insurer (such as Humana) pays for the rest of the drug cost.

 

Humana claimed that Biogen orchestrated a scheme in which Biogen provided the drugs free to uninsured patients, then “funneled” them into Humana Medicare plans, and then indirectly covered their co-pays through donations to certain non-profits. According to Humana, this violated the federal Anti-Kickback Statute and Medicare regulations. Humana ultimately paid for the resulting drug orders.

 

Humana sued Biogen under RICO, alleging that Biogen had engaged in a pattern of federal mail and wire fraud violations. Mail and wire fraud violations require, among other things, the making of false representations of material facts. A civil complaint alleging a RICO claim based on fraud must describe the false representations in detail, including explaining what the defendant said and why it was false.

 

Per Humana’s complaint, under Medicare regulations, “downstream” entities (like Biogen, the wholesalers, or the pharmacies) that contract to sell goods to Medicare Part D insurers (like Humana) must comply with federal laws and regulations and certify that certain claims data the suppliers provide is “true, accurate, and complete.” According to Humana, Biogen caused the pharmacies to submit claims for payment for the drugs along with a false “implied certification” that they were not tainted by kickbacks or other illegal conduct.

 

The First Circuit rejected this theory, and found that Humana had not adequately alleged misrepresentations for purposes of the mail/wire fraud statutes and RICO. The court observed that the Supreme Court had recognized the “implied certification” theory as a basis for a claim under the False Claims Act in Universal Health Services, Inc. v. United States ex rel. Escobar, 579 U.S. 176 (2016).

 

But the First Circuit distinguished Escobar in two ways. In Escobar, the defendant had submitted a claim for payment directly to the payer (i.e., Medicare).  Also, in Escobar, the defendant had made certain specific representations to Medicare about the services provided, without disclosing other information that rendered those statements misleading “half-truths.” By contrast, Biogen had not submitted any claims directly to Humana, and there was no allegation of “half-truths,” but rather a pure omission. The First Circuit found that this was insufficient for a RICO claim.

 

My take

 

I think the First Circuit may have missed the mark in its analysis, if not its conclusion. First, the FCA and the mail/wire fraud statutes are different laws. Escobar and the “implied certification” theory arise from the FCA and decisions interpreting it, not from mail and wire fraud jurisprudence. Whether or not a complaint has properly alleged an implied certification theory or any other basis for FCA liability is not the issue. Instead, the question is whether the defendant has caused the mail or interstate wires to be used in a scheme to deprive someone else of property through false representations.

 

In many circuits, pure omissions can support charges of mail or wire fraud in some circumstances, such as where a specific law creates a duty to disclose the relevant information. It is not clear whether Humana alleged that the Medicare regulations specifically required Biogen or others to disclose the alleged scheme to Humana. But the First Circuit does not seem to have analyzed that issue, as it focused on the Escobar/FCA test instead.

 

Second, a RICO claim can be based on mail or wire fraud even where the false representations were not made directly to the plaintiff. In Bridge v. Phoenix Bond & Indemnity Co., 553 U.S. 639 (2008), the Supreme Court held that a company could bring a RICO claim against a competitor that made false representations to county officials in order to beat the plaintiff in an auction. Thus, the First Circuit’s emphasis on direct communications between the plaintiff and defendant, while perhaps relevant to an FCA analysis, are not necessarily appropriate in a fraud-based RICO case.

 

Takeaway

 

It’s tricky to plead a RICO claim. It’s even trickier to plead one based on mail or wire fraud, where the fraud involves failure to disclose violations of a different law to someone other than the plaintiff. It may well be possible, but neither Humana’s complaint nor the First Circuit’s decision light the way.


*Like many, I had assumed that the plural of platypus is "platypi" or "platypae." Apparently, it is actually "platypuses" (or possibly "platypodes"), because the word derives from Greek, not Latin. This may be the most useful information in this post.

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© 2024 by Joshua Robbins. 

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