DOJHealth care providers will often try to negotiate and receive fair, commercially reasonable business terms with vendors and suppliers, to both better serve their patients and improve their “bottom line.” Yet when it comes to services reimbursed by the government — be it Medicare, Medicaid, or TRICARE — what exactly those terms are and how they are structured could affect whether a provider and vendor negotiate themselves into liability under the False Claims Act.

Last week, the U.S. Department of Justice (U.S. Attorney, Northern District of Texas) and Reliant Rehabilitation Holdings settled a False Claims Act lawsuit brought by a whistleblower, a former Reliant employee, for $6.1 million, over improper inducements allegedly offered by Reliant to nursing homes in order to secure the nursing homes’ therapy business. That business included providing rehabilitation therapy services to nursing home residents covered by the Medicare Part A program, which reimburses nursing homes for among other things rehabilitation therapy provided to those residents. To secure that business, according to the U.S. Attorney, Reliant allegedly assigned a nurse practitioner to the nursing homes “without charge or for a minimal, below market fee, in order to induce or reward nursing homes for contracting with Reliant to provide rehabilitation therapy for their residents.” In addition, Reliant allegedly paid nursing facility physicians “above fair market compensation for supervising and collaborating with Reliant nurse practitioners in exchange for the facilities’ therapy business.” Those arrangements, characterized as “kickbacks,”  allegedly “caused” the submission of “false” Medicare Part A claims by the nursing homes in violation of the Anti-Kickback Statute and the False Claims Act.  (The nursing homes were not named as defendants in the lawsuit.)

Significantly, there was no allegation made that Reliant had rendered, or that the nursing homes were reimbursed for, excessive or medically unnecessary therapy to the facilities’ Part A residents.  Nor was there a claim that Reliant or the nursing homes had “upcoded” residents’ “RUG” scores or overstated residents’ medical acuity in order to increase Medicare reimbursement.  Rather, it was alleged that the inducements had unduly influenced the selection of Reliant over rival therapy vendors and thus “tainted” all of the nursing homes’ Part A therapy claims.

The U.S. Attorney explained that the alleged FCA liability resulting from these arrangements is based not on excessive reimbursement dollars paid by Medicare but on their subordinating the best interests of Medicare residents to the vendor’s financial interests:

Companies that work to secure patient referrals by providing kickbacks inject improper financial considerations into our healthcare system. . . .  Today’s settlement demonstrates our determination to thwart such improper inducements whether they take the form of cash payments or free services.

Paying illegal remuneration to nursing homes and doctors to increase the bottom line . . . too often sacrifices the best interests of patients to profit-making schemes. . . .  Patients and taxpayers deserve better.

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Providers can continue to evaluate and select vendors on such terms as the quality and reliability, as well as the price, of services being offered by prospective vendors and suppliers.  However, entertaining offers from prospective vendors or suppliers for free or discounted services, or conversely compensation for nominal services or above-market compensation for services other than those being contracted for, could be problematic; such offers could have the intent if not effect of skewing the contracting process and steering the selection toward one vendor over another, rival vendor better suited to meet the needs of the Medicare or Medicaid beneficiaries being served the provider.  Indeed, as the DOJ’s settlement with Reliant illustrates, those forms of remuneration can present a serious risk of FCA liability – for both the provider and vendor.

 

Two federal appellate-court decisions handed down in the past few weeks have generated much speculation about whether “medical necessity” determinations underlying Medicare or Medicaid claims can now be considered “objectively false” — despite conflicting medical-expert opinions — and actionable under the False Claims Act (FCA). The most recent opinion was issued on July 9, 2018, in United States ex rel. Polukoff v. St. Mark’s Hospital (“Polukoff”).  Polukoff involved two cardiac surgical procedures reimbursed by Medicare, each of which involved the closing of a hole between the two upper chambers of the heart.  In reversing the District Court below, the Tenth Circuit Court of Appeals in Polukoff, reading the FCA “broadly,” concluded that the procedures, challenged as medically unnecessary, can form the basis for FCA liability.  Similarly, on June 25, 2018, the Sixth Circuit Court of Appeals, in United States of America v. Paulus, sustained a jury verdict in a criminal action against a cardiologist for health care fraud and making false statements, for having billed Medicare also for allegedly medically unnecessary procedures — implanting stents — based on angiograms showing some blockage of patients’ coronary arteries.

The opinions in Polukoff and Paulus came down just as the Eleventh Circuit Court of Appeals is considering the appeal in United States of America v. GGNSC Admin. Servs., known as the AseraCare case.  AseraCare involved FCA claims for hospice care based on allegedly false certifications, completed by physicians, that the hospice patients had a life expectancy of six months or less.  In granting summary judgment dismissing the lawsuit, the District Court opined: “If the Court were to find that all the Government needed to prove falsity in a hospice provider case was one medical expert who reviewed the medical records and disagreed with the certifying physician, hospice providers would be subject to potential FCA liability any time the Government could find a medical expert who disagreed with the certifying physician’s clinical judgment.”

Some have questioned whether the lower court’s holding in AseraCare can be sustained on appeal if the Eleventh Circuit were to follow the precedents in Polukoff and Poulus.  Such a reading of those decisions, however, may be too broad-brush, by essentially treating all medical necessity determinations alike, for purposes of FCA liability, and equally vulnerable to challenge as “objectively false.” There are critical differences between the cardiology surgical procedures at issue in Polukoff and Poulus, on the one hand, and the certifications of hospice eligibility in AseraCare, on the other hand.  The latter each rest not only on a medical diagnosis, but on a physician’s prognostication that the patient will not live longer than six months.  Such a judgment is more inherently subjective in nature, requiring both a professional assessment of objective medical facts, concerning the patient’s diagnosis and condition, and a projection into the future of the likely course or progression of the underlying disease or condition.

Other “medical necessity” determinations, which call for forecasting the likely benefits of, for instance, rehabilitation therapy or other prescribed treatments over time, are similarly difficult to characterize as “objectively false” — without, of course, the benefit of hindsight.  Those types of medical judgments, in large part, involve making an educated guess, where medical experts can and often do differ, and can reach, in good faith, conflicting medical opinions.

On June 11, 2018, the United States Court of Appeals for the Sixth Circuit sustained a complaint against a home health care agency alleging that the agency had violated the False Claims Act (FCA) by submitting numerous claims to the Medicare program, even though the agency had not timely received the requisite physician certifications of the need for the services billed‑for. United States ex rel. Prather v. Brookdale Senior Communities, Inc., 892 F.3d 822 (6th Cir. 2018).

The Sixth Circuit concluded that the agency’s former employee, who filed the FCA action, had sufficiently alleged that (i) the timely submission of physician certifications was “material to the Government’s decision to make the payment,” and (ii) the defendants had knowledge—or at least acted with “reckless disregard”—that the Medicare claims may not comply with the applicable Medicare regulations governing payment. The FCA action was allowed to go forward on that basis alone, even though there was no allegation that the home care services were not medically necessary or were not provided, or that the home health agency had backdated certifications, submitted claims with unsigned certifications, or withheld any information from Medicare.

This case highlights the need for providers to implement robust compliance policies and procedures to ensure that mere technical violations of the regulations do not mature into full-blown FCA violations.

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Earlier this month, the federal District Court for the Northern District of Illinois, in U.S. ex rel. Derrick v. Roche Diagnostics Corp., sustained a whistleblower, or qui tam, complaint under the False Claims Act filed by a discharged employee of a manufacturer of glucose-testing products, and brought against the manufacturer and a Medicare Advantage (managed care) plan, asserting violations of the anti-kickback statute. The whistleblower alleged that the manufacturer (Roche Diagnostics) had compromised an earlier claimed debt owed to it by the Medicare Advantage plan (Humana)  – the so-called “remuneration” or kickback – in exchange for being restored to the plan’s formularies for glucose-testing products covered by Medicare.

Significantly, Medicare paid the managed care plan a fixed, or capitated, monthly amount for all covered health and medical services provided or arranged for each plan enrollee, and no allegation was made that the alleged kickback arrangement with the manufacturer had increased costs to the Medicare program or resulted in the over-utilization of the blood-testing products at the expense of the program.  Rather, the whistleblower, or “relator,” essentially alleged that the claims for monthly capitation payments submitted by the Medicare Advantage plan “were tainted by the alleged fraud” associated with the arrangement.

Key Takeaways

  1. The court’s decision is a stark reminder that health care transactions in managed care programs under Medicare or Medicaid can present risks under the anti-kickback statute and False Claims Act, and the risks are not limited to alleged upcoding of risk-adjustment scores to secure higher capitation payments for the managed care plan.  Nor does an alleged kickback arrangement have to result in overutilization of services or increased costs to the Medicare or Medicaid programs – a scenario more typical in the traditional fee-for-service environment.  Rather, the alleged fraud can be premised on the allegation that the “kickback” unduly influenced or steered the managed care plan to select a particular manufacturer’s products or provider’s services covered by the plan’s capitation payments.  That same risk could arise in  the context of other “all-inclusive” pricing or bundled payment models, where the selection of a particular vendor or participating provider might be similarly tainted by an improper inducement.
  2. The managed care “safe harbor” under the anti-kickback statute, the court held, did not immunize the alleged kickback arrangement to secure the manufacturer’s products on the plan’s formularies. Extending the logic of that holding, the managed care safe harbor would not protect any other improper remuneration or kickbacks offered by providers seeking to participate in a managed care plan’s network, or by suppliers wishing to secure contracts to sell their products, utilized by plan enrollees.
  3. The forgiveness of debt from an earlier or unrelated transaction may be deemed a form of “remuneration”, as broadly defined under the anti-kickback statute to include anything of value. In this case, the managed care plan had actually disputed the manufacturer’s claim, and the manufacturer and the plan then engaged in negotiations to resolve the dispute – what the manufacturer characterized as “simply a routine, arms-length compromise involving a disputed  contractual obligation.”  Nevertheless, the court found the whistleblower’s allegation – that the manufacturer’s willingness to compromise the claimed debt was intended to induce the managed care plan to restore the manufacturer’s products on the plan’s formularies – was sufficient, as a matter of law, to allow the False Claims Act case to go forward into the discovery phase.
  4. The former employee’s claim of retaliatory discharge  under the False Claims Act, asserted against the manufacturer employer, was also sustained based on the asserted nexus – in this case, the coincidence of timing – between the employee’s raising concerns to her supervisors about a potential anti-kickback violation and her termination shortly afterwards.

The U.S. Attorney for the Southern District of Florida recently intervened in a whistleblower lawsuit brought under the federal False Claims Act, alleging fraudulent billing by a pharmacy reimbursed by the federal government. (U.S. ex rel. Medrano v. Diabetic Care Rx, LLC, No. 15-cv-62617, S.D. Fla.)

What makes this case significant is that the U.S. Attorney has also named a private equity (PE) firm as a defendant. This attempted extension of False Claims Act liability to a PE firm should serve as a cautionary tale about the risks to private equity invested in the health care space, for a portfolio company’s management decisions and business operations implicating the fraud and abuse statutes applicable to the Medicare, Medicaid and TRICARE programs.

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In February 2017, we wrote about how the Fourth Circuit sidestepped the question of whether a relator bringing suit under the False Claims Act (“FCA”) may use statistical sampling and extrapolation to establish FCA liability when it held in United States ex rel. Michaels v. Agape Senior Community, Inc. that an appeal on that point had been improvidently granted.  The Fourth Circuit would have been the first appellate court to provide guidance on this hotly contested issue.  We noted at the time that the FCA bar would need to continue to await guidance from the appellate courts and contend with inconsistent decisions emanating from federal district courts.

When Agape returned to the district court—which had held that statistical sampling was not appropriate—the relators found themselves unable to afford to continue prosecuting their case and ultimately did not contest the court’s granting of summary judgment on 99 percent of their claims.  Unsurprisingly, the parties announced late last month that they had settled the remainder of the claims for $275,000.

What is surprising, however, is that the Department of Justice has approved this settlement, despite rejecting a $2.5 million amount just two years ago, after the district court already had ruled that it would not accept statistical sampling as evidence to establish liability, and after arguing in its brief in the appeal to the Fourth Circuit that the court did not need to rule on that issue (which, as noted above, it did not).  The relators thus are left with a considerably smaller sum than what they may have expected in a case where DOJ had previously estimated damages at $25 million.

The amount of the Agape settlement in conjunction with the lack of guidance from appellate courts sends a signal to the relator bar that FCA cases that would require the use of statistical sampling to establish liability simply may not be worth bringing.  Given the patchwork of law on this point, healthcare providers nevertheless must continue to be prepared for statistical sampling arguments and monitor for new developments.

DOJIn July, we reported on Attorney General Sessions dismantling DOJ’s Health Care Corporate Fraud Strike Force.  On July 25, Sandra Moser, acting chief of the DOJ’s Fraud Section, announced a partnership between the Health Care Fraud Unit’s Corporate Fraud Strike Force and Foreign Corrupt Practices Act (“FCPA”) prosecutors.  Together, these moves signal DOJ’s reorganization to ensure health care companies are held accountable to the standards of the False Claims Act and the FCPA, and, at the same time, free-up prosecutors at Main Justice to focus on Sessions’ priorities of cracking down on drugs, violent crime, and illegal immigration.

DOJ’s latest move to coordinate the health care fraud enforcement mission with FCPA efforts is not novel—it simply creates an efficient partnership to encourage U.S. health care companies to adopt and follow anti-corruption best practices.  Speaking at last month’s Global Forum on Anti-Corruption in High Risk Markets in Washington, D.C., Moser highlighted the intersection between the FCPA and the health care industry.  Moser noted that, because most foreign health care systems are government run, health care companies will invariably deal with public officials when engaged in business overseas and must ensure that executives and lower-level employees act appropriately to avoid potential FCPA liability.

Citing the need to draw from all necessary DOJ resources to effectively prosecute global health care fraud, Moser pointed to several recent resolutions that DOJ has reached with major pharmaceutical companies to resolve FCPA and domestic bribery charges.  These resolutions include a December 2016 deal reached with Teva Pharmaceuticals, which paid $519 million dollars to resolve charges over FCPA violations in Ukraine, Mexico and Russia.

Moser announced that FCPA prosecutors and the Health Care Fraud Unit Corporate Strike Force will formalize this cooperation into a unified effort to jointly investigate and prosecute foreign and domestic bribery in the health care industry.  Although there had been some level of cooperation between the two on a case-by-case basis, this new arrangement will likely lead to increased DOJ scrutiny into the foreign business dealings of health care companies.  The Health Care Corporate Fraud Strike Force and FCPA prosecutors’ partnership will streamline government efforts to crack down on FCPA violations and signals to the health care industry that, like all companies conducting substantial overseas business in countries with corruption risk, health care companies should ensure that effective safeguards are in place to prevent their employees, subsidiaries and foreign agents from running afoul of the FCPA.

Both DOJ and HHS-OIG have released resource guides on combating fraud this year.  Corporate executives and compliance departments should refer to DOJ’s Evaluation of Corporate Compliance Programs for baseline standards and questions to consider when developing or re-assessing a corporate compliance program.  Health care companies should also design compliance programs, training, and internal controls to prevent FCPA violations and detect them early enough to stop or mitigate the extent of the violation.

The issue of self-reporting takes on added emphasis with the coordination between health care and FCPA.  During her speech, Moser promoted DOJ’s recently introduced FCPA Pilot Program and much better outcomes for companies who voluntarily disclosed violations (self-reporting companies obtaining either a declination with disgorgement of illicit profits, or a non-prosecution agreement with a 50% reduced fine) compared with those that did not (80% of the cases against these companies were resolved through guilty pleas or deferred prosecution agreements, none received more than a 25% guidelines reduction, and most had a monitor appointed).

Health care companies are now on alert that, even though Sessions has been focused on prosecuting drugs, violent crime, and illegal immigration, DOJ will continue to put energy and resources towards its anti-corruption enforcement efforts, particularly in the health care industry.

After years of defrauding the U.S. government and taxpayers, Mylan, the maker of EpiPen, last week resolved allegations that it profited at the expense of Medicaid.

On August 17, Mylan and its subsidiaries agreed to pay $465 million to resolve claims they violated the False Claims Act (“FCA”) for knowingly misclassifying its lifesaving EpiPen product as a generic drug to avoid paying rebates owed to the U.S. government.  In a press release, the Department of Justice (“DOJ”) stated, “this settlement demonstrates the DOJ’s unwavering commitment to hold pharmaceutical companies accountable for schemes to overbill Medicaid, a taxpayer-funded program whose purpose is to help the poor and disabled.”

The settlement was first announced in October 2016, amidst fierce public criticism of Mylan’s triple-digit price hikes for the EpiPen, but the settlement agreement, and the fact that Sanofi was the whistleblower, was just released last week.  It is rare for one health care company to blow the fraud whistle on another health care company.

Sanofi’s Qui Tam Suit

Inquiries into Mylan’s misconduct started when rival Sanofi-Aventis US LLC (“Sanofi”) filed a qui tam lawsuit against Mylan under seal in 2016, in the District of Massachusetts, under the whistleblower provisions of the FCA.  The government then intervened in the case.

Sanofi, which had been selling a competing product to Mylan’s EpiPen, alleged that Mylan knowingly misclassified EpiPen as a generic drug, or “non-innovator” product, even though it was marketed and priced as a brand-name product.  Under the Medicaid program, manufacturers must pay higher rebates for brand-name drugs, i.e. drugs only available through a single source.  To avoid price gouging, Medicaid receives a 23 percent discount on brand-name drugs but only a 13 percent discount on generics.  The intentional misclassification of the EpiPen as a generic allowed Mylan to underpay hundreds of millions of dollars in rebates to Medicaid sold through its health coverage program from 2010 to 2016.  During that timeframe, the company increased the price of the EpiPen by 400% but paid the lesser rebate for generic drugs.

Mylan’s $465 Million Settlement

Mylan’s August 17 settlement agreement with DOJ and the Office of the Inspector General of Health and Human Services (“OIG-HHS”) resolves Sanofi and the government’s allegations that Mylan knowingly skirted its rebate obligations under the FCA.

Without admitting any wrongdoing, effective retroactive to April 1, 2017 Mylan reclassified EpiPen as a brand-name product for rebate purposes and Mylan entered into a corporate integrity agreement.  The company’s five year corporate integrity agreement with OIG-HHS requires that Mylan fulfill numerous obligations, including: (1) retain an independent review organization to assess annually whether Mylan is complying with the Medicaid program, and (2) hold executives and board members individually accountable for the company’s compliance with the corporate integrity agreement and federal health care programs.

As the whistleblower, Sanofi was awarded $38.7 million as its share of the federal recovery for alerting the government about Mylan’s misconduct.  Sanofi also stands to recover some money state Medicaid programs will receive under the settlement.

Public Outcry – Mylan’s Settlement “Shortchanges” Taxpayers

Both Republican and Democratic Senators have issued statements showing disapproval with Mylan’s settlement with DOJ.  Senator Chuck Grassley (R-IA) spoke out against the settlement, calling it a “disappointment.”  Senator Grassley continued, “the government’s own watchdog said the taxpayers may have overpaid for EpiPen by as much as $1.27 billion over 10 years.  Did the Justice Department consider the inspector general estimate?  If not, why not?”  Senator Richard Blumenthal (D-CT) also issued a fiery response, saying, “quite simply, the Department of Justice is letting this deceptive pharmaceutical behemoth off the hook.  Absolving Mylan from a finding of wrongdoing has cleared the way for the company to pocket the money it embezzled from an American public in desperate need of lifesaving and affordable medications.”

Mylan is not completely off the hook, at least to other private actions – it still faces Sanofi’s separate antitrust suit in New Jersey federal court.  There, Sanofi alleges that Mylan, to preserve its monopoly over EpiPen-like injectors, offered large rebates to insurers that did not cover competing products.

Yes, you read the title of this post correctly.  Under the False Claims Act, a whistleblower is not required to report compliance concerns internally through a company’s internal reporting system before filing a “qui tam” court action.  Indeed, the False Claims Act — with its potential “bounty” of 15 to 30 percent of the government’s recovery — may actually encourage employees to file suit in the first instance, to qualify as an “original source,” and bypass the organization’s reporting system altogether, thereby frustrating a key component of an effective compliance program.  Whistleblower organizations have recently gone so far as to discourage individuals employed by health care providers from bringing compliance concerns directly to their employer so that they can get a share of the government’s recovery.

A provider or other entity participating in the Medicare or Medicaid programs, however, can mitigate that risk through, among other things, employee training and disciplinary policies encouraging good-faith reporting and the promotion of a culture of compliance, including setting the right “tone from the top.”

Internal Reporting System.  The cornerstone of any effective compliance program is developing and implementing a robust internal reporting system that employees can use to raise any compliance concerns on an anonymous basis.  Among other things, when compliance concerns are brought to the attention of the organization’s compliance personnel, the organization can investigate the issue and take appropriate steps to prevent or remediate any continued potential misconduct.  Likewise, having such a system in place may serve as a defense to liability under the False Claims Act.  Even if improper billing is found to have taken place, evidence that the organization has an effective, anonymous internal compliance reporting system may show that the improprieties were not the result of deliberate indifference or reckless disregard for such practices.

False Claims Act.  Plainly, the risk of treble damages and per claim penalties under the False Claims Act is a powerful incentive for a health care organization to implement an effective compliance program.  What is more, the provision for whistleblower awards under the False Claims Act can be an effective tool to aid the government in detecting and preventing overpayments by Medicare and Medicaid to fraudulent operators and other bad actors.  By allowing whistleblowers to file relator actions under seal and potentially share in any of the government’s recovery — as well as to seek damages for any retaliatory employment action — the False Claims incentivizes employees in the health care industry to come forward with information about fraudulent billing, without the fear of reprisal.

The Tension Between The Two.  At the same time, a whistleblower’s potential recovery can operate as a countervailing disincentive for an employee to report compliance concerns internally.  That is because under the False Claims Act, a qui tam relator is entitled to a “bounty” only if the individual is the “original source” of information to the government about the improper billing practices that are the subject of the relator’s action.  On the other hand, if an employee does dutifully report a compliance concern internally through the organization’s reporting system, and the organization itself reports any overpayments to the government or remediates the misconduct itself, the whistleblower may be unable to sue and recover any “bounty.”  As noted earlier, this point is not lost on the relator bar.

Overcoming The Tension.  How does a provider overcome the entreaties of the relator bar, along with the incentives under the False Claims Act whistleblower provisions, to convince employees with compliance concerns to avail themselves of the company’s internal reporting system?  At the outset, the reporting system must be both effective and credible to instill  confidence in the system so that employees will take full advantage of it – that is, the organization must deliver on its promise of anonymity and protection of good-faith reporting and must follow through on a timely basis with a thorough investigation and meaningful corrective action, if indicated.  Further, a robust reporting system, standing alone, will not be effective unless all other elements of an organization’s compliance program are working effectively as well, starting with a “culture of compliance,” reinforced by the executive team and management, and continuing with inservice compliance training, underscoring the importance of timely reporting and the anonymity and other protections afforded to reporting employees.

Likewise, the organization must have personnel and disciplinary policies that reward good-faith reporting and punish compliance lapses, both for engaging in unlawful conduct as well as for failing to report it.  That said, taking any disciplinary action against an employee who files suit as a relator, without ever having reported the compliance concerns in breach of the employee’s duties, is fraught with the risk that the termination or other action will be challenged as retaliation for filing the False Claims Act action, and that the cited ground — failing to report   — is allegedly merely pretextual.

However, with the proper messaging and training, coupled with a robust anonymous reporting system, the company can give its employees good reason to “do the right thing” and report compliance concerns to the company in the first instance, despite the lure of a False Claims Act bounty.

In a February blog post, we detailed the summary judgment rulings in a False Claims Act case involving Lance Armstrong: United States ex rel. Landis v. Tailwind Sports Corporation, et al.  The federal government alleges that Lance Armstrong, his Tailwind Sports team, and its manager, Johan Bruyneel, submitted false claims to the United States Postal Service (“USPS”) and violated sponsorship agreements by using and then denying the use of banned performance enhancing drugs.

In June 2017, in anticipation of a November 2017 trial, the government and Armstrong filed Motions in Limine (“MIL”) to exclude evidence from being introduced before the court.  The parties’ MIL, specifically those motions aimed at barring expert economic testimony via Daubert challenges, could have a significant impact on the government’s ability to meet its burden of proof with respect to damages.  Likewise, Armstrong could suffer a similar misfortune on the MIL as his expert testimony may be critical to combat the government’s claims.  In addition, two  of the MIL, which essentially argue that “everybody does it” and that the “first to come clean benefits,” could have far-reaching implications for FCA cases in the future.  Regardless of the outcome of the MIL, such posturing suggests that this matter is almost certainly headed for trial. Continue Reading Lance Armstrong False Claims Act Suit Cycles Through Motions on Way to Trial