False Claims Act Resource Center

Attention Clinical Laboratories: You Can’t Make the Doctor the Fall Guy Anymore

June 16th, 2017 by Qui Tam

On June 9, 2017, U.S. District Judge Reggie B. Walton (D.C.) denied a clinical laboratory defendant’s motion to dismiss a whistleblower’s False Claims Act case. The Court flatly rejected the lab’s attempt to avoid liability by arguing the doctor, not the lab, determines the medical necessity of a particular test. The court found, instead, that the lab has an independent duty to ensure that the tests it performs and seeks payment for are medically necessary. The Court’s ruling was based, in large part, on the certification of medical necessity submitted by the lab on claims forms such as the CMS-1500.

In United States of America, et al. ex rel. Tina D. Groat v. Boston Heart Diagnostics Corp., Dr. Groat, National Medical Director of Women’s Health and Genetics at United Healthcare, alleged that Boston Heart Diagnostics Corporation (“Boston Heart”) performed various genetic and non-genetic tests that were not medically necessary for particular patients.  Dr. Groat alleged that Boston Heart’s marketing of tests that screened for cardiac-related issues and predicted future cardiac risk resulted in the submission of false claims for tests performed on patients with no history or current known risk or symptoms of having a cardiac problem.  Despite the lack of medical necessity, Boston Heart completed and submitted CMS-1500 forms and sought Government reimbursement for the tests performed.

As part of their marketing efforts, labs frequently supply doctors with pre-printed test requisition forms. Doctors then fill out the forms and send them to a lab with the patient’s sample (i.e., blood) to be tested. Lab providers (such as Boston Heart) must complete and submit a CMS-1500 form to get reimbursed for the services provided. This form requires the entity submitting the claim, whether a “physician or supplier,” to certify the medical necessity of the services. CMS-1500, p.2 (Emphasis added).

In finding that Boston Heart, the lab submitting the claim, was responsible for certifying the medical necessity of the tests at issue, the Court focused on the plain language of the Medicare claim form. The CMS-1500 requires the submitting physician or supplier (i.e. the lab) to complete the required data fields and certification. The Court rejected the defendant’s attempt to argue that Medicare regulations related to maintenance of documentation regarding medical necessity, 42 C.F.R. §410.32(d)(2), shifts responsibility to the patient’s physician, finding instead that the regulation requires both the doctor and lab to maintain records. The Court also noted that the lab’s independent obligation to determine medical necessity is particularly appropriate where the lab created the requisition forms as part of its marketing activities, and the lab – not the physician – was billing the Government for the tests at issue.

This important ruling will have a real-life impact on healthcare fraud enforcement efforts in the laboratory arena. Service providers are on notice that they will be held accountable for the certifications they submit to the Government in order to receive payment. Labs can no longer dodge FCA liability by pointing to medical necessity determinations which appear to have been made by or in the name of a patient’s treating physician. The lab bears primary responsibility for the truthfulness of medical necessity certifications that are made on the face of the CMS-1500 form. The Government relies on the truthfulness of these certifications in making over $7 billion in Medicare Part B payments to clinical labs annually (FYE 2015).

Advice-of-Counsel Defense Vitiates Attorney-Client Privilege, Work Product Protection

April 21st, 2017 by Qui Tam

In United States ex rel. Lutz v. Berkeley Heartlab, Inc., et al., 2017 WL 51691 (D.S.C. Apr. 5, 2017), the United States District Court for the District of South Carolina confirmed that the advice-of-counsel defense cannot be used as a sword and shield.  In this action arising under the False Claims Act, the United States alleges that laboratories (HDL and Singulex) and their marketing agents (BlueWave and its principles) violated and conspired to violate the FCA in multiple ways, including (1) offering physicians kickbacks in the form of sham processing and handling fees to order expensive tests for federal healthcare beneficiaries from the labs, and (2) waiving co-pays for federal healthcare beneficiaries.

In their amended answer to the government’s complaint, the BlueWave defendants asserted as an affirmative defense their good-faith reliance on the advice of counsel. The government sought discovery related to the legal advice and opinions rendered by the attorneys in question.  The BlueWave defendants declined to produce the requested documents, citing attorney-client privilege and work product protection, and the government moved to compel.

Earlier this month, the Court ruled in the government’s favor.  It held that the BlueWave defendants had waived the attorney-client privilege as to the entire subject matter of the advice of counsel received by asserting it as an affirmative defense in its answer.

For the same reason, it held that the BlueWave defendants had held the work product protection.  Moreover, the Court extended the waiver to attorney work product that was never communicated to the BlueWave defendants. In applying the waiver broadly to “uncommunicated work product,” as well as work product disclosed to the BlueWave defendants, the Court cited the government’s need to obtain discovery into the research conducted and considered by counsel, as well as whether any aspects of the advice was selectively ignored.

As such, the BlueWave defendants will have to produce all documents in their possession, custody, and control – including all relevant documents in the possession of their former attorneys – regarding their advice-of-counsel defense.

Fourth Circuit Allows Writs of Attachment against Defendants’ Property in False Claims Act Case

April 3rd, 2017 by Qui Tam

The United States Court of Appeals for the Fourth Circuit recently published a decision involving the government’s ability to execute writs of attachment against real and personal property as well as writs of garnishment against banks accounts. (See BlueWave Healthcare v. United States of America.)

In the underlying fraud case, Relators Lutz and Webster filed a qui tam action against a number of defendants including Robert Bradford Johnson, Floyd Calhoun Dent, and BlueWave HealthCare Consultants.  In April 2015, the United States government intervened in the case.  The relators and the government alleged that the defendants violated the Anti-Kickback Statute (42 U.S.C. 1320a-7b) and the False Claims Act (31 U.S.C. 3729 et seq.).

In 2016, the United States filed an application for prejudgment remedies under the Federal Debt Collection Procedure Act (FDCPA) before the trial court.  Specifically, the government pursued writs of attachment against personal and real property and writs of garnishment against bank accounts totaling approximately $16.7 million dollars.  This property is owned by a number of BlueWave entities, Dent and Johnson personally, and related nonparties.  The government argued that, because Defendants violated the Anti-Kickback Statute and the False Claims Act, Defendants owed the United States and the relators at least $298 million.  The government also alleged that prejudgment seizure was necessary because the defendants were actively concealing and disposing of assets.

In February 2016, the district court granted all but one of the government’s requested writs.  Defendants each filed motions to quash the writs.   In May 2016, the District Court found that the government had satisfied all of the FDCPA’s statutory requirements and denied the motions.  The defendants filed a notice of appeal to the 4th Circuit Court of Appeals.

Appellants (the defendants in the underlying case) challenged the District Court’s denial of their motions to quash.   The appellants asserted that the order was reviewable as either a collateral order or an injunction.  The Court of Appeals rejected both arguments.  First, the Court looked to the three conditions required to apply the collateral order: “The order must (1) conclusively determine the disputed question, (2) resolve an important issue separate from the merits of the action and (3) be effectively unreviewable on appeal from a final judgment.” The Court focused on the second condition that requires that the order must resolve an important issue separate from the merits of the action.  The Court found that the order was so intertwined with the merits of the qui tam action, that the collateral order doctrine could not be applied.

Next, the Court turned to the argument that the order could be reviewed as an injunction.  The Court ruled that the order denying the motion to quash could not be reviewed as such because it did not meet the basic requirements of an injunction.  The Court concluded that the denial was an unreviewable interlocutory order and dismissed for lack of jurisdiction.

The ruling allows the government to keep the writs of attachment active and preserve the defendants’ funds until a final judgment is reached in the qui tam case.

Sanofi Aventis Can’t Invoke the First Amendment to Escape FCA Liability

January 23rd, 2017 by Qui Tam

United States ex rel. Gohil v. Aventis, Inc. is a long-running False Claims Act suit filed in the Eastern District of Pennsylvania by an ex-sales specialist against his former employer, behemoth pharmaceutical company, Sanofi Aventis.  Relator Yoash Gohil filed this qui tam suit in 2002 alleging that his former employer engaged in a fraudulent marketing scheme to promote off-label the chemo-therapy drug, Taxotere.

The Relator alleges that Aventis trained and directed its sales force to misrepresent the safety and effectiveness of the chemotherapy agent in order to expand the market share for Taxotere beyond its FDA approval as a “second line treatment.”  A second line treatment is one that is approved for limited use only after the failure of a prior treatment.  Relator also alleges that Aventis had engaged in a kickback scheme that included sham grants, exorbitant speaking fees, and excessive preceptorship fees paid to physicians in order to incentivize them to prescribe Taxotere.

Aventis moved for a partial judgment on the pleadings and raised two grounds for dismissal.  First, Aventis argued that some of the claims (those from 1996 to 2000) were barred by the statute of limitations.  Federal District Court Judge Lawrence Stengel rejected this argument finding that the pharmaceutical company was given fair notice of the claims when the First and Second Amended Complaints were filed.  The Court accepted Relator’s argument that all of the new claims “related back” to the claims laid out in his original complaint.

Second, Aventis argued that some of Relator’s claims were precluded by the First Amendment.  This argument has been made with increasing frequency by the pharmaceutical industry in trial and appellate courts throughout the United States.  Aventis argued that First Amendment protections extend to commercial speech and that parts of Relator’s claims were based on truthful, non-misleading speech regarding Taxotere.  Judge Stengel rejected this argument as well, finding that Relator’s Complaint had asserted that the off-label promotion was false and/or misleading.  Ultimately, the dispute over the whether the speech was false or misleading is material to the outcome of the case.  Judge Stengel held that the First Amendment issue was not ripe for disposition and denied the motion for partial summary judgment.  He wrote, “This question is better answered by a jury.”

United States ex rel. Gohil v. Aventis, Inc., No. 02-2964, 2017 U.S. Dist. LEXIS 3236 (E.D. Pa. Jan. 9, 2017)


Georgia-based Hospital Group to Pay Over $513 Million to Resolve Civil and Criminal Allegations Related to Illegal Payments for Patient Referrals

October 19th, 2016 by Qui Tam

On Monday, the DOJ announced the resolution of criminal allegations and a False Claims Act (“FCA”) lawsuit a relating to a scheme to defraud the United States and obtain kickbacks in exchange for patient referrals.  A major U.S. hospital chain, Tenet Healthcare Corporation and two subsidiaries, Atlanta Medical Center, Inc. and North Fulton Medical Center, Inc., will pay over $513 million pursuant to a series of agreements, including a civil settlement agreement, non-prosecution agreement, and plea agreements:

FCA settlement:  Tenet Healthcare and related entities – described in the settlement as “the Tenet Entities – agreed to pay $368 million to the federal government and to Georgia and South Carolina to resolve claims brought by a Georgia whistleblower.  The FCA suit was filed in the Middle District of Georgia and claimed that Tenet Healthcare paid bribes and kickbacks to pre-natal clinics to unlawfully refer Medicare and Medicaid patients to its hospitals.  The whistleblower will receive $84 million under the agreement.  The agreement stated that the Tenet Entities denied any liability regarding the false claims allegations.

Non-prosecution agreement:  Tenet HealthSystem Medical Inc., the corporate parent of Tenet Healthcare, entered into a non-prosecution agreement (“NPA”) with DOJ based on similar allegations to those within the FCA case.  The NPA allows the two companies to avoid criminal prosecution in exchange for following the agreed-upon terms.  The criminal allegations at the heart of the NPA focused on an alleged conspiracy to defraud the United States and to violate the Anti-Kickback Statute, which bars illegal payments that induce patient referrals for services paid for by federal health care programs.  Under the NPA, Tenet HealthSystem and Tenet Healthcare will avoid criminal prosecution if they cooperate with the government’s prosecution and strengthen their internal controls, including their compliance and ethics programs.  The NPA is effective for three years, although it may be extended for an additional year if necessary.

Plea agreements:  Two subsidiaries of Tenet Healthcare, Atlantic Medical Center and North Fulton Medical Center, agreed to plead guilty to a criminal information for their role in the conspiracy, as referenced above, to defraud the United States and violate the Anti-Kickback Statute.  Under the plea agreements, the two healthcare will forfeit over $145 million to the United States, collectively representing the amount paid to the two entities by the federal Medicare and Georgia Medicaid programs for services paid to patients referred as part of the conspiracy.

Additional information, including the FCA settlement agreement, NPA, and criminal information can be found here.

United States Files False Claims Act Complaint Against Vanguard Healthcare

September 14th, 2016 by Qui Tam

The United States has filed a False Claims Act case against Tennessee-based nursing home company, Vanguard Healthcare LLC, as well as Vanguard Healthcare Services LLC, and six of its nursing facilities. See United States vs. Vanguard, et al., case no. 3:16-cv-2380 (M.D.Tenn 2016). The lawsuit alleges that the defendants were responsible for the submission of false claims to Medicare and TennCare (Tennessee’s Medicaid program) for skilled nursing home services that were either non-existent or grossly substandard.  The case represents the commitment of the U.S. Attorney’s office to combat elder abuse, neglect, and financial exploitation, especially as they impact Medicare and Medicaid beneficiaries.

Specifically, the complaint alleges that the Vanguard nursing facilities in Tennessee failed to provide the most basic and essential skilled nursing services to their residents, which led to pressure ulcers, dehydration, and malnutrition.  The absence of appropriate care included chronic staffing deficiencies as well as shortages of critical medical supplies.  The complaint describes the failure to provide standard infection control, failure to administer medication to residents as prescribed by their physicians, failure to provide wound care, and failure to adequately manage residents’ pain.  Further, there are allegations that staff was providing unnecessary and excessive psychotropic medications to residents and using unnecessary physical restraints on residents.  The lawsuit also names Vanguard’s former Director of Operations for knowing that the care was inadequate and failing to correct the problems.

Beyond the false claims for non-existent or worthless services, the complaint also alleges that some of the Vanguard facilities fraudulently submitted falsified Pre-Admission forms to TennCare, in order to receive payments.  These required forms were allegedly submitted with forged physician and nurse signatures.

Prior to this, in 2011, Vanguard settled a whistleblower lawsuit in federal court stemming from allegations that Vanguard and its subsidiaries were defrauding Medicare and Medicaid by double-billing, submitting clams for free items that had been received at no cost, and failures to disclose related parties.

$690,000 Settlement to be Paid Under False Claims Act

August 18th, 2016 by Qui Tam

The U.S. Attorney’s Office in Philadelphia announced that several Lehigh Valley medical facilities and three doctors will pay in excess of $690,000 to settle false health care bill claims to Medicare and other federal benefits programs.  The allegations under the False Claims Act were made by whistleblower Margaret Reynard against Dr. Yasin Khan, Dr. Elizabeth Khan and Dr. Dong Ko.  Also involved were Westfield Hospital and Lehigh Valley Pain Management, an affiliated pain clinic.  Between July 1, 2007 and December 31, 2013, Reynard claimed that the doctors received reimbursement for services performed “incident to” by non-physicians when the doctors were not in the office or clinic, increasing the bills by 15 percent because the “incident to” services required the doctor to supervise the non-physician.  In addition to Medicare, the claims were submitted to government programs such as the Federal Employees Health Benefits Program and Department of Labor Office of Worker’s Compensation programs.


Confidentiality Agreement Does Not Curb Former Employee’s Whistleblower Suit

May 12th, 2016 by Qui Tam

A whistleblower’s retention and disclosure of confidential documents did not amount to breach of his employment contract, according to the U.S. District Court for the Northern District of Illinois.

In United States ex rel. Cieszyski v. LifeWatch Services, Case No. 13-cv-4052 (N.D. Ill.), relator and one-time LifeWatch salesperson Matthew Cieszyski alleges that his former employer violated federal and state False Claims Acts (“FCAs”) by submitting for government reimbursement claims for heart monitoring services that violated relevant Medicare and Medicaid regulations. LifeWatch counterclaimed that Cieszyski had breached a confidentiality agreement and privacy policy – both of which, it contended, were components of his employment contract – by retaining and disclosing to the government confidential company documents.

Breach of Contract Must Be Independent from Any Fraud Investigation

The court held that LifeWatch failed to state a claim for breach of contract and thus dismissed the counterclaims. There was no dispute that Cieszyski had signed a confidentiality agreement as a condition of his employment, or that he removed documents from the company’s premises, contrary to the agreement’s terms. But, according to the court, enforcing the agreement would undermine the protections against retaliation afforded relators by the federal and state FCAs.

At root of the dismissal was the court’s conclusion that LifeWatch’s counterclaims derived completely from the FCA claims lodged against it. LifeWatch did not contend that Cieszyski had retained or disclosed the information for any reason other than alleging the company’s FCA violations. There was no evidence that he shared the documents with anyone other than his attorneys or the government. Nor did LifeWatch claim harm beyond its exposure to the FCA suit or damages beyond the fees and costs associated with bringing the counterclaims – “a self-inflicted wound,” in the court’s parlance. Cieszyski had not, for example, revealed trade secrets that could have jeopardized LifeWatch’s standing in the market.

Interest in Confidentiality Subordinate to Anti-Retaliation Protections

Finally, the court rejected LifeWatch’s argument that Cieszyski had collected and shared more information than was needed to support his allegations of fraud. The court declined to burden relators with the obligation to know the precise quantum of evidence necessary to make their FCA cases and to limit their disclosures accordingly. The key question is whether the relator has gathered the evidence for a reason other than furthering an investigation of possible FCA violations. LifeWatch could not persuasively attribute an ulterior motive to Cieszyski. Accordingly, his statutory right to be free from retaliation overwhelmed LifeWatch’s interest in having its confidential information protected.

CFTC Approves Record $10 Million Award to Whistleblower

April 7th, 2016 by Qui Tam

The U.S. Commodities and Futures Trading Commission (“CFTC”) has approved an award of more than $10 million to a tipster through its whistleblower program. The award – only the third in the program’s five-year history – is not only the largest ever approved by the agency, it is more than 30 times larger than its closest competitor, a $290,000 award paid in 2015. The CFTC redacted the tipster’s identity – along with the precise amount of the award and the percentage of total recovery – from the final order, which is available here.

The CFTC’s whistleblower program arose from the Dodd-Frank Act in 2010, and it exists to reward tipsters who voluntary provide information that leads to successful enforcement actions for violations of the Commodity Exchange Act (“CEA”). Such tipsters are eligible to receive between 10 to 30% of the CFTC’s recovery where sanctions imposed exceed $1 million. The awards are paid through the CFTC Customer Protection Fund, which is financed wholly from sanctions paid by violators of the CEA.

Eligibility to receive a reward, however, does not amount to a guarantee. Indeed, the CFTC has issued 38 denial orders, as compared to the three orders approving awards. Participants in the U.S. Securities and Exchange Commission’s (“SEC’s”) whistleblower program – also a product of Dodd-Frank – have a much higher batting average. The SEC has approved 21 applications for awards, while denying 33.

In a press release announcing the award, Aitan Goelman, CFTC’s Director of Enforcement said, “By providing robust financial incentives and enhanced protections to whistleblowers, the Commission incentivizes people to come forward with high quality information about serious violations of the law that we might not otherwise uncover. An award this size shows the importance that the Commission places on incentivizing future whistleblowers.” Encouraging participation in the program is one thing. Would-be tipsters are left to hope that the award also signals the CFTC’s new-found dedication to compensating those individuals who provide information that leads the agency to significant recoveries.

Naming Additional Defendants and Identifying Their Fraudulent Conduct Defeats Operation of First-to-File Bar

March 30th, 2016 by Qui Tam

On March 28, the U.S. District Court for the District of South Carolina advanced a plaintiff-friendly interpretation of the False Claims Act’s (“FCA’s”) first-to-file rule. It recognized that naming new defendants who are related to defendants named in previously filed complaint and complicit in the alleged fraud renders the subsequent complaint sufficiently different to pass muster under the rule.

The first-to-file rule, 31 U.S.C. § 3730(b)(5), provides that “no other person than the Government may intervene or bring a related action based on the facts underlying the pending action.” In many U.S. Circuits, including the Fourth, where the District of South Carolina sits, courts apply the “same material elements” test, meaning that a relator is not “first to file” if his complaint describes the same material elements of a fraud documented in a previously filed complaint.

United States ex rel. Lutz v. Berkeley HeartLab, Inc., et al., No. 9:14-cv-230 (D.S.C.), is an FCA case in which three separate qui tam actions were consolidated for government intervention. The three complaints – one filed by relators Scarlett Lutz and Kayla Webster, one filed by relator Michael Mayes, and one filed by relator Chris Reidel – allege a nationwide scheme in which physicians were offered and paid kickbacks to order often-medically-unnecessary tests from diagnostic laboratories (Berkeley HeartLab, Health Diagnostic Laboratory, Inc. [“HDL”], and Singulex, Inc.), through a marketing agent (BlueWave Healthcare Consultants), in violation of the FCA. Government healthcare programs then reimbursed the laboratories for those impermissible payments. Mayes filed his complaint first, Reidel’s complaint followed, and Lutz and Webster filed their complaint thereafter. Unlike Mayes and Reidel, Lutz and Webster named the individuals who concocted, directed, and implemented the scheme – as opposed to only the corporate entities they represent – as defendants.

Those individual defendants – HDL’s Latonya Mallory and BlueWave’s Floyd Calhoun Dent and Robert Bradford Johnson – moved to dismiss the Lutz-Webster action, arguing that the first-to-file rule divested the court of subject matter jurisdiction because the Lutz-Webster complaint alleged the same general fraudulent scheme as that alleged in the Mayes complaint and the Reidel complaint. The court rejected the argument, holding that Lutz and Webster were first-filed as to the individual defendants. Put differently, “a later-filed action is not based on the facts of a pending action when it identifies a new defendant who is not a subsidiary of an already-named defendant.”  Because Lutz and Webster were the only relators to name the individual defendants and allege that they personally committed fraudulent conduct, their complaint “contains different material elements of fraud than the pending action[s].”

Notably for future relators, the court’s analysis suggests that the addition of any defendant – except for a subsidiary of a previously named defendant – will defeat the first-to-file rule, as long as their involvement in fraud can be documented with particularity. Each relator should thus draft her complaint as broadly as the facts allow, in order to support the identification and naming of all parties involved in the fraud alleged. Doing so will increase the odds that the relator’s complaint names and inculpates different defendants – and thus, under the Lutz court’s analysis, alleges different material elements – than any potentially related and previously filed complaint.


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