False Claims Act Resource Center

U.S. DOJ Settles Case Against DRS

October 17th, 2014 by Qui Tam

On October 7, 2014, the U.S. Department of Justice settled a case against DRS Technical Services, Inc. (“DRS”), a defense contractor, regarding allegations of fraudulent billing for $13.7 million. Specifically, even though DRS employees did not meet the qualifications required of their positions by DRS’ contracts with the government, DRS billed for their work anyway, resulting in the government paying inflated rates for underqualified employees.

The allegations pertain to DRS’ billing practices between January 2003 and December 2012. At that time, DRS maintained contracts with the Army to provide satellite and wireless network solutions and telecommunication services. Much of this work was in support of the Army’s Iraq and Afghanistan operations and done in conjunction with Rapid Response (“R2″) contracts that permitted the Army to make procurement decisions quickly. Through its subsidiary, DRS provided the U.S. Coast Guard with aircraft maintenance and engineering support. The settlement does not make any findings as to DRS’ liability with regard to these allegations.

For more information, click here.

U.S. DOJ Settles Allegations Against Extendicare

October 17th, 2014 by Qui Tam

Thanks to the efforts of two whistleblowers, or relators, the U.S. Department of Justice and eight states announced on October 10, 2014 that they had settled allegations of fraudulent billing against Extendicare Health Services, Inc. (“Extendicare) and its subsidiary Progressive Step Corporation (“ProStep”). The U.S. government and the several states involved in the investigation alleged that Extendicare billed both Medicare and Medicaid for nursing services that were so deficient as to be worthless to the government and the patients. Likewise, the government alleged that ProStep billed Medicare for unnecessary rehabilitation procedures.

The settlement, worth $38 million, is the largest settlement the Department of Justice has ever announced involving allegations of failure of care at skilled nursing facilities operated by the same owner. Of that amount, the eight states will receive $5.7 million.

The alleged billing for worthless or unnecessary services occurred between 2007 and 2013 at 33 of Extendicare’s skilled nursing facilities. The government alleges, for example, that Extendicare did not adequately staff its nursing homes to care for the patients that were living there, failed to provide proper catheter care, and did not do enough to prevent falls and pressure ulcers. In addition, the government alleges that ProStep provided medically unnecessary rehabilitation services, particularly when a patient was undergoing care assessments, so that it could bill Medicare at the highest daily rate possible.

In addition, Extendicare has entered into a five-year Corporate Integrity Agreement with the Department of Health and Human Services Inspector General’s Office that requires it and its subsidiary ProStep to enforce a comprehensive compliance program, address the quality of residents’ care, create a committee to address staffing needs, conduct internal audits, and retain an independent monitor selected by the Inspector General’s Office to check on Extendicare’s progress.

As a result of their assistance in alerting the government to the fraud and for their help during the investigation, the two relators will receive a portion of the government’s recovery. One relator will receive $1.8 million, and the other will receive $250,000.

For more information, please click here.


October 10th, 2014 by Qui Tam

Pietragallo Gordon Alfano Bosick & Raspanti, LLP is pleased to announce the election of its newest partner, Pamela Coyle Brecht, in its downtown Philadelphia office.  Ms. Brecht is an active member of the firm’s national Qui Tam Practice Group. She also has experience in employment law, complex commercial litigation, national labor relations, and white-collar criminal work.

She has been or is currently involved in litigating some of the most complex Qui Tam cases filed in the United States. Her cases have included alleged fraud by a large multi-state Medicaid managed care contractor, FCA violations by three of the largest hospital systems  in the country, complex financial relationships among healthcare providers, as well as cases alleging pharmaceutical fraud. She is also an integral part of the litigation team that is advancing one of the first national cases alleging fraud in the Medicare Part D program. As a member of a national qui tam practice, Ms. Brecht represents whistleblowers in cases that are pending in various federal district courts throughout the United States. To date, she has assisted in recovering millions of dollars for her clients through federal and state false claims actions.

Ms. Brecht received her B.A., cum laude, from Villanova University in 1988. She received her J.D. from Temple University School of Law in 1991. While attending Temple University School of Law, Ms. Brecht served as a member of the Temple Law Review, was on the Dean’s List, and received honors for Distinguished Class Performance. She is a member of the Pennsylvania Bar Association, the Philadelphia Bar Association and the Brehon Law Society.

Ms. Brecht frequently speaks, writes, and lectures on qui tam litigation and health care fraud issues. Some of her representative articles include: The Tar Heel State Steps Up Its Fight Against Fraud; The Tar Heel State Steps Up Its Fight Against Fraud – Part II; The Minnesota False Claims Act: Is It Minnesota Nice?; The Employment Protection and Anti-Discrimination Provisions of the New Jersey State False Claims Act; The ‘New’ New Jersey False Claims Act: It Was Born to Run.

Ms. Brecht has served as an adjunct professor of law at the Hamline School of Law, St. Paul MN, where she co-lectured on health care fraud and the False Claims Act. She is admitted to practice in Pennsylvania, and has been admitted to the U.S. District Court for the Eastern District of Pennsylvania, the U.S. District Court for the Western District of Pennsylvania, and the Supreme Court of the United States.


$33.6 Million Qui Tam Judgment against Gosselin World Wide Moving

September 29th, 2014 by Qui Tam

In early August, a federal jury found Gosselin World Wide Moving NV and its executive Mark Smet liable for submitting false claims in 2001 and 2002 to the U.S. government to the tune of $33.6 million, which, when trebled per the federal False Claims Act, rises to $100.8 million. The jury also held that Gosselin submitted nearly 59,000 false claims, which are now subject to penalties under the federal False Claims Act. The parties continue to litigate the matter.

Relator Kurt Bunk, a German employee of one of the defendant shipping companies, filed a qui tam suit against Gosselin in 2002; American Ray Ammons, who owned a freight-forwarding company, filed a similar lawsuit in 2007. Both alleged that Gosselin, as a subcontractor to the Department of Defense, and Smet conspired and submitted false claims to the government while moving military personnel’s household items overseas to Germany and back.

The cases are U.S., ex rel. Bunk v. Gosselin World Wide Moving, Case No. 1:02-cv-01168, and U.S., ex rel. Ammons v. Gosselin World Wide Moving NV, Case No. 1:07-cv-01198. Both are filed in the Eastern District of Virginia.

In a separate qui tam case filed under the federal False Claims Act, Gosselin was found liable for a $24 million civil penalty payment for submitting false claims as a direct contractor to the Department of Defense. While the trial court declined to impose the statutory per-claim penalty, considering it a violation of the U.S. Constitution’s Eighth Amendment’s ban on excessive fines, the Fourth Circuit reversed course in December 2013 and reinstated the penalty, noting that high penalties act as a fraud deterrent. Gosselin has petitioned the U.S. Supreme Court to review this ruling.

Shire Pharmaceuticals LLC agrees to pay $56.5 million to resolve false claims act allegations regarding drug promotion practices

September 29th, 2014 by Qui Tam

Shire Pharmaceuticals, LLC, a pharmaceuticals company based in Pennsylvania, recently signed a settlement agreement with the Department of Justice to resolve False Claims Act allegations related to its promotion practices of several drugs.  Shire, which both manufactures and sells pharmaceuticals used in treating attention deficit hyperactivity disorder (ADHD), was facing allegations that it violated the False Claims Act beginning in 2004.  The allegation part of a series of lawsuits brought by a former Shire executive and three former Shire sales representatives.  As part of the settlement, one of the whistleblowers will receive $5.9 million.

Under the settlement agreement, Shire will pay $56.5 million of which the federal government will receive $35,713,965 and state Medicaid programs will receive $20,786,034.  Shire also executed a separate agreement with HHS – termed a “corporate integrity agreement” – designed to address the company’s future marketing efforts.

The lawsuits alleged misconduct related to Shire’s marketing and promotion practices, including that, from 2004 to 2007, Shire marketed Adderall XR, an ADHD medication, on unsupported claims that it would prevent poor academic performance, loss of employment, criminal behavior, traffic accidents, and sexually transmitted diseases.  Shire also claimed that Adderall XR could be used in the treatment of conduct disorder even though it was not approved by the FDA for such treatment.

Shire had also claimed that another of its ADHD medications, Vyvanse, was less susceptible to drug abuse than similar non-Shire products.  In fact, one Shire medical science liaison allegedly told a state formulary board that Vyvanse provides less abuse liability than “every other long-acting release mechanism” on the market.  However is was the government’s contention that no Shire study had actually concluded that Vyvanse was not abusable; to the contrary, the Vyvanse label included in FDA-mandated warning of its potential for misuse and abuse.  Shire also claimed without support that Vyvanse would prevent car accidents, divorce, arrest, and unemployment.

The full text of the DOJ press release can be found here.

IRS Commissioner Declares Himself a “Big Believer” in the IRS Whistleblower Program

September 25th, 2014 by Qui Tam

At a speech last week, IRS Commissioner John Koskinen announced changes aimed at creating better relations between whistleblowers and the IRS’s whistleblower program. The changes include a 70% increase in staff at the IRS whistleblower office – 31 new employees – to handle whistleblower filings. Mr. Koskinen’s remarks follow new whistleblower regulations designed to provide more information to whistleblowers with pending claims and pay more money to those with substantiated cases.

In his speech, Koskinen called himself a “big believer” in the whistleblower program and noted the deterrent effect that the program has on companies contemplating tax evasion. He also emphasized his commitment to expand “the program’s reach and improving communications with existing or potential whistleblowers.”

The full text of the IRS Commissioner’s remarks can be found here.


Eighth Circuit takes Step Towards a Less Stringent Standard for Pleading Fraud Under the False Claims Act

September 18th, 2014 by Qui Tam

The Eighth Circuit had previously stated that one who files a lawsuit under the False Claims Act must provide examples of the allegedly fraudulent conduct. Last week, the court seemed to back away from this position in United States ex. rel. Thayer v. Planned Parenthood of the Heartland, No. 13-1654 (8th Cir. August 24, 2014) when it held that such specificity is not required for every complaint brought under the FCA.  Rather, examples do not have to be given if the plaintiff is able to provide reliable indicia from which one could infer that false claims were actually submitted to the government.

The plaintiff in Thayer was the manager of two Planned Parenthood clinics and oversaw the defendant’s billing and claims systems.  The court held that given this position, there was a sufficient indicia of reliability to allow the plaintiff to proceed with allegations that the defendant violated the FCA by filing claims for: 1) unnecessary quantities of birth control pills; 2) birth control pills dispensed without examinations or without or prior to a physician’s order; 3) abortion-related services and 4) the full amount of services for which payment had already been provided.  However, the contention that Planned Parenthood violated the FCA by instructing patients who experienced abortion-related complications to give false information to medical professionals at other hospitals, causing those professionals to unknowingly file claims for services performed in connection with abortions was dismissed because there was no indication in the complaint that the plaintiff had access to the billing systems used by these other hospitals or that she know about their billing practices.  As a result, the plaintiff was only able to speculate that false claims were submitted by these other hospitals and this did not provide a factual basis from which the court could infer that this actually occurred.

It remains to be seen how courts in the Eighth Circuit will apply Thayer.  However, with this decision, the majority of the Circuit courts that have addressed this issue have held that a FCA complaint does not necessarily have to provide examples of the false claims which were submitted to the government in order to survive a motion to dismiss.

Fresenius Medical Care Holdings, Inc., v. U.S.

September 18th, 2014 by Qui Tam

The First Circuit Court of Appeals recently held that False Claims Act defendants can deduct portions of their civil settlement payments if the parties have not, in negotiating a settlement, agreed to the tax consequences and the payment is considered compensatory as opposed to punitive.

Between 1993 and 1997, several whistleblowers filed separate lawsuits against Fresenius Medical Care Holdings, Inc., an operator of dialysis centers.  Consequently, in 1995, the U.S. government opened its own civil and criminal investigations.  In 2000, the parties agreed to globally settle all claims for $486,334,232.

However, the parties’ settlement agreement remained silent as to how much of this sum was compensatory, a label that would permit Fresenius to deduct the payment in its yearly tax filings per the Internal Revenue Code, and how much was punitive, which would make the payment non-deductible.  The parties continued to negotiate and litigate these labels and ultimately agreed that $101,186,898 were for criminal fines (i.e., punitive), $192,550,517 were single damages for the civil False Claims Act violations (i.e., compensatory as Fresenius was making the government whole for the money fraudulently taken from it), and $65,800,555 constituted the whistleblowers’ statutory rewards (i.e., again, compensatory).

However, the parties could not agree on how to characterize the remaining $126,796,262, which likely resulted from either the False Claims Act’s treble damages clause or penalty payment provision.  Fresenius sought to label the entire payment as compensatory, which would entitle it to a refund on its taxes, but the government refused to agree.    The parties went before a trial court and Fresenius, in particular, as the taxpayer, presented evidence as to why it was entitled to the deduction.  Thereafter, the court asked the jury to determine what amount of the almost $127,000,000 was necessary to make the government whole as if Fresenius had never committed the fraud in the first place.  The jury found that $95,000,000 was compensatory in nature, and the trial court entered a judgment for Fresenius for $50,420,512.34, the amount of its refund.  The trial court also denied the government’s motions for judgment as a matter of law

The U.S. appealed, claiming that the trial court improperly denied its motion for judgment as a matter of law and issued incorrect jury instructions.  In Fresenius Medical Care Holdings, Inc. v. U.S., 2014 U.S. App. LEXIS 15536 (1st Cir. Aug. 13, 2014), the First Circuit Court of Appeals focused on the government’s first reason for appeal and affirmed the trial court’s holding.

Specifically, the Court noted that the Internal Revenue Code allows the deduction of ordinary expenses and explicitly precludes the deduction of any penalties.  The Court also noted that singular damages under the False Claims Act were plainly deductible as compensation to the government.  The Court reasoned that the trebled damages also constitute compensation because they account for the costs of bringing a False Claims Act action and for the time-value of the delay the government endures in receiving its singular damages in the first place.

Further, the Court held that the U.S.’ reliance on a Ninth Circuit ruling, Talley Industries, Inc. v. Commissioner, 116 F.3d 382 (9th Cir. 1997), was misplaced.  The Court noted that requiring the U.S. to always agree to the tax characterization of a settlement sum before a defendant could seek a tax deduction would grant the government inordinate bargaining power with regard to settlement negotiations.  Moreover, the Court held that such an approach would ignore the long-held beliefs that courts should explore the economic realities of transactions when the parties’ tax consequences are unclear and/or questionable and that settlement funds should be treated the same as if they were achieved in judgment for tax purposes.  Finally, the Court held that the government’s reliance on Talley was questionable—if the ruling itself already wasn’t—because of that lower court’s attempted exploration, on remand, of the economic realities of the payment, something that the government’s position in this case did not take into account.

Note that the Court perfunctorily addressed the government’s second contention regarding the improper jury instructions.  While the Court mainly referred back to its discussion pertaining to the motion for judgment as a matter of law, it did note that the government had sought the same allocation of deductible and non-deductible to the $127,000,000 that applied to the $359,537,970 that was already labeled as compensatory or punitive.  However, the Court held that this argument was tardy, as the government had not raised it before the trial court, and did not comment on its merits.

New York Times, “Pervasive Medicare Fraud Proves Hard to Stop”

September 17th, 2014 by Qui Tam

The New York Times published an article noting that, despite huge investments in preventing Medicare fraud—up to $600 million a year—fraud against the program persists to the tune of $60 billion, which is equivalent to 10% of Medicare’s cost. For example, last year, the federal government was only able to recover $4.3 billion. Such news only serves to emphasize the role of whistleblowers who, with the aid of counsel, can alert the government to the existence of fraud much more quickly than many of the fraud prevention systems in place today.

Federal prosecutors, F.B.I. agents, investigators, paralegals and other paraprofessionals, some of whom serve on one of nine specialized federal strike forces, work on behalf of the federal government to root out fraud in the Medicare system. In addition, the U.S. government has hired contractors to assist in fraud detection; these include: recovery audit contractors who work to reduce hospital overbilling and earn their keep by receiving anywhere from 9 to 12.5% of the money they recover; Medicare administrative contractors who focus on claim payments; and zone program integrity contractors who specialize in fraud. Moreover, The Centers for Medicare and Medicaid Services (“CMS”) has invested $100 million into a computer system that analyzes medical claims daily and searches for suspicious patterns that indicate fraudulent billing.

Recent successes include three strike forces working together earlier this year to charge 90 people with $260 million worth of fraudulent billing. Meanwhile, the computer program assisted contractors in identifying and then cutting off a Texas ambulance company for false billing after just $1,800 was billed in 2013, compared to the $312,000 the ambulance service earned in 2012.

However, despite the large number of people working on fraud detection and these recent gains, the New York Times noted that the federal government’s efforts are still falling short when compared to the sheer scale of the fraud. The government’s anti-fraud efforts appear to be stymied in part by a lack of coordination and cooperation among contractors, a lack of communication with the government, and contractors’ potential conflicts of interest with the very entities they are examining.

In addition, the federal government’s fraud prevention system oftentimes leaves private entities, such as insurance and technology companies, with responsibility for handling claims with minimal to no government oversight. In fact, CMS is only able to manually review 3 million of the 1.2 billion claims it receives each year, leaving the remainder of compliance oversight to the private entities that provide private insurance and software.

And, oddly, those contractors who have been successful have assisted in slowing down their own programs. For example, recovery audit contractors have assisted Medicare in recovering $8 billion since 2009. But, because of the hospitals’ right to appeal the contractors’ findings, there is now a two year delay for adjudicating those appeals. In addition, hospitals have complained that the contractors are nothing more than bounty hunters because of their reimbursement scheme.

Furthermore, for an unknown reason, the government shut down a popular fraud alert hotline in South Florida that would turn tips around in 48 hours to investigators. Now, those calls are routed to the government’s Medicare hotline, and tips take months to be addressed.

According to the New York Times’ report, government officials are frustrated with the lack of management, communication, and cooperation between the government and its contractors as well as between the contractors themselves. In fact, an October 2013 report from the Government Accountability Office criticized Medicare for its lack of oversight of its contractors and for not aligning contractors’ financial goals with the aims of the agency. Other recent reports have criticized Medicare’s conflict of interest rules for its contractors as well as its supposed recoveries through the $100 million software program.

However, Medicare’s Center for Program Integrity, which acts as its anti-fraud center, has heard these criticisms and advised the New York Times that it is focusing more than ever on fraud detection and resolution.

Nevertheless, the limitations of the existing fraud detection system makes it clear that the best way to quicken and enhance the government’s investigation of fraud remains those insiders with knowledge of a provider’s false billing who are willing to step forward and blow the whistle.

For more information, please click here.

U.S. and Illinois, ex rel. Baltazar v. Warden, et al.

September 16th, 2014 by Qui Tam

U.S. Magistrate Judge Daniel G. Martin of the Northern District of Illinois recently issued an opinion that sanctioned a defense attorney for badgering a whistleblower during her deposition. The ruling serves as a reminder to potential whistleblowers of the difficulties in coming forward with evidence of fraud but also that the courts can be approached to ensure fairness in such litigation.

In U.S. and State of Illinois, ex rel. Baltazar v. Warden, et al., Case No. 07 C 4107 (N.D. Ill.), whistleblower Kelly Baltazar filed suit against her former employer Lillian S. Warden and her corporation, Advanced Healthcare Associates, for filing false claims for payment with Medicare and private insurers. As part of the ongoing case, the defendants’ counsel took the deposition of Baltazar. However, during the deposition, the defendants’ counsel was insulting and belligerent. Consequently, Baltazar filed a motion seeking a protective order and sanctions.

On September 8, 2014, Magistrate Judge Martin issued his opinion and granted Baltazar’s motion in part. While the Court did not agree with each point raised by Baltazar as evidence of unprofessional conduct, the Court did agree that the defendants’ counsel, over the course of 5 hours and 2 minutes: improperly accused Baltazar of being a liar; inappropriately acted with hostility, utilized a sarcastic, disrespectful tone, and personally attacked Baltazar for her actions before and during the lawsuit; embarrassed Baltazar by questioning her about the impact of her lawsuit on the individual defendant and her family and finances; intimidated Baltazar and her counsel; and wrongly commented on Baltazar’s testimony.

The Court held that the defendants’ counsel’s actions constituted sufficient grounds for issuing a protective order and sanctions pursuant to Federal Rules of Civil Procedure 26(c)(1) and 30(d). Specifically, the Court said that the same defendants’ counsel could not resume taking or even attend the remaining 1 hour and 58 minutes of Baltazar’s deposition and that the deposition would continue at the federal courthouse. The Court also listed specific rules of decorum the parties would have to follow in order to prevent a repeat of the behavior challenged by Baltazar. Moreover, the Court held that the defendants’ counsel was responsible for paying Baltazar’s attorney’s fees and costs for bringing and arguing the motion in the first place.


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