False Claims Act Resource Center

Following Guilty Pleas, PAE Government Services and RM Asia (HK) Limited Settle False Claims for $1.45 Million

September 21st, 2015 by Qui Tam

Contractors PAE Government Services Inc. and RM Asia (HK) Limited, tasked with vehicle maintenance capabilities and training services for the Afghanistan National Army, will pay $1.45 million to resolve false claims to the Government. Former PAE employee and qui tam Relator Steven D. Walker, along with the government, alleged that former managers for PAE and RM Asia engaged in a bid-rigging scheme that funneled government paid subcontracts to companies owned by the former managers and their family members by using confidential bid information to beat out competitors. The settlement follows guilty pleas in the Eastern District of Virginia from former PAE program manager Keith Johnson and his wife, Angela Gregory Johson, former project manager for RM Asia, John Eisner and deputy project manager, Jerry Kieffer. For his part in exposing the scheme, Mr. Walker will receive $261,000.

Round Two – The United States Files a Complaint in Intervention Against BlueWave, Its Founders Dent and Johnson, and HDL’s Former CEO, Tonya Mallory, for Their Roles in HDL and Singulex Kickbacks

August 12th, 2015 by Qui Tam

On August 6, 2015, the United States filed its Complaint in Intervention against Latonya (Tonya) Mallory, BlueWave Healthcare Consultants, Inc., Floyd Calhoun (Cal) Dent and Robert Bradford (Brad) Johnson for their part in a Medicare and Tricare fraud scheme involving three laboratories, including Health Diagnostics Laboratories, Inc., of Richmond, VA and Singulex, Inc. of Alameda, CA. The United States’ Complaint in Intervention alleges that “draw” and “process and handling” fees were offered to financially incentivize doctors to subject their patients to expensive HDL and Singulex testing.

BlueWave, Dent, Johnson, and Mallory allegedly facilitated payments of $68 million nationwide in kickbacks to doctors that were disguised as draw or process and handling fees. The Government’s Complaint, filed in the District of South Carolina by Assistant United States Attorneys James Leventis and Jennifer Aldrich, marks the second phase of the Government’s and Whistleblowers’ joint pursuits of individuals, partnerships, or corporations (including Mallory, BlueWave, Dent and Johnson) who are allegedly responsible for submitting or causing the submission of $500 million in false claims to Medicare and Tricare.

Earlier this year, the Government announced settlements of certain claims with HDL ($47 million plus interest, with potential of a larger recovery upon certain contingencies) and Singulex ($1.5 million).  http://www.justice.gov/opa/pr/two-cardiovascular-disease-testing-laboratories-pay-485-million-settle-claims-paying; http://www.falseclaimsact.com/wp-content/uploads/2015/04/DOCS-2834271-v5-Singulex-Press-Release.pdf. Both settlements were based on the companies’ ability to pay.

Two whistleblowers, Scarlett Lutz and Kyla Webster, sued Singulex, its former CEO, HDL, its former CEO (Mallory), BlueWave, and its founders (Dent and Johnson). Their qui tam complaint was unsealed in April of this year, when certain claims were resolved within the Government’s settlement with HDL and Singulex. They continue to pursue additional claims against Mallory, BlueWave, Dent and Johnson in joint efforts with the Government and two other Relators who also sued HDL, Singulex, and BlueWave.

Ms. Lutz and Ms. Webster are represented by  attorneys Marc S. Raspanti, Pamela Coyle Brecht, and Michael Morse, members of the national qui tam practice at Pietragallo, Gordon, Alfano, Bosick & Raspanti, LLP of Philadelphia, PA.,  together with their local counsel, William J. Tuck of Florence, SC and James F. Wyatt, III of Charlotte, NC.  Ms. Lutz, a resident of Florence, SC, uncovered the illegal payments by HDL and Singulex while providing billing services to Dr. Lloyd Miller, a local primary care physician who received tens of thousands of dollars from HDL, Singulex in exchange for patient referrals. Ms. Webster, a resident of Timmonsville, SC, worked as Dr. Miller’s nursing Supervisor, and witnessed Dr. Miller’s allegedly fraudulent referrals of patients to HDL and Singulex.

As alleged in both the Relators’ Lutz and Webster’s Qui Tam Complaint and the United States’ recent Complaint in Intervention, two lab companies (HDL and Singulex)  retained Dent, Johnson, and their company, BlueWave, to facilitate the payment of kickbacks to doctors for each patient referred for expensive laboratory testing. The ensuing damage to Government healthcare programs quickly escalated, and the windfall to Dent, Johnson, and Mallory was staggering  – these individuals are alleged in the United States’ Complaint to have pocketed more than $100 million from this nationwide kickback campaign.

As illustrated in earlier unsealed Qui Tam Complaint filed by Lutz and Webster (http://www.falseclaimsact.com/wp-content/uploads/2015/04/2Complaint.pdf) and by the Government’s Complaint in Intervention, the scale of the alleged fraud payments is remarkable.   According to the Government’s Complaint in Intervention, combined, Berkeley, HDL and Singulex allegedly paid referring physicians $80 million in inducements, including $68 million in sham process and handling fees (kickbacks) paid by HDL to referring physicians. HDL’s profits allegedly grew rapidly under this scheme from a startup (incorporated in late 2008) to a major laboratory player in 2013 (with $383 million in 2013 revenues, and 41% of that from Medicare). See http://www.wsj.com/articles/a-fast-growing-medical-lab-tests-anti-kickback-law-1410143403. According to the United States’ Complaint, from 2010 to July of 2014, Medicare and Tricare suffered single damages of $333 million for  false claims submitted or caused to be submitted in a conspiracy that included HDL (now in bankruptcy),  and Defendants Mallory, BlueWave, Dent and Johnson.  The Government’s Complaint also alleges that during that same time, Defendant  Mallory  took home at least $26 million, that Defendant BlueWave received commissions of more than $223 million, and that Defendants Dent and Johnson each pocketed at least $58 million.

According to the Government’s Complaint, Defendants Mallory, BlueWave, Dent and Johnson also facilitated the payment of kickbacks by Singulex to referring physicians, causing additional damage Government healthcare programs for false claims that were submitted to Medicare and TRICARE. The Government alleges that  between 2010 and 2013, for their role in the kickback scheme, BlueWave, Dent and Johnson received at least $18.8 million as independent sales contractors of Singulex (based on a 24% commission).

The Government’s Complaint in Intervention can be found here: US Complaint in Intervention Filed.

$75.5 Million Settlement Reached in Case involving the Fraudulent Sale of Software to the Federal Government

July 8th, 2015 by Qui Tam

VMware Inc., a manufacturer of computer visualization software, and Carahsoft Technology Corporation, a distributor of information technology, will be paying $75.5 million to settle claims that they made misrepresentations that allowed them to overcharge the government for VMware’s products and services.  Under the United States General Services Administration’s (“GSA”) Multiple Award Schedule Program, vendors who wish to do business with multiple branches of the government are required, during the contract negotiation process, to provide the GSA with “current, accurate and complete” information regarding the standard and non-standard discounts they offer to commercial customers.  This data is used by the GSA to arrive at a fair pricing level for the goods and services to be purchased by the government. Moreover, once a contract is awarded, the seller must inform the GSA if its commercial pricing practices change, including increases to the discounts provided to commercial customers.

A complaint was filed against VMware and Carahsoft under the False Claims Act with the Unites States District Court for the Eastern District of Virginia accusing them of making false statements relating to the sale of VMware products and services under a Multiple Award Schedule Program contract that Carahsoft had with the GSA.  These misrepresentations supposedly concealed the companies’ commercial pricing practices and allowed them to overcharge the government from 2007 through 2013.  This settlement brings an end to this lawsuit which was brought by Dane Smith, VMware’s former vice president of the Americas.

Vermont Governor Signs State False Claims Act into Law

June 10th, 2015 by Qui Tam

On May 19, 2015, Vermont Governor Peter Shumlin signed into law a state false claims act that largely mirrors the federal False Claims Act, including the ability of a qui tam relator to bring an action on behalf of the state. Whistleblowers will be enticed to report fraud in companies doing work for state and local governments through the new Vermont False Claims Act, rewarding them with a portion of the reclaimed funds as reward for their honesty, while also providing protection from on-the-job retaliation.

Vermont joins 33 states and the District of Columbia that have enacted False Claims Acts to date. This trend is partially driven by the significant recoveries that the federal government is obtaining in fraud cases related to the health care industry and other sectors. According to the Department of Justice (DOJ), it recovered nearly $6 billion in civil false claims cases in FY2014, nearly half of which was a result of whistleblower suits. A state false claims act is critical for the state to maximize its recoveries in these fraud cases. A state with a false claims act that meets the requirements of the Deficit Reduction Act of 2005, as determined by the Health and Human Services Office of Inspector General (OIG), receives a 10% increase in its share of any amounts recovered under these laws.

The Vermont False Claims Act can be found here.

United States ex rel. Carter v. KBR, Inc.: Some Good News and A Little Bad News for Whistleblowers

June 1st, 2015 by Qui Tam

Last Tuesday, the United States Supreme Court issued its long-awaited ruling in United States ex rel. Carter v. KBR, Inc. The case dealt with two significant procedural issues related to the False Claims Act (“FCA”): (1) whether the tolling provisions of the Wartime Suspension of Limitations Act (“WSLA”) applied to civil as well as criminal claims; and (2) whether the FCA’s “first-to-file” rule only bars new claims while related claims are still “live”, i.e., have not been adjudicated. In unanimously answering “no” to the first question but “yes” to the second, the Court took from relators with one hand while giving with the other.

The FCA’s statute of limitations provision, states that a qui tam action must be brought within six years of a viola¬tion or within three years of the date by which the United States should have known about a violation. However, the WSLA provides that “[w]hen the United States is at war … the running of any statute of limitations applicable to any offense … involving fraud or attempted fraud against the United States … shall be suspended until 5 years after the termination of hostilities.” 18 U.S.C. § 3287. The FCA provides for the recovery of treble damages against any person who, among other things, knowingly presents a false or fraudulent claim to the United States government for payment or approval. 31 U.S.C. § 3729(a)(1)(A). From the perspective of potential FCA defendants, the KBR case threatened to establish indefinite tolling of the FCA limitations period as a result of United States military engagement, including in Afghanistan and Iraq.

The FCA’s first-to-file rule, meanwhile, precludes a qui tam suit “based on the facts underlying [a] pending action.” §3730(b)(5) (emphasis added).

The Supreme Court, in determining that the WSLA’s tolling provision did not reach civil claims, looked at the text and history of the statute. Essentially, the Court did not buy Relator’s argument that the 2008 amendment to the statute – which referenced only “offenses” rather than “indictable” offenses, as it had previously – marked a dramatic revision to the law to thereafter reach civil as well as criminal claims involving fraud related to the prosecution of a war.

However, the case was by no means a total loss for whistleblowers, as the Court handed them a significant victory as well. Citing a split 2014 decision from the District of Columbia U.S. Circuit Court of Appeals in U.S. ex rel Shea v. Cellco, KBR had argued that Congress meant “first filed” when it used the word “pending” in the FCA statute. The Court roundly rejected this argument. In determining the meaning of the word “pending”, the Court – following the dictionary definition of the term – interpreted the rule to mean that: “an earlier suit bars a later suit while the earlier suit remains undecided but ceases to bar that suit once it is dismissed.” Labeling KBR’s interpretation of “pending” as “peculiar,” the Court held that such an interpretation:

does not comport with any known usage of the term “pending.” Under this interpretation, Marbury v. Madison, 1 Crunch 137 (1803), is still “pend¬ing.” So is the trial of Socrates.

To KBR’s argument that the “narrower” reading of “pending” would create problems, particularly regarding a defendant’s willingness to settle, the Court, while acknowledging the possible merit of the argument, replied that ensuring the smooth operation of the FCA’s many procedural rules was beyond the power of a single ruling.

The Court’s holding has closed the door on Relators hoping to use the WSLA to bring civil claims otherwise barred as untimely under the FCA. However, by rejecting KBR’s expansive reading of “pending”, the Court has ensured that Relators will not be barred from bringing meritorious actions simply because a related case had previously been filed.

Major Drug Company Not Immune From FCA Liability For False Claims Submitted by Pharmacists

June 1st, 2015 by Qui Tam

On Tuesday, in United States ex rel. Nevyas v. Allergan, Inc., an Eastern District of Pennsylvania district court denied pharmaceutical giant Allergan’s motion to dismiss False Claims Act (“FCA”) allegations brought against it by Relator eye doctors in the Philadelphia area. In so doing, the Court rejected Allergan’s novel argument that, since the allegedly false claims were submitted by unknowing third-party pharmacists, Allergan could not be liable under the FCA.

Relators allege that Allergan engaged in an elaborate kickback scheme to increase prescriptions for its eye care products. Allergan would allegedly target large eye care practices and provide eye care providers with a suite of professional and financial advisory services, access to a valuable Internet site, and admittance to its Speakers Bureau – all with the explicit quid pro quo that the providers would reciprocate by writing prescriptions for Allergan’s drugs.

Among its arguments in its Motion to Dismiss, Allergan claimed that under the framework for evaluating FCA claims adopted by the Third Circuit in United States ex rel. Wilkins v. United Health Care Group, Inc., 659 F.3d 295 (3d Cir. 2011), it could not be liable for the false claims its alleged kickbacks generated because those claims were not submitted by the company but rather by pharmacists unaware of the underlying scheme. While the plain language of the FCA encompasses those who knowingly “cause” the submission of false claims, Allergan argued that the statute’s scienter requirement applied to both the individual causing the submission as well as the submitter. In rejecting this argument, the Court pointed to recent cases in several circuits holding that non-submitting entities that cause the submission of false claims can be liable under the FCA.

PharMerica Agrees to Pay $31.5M Over False Claims Act Violations

May 28th, 2015 by Qui Tam

On May 14, 2015, PharMerica Corp. agreed to pay $31.5 million to resolve a False Claims Act and Controlled Substances Act lawsuit alleging that the company had dispensed Schedule II controlled drugs without valid prescriptions and then billed Medicare for the improperly dispensed drugs.

PharMerica, a long-term care pharmacy that dispenses medications to residents of long-term care facilities, often fills prescriptions for controlled substances listed in Schedule II under the Controlled Substances Act. The lawsuit alleged that PharMercia pharmacies throughout the country routinely dispensed these Schedule II controlled drugs in non-emergency situations without first obtaining a written prescription. According to the complaint, PharMerica violated the Controlled Substances Act by enabling nursing home staff to order narcotics, and pharmacists to dispense them, without confirming that a physician had determined whether the narcotics were medically necessary. PharMerica agreed to pay $8 million to resolve those allegations.

The lawsuit also alleged that PharMerica violated the False Claims Act by knowingly causing the submission of false claims to Medicare Part D for improperly dispensed Schedule II drugs, including oxycodone and fentanyl. PharMerica agreed to pay $23.5 million to resolve those allegations. The whistleblower who brought these allegations to the attention of the government, Jennifer Buth, will receive $4.3 million for her efforts. As part of the settlement, PharMerica also agreed to enter into a corporate integrity agreement with the HHS-OIG, which obligates the company to undertake substantial internal compliance reforms and to submit federal health care program claims for an independent review for the next five years.

PharMerica to Pay $31.5 Million to Settle False Claims Act and Controlled Substances Act Lawsuit

May 26th, 2015 by Qui Tam

The United States Department of Justice (“DOJ”) recently announced that PharMerica Corp. will pay $31.5 million, including more than $4 million to a whistleblower, to settle alleged violations of the Controlled Substances Act (“CSA”) and False Claims Act (“FCA”) related to the company’s improper dispensing of narcotics and submission of false claims to Medicare Part D.

PharMerica is a long-term care pharmacy that dispenses drugs to residents in nursing homes and other long-term care facilities.  The government alleged that PharMerica dispensed controlled substances listed in Schedule II of the CSA, including oxycodone and morphine, in non-emergency situations based solely on requests from the long-term facility rather than a valid prescription from a practitioner.  Schedule II narcotics were thus allegedly dispensed without physician confirmation that they were necessary and should be administered to the resident.  Under the settlement, PharMerica has agreed to pay $8 million to resolve these allegations.

The complaint also alleged that PharMerica violated the FCA by knowingly causing the submission of false claims to Medicare Part D for these improperly dispensed Schedule II drugs.  The FCA imposes treble damages and penalties for the knowing submission of false claims for federal funds.  PharMerica has agreed to pay $23.5 million to resolve its alleged FCA violations.

The FCA claims resolved by Thursday’s settlement were originally brought by Jennifer Denk, a pharmacist formerly employed by PharMerica, under the whistleblower provisions of the act, which authorize private parties to sue on behalf of the United States and to receive a portion of any recovery.  The act permits the United States to intervene and take over the lawsuit, as it did in this case with respect to some of Ms. Denk’s allegations.  Ms. Denk will receive $4.3 million as her share of the settlement.

PharMerica’s agreement with the United States includes not only a settlement with DOJ but a five-year Corporate Integrity Agreement with the Department of Health and Human Services – Office of the Inspector General as well.  The Corporate Integrity Agreement calls for the appointment of an official compliance officer, the establishment of a compliance committee, and the submission of federal health care program claims for independent review for the next five years, among other reforms.

Strengthened Maryland FCA Signed Into Law – 30 States Now Have FCAs

May 22nd, 2015 by Qui Tam

Bills signed by Governor Larry Hogan, Speaker of the House Michael Busch and Senate President Mike Miller include, expanding the Maryland False Claims Act protecting whistleblowers.

Whistleblowers will be enticed to report fraud in companies doing work for state and local governments through the new Maryland False Claims act, rewarding them with a portion of the reclaimed funds as reward for their honesty, while also providing protection form on-the-job retaliation.

While Maryland’s previous false claims act only included medical fraud, the new act casts a larger net to include state and local government contractors.

Those who are found to have committed fraud will be subject to a civil penalty of up to $10,000 for each violation.

SEC to Companies: “Hands Off Whistleblowers!”

April 17th, 2015 by Qui Tam

On April 1, 2015, the SEC announced its first whistleblower protection case involving restrictive confidentiality language.  The agency charged the Houston-based engineering and technology firm KBR, Inc., with using overly restrictive language in confidentiality agreements that allegedly obstructed the whistleblowing process.

The provision at issue contained language that witnesses in certain internal investigations could be disciplined, or even terminated, for discussing the investigation with outside parties prior to receiving approval from KBR’s legal department.  Since these investigations included allegations of securities law violations, the SEC found that the provision violated Rule 21F-17 of the Securities Exchange Act of 1934, as amended by the Dodd-Frank Wall Street Reform and Consumer Protection Act.  Rule 21F-17 prohibits the enforcement or threat of enforcement of any confidentiality agreement that would impede an individual from communicating with the SEC.

While not admitting any wrongdoing, KBR agreed: to cease and desist from committing or causing any future violations of Rule 21F-17; to pay a $130,000 penalty to settle the SEC’s charges; and to amend its confidentiality agreement to make it clear that employees could report possible violations to the SEC as well as to other federal agencies without approval from the company or fear of retaliation.  The amended language includes the following statement:

Nothing in this Confidentiality Statement prohibits me from reporting possible violations of federal law or regulation to any governmental agency or entity, including but not limited to the Department of Justice, the Securities and Exchange Commission, the Congress, and any agency Inspector General, or making other disclosures that are protected under the whistleblower provisions of federal law or regulation. I do not need the prior authorization of the Law Department to make any such reports or disclosures and I am not required to notify the company that I have made such reports or disclosures.

The action is noteworthy not only because it was the first of its kind, but also because the SEC found no actual instances in which KBR had prevented employees from communicating with the SEC.  Such an aggressive stance demonstrates the SEC’s commitment to the anti-retaliation provisions of the whistleblower rules.


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