False Claims Act Resource Center

Kickback Case Survives Motion to Dismiss

July 7th, 2014 by Qui Tam

A fraud suit alleging that five hospitals in the south bribed local clinics to refer undocumented immigrants to the hospitals to give birth has survived a motion to dismiss.


In the suit, captioned U.S. ex rel. Williams v. Health Management Associates (M.D. Ga.), a whistleblower alleges that the Georgia- and South Carolina-based hospitals paid local clinics fees, ostensibly for translation support, assistance in determining Medicaid eligibility and other services.  The clinics serve pregnant undocumented immigrants.  The women who use the clinics generally do not qualify for government healthcare programs.  However, Medicaid does reimburse hospitals for emergency services when undocumented immigrants give birth at their facilities.


The whistleblower in Williams alleged that the fees paid by the hospitals to the clinics were sham payments to induce the clinics to refer more patients to the hospitals. 


The defendants argued that the whistleblower’s complaint failed to state a claim for relief, but the court disagreed.  Among the reasons, the court noted that the whistleblower had alleged that the defendants executed certifications to the government falsely stating that the services for which they sought reimbursement were procured without payment of a kickback.  The certification further stated that the information provided to the government was “true, correct and complete.” 


Based on these alleged false certifications, the court concluded that the whistleblower had adequately alleged that the defendants had falsely billed the government for services provided to the undocumented pregnant women. 


The case now proceeds to discovery.




Nursing Home Operator Loses Challenge to ‘Worthless Services’ Conviction

July 7th, 2014 by Qui Tam

The Eleventh Circuit has turned back an appeal from a nursing-home operator convicted of healthcare fraud after he billed government programs while his residents went without food, diapers and medication.

The case, United States v. Houser, is notable for its treatment of the so-called “worthless services” theory, commonly used by whistleblowers alleging fraud against the government under the False Claims Act.

Houser, the nursing-home operator, ran three facilities in Rome, Georgia.  The facilities lacked working heating, air conditioning, diapers and food.  Staff had to borrow medications from some residents and give them to others because Houser failed to pay his pharmacy bill.

Houser was charged with and convicted of conspiracy to commit healthcare fraud based on his submission of claims for the virtually nonexistent services he provided to his residents.  On appeal, Houser argued that his conviction was impermissibly based on a “worthless services” theory, which, he contended, could be applied only in civil suits.  Under a worthless services theory, a contractor can be held liable for defrauding the government if, in performing a contract, it provides products or services that are so deficient as to be of no value to the government.

Houser contended that the worthless-services concept was too vague to be imported into criminal law.  The Eleventh Circuit rebuffed his argument, concluding that his conviction rested on his failure to provide certain services at all, not just the lack of value for services he did provide.

“We do not believe that Mr. Houser’s conviction requires us to draw the proverbial line in the sand for purposes of determining when clearly substandard services become ‘worthless,’” the court wrote.

Armstrong FCA Suit Cycles Onward

July 1st, 2014 by Qui Tam

Seven-time Tour de France winner Lance Armstrong has been no match so far for the False Claims Act.

A Washington, D.C., federal judge on Friday denied Armstrong’s request to dismiss the FCA suit brought against him by former teammate Floyd Landis and the federal government.  The suit alleges fraud against the U.S. Postal Service, which sponsored Armstrong during the years when, he now admits, he was doping.

Armstrong’s lawyers had argued that the government had brought the claims too late because it knew or should have known much earlier of Armstrong’s doping.  But Judge Robert L. Wilkins ruled that a prior investigation into doping by Armstrong did not put the government on notice of his cheating.  The earlier investigation actually vindicated Armstrong, who did not admit to doping until January 2013.

For more information, click here.

Order in the Clinic de la Mama Kickback Case

June 30th, 2014 by Qui Tam

US Dist. Court for the Middle District of Georgia, Athens Division

While this is a straightforward and simple kickback case (kickback for the referral of undocumented pregnant women eligible for Medicaid), The Order “knocks down multiple motions to dismiss and does it with a flourish and in detail.” Both DOJ and the State of Georgia intervened in this case.

Plaintiffs allege that five hospitals in Georgia and South Carolina paid clinics that provided prenatal care to undocumented Hispanic mothers to refer those mothers to their hospitals for the delivery of their babies in violation of the federal Anti-Kickback Statute, 42 U.S.C. § 1320a-7b. When the hospitals submitted Medicaid claims for these deliveries, Plaintiffs contend that they violated the federal False Claims Act 31 U.S.C. § 3729, and its Georgia counterpart, the Georgia Medicaid False Claims act, O.C.G.A. § 49-4-168.1 to 168.6.

The order begins, “It is estimated that more than 340,000 babies are born each year to undocumented alien mothers in United States hospitals. The American taxpayers, through the Medicaid program, pay these hospitals at least $1 billion per year for these deliveries. While the wisdom of the public policy related to these issues is for the Legislative and Executive Branches (and not for this Court) to consider, the financial opportunities presented by these numbers reveal why the healthcare industry may be motivated to pursue this slice of the Medicaid pie aggressively.” In this case, Plaintiffs maintain that Defendants’ aggressive pursuit violated the law.

The court found that “Plaintiffs have adequately alleged facts to support the conclusion that Defendant acted knowingly and willfully.” The order ends, “For the reasons described in this Order, the Motions to Dismiss are denied.”

To view the referenced Order in the case, click here.

Third Circuit Adopts a More Lenient Approach on How Whistleblowers Must Plead False Claim Suits

June 26th, 2014 by Qui Tam

This month, The Third Circuit, became the latest appeals court to reject a stricter pleading standard typically applied by four circuits when interpreting Federal Rule of Civil Procedure 9(b), which states that fraud suits must describe misconduct “with particularity,” demanding that complaints include samples of actual false claims.  In a unanimous decision, the Third Circuit found little statutory support for such a demand; rather, the court commented favorably on the “nuanced approach” of the First, Fifth and Ninth circuits which have been more willing to let FCS suits proceed when circumstantial evidence strongly suggests false claims were submitted.

In its ruling in Foglia v. Renal Ventures, the Third Circuit stated, “It is hard to reconcile the text of the FCS, which does not require that the exact content of the false claims in question be shown with the ‘representative samples’ standard favored by the Fourth, Sixth, Eighth and Eleventh circuits.” 

Now, there is an even stronger line drawn straight down the middle between the eight circuits, deepening the division. 

For more information, click here.

Where’s the Beef? High Court Approves Deceptive Advertising Claims Based upon Allegedly False Descriptions of Food and Drink

June 20th, 2014 by Qui Tam

Under the Lanham Act, one can bring a suit claiming that the defendant has engaged in unfair competition by using misleading advertising or labeling.  The Federal Food, Drug and Cosmetic Act (“FDCA”) prohibits, among other things, the misbranding of food and drink.  Under the FDCA, the United States is generally the only one who can initiate an action against someone who has used false or misleading labeling.  In Pom Wonderful, LLC v. Coca-Cola Company, No. 12-761 (June 12, 2014), the United States Supreme Court examined whether a private party may bring a Lanham Act claim challenging a food or drink label that is regulated by the FDCA.

Pom Wonderful distributes pomegranate juices.  Coca Cola, under its Minute Maid brand, created a juice blend made up largely of apple and grape juices as well as a small amount of pomegranate, blueberry and raspberry juices.  Although the drink only contained 0.3% pomegranate and 0.2% blueberry juices, the words “pomegranate” and “blueberry” appeared on the front label for the product in all capital letters.  The label also had pictures of blueberries, grapes and raspberries in front of a halved pomegranate and a halved apple.  Pom Wonderful sued Coca Cola under the Lanham Act claiming that its label deceived customers and misled them into believing that the drink was made up mostly of pomegranate and blueberry juices when it actually contained mostly apple and grape juices.  Coca Cola responded that it was permitted to use the label under the FDCA and that the FDCA prevented a private party, like Pom Wonderful, from proceeding with a suit under the Lanham Act.

The Supreme Court disagreed with Coca Cola.  Initially, the Court stated that there was no language in either the Lanham Act or FDCA which prevented someone from bringing suit under the Lanham Act challenging a label which also happened to be regulated by the FDCA.  Moreover, while both statutes dealt with food and beverage labeling, each provision had its own scope and purpose.  According to the Court, the statutes complement each other.  Specifically, the Lanham Act protects commercial interests against unfair competition while the FDCA protects the public health and safety.  Furthermore, the Food and Drug Administration, which is primarily responsible for enforcing the FDCA, does not have expertise in judging the effect that labels might have on competition.  Rather, this knowledge is in the hands of those who participate in the marketplace and the Lanham Act draws on this experience by empowering those participants to challenge food and beverage labels that they believe deceive and mislead consumers.  As a result, the Court held that the trial court should not have found in favor of Coca Cola and sent the case back to that court for further proceedings.

It is anticipated that the Pom Wonderful decision will encourage those in the food and beverage industry to place greater scrutiny on labels and other forms of advertising with an eye towards whether they can accuse a competitor of trying to sell consumers a pig in a poke.


Judge Turns Down For-Profit Educator’s Efforts to Dismiss Whistleblowers From Lawsuit

June 20th, 2014 by Qui Tam

Education Management Corp.’s efforts to dismiss two whistleblowers from a multibillion-dollar lawsuit were turned down by a federal judge on Wednesday, June 18th. EDMC argued that the whistleblowers only initiated accusations due to reading articles about concerns regarding for-profit colleges and that wouldn’t entitle someone to whistleblower status.

The two whistleblowers, Washington and Mahoney, alleged that EDMC based recruiter raises off of the number of students the recruiter enrolled. This violation would implicate $11 billion in federal payments; federal payments designed to reduce the number of misplaced students receiving aid. EDMC maintains that enrollments were only one factor influencing pay of recruiters.

For more information, please click here.

1st – Ever Whistleblower Retaliation Case Brought by SEC

June 20th, 2014 by Qui Tam

In the first-of-its-kind enforcement action, The Securities and Exchange Commission accused a hedge fund adviser, Paradigm Capital Management, Inc. and its owner Candace King Weir, of squashing a top trader after learning that he reported trade violations at the firm.

Paradigm had failed to meet their obligations to obtain client’s consent prior to conducting trades. The firm created a conflicts committee that reviewed and approved transactions on behalf of fund clients. The SEC concluded that the committee could not be deemed independent and thus created a conflict of interest.

The whistleblower had been the head trader at the firm until the firm found that he alleged violations. At that point, he was stripped of his title, pushed to lower positions, and eventually forced to resign. The decision in this case sought to make it clear that retaliation, in any form, is unacceptable. Paradigm did not admit or deny any wrongdoing but agreed to pay approximately $2.2 million in sanctions to settle the retaliation charges and related trading violations.

For more information, click here.

Third Circuit sets Standard for Pleading Fraud under the False Claims Act

June 17th, 2014 by Qui Tam

Under the Federal Rules of Civil Procedure, a plaintiff who claims that a defendant engaged in fraudulent conduct must allege facts in his or her complaint demonstrating that a fraud took place. A split has developed among the circuits regarding how this requirement applies to one who is bringing a claim under the False Claims Act. The Fourth, Sixth, Eighth and Eleventh Circuits have held that the plaintiff must provide “representative samples” of the supposedly fraudulent conduct, specifying the time, place and content of the acts and the identity of the actors. The First, Fifth and Ninth Circuits, on the other hand, have stated that a plaintiff only has to set out particular details of a scheme to submit false claims along with reliable indicia that leads to a strong inference that the claims were actually submitted.

In Foglia v. Renal Ventures Management, LLC, No. 12-4050 (3d Cir. June 6, 2014), the Third Circuit joined the second group, stating that the “representative samples” standard favored by the other courts conflicts with the fact that the FCA does not require one to show the exact content of a false claim. The Third Circuit also noted that the Solicitor General of the United States had recently stated in a brief which was filed with the United States Supreme Court that the approach taken by the other circuits undermined the effectiveness of the FCA as a tool to combat fraud against the United States. According to the Third Circuit, the rule of civil procedure governing fraud claims was intended to provide the defendant with fair notice of the plaintiff’s claims and that the more “nuanced” approach taken by the First, Fifth and Ninth Circuits served this purpose. The Court then concluded that the plaintiff in Foglia had satisfied this standard, particularly in light of the fact that the defendant was the only one who had access to the documents which could easily prove or disprove the plaintiff’s allegations. As a result, the district court’s order dismissing the complaint was reversed and the case was sent back to the trial court to allow the parties to engage in discovery.


U.S. Attorney Urges Broad View of Anti-Kickback Law in Allergan Case

June 17th, 2014 by Qui Tam

In a qui tam suit brought against Allergan, the U.S. Attorney’s Office in Philadelphia argued that the Anti-Kickback Statute should be interpreted more broadly to bar payment in exchange for health care services paid for by the Government. The government made this argument in a Statement of Interest filed in the non-intervened case of U.S. ex. Rel. Nevyas, M.D. and Nevyas-Wallace, M.D v. Allergan, Inc. The AKS does not prevent Allergan from offering services as long as they do not do so to induce referrals.

In 2002, when Allergan introduced Restasis, a drug to treat dry eye, the company employed a division of 12-15 “eye care business advisers” who began giving free business advisory services. According to the complaint filed in the case, the advisers offered advisory and consulting services (marketing strategy and implementation, web development and strategic planning, practice efficiency, etc.) and explicitly requested that relators prescribe Allergan products.

Allergan argued that the advice and educational information disseminated and offered were free speech protected by the First Amendment.

The relators are represented by Pietragallo Gordon Alfano Bosick & Raspanti, LLP.

For more information, please click here.


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